Document:

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                                  Exhibit 10.05

                              AMENDED AND RESTATED

                            VALERO ENERGY CORPORATION

                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

                 (AS AMENDED AND RESTATED THROUGH JULY 25, 1997)

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                              AMENDED AND RESTATED
                            VALERO ENERGY CORPORATION
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                           Page
                                                                                                           ----
<S>               <C>                                                                                      <C>
ARTICLE I--DEFINITIONS...................................................................................... 1
         1.1      Accrued Benefit........................................................................... 1
         1.2      Actuarial Equivalent or Actuarially Equivalent Basis...................................... 1
         1.3      Board of Directors........................................................................ 2
         1.4      Change of Control......................................................................... 2
         1.5      Code...................................................................................... 3
         1.6      Company................................................................................... 3
         1.7      Committee................................................................................. 3
         1.8      Covered Compensation...................................................................... 3
         1.9      Credited Service.......................................................................... 3
         1.10     Eligible Earnings......................................................................... 4
         1.11     Final Average Compensation................................................................ 4
         1.12     Monthly Covered Compensation.............................................................. 4
         1.13     Monthly FICA Amount....................................................................... 4
         1.14     Normal Retirement Date.................................................................... 4
         1.15     Participant............................................................................... 4
         1.16     Plan...................................................................................... 4
         1.17     Plan of Deferred Compensation............................................................. 5
         1.18     Plan Year................................................................................. 5
         1.19     Retirement................................................................................ 5
         1.20     Rules..................................................................................... 5
         1.21     Securities Act............................................................................ 5
         1.22     SERP Committee............................................................................ 5
         1.23     Subsidiary................................................................................ 5
         1.24     Surviving Spouse.......................................................................... 5
         1.25     Trust..................................................................................... 5
         1.26     Trustee................................................................................... 6
         1.27     Valero.................................................................................... 6
         1.28     Valero Pension Plan....................................................................... 6
         1.29     Valero Pension Plan Benefit............................................................... 6
         1.30     Voting Securities......................................................................... 6

ARTICLE II--ELIGIBILITY..................................................................................... 6
         2.1      Initial Eligibility....................................................................... 6
         2.2      Frozen Participation...................................................................... 7
         2.3      Renewed Eligibility....................................................................... 7

ARTICLE III--VESTING........................................................................................ 7
</Table>

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<Table>
<S>               <C>                                                                                      <C>
ARTICLE IV--RETIREMENT BENEFIT.............................................................................. 8
         4.1      Calculation of Retirement Benefit......................................................... 8
         4.2      Form and Time of Payment.................................................................. 8
         4.3      Modification of Pension................................................................... 9

ARTICLE V--PRERETIREMENT SPOUSAL DEATH BENEFIT.............................................................. 9
         5.1      Death Prior to Retirement................................................................. 9
         5.2      Death After Participant Retires........................................................... 9
         5.3      Beneficiary Designation Prohibited........................................................ 9

ARTICLE VI--PROVISIONS RELATING TO ALL BENEFITS............................................................. 10
         6.1      Effect of This Article.................................................................... 10
         6.2      Termination of Employment................................................................. 10
         6.3      No Duplication of Benefits................................................................ 10
         6.4      Forfeiture For Cause...................................................................... 10
         6.5      Forfeiture for Competition................................................................ 10
         6.6      Expenses Incurred in Enforcing the Plan................................................... 11
         6.7      No Restrictions on any Portion of Total Payments Determined to be Excess Parachute
                  Payments.................................................................................. 11
         6.8      Benefits Upon Re-employment............................................................... 11

ARTICLE VII--ADMINISTRATION................................................................................. 11
         7.1      Committee Appointment..................................................................... 11
         7.2      Committee Organization and Voting......................................................... 11
         7.3      Powers of the Committee................................................................... 11
         7.4      Committee Discretion...................................................................... 12
         7.5      Reliance Upon Information................................................................. 12
         7.6      Approval of Benefit Modifications......................................................... 12

ARTICLE VIII--ADOPTION BY SUBSIDIARIES...................................................................... 13
         8.1      Procedure for and Status After Adoption................................................... 13
         8.2      Termination of Participation By Adopting Subsidiary....................................... 13

ARTICLE IX--AMENDMENT AND/OR TERMINATION.................................................................... 13
         9.1      Amendment or Termination of the Plan...................................................... 13
         9.2      No Retroactive Effect on Annual Benefits.................................................. 13
         9.3      Effect of Termination..................................................................... 14
         9.4      Effect of Change of Control............................................................... 14

ARTICLE X--FUNDING.......................................................................................... 15
         10.1     Payments from Trust....................................................................... 15
         10.2     Plan May Be Funded Through Life Insurance................................................. 15
         10.3     Required Funding of Rabbi Trust........................................................... 15
         10.4     Ownership of Assets; Release.............................................................. 16
         10.5     Reversion of Excess Assets................................................................ 16
</Table>

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<Table>
<S>               <C>                                                                                      <C>
         10.6     Repurchase of Valero Stock................................................................ 16
         10.7     Participants Must Rely Only on General Credit of the Companies............................ 17

ARTICLE XI--MISCELLANEOUS................................................................................... 17
         11.1     Responsibility for Distributions and Withholding of Taxes................................. 17
         11.2     Limitation of Rights...................................................................... 18
         11.3     Arbitration of Disputes................................................................... 18
         11.4     Distributions to Incompetents............................................................. 20
         11.5     Nonalienation of Benefits................................................................. 20
         11.6     Severability.............................................................................. 20
         11.7     Notice.................................................................................... 20
         11.8     Gender and Number......................................................................... 20
         11.9     Governing Law............................................................................. 20
         11.10    Effective Date............................................................................ 21
</Table>

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                              AMENDED AND RESTATED
                            VALERO ENERGY CORPORATION
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

         WHEREAS, Valero Energy Corporation and several of its subsidiaries have
established the Valero Energy Corporation Supplemental Executive Retirement Plan
originally effective January 1, 1983 which provides for certain highly
compensated management personnel a supplement to their Retirement pay so as to
retain their loyalty and to offer a further incentive to them to maintain and
increase their standard of performance; and

         WHEREAS, Valero Energy Corporation retained the right of the Board of
Directors to amend the Plan at any time by an instrument in writing; and

         WHEREAS, the Board of Directors has determined that the Plan should be
amended and restated to further protect the Participants' benefits in the event
of a Change of Control and to clarify its intent concerning amendments
pertaining to the payment of severance benefits;

         NOW, THEREFORE, Valero Energy Corporation amends and restates the
Valero Energy Corporation Supplemental Executive Retirement Plan as follows:

                                    ARTICLE I

                                   DEFINITIONS

         All defined terms used in the Valero Pension Plan shall have the same
meaning for this Plan, except as modified below.

         1.1 ACCRUED BENEFIT. "Accrued Benefit" means, as of any given date of
determination, the Retirement benefit calculated under Section 4.1 with Final
Average Compensation, but with the offsets for benefits provided by the Valero
Pension Plan and Credited Service determined as of that date.

         1.2 ACTUARIAL EQUIVALENT OR ACTUARIALLY EQUIVALENT BASIS. "Actuarial
Equivalent" or "Actuarially Equivalent Basis" means an equality in value of the
aggregate amounts expected to be received under different forms of payment based
on the same mortality and interest rate assumptions. For this purpose, the
mortality and interest rate assumptions used in computing benefits under the
Valero Pension Plan will be used. If there is no Valero Pension Plan or
successor qualified defined benefit plan, then the actuarial assumptions to be
used will be those actuarial assumptions deemed appropriate by the actuarial
firm, which last served as independent actuary for the Valero Pension Plan prior
to its termination or merger had the Valero Pension Plan remained in existence
with its last participant census. For purposes of calculating any amount payable
under Section 9.3(iii) to any person who has not Retired or has otherwise not
commenced receiving monthly pension benefits under the Plan, the assumption to
be used will be that such person elects to have his monthly pension benefit
under the Plan commence on the earliest date on which the person would otherwise
be entitled to commence receiving monthly pension benefits

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hereunder, notwithstanding that such benefits may be reduced by application of
the early retirement reduction factor pursuant to Section 4.1.

         1.3 BOARD OF DIRECTORS. "Board of Directors" means the Board of
Directors of Valero.

         1.4 CHANGE OF CONTROL. "Change of Control" means the occurrence of one
or more of the following events:

                  (a) any person (excluding any employee benefit plan of Valero,
         any trustee, administrator or other entity administering any such plan,
         and Valero or any 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 Securities Act (a "Group") shall acquire (whether in one or
         more transactions) Voting Securities of Valero that result in such
         person or Group directly or indirectly beneficially owning 50% or more
         of the Voting Securities of Valero; or

                  (b) the stockholders of Valero shall approve an agreement
         providing for any merger, consolidation, combination or other
         transaction in which, immediately following such transaction and after
         giving effect thereto, either (i) less than 50% in the aggregate of the
         outstanding Voting Securities of the surviving or resulting entity are
         then beneficially owned by (x) the stockholders of Valero immediately
         prior to such transaction, or (y) if a record date has been set to
         determine the stockholders of Valero entitled to vote on such
         transaction, then the stockholders of Valero as of such record date, or
         (ii) a majority of the board of directors or other governing body of
         the surviving or resulting entity are not persons specified in clause
         (c)(i) and (ii) below; or

                  (c) if at any time the following do not constitute a majority
         or the Board of Directors of Valero or any successor entity referred to
         in clause (b) above

                           (i) persons who are directors of Valero on January 1,
                           1996; and

                           (ii) persons who, prior to election as a director,
                           were nominated, recommended or endorsed by the vote
                           at a meeting or the written consent of the Board of
                           Directors of Valero (or, following the completion of
                           a consolidation, merger, combination or other similar
                           transaction which does not result in a Change of
                           Control as defined herein, the board of directors or
                           governing body of the surviving or resulting entity);
                           or

                  (d) the Distribution Date, as such term is defined in the
         Rights Agreement, dated as of October 26, 1995, between Valero and
         Harris Trust and Savings Bank, as Rights Agent, shall have occurred,
         and the Rights distributed thereunder shall have become exercisable,
         pursuant to Section 11(a)(ii) or Section 13 of such Rights Agreement,
         to purchase either shares of Valero Common Stock or common shares of
         another Person (as such term is defined in such Rights Agreement); or

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                  (e) the stockholders of Valero shall approve an agreement
         providing either for the liquidation of Valero or for the sale or
         transfer of assets or earning power of Valero or one or more of its
         Subsidiaries, in one or more transactions, aggregating more than 50% of
         the assets or earning power of Valero and its Subsidiaries, taken as a
         whole, to any other Person (other than to Valero or one or more
         Subsidiaries and/or to one or more Persons which will be Subsidiary
         after giving effect to such transaction).

         In the event the Company employing a Participant ceases to be a
Subsidiary of Valero, or otherwise terminates participation in the Plan, and
such Participant's participation in the Plan is not thereupon promptly continued
through employment by another Company, a "Change of Control" shall be deemed to
have occurred with respect to such Participant (but not with respect to other
Participants not similarly situated) and such Participant shall be entitled to
the rights and benefits under the Plan accruing upon a Change of Control. The
provisions of this paragraph shall not apply to a Participant who is Retired or
otherwise not employed by such Company at such date of termination.

         By resolution of the Committee, the figure "50%" appearing in clauses
(a), (b), and (e) may be changed to not less than "30%".

         1.5 CODE. "Code" means the Internal Revenue Code of 1986, as amended
from time to time.

         1.6 COMPANY. "Company" means Valero and any Subsidiary adopting the
Plan.

         1.7 COMMITTEE. "Committee" means the committee administering this Plan
as determined pursuant to Section 7.1.

         1.8 COVERED COMPENSATION. "Covered Compensation" means the average
(without indexing) of the Taxable Wage Base for the 35 calendar years ending
with the calendar year in which a Participant attains social security retirement
age (as defined in Section 415(b)(8) of the Code). A 35-year period shall be
used for all Participants regardless of the year of birth of such Participant.
In determining a Participant's Covered Compensation prior to the Participant
attaining social security retirement age, it shall be assumed that the Taxable
Wage Base in effect at the beginning of the Plan Year in which such
determination is made will remain constant for all future years.

         1.9 CREDITED SERVICE. "Credited Service" means a Participant's
continuing period of employment with a Company (whether or not contiguous),
commencing on the first day for which such Participant is paid, or entitled to
payment, for the performance of duties with a Company and terminating with the
Participant's final cessation of participation in the Plan. With respect to any
full calendar year in which a Participant receives Eligible Earnings in each
payroll period as an active employee, he shall be credited with one year of
Credited Service. With respect to any partial calendar year in which a
Participant receives Eligible Earnings as an active employee (such as the
calendar year in which employment commences or participation ceases) he shall be
credited with a fraction of a year of Credited Service in proportion to the
number of payroll periods during such calendar year that he received Eligible
Earnings as an active employee bears

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to the total number of payroll periods during such year. All partial years of
Credited Service shall be aggregated so that a Participant receives credit for
all periods of employment regardless of whether the Credited Service is
interrupted. Credited Service shall also include, and a Participant shall be
credited with, such additional periods of time, if any, as may have been agreed
upon by the Participant and a Company in connection with the Participant's
employment, termination or otherwise.

         1.10 ELIGIBLE EARNINGS. "Eligible Earnings" means all compensation paid
or payable by a Company to the employee in the form of base salary or wages and
bonuses (whether paid or payable in cash or securities or any combination
thereof), including therein any amounts of such base salary or wages and bonuses
earned which, at the employee's election, in lieu of a cash payment to him, are
contributed to a Plan of Deferred Compensation maintained by the Company. During
a leave of absence from work, with or without pay, such as disability leave of
absence or personal leave of absence, the Participant's base rate of pay in
effect immediately prior to the leave of absence and his most recent bonus
amount earned shall be used in computing his Eligible Earnings.

         1.11 FINAL AVERAGE COMPENSATION. "Final Average Compensation" means a
Participant's average monthly Eligible Earnings from any Company for the
thirty-six consecutive calendar months that give the highest average monthly
rate of Eligible Earnings for the Participant out of all calendar months next
preceding the earliest of: (a) the date upon which a Participant becomes
ineligible for participation in this Plan pursuant to Section 2.2, (b) the
latest of (i) the Participant's termination for total disability or (ii) his
Retirement, (c) the termination of the Plan or (d) in the case of a Participant
who is not a Continuing Participant pursuant to Section 9.4, a Change of
Control.

         1.12 MONTHLY COVERED COMPENSATION. "Monthly Covered Compensation means
the quotient resulting from dividing Covered Compensation by 12.

         1.13 MONTHLY FICA AMOUNT. "Monthly FICA Amount" means the quotient
resulting from dividing by 12 the Taxable Wage Base in effect or assumed to be
in effect at the beginning of the calendar year in which a Participant attains
social security retirement age (as defined in Section 415(b)(8) of the Code).

         1.14 NORMAL RETIREMENT DATE. "Normal Retirement Date" means the first
day of the month coincident with or next following the date on which the
Participant attains the age of 65 years.

         1.15 PARTICIPANT. "Participant" means either (a) an employee of a
Company who is eligible for and is participating in the Plan or (b) a former
employee of a Company who is receiving, or is eligible to receive benefits under
the Plan.

         1.16 PLAN. "Plan" means the Valero Energy Corporation Supplemental
Executive Retirement Plan as set forth in this document, as amended from time to
time.

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         1.17 PLAN OF DEFERRED COMPENSATION. "Plan of Deferred Compensation"
means the Valero Energy Corporation Executive Deferred Compensation Plan, the
Valero Energy Corporation Key Employee Deferred Compensation Plan, and any
contributions made under a salary reduction agreement to a Code Section 125
cafeteria plan or Code Section 401(k) cash or deferral arrangement maintained by
the Company.

         1.18 PLAN YEAR. "Plan Year" means the calendar year.

         1.19 RETIREMENT. "Retirement", "Retirees, "Retire" or "Retired" means
the Retirement of a Participant from any Company either (a) early, as of the
first day of any month coincident with or next following: (i) with respect to a
Participant in the active employment of the Company who has attained the age of
55 years and completed five (5) years of Credited Service, the date such
Participant retires from the service of the Company prior to his attainment of
age 65; or (ii) subject to the provisions of Article III, with respect to a
Participant whose service is terminated prior to his attainment of age 55 and
who has completed five (5) years of Credited Service, the date on which such
Participant elects to commence receipt of his Valero Pension Plan Benefit on or
after his attainment of age 55 and prior to his attainment of age 65; or (b)
upon his Normal Retirement Date.

         1.20 RULES. "Rules" means the Commercial Arbitration Rules of the
American Arbitration Association in effect at the date of commencement of any
arbitration hereunder.

         1.21 SECURITIES ACT. "Securities Act" means the Securities Exchange Act
of 1934, as amended from time to time.

         1.22 SERP COMMITTEE. "SERP Committee" means a committee of officers or
employees to which the Committee may delegate authority to perform specified
administrative functions in accordance with paragraph 7.3(e).

         1.23 SUBSIDIARY. "Subsidiary" means (i) any corporation 50% or more of
whose stock having ordinary voting power to elect directors (irrespective of
whether or not at the time stock of any class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time owned, directly or indirectly, by Valero, and (ii)
any partnership, association, joint venture or other entity in which Valero,
directly or indirectly, has a 50% or greater equity interest at the time.

         1.24 SURVIVING SPOUSE. "Surviving Spouse" means the spouse of a
Participant who is eligible to receive a Qualified Preretirement Survivor
Annuity benefit under the Valero Pension Plan.

         1.25 TRUST. "Trust" or "Trust Agreement" shall mean the Valero Energy
Corporation Supplemental Executive Retirement Plan Trust as is created by the
terms and conditions of said Trust and as may be amended from time to time.

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         1.26 TRUSTEE. "Trustee" means collectively one or more persons or
corporations with trust power which have been appointed by Valero and have
accepted the duties of Trustee of the Trust and any and all successor or
successors appointed by Valero.

         1.27 VALERO. "Valero" means the Valero Energy Corporation, the sponsor
of this Plan, and its successors.

         1.28 VALERO PENSION PLAN. "Valero Pension Plan" means the Valero Energy
Corporation Pension Plan, a defined benefit plan qualified under Section 401(a)
of the Code, as it may be amended from time to time and any successor qualified
defined benefit plan.

         1.29 VALERO PENSION PLAN BENEFIT. "Valero Pension Plan Benefit" means
the amount of monthly benefit payable from the Valero Pension Plan which (i) in
the case of an unmarried Participant, is based upon a lifetime annuity payable
to such Participant pursuant to the provisions of Article 4 of the Valero
Pension Plan as executed on December 30, 1994, or any successor provision; or,
(ii) in the case of a married Participant, is based upon a joint and survivor
pension of Actuarially Equivalent Value to the pension otherwise payable to such
Participant for life pursuant to the provisions of Article 4 of the Valero
Pension Plan as executed on December 30, 1994, or any successor provision.

         1.30 VOTING SECURITIES. "Voting Securities" means with respect to any
corporation or other entity, the common stock or any other security of such
person ordinarily entitled to vote for directors (or other governing body) of
such corporation or entity, and any debt or equity security convertible into or
exchangeable or exercisable for a security so entitled to vote. 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 securities so entitled to vote shall be deemed to represent the
number of shares of common stock or other voting securities into which such
securities are then or will become ultimately convertible or for which they are
or will ultimately become exchangeable or exercisable, and the total number of
issued and outstanding shares of common stock (or other voting securities) shall
be determined on a pro forma basis after giving effect to such conversion,
exchange or exercise. The percentage of Voting Securities held by a person or
Group shall be deemed to be equal to the percentage of the number of votes that
could be cast for the election of directors (or other governing body) 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 Plan, the term "person"
shall include any individual, corporation, partnership, firm or other entity.

                                   ARTICLE II

                                   ELIGIBILITY

         2.1 INITIAL ELIGIBILITY. An employee shall become a Participant in the
Plan as of the date he is selected and named in the minutes of the Committee for
inclusion as a Participant in the Plan.

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         2.2 FROZEN PARTICIPATION. If an employee who is a Participant later
becomes ineligible to continue to participate but still is employed by an
adopting Company, his Accrued Benefit will be frozen as of the last day of the
Plan Year prior to the Plan Year during which he initially became ineligible to
participate. He will later be entitled to that frozen Accrued Benefit, upon
Change of Control, Plan termination, Retirement or his earlier termination of
employment with all Companies with a vested interest, subject to the
requirements of Articles III and IV. The frozen Accrued Benefit will be payable
at the time and in the form set out in Article IV. The Surviving Spouse of a
Participant whose Accrued Benefit is frozen at the time of the Participant's
death shall not be entitled to any death benefit under this Plan. A Participant
whose Accrued Benefit is frozen at the time of incurring a disability shall not
accrue any further Credited Service either for accrual or vesting purposes after
the disability occurs so long as the Participant's Accrued Benefit in this Plan
is frozen. If the frozen Accrued Benefit is less than the benefit which could
otherwise be provided without this limitation, then the benefit will not exceed
the Participant's frozen Accrued Benefit. Additionally, if any of the events
described in Article VI should occur, the Participant whose Accrued Benefit is
frozen shall be subject to having his frozen Accrued Benefit either restricted
in amount or forfeited in accordance with Article VI.

         2.3 RENEWED ELIGIBILITY. If an employee who is a Participant becomes
ineligible to continue to participate but remains employed by an adopting
Company and then later again becomes eligible to participate, the Participant
will be given Credited Service for the intervening period, will have his Final
Average Compensation computed as though the freeze had never occurred, and will
be treated for all purposes as though he had not had his participation
interrupted.

                                   ARTICLE III

                                     VESTING

         Except as otherwise set forth herein, a Participant's Accrued Benefit
attributable to Credited Service prior to January 1, 1996 shall vest pursuant to
the following vesting schedule:

<Table>
<Caption>
                Participant's Years
                of Credited Service                                                    Vested Percentage
                -------------------                                                    -----------------
<S>             <C>                                                                    <C>
                Less than 5 .................................................................      0%
                5 or more ...................................................................    100%
</Table>

         Except as otherwise set forth herein, a Participant's Accrued Benefit
attributable to Credited Service on or after January 1, 1996 shall vest only
upon the occurrence of the Participant's death, disability or Retirement, and
all benefits under this Plan shall be forfeited if the Participant terminates
employment from all Companies prior to death, disability or Retirement.

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         The foregoing notwithstanding, a Participant's Accrued Benefit (whether
attributable to Credited Service occurring before, on or after January 1, 1996)
shall vest upon the occurrence of a Change of Control, upon termination of the
Plan pursuant to Section 9.1 or if the adopting Subsidiary employing a
Participant terminates its participation in the Plan and such Participant's
participation in the Plan is not promptly continued through employment by
another adopting Subsidiary.

         All Credited Service, whether occurring before or after January 1,
1996, shall be counted in determining whether an Accrued Benefit attributable to
pre-January 1, 1996 Credited Service has vested.

         In addition to the benefits payable above, other than as a result of a
Change of Control, or on account of death, disability or Retirement, the
Committee may from time to time, in its sole and absolute discretion pay a
benefit greater than the vested Accrued Benefit of a Participant, such
determination to be made on a case by case basis.

                                   ARTICLE IV

                               RETIREMENT BENEFIT

         4.1 CALCULATION OF RETIREMENT BENEFIT. Subject to the following
provisions of this Section 4.1, the provisions of Section 4.3 and Article IX,
the monthly pension payable under the Plan shall be an amount equal to the sum
of (i) plus (ii) less (iii) where (i) equals: 1.60% of the Participant's Final
Average Compensation multiplied by his number of years of Credited Service; and
(ii) equals .35% multiplied by the product of his years of Credited Service (not
to exceed 35 years) times the excess of his Final Average Compensation over the
lesser of (a) 1.25 times his Monthly Covered Compensation, or (b) the Monthly
FICA Amount; and (iii) equals the Participant's Valero Pension Plan Benefit. In
the case of an unmarried Participant the benefit shall be based on a lifetime
annuity. In the case of a married Participant the benefit shall be a fifty
percent (50%) Qualified Joint and Survivor Annuity pension of Actuarially
Equivalent Value to the pension otherwise payable for life hereunder. The
monthly pension payable under the Plan, as determined above, shall be further
reduced by the equivalent amount the Valero Pension Plan Benefit is increased as
a result of increases in the amount of maximum benefits payable from qualified
plans in accordance with Code Section 415 or other applicable law. A Participant
who Retires prior to this Normal Retirement Date may elect to have his monthly
pension commence on the first day of any month coincident with or following his
actual Retirement, but not later than his Normal Retirement Date. If a
Participant elects to have his monthly pension commence prior to his Normal
Retirement Date, the monthly pension payable to such Participant shall be
determined by multiplying the monthly pension otherwise payable to him by the
applicable early retirement reduction factor contained in the schedule of such
factors set forth in Section 4.3(B)(2) (or any successor provision) of the
Valero Pension Plan.

         4.2 FORM AND TIME OF PAYMENT. Monthly benefits payable under the Plan
shall be made available to the Participant with the same payment elections as
are available to the Participant under the Valero Pension Plan. In that regard,
Valero shall furnish each Participant, on or about 180 days prior to the date on
which he will have both attained age 55 and completed

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five years of Credited Service, or, if earlier, the date he will have attained
age 65, a written explanation of (a) the terms and conditions of payment
provided under the form of payments as described in the Valero Pension Plan and
the optional forms of payment which may be elected in lieu thereof; (b) the
terms and conditions of payment provided under the automatic pension as
described in the Valero Pension Plan; and (c) the relative financial effect on a
Participant's total pension of an election not to take the standard and
automatic pension. In addition, Valero shall also furnish each married
Participant at least 120 days prior to his Normal Retirement Date or as soon as
practicable after the Participant makes application for the earlier commencement
of his benefit under the Plan, a written statement of the amount of pension
which would be payable on his behalf under the standard and automatic Qualified
Joint and Survivor Annuity pension as is described in the Valero Pension Plan;
and the amount of pension otherwise payable under the available optional forms
of benefit.

         4.3 MODIFICATION OF PENSION. The Committee shall have the right to
modify the calculation of the benefit payable as to any Participant as it may
desire from time to time; provided, however, that any such modification shall
not result in a reduction of the benefit payable below the amount set forth
above in Section 4.1. In addition, except as expressly provided for herein,
benefits payable under this Plan to any Participant shall not affect any other
right or entitlement a Participant may have by contract or otherwise. In
addition, the benefits payable to a Participant under this Plan may be modified
by written agreement entered into between the Participant and a Company and
approved pursuant to Section 7.7. If so modified, the provisions of such written
agreement shall prevail in determining such Participant's rights and benefits
under this Plan.

                                    ARTICLE V

                       PRERETIREMENT SPOUSAL DEATH BENEFIT

         5.1 DEATH PRIOR TO RETIREMENT. In the event that a Participant in the
Plan who has attained age 55 and completed five years of Credited Service dies
while employed by a Company but has not Retired, the Participant's Surviving
Spouse shall receive for life a Surviving Spouse benefit under the Plan, which
shall commence on the first day of the month following the date of the
Participant's death and shall be equal to fifty percent (50%) of the amount the
Participant would have received under Section 4.1 if he had Retired early on his
date of death and elected immediate commencement of his pension on his earliest
Retirement date pursuant to Section 4.2.

         5.2 DEATH AFTER PARTICIPANT RETIRES. Upon the death of a Participant at
or after the Participant Retires there is no death benefit and only the
remainder of any benefit payable to the Surviving Spouse, if any, under Section
4.1 shall be payable.

         5.3 BENEFICIARY DESIGNATION PROHIBITED. Since the only death benefit
payable under the Plan is to a Surviving Spouse, no Participant shall have the
right to designate a beneficiary to receive death benefits hereunder.

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<PAGE>

                                   ARTICLE VI

                       PROVISIONS RELATING TO ALL BENEFITS

         6.1 EFFECT OF THIS ARTICLE. The provisions of this Article will control
over all other provisions of this Plan.

         6.2 TERMINATION OF EMPLOYMENT. Termination of employment for any reason
prior to the Participant's vesting under Article III or Article V, if
applicable, will cause the Participant and any Surviving Spouse to forfeit all
interest in and under this Plan. No Participant under the Plan shall be deemed
to have terminated employment with the Company as a result of the distribution
by the Company of all of the issued and outstanding common stock of Valero
Refining and Marketing Company (expected to be named Valero Energy Corporation)
to the stockholders of the Company.

         6.3 NO DUPLICATION OF BENEFITS. It is not intended that there be any
duplication of benefits. Therefore, if a Participant has met the requirements of
Article IV and has Retired, then the Participant and/or his Surviving Spouse
shall only receive a benefit under that Article. If a Participant dies before
actual Retirement, the Participant's Surviving Spouse shall only receive a
benefit, if the Surviving Spouse qualifies for one, under Article V. But, in no
event will a Participant and/or such Participant's Surviving Spouse qualify for
a benefit under both Articles IV and V.

         6.4 FORFEITURE FOR CAUSE. If the Committee finds, after full
consideration of the facts presented on behalf of both the Company and a
Participant, that the Participant was discharged by a Company for fraud,
embezzlement, theft, commission of a felony, proven dishonesty in the course of
his employment by a Company which damaged the Company, or for disclosing trade
secrets of a Company, the entire benefit accrued for the benefit of the
Participant and/or his Surviving Spouse will be forfeited even though it may
have been previously vested under Article III or V. The decision of the
Committee as to the cause of a former Participant's discharge and the damage
done to the Company will be final. No decision of the Committee will affect the
finality of the discharge of the Participant by the Company in any manner.
Notwithstanding the foregoing, no forfeiture should be permitted pursuant to
this Section following Plan termination or a Change of Control unless pursuant
to arbitration consistent with the provisions of Section 11.3.

         6.5 FORFEITURE FOR COMPETITION. If at the time a distribution is being
made or is to be made to a Participant, the Committee finds after full
consideration of the facts presented on behalf of the Company and the
Participant, that the Participant at any time within two years following his
termination of employment from all Companies and without written consent of a
Company, directly or indirectly owns, operates, manages, controls or
participates in the ownership, (other than through ownership of less than 5% of
the Voting Securities of a publicly traded entity) management, operation or
control of or is employed by, or is paid as a consultant or other independent
contractor by a business which competes or at any time did compete with the
Company by which he was formerly employed in a trade area served by the Company
at the time distributions are being made or to be made and in which the
Participant had represented the

Page 10 of 21
<PAGE>

Company while employed by it; and if the Participant continues to be so engaged
60 days after written notice has been given to him, the Committee may forfeit
all benefits otherwise due the Participant even though such benefit may have
been previously vested under Article III or V. Notwithstanding the foregoing, no
forfeiture shall be permitted pursuant to this Section following Plan
termination or a Change of Control unless pursuant to arbitration consistent
with the provisions of Section 11.3.

         6.6 EXPENSES INCURRED IN ENFORCING THE PLAN. Valero will pay a
Participant for all reasonable legal fees and expenses incurred by him in
successfully contesting or disputing his termination of employment by a Company
or in successfully seeking to obtain or enforce any benefit provided by this
Plan if such termination occurs or a benefit is payable following a Change of
Control.

         6.7 NO RESTRICTIONS ON ANY PORTION OF TOTAL PAYMENTS DETERMINED TO BE
EXCESS PARACHUTE Payments. Notwithstanding that any payment or benefit received
or to be received by a Participant in connection with a Change of Control, or
the termination of his employment by a Company, would not be deductible, whether
in whole or in part, by a Company or any affiliated company, as a result of
Section 280G of the Code, the benefits payable under this Plan shall
nevertheless not be reduced.

         6.8 BENEFITS UPON RE-EMPLOYMENT. If a former employee who is receiving
benefit payments under this Plan is re-employed by the Company, the payment of
the benefit will continue during his period of re-employment. The re-employed
former employee's benefit will not be changed as a result of his re-employment.

                                   ARTICLE VII

                                 ADMINISTRATION

         7.1 COMMITTEE APPOINTMENT. The members of the Compensation Committee of
the Board of Directors shall serve as the Committee; provided, that the Board of
Directors will have the sole discretion to remove any one or more Committee
members and appoint one or more replacement or additional Committee members from
time to time. Each Committee member will serve until his or her resignation or
removal.

         7.2 COMMITTEE ORGANIZATION AND VOTING. The Committee shall be organized
and shall conduct its business in accordance with the By-laws of Valero,
provided however, that a member of the Committee who is also a Participant will
not vote or act on any matter relating to himself or which is otherwise
reasonably likely to enhance the benefits payable to such Participant hereunder.

         7.3 POWERS OF THE COMMITTEE. The Committee will have the exclusive
responsibility for the general administration of this Plan according to the
terms and provisions of this Plan and will have all powers necessary to
accomplish those purposes, including but not by way of limitation the right,
power and authority:

Page 11 of 21
<PAGE>

                  (a) to make rules and regulations for the administration of
         this Plan;

                  (b) to construe all terms, provisions, conditions and
         limitations of this Plan;

                  (c) to correct any defect, supply any omission or reconcile
         any inconsistency that may appear in this Plan;

                  (d) to determine all controversies relating to the
         administration of this Plan, including but not limited to:

                           (1) differences of opinion arising between a Company
                  and a Participant except when the difference of opinion
                  relates to the entitlement to, the amount of or the method or
                  timing of payment of a benefit affected by a Change of
                  Control, in which event it shall be decided only pursuant to
                  arbitration as set forth in Section 11.3; and

                           (2) any question it deems advisable to determine in
                  order to promote the uniform administration of this Plan for
                  the benefit of all parties at interest; and

                  (e) to delegate, without limitation, by written notice to
         Valero's Chief Financial Officer, the Trustee, the SERP Committee or
         any other designee, powers of investment and administration as well as
         those clerical and recordation duties of the Committee, as it deems
         necessary or advisable for the proper and efficient administration of
         this Plan.

         7.4 COMMITTEE DISCRETION. The Committee in exercising any power or
authority granted under this Plan or in making any determination under this Plan
may use its sole discretion and judgment. Any decision made or any act or
omission by the Committee in good faith shall be final and binding on all
parties and, except as otherwise set forth in Sections 6.4, 6.5 and 7.3(d)(1),
shall not be subject to de novo review.

         7.5 RELIANCE UPON INFORMATION. The Committee will not be liable for any
decision or action taken in good faith in connection with the administration of
this Plan. Without limiting the generality of the foregoing, any decision or
action taken by the Committee when it relies upon information supplied it by any
officer of the Company, the Company's legal counsel, the Company's actuary, the
Company's independent accountants or other advisors in connection with the
administration of this Plan will be deemed to have been taken in good faith.

         7.6 APPROVAL OF BENEFIT MODIFICATIONS. The Chief Executive Officer
("CEO") of Valero shall have authority to approve enhancements to the Credited
Service, or other modifications to the benefits, of any Participant or
prospective Participant under the Plan in connection with the employment,
retention, retirement or termination of a Participant; provided however, that
any such modification made with respect to the benefits of the CEO or President
of Valero shall be recommended to and approved by the Board of Directors.

Page 12 of 21
<PAGE>

                                  ARTICLE VIII

                            ADOPTION BY SUBSIDIARIES

         8.1 PROCEDURE FOR AND STATUS AFTER ADOPTION. Any Subsidiary of Valero
at the date of adoption of this Plan, and any entity becoming a Subsidiary of
Valero after such date of adoption, may adopt this Plan by appropriate action of
its board of directors or other governing body. Any power reserved under this
Plan to the Company may be exercised separately by each such Subsidiary adopting
the Plan; provided, however, that (i) powers reserved under this Plan to the
Board of Directors or the Committee shall be exercised only by the Board of
Directors of Valero or Committee thereof and (ii) powers reserved under this
Plan to Valero shall be exercised only by Valero. Each Subsidiary adopting the
Plan delegates to Valero exclusive administrative responsibility for the Plan.
However, Valero may allocate the costs of Plan benefits among the Companies in
any reasonable manner such that each Company shall bear the costs of
participation by those Participants who are or were employees of such Company.
Each Subsidiary, by adopting this Plan, and in consideration of the like
undertakings of the other adopting Subsidiaries, agrees that the obligations and
liabilities of the Company(ies) for the payment of benefits to any Participants
(and to any person claiming through a Participant) hereunder shall be the joint
and several obligation of each Subsidiary adopting the Plan, not solely of the
Company employing or previously employing a Participant. Accordingly, each such
adopting Subsidiary agrees that, to the extent permitted under Section 10.4,
each Participant (and any person claiming through a Participant) shall have
recourse and a right of action to enforce benefits payable under this Plan
against any and all Companies contemporaneously participating in the Plan during
the period of such Participant's Credited Service.

         8.2 TERMINATION OF PARTICIPATION BY ADOPTING SUBSIDIARY. Any Subsidiary
adopting this Plan may, by appropriate action of its board of directors or other
governing body, terminate its participation in this Plan. The Committee may, in
its discretion, also terminate a Subsidiary's participation in this Plan at any
time. The termination of the participation in this Plan by a Subsidiary will
not, however, affect the rights of any Participant who is working or has worked
for the Subsidiary as to benefits previously vested under Article III of this
Plan.

                                   ARTICLE IX

                          AMENDMENT AND/OR TERMINATION

         9.1 AMENDMENT OR TERMINATION OF THE PLAN. The Committee may amend or
terminate this Plan at any time by an instrument in writing without the consent
of any Company.

         9.2 NO RETROACTIVE EFFECT ON ANNUAL BENEFITS. No amendment will affect
the rights of any Participant to the Retirement benefit provided in Article IV
previously accrued by the Participant or will change a Participant's rights
under any provision relating to a Change of Control after a Change of Control
has occurred without his consent. However, the Board of Directors retains the
right at any time to change in any manner the Retirement benefit provided in
Article IV but only as to accruals after the date of the amendment.

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<PAGE>

         9.3 EFFECT OF TERMINATION. If this Plan is terminated, whether as a
result of a Change of Control or otherwise, then (i) no Surviving Spouse benefit
will be provided to the Surviving Spouse of a Participant dying on or after such
date of termination, and no further Retirement benefit will accrue, (ii) all
Plan Participants in active employment of a Company (including Participants
whose Accrued Benefit is frozen pursuant to Section 2.2) as well as Retired
Participants shall become fully vested and (iii) the Accrued Benefit payable to
each affected current, frozen or Retired Participant (or Surviving Spouse) shall
be determined as of such date of termination and shall be paid in a lump sum as
soon as administratively practicable following the Plan's termination, in an
amount Actuarially Equivalent to the affected Participant's (or Surviving
Spouse's) Accrued Benefit.

         9.4 EFFECT OF CHANGE OF CONTROL. Upon the occurrence of a Change of
Control, unless one or more Participants or Surviving Spouses have theretofore
elected to be a Continuing Participant, as specified below, this Plan shall
automatically terminate and the Accrued Benefit of each Participant shall be
paid out in accordance with the provisions of Section 9.3 as soon as
administratively practicable following the Change of Control. However, any
current, frozen or Retired Participant, or any person who is receiving benefits
as a Surviving Spouse at the time of adoption of this amended and restated Plan
(collectively referred to herein as a "Continuing Participant"), may, by filing
a written election with the Committee or with Valero's Human Resources
Department in accordance with the following sentence, elect to continue in the
Plan following any Change of Control, rather than receiving such lump-sum
benefit. Such election may only be made (i) in the case of a person who is a
Participant or Surviving Spouse at the time of the adoption of this amended and
restated Plan, on or before November 29, 1996, or (ii) in the case of a person
who is later selected as a Participant, within the 30 day period following the
date on which the Committee first selects such person as a Participant. Any such
election shall be irrevocable. A Participant or Surviving Spouse who does not
make such election within the required period shall be deemed for all purposes
to have elected not to be a Continuing Participant. If, at the time a Change of
Control occurs, any Participant or Surviving Spouse has properly elected to be a
Continuing Participant, then the Plan shall not terminate and the following
provisions shall apply:

         A. Each Participant (or Surviving Spouse) who has not theretofore
elected to be a Continuing Participant shall be treated in all respects as if
the Plan had terminated; such Participant (or Surviving Spouse) shall be
entitled to receive a lump-sum benefit payment calculated in accordance with
Section 9.3(iii), and such Participant (and any Surviving Spouse) shall
otherwise have the same rights (and only such rights) that such Participant (or
Surviving Spouse) would have had had the Plan terminated upon such Change of
Control.

         B. The Accrued Benefit of each Continuing Participant attributable to
that portion of the Continuing Participant's Credited Service occurring on or
after January 1, 1996 shall vest immediately upon the occurrence of the Change
of Control in accordance with Article III. The Continuing Participant shall not
be entitled to receive a lump-sum benefit payment pursuant to Section 9.3(iii);
instead, such Continuing Participant (other than a Surviving Spouse) shall be
entitled to receive a retirement benefit at the time and in the amount
determined in accordance with Article IV and the Continuing Participant's
Surviving Spouse, if any (as well as any Surviving Spouse making the election
permitted under Paragraph 9.4(i)), shall be entitled to

Page 14 of 21
<PAGE>

receive a Surviving Spouse benefit, in each case determined in accordance with
and subject to the remaining terms and conditions of the Plan.

                                    ARTICLE X

                                     FUNDING

         10.1 PAYMENTS FROM TRUST. As set forth in Section 8.1, the Companies
are jointly and severally liable to pay the benefits due under this Plan;
however should they fail to do so when a benefit is due, the Participant,
Surviving Spouse or other person entitled to payment of a benefit hereunder may
apply for payment of such benefit to the Trustee of the Trust, which shall pay
such benefit in accordance with the provisions of the Trust Agreement. In any
event, if the Trust fails to pay for any reason, the Companies shall remain
jointly and severally liable for the payment of all benefits provided by this
Plan.

         10.2 PLAN MAY BE FUNDED THROUGH LIFE INSURANCE. It is specifically
recognized that Valero may, but is not required to, purchase life insurance so
as to accumulate assets sufficient to fund obligations under this Plan and that
Valero may, but is not required to contribute any policy or policies it may
purchase and any amount it finds desirable to the Trust or any other trust
established to accumulate assets to fund obligations under this Plan. However,
under all circumstances, the Participants will have no rights in or to any such
policies.

         10.3 REQUIRED FUNDING OF RABBI TRUST. Valero will make contributions of
cash or other assets sufficient to fund the Trust on an actuarially sound basis
so as to ensure that at all times assets within the Trust equal or exceed the
Actuarial Equivalent of Accrued Benefits of all Participants under the Plan,
assuming the Accrued Benefits to be fully vested (whether they are or not). As
of the end of each Plan Year, Valero shall cause the actuary who last performed
the annual actuarial evaluation of the Valero Pension Plan, to determine the
Actuarial Equivalent of the Accrued Benefits of all Plan Participants, assuming
the Accrued Benefits to be fully vested (whether they are or not) as of the end
of the preceding Plan Year. This annual determination shall be performed by the
actuary, as soon as practicable following the close of the Plan Year, and the
actuary shall prepare and provide to Valero a written report detailing the
Accrued Benefits of the Participants. If such report shows that the Plan assets
are less than the Actuarial Equivalent of the Accrued Benefits, then Valero,
commencing within 60 days of receipt of the written report from the actuary,
shall contribute to the Trust (which contribution may be made, at Valero's sole
discretion, in up to four quarterly installments, the last such installment to
be made not later than December 31 of the Plan Year during which such report is
received) such assets that it may choose in its sole discretion in an amount
necessary to ensure that the sum of (i) the fair market value of the Trust
assets as of the end of such preceding Plan Year, and (ii) the fair market value
of such contributions as of the date each such contribution is made, equals or
exceeds the Actuarial Equivalent of the Accrued Benefits of all Participants so
reported, assuming the Accrued Benefits to be fully vested (whether they are or
not) as of the end of the prior Plan Year. All Participants shall be entitled to
a copy of the report prepared by the actuary and likewise shall be furnished a
schedule of Trust assets reflecting Valero's satisfaction of its funding
obligation under this Section 10.3, such report to be furnished to each Plan
Participant within 30 days

Page 15 of 21
<PAGE>

following the due date of Valero's final contribution to the Trust for the Plan
Year, if any may be required for the particular Plan Year.

         10.4 OWNERSHIP OF ASSETS; RELEASE. All policies of insurance or other
assets contributed to the Trust (or to any other trust established for the
purpose of funding benefits hereunder) pursuant to Sections 10.2, 10.3 or
otherwise shall be contributed by Valero, and all such policies or other assets
shall be owned solely by Valero immediately prior to such contribution. No
Company, other than Valero, shall contribute policies or assets to the Trust. As
an internal accounting matter, as between Valero and the other Companies, Valero
may charge or allocate all or any part of such contributions to other Companies
in any reasonable manner determined by Valero in accordance with generally
accepted accounting principles, and may record the amounts so allocated as
obligations owing among Valero and such Companies. Valero may also allocate or
distribute assets received by it from the Trust pursuant to Section 10.5 hereof
to other Companies in any reasonable manner determined by Valero in accordance
with generally accepted accounting principles. However, notwithstanding the fact
that a Company may be deemed to have a claim against Valero with respect to such
contributions or distributions, no Company (other than Valero) shall at any time
own or be deemed to own or have any contingent, reversionary or other beneficial
interest in any portion of the policies and other assets held in the Trust or
any claim, against the Trustee or otherwise, with respect thereto. Each Company
(other than Valero), by its adoption of this Plan, and in consideration of the
mutual covenants herein contained, for itself, its successors, assigns,
representatives, administrators, trustees and other persons claiming by, through
or under such Company, hereby irrevocably and forever releases and relinquishes
(i) any and all rights, claims and interests (beneficial, reversionary, actual,
contingent or otherwise), known or unknown, asserted or unasserted, which it has
or may have, or may hereafter have, in or with respect to the Trust, the Trust
Fund (as such term is defined in the Trust Agreement) and the policies and
assets now or hereafter from time to time contributed or contributable thereto,
held therein or thereby, or distributable therefrom or thereby, and (ii) any
claim, demand, action or cause of action whatsoever which it has or may have, or
may hereafter have, against the Trustee, its successors or assigns, with respect
thereto.

         10.5 REVERSION OF EXCESS ASSETS. Assets held pursuant to the Trust
shall not be loaned to any Company. However, Valero may, at any time, request
the actuary who last performed the annual actuarial valuation of the Valero
Pension Plan to determine the Actuarial Equivalent of the Accrued Benefits,
assuming the Accrued Benefits to be fully vested (whether they are or not), as
of the end of the Plan Year coincident with or last preceding the request, of
all Participants and Surviving Spouses of deceased Participants for which Valero
is or will be obligated to make payments under this Plan. If the fair market
value of the assets held in the Trust, as determined by the Trustee as of that
same date, exceeds the Actuarial Equivalent of the Accrued Benefits of all such
Participants and Surviving Spouses by not less than 25%, then Valero may direct
the Trustee to return to Valero that part of the assets which is in excess of
125% of the Actuarial Equivalent of the Accrued Benefits. If the Plan has
terminated, all assets held in the Trust following the distribution required
pursuant to Section 9.3(iii) shall revert to Valero.

         10.6 REPURCHASE OF VALERO STOCK. In order to facilitate diversification
of Plan assets, Valero shall be entitled, from time to time, upon notice to the
Trustee, to repurchase shares of Valero equity securities held in the Trust.
Such repurchases shall be made for cash or in

Page 16 of 21
<PAGE>

exchange for other assets having a fair market value, as determined by the
Trustee, equal to the fair market value of such Valero securities at such date
of purchase.

         10.7 PARTICIPANTS MUST RELY ONLY ON GENERAL CREDIT OF THE COMPANIES.
The provisions of Sections 10.2 and 10.3 notwithstanding, it is specifically
recognized by the Companies and the Participants that this Plan is an unsecured
corporate commitment and that each Participant (and any Surviving Spouse or
other person claiming through a Participant) must rely upon the general credit
of the Companies for the fulfillment of their obligations under this Plan.
Nothing contained in this Plan or in the Trust Agreement will constitute a
representation, covenant or guarantee by any Company that the policies and
assets transferred to the Trust (or any other trust established for the purpose
of funding benefits hereunder) or the general assets of such Company (or
Companies) will be sufficient to pay any or all benefits under this Plan Neither
this Plan nor the Trust creates any secured or priority position, preferential
right, lien, claim, encumbrance, right, title or other interest of any kind in
any Participant in any policy or other asset held by any Company, contributed to
the Trust (or any other trust established for the purpose of funding benefits
hereunder) or otherwise designated to be used for payment of any obligations
created in this Plan. No policy or other specific asset of any Company has
otherwise been or will be set aside, or has been or will be pledged in any way
for the performance of obligations under this Plan, which would remove the
policy or asset from being subject to the claims of the general creditors of the
respective Company. The Trust Agreement (and any other agreement entered into to
fund obligations under this Plan) shall specify that, with respect to their
benefits under this Plan, the Participants (and any Surviving Spouse or other
person claiming through a Participant) are only unsecured general creditors.

                                   ARTICLE XI

                                  MISCELLANEOUS

         11.1 RESPONSIBILITY FOR DISTRIBUTIONS AND WITHHOLDING OF TAXES. Valero
shall calculate the amount of any distribution payable to a Participant
hereunder, and the amounts of any deductions required with respect to federal,
state or local tax withholding, and shall withhold or cause the same to be
withheld. However, any and all taxes payable with respect to any distribution or
benefit hereunder shall be the sole responsibility of the Participant, not of
Valero or any Company, whether or not Valero or any Company shall have withheld
or collected from the Participant any sums required to be so withheld or
collected in respect thereof, and whether or not any sums so withheld or
collected shall be sufficient to provide for any such taxes. Without limitation
of the foregoing, and except as may otherwise be provided in any separate
employment, severance or other agreement between the Participant and any
Company, the individual Participant or Surviving Spouse, as the case may be,
shall be solely responsible for payment of any excise, income or other tax
imposed (i) upon any payment hereunder which may be deemed to constitute an
"excess parachute payment" pursuant to Section 4999 of the Code, or (ii) based
upon any theory of "constructive receipt" of any lump-sum or other amount
hereunder.

Page 17 of 21
<PAGE>

         11.2 LIMITATION OF RIGHTS. Nothing in this Plan will be construed:

                  (a) to give a Participant or other person claiming through him
         any right with respect to any benefit except in accordance with the
         terms of this Plan or an agreement modifying rights under this Plan;

                  (b) to limit in any way the right of the Company to terminate
         a Participant's employment with the Company at any time;

                  (c) to evidence any agreement or understanding, expressed or
         implied, that the Company will employ a Participant in any particular
         position or for any particular remuneration; or

                  (d) to give a Participant or any other person claiming through
         him any interest or right under this Plan other than that of any
         unsecured general creditor.

         11.3 ARBITRATION OF DISPUTES

         A. It is agreed that any and all disputes, claims, (whether tort,
contract, statutory or otherwise) and/or controversies which relate, in any
manner to the Plan shall be submitted to final and binding arbitration. The
claims covered by this agreement to arbitrate include, but are not limited to,
those which relate to the following:

                  a. The application and interpretation of the Plan.

                  b. Forfeitures pursuant to Section 6.5 or 6.6 of the Plan.

                  c. Eligibility for and the calculation of benefits from the
         Plan.

                  d. That in interpreting or applying the provisions of the
         Plan, the Company has treated the Participant unfairly or discriminated
         against the Participant in connection with a work-related injury,
         disease or death or claim for benefits under the Plan in violation of
         the Texas Commission on Human Rights Act, Title VII of the Civil Rights
         Act of 1964, as amended, The Equal Pay Act of 1963, as amended, the
         Americans with Disabilities Act, the Age Discrimination in Employment
         Act of 1967, as amended, the Rehabilitation Act of 1973, as amended, or
         any other provision forbidding discrimination in employment on any
         basis.

                  e. That Valero or the Committee, in interpreting or applying
         the provisions of the Plan, breached any contract or covenant (express
         or implied), committed a tort or act of discrimination (including, but
         not limited to race, sex, religion, national origin, age, marital
         status, or medical condition, handicap or disability), or violated any
         federal, state or other governmental law, statute, regulation, or
         ordinance.

                  f. That a Company has discharged or in any manner
         discriminated against the Participant because the Participant in good
         faith filed a claim, hired a lawyer to represent

Page 18 of 21
<PAGE>

         him or her in a claim, instituted, or caused to be instituted, in good
         faith, any proceeding under the Plan or the TWCA, or has testified in
         any such proceeding.

         B. This Arbitration provision is expressly made pursuant to and shall
be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-14. Except to
the extent herein modified, all arbitration proceedings shall be conducted in
accordance with the Rules. The parties hereto agree that, pursuant to Section 9
of the Federal Arbitration Act, a judgment of the United States District Court
for the Western District of Texas, San Antonio Division, or of any other court
of competent jurisdiction, may be entered upon an award made pursuant to
arbitration.

         C. The neutral arbitrator ("Arbitrator") shall be appointed in the
manner prescribed in Rule 13 of the Rules. The decision of the Arbitrator
selected thereunder shall be final and binding on all parties.

         D. Except as may be modified by the Arbitrator for good cause shown,
the following procedures shall be followed in addition to those set forth within
the Rules themselves. (1) At least twenty (20) days before the arbitration, the
parties must exchange list of witnesses, including any experts, and copies of
all exhibits intended to be used at the arbitration. Except for good cause, the
Arbitrator may refuse to allow into evidence the testimony of any witness not
timely disclosed. In addition, except for good cause, the Arbitrator may exclude
from evidence any exhibit not previously tendered to the opposing party in a
timely fashion. (2) Each party may take the deposition of one individual and any
or all expert witnesses designated by another party. Additional discovery,
including but not limited to interrogatories and request for production of
documents, medical or psychological examinations, may be had, upon a showing of
substantial need, where the Arbitrator so orders. (3) The Arbitrator shall apply
the substantive law (and the law of remedies, if applicable) of the State of
Texas, or federal law or both, as applicable to the claim(s) asserted. (4) The
Arbitrator shall have the authority to entertain a motion to dismiss and/or a
motion for summary judgment by any party and shall apply the standards governing
such motions under the Federal Rules of Civil Procedure. (5) Rule 31 of the
Rules is amended to allow for the use of sworn depositions taken in conformity
with the Federal Rules of Civil Procedure. (6) The results of the arbitration
shall be confidential and shall not be publicly released or reported by the
Arbitrator or by either party.

         E. The Participant (or other person claiming through him) shall pay one
half of the fees and cost of the Arbitrator. Funds or other appropriate security
shall be posted by each party for its share of the Arbitrator's fee, in an
amount and manner determined by the Arbitrator, ten (10) days before the first
day of hearing. Each party shall pay for its own cost and attorneys fees, if
any. However, if any party prevails on a statutory claim which affords the
prevailing party attorney's fees, or if there is a written agreement providing
for fees, the Arbitrator may award reasonable fees to the prevailing party.

         F. This agreement to arbitrate shall survive the termination of
Participant's employment. It can only be revoked or modified by a writing signed
by the parties which specifically states an intent to revoke or modify the
provisions of this Section 11.3.

Page 19 of 21
<PAGE>

         G. Should one or more provisions of this Section 11.3 be rendered or
declared invalid by reason of any existing or subsequently enacted legislation,
or by a decree of a court of competent jurisdiction, such invalidation of such
provision or provisions hereof shall not affect the remaining portions of this
agreement to arbitrate.

         H. Any arbitration proceeding commenced under this Section 11.3 shall,
to the extent practicable, be consolidated with any arbitration proceeding
relating to the same or similar facts and circumstances between the Trustee and
Valero pursuant to the Trust Agreement.

         11.4 DISTRIBUTIONS TO INCOMPETENTS. Should a Participant or a Surviving
Spouse become incompetent, Valero is authorized to pay the funds due to the
guardian or conservator of the incompetent Participant or Surviving Spouse or
directly to the Participant or Surviving Spouse or to apply those funds for the
benefit of the incompetent Participant or Surviving Spouse in any manner the
Committee determines in its sole discretion.

         11.5 NONALIENATION OF BENEFITS. No right or benefit provided in this
Plan will be transferable by the Participant except, upon his death, to a
Surviving Spouse as provided in this Plan. No right or benefit under this Plan
will be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber, or charge the same will be void. No right or benefit under
this Plan will in any manner be liable for or subject to any debts, contracts,
liabilities or torts of the person entitled to such benefits. If any Participant
or any Surviving Spouse becomes bankrupt or attempts to anticipate, alienate,
sell, assign, pledge, encumber or charge any right or benefit under this Plan,
that right or benefit will, in the discretion of the Committee, cease. In that
event, the Committee may have Valero hold or apply the right or benefit or any
part of it to the benefit of the Participant or Surviving Spouse, his or her
spouse, children or other dependents or any of them in any manner and in any
proportion the Committee believes to be proper in its sole and absolute
discretion, but is not required to do so.

         11.6 SEVERABILITY. If any term, provision, covenant or condition of
this Plan is held to be invalid, void or otherwise unenforceable, the rest of
this Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated.

         11.7 NOTICE. Any notice or filing required or permitted to be given to
a Company, the Committee or a Participant will be sufficient if in writing and
hand delivered or sent by U.S. mail to the principal office of Valero, acting on
behalf of the Company or Committee, or to the residential mailing address of the
Participant. Notice will be deemed to be given as of the date of hand delivery
or if delivery is by mail, as of the date shown on the postmark.

         11.8 GENDER AND NUMBER. If the context requires it, words of one gender
when used in this Plan will include the other genders, and words used in the
singular or plural will include the other.

         11.9 GOVERNING LAW. The Plan will be construed, administered and
governed in all respects by the laws of the State of Texas.

Page 20 of 21
<PAGE>

         11.10 EFFECTIVE DATE. This amendment and restatement of the Plan will
be operative and effective on January 1, 1996.

         IN WITNESS WHEREOF, the Company has executed this document on this
______ day of November, 1996, amending and restating the Plan effective as of
January 1, 1996.

                                     VALERO ENERGY CORPORATION

                                     By
                                       -----------------------------------------
                                          F. Joseph Becraft
                                          President and Chief Executive Officer

Page 21 of 21<PAGE>
                                  Exhibit 10.07

                            VALERO ENERGY CORPORATION

                             =======================

                              AMENDED AND RESTATED
                                STOCK OPTION PLAN

                                December 3, 2002
                             =======================

<PAGE>

                            VALERO ENERGY CORPORATION
                     AMENDED AND RESTATED STOCK OPTION PLAN

         The original Stock Option Plan (the "Original Plan") was adopted April
23, 1997 and amended as of July 30, 1997; October 29, 1997; May 19, 1999; and
December 3, 2002. The Original Plan is hereby amended and restated as of
December 3, 2002 to fully incorporate all of the amendments to the Original Plan
to date.

1.       Introduction and Statement of Purpose.

         This Stock Option Plan (the "Plan") of Valero Energy Corporation is
established for the purpose of giving additional incentive to Key Employees of
the Company by creating an opportunity for capital accumulation. It is intended
that the benefits available under this Plan, when added to other benefits
payable to these Key Employees, will furnish total compensation that 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 participation. The Plan provides for the grant of Options to purchase
Common Stock of Valero and stock appreciation rights ("SARs") 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.

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)       "Affiliate" shall mean (i) any entity that, directly or through
                 one or more intermediaries, is controlled by the Company and
                 (ii) any entity in which the Company has a significant equity
                 interest, as determined by the Committee.
       (b)       "Board of Directors" shall mean the Board of Directors of
                 Valero.
       (c)       "Cause" shall mean the (i) conviction of the Participant by a
                 state or federal court of a felony involving moral turpitude,
                 (ii) conviction of the Participant by a state or federal court
                 of embezzlement or misappropriation of funds of the Company,
                 (iii) negligence or misconduct of the Participant which causes
                 material loss, damage or injury to the Company, any of its
                 Affiliates or their respective employees, or (iv) Participant's
                 failure to satisfactorily perform the material stated duties of
                 Participant's position with the Company or any of its
                 Affiliates.
       (d)       "Change of Control" shall have the meaning specified in
                 Paragraph 4.12.
       (e)       "Committee" shall mean the persons administering this Plan from
                 time to time pursuant to Paragraph 6.1.
       (f)       "Common Stock" shall mean the common stock, par value $0.01 per
                 share, of Valero.
       (g)       "Company" shall mean Valero and its subsidiaries, and any
                 successor or successors to such entities.
       (h)       "Distribution Agreement" shall mean the Agreement and Plan of
                 Distribution, entered into between VEC and Valero, in
                 connection with the transactions contemplated by the Merger
                 Agreement. "Distribution" and "Time of Distribution" shall have
                 the meanings specified in the Distribution Agreement.
       (i)       "EBA" shall mean the Employee Benefits Agreement, entered into
                 between Valero and VEC, in connection with the transactions
                 contemplated by the Merger Agreement.
       (j)       "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.
       (k)       "Exchange Act" shall mean the Securities Exchange Act of 1934,
                 as amended and in effect from time to time.

<PAGE>

       (l)       "Exercise Date" -- see Paragraph 4.3.
       (m)       "Expiration Date" -- see Paragraph 3.5.
       (n)       "Exercise Notice" -- see Paragraph 4.3.
       (o)       "Key Employee" shall mean any key 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.
       (p)       "Merger Agreement" shall mean the Agreement and Plan of Merger,
                 dated as of January 31, 1997, between VEC, PG&E Corporation and
                 PG&E Acquisition Corporation.
       (q)       "Option" or "Options" shall mean an option or options granted
                 pursuant to this Plan to purchase shares of Common Stock.
       (r)       "Option Agreement" shall mean a written agreement entered into
                 between Valero and a Participant pursuant to Paragraph 3.9.
       (s)       "Option Price" -- see Paragraph 3.5.
       (t)       "Option Share" shall mean one share of Common Stock purchased
                 or which may be purchased pursuant to an Option.
       (u)       "Participant" shall mean a Key Employee who is eligible to be
                 granted an Option under this Plan.
       (v)       "Plan" -- see Paragraph 1.
       (w)       "Preference Share Purchase Right" shall mean one of the rights
                 distributed pursuant to the Rights Agreement to purchase 1/100
                 share of the Junior Participating Preferred Stock, Series I, of
                 Valero.
       (x)       "Ratio" shall mean the amount obtained by dividing the average
                 of the daily high and low trading prices per share of VEC
                 Common Stock as reported on the NYSE Composite Tape (the "NYSE
                 Tape") on each of the last 15 consecutive full NYSE trading
                 days (the "Averaging Period") ending on and including the
                 trading day preceding the Distribution Date (as defined in the
                 Distribution Agreement) (the "Company Price") by the difference
                 between (a) the Company Price and (b) the product of (1) the
                 Per Share Merger Consideration (as defined in the Merger
                 Agreement) and (2) the average of the daily high and low prices
                 per share of Acquiror Common Stock (as defined in the Merger
                 Agreement) as reported on the NYSE Tape during the Averaging
                 Period.
       (y)       "Rights Agreement" shall mean that certain Rights Agreement,
                 dated as of June 18, 1997, between Valero and Harris Trust and
                 Savings Bank, as Rights Agent, as amended and in effect from
                 time to time.
       (z)       "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.
       (aa)      "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 4.2.
       (bb)      "SEC" shall mean the Securities and Exchange Commission.
       (cc)      "Settlement Date" -- see Paragraph 4.3.
       (dd)      "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 an SAR shall be
                 calculated.

                                       2
<PAGE>

       (ee)      "Tax Payment" -- see Paragraph 4.3.
       (ff)      "Time of Distribution" -- see "Distribution Agreement."
       (gg)      "Valero" shall mean Valero Energy Corporation, a Delaware
                 corporation formerly known as Valero Refining and Marketing
                 Company, incorporated in 1981 under the name Saber Energy, Inc.
       (hh)      "VEC" shall mean PG&E Gas Transmission, Texas Corporation, a
                 Delaware corporation formerly known as Valero Energy
                 Corporation, incorporated in 1955 under the name Coastal States
                 Oil and Gas Company.
       (ii)      "VEC Common Stock" shall mean the Common Stock, $1.00 par
                 value, of VEC.
       (jj)      "VEC Option Plans" shall mean the following stock option plans
                 previously adopted by VEC: the VEC Stock Option Plan No. 3, the
                 VEC Stock Option Plan No. 4, and the VEC Stock Option Plan No.
                 5.
       (kk)      "VRM Participant" shall have the same meaning as given in the
                 EBA.

3.     Granting of Options and SARs to Employees.

       3.1. Selection of Participants. The Committee may grant Options to
purchase a specified number of Option Shares to Key Employees of the Company
selected by the Committee in its sole and absolute discretion 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 to that Key Employee a number
of SARs not exceeding the number of Option Shares that may be purchased pursuant
to such Option, provided, that no SARs shall be granted with respect to Option
Shares that 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. Subject to the full and final authority of the Committee to administer
the Plan and select Participants, the granting of Options and SARs and the
selection of Participants may be based on recommendations made by the Chief
Executive Officer of Valero.

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

       3.4. Certain Options Granted Under Prior VEC Stock Option Plans. Pursuant
to the terms of the Merger Agreement, the EBA and the VEC Option Plans, certain
stock options previously awarded by VEC under the VEC Option Plans will be
automatically converted at the Time of Distribution into Options to purchase
Options Shares under this Plan. Each such VEC option that is outstanding and
unexercised immediately prior to the Time of Distribution and is held by a
person who, immediately before the Time of Distribution, is a VRM Participant,
or their respective beneficiaries and dependents, shall be converted in
accordance with the EBA into Options to purchase Option Shares under this Plan.
Each such VEC option eligible to be replaced by an Option under this Plan shall
be replaced with an Option with respect to a number of Option Shares equal to
the number of shares of VEC Common Stock subject to such VEC option immediately
before such replacement, multiplied by the Ratio, rounded up to the nearest
whole share as necessary, and having a per-share exercise price equal to the
per-share exercise price of such VEC option immediately before such replacement,
divided by the Ratio (rounded down to the nearest whole cent as necessary). The
other terms and conditions of any such VEC option, including the vesting and
termination dates thereof, shall remain unchanged, except as may be necessary to
conform to the provisions of the Plan or as otherwise may be determined by the
Committee.

                                       3
<PAGE>

       3.5. Determination of Option Provisions. When granting Options, the
Committee shall designate the number of Option Shares the Employee may purchase
under the Option, a date upon which the Option will automatically expire (unless
an earlier termination date is established pursuant to Paragraph 8.3; the
earlier of such dates being referred to herein as the "Expiration Date"), the
price per share at which the Option Shares may be purchased (the "Option
Price"), and the remaining terms and conditions of the Option. If the Committee
determines 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 and SARs Available for Grant. (A) Subject to the
provisions of Paragraphs 4.7 and 5, the maximum number of shares of Common Stock
that may be optioned under this Plan shall be 2,000,000 shares. In addition, the
number of shares available to be optioned under this Plan may from time to time
be increased by such number of additional shares as the Committee may deem
necessary. However, in no event shall the total number of shares optioned and
sold under this Plan equal or exceed 20 percent of the "voting power
outstanding," as defined in the NYSE's Company Manual, Paragraph 312. 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) Subject to the provisions of Paragraphs 4.7 and 5, the maximum
number of SARs that may be granted under this Plan shall be equal to the maximum
number of shares of Common Stock that may be optioned and sold 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 in its sole
discretion, but shall not be less than (a) the average of the "high" and "low"
reported sales price per share of Common Stock on the date of grant as reported
in the New York Stock Exchange - Composite Transactions listing or such other
listing or quotation medium as the Committee may later designate, or if there
are no sales on such date, on the next following day on which there are sales,
or (b) in the event that the Common Stock is not listed for trading on the NYSE,
an amount determined in accordance with standards adopted by the Committee. The
Strike Price at which an SAR is granted shall be equal to the Option Price of
the Option Shares to which such SAR 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 that is more than 10 years and 30 days following its date of
grant. Subject to the provisions of Paragraph 4.11, an Option and any associated
SARs shall lapse and be automatically forfeited upon the earlier of the
Expiration Date (i) as set forth in the Option Agreement pursuant to which such
Option and any associated SARs are granted, or (ii) as established pursuant to
Paragraph 8.3, unless an Exercise Notice is delivered to Valero on or before the
Expiration Date.

       3.9. Option Agreements. Options 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

                                       4
<PAGE>

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 or SAR until an appropriate Option Agreement (or amendment
thereto) shall have been executed by Valero and the Key Employee. In the event
that 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 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 or SARs.

       3.10 Provisions Regarding Prospective Employees. If a prospective
Employee of the Company is granted an Option 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 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 solely for purposes of this Plan 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 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, 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. Automatic Exercise of SARs, Settlement Price for SARs. SARs may not
be exercised except simultaneously with the exercise of an Option. A Participant
or other person exercising an Option shall be deemed to have automatically
exercised on the Exercise Date that number of related SARs equal to the number
of Option Shares purchased, not exceeding the lesser of (a) the number of
related SARs held by the Participant, or (b) the number of SARs then permitted
to be exercised under the Participant's Option Agreement. When a Participant
holds fewer related SARs than the number of Option Shares to which his or her
Option pertains, the Committee may adopt policies, or include terms in the
Participant's Option Agreement, that 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 that permit the Participant to
determine, with any restrictions as the Committee may prescribe, the timing of
exercise of the SARs. SARs shall be settled on the basis of the daily average
sales price of the Common Stock on the Exercise Date.

       4.3. Exercise Procedure. Options and SARs may be exercised only by
written notice of 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 the 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 ten business
days following the Exercise Date, upon which the Option Shares shall be issued
to the

                                       5
<PAGE>

Participant (or other person entitled to exercise the Option) and the Option
Price shall be paid to Valero. Subject to the provisions of Paragraph 3.6(A), on
the Settlement Date the person exercising an Option shall tender to Valero full
payment for the Option Shares with respect to which the Option is exercised,
together with an additional amount equal to the amount of all taxes required to
be collected or withheld by the Company in connection with the exercise of the
Option (the "Tax Payment"); provided, however, that when related SARs are
exercised at the same time an Option is exercised, the 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 the 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. 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. All calculations made with respect to a
Participant's income, required tax withholding or other matters made upon
exercise of an SAR shall be made using the price at which such SAR is settled,
unless otherwise specified by the Committee.

       4.4. Payment for SARs. SARs shall be paid or settled only in cash.
Payment for SARs shall be made on the Settlement Date.

       4.5. Payment with Common Stock. Subject to any rules and limitations as
the Committee may adopt or as may be set forth in any Option Agreement, a person
exercising an Option for the receipt of Option Shares may pay for the Option
Shares with other shares of Common Stock legally and beneficially owned by that
person at the time of the exercise of an Option.

       4.6. 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 that
stock certificates evidencing such shares of Common Stock are issued, except as
otherwise provided under Paragraph 5.

       4.7 Effect of Termination and Forfeiture. (A) Except as otherwise
expressly provided in this Paragraph 4.7 and Paragraphs 4.11 and 4.12, or as
otherwise determined by the Committee on the date of grant and included in the
Option Agreement, an Option (and any associated SARs) may be exercised by a
Participant only while he or she 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, death or disability) or is
terminated by the Company for Cause, then those Options (and any associated
SARs) previously awarded to the Participant hereunder and not yet exercised in
accordance with Paragraph 4.3 shall automatically lapse and be forfeited,
whether vested or unvested, as of the date of the Participant's termination. If
a Participant's employment is terminated by the Company other than for Cause,
then (i) those Options (and any associated SARs) previously awarded to the
Participant hereunder and not yet vested shall automatically lapse and be
forfeited as of the date of the Participant's termination and (ii) those Options
(and any associated SARs) previously awarded to the Participant hereunder which
are vested but unexercised as of

                                       6
<PAGE>

the date of the Participant's termination shall automatically lapse and be
forfeited at the close of business on the last business day of the twelfth month
following the month during which Participant's termination occurs, unless such
vested Options (and any associated SARs) sooner expire according to their
original term. If a Participant's employment is terminated by retirement, death
or disability, the provisions of Paragraph 4.11 shall apply. If a Participant
shall forfeit, voluntarily surrender or otherwise permanently lose his right to
exercise an Option or SAR under any provision of this Plan or otherwise, or if
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
SARs shall again be available for grant hereunder.

              (B) In the case of any termination of employment (whether
voluntary or involuntary, disability related, or upon retirement or otherwise),
the Committee or the Chief Executive Officer of Valero may, in connection with
any Participant's 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 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 SARs) previously granted to such
Participant; provided that no authorization or amendment (or new Option
Agreement) shall increase the aggregate number of Options granted to any
Participant; and provided that, in accordance with Article II. Section 4 of
Valero's Bylaws, any such action with respect to the Chief Executive Officer or
the President must be approved by the Board of Directors and any such action
with respect to a Restricted Optionee must be approved by the Committee. Any
action referred to in the preceding sentence shall be taken by Valero, if at
all, not later than six months following the Participant's effective date of
termination.

              (C) In cases of ambiguity in connection with the termination of
any Participant from employment with the Company, the Chief Executive Officer of
the Company is authorized to determine which, if any, of the provisions of this
Article 4 shall apply to such termination of employment, such determination to
be binding upon the Company.

       4.8 Effect of Leave of Absence. A Participant who commences a leave of
absence shall thereupon be suspended from participation in this Plan during the
leave of absence. During a period of suspension from this Plan, a Participant
cannot exercise any Option or any associated SARs that would, but for this
provision, vest during such period of suspension, provided however, that such
Participant shall be entitled to exercise any Options or SARs that become
exercisable pursuant to Paragraph 4.12 during the period of suspension. A
Participant, while suspended, may exercise an Option (and any related SARs) with
respect to any portion which vested prior to 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 4.8, 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 SARs that may then be exercised. Options 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 commences a leave of
absence which were not vested at the commencement of such leave of absence.

                                       7
<PAGE>

       4.9 Effect of Disability. The total and permanent disability of a
Participant shall terminate the participation of such Participant in this Plan
subject to the conditions set forth in Paragraph 4.11. The Committee shall
determine whether 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.
These 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, and need not be consistent
with any determinations made under any such plan or insurance policy.

       4.10 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 4.11. 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 or any other, similar pension plan of the
Company providing benefits to such Participant. In the case of a Participant who
is not a participant in such a plan, retirement shall be deemed to occur when
the Participant retires from the service of the Company.

       4.11 Exercise Following Termination, Retirement, Disability or Death. If
a Participant's employment is terminated because of retirement, death or
disability (with the determination of disability to be made within the sole
discretion of the Committee), any unexercised Option or SAR held by the
Participant shall remain outstanding according to its original terms;
alternatively, the Committee or, except with respect to a Participant subject to
Section 16 under the Exchange Act, the Chief Executive Officer of the Company,
may prescribe new or additional terms for the vesting, exercise or realization
of the Option or SAR. Absent any determination by the Committee or the Chief
Executive Officer to the contrary, any unexercised Option or SAR held by a
Participant whose employment is terminated because of retirement, death or
disability shall vest or become exercisable according to the Option or SAR's
original terms.

       4.12 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) the stockholders of Valero approve any agreement or
       transaction pursuant to which: (a) the Company will merge or consolidate
       with any other Person (other than a wholly owned subsidiary of the
       Company) and will not be the surviving entity (or in which the Company
       survives only as the subsidiary of another entity); (b) the Company will
       sell all or substantially all of its assets to any other Person (other
       than a wholly owned subsidiary of the Company); or (c) the Company will
       be liquidated or dissolved; or

              (ii) any "person" or "group" (as these terms are used in Section
       13(d) and 14(d) of the Exchange Act) other than the Company, any
       subsidiary of the Company, any employee benefit plan of the Company or
       its subsidiaries, or any entity holding Common Stock for or pursuant to
       the terms of such employee benefit plans, is or becomes an "Acquiring
       Person" as defined in the Rights Agreement (or any successor Rights
       Agreement) (or, if no Rights Agreement is then in effect, such person or
       group acquires or holds such number of shares as, under the terms and
       conditions of the most recent such Rights Agreement to be in force and
       effect, would have caused such person or group to be an "Acquiring
       Person" thereunder); or

                                       8
<PAGE>

              (iii) any "person" or "group" shall commence a tender offer or
       exchange offer for 30% or more of the shares of Common Stock then
       outstanding, or for any number or amount of Common Stock which, if the
       tender or exchange offer were to be fully subscribed and all shares for
       which the tender or exchange offer is made were to be purchased or
       exchanged pursuant to the offer, would result in the acquiring person or
       group directly or indirectly beneficially owning 50% or more of the
       Common Stock then outstanding; or

              (iv) individuals who, as of any date, constitute the Board of
       Directors (the "Incumbent Board") thereafter cease for any reason to
       constitute at least a majority of the Board; provided, however, that any
       individual becoming a director whose election, or nomination for election
       by Valero's stockholders, was approved by a vote of at least a majority
       of the directors then comprising the Incumbent Board shall be considered
       as though such individual were a member of the Incumbent Board, but
       excluding, for this purpose, any such individual whose initial assumption
       of office occurs as a result of an actual or threatened election contest
       with respect to the election or removal of directors or other actual or
       threatened solicitation of proxies or consents by or on behalf of a
       person or group other than the Board; or

              (v) the occurrence of the Distribution Date (as defined in the
       Rights Agreement); or

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

              (B) Notwithstanding the provisions of Paragraph 4.7, in the event
that a Change of Control shall occur, each Option (and any 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 or SAR is exercised subsequent to any stock dividend, rights
distribution, split-up, recapitalization, exchange of shares, merger,
consolidation, spin-off, 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
other securities (hereafter "Reorganization Event"), the person exercising such
Option 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
Reorganization Event, and (b) a cash amount upon the exercise of the SARs equal
to the difference between the aggregate Strike Price of such SAR and the
aggregate of (i) the average sales price, on the date provided in Paragraph 4.2
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 SARs, if such
shares had been purchased at the date of granting of such SARs and not otherwise
disposed of, would be holding at the time of exercise of such SARs as a result
of such purchase and any

                                       9
<PAGE>

such Reorganization Event; 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 Reorganization Event would, pursuant to
clause (a) of this Paragraph 5.1, require the delivery of shares, rights or
other securities that Valero is not then authorized to issue or that in the sole
judgment of the Committee cannot be issued without undue effort or expense, the
person exercising the 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 pursuant to the Rights Agreement 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 Reorganization
Event, (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
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 SARs available for grant under this Plan immediately
              prior to such change.

       Upon the occurrence of any Reorganization Event, the Committee shall be
entitled (but shall not be required) to determine that new Option Agreements
shall be entered into with Participants reflecting the Reorganization Event.

6.     Administration.

       6.1. Plan Administered by Committee. This Plan shall be administered by a
committee composed solely of two or more "Non-Employee Directors" (as defined in
Rule 16b-3 under the Exchange Act) 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 that the
membership of the Compensation Committee shall fail to meet the foregoing
criteria, then additional or different members of the Board of Directors shall
be appointed by the Board of Directors to act for purposes of administering this
Plan so that the Committee administering this Plan shall consist solely of two
or more "Non-Employee Directors."

       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 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;

                                       10
<PAGE>

       (c)  With the consent of the Participant, enter into agreements amending
            any Option Agreement to grant SARs thereunder, change the Option
            Price or Expiration Date of any Option, the Strike Price of any 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 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 have, in addition to the
specific powers granted by this Plan, such powers that it may deem necessary,
desirable, 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. Without prior written approval from the Committee,
no Options, SARs, or any other security, right or interest granted under this
Plan shall be transferable by the Participant, except upon Participant's death
and then the same shall be transferred to the Participant's beneficiary
designated under the Valero Energy Corporation Beneficiary Designation Form, or
if there is no such designation, then the same shall be transferred pursuant to
the will of the Participant and if there is no will, then pursuant to the
applicable 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, 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 or conveyance without the Committee's prior approval
shall be void and of no force or effect. No Option Shares, SARs, 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, or be transferable by operation of law in the event of bankruptcy
or insolvency.

       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

                                       11
<PAGE>

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. Representatives of the Participant. 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, 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 or SAR 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 SAR granted under this Plan.

       7.4. Responsibility for Taxes. All taxes payable with respect to income
to a Participant resulting from the exercise of an Option 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 withheld or collected in
respect of such income, and whether or not any sums 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 of Valero.

       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 NYSE Listing. Notwithstanding anything to the contrary contained in
this Plan, in any Option grant, or any agreement entered into hereunder, any
grant made under this Plan shall be conditional and shall be entered into or
granted, as the case may be, subject to acceptance of the Option Shares for
listing on the NYSE. No such agreement entered into under this Plan or any
Option grant made under this Plan shall create any obligation in the Company
prior to such acceptance. If the Option Shares ultimately are not accepted for
such listing, then any and all such agreements theretofore entered into shall
thereupon terminate and shall be void and of no force or effect, no Option
Shares shall be required to be issued thereunder.

                                       12
<PAGE>

       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 Delegation. Subject to the terms of the Plan and applicable law, the
Committee may delegate to one or more officers or managers of the Company or any
Affiliate, or to a committee of such officers or managers, the authority,
subject to the terms and limitations the Committee shall determine, to grant
Awards to, or to cancel, modify or waive rights with respect to, or to amend,
suspend, or terminate Awards held by, Employees who are not deemed "officers" or
"directors" of the Company for purposes of Section 16 of the Exchange Act, or
who are otherwise not subject to Section 16.

8.     Amendment and Termination of Plan and Option Agreements.

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

       8.2. Effect of Amendment or Termination. Any amendment or termination of
this Plan may not materially adversely affect Options or SARs already granted.
If any termination or amendment materially adversely affects Options or SARs
already granted, then such Options and SARs shall, subject to Paragraph 8.3,
remain in full force and effect as if this Plan had not been so amended or
terminated. If the Board of Directors or the Committee deems it appropriate or
is advised by counsel that stockholder approval is required, the amendment or
termination of this Plan shall be submitted to the stockholders of Valero for
approval.

       8.3 Cancellation of Options. Any other provision of this Plan to the
contrary notwithstanding, if either (a) the Option Price of any Option shall on
any NYSE trading day equal or exceed 125 percent 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 cancel and terminate
such Option, the related Option Agreement and any associated SARs. Upon such
Committee determination, the Expiration Date of such Option, Option Agreement,
and SARs shall be at the close of business on the date of such determination.
The Committee shall cause notification of cancellation to be sent to the
Participant (or other person entitled to exercise such Option), but failure to
send or any delay in sending notice shall not nullify, delay, or otherwise
affect 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 cancellation. If an Option,
the related Option Agreement, and any associated SARs, shall be terminated and
canceled pursuant to the provisions of this Paragraph 8.3, the Option Shares 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 any associated SARs has been canceled pursuant to this Paragraph
8.3 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.

                                       13
<PAGE>

9.     Claims.

       9.1. Filing of Claims. A Participant or other person claiming to have
been denied any benefit or right provided under this Plan shall have the right
to file a written claim with the Committee. All 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 written decision will be rendered by a member of
the Committee designated by the Committee for such purpose within 90 days
following receipt of the claim.

         9.2. Review of Denial. Within 90 days after receipt of a notice of any
denial of benefits, the claimant or his authorized representative may request,
in writing, to appear before the full Committee for a review of his or her
claim. The Committee in its discretion may elect to grant the Participant's
request to personally appear before the Committee. Any decision of the Committee
thereafter to deny benefits 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.

                                       14

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