Document:

Exhibit
10.02

LEASE MOU
TERMINATION AGREEMENT

This Lease MOU
Termination Agreement (the “Agreement”) is entered into by and between Valero
Corporate Services Company, a Delaware corporation (“VCSC”), and Valero
Logistics Operations, L.P. (“VLI”), as of the 22nd of December, 2006.

BACKGROUND

A.                                   VCSC
and VLI entered into a Memorandum of Understanding (“MOU”), effective January
1, 2006 regarding an Office Lease Agreement detailing certain terms associated
with the proposed lease of space by VCSC to VLI in a new building presently
under construction at VCSC’s corporate headquarters located at One Valero Way,
San Antonio, Texas.  A copy of the MOU is
attached as Exhibit A to this Agreement.

B.                                     VLI
now desires to move to a different facility located elsewhere in San Antonio.

C.                                     VCSC
and VLI wish to terminate the MOU.

AGREEMENT

For valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
VCSC and VLI agree to terminate the MOU as of the date hereof.

IN WITNESS WHEREOF, VCSC
and VLI have executed this Agreement as of the date first referenced above.

	
  VALERO CORPORATE SERVICES COMPANY

  
	
   

  
	
   

  
	
  BY:

  	
  /s/ Michael S. Ciskowski

  	
   

  
	
  NAME:

  	
  Michael S. Ciskowski

  	
   

  
	
  TITILE:

  	
  Executive Vice President

  	
   

  

 

	
  VALERO LOGISTICS OPERATIONS, L.P.

  
	
   

  
	
   

  
	
  BY:  
  VALERO  GP, INC., ITS GENERAL
  PARTNER

  
	
   

  
	
  BY:

  	
  /s/ Curtis V. Anastasio

  	
   

  
	
  NAME:

  	
  Curtis V. Anastasio

  	
   

  
	
  TITILE:

  	
  President & C.E.O.

  	
   

  

 

 

EXHIBIT A

MEMORANDUM
OF UNDERSTANDING ATTACHED

 

 

Memorandum
of Understanding

Regarding Office Lease Agreement

Between

Valero Corporate Services Company, as Landlord, and

Valero Logistics Operations, L.P., as Tenant

This Memorandum of
Understanding, by and between Valero Corporate Services Company, a Delaware
corporation, and Valero Logistics Operations, L.P., a Delaware limited
partnership, will serve to document the agreement of such parties on the
principal terms of an Office Lease Agreement (the “Lease Agreement”) to be
executed by the parties. The parties agree to more fully memorialize these
agreements in the Lease Agreement no later than March 31, 2006, or such other
date as may be mutually agreed to by the parties. Until such Lease Agreement is
executed and delivered on behalf of the parties, the terms of this Memorandum
of Understanding shall be binding on the parties.

Principal Terms of Lease Agreement:

 

	
  Landlord:

  	
   

  	
  Valero Corporate Services Company

  
	
   

  	
   

  	
   

  
	
  Tenant:

  	
   

  	
  Valero Logistics Operations, L.P.

  

 

Leased Premises:            All
of a floor (approximately 63,803 square feet, floor to-be-determined) of the
to-be-constructed office building (the “Building”) totaling approximately
259,455 square feet at Valero corporate headquarters (the “Project”), in San
Antonio, Bexar County, Texas, located on that certain parcel of land (the “Land”)
replatted as Lot 6, Block 2, NCB 14746, recorded in Book 9568, Page 191, Plat
Records of Bexar County, Texas.

	
  Effective Date:

  	
   

  	
  January 1, 2006

  
	
   

  	
   

  	
   

  
	
  Initial Term:

  	
   

  	
  25 years from Rent Commencement Date (defined below)

  
	
   

  	
   

  	
   

  
	
  Renewal Option(s):

  	
   

  	
  One (1) option, for a period of 10 years

  

 

Rent Commencement Date:                The earlier of (i) the
Substantial Completion Date (defined below) or (ii) the date of Tenant’s
beneficial occupancy of the Leased Premises for the conduct of its business
therein. For purposes hereof, the “Substantial Completion Date” means the date
on which the initial leasehold improvements to the Leased Premises are
completed in all material respects in substantial compliance with the final
plans and permits and the Leased Premises are ready for occupancy.

	
  Use:

  	
   

  	
  General office use, and related administrative and
  ancillary purposes

  
	
   

  	
   

  	
   

  
	
  Base Rent:

  	
   

  	
  Initial Term:

  

 

 1
 

 

 

For first 5 years:   $1,598,000 per
year;

For the next 5 years, Base Rent shall be adjusted based on changes in
the CPI Index;

Thereafter, at the beginning of each 5 year period for the remainder of
the Initial Term, Base Rent shall be adjusted to reflect the actual market rent
for comparable office space.

The Base Rent includes Tenant’s proportionate share (based on a
fraction, the numerator of which is the rentable square footage of the Leased
Premises, and the denominator of which is the rentable square footage of the
Building and the other buildings at the Project) of (i) Landlord’s operating
expenses, such as HVAC, janitorial services, and the other Landlord Services
(defined below), (ii) the real property ad valorem taxes assessed or imposed on
the Project, and (iii) Landlord’s insurance costs relating to the Project.

Renewal Period:

At the beginning of the renewal period (if applicable), and again after
the expiration of the first 5 years of the renewal period, the Base Rent shall
be adjusted to reflect the actual market rent for comparable office space.

Change of Control
Provision:            In
the event of a change of control (“Change of Control”) of Valero L.P. or Valero
GP Holdings, LLC, Landlord may, in its sole discretion, declare default by
Tenant under the lease, for which Landlord will have all remedies available to
it under the lease, including the right to evict Tenant with 6 months prior
notice (such 6 month notice period shall only apply if the Change of Control is
the sole Tenant default).

Remedies upon Tenant
Default:        Lease
shall contain standard Landlord remedies upon Tenant default, including
(without limitation) acceleration of rent.

Relocation of Landlord’s
Headquarters:          If
Landlord’s corporate headquarters are relocated to any other location, Landlord
may terminate the Lease on 12 months prior written notice.

Initial Tenant
Improvements/Alteration Rights:             Landlord shall be responsible, at its sole cost and
expense, for initial tenant improvements/finish-out of Leased Premises, based
on plans approved by Landlord and Tenant; after the Commencement Date, Tenant
may make non-structural changes to the Leased Premises without Landlord’s
consent (structural changes shall require Landlord’s prior written consent, in
its sole discretion).

Furnishings & Moving
Expenses:    Landlord
shall provide Tenant with all furnishings being used by Tenant in Landlord’s
other buildings as of the Rent Commencement Date.

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All furnishings required
by Tenant after the Rent Commencement Date shall be at Tenant’s sole cost and
expense.  Landlord shall move Tenant into
the Leased Premises at its sole cost and expense.

No Representations or
Warranties:   The Leased
Premises shall be leased on an “AS IS”, “WITH ALL FAULTS” basis, with no
express or implied representations or warranties provided by Landlord; provided
that, to the extent that any express warranties form third party contractors
relating to the initial tenant improvements to the Leased Premises are
partially assignable to Tenant, Landlord shall partially assign such warranties
to Tenant.

Landlord Services/Maintenance
Responsibilities;  Tenant Maintenance
Responsibilities:  Landlord
shall be responsible for providing (i) 
maintenance and repair of the roof, exterior walls, foundations and
other structural elements of the Building; (ii) 
the following with respect to the Leased Premises:  janitorial services, elevator service, electrical
services, HVAC, replacement of lamps and ballasts in ceiling, water and sewer service
for the restrooms, and routine plumbing repairs; (iii)  grounds and landscaping maintenance; and
(iv)  parking lot maintenance
(collectively, “Landlord Services”). Tenant shall be responsible for providing
all other maintenance and repairs to the Leased Premises.

License to Use Certain
Amenities:  As long as
Landlord is providing the Campus Amenities (defined below) to its employees at
the Project, then Tenant’s employees at the Leased Premises shall have a
license to use the Campus Amenities, within the areas at the Project or on
Landlord’s adjacent campus designated by Landlord in its sole discretion, at no
additional cost to Tenant other than any costs charged to Landlord’s employees
therefore.  Notwithstanding the
foregoing, Landlord may terminate the license (or any portion thereof, in
Landlords’ sole discretion) described in this paragraph at any time upon thirty
(30) days written notice to Tenant after a Change of Control.  For purposes hereof, the term “Campus
Amenities” means the following: 
cafeteria services provided by Aramark Food Services, Inc.  (or other entity designated by Landlord in
its sole discretion); fitness center, walking/jogging trials, and basketball
and tennis courts owned by Landlord at the Project; fitness services provided
by MediFit Corporate Services, Inc. (or other entity designated by Landlord in
its sole discretion); massage therapy provided by any person or entity
designated by Landlord in its sole discretion; and any other similar kinds of
services that may be provided by Landlord at the Project to Landlord’s
employees at the Project in the future, as may be designated by Landlord in its
sole discretion.

Tenant’s Right to Assign
or Sublease:  Tenant
may not assign any of its interest in the lease or sublet all or any portion of
the Leased Premises without Landlord’s prior written consent, in Landlord’s
sole discretion.

Security:  Subject to the provisions below, Landlord
shall provide security services for the project, including the parking garage
and the Leased Premises.

 3
 

 

Indemnity:             The lease will contain typical
indemnities (contained in standard office leases) from Tenant in favor of
Landlord; provided that Tenant shall release, indemnify and hold harmless
Landlord from and against any and all claims of Tenant’s employees arising from
the security, health, and/or fitness services (each of which is described above)
at the Project or the exercise of any of the rights under the license described
above by Tenant’s employees, including, without limitation, any such claim
caused by or resulting from Landlord’s negligence.  The lease will include the necessary provisions
to comply with the express negligence standards of the laws of the State of
Texas.

Insurance:             The lease will describe the
insurance coverage (as typically required by Landlord) that Tenant shall
provide at its sole cost and expense, with Landlord named as an additional
insured.

Taxes:                     Tenant shall be responsible
for payment of all taxes and assessments levied or assessed upon Tenant’s
fixtures, furniture and personal property located in or about the Leased
Premises.

Parking:                  Tenant shall be entitled to a
pro-rata share of the parking spaces located in the parking garage to be
constructed adjacent to the Building, including a pro-rata share of the
reserved spaces, based on its proportionate share (made up of a fraction, the
numerator of which is the rentable square footage of the Leased Premises in the
Building, and the denominator of which is the rentable square footage in the
Building), all at no additional cost.

Brokerage
Commissions:                    None.  The lease shall contain a mutual indemnity
for any claim for brokerage commissions in connection with the lease arising
by, through or under the indemnifying party.

The parties agree that
this Memorandum of Understanding shall be binding upon their respective
successors and assigns, and that either party may assign its rights and
obligations hereunder to one or more affiliates without the other party’s prior
written consent.  This Memorandum of
Understanding may be amended only by an instrument in writing signed by both
parties.  This Memorandum of
Understanding shall be superseded by the Lease Agreement upon the complete
execution of the Lease Agreement.  THIS
MEMORANDUM OF UNDERSTANDING SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS. 
THIS MEMORANDUM OF UNDERSTANDING WAS PREPARED BY BOTH PARTIES HERETO AND
NOT BY ONE PARTY TO THE EXCLUSION OF THE OTHER PARTY.

[signatures contained on next page]

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The parties, by the
signature of the duly authorized officers below, agree to terms set forth
above, effective as of January 1, 2006.

	
  “Landlord”

  
	
  VALERO CORPORATE SERVICES COMPANY

  
	
   

  
	
   

  
	
  By:

  	
    /s/ Mike
  Ciskowski

  	
   

  
	
  Mike Ciskowski, Executive Vice President

  

 

“Tenant”

	
  VALERO LOGISTICS OPERATIONS, L.P.

  
	
   

  
	
   

  
	
  By: Valero GP, Inc., its General Partner

  
	
   

  
	
   

  	
  By:

  	
    /s/ Curtis
  V. Anastasio

  	
   

  
	
   

  	
  Curtis V. Anastasio, President

  

 

 

 

 5Exhibit 10.03

AMENDED
AND RESTATED

EMPLOYEE
BENEFITS TRANSITION AGREEMENT

This
Amended and Restated Employee Benefits Transition Agreement (“Agreement”) is
entered into by and between Valero Energy Corporation (“VEC”), Valero GP
Holdings, LLC (“Holdings”) and Valero GP, LLC (“GP”) to be effective as of
December 22, 2006.

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

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

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

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

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

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

WHEREAS,
VEC, Holdings and GP entered into an Employee Benefits Transition Agreement
effective as of July 1, 2006, and now desire to amend and restate the agreement
as set forth below.

NOW, THEREFORE,
the parties hereby agree as follows:

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

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

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

 

“Cut-Over Date” for a particular Eligible GP Employee
(other than one who was an employee of GP as of July 1, 2006), shall mean the
date that the Eligible GP Employee ceases to be a VEC Employee and becomes a
employee of GP.

“DOL” shall mean the Department of Labor.

“Eligible GP Employees” shall mean (i) individuals
who, as of July 1, 2006, are employees of GP, as well as any other individuals
who are transferred from VEC or any of its affiliates to GP on or before the
effective date of the Second Tranche, (ii) individuals identified as “fully
dedicated” to providing services to Valero L.P. (such individuals listed on
Schedule B attached hereto), and (iii) such other individuals who meet the
requirements of a Post-Second Tranche Eligible GP Employee as further described
in Paragraph 5 below.

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

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

“IRS” shall mean the Internal Revenue Service.

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

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

“Second Tranche” shall mean December 22, 2006, the
effective date of the second sale by VEC of its equity ownership interest in
Holdings, at which time VEC ceased to have any equity ownership interest in
Holdings.

“Services Agreement” shall mean the Fourth Amended and
Restated Services Agreement among Diamond Shamrock Refining and Marketing
Company, Valero Corporate Services Company, Valero L.P., Valero Logistics
Operations, L.P., Riverwalk Logistics, L.P. and Valero GP, LLC dated as of December
22, 2006, as may be amended and restated from time to time.

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

2.                                       General Support and Cooperation.  The parties agree, as a general matter, that
they shall fully cooperate with each other in all reasonable respects in the
design, adoption, amendment, implementation, and administration of the employee
benefit plans and programs, as well as the other matters, contemplated herein.  In furtherance but not in limitation of this
general provision, each party shall provide the other party with such records,
data and information as may be reasonably necessary in order to carry out the

 2
 

 

intent of this Agreement.  Additionally, VEC shall, at its cost and
expense, assist GP in the design, preparation and initial implementation of
each of the GP Plans, such assistance to include reasonable access to
appropriate individuals within the human resources and legal functions of
VEC.  Notwithstanding anything else provided
herein, payment of all costs associated with the design, preparation and
initial implementation of each of the GP Plans contemplated herein shall be
borne by VEC, including but not limited to related legal and actuarial fees.

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

4.                                       Term. 
Each of the transition services and arrangements provided for herein
shall continue through the earlier of its completion or the Second Tranche;
provided that the parties may agree to extend any of the services and
arrangements beyond the effective date of the Second Tranche by mutual
agreement, and provided further that nothing in this Agreement shall be deemed
to alter or diminish any of the services provided by affiliates of VEC to GP or
any of its affiliates pursuant to the Services Agreement.

5.                                       Post-Second Tranche Employee Transition.  The following provisions address the potential
transition of additional employees from VEC to GP and also specifically apply
for purposes of determining Post- Second Tranche Eligible GP Employees who are
eligible to benefit from the agreements entered into herein with respect to the
transition of employee benefit plans:

(a)                                  Extension
to and Acceptance of Offers by Indirect and No Service Employees.  Any VEC Employee, including those that
presently provide services indirectly to Valero L.P. and/or its affiliates
(referred to herein as “Indirect Employees”) and those that presently provide
no services to Valero L.P. and/or its affiliates (referred to herein as “No
Service Employees”) may become employees of GP and be considered Post-Second
Tranche Eligible GP Employees in accordance with the following provisions:

(i)  By March 1,
2007, GP must provide VEC with a list of Indirect Employees and No Service
Employees to whom it is considering making an offer of employment.

(ii)  By April
1, 2007, GP must provide VEC with a list of all Indirect Employees and No
Service Employees to whom it has made offers of employment (the “GP Offer List”).  The offers are subject to the following
restrictions:

 3
 

 

1.             Offers
for No Service Employees must provide that employment starts with GP no later
than the Last Move Date (as defined in the Services Agreement) or May 15, 2007,
whichever is later.

2.             Offers
for Indirect Employees must provide that employment starts with GP no later
than the relevant Optional Termination Date (as defined in the Services
Agreement) or May 15, 2007, whichever is later.

(iii)  VEC may
elect to make offers to any of the VEC Employees listed on the GP Offer List in
its sole discretion.  By April 15, 2007,
VEC must provide GP with a list of all Indirect Employees and No Service
Employees to whom it has made offers of employment.

(iv)  GP and VEC
may only make one offer to an employee, which offer cannot be subsequently
modified in any material way.

(v)  By May 1,
2007, GP must provide VEC with a list (the “Final GP List”) of those Indirect
Employees and No Service Employees that have accepted offers of employment from
GP, including the proposed start date (which may not be any later than the
applicable dates identified in (ii) above).

(b)                                 Post-Second
Tranche Eligible GP Employees.  Only
those Indirect Employees and No Service Employees (i) listed on both the GP
Offer List and the Final GP List or (ii) expressly agreed upon in a signed
writing between VEC and GP no later than February 28, 2007, will be considered
Eligible GP Employees for purposes of this Agreement (“Post-Second Tranche
Eligible GP Employee”).  No other
Indirect Employees or No Service Employees hired by GP will be considered
Eligible GP Employees for purposes of this Agreement.

(c)                                  Secondment
of Certain Employees.  If an Indirect
Employee accepts an offer from GP, VEC will “second” the Indirect Employee to
GP from and after the earlier of (A) May 15, 2007 or (B) the acceptance by an
Indirect Employee of an offer of employment from GP, until the earlier of (A)
the starting date of employment with GP or the relevant Optional Termination
Date (as defined in the Services Agreement). 
The cost to second these Indirect Employees for this period will be
deemed to be included in the Administrative Service Fee for that particular
Service (all as defined in the Services Agreement).

(d)                                 Termination
of Employment.  Indirect Employees
and No Service Employees that accept offers from GP, whether or not determined
to be a Post-Second Tranche Eligible GP Employee, will be deemed to have
voluntarily resigned from employment with VEC effective upon his or her
starting date of employment with GP.

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6.                                       Pension Plan.

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

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

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

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8.                                       Active Employee Welfare Benefits.

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

(b)                                 GP
Welfare Plans.  As of the expiration
of the Welfare Plan Transition Period, GP will have established its welfare
benefit plans for Eligible GP Employees and their dependents, as well as other
individuals subsequently employed by GP and determined to be eligible under the
terms of the applicable welfare plan sponsored by GP, and, as of January 1,
2007 or the Cut-Over Date, as applicable, such individuals shall no longer be
eligible for coverage or benefits under the VEC welfare benefit plans, except
as may be required under COBRA for qualifying events that occurred during the
Welfare Plan Transition Period.

(c)                                  Special
Provisions Regarding Long-Term Disability/Health and Welfare Benefits.  Consistent with the foregoing provisions of
this Section 8, VEC shall continue to provide long-term disability (“LTD”) pay
continuance coverage to Eligible GP Employees during the Welfare Plan
Transition Period under the VEC LTD plan, as it may be amended from time to
time.  However, GP will be obligated for
the cost of LTD benefits (pay continuance and/or health and welfare benefits,
as applicable) to those individuals identified on Schedule A during the Welfare
Plan Transition Period and going forward shall provide such benefits under GP
LTD and health and welfare plans.  The
transfer of liabilities relating to the individuals identified on Schedule A
are more particularly described in Exhibit A. At the expiration of the Welfare
Plan Transition Period, VEC shall be obligated solely with respect to the
provision of LTD pay continuance benefits for any Eligible GP Employee (other
than those former Kaneb employees listed on Schedule A) who is or becomes
eligible to receive LTD pay continuance benefits due to a disability that
occurs on or before December 31, 2006, such LTD pay continuance benefits to be
payable in accordance with the terms of the applicable insurance policy
sponsored by VEC.  Also at the expiration
of the Welfare Plan Transition Period, each entity shall be responsible for the
LTD coverage and benefits that may become payable to its respective employees
due to a disability that occurs on or

 6
 

 

after January 1, 2007. 
The parties shall cooperate with each other and coordinate the transfer
of appropriate individuals from the VEC LTD and health and welfare plans to the
GP LTD and health and welfare plans consistent with the provisions of this
paragraph.

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

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

10.                                 Equity Incentive Arrangements.

(a)                                  VEC
Stock Plans.  VEC shall effect
appropriate amendments to the Valero Energy Corporation 2003 Employee Stock
Incentive Plan, the Valero Energy Corporation 2001 Executive Stock Incentive
Plan, 1997 Stock Option Plan and the Ultramar Diamond Shamrock Corporation
Amended and Restated 1996 Long Term Incentive Plan (the “VEC Stock Plans”) such
that, for purposes of administering the outstanding awards previously made to
individuals who are Eligible GP Employees as of the Second Tranche: (i) such
employees shall be deemed to have terminated employment as of the Second
Tranche; and (ii) all such awards shall become fully vested as of the Second
Tranche, and exercisable

 7
 

 

over the succeeding 12-month period.  All costs, expenses and liabilities
associated with or arising from VEC’s obligations under this paragraph 10(a)
shall be the responsibility of VEC.  VEC
hereby agrees to accelerate the vesting of any outstanding award under the VEC
Stock Plans held by an individual who becomes an Eligible GP Employee after the
Second Tranche, such acceleration to occur immediately prior to the applicable
Cut-Over Date.  VEC further agrees to
effect appropriate amendments to the VEC Stock Plans to provide for such
acceleration and to extend the exercise period for options outstanding as of
the Cut-Over Date to the end of the calendar year in which the Cut-Over Date
occurs, provided however, that Post-Second Tranche Eligible GP Employees whose
Cut-Over Date is during the period of December 1, 2007 through December 31,
2007, shall have 12 months from the Cut-Over Date in which to exercise
outstanding options.  Notwithstanding the
foregoing, if the IRS gives further relief under Section 409A of the Code prior
to the expiration of an exercise period for an Eligible GP Employee that would
permit further extension of the exercise period, VEC agrees to extend as
permitted but not beyond 12 months from the Cut-Over Date.

(b)                                 GP
Unit Plans.  GP shall continue to
sponsor and administer the Valero GP, LLC Amended and Restated 2000 Long-Term
Incentive Plan, the Valero GP, LLC Amended and Restated 2002 Unit Option Plan
and the Valero GP, LLC Amended and Restated 2003 Employee Unit Incentive Plan
(the “GP Unit Plans”), in accordance with their terms and conditions, as they
may be amended from time to time.  GP
shall effect appropriate amendments to the GP Unit Plans such that, for
purposes of administering the outstanding awards previously made to VEC
Employees (i) such employees shall be deemed to have terminated employment with
respect to GP as of the Second Tranche; and (ii) all such awards shall become
fully vested as of the Second Tranche, and exercisable over the succeeding
12-month period.  All costs, expenses and
liabilities associated with or arising from GP’s obligations under this
paragraph 10(b) shall be the responsibility of GP.

11.           Nonqualified
Deferred Compensation Arrangements.

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

(b)                                 Excess
Thrift Plan.  Effective as of July 1,
2006, GP shall adopt an Excess Thrift Plan (“GP Excess Thrift Plan”) for
Eligible GP Employees, as well as other individuals subsequently employed by GP
and determined to be eligible under the

 8
 

 

terms of the GP Excess Thrift Plan, which shall have
initial terms substantially similar to the terms of the Valero Energy
Corporation Excess Thrift Plan (“VEC Excess Thrift Plan”).  Eligible GP Employees shall cease to be
eligible for additional contributions or accruals under the VEC Excess Thrift
Plan effective as of July 1, 2006 or the Cut-Over Date, as applicable, and, in
accordance with the terms of the VEC Excess Thrift Plan, all benefits accrued
as of such date by Eligible GP Employees shall be distributed to such Eligible
GP Employees as soon as reasonably practical following the effective date of
the Initial Tranche or the Cut-Over Date, if later, considering, without
limitation, restrictions on certain distributions imposed by the Code.  The GP Excess Thrift Plan shall provide
credit to all Eligible GP Employees for purposes of vesting for all service
credited by VEC for such purpose under the VEC Excess Thrift Plan.

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

(d)                                 Excess
Pension Plan and Supplemental Retirement Plan.  Effective as of July 1, 2006, GP shall adopt
an Excess Pension Plan (“GP Excess Pension Plan”) and a Supplemental Retirement
Plan (“GP SERP”) for Eligible GP Employees, as well as other individuals
subsequently employed by GP and determined to be eligible under the terms of
the GP Excess Pension Plan or GP SERP, which shall have initial terms
substantially similar to the terms of the corresponding VEC plans (“VEC Excess
Pension Plan” and “VEC SERP”, respectively). 
Eligible GP Employees who, as of July 1, 2006 or the Cut-Over Date, as
applicable, are participants in the VEC Excess Pension Plan or the VEC SERP
shall, as of such date, automatically become participants in the GP Excess
Pension Plan or the GP SERP, as the case may be, and shall cease to be eligible
to participate in, or to receive additional accruals under, the VEC Excess
Pension Plan or the VEC SERP.  Upon the
transfer of assets and liabilities described in paragraph 13 below as of the
effective date of the initial tranche, GP shall be solely obligated with
respect to all excess pension and supplemental retirement benefits of Eligible

 9
 

 

GP Employees, and VEC
shall have no further liabilities with respect to such benefits.

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

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

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

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

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

 10
 

 

Agreement with respect to any implementation,
maintenance or administration of such plans.

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

17.                                 Notices.  All communications, notices and disclosures
required or permitted by this Agreement shall be in writing and shall be deemed
to have been given at the earlier of the date (a) when delivered
personally or by messenger or by overnight delivery service by a recognized
commercial carrier to an officer of the other party, (b) three days after being
mailed by registered or certified United States mail, postage prepaid, return
receipt requested, or (c) when received via facsimile or electronic mail,
in all cases addressed to the individual for whom it is intended at his address
set forth below or to such other address as a party shall have designated by
notice in writing to the other party in the manner provided by this
Section 17:

	
  If to VEC:

  	
  Valero Energy Corporation

  	
   

  
	
   

  	
  One Valero Way

  	
   

  
	
   

  	
  San Antonio, TX
  78249

  	
   

  
	
   

  	
  Attention:

  	
  Debbie Hevner,

  	
   

  
	
   

  	
   

  	
  Executive Director HR

  	
   

  
	
   

  	
   

  	
  Administration, Payroll and Benefits

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  If to Holdings:

  	
  Valero GP Holdings , LLC

  	
   

  
	
   

  	
  One Valero Way

  	
   

  
	
   

  	
  San Antonio, TX
  78249

  	
   

  
	
   

  	
  Attention:

  	
  Bradley Barron,

  	
   

  
	
   

  	
   

  	
  Vice President,
  General Counsel

  	
   

  
	
   

  	
   

  	
  and Secretary

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  If to GP:

  	
  Valero GP, LLC

  	
   

  
	
   

  	
  One Valero Way

  	
   

  
	
   

  	
  San Antonio, TX
  78249

  	
   

  
	
   

  	
  Attention:

  	
  Bradley Barron,

  	
   

  
	
   

  	
   

  	
  Vice President, General Counsel

  	
   

  
	
   

  	
   

  	
  and Secretary

  	
   

  

 

18.                                 Entire Agreement; Amendment.  This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions of the parties, whether oral or written.  No amendment, supplement, modification or
termination of this Agreement shall be binding unless executed in writing by
the party to be bound

 11
 

 

thereby.  No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision of this Agreement, whether or not
similar, nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.

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

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

21.           Binding Effect.  This Agreement shall be binding upon the
Parties and each of their successors through name change, corporate transaction
or otherwise.

IN WITNESS
WHEREOF, the parties have executed this Agreement this 22nd day of December,
2006, to be effective as of December 22, 2006.

	
  

  	
  VALERO ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael S. Ciskowski

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Michael S. Ciskowski

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice President and Chief

  
	
   

  	
   

  	
   

  	
  Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  VALERO GP HOLDINGS, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven A. Blank

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Steven A. Blank

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President, Chief

  
	
   

  	
   

  	
   

  	
  Financial Officer and Treasurer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  VALERO GP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven A. Blank

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Steven A. Blank

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President, Chief

  Financial Officer and Treasurer

  
	
   

  	
   

  	
   

  	
   

  
					

 

SIGNATURE PAGE TO AMENDED AND RESTATED EMPLOYEE
BENEFITS TRANSITION AGREEMENT

 12

 

EXHIBIT
A

VALERO
ENERGY CORPORATION

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

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

Liabilities to be
transferred to Valero GP Holdings:

	
  Other post-employment
  benefits

  	
   

  	
  $

  	
  6,091,031

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Excess pension
  plan

  	
   

  	
  222,552

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SERP

  	
   

  	
  857,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Long-term
  disability

  	
   

  	
  686,533

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total amount of
  liabilities to be transferred to Valero GP Holdings

  	
   

  	
  7,857,116

  	
  (1)

  
	
   

  	
   

  	
   

  	
   

  
	
  Assets to be
  transferred to Valero GP Holdings:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Receivable from Valero L.P.

  	
   

  	
  $

  	
  5,812,033

  	
  (2)

  
	
   

  	
   

  	
   

  	
   

  
	
  Deferred tax
  asset

  	
   

  	
  1,024,260

  	
  (3)

  
	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  1,020,823

  	
  (4)

  
	
   

  	
   

  	
   

  	
   

  
	
  Total amount of assets
  to be transferred to Valero GP

  Holdings in exchange for the above liabilities

  	
   

  	
  $

  	
  7,857,116

  	
   

  

 

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

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

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

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

 

Schedule
A

J.
K. Allan*

V.
Bowling*

J.
Cardozier*

J.
Esquivel

G.
Kemper

R.
Miller, Jr.

R.
Overbey

E.
Sauer

R.
Smith*

D.
Stapleton

*Former Kaneb
employees

 14
 

 

Schedule B

Individuals
Identified as Being “Fully Dedicated”

To Presently Providing Services
to Valero L.P. or Its Affiliates

M. Kennerly

L. Maddox

A. Marek

S. Smajstrla

 15

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