Item 6. Indemnification of Directors and Officers.
Valeros Amended and Restated Certificate of Incorporation, as amended (the Restated Certificate of Incorporation) contains a
provision that eliminates the personal liability of a director to Valero and its stockholders for monetary damages for breach of fiduciary duty as a director to the extent currently allowed under the Delaware General Corporation Law. If a director
were to breach such duty in performing duties as a director, neither Valero nor its stockholders could recover monetary damages from the director, and the only course of action available to Valeros stockholders would be equitable remedies,
such as an action to enjoin or rescind a transaction involving a breach of fiduciary duty. To the extent certain claims against directors are limited to equitable remedies, the provision in Valeros Restated Certificate of Incorporation may
reduce the likelihood of derivative litigation and may discourage stockholders or management from initiating litigation against directors for breach of their fiduciary duties. Additionally, equitable remedies may not be effective in many situations.
If a stockholders only remedy is to enjoin the completion of the Board of Directors action, this remedy would be ineffective if the stockholder does not become aware of a transaction or event until after it has been completed. In such a
situation, it is possible that the stockholders and Valero would have no effective remedy against the directors. Under Valeros Restated Certificate of Incorporation, liability for monetary damages remains for (i) any breach of the duty of
loyalty to Valero or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) payment of an improper dividend or improper repurchase or redemption of
Valeros stock under Section 174 of the Delaware General Corporation Law, or (iv) any transaction from which the director derived an improper personal benefit.
Under Article V of the Restated Certificate of Incorporation and Article VIII of Valeros Amended and Restated By-laws as currently in effect (the Restated By-laws) and an indemnification agreement with Valeros officers and directors (the Indemnification
Agreement), each person who is or was a director or officer of Valero or a subsidiary of Valero, or who serves or served any other enterprise or organization at the request of Valero or a subsidiary of Valero (collectively, an
Indemnitee), shall be indemnified by Valero to the full extent permitted by the Delaware General Corporation Law.
Under such
law, to the extent that an Indemnitee is successful on the merits in defense of a suit or proceeding brought against the Indemnitee by reason of the fact that he or she is or was a director or officer of Valero, or serves or served any other
enterprise or organization at the request of Valero, the Indemnitee shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred in connection with such action.
Under such law, if unsuccessful in defense of a third-party civil suit or a criminal suit, or if such suit is settled, the Indemnitee shall be
indemnified against both (a) expenses, including attorneys fees, and (b) judgments, fines and amounts paid in settlement if he or she acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best
interests of Valero, and, with respect to any criminal action, had no reasonable cause to believe his conduct was unlawful.
If
unsuccessful in defense of a suit brought by or in the right of Valero, or if such a suit is settled, the Indemnitee shall be indemnified under such law only against expenses (including attorneys fees) actually and reasonably incurred in the
defense or settlement of such suit if he or she acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of Valero, except that if the Indemnitee is adjudged to be liable in such a suit for negligence
or misconduct in the performance of duties to Valero, the Indemnitee cannot be made whole for expenses unless the court determines that he or she is fairly and reasonably entitled to indemnity for such expenses.
The Indemnification Agreement provides directors and officers with specific contractual assurance that indemnification and advancement of
expenses will be available to them regardless of any amendments to or revocation of the indemnification provisions of Valeros Restated By-laws. The Indemnification Agreement provides for indemnification
of directors and officers against both stockholder derivative claims and third-party claims. Sections 145(a) and 145(b) of the Delaware General Corporation Law, which grant corporations the power to indemnify directors and officers, specifically
authorize lesser indemnification in connection with derivative claims than in connection with third-party claims. The distinction is that Section 145(a), concerning third-party claims, authorizes expenses and judgments and amounts paid in
settlement (as is provided in the Indemnification Agreement), while Section 145(b), concerning derivative suits, generally authorizes only indemnification of expenses. However, Section 145(f) expressly provides that the indemnification and
advancement of expenses provided by or granted pursuant to the subsections of Section 145 shall not be exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any agreement. Delaware
case law does not directly answer whether Delawares public policy would support this aspect of the Indemnification Agreement under the authority of Section 145(f), or would cause its invalidation because it does not conform to the
distinctions contained in Sections 145(a) and 145(b).