Description

Indemnification Agreement (Public Company) (DE)

Summary

This Indemnification Agreement is for directors and officers of a Delaware reporting company (public company).  In this agreement, the company agrees to reimburse the director or officer for losses incurred in legal proceedings related to their service as company director or officer.  Additionally, the company agrees to advance funds to the director or officer to pay expenses as they are incurred.

Details

The corporate laws of most states provide for the indemnification of directors and officers. Generally, the states permit a company to indemnify a director or officer for expenses incurred in:

• Successfully defending against claims brought against the director or officer in his status as director or officer of the company.
• Defending against claims where the director or officer acted in good faith and not against the company’s best interests.

For example, Section 145 of the General Corporation Law of the State of Delaware (DGCL) provides the statutory authority for a company’s ability to indemnify its officers, directors, and others. In particular, Section 145(f) provides that the indemnification rights and procedures outlined in Section 145 are not exclusive. This permits Delaware companies to provide additional indemnification rights. Most Delaware corporations also provide indemnification rights in their organizational documents. Parties sometimes draft these documents so that they are more generous than the rights granted under state law.

In addition to charter and by-law provisions, companies often enter into indemnification agreements with their officers and directors.

Key purposes of an indemnification agreement include:

• Providing more protection than indemnification provisions in organizational documents. This is possible because the agreement is a contract that cannot be amended without the indemnified party’s consent and approval.
• Clarification of indemnification procedures and mechanics, which are not typically specified in state law or organizational documents.

A Delaware reporting company and each of its offers and directors should enter into the following indemnification agreement.

Additionally, a reporting company should use this Indemnification Agreement. Public company directors and officers are more likely to face litigation and potential personal liability than those of private companies. In addition, this agreement focuses on the requirements of a Delaware corporation because many public companies are incorporated there. If a company incorporated outside of Delaware is planning to use this Agreement, the company must first review the applicable corporate law of the state in which the company is incorporated.

Parties should generally tailor this Indemnification Agreement to ensure that it complies with requirements under the company’s charter and by-laws. Companies should consider whether the agreement and the company’s organizational documents provide for inconsistent rights.

This Agreement aims to present a reasonable compromise between the company and directors or officers to:

• Reduce the time and expense it takes to get to the final version.
• Preserve the company’s ability to attract and keep the services and goodwill of desirable director and officer candidates.