This sample document is the work product of a coalition of attorneys who specialize in venturecapital financings, working under the auspices of the NVCA. See the NVCA website for a list ofthe Working Group members. This document is intended to serve as a starting point only, andshould be tailored to meet your specific requirements. This document should not be construed aslegal advice for any particular facts or circumstances. Note that this sample presents an array of(often mutually exclusive) options with respect to particular deal provisions.MODEL INDEMNIFICATION AGREEMENTLast updated on January 14, 2004INTRODUCTIONThis agreement can be used for both officers and directors of the corporation. In some cases, adirector will serve as a nominee of one or a group of investors (e.g., an individual venturecapitalist serving as a nominee of a venture capital fund). Some investors request that they alsobe covered by the indemnification agreement. Since the indemnification rights provided by thisagreement cover liability arising by virtue of "corporate status", this agreement would only workto indemnify investors in a case where the investor is acting as an agent of the corporation. SeeFasciana v. Electronic Data Systems, No. 19753 (Del. Ch. Feb. 27, 2003). To the extentinvestors seek indemnification for actions other than those taken in an agency capacity, thecircumstances and indemnity provided would be more appropriately covered in the StockPurchase Agreement.Section 145 of the Delaware General Corporation Law (“Section 145”) is the statutoryauthority for indemnification of directors, officers, employees and agents of the corporation.Section 145(a) permits (but does not require) indemnification of expenses (including attorneys’fees) as well as judgments and amounts paid in settlement in third-party actions (i.e., actions notbrought by or in the right of the corporation) if the applicable standard is met. Section 145(b)permits (but does not require) indemnification of expenses (including attorneys’ fees) but notjudgments and amounts paid in settlement in derivative actions (i.e., actions brought by or in theright of the corporation) if the applicable standard is met. Thus, Section 145 draws a basicdistinction between third-party and derivative actions. Section 145(c) requires indemnificationof expenses (including attorneys’ fees) if the indemnitee is successful on the merits or otherwisein a proceeding referred to in Section 145(a) or (b). Section 145(d) sets forth requirements fordetermining whether indemnification is permitted under Section 145(a) or (b). Section 145(e)permits advancement of expenses before final disposition of a proceeding subject to certainconditions. Section 145(f) provides that the statutory rights and procedures regardingindemnification are not exclusive, thus permitting indemnification under bylaws, agreements andother circumstances beyond the limits specified in Section 145. Section 145(g) allows acorporation to obtain directors’ and officers’ liability insurance (“D&O insurance”). Sections145(h) through (k) address various other aspects of indemnification, including provisionsrelating to survivorship of the obligations of the indemnifying corporation, survivorship of rightsto indemnification upon ceasing to be a director, officer, employee or agent and the exclusivejurisdiction of the Delaware Court of Chancery over indemnification proceedings. Section 102(b)(7) of the Delaware General Corporation Law is the other relevant statutoryauthority relating to the protection of directors from monetary liability. Section 102(b)(7) allowsinclusion of a provision in the certificate of incorporation that eliminates or limits (i.e., caps) thepersonal liability of directors to the corporation or its stockholders for monetary damages forbreach of fiduciary duty. The statute, however, prohibits limitations on director liability (i) forbreach of a director’s duty of loyalty, (ii) for acts or omissions not in good faith or involvingintentional misconduct or knowing violation of law, (iii) for willful or negligent conduct inpaying dividends or repurchasing stock out of other than lawfully available funds, or (iv) for anytransaction from which a director derives an improper personal benefit. In essence, Section102(b)(7) allows a corporation to protect its directors from monetary liability for duty of careviolations As noted above, Section 145(f) provides that statutory indemnification rights are not exclusive ofindemnification rights that may be provided by a bylaw provision, agreement or otherwise. AsLast updated on January 14, 20042discussed below, although Section 145(f) could be read broadly to allow a corporation to grantby contract indemnification rights beyond those permitted by Section 145, cases andcommentators suggest that contractual indemnification rights may be held unenforceable if theyviolate other statutes (including Section 145), court decisions or public policy. As a result, theenforceability of contracts that purport to grant indemnification rights beyond those permittedby Section 145 is at best unclear. (For further discussion, see comment under Section 2 below.)An indemnification agreement may serve several purposes. First, and most importantly, it mayprovide more secure protection than a provision in a certificate of incorporation or bylawbecause it cannot be amended without the approval of the indemnitee. Second, it can be used tomake mandatory indemnification that is permissive under Section 145, to specify variousprocedures and presumptions that make indemnification more favorable to the indemnitee than isprovided by Section 145 and to perhaps provide for indemnification rights that go beyond thosethat are expressly provided by Section 145. While such provisions could also be included in thecertificate of incorporation or bylaws, an agreement permits different rights to be granted tospecific directors, officers, employees and agents, rather than in a one size fits all approach.Some companies choose to provide mandatory indemnification for directors (i.e., the company isrequired to indemnify a director if the applicable conditions are met) and
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