This sample document is the work product of a coalition of attorneys who specialize in venture capital financings working under the auspices of the NVCA See the NVCA website for a list of the Working Group members This document is intended to serve as a starting point only and should be tailored to meet your specific requirements This document should not be construed as legal 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 AGREEMENT Last updated on January 14 2004 INTRODUCTION This agreement can be used for both officers and directors of the corporation In some cases a director will serve as a nominee of one or a group of investors e g an individual venture capitalist serving as a nominee of a venture capital fund Some investors request that they also be covered by the indemnification agreement Since the indemnification rights provided by this agreement cover liability arising by virtue of corporate status this agreement would only work to indemnify investors in a case where the investor is acting as an agent of the corporation See Fasciana v Electronic Data Systems No 19753 Del Ch Feb 27 2003 To the extent investors seek indemnification for actions other than those taken in an agency capacity the circumstances and indemnity provided would be more appropriately covered in the Stock Purchase Agreement Section 145 of the Delaware General Corporation Law Section 145 is the statutory authority 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 not brought 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 not judgments and amounts paid in settlement in derivative actions i e actions brought by or in the right of the corporation if the applicable standard is met Thus Section 145 draws a basic distinction between third party and derivative actions Section 145 c requires indemnification of expenses including attorneys fees if the indemnitee is successful on the merits or otherwise in a proceeding referred to in Section 145 a or b Section 145 d sets forth requirements for determining 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 certain conditions Section 145 f provides that the statutory rights and procedures regarding indemnification are not exclusive thus permitting indemnification under bylaws agreements and other circumstances beyond the limits specified in Section 145 Section 145 g allows a corporation to obtain directors and officers liability insurance D O insurance Sections 145 h through k address various other aspects of indemnification including provisions relating to survivorship of the obligations of the indemnifying corporation survivorship of rights to indemnification upon ceasing to be a director officer employee or agent and the exclusive jurisdiction of the Delaware Court of Chancery over indemnification proceedings Section 102 b 7 of the Delaware General Corporation Law is the other relevant statutory authority relating to the protection of directors from monetary liability Section 102 b 7 allows inclusion of a provision in the certificate of incorporation that eliminates or limits i e caps the personal liability of directors to the corporation or its stockholders for monetary damages for breach of fiduciary duty The statute however prohibits limitations on director liability i for breach of a director s duty of loyalty ii for acts or omissions not in good faith or involving intentional misconduct or knowing violation of law iii for willful or negligent conduct in paying dividends or repurchasing stock out of other than lawfully available funds or iv for any transaction from which a director derives an improper personal benefit In essence Section 102 b 7 allows a corporation to protect its directors from monetary liability for duty of care violations As noted above Section 145 f provides that statutory indemnification rights are not exclusive of indemnification rights that may be provided by a bylaw provision agreement or otherwise As Last updated on January 14 2004 2 discussed below although Section 145 f could be read broadly to allow a corporation to grant by contract indemnification rights beyond those permitted by Section 145 cases and commentators suggest that contractual indemnification rights may be held unenforceable if they violate other statutes including Section 145 court decisions or public policy As a result the enforceability of contracts that purport to grant indemnification rights beyond those permitted by 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 may provide more secure protection than a provision in a certificate of incorporation or bylaw because it cannot be amended without the approval of the indemnitee Second it can be used to make mandatory indemnification that is permissive under Section 145 to specify various procedures and presumptions that make indemnification more favorable to the indemnitee than is provided by Section 145 and to perhaps provide for indemnification rights that go beyond those that are expressly provided by Section 145 While such provisions could also be included in the certificate of incorporation or bylaws an agreement permits different rights to be granted to specific 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 is required to indemnify a director if the applicable conditions are met and discretionary indemnification for officers i e indemnification is at the discretion of the company even if the applicable conditions are met With respect to indemnification of directors as discussed in the comment under Section 6 b there may be no disinterested directors to consider approval of discretionary indemnification for directors Accordingly absent mandatory indemnification a board decision to
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