Directors and officers commonly require individual indemnification agreements in
addition to charter and bylaw provisions.
Why. Bylaws can be amended by a later board or by shareholders; a contract
cannot be amended unilaterally. Directors joining a board in a contested
situation insist on this.
Terms beyond the statutory floor. Mandatory rather than permissive
indemnification to the fullest extent permitted; mandatory advancement on an
undertaking that need not be secured; a presumption of entitlement with the
burden on the company to rebut; a defined procedure with deadlines and a
determination by independent counsel; partial indemnification; and fees on fees
for enforcing the agreement.
Change of control provisions requiring that the determination be made by
independent counsel selected before the change.
Insurance covenant to maintain coverage at defined levels and to purchase
run-off coverage on a change of control, with the individual as an intended
beneficiary.
Priority. Where the individual is also indemnified by a sponsor that
appointed them, a provision making the company’s obligation primary and the
sponsor’s secondary.
Survival after the individual leaves office, for prior service.
Limits. Statutory prohibitions on indemnifying for conduct not in good
faith, and public policy limits on indemnifying certain penalties.
