director-indemnification

# Director Indemnification Agreement

Drafts a binding indemnification agreement providing maximum permissible protection to a corporate director, including expense advancement, indemnification procedures, and D&O insurance coordination.

## Prerequisites

1. **Corporate documents** — certificate of incorporation, bylaws, prior indemnification agreements, board resolutions
2. **D&O insurance** — current coverage terms, limits, carriers
3. **Party information** — corporation legal name (matching articles), state of incorporation, director name and title(s)
4. **Scope** — subsidiary/JV/benefit-plan service, appointment date, retroactive coverage needs

## Gather Before Drafting

| Item | Why |
|------|-----|
| Corporation legal name + entity type | Must match articles exactly |
| State of incorporation | Governs permissible indemnification scope |
| Director name + all titles | Coverage across all capacities |
| Related-entity service | Subsidiary/JV/benefit-plan board seats |
| Effective date | May predate agreement for retroactive coverage |
| Board authorization | Required for enforceability |
| Existing indemnification provisions | Consistency with bylaws/articles |

## Document Structure

```
INDEMNIFICATION AGREEMENT
Parties / Effective Date

RECITALS
- Governing docs authorize indemnification
- Directors face personal liability exposure
- Contractual assurance needed to attract/retain directors
- Director relies on agreement to serve
- Board determined agreement serves corporate purpose

ARTICLE I — DEFINITIONS
ARTICLE II — INDEMNIFICATION
ARTICLE III — ADVANCEMENT OF EXPENSES
ARTICLE IV — DETERMINATION PROCEDURES
ARTICLE V — NOTICE AND DEFENSE
ARTICLE VI — NON-EXCLUSIVITY AND VESTED RIGHTS
ARTICLE VII — D&O INSURANCE
ARTICLE VIII — CONTRIBUTION
ARTICLE IX — GENERAL PROVISIONS
SIGNATURES
```

## Key Definitions

| Term | Scope |
|------|-------|
| **Expenses** | Attorneys' fees, court costs, transcripts, expert/witness fees, travel, duplicating, postage — plus judgments, fines, penalties, ERISA excise taxes, settlement amounts |
| **Proceeding** | Any threatened/pending/completed action, suit, arbitration, ADR, investigation, inquiry, admin hearing — derivative, third-party, civil, criminal, administrative, investigative; includes informal regulatory inquiries |
| **Official Capacity** | Director/officer/employee/agent of company; service at company's request for subsidiaries, JVs, trusts, benefit plans |

## Core Articles

### Art. II — Indemnification

- Indemnify to **maximum extent permitted** under state of incorporation
- Trigger: director made/threatened to be made party "by reason of" official capacity
- **Conduct standard**: good faith + reasonable belief action in/not opposed to company's best interests; criminal matters require no reasonable cause to believe conduct unlawful
- **Derivative suits**: expenses only (not settlement) unless court-approved

### Art. III — Advancement of Expenses

- Mandatory advancement within **30 days** of written request + documentation
- Director executes **undertaking to repay** if ultimately not entitled (unsecured, no financial-ability requirement)
- Advancement **independent** of indemnification determination
- Cannot deny advancement based on preliminary conduct finding

### Art. IV — Determination Procedures

Priority order:
1. Majority of **disinterested directors** (even if less than quorum)
2. Committee of disinterested directors
3. **Independent legal counsel** written opinion (no relationship within 5 years)
4. Shareholder vote (excluding party-director shares)

Safeguards:
- Determination within **60 days** of request
- **Presumption** director met standard; rebuttal requires **clear and convincing evidence**
- Failure to determine in 60 days = **deemed approved**
- Director may seek **judicial determination**; company bears burden of proof
- Company advances expenses for enforcement proceedings

### Art. V — Notice and Defense

- Director notifies company **promptly** on service; late notice excused unless **material adverse effect** on defense
- Company may assume defense with director-approved counsel (consent not unreasonably withheld)
- **Conflict of interest** triggers separate counsel at company expense
- No settlement without company consent unless unconditional release + no liability admission

### Art. VI — Non-Exclusivity and Vested Rights

- **Non-exclusive** — supplements bylaws, articles, other agreements, law
- **Survival**: continues after director ceases service; inures to heirs/executors
- **Anti-diminishment**: no amendment adversely affects rights for prior acts

### Art. VII — D&O Insurance

- Agreement is **primary**; insurance is **excess**
- Rights not contingent on insurance availability
- Company covers director under D&O policies to same extent as any other director/officer
- Director entitled to insurance proceeds **before** company

### Art. VIII — Contribution

- If indemnification unavailable, company **contributes** in fair proportion (relative benefit and fault)
- Expenses paid before judgments/fines/settlements
- Partial indemnification: indemnify to **maximum extent permitted by law**

### Art. IX — General Provisions

| Provision | Standard |
|-----------|----------|
| Governing law | State of incorporation (no conflicts-of-law) |
| Jurisdiction | Exclusive — state of incorporation or federal courts therein |
| Term | Later of **10 years** after cessation of service or final termination of covered proceedings |
| Successor obligation | Survives merger/consolidation/asset transfer; successor must assume |
| Severability | Reform invalid provisions to minimum extent necessary |
| Fee-shifting | Director recovers expenses for successful enforcement |
| Amendment | Written instrument signed by both parties |
| Notices | Written; personal delivery, confirmed email, overnight courier, or certified mail |
| Counterparts | Multiple; electronic signatures valid |

### Signatures

- **Corporation**: authorized officer (CEO/President/Secretary), printed name, title, date, representation of authority
- **Director**: printed name, signature, date

## Drafting Checklist

- [ ] **Verify state statute** — Delaware permits broadest indemnification; other states may limit scope
- [ ] Draft to **maximum permissible** scope; do not self-limit below statutory ceiling
- [ ] Confirm consistency with existing bylaws/articles indemnification provisions
- [ ] Include **undertaking to repay** — statutory requirement in most states
- [ ] Apply **presumption in favor of indemnification** with clear-and-convincing-evidence rebuttal standard
- [ ] For **public companies**, add board-authorization representations
- [ ] Use defined terms consistently (capitalized) after first definition
- [ ] Review uploaded governance documents for company-specific conventions