1. Can the company guarantee it can and will indemnify you for the next five years?

• Indemnification requires a determination. By statute, a director or officer can only be indemnified if disinterested directors, independent legal counsel, or a court determines that the director or officer’s conduct meets a statutory standard (e.g. acted in good faith and in the belief the conduct was in the company’s best interest). New directors may be disinclined to make that determination for former directors, particularly after a takeover.
• Financial ability to indemnify. A company’s financial ability to indemnify a director’s or offi cer’s losses is determined when the director or officer incurs the defense costs or settles the claim, which could be many years after leaving office. A financially strong company today can look far different in 5 to 8 years. What is the next unforeseen risk that might dramatically change a company’s financial condition?
• Legal ability to indemnify. Federal and state laws prohibit a company from indemnifying directors or offi cers for certain types of losses, such as settlements in shareholder derivative suits and actual violations of federal securities laws. Recent court decisions have required personal contributions from directors and officers without the indemnification of the corporation even when indemnification was available.
• Indemnification provisions can change. Absent special protections, a company has the right to retroactively change or eliminate its indemnification provisions at anytime. In a March 2008 ruling, the Delaware Chancery Court enforced an amendment to a company’s indemnification provision which excluded advancement of defense costs for former directors. Schoon v. Troy Corporation.