GEN Exclusives

More »

Wall Street BioBeat

More »
Apr 1, 2009 (Vol. 29, No. 7)

Staying Ahead of Activist Stockholders

Six Steps Every Public Company Should Be Taking to Maintain Control This Year

  • Indemnification Provisions

    In the recent Delaware Chancery Court decision, Schoon v. Troy Corp., the Court held that a former director’s right to expense advancement contained in the corporation’s bylaws did not vest until an indemnifiable claim was asserted against the director and that the corporation could amend its bylaws at any time before an indemnifiable claim against the director was asserted to eliminate the director’s rights to expense advancement.

    As a result of this case, Delaware companies should be mindful that while current indemnification provisions contained in bylaws may provide for expense advancement, there is no guarantee that the bylaws will not be subsequently amended to reduce or eliminate these critical rights if an activist stockholder ultimately takes control of the board. Even though a former director may have broad indemnification rights, a loss of expense advancement can place an enormous personal financial burden on the former director in the event that litigation ultimately arises.

    To protect against such a situation where the bylaws are later amended to narrow expense advancement and indemnification rights, companies should consider entering into contractual indemnification agreements with directors.

    Without such agreements, some directors may feel pressure to settle with activists or to resign hastily from the board due to fear that they will be exposed to personal financial harm if the activist ultimately takes control. In addition, without such contractual indemnification, directors may be perceived as being more willing to permit the activist to obtain board representation in exchange for a settlement and release agreement in which the activist agrees not to sue the company or members of the board.

    By instituting a contractual indemnification agreement with its directors in advance, a company may be more likely to maintain a united board in the face of an aggressive stockholder activist.

Add a comment

  • You must be signed in to perform this action.
    Click here to Login or Register for free.
    You will be taken back to your selected item after Login/Registration.


GEN Jobs powered by connects you directly to employers in pharma, biotech, and the life sciences. View 40 to 50 fresh job postings daily or search for employment opportunities including those in R&D, clinical research, QA/QC, biomanufacturing, and regulatory affairs.
More »

Be sure to take the GEN Poll

Patient Access to Genetic Information

Do you think patients have the absolute right to gain access to their own genetic information from medical or clinical laboratories?

More »