Board Matters (VC Financing)

An agreement on certain board matter terms. The board matter terms often included in the Investors’ Rights Agreement are:

Board Composition: How many of the Company’s Board committees must have a Preferred Director.

  • Expenses: The Company will reimburse directors’ reasonable expenses incurred when attending Board meetings.
  • Insurance: The Company will buy director and officer liability insurance (“D&O Insurance”) covering a negotiated amount. This insurance protects directors’ and officers’ personal liability if they are sued in a matter relating to their position in the Company.
  • Indemnification: The Company will protect directors and officers against legal liability in certain circumstances by compensating them for harm or losses.
  • Post-Sale Indemnification: The Company promises to maintain the directors’ and officers’ indemnification agreement if they sell or merge the Company with another.

These terms are not typically negotiated extensively and are part of standard protections for those Investors who designate the Preferred Directors.

Term Sheet Language: [Each Board Committee/the Nominating and Audit Committee shall include at least one Preferred Director.] Company to reimburse [nonemployee] directors for reasonable out-of-pocket expenses incurred in connection with attending Board meeting. The Company will bind D&O insurance with a carrier and in an amount satisfactory to the Board of Directors. Company to enter into Indemnification Agreement with each Preferred Director with provisions benefitting their affiliated funds in form acceptable to such director. In the event the Company merges with another entity and is not the surviving entity, or transfers all of its assets, proper provisions shall be made so that successors of the Company assume the Company’s obligations with respect to indemnification of Directors.