Jenner & Block

Client Alert: New Considerations in Mandatory and Permissive Indemnification under Delaware Law: an Analysis of Hermelin v. K-V Pharmaceutical Company

On February 7, 2012, the Delaware Chancery Court (the “Court”) decided Hermelin v. K-V Pharmaceutical Company.  In Hermelin, the Court determined that certain aspects of former CEO Marc Hermelin’s actions were not entitled to mandatory indemnification because Hermelin failed to meet the “successful on the merits” requirements under Section 145(c) of the Delaware General Corporation Law (“DGCL”).  Because DGCL 145(c) sets forth the terms for mandatory indemnification, it applies to all Delaware corporations regardless of any provision in a corporation’s bylaws, agreements or indemnification plan(s).  Thus, the case is of special interest to both Delaware corporations and the directors and executives who serve for them.  In addition, if the person is not entitled to mandatory indemnification under Section 145(c), the Court sketched a general outline of what evidence would be relevant to determine whether the person met the “good faith” standard under DGCL 145(a) or (b), the permissive indemnification provisions which are sometimes made mandatory by bylaws or agreements.