We previewed this question on Monday, in our first of three posts (see here, too) about the lawsuit recently filed by former Goldman Sachs vice president Sergey Aleynikov, who beat back a federal prosecution and is now fighting state criminal charges for allegedly stealing the investment bank’s "secret sauce" computer code. Aleynikov seeks a court order directing the investment bank to not only indemnify him for the attorneys’ fees that he incurred in the now-concluded federal case (the subject of Monday’s post), but also advance his attorneys’ fees as the ongoing state case (the subject of today’s post) proceeds.

Indemnification and advancement are similar but distinct concepts. They both involve a company paying (or reimbursing) the legal fees of a current or former officer or director pursuant to a state law, a company bylaw or a contract, but they differ with respect to the timing of payments and the conditions that must be met before payment begins.

A company’s obligation to indemnify generally arises at the end of a case – after the case has reached a final disposition through, for example, a verdict, judgment, decision on appeal (in Aleynikov’s case) or settlement – and may include covering the amount of a judgment or settlement on top of reimbursing the officer’s or director’s attorneys’ fees. The obligation is subject to conditions; for example, many indemnification provisions (and state laws on indemnification) require that the officer or director acted in good faith and the best interests of the company.

By contrast, a company’s obligation to advance fees generally arises as soon as the officer or director demands reimbursement and promises to repay any amounts advanced if it is later determined that he is not entitled to indemnification. That promise to repay is usually in the form of a written undertaking signed by the director or officer, such as the one that is attached as an exhibit to Aleynikov’s complaint promising to repay any amounts advanced by Goldman "if it is ultimately determined that he is not entitled to be indemnified . . . ."

Section 145(e) of the Delaware Code provisions on indemnification and advancement, which is not unusual, provides that corporations "may" advance the legal expenses of an officer or director "in defending any civil, criminal, administrative or investigative action, suit or proceeding upon receipt of an undertaking." In other words, corporations are permitted (not required) to advance attorneys’ fees. Many companies include advancement provisions in their bylaws, as Goldman has.