§ 7-1.2-814 - Indemnification.
SECTION 7-1.2-814
§ 7-1.2-814 Indemnification. – (a) Definitions. As used in this section:
(1) "Director" or "officer" means any individual who is orwas a director or officer of the corporation and any individual who, while adirector or officer of the corporation, is or was serving at the request of thecorporation as a director, officer, partner, trustee, employee, or agent ofanother foreign or domestic corporation, limited liability company,partnership, joint venture, trust, other enterprise, employee benefit plan, orother entity. A director or officer is considered to be serving an employeebenefit plan at the corporation's request if his or her duties to thecorporation also impose duties on, or otherwise involve services by, him or herto the plan or participants on or beneficiaries of the plan. "Director" or"officer" includes, unless the context requires otherwise, the estate orpersonal representative of the director or officer.
(2) "Corporation" includes:
(i) Any domestic or foreign corporation, profit or nonprofit;
(ii) Any domestic or foreign predecessor entity of thecorporation in a merger or other transaction in which the predecessor'sexistence ceased upon consummation of the transaction; and
(iii) Any of the classes of quasi public corporations withpurposes enumerated as exceptions in § 7-1.2-301 to the extent that thecorporations are not subject to other provisions of the general laws or specialacts authorizing indemnification of their directors and officers.
(3) "Expenses" include attorneys' fees.
(4) "Liability" means the obligation to pay a judgment,penalties, fines (including an excise tax assessed with respect to an employeebenefit plan), settlements, or reasonable expenses actually incurred by theperson in connection with the proceeding.
(5) "Official capacity" means:
(i) When used with respect to a director, the office ofdirector in the corporation; and
(ii) When used with respect to an officer, as contemplated insubsection (i), the office in a corporation held by the officer. "Officialcapacity" does not include service for an individual other than a director, ascontemplated in subdivision (a)(1), the elective or appointive office in thecorporation held by the officer or the employment or agency relationshipundertaken by the employee or agent on behalf of the corporation, but in eachcase does not include service for any other foreign or domestic corporation orany partnership, joint venture, trust, other enterprise, or employee benefitplan.
(6) "Party" includes an individual who was, is, or isthreatened to be made, a named defendant or respondent in a proceeding.
(7) "Proceeding" means any threatened, pending or completedaction, suit, or proceeding, whether civil, criminal, administrative, orinvestigative.
(1) Except as otherwise provided in this section, acorporation has power to indemnify any individual made a party to anyproceeding by reason of the fact that he or she is or was a director if:
(i) He or she conducted himself or herself in good faith; and
(ii) He or she reasonably believed:
(A) In the case of conduct in his or her official capacitywith the corporation, that his or her conduct was in its best interests; and
(B) All other cases, that his or her conduct was at least notopposed to the corporations best interests; and
(iii) In the case of any criminal proceeding, he or she hadno reasonable cause to believe his or her conduct was unlawful; or
(iv) He or she engaged in conduct for which broaderindemnification has been made permissible or obligatory under a provision ofthe articles of incorporation.
(2) A director's conduct with respect to an employee benefitplan for a purpose he or she reasonably believed to be in the interests of theparticipants and beneficiaries of the plan is deemed to be for a purpose whichis not opposed to the best interests of the corporation in accordance with(b)(1)(ii)(B).
(3) The termination of any proceeding by judgment, order,settlement, conviction, or upon a plea of nolo contendere or its equivalent, isnot, of itself, determinative that the individual did not meet the requisitestandard of conduct set forth in this subsection.
(4) Unless ordered by a court under subsection (d) of thissection, a corporation may not indemnify a director:
(i) In connection with a proceeding by or in the right of thecorporation, except for reasonable expenses incurred in connection with theproceeding (if it is determined that the director has met the relevant standardof conduct under (b)(1)(i) and (ii)), or
(ii) In connection with any proceeding for which the directorwas adjudged liable to the corporation on the basis that he or she received animproper personal benefit, whether or not involving action in his or herofficial capacity.
(c) Mandatory Indemnification. Unless limited by thearticles of incorporation, a director who has been wholly successful, on themerits or otherwise, in the defense of any proceeding referred to in subsection(b) of this section is indemnified against reasonable expenses incurred by himor her in connection with the proceeding.
(1) A court of appropriate jurisdiction, upon application ofa director and any notice that the court requires, has authority to orderindemnification in the following circumstances:
(i) If the court determines a director is entitled toreimbursement under subsection (d) of this section, the court shall orderindemnification, in which case the director is also entitled to recover theexpenses of securing the reimbursement; or
(ii) If the court determines that the director is fairly andreasonably entitled to indemnification in view of all the relevantcircumstances, whether or not he or she has met the standard of conduct setforth in subdivision (b)(1) or (b)(2) or has been adjudged liable in thecircumstances described in paragraph (b)(4)(ii), the court may order suchindemnification as the court shall deem proper, except that indemnificationwith respect to any proceeding by or in the right of the corporation or inwhich liability has been adjudged in the circumstances described in paragraph(b)(4)(i) are limited to expenses.
(2) A court of appropriate jurisdiction may be the same courtin which the proceeding involving the director's liability took place.
(e) Advance for expenses. Reasonable expenses incurredby a director who is a party to a proceeding may be paid or reimbursed by thecorporation in advance of the final disposition of the proceeding upon receiptby the corporation of:
(1) A written affirmation by the director of his or her goodfaith belief that he or she has met the standard of conduct necessary forindemnification by the corporation as authorized in this section; and
(2) A written undertaking by or on behalf of the director torepay the amount if the court determines that he or she has not met thatstandard of conduct, and after a determination that the facts then known tothose making the determination would not preclude indemnification under thissection. The undertaking required by this subdivision must be an unlimitedgeneral obligation of the director but need not be secured and may be acceptedwithout reference to financial ability to make repayment. Determinations andauthorizations of payments under this subsection are made in the mannerspecified in subsection (f).
(1) No indemnification under subsection (b) may be made bythe corporation unless authorized in the specific case after a determinationhas been made that indemnification of the director is permissible in thecircumstances because he or she has met the standard of conduct set forth insubsection (b). The determination must be made:
(i) By the board of directors by a majority vote of a quorumconsisting of directors not at the time parties to the proceeding; or
(ii) If such a quorum cannot be obtained, then by a majorityvote of a committee of the board, duly designated to act in the matter by amajority vote of the full board (in which designation directors who are partiesmay participate), consisting solely of two (2) or more directors not at thetime parties to the proceeding; or
(iii) By special legal counsel, selected by the board ofdirectors or a committee of the board by vote as set forth in paragraph(f)(1)(i) or (f)(1)(ii), or, if the requisite quorum of the full board cannotbe obtained for the vote and the committee cannot be established, by a majorityvote of the full board (in which selection directors who are parties mayparticipate); or
(iv) By the shareholders.
(2) Authorization of indemnification and determination as toreasonableness of expenses are made in the same manner as the determinationthat indemnification is permissible, except that if the determination thatindemnification is permissible is made by special legal counsel, authorizationof indemnification and determination as to reasonableness of expenses must bemade in a manner specified in paragraph (f)(1)(iii) for the selection of thecounsel. Shares held by directors who are parties to the proceeding may not bevoted on the subject matter under this subsection.
(g) Variation by Corporate Action. The indemnificationprovided by this section is not deemed exclusive of any other rights to whichthose seeking indemnification are entitled under any bylaw, agreement, vote ofshareholders or disinterested directors or otherwise, both as to action in hisofficial capacity and as to action in another capacity while holding office,and continues as to an individual who has ceased to be a director, officer,partner, trustee, employee, or agent and inures to the benefit of the heirs,executors, and administrators of an individual. Nothing contained in thissection limits the corporation's power to pay or reimburse expenses incurred bya director in connection with his or her appearance as a witness in aproceeding at a time when he or she has not been made a named defendant orrespondent in the proceeding.
(h) Officers. Unless limited by the articles ofincorporation:
(1) An officer of the corporation is indemnified under thissection as and to the same extent provided for a director, and is entitled tothe same extent as a director to seek indemnification pursuant to theprovisions of this section;
(2) A corporation has the power to indemnify and to advanceexpenses to an officer, employee, or agent of the corporation to the sameextent that it may indemnify and advance expenses to directors pursuant to thissection; and
(3) A corporation, in addition, has the power to indemnifyand to advance expenses to an officer, employee, or agent who is not a directorto a further extent, consistent with law, that is provided by its articles ofincorporation, bylaws, general or specific action of its board of directors, orcontract.
(i) Insurance. A corporation has the power to purchaseand maintain insurance on behalf of any individual who is or was a director,officer, employee, or agent of the corporation, or who, while a director,officer, employee, or agent of the corporation, is or was serving at therequest of the corporation as a director, officer, partner, trustee, employee,or agent of another foreign or domestic corporation, partnership, jointventure, trust, other enterprise, or employee benefit plan, against anyliability asserted against him or her and incurred by him or her in anycorporate capacity or arising out of his or her status as a director, officer,employee, or agent of the corporation, whether or not the corporation wouldhave the power to indemnify him or her against the liability under theprovisions of this section.
(j) Shareholder approval. Any indemnification of, oradvance of expenses to, a director in accordance with this section, if arisingout of a proceeding by or in the right of the corporation, must be reported, inwriting, to the shareholders with or before the notice of the nextshareholders' meeting.