Part Seven: Indemnification Flashcards
When is indemnification of D&O mandatory?
Unless limited by the articles, a corporation MUST indemnify a D&O who PREVAILED in defending a proceeding against them for reasonable expenses including ATTY fees incurred in connection with the proceedings
When MAY corporation indemnify D&O?
A corporation MAY indemnify a director for reasonable expenses incurred in UNSUCCESSFULLY defending a suit brought against D if:
- D acted in good faith; and
- D believed conduct was in the best interests of the corporation (or not opposed to best interests of the corporation); AND
- not unlawful
EXCEPTION: corporation MAY NOT indemnify a director who is unsuccessful in defending action IF:
- it’s a direct or derivative action in which the director is found liable to the corporation; OR
- in an action charging that director recieved improper benefit.
Who makes decision re: indemnification?
Generally, the determination is to be made by a disinterested majority of the board.
If there is not a disinterested quorum, by a majority of disinterested committee or by legal counsel.
The SH’s may also make a determination (not counting shares of interested party).
What is the rule re: court ordered indemnification?
A court may order indemnification where it deems appropriate.
What is the rule re: advances of expenses?
A corporation may advance expenses to a director defending an action, as long as director furnishes a statement that he believes he has met the appropriate standard of conduct, AND that he will repay advances if later found not to have met the appropriate standard of conduct.
What is the rule regarding the purchase of liability insurance?
A corporation may purchase liability insurance to indemnify D&O even if it they are not otherwise entitled to indemnification under the relevant standards.
What are the rules re: indemnification of agents and employees?
The RMBCA does not limit a corporation’s power to indemnify, advance expenses, or maintain insurance on agents and employees.
