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| Home > Statutes > Usa Arizona |
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USA Statutes : arizona
Title : Corporations and Associations
Chapter : DIRECTORS AND OFFICERS
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10-801 Board of directors
A. Notwithstanding section 10-732, each corporation shall have a board of
directors.
B. All corporate powers shall be exercised by or under the authority of and the
business and affairs of the corporation shall be managed under the direction of its board
of directors, subject to any limitation set forth in the articles of incorporation or in
an agreement authorized under section 10-732.
10-802 Qualification of directors
The articles of incorporation or bylaws may prescribe qualifications for
directors. A director need not be a resident of this state or a shareholder of the
corporation unless the articles of incorporation or bylaws so prescribe.
10-803 Number and election of directors
A. A board of directors shall consist of one or more individuals, with the number
specified in or fixed in accordance with the articles of incorporation or bylaws.
B. The articles of incorporation or bylaws may establish a variable range for the
size of the board of directors by fixing a minimum and maximum number of directors. If a
variable range is established, the number of directors may be fixed or changed from time
to time, within the minimum and maximum, by the shareholders or the board of directors.
C. Directors shall be elected at the first annual shareholders' meeting and at each
annual meeting thereafter unless their terms are staggered under section 10-806.
10-804 Election of directors by certain classes or series of shareholders
A. If the articles of incorporation authorize dividing the shares into classes or
series, the articles may also authorize the election of all or a specified number of
directors by the holders of one or more authorized classes or series of shares.
B. One or more classes or one or more series of shares entitled to elect one or
more directors is a separate voting group for purposes of the election of directors.
10-805 Terms of directors generally
A. The terms of the initial directors of a corporation expire at the first
shareholders' meeting at which directors are elected.
B. The terms of all other directors expire at the annual shareholders' meeting
following their election except in the case of directors whose terms are staggered under
section 10-806.
C. A decrease in the number of directors does not shorten the term of any incumbent
director.
D. The term of a director elected to fill a vacancy expires at the next
shareholders' meeting at which directors are elected.
E. Despite the expiration of a director's term, a director shall continue to hold
office until the director's successor is elected and qualifies, until the director's
resignation or removal or until there is a decrease in the number of directors.
10-806 Staggered terms for directors
The articles of incorporation may provide for staggering the directors' terms of
office by dividing the total number of directors into two, three or, to the extent not
inconsistent with cumulative voting rights, more groups, with each group having at least
three directors and each group containing as equal a number of directors as is
possible. The term of office of the directors in the first group expires at the first
annual shareholders' meeting following their election, the term of office of the
directors in the second group expires at the second annual shareholders' meeting
following their election, and the term of office of the directors in the third or other
additional group, if any, expires at the third or other appropriate subsequent annual
shareholders' meeting following their election. At each annual shareholders' meeting
held after the division of the directors into groups, directors shall be elected to hold
office until the second succeeding annual meeting, if there are two groups, until the
third succeeding annual meeting, if there are three groups, or until the appropriate
succeeding annual meeting, if there are more than three groups.
10-807 Resignation of directors
A. A director may resign at any time by delivering written notice to the board of
directors, its chairman or the corporation.
B. A resignation is effective when the notice is delivered unless the notice
specifies a later effective date or event.
10-808 Removal of directors by shareholders
A. The shareholders may remove one or more directors with or without cause unless
the articles of incorporation provide that directors may be removed only for cause.
B. If a director is elected by a voting group of shareholders, only the
shareholders of that voting group may participate in the vote to remove the director.
C. If less than the entire board is to be removed, a director shall not be removed
if the number of votes sufficient to elect the director under cumulative voting is voted
against the director's removal.
D. A director may be removed by the shareholders only at a meeting, and the meeting
notice shall state that the purpose or one of the purposes of the meeting is removal of
the director.
10-809 Removal of directors by judicial proceeding
A. The court in the county where a corporation's known place of business or, if
none in this state, its statutory agent is located may remove a director of the
corporation from office in a proceeding commenced either by the corporation or by its
shareholders holding at least ten per cent of the outstanding shares of any class if the
court finds that both:
1. The director engaged in fraudulent conduct or intentional criminal conduct with
respect to the corporation.
2. Removal is in the best interest of the corporation.
B. The court that removes a director may bar the director from reelection for a
period prescribed by the court, but in no event may the period exceed five years.
C. If shareholders commence a proceeding under subsection A, they shall make the
corporation a party defendant, unless the corporation elects to become a party plaintiff.
10-810 Vacancy on board
A. Unless the articles of incorporation provide otherwise, if a vacancy occurs on a
board of directors, including a vacancy resulting from an increase in the number of
directors, either:
1. The shareholders may fill the vacancy.
2. The board of directors may fill the vacancy.
3. If the directors remaining in office constitute fewer than a quorum of the
board, they may fill the vacancy by the affirmative vote of a majority of all of the
directors remaining in office.
B. If the vacant office was held by a director elected by a voting group of
shareholders, only the holders of shares of that voting group are entitled to vote to
fill the vacancy if it is filled by the shareholders.
C. A vacancy that will occur at a specific later date by reason of a resignation
effective at a later date under section 10-807, subsection B or otherwise may be filled
before the vacancy occurs, but the new director may not take office until the vacancy
occurs.
D. If at any time by reason of death or resignation or other cause a corporation
has no directors in office, any officer or any shareholder may call a special meeting of
shareholders.
10-811 Compensation of directors
Unless the articles of incorporation or bylaws provide otherwise, the board of
directors may fix the compensation of directors.
10-820 Meetings
A. The board of directors may hold regular or special meetings in or out of this
state.
B. Unless the articles of incorporation or bylaws provide otherwise, the board of
directors may permit any or all directors to participate in a regular or special meeting
by or conduct the meeting through the use of any means of communication by which all
directors participating may simultaneously hear each other during the meeting. A
director participating in a meeting by this means is deemed to be present in person at
the meeting.
10-821 Action by directors without meeting
A. Unless the articles of incorporation or bylaws provide otherwise, action
required or permitted by chapters 1 through 17 of this title to be taken at a directors'
meeting may be taken without a meeting if the action is taken by all of the
directors. The action must be evidenced by one or more written consents describing the
action taken, signed by each director and included in the minutes or filed with the
corporate records reflecting the action taken.
B. Action taken under this section is effective when the last director signs the
consent, unless the consent specifies a different effective date.
C. A consent signed under this section has the effect of a meeting vote and may be
described as such in any document.
D. Any director may revoke a consent by delivering a signed revocation of the
consent to the president or secretary before the date the last director signs the consent
or consents.
10-822 Notice of meetings
A. Unless the articles of incorporation or bylaws provide otherwise, regular
meetings of the board of directors may be held without notice of the date, time, place or
purpose of the meeting.
B. Unless the articles of incorporation or bylaws provide otherwise, special
meetings of the board of directors shall be preceded by at least two days' notice of the
date, time and place of the meeting. The notice need not describe the purpose of the
special meeting unless required by the articles of incorporation or bylaws.
10-823 Waiver of notice
A. A director may waive any notice required by chapters 1 through 17 of this title,
the articles of incorporation or the bylaws before or after the date and time stated in
the notice. Except as provided by subsection B, the waiver shall be in writing, signed
by the director entitled to the notice and filed with the minutes or corporate records.
B. A director's attendance at or participation in a meeting waives any required
notice to him of the meeting unless the director at the beginning of the meeting or
promptly on his arrival objects to holding the meeting or transacting business at the
meeting and does not thereafter vote for or assent to action taken at the meeting.
10-824 Quorum and voting
A. Unless the articles of incorporation or bylaws require a different number, a
quorum of board of directors consists of either:
1. A majority of the fixed number of directors if the corporation has a fixed board
size.
2. A majority of the number of directors prescribed, or if no number is prescribed,
the number in office immediately before the meeting begins, if the corporation has a
variable range size board.
B. The articles of incorporation or bylaws may authorize a quorum of a board of
directors to consist of at least one-third of the fixed or prescribed number of directors
determined under subsection A.
C. If a quorum is present when a vote is taken, the affirmative vote of a majority
of directors present is the act of the board of directors unless the articles of
incorporation or bylaws require the vote of a greater number of directors.
D. A director who is present at a meeting of the board of directors or a committee
of the board of directors when corporate action is taken is deemed to have assented to
the action taken unless either:
1. The director objects at the beginning of the meeting or promptly on the
director's arrival to holding it or transacting business at the meeting.
2. The director's dissent or abstention from the action taken is entered in the
minutes of the meeting.
3. The director delivers written notice of the director's dissent or abstention to
the presiding officer of the meeting before its adjournment or to the corporation before
5:00 p.m. on the next business day after the meeting.
E. The right of dissent or abstention is not available to a director who votes in
favor of the action taken.
10-825 Committees
A. Unless the articles of incorporation or bylaws provide otherwise, the board of
directors may create one or more committees and may appoint members of the board of
directors to serve on them. Each committee shall have one or more members, and each
member of a committee shall serve at the pleasure of the board of directors.
B. The creation of a committee and appointment of members to it shall be approved
by the greater of:
1. A majority of all of the directors in office when the action is taken.
2. The number of directors required by the articles of incorporation or bylaws to
take action under section 10-824.
C. Sections 10-820 through 10-824 governing meetings, action without meetings and
notice, waiver of notice, quorum and voting requirements of the board of directors also
apply to committees and their members.
D. Subject to the limitations set forth in subsection E of this section, each
committee may exercise the authority of the board of directors under section 10-801 to
the extent specified by the board of directors or in the articles of incorporation or
bylaws.
E. A committee shall not take any of the following actions:
1. Authorize distributions.
2. Approve or submit to shareholders any action that requires the shareholders'
approval under this chapter.
3. Fill vacancies on the board of directors or on any of its committees.
4. Amend articles of incorporation pursuant to section 10-1002.
5. Adopt, amend or repeal bylaws.
6. Approve a plan of merger not requiring shareholder approval.
7. Authorize or approve reacquisition of shares, except according to a formula or
method prescribed by the board of directors.
8. Authorize or approve the issuance, sale or contract for sale of shares or
determine the designation and relative rights, preferences and limitations of a class or
series of shares, except that the board of directors may authorize a committee or an
executive officer of the corporation to do so within limits specifically prescribed by
the board of directors.
9. Fix the compensation of directors for serving on the board or any committee of
the board of directors.
F. The creation of, delegation of authority to or action by a committee does not
alone constitute compliance by a director with the standards of conduct prescribed in
section 10-830.
G. The board may designate one or more directors as alternate members of any
committee who may replace any absent member at any meeting of the committee.
10-830 General standards for directors; presumption
A. A director's duties, including duties as a member of a committee, shall be
discharged:
1. In good faith.
2. With the care an ordinarily prudent person in a like position would exercise
under similar circumstances.
3. In a manner the director reasonably believes to be in the best interests of the
corporation.
B. In discharging duties, a director is entitled to rely on information, opinions,
reports or statements, including financial statements and other financial data, if
prepared or presented by any of the following:
1. One or more officers or employees of the corporation whom the director
reasonably believes are reliable and competent in the matters presented.
2. Legal counsel, public accountants or other persons as to matters the director
reasonably believes are within the person's professional or expert competence.
3. A committee of the board of directors of which the director is not a member if
the director reasonably believes the committee merits confidence.
C. A director is not acting in good faith if the director has knowledge concerning
the matter in question that makes reliance otherwise permitted by subsection B
unwarranted.
D. A director is not liable for any action taken as a director or any failure to
take any action if the director's duties were performed in compliance with this
section. In any proceeding commenced under this section or any other provision of this
chapter, a director has all of the defenses and presumptions ordinarily available to a
director. A director is presumed in all cases to have acted, failed to act or otherwise
discharged such director's duties in accordance with subsection A. The burden is on the
party challenging a director's action, failure to act or other discharge of duties to
establish by clear and convincing evidence facts rebutting the presumption.
10-833 Liability for unlawful distributions
A. A director who votes for or assents to a distribution made in violation of
section 10-640 or the articles of incorporation is personally liable to the corporation
for the amount of the distribution that exceeds what could have been distributed without
violating section 10-640 or the articles of incorporation if it is established that the
director's duties were not performed in compliance with section 10-830.
B. A director of a corporation who is present at a meeting of its board of
directors at which action on any distribution in violation of section 10-640 is taken is
presumed to have assented to the action taken unless his dissent is entered in the
minutes of the meeting or unless he files his written dissent to the action with the
secretary of the meeting before the adjournment of the meeting or forwards the dissent by
registered or certified mail to the secretary of the corporation before 5:00 p.m. of the
next business day after the adjournment of the meeting. The right to dissent does not
apply to a director who voted in favor of the action.
C. A director who is held liable under subsection A of this section for an unlawful
distribution is entitled to contribution from:
1. Every other director who could be held liable under subsection A of this section
for the unlawful distribution.
2. Each shareholder for the amount the shareholder accepted knowing the
distribution was made in violation of section 10-640 or the articles of incorporation.
D. A proceeding under this section is barred unless it is commenced within four
years after the date on which the effect of the distribution was measured under section
10-640, subsection E or G.
10-840 Required officers
A. A corporation shall have the officers described in its bylaws or appointed by
the board of directors in accordance with the bylaws.
B. A duly appointed officer may appoint one or more officers or assistant officers
if authorized by the bylaws or the board of directors.
C. The bylaws or the board of directors shall delegate to one of the officers
responsibility for preparing minutes of the directors' and shareholders' meetings and for
authenticating records of the corporation.
D. The same individual may simultaneously hold more than one office in a
corporation.
10-841 Duties of officers
Each officer has the authority and shall perform the duties set forth in the bylaws
or, to the extent consistent with the bylaws, the duties prescribed by the board of
directors or by direction of an officer authorized by the board of directors to prescribe
the duties of other officers.
10-842 Standards of conduct for officers; presumption
A. If an officer has discretionary authority with respect to any duties, an
officer's duties shall be discharged under that authority:
1. In good faith.
2. With the care an ordinarily prudent person in a like position would exercise
under similar circumstances.
3. In a manner the officer reasonably believes to be in the best interests of the
corporation.
B. In discharging duties, an officer is entitled to rely on information, opinions,
reports or statements, including financial statements and other financial data, if
prepared or presented by either:
1. One or more directors, officers or employees of the corporation whom the officer
reasonably believes to be reliable and competent in the matters presented.
2. Legal counsel, public accountants or other persons as to matters the officer
reasonably believes are within the person's professional or expert competence.
C. An officer is not acting in good faith if the officer has knowledge concerning
the matter in question that makes reliance otherwise permitted by subsection B
unwarranted.
D. An officer is not liable for any action taken as an officer or any failure to
take any action if the officer's duties were performed in compliance with this
section. In any proceeding commenced under this section or any other provision of this
chapter, an officer has all of the defenses and presumptions ordinarily available to an
officer. An officer is presumed in all cases to have acted, failed to act or otherwise
discharged such officer's duties in accordance with subsection A. The burden is on the
party challenging an officer's action, failure to act or other discharge of duties to
establish by clear and convincing evidence facts rebutting the presumption.
10-843 Resignation and removal of officers
A. An officer may resign at any time by delivering notice to the corporation. A
resignation is effective when the notice is delivered unless the notice specifies a later
effective date or event. If a resignation is made effective at a later date or event and
the corporation accepts the future effective date, its board of directors may fill the
pending vacancy before the effective date if the board of directors provides that the
successor does not take office until the effective date.
B. A board of directors may remove an officer at any time with or without cause.
10-844 Contract rights of officers
A. The appointment of an officer does not itself create contract rights.
B. An officer's removal does not affect the officer's contract rights, if any, with
the corporation. An officer's resignation does not affect the corporation's contract
rights, if any, with the officer.
10-850 Definitions
In this article, unless the context otherwise requires:
1. "Corporation" includes any domestic or foreign predecessor entity of a
corporation in a merger or other transaction in which the predecessor's existence ceased
on consummation of the transaction.
2. "Director" means an individual who is or was a director of a corporation or an
individual who, while a director of a corporation, is or was serving at the corporation's
request as a director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan or other
entity. A director is considered to be serving an employee benefit plan at the
corporation's request if the director's duties to the corporation also impose duties on
or otherwise involve services by the director to the plan or to participants in or
beneficiaries of the plan. Director includes the estate or personal representative of a
director.
3. "Expenses" includes attorney fees and all other costs and expenses reasonably
related to a proceeding.
4. "Liability" means the obligation to pay a judgment, settlement, penalty or fine,
including an excise tax assessed with respect to an employee benefit plan, or reasonable
expenses incurred with respect to a proceeding and includes obligations and expenses that
have not yet been paid by the indemnified person but that have been or may be incurred.
5. "Officer" means an individual who is or was an officer of a corporation or an
individual who, while an officer of a corporation, is or was serving at the corporation's
request as a director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan or other
entity. An officer is considered to be serving an employee benefit plan at the
corporation's request if the officer's duties to the corporation also impose duties on or
otherwise involve services by the officer to the plan or to participants in or
beneficiaries of the plan. Officer includes the estate or personal representative of an
officer.
6. "Official capacity" means, if used with respect to a director, the office of
director in a corporation and, if used with respect to an officer as contemplated in
section 10-856, the office in a corporation held by the officer. Official capacity does
not include service for any other foreign or domestic corporation or any partnership,
joint venture, trust, employee benefit plan or other entity.
7. "Outside director" means a director who, when serving as a director, was not an
officer, employee or holder of more than five per cent of the outstanding shares of any
class of stock of the corporation or of any affiliate of the corporation.
8. "Party" includes an individual who was, is or is threatened to be made a named
defendant or respondent in a proceeding.
9. "Proceeding" means any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether formal
or informal.
10-851 Authority to indemnify
A. Except as provided in subsection D of this section and in section 10-854, a
corporation may indemnify an individual made a party to a proceeding because either:
1. The individual is or was a director against liability incurred in the
proceeding if all of the following conditions exist:
(a) The individual's conduct was in good faith.
(b) The individual reasonably believed:
(i) In the case of conduct in an official capacity with the corporation, that the
conduct was in its best interests.
(ii) In all other cases, that the conduct was at least not opposed to its best
interests.
(c) In the case of any criminal proceedings, the individual had no reasonable cause
to believe the conduct was unlawful.
2. The director engaged in conduct for which broader indemnification has been made
permissible or obligatory under a provision of the articles of incorporation pursuant to
section 10-202, subsection B, paragraph 2.
B. A director's conduct with respect to an employee benefit plan for a purpose the
director reasonably believed to be in the interests of the participants in and
beneficiaries of the plan is conduct that satisfies the requirement of subsection A,
paragraph 2, subdivision (a) of this section.
C. The termination of a proceeding by judgment, order, settlement or conviction or
on a plea of no contest or its equivalent is not of itself determinative that the
director did not meet the standard of conduct described in this section.
D. A corporation may not indemnify a director under this section either:
1. In connection with a proceeding by or in the right of the corporation in which
the director was adjudged liable to the corporation.
2. In connection with any other proceeding charging improper financial benefit to
the director, whether or not involving action in the director's official capacity, in
which the director was adjudged liable on the basis that financial benefit was improperly
received by the director.
E. Indemnification permitted under this section in connection with a proceeding by
or in the right of the corporation is limited to reasonable expenses incurred in
connection with the proceeding.
10-852 Mandatory indemnification
A. Unless limited by its articles of incorporation, a corporation shall indemnify a
director who was the prevailing party, on the merits or otherwise, in the defense of any
proceeding to which the director was a party because the director is or was a director of
the corporation against reasonable expenses incurred by the director in connection with
the proceeding.
B. Unless limited by its articles of incorporation, section 10-851, subsection D or
subsection C of this section, a corporation shall indemnify an outside director against
liability. Unless limited by its articles of incorporation or subsection C of this
section, a corporation shall pay an outside director's expenses in advance of a final
disposition of a proceeding, if the director furnishes the corporation with a written
affirmation of the director's good faith belief that the director has met the standard of
conduct described in section 10-851, subsection A and the director furnishes the
corporation with a written undertaking executed personally, or on the director's behalf,
to repay the advance if it is ultimately determined that the director did not meet the
standard of conduct. The undertaking required by this subsection is an unlimited general
obligation of the director but need not be secured and shall be accepted without
reference to the director's financial ability to make repayment.
C. A corporation shall not provide the indemnification or advancement of expenses
described in subsection B of this section if a court of competent jurisdiction has
determined before payment that the outside director failed to meet the standards
described in section 10-851, subsection A, and a court of competent jurisdiction does not
otherwise authorize payment under section 10-854. A corporation shall not delay payment
of indemnification or expenses under subsection B of this section for more than sixty
days after a request is made unless ordered to do so by a court of competent
jurisdiction.
10-853 Advance for expenses
A. A corporation may pay for or reimburse the reasonable expenses incurred by a
director who is a party to a proceeding in advance of final disposition of the proceeding
if both of the following conditions exist:
1. The director furnishes the corporation with a written affirmation of the
director's good faith belief that the director has met the standard of conduct described
in section 10-851 or that the proceeding involves conduct for which liability has been
eliminated under a provision of the articles of incorporation pursuant to section 10-202,
subsection B, paragraph 1.
2. The director furnishes the corporation with a written undertaking, executed
personally or on the director's behalf, to repay the advance if the director is not
entitled to mandatory indemnification under section 10-852 and it is ultimately
determined under section 10-854 or 10-855 that the director did not meet the standard of
conduct.
B. The undertaking required by subsection A, paragraph 2 of this section is an
unlimited general obligation of the director but need not be secured and may be accepted
without reference to financial ability to make repayment.
C. Authorizations of payments under this section shall be made in a manner
consistent with section 10-830 or 10-842.
D. This section does not apply to advancement of expenses to or for the benefit of
an outside director. Advances to outside directors shall be made pursuant to section
10-852.
10-854 Court ordered indemnification
Unless a corporation's articles of incorporation provide otherwise, a director of
the corporation who is a party to a proceeding may apply for indemnification or an
advance for expenses to the court conducting the proceeding or to another court of
competent jurisdiction. On receipt of an application, the court after giving any notice
the court considers necessary may order indemnification or advance for expenses if it
determines either:
1. The director is entitled to mandatory indemnification under section 10-852, in
which case the court shall also order the corporation to pay the director's reasonable
expenses incurred to obtain court ordered indemnification.
2. The director is fairly and reasonably entitled to indemnification in view of all
of the relevant circumstances, whether or not the director met the standard of conduct
set forth in section 10-851 or was adjudged liable as described in section 10-851,
subsection D, but if the director was adjudged liable under section 10-851, subsection D,
indemnification is limited to reasonable expenses incurred.
10-855 Determination and authorization of indemnification
A. A corporation may not indemnify a director under section 10-851 unless
authorized in the specific case after a determination has been made that indemnification
of the director is permissible in the circumstances because the director has met the
standard of conduct set forth in section 10-851.
B. The determination shall be made either:
1. By the board of directors by a majority vote of the directors not at the time
parties to the proceeding.
2. By special legal counsel:
(a) Selected by majority vote of the disinterested directors.
(b) If there are no disinterested directors, selected by majority vote of the
board.
3. By the shareholders, but shares owned by or voted under the control of directors
who are at the time parties to the proceeding shall not be voted on the determination.
C. Neither special legal counsel nor any shareholder has any liability whatsoever
for a determination made pursuant to this section. In voting pursuant to subsection B of
this section, directors shall discharge their duty in accordance with section 10-830.
D. Authorization of indemnification and evaluation as to reasonableness of expenses
shall be made in the same manner as the determination that indemnification is
permissible, except that if the determination is made by special legal counsel,
authorization of indemnification and evaluation as to reasonableness of expenses shall be
made by those entitled under subsection B, paragraph 2 of this section to select counsel.
10-856 Indemnification of officers
A. A corporation may indemnify and advance expenses under this article to an
officer of the corporation who is a party to a proceeding because the individual is or
was an officer of the corporation as follows:
1. To the same extent as a director.
2. If the individual is an officer but not a director, to the further extent as may
be provided by the articles of incorporation, the bylaws, a resolution of the board of
directors, or contract except for:
(a) Liability in connection with a proceeding by or in the right of the corporation
other than for reasonable expenses incurred in connection with the proceeding.
(b) Liability arising out of conduct that constitutes:
(i) Receipt by the officer of a financial benefit to which the officer is not
entitled.
(ii) An intentional infliction of harm on the corporation or the shareholders.
(iii) An intentional violation of criminal law.
B. Subsection A, paragraph 2 of this section applies to an officer who is also a
director if the basis on which the officer is made a party to the proceeding is an act or
omission solely as an officer.
C. An officer of a corporation who is not a director is entitled to mandatory
indemnification under section 10-852, subsection A and may apply to a court under section
10-854 for indemnification or an advance for expenses, in each case to the same extent to
which a director is entitled to indemnification or advance for expenses under those
sections.
10-857 Insurance
A corporation may purchase and maintain insurance, including retrospectively rated
and self-insured programs, on behalf of an individual who is or was a director or officer
of the corporation or who, while a director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan or other entity, against liability asserted against or
incurred by the individual in that capacity or arising from the individual's status as a
director or officer, whether or not the corporation would have power to indemnify or
advance expenses to the individual against the same liability under this article.
10-858 Application of article
A. A provision that treats a corporation's indemnification of or advance for
expenses to directors and that is contained in its articles of incorporation, its bylaws,
a resolution of its shareholders or board of directors or a contract or otherwise is
valid only if and to the extent the provision is consistent with this article. If
articles of incorporation limit indemnification or advances for expenses, indemnification
and advances for expenses are valid only to the extent consistent with the articles.
B. This article does not limit a corporation's power to pay or reimburse expenses
incurred by a director in connection with the director's appearance as a witness in a
proceeding at a time when the director has not been made a named defendant or respondent
to the proceeding.
C. This article does not limit a corporation's power to indemnify, advance expenses
or maintain insurance on behalf of an employee or agent.
10-860 Definitions
In this article, unless the context otherwise requires:
1. "Conflicting interest" with respect to a corporation means the interest a
director of the corporation has respecting a transaction effected or proposed to be
effected by the corporation, by a subsidiary of the corporation or by any other entity in
which the corporation has a controlling interest if either:
(a) Whether or not the transaction is brought before the board of directors of the
corporation for action, the director knows at the time of commitment that the director or
a related person either:
(i) Is a party to the transaction.
(ii) Has a beneficial financial interest in or is so closely linked to the
transaction and of such financial significance to the director or a related person that
the interest would reasonably be expected to exert an influence on the director's
judgment if he were called on to vote on the transaction.
(b) The transaction is brought or is of such character and significance to the
corporation that it would in the normal course be brought before the board of directors
of the corporation for action, and the director knows at the time of commitment that any
of the following persons is either a party to the transaction or has a beneficial
financial interest in or is so closely linked to the transaction and of such financial
significance to the person that the interest would reasonably be expected to exert an
influence on the director's judgment if the director were called on to vote on the
transaction:
(i) An entity, other than the corporation, of which the director is a director,
general partner, agent or employee.
(ii) A person that controls one or more of the entities specified in item (i) of
this subdivision or an entity that is controlled by or is under common control with one
or more of the entities specified in item (i) of this subdivision.
(iii) An individual who is a general partner, principal or employer of the
director.
2. "Director's conflicting interest transaction" with respect to a corporation
means a transaction effected or proposed to be effected by the corporation, by a
subsidiary of the corporation or by any other entity in which the corporation has a
controlling interest respecting which a director of the corporation has a conflicting
interest.
3. "Related person" of a director means either:
(a) The spouse, or a parent or sibling of the spouse, of the director, a child,
grandchild, sibling, parent or spouse of a child, grandchild, sibling or parent, of the
director, an individual having the same home as the director or a trust or estate of
which an individual specified in this subdivision is a substantial beneficiary.
(b) A trust, estate, incompetent, conservatee or minor of which the director is a
fiduciary.
4. "Required disclosure" means disclosure by the director who has a conflicting
interest of both:
(a) The existence and nature of the conflicting interest.
(b) All facts known to the director respecting the subject matter of the
transaction that an ordinarily prudent person would reasonably believe to be material to
a judgment about whether or not to proceed with the transaction.
5. "Time of commitment" respecting a transaction means the time when the
transaction is consummated or, if made pursuant to contract, the time when the
corporation, or its subsidiary or the entity in which it has a controlling interest,
becomes contractually obligated so that its unilateral withdrawal from the transaction
would entail significant loss, liability or other damage.
10-861 Judicial action
A. A transaction that is effected or proposed to be effected by a corporation, or
by a subsidiary of the corporation or any other entity in which the corporation has a
controlling interest, and that is not a director's conflicting interest transaction shall
not be enjoined, be set aside or give rise to an award of damages or other sanctions in a
proceeding by a shareholder or by or in the right of the corporation, because a director
of the corporation, or any person with whom or with which the director has a personal,
economic or other association, has an interest in the transaction.
B. A director's conflicting interest transaction shall not be enjoined, be set
aside or give rise to an award of damages or other sanctions in a proceeding by a
shareholder or by or in the right of the corporation, because the director, or any person
with whom or with which the director has a personal, economic or other association, has
an interest in the transaction, if either:
1. Directors' action respecting the transaction was taken at any time in compliance
with section 10-862.
2. Shareholders' action respecting the transaction was taken at any time in
compliance with section 10-863.
3. The transaction, judged according to the circumstances at the time of
commitment, is established to have been fair to the corporation.
C. Any person seeking to have a director's conflicting interest transaction
enjoined, set aside or give rise to an award of damages or other sanctions shall first
prove by clear and convincing evidence that subsection B of this section is not
applicable.
10-862 Directors' action; definition
A. Directors' action respecting a transaction is effective for purposes of section
10-861, subsection B, paragraph 1 if the transaction received the affirmative vote of a
majority, but at least two, of those qualified directors on the board of directors or on
a duly empowered committee of the board who voted on the transaction after either
required disclosure to them, to the extent the information was not known by them, or
compliance with subsection B of this section. Action by a committee is effective under
this section only if both:
1. All of its members are qualified directors.
2. Members are either all of the qualified directors on the board or are appointed
by the affirmative vote of a majority of the qualified directors on the board.
B. If a director has a conflicting interest respecting a transaction but neither
the director nor a related person of the director specified in section 10-860, paragraph
3, subdivision (a) is a party to the transaction and if the director has a duty under law
or professional canon or a duty of confidentiality to another person, respecting
information relating to the transaction such that the director may not make the
disclosure described in section 10-860, paragraph 4, subdivision (b), disclosure is
sufficient for purposes of subsection A of this section if the director both:
1. Discloses to the directors voting on the transaction the existence and nature of
the conflicting interest and informs them of the character and limitations imposed by
that duty before their vote on the transaction.
2. Plays no part, directly or indirectly, in their deliberations or vote.
C. A majority, but at least two, of all of the qualified directors on the board of
directors or on the committee is a quorum for purposes of action that complies with this
section. Directors' action that otherwise complies with this section is not affected by
the presence or vote of a director who is not a qualified director.
D. For purposes of this section, "qualified director" means, with respect to a
director's conflicting transaction, any director who does not have either:
1. A conflicting interest respecting the transaction.
2. A familial, financial, professional or employment relationship with a second
director who does have a conflicting interest respecting the transaction, which
relationship would, in the circumstances, reasonably be expected to exert an influence on
the first director's judgment when voting on the transaction.
10-863 Shareholders' action; definition
A. Shareholders' action respecting a transaction is effective for purposes of
section 10-861, subsection B, paragraph 2 if a majority of the votes entitled to be cast
by the holders of all qualified shares was cast in favor of the transaction after all of
the following:
1. Notice to shareholders describing the director's conflicting interest
transaction.
2. Provision of the information referred to in subsection C of this section.
3. Required disclosure to the shareholders who voted on the transaction, to the
extent the information was not known by them.
B. A majority of the votes entitled to be cast by the holders of all qualified
shares is a quorum for the purposes of action that complies with this section. Subject
to subsections C and D of this section, shareholders' action that otherwise complies with
this section is not affected by the presence of holders or the voting of shares that are
not qualified shares.
C. For purposes of compliance with subsection A of this section, a director who has
a conflicting interest respecting the transaction shall inform, before the shareholders'
vote, the secretary, or other officer or agent of the corporation authorized to tabulate
votes, of the number and the identity of persons holding or controlling the vote of all
shares that the director knows are beneficially owned, or the voting of which is
controlled, by the director or by a related person of the director, or both.
D. If a shareholders' vote does not comply with subsection A of this section solely
because of a failure of a director to comply with subsection C of this section and if the
director establishes that his failure did not determine and was not intended by him to
influence the outcome of the vote, the court, with or without further proceedings
respecting section 10-861, subsection B, paragraph 3, may take such action respecting the
transaction and the director and give such effect, if any, to the shareholders' vote, as
it considers appropriate in the circumstances.
E. For purposes of this section, "qualified shares" means any shares entitled to
vote with respect to the director's conflicting interest transaction except shares that,
to the knowledge, before the vote, of the secretary, or other officer or agent of the
corporation authorized to tabulate votes, are beneficially owned, or the voting of which
is controlled, by a director who has a conflicting interest respecting the transaction or
by a related person of the director, or both.
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