PROVISIONS OF NORTH CAROLINA BUSINESS CORPORATION ACT
REGARDING INDEMNIFICATION
"55-8-50. Policy statement and definitions.
(a) It is the public policy of this State to enable
corporations organized under this Chapter to attract and maintain
responsible, qualified directors, officers, employees and agents,
and, to that end, to permit corporations organized under this
Chapter to allocate the risk of personal liability of directors,
officers, employees and agents through indemnification and
insurance as authorized in this Part.
(b) Definitions in this Part:
(1) 'Corporation' includes any domestic or foreign
corporation absorbed in a merger which, if its
separate existence had continued, would have had
the obligation or power to indemnify its
directors, officers, employees, or agents, so that
a person who would have been entitled to receive
or request indemnification from such corporation
if its separate existence had continued shall
stand in the same position under this Part with
respect to the surviving corporation.
(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 enterprise. A director is
considered to be serving an employee benefit plan
at the corporation's request if his duties to the
corporation also impose duties on, or otherwise
involve services by, him to the plan or to
participants in or beneficiaries of the plan.
'Director' includes, unless the context requires
otherwise, the estate or personal representative
of a director.
(3) 'Expenses' means expenses of every kind incurred
in defending a proceeding, including counsel fees.
(4) 'Liability' means the obligation to pay a
judgment, settlement, penalty, fine (including an
excise tax assessed with respect to an employee
benefit plan), or reasonable expenses incurred
with respect to a proceeding.
(4a) 'Officer', 'employee', or 'agent' includes, unless
context requires otherwise, the estate or personal
representative of a person who acted in that
capacity.
(5) 'Official capacity' means: (i) when used with
respect to a director, the office of director in a
corporation; and (ii) when used with respect to an
individual other than a director, as contemplated
in G.S. 55-8-56, the office in a corporation held
by the officer or the employment or agency
relationship undertaken by the employee or agent
on behalf of the corporation. 'Official capacity'
does not include service for any other foreign or
domestic corporation or any partnership, joint
venture, trust, employee benefit plan, or other
enterprise.
(6) 'Party' includes an individual who was, is, or is
threatened to be made a named defendant or
respondent in a proceeding.
(7) 'Proceeding' means any threatened, pending, or
completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative
and whether formal or informal.
55-8-51. Authority to indemnify.
(a) Except as provided in subsection (d), a corporation may
indemnify an individual made a party to a proceeding because he
is or was a director against liability incurred in the proceeding
if:
(1) He conducted himself in good faith; and
(2) He reasonably believed (i) in the case of conduct
in his official capacity with the corporation,
that his conduct was in its best interests; and
(ii) in all other cases, that his conduct was at
least not opposed to its best interests; and
(3) In the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was
unlawful.
(b) A director's conduct with respect to an employee
benefit plan for a purpose he 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)(2)(ii).
(c) The termination of a proceeding by judgment, order,
settlement, conviction, or upon 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:
(1) In connection with a proceeding by or in the right
of the corporation in which the director was
adjudged liable to the corporation; or
(2) In connection with any other proceeding charging
improper personal benefit to him, whether or not
involving action in his official capacity, in
which he was adjudged liable on the basis that
personal benefit was improperly received by him.
(e) Indemnification permitted under this section in
connection with a proceeding by or in the right of the
corporation that is concluded without a final adjudication on the
issue of liability is limited to reasonable expenses incurred in
connection with the proceeding.
(f) The authorization, approval or favorable recommendation
by the board of directors of a corporation of indemnification, as
permitted by this section, shall not be deemed an act or
corporate transaction in which a director has a conflict of
interest, and no such indemnification shall be void or voidable
on such ground.
55-8-52. Mandatory indemnification.
Unless limited by its articles of incorporation, a
corporation shall indemnify a director who was wholly successful,
on the merits or otherwise, in the defense of any proceeding to
which he was a party because he is or was a director of the
corporation against reasonable expenses incurred by him in
connection with the proceeding.
55-8-53. Advance for expenses.
Expenses incurred by a director in defending a proceeding
may be paid by the corporation in advance of the final
disposition of such proceeding as authorized by the board of
directors in the specific case or as authorized or required under
any provision in the articles of incorporation or bylaws or by
any applicable resolution or contract upon receipt of an
undertaking by or on behalf of the director to repay such amount
unless it shall ultimately be determined that he is entitled to
be indemnified by the corporation against such expenses.
55-8-54. 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 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 if it
determines:
(1) The director is entitled to mandatory
indemnification under G.S. 55-8-52, in which case
the court shall also order the corporation to pay
the director's reasonable expenses incurred to
obtain court-ordered indemnification; or
(2) The director is fairly and reasonably entitled to
indemnification in view of all the relevant
circumstances, whether or not he met the standard
of conduct set forth in G.S. 55-8-51 or was
adjudged liable as described in G.S. 55-8-51(d),
but if he was adjudged so liable his
indemnification is limited to reasonable expenses
incurred.
55-8-55. Determination and authorization of indemnification.
(a) A corporation may not indemnify a director under
G.S. 55-8-51 unless authorized in the specific case after a
determination has been made that indemnification of the director
is permissible in the circumstances because he has met the
standard of conduct set forth in G.S. 55-8-51.
(b) The determination shall be made:
(1) By the board of directors by majority vote of a
quorum consisting of directors not at the time
parties to the proceeding;
(2) If a quorum cannot be obtained under subdivision
(1), by majority vote of a committee duly
designated by the board of directors (in which
designation directors who are parties may
participate), consisting solely of two or more
directors not at the time parties to the
proceeding;
(3) By special legal counsel (i) selected by the board
of directors or its committee in the manner
prescribed in subdivision (1) or (2); or (ii) if a
quorum of the board of directors cannot be
obtained under subdivision (1) and a committee
cannot be designated under subdivision (2),
selected by majority vote of the full board of
directors (in which selection directors who are
parties may participate); or
(4) By the shareholders, but shares owned by or voted
under the control of directors who are at the time
parties to the proceeding may not be voted on the
determination.
(c) 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)(3) to select counsel.
55-8-56. Indemnification of officers, employees, and agents.
Unless a corporation's articles of incorporation provide
otherwise:
(1) An officer of the corporation is entitled to
mandatory indemnification under G.S. 55-8-52, and
is entitled to apply for court-ordered
indemnification under G.S. 55-8-54, in each case
to the same extent as a director;
(2) The corporation may indemnify and advance expenses
under this Part to an officer, employee, or agent
of the corporation to the same extent as to a
director; and
(3) A corporation may also indemnify and advance
expenses to an officer, employee, or agent who is
not a director to the extent, consistent with
public policy, that may be provided by its
articles of incorporation, bylaws, general or
specific action of its board of directors, or
contract.
55-8-57. Additional indemnification and insurance.
(a) In addition to and separate and apart from the
indemnification provided for in G.S. 55-8-51, 55-8-52, 55-8-54,
55-8-55 and 55-8-56, a corporation may in its articles of
incorporation or bylaws or by contract or resolution indemnify or
agree to indemnify any one or more of its directors, officers,
employees, or agents against liability and expenses in any
proceeding (including without limitation a proceeding brought by
or on behalf of the corporation itself) arising out of their
status as such or their activities in any of the foregoing
capacities; provided, however, that a corporation may not
indemnify or agree to indemnify a person against liability or
expenses he may incur on account of his activities which were at
the time taken known or believed by him to be clearly in conflict
with the best interests of the corporation. A corporation may
likewise and to the same extent indemnify or agree to indemnify
any person who, at the request of the corporation, is or was
serving as a director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise or as trustee or
administrator under an employee benefit plan. Any provision in
any articles of incorporation, bylaw, contract, or resolution
permitted under this section may include provisions for recovery
from the corporation of reasonable costs, expenses, and
attorneys' fees in connection with the enforcement of rights to
indemnification granted therein and may further include
provisions establishing reasonable procedures for determining and
enforcing the rights granted therein.
(b) The authorization, adoption, approval, or favorable
recommendation by the board of directors of a public corporation
of any provision in any articles of incorporation, bylaw,
contract or resolution, as permitted in this section, shall not
be deemed an act or corporate transaction in which a director has
a conflict of interest, and no such articles of incorporation or
bylaw provision or contract or resolution shall be void or
voidable on such grounds. The authorization, adoption, approval,
or favorable recommendation by the board of directors of a
nonpublic corporation of any provision in any articles of
incorporation, bylaw, contract or resolution, as permitted in
this section, which occurred on or prior to July 1, 1990, shall
not be deemed an act or corporate transaction in which a director
has a conflict of interest, and no such articles of
incorporation, bylaw provision, contract or resolution shall be
void or voidable on such grounds. Except as permitted in
G.S. 55-8-31, no such bylaw, contract, or resolution not adopted,
authorized, approved or ratified by shareholders shall be
effective as to claims made or liabilities asserted against any
director prior to its adoption, authorization, or approval by the
board of directors.
(c) A corporation may purchase and maintain insurance on
behalf of an 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 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 enterprise, against liability asserted
against or incurred by him in that capacity or arising from his
status as a director, officer, employee, or agent, whether or not
the corporation would have power to indemnify him against the
same liability under any provision of this act.
55-8-58. Application of Part.
(a) If articles of incorporation limit indemnification or
advance for expenses, indemnification and advance for expenses
are valid only to the extent consistent with the articles.
(b) This Part does not limit a corporation's power to pay
or reimburse expenses incurred by a director in connection with
his appearance as a witness in a proceeding at a time when he has
not been made a named defendant or respondent to the proceeding.
(c) This Part shall not affect rights or liabilities
arising out of acts or omissions occurring before July 1, 1990."