TITLE 7
Corporations, Associations, and Partnerships

CHAPTER 7-6
Rhode Island Nonprofit Corporation Act

SECTION 7-6-6


§ 7-6-6 Indemnification.

(a) As used in this section:

(1) "Director" means any person who is or was a director of the corporation and any person who, while a director 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, other enterprise, or employee benefit plan.

(2) "Corporation" includes:

(i) Any corporation whether foreign or domestic, and whether a nonprofit or a for profit corporation all of the profits of which go to a nonprofit corporation; and

(ii) Any domestic or foreign predecessory entity of the corporation in a merger, consolidation, or other transaction in which the predecessor's existence ceased upon consummation of the transaction.

(3) "Expenses" include attorneys' fees.

(4) "Official capacity" means:

(i) When used with respect to a director, the office of director in the corporation.

(ii) When used with respect to a person other than a director, as contemplated in subsection (i), the elective or appointive office in the corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the corporation, but in each case does not include service for any other foreign or domestic corporation or any partnership, joint venture, trust, other enterprise, or employee benefit plan.

(5) "Party" includes a person who was, is, or is threatened to be made, a named defendant or respondent in a proceeding.

(6) "Proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative.

(b)(1) A corporation has power to indemnify any person made a party to any proceeding by reason of the fact that that person 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 capacity with the corporation, that his or her conduct was in its best interests, and

(B) In all other cases, that his or her conduct was at least not opposed to its best interests; and

(iii) In the case of any criminal proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful.

(2) Indemnification may be made against judgments, penalties, fines, settlements, and reasonable expenses actually incurred by the person in connection with the proceeding; except that if the proceeding was by or in the right of the corporation, indemnification may be made only against the reasonable expenses and shall not be made in respect of any proceeding in which the person has been adjudged to be liable to the corporation. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, is not, of itself, determinative that the person did not meet the requisite standard of conduct set forth in this subsection.

(c) A director is not indemnified under subsection (b) in respect of any proceeding charging improper personal benefit to him or her, whether or not involving action in his or her official capacity, in which he or she has been adjudged to be liable on the basis that personal benefit was improperly received by him or her.

(d)(1) Unless limited by the articles of incorporation,

(i) A director who is wholly successful, on the merits or otherwise, in the defense of any proceeding referred to in subsection (b) is indemnified against reasonable expenses incurred by the director in connection with the proceeding; and

(ii) A court of appropriate jurisdiction, upon application of a director and any notice that the court requires, has authority to order indemnification in the following circumstances:

(A) If it determines a director is entitled to reimbursement under paragraph (i), the court shall order indemnification, in which case the director is also entitled to recover the expenses of securing the reimbursement; or

(B) If it determines that the director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director has met the standard of conduct described in subsection (b) or has been adjudged liable in the circumstances described in subsection (c), the court may order any indemnification that the it deems proper, except that indemnification with respect to any proceeding by or in the right of the corporation or in which liability has been adjudged in the circumstances described in subsection (c) is limited to expenses.

(2) A court of appropriate jurisdiction may be the same court in which the proceeding involving the director's liability took place.

(e)(1) No indemnification under subsection (b) shall be made by the corporation 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 decribed in subsection (b). The determination shall be made:

(i) By the board of directors by a majority vote of a quorum consisting of directors not at the time parties to the proceeding;

(ii) If a quorum cannot be obtained, then by a majority vote of a committee of the board, duly designated to act in the matter by a majority vote of the full board (in which designation directors who are parties may participate), consisting solely of two (2) or more directors not at the time parties to the proceeding;

(iii) By special legal counsel, selected by the board of directors or a committee of the board by vote as described in subsection(e)(1)(i) or (e)(1)(ii) of this section, or, if the requisite quorum of the full board cannot be obtained for the vote and the committee cannot be established, by a majority vote of the full board (in which selection directors who are parties may participate); or

(iv) By the members.

(2) Authorization of indemnification and determination as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination that indemnification is permissible is made by special legal counsel, authorization of indemnification and determination as to reasonableness of expenses shall be made in a manner specified in subdivision (e)(1)(iii) for the selection of counsel. Directors who are parties to the proceeding shall not, as members, vote on the subject matter under this subsection.

(f) Reasonable expenses incurred by a director who is a party to a proceeding may be paid or reimbursed by the corporation in advance of the final disposition of the proceedings upon receipt by the corporation of:

(1) A written affirmation by the director of the director's good faith belief that the director has met the standard of conduct necessary for indemnification by the corporation as authorized in this section; and

(2) A written undertaking by or on behalf of the director to repay the amount if it is ultimately determined that the director has not met the standard of conduct, and after a determination that the facts then known to those making the determination would not preclude indemnification under this section. The undertaking required by this subdivision 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. Determinations and authorizations of payments under this subsection shall be made in the manner specified in subsection (e).

(g) The indemnification provided by this section is not deemed exclusive of any other rights to which those seeking indemnification are entitled under any bylaw, agreement, vote of members or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding office, and continues as to a person who ceases to be a director, officer, partner, trustee, employee, or agent and inures to the benefit of the heirs, executors, and administrators of the person. Nothing contained in this section limits the corporation's power to pay or reimburse expenses incurred by a director in connection with his or her appearance as a witness in a proceeding at a time when he or she has not been named a defendant or respondent in the proceeding.

(h) For purposes of this section, the corporation is deemed to have requested a director to service an employee benefit plan whenever the performance by the director of the director's duties to the corporation also imposes duties on, or otherwise involves services by, the director to the plan or participants or beneficiaries of the plan; excise taxes assessed on a director regarding an employee benefit plan pursuant to applicable law are deemed "fines"; and action taken or omitted by the director regarding an employee benefit plan in the performance of the director's duties for a purpose reasonably believed by the director to be in the interest of the participants and beneficiaries of the plan are deemed to be for a purpose which is not opposed to the best interests of the corporation.

(i) Unless limited by the articles of incorporation:

(1) An officer of the corporation is indemnified to the same extent provided in subsection (d) for a director and is entitled to the same extent as a director to seek indemnification pursuant to the provisions of subsection (d);

(2) A corporation has the power to indemnify and to advance expenses to an officer, employee, or agent of the corporation to the same extent that it may indemnify and advance expenses to directors pursuant to this section; and

(3) A corporation, in addition, has the power to indemnify and to advance expenses to an officer, employee, or agent who is not a director to any further extent, consistent with law, that is provided by its articles of incorporation, bylaws, general or specific action of its board of directors, or contract.

(j) A corporation has power to purchase and maintain insurance on behalf of any person 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, other enterprise, or employee benefit plan, against any liability asserted against the director and incurred by the director in any capacity or arising out of the director's status as director, whether or not the corporation would have the power to indemnify the director against liability under the provisions of this section.

(k) Any indemnification of, or advance of expenses to, a director in accordance with this section, if arising out of a proceeding by or in the right of the corporation, shall be reported, in writing, to the members with or before the notice of the next members' meeting.

History of Section.
(P.L. 1984, ch. 380, § 1; P.L. 1984, ch. 444, § 1; P.L. 1987, ch. 472, § 1.)