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 or nonprofit corporation, cooperative, partnership, joint venture, trust, other incorporated or unincorporated enterprise or employee benefit plan or trust;

(2) "corporation" includes any domestic or foreign predecessor entity of the corporation in a merger, consolidation or other transaction in which the predecessor's existence ceased upon consummation of such transaction;

(3) "expenses" include attorneys' fees;

(4) "official capacity" means:

(a) when used with respect to a director, the office of director in the corporation; and

(b) when used with respect to a person other than a director, as contemplated in Subsection I of this section, the elective or appointive office in the corporation held by the officer or the employment or agency relationship undertaken by the employee or agent in behalf of the corporation, but in each case does not include service for any other foreign or domestic corporation or nonprofit corporation, or any cooperative, partnership, joint venture, trust, other incorporated or unincorporated enterprise or employee benefit plan or trust;

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

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

B. A corporation shall have power to indemnify any person made a party to any proceeding by reason of the fact that the person is or was a director if:

(1) the person acted in good faith;

(2) the person reasonably believed:

(a) in the case of conduct in the person's official capacity with the corporation, that the person's conduct was in its best interests; and

(b) in all other cases, that the person's conduct was at least not opposed to its best interests; and

(3) in the case of any criminal proceeding, the person had no reasonable cause to believe the person's conduct was unlawful. 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 such reasonable expenses and shall not be made in respect of any proceeding in which the person shall have 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, shall not, of itself, be determinative that the person did not meet the requisite standard of conduct set forth in this subsection.

C. A director shall not be indemnified under Subsection B of this section in respect of any proceeding charging improper personal benefit to the director, whether or not involving action in the director's official capacity, in which the director shall have been adjudged to be liable on the basis that personal benefit was improperly received by the director.

D. Unless limited by the articles of incorporation:

(1) a director who, in the opinion of the board of directors reasonably based on the facts, circumstances and outcome of the proceeding, has been wholly successful, on the merits or otherwise, in the defense of any proceeding referred to in Subsection B of this section shall be indemnified against reasonable expenses incurred by the director in connection with the proceeding; or

(2) a court of appropriate jurisdiction, upon application of a director and such notice as the court shall require, shall have authority to order indemnification in the following circumstances:

(a) if it determines a director is entitled to reimbursement under Paragraph (1) of this subsection, the court shall order indemnification, in which case the director shall also be entitled to recover the reasonable expenses of securing such 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 set forth in Subsection B of this section or has been adjudged liable in the circumstances described in Subsection C of this section. The court may order such indemnification except that indemnification with respect to any proceeding by or in the right of the corporation or in which liability shall have been adjudged in the circumstances described in Subsection C of this section shall be limited to reasonable expenses. A court of appropriate jurisdiction may be the same court in which the proceeding involving the director's liability took place.

E. No indemnification under Subsection B of this section 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 set forth in Subsection B of this section. Such determination shall be made:

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

(2) if such a quorum cannot be obtained, 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, and consisting solely of two or more directors not at the time parties to the proceeding;

(3) by special legal counsel, selected by the board of directors or a committee thereof by vote as set forth in Paragraph (1) or (2) of this subsection or, if the requisite quorum of the full board cannot be obtained therefor and such committee cannot be established, by a majority vote of the full board, in which selection directors who are parties may participate; or

(4) by the shareholders.

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 Paragraph (3) of Subsection E of this section for the selection of such counsel. Shares held by directors who are parties to the proceeding shall not be voted 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 such proceeding if:

(1) the director furnishes the corporation a written affirmation of his good faith belief that the director has met the standard of conduct necessary for indemnification by the corporation as authorized in this section;

(2) the director furnishes the corporation a written undertaking by or on behalf of the director to repay such amount if it shall ultimately be determined that the director has not met such standards of conduct; and

(3) a determination is made that the facts then known to those making the determination would not preclude indemnification under this section.

The undertaking required by Paragraph (2) of this subsection shall be 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 of this section.

G. The indemnification authorized by this section shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under the articles of incorporation, the bylaws, an agreement, a resolution of shareholders or directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

H. For purposes of this section, the corporation shall be deemed to have requested a director to serve an employee benefit plan whenever the performance by the director of 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 with respect to an employee benefit plan pursuant to applicable law shall be deemed "fines"; and action taken or omitted by the director with respect to an employee benefit plan in the performance of duties for a purpose reasonably believed by the director to be in the interest of the participants and beneficiaries of the plan shall be 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 shall be indemnified as and to the same extent provided in Subsection D of this section for a director and shall be entitled to the same extent as a director to seek indemnification pursuant to the provisions of that subsection;

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

(3) a corporation, in addition, shall have the power to indemnify and to advance reasonable expenses to an officer, employee or agent who is not a director to such further extent, consistent with law, as may be provided by its articles of incorporation, bylaws, general or specific action of its board of directors, or contract.

J. A corporation shall have power to purchase and maintain insurance or furnish similar protection, including but not limited to providing a trust fund, a letter of credit or self-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 or nonprofit corporation, cooperative, partnership, joint venture, trust, other incorporated or unincorporated enterprise or employee benefit plan or trust, against any liability asserted against and incurred by the person in any such capacity or arising out of the person's status as such, whether or not the corporation would have the power to indemnify the person against such 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 shareholders with or before the notice of the next shareholders' meeting.

History: 1978 Comp., § 53-11-4.1, enacted by Laws 1983, ch. 304, § 23; 1987, ch. 238, § 9.

The 1987 amendment, effective April 9, 1987, substituted "other incorporated or unincorporated enterprise or employee benefit plan or trust" for "other enterprise or employee benefit plan" throughout the section; inserted "reasonable" preceding "expenses" throughout the section; in Subsection A(1), inserted "or nonprofit corporation, cooperative"; in Subsection A(4)(b), inserted "or nonprofit corporation, or any cooperative"; in Subsection D(1), substituted "in the opinion of the board of directors" for "in the board of director's opinion"; in Subsection D(2)(b), inserted "except that indemnification" in the second sentence; in Subsection F, substituted "final disposition of such proceeding if" for "final disposition of such proceeding upon receipt by the corporation of"; in Subsections F(1) and (2), inserted "the director furnishes the corporation" at the beginning; designated part of former Subsection F(2) as present Subsection F(3); in the next-to-last sentence in Subsection F, substituted "Paragraph (2) of this subsection" for "this Paragraph"; substituted present Subsection G for the former provisions of that subsection as set out in the 1983 Replacement Pamphlet; and in Subsection J, inserted "or furnished similar protection, including but not limited to providing a trust fund, a letter of credit or self-insurance" near the beginning and inserted "or nonprofit corporation, cooperative" near the middle of the subsection.

The purpose of this section is to encourage qualified individuals to accept the responsibilities of corporate management without fear that expenses incurred by them in performing their duties as directors will not be borne by the corporation they serve. To expand the list of persons entitled to claim the benefit of indemnification to include signatories to a buy-sell agreement, who are litigating questions under that agreement for their own private benefit, would go far beyond this purpose of the statute. Petty v. Bank of N.M. Holding Co., 1990-NMSC-021, 109 N.M. 524, 787 P.2d 443.

Scope of power conferred by Subsection B. — Subsection B operates to empower corporations to indemnify their directors and other agents; it does not confer on the indemnified director an unquestionable right to indemnification. Petty v. Bank of N.M. Holding Co., 1990-NMSC-021, 109 N.M. 524, 787 P.2d 443.

Effect of Subsection D(1). — Subsection D(1) gives a director who has been wholly successful in the defense of a proceeding the absolute right to indemnification under the circumstances contemplated by it, and it makes the "opinion of the board of directors" final on the question, assuming that their opinion is "reasonable." Petty v. Bank of N.M. Holding Co., 1990-NMSC-021, 109 N.M. 524, 787 P.2d 443.