Assemblyman† PATRICK J. DIEGNAN, JR.
District 18 (Middlesex)
Assemblyman† JAY WEBBER
District 26 (Essex, Morris and Passaic)
Assemblywoman Caride, Assemblyman Coughlin and Senator Gill
†††† Allows corporations to indemnify corporate agents without approval from board of directors.
CURRENT VERSION OF TEXT
†††† As introduced.
An Act concerning indemnification of corporate agents and amending N.J.S.14A:3-5.
†††† Be It Enacted by the Senate and General Assembly of the State of New Jersey:
†††† 1.††† N.J.S.14A:3-5 is amended to read as follows:
†††† 14A:3-5.† Indemnification of directors, officers and employees.
†††† (1)†† As used in this section,
†††† (a)†† "Corporate agent" means any person who is or was a director, officer, employee or agent of the indemnifying corporation or of any constituent corporation absorbed by the indemnifying corporation in a consolidation or merger and any person who is or was a director, officer, trustee, employee or agent of any other enterprise, serving as such at the request of the indemnifying corporation, or of any such constituent corporation, or the legal representative of any such director, officer, trustee, employee or agent;
†††† (b)†† "Other enterprise" means any domestic or foreign corporation, other than the indemnifying corporation, and any partnership, joint venture, sole proprietorship, trust or other enterprise, whether or not for profit, served by a corporate agent;
†††† (c)†† "Expenses" means reasonable costs, disbursements and counsel fees;
†††† (d)†† "Liabilities" means amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties;
†††† (e)†† "Proceeding" means any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding, and any appeal therein and any inquiry or investigation which could lead to such action, suit or proceeding; and
†††† (f)†† References to "other enterprises" include employee benefit plans; references to "fines" include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the indemnifying corporation" include any service as a corporate agent which imposes duties on, or involves services by, the corporate agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner the person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this section.
†††† (2)†† Any corporation organized for any purpose under any general or special law of this State shall have the power to indemnify a corporate agent against his expenses and liabilities in connection with any proceeding involving the corporate agent by reason of his being or having been such a corporate agent, other than a proceeding by or in the right of the corporation, if
†††† (a)†† such corporate agent acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation; and
†††† (b)†† with respect to any criminal proceeding, such corporate agent had no reasonable cause to believe his conduct was unlawful.† The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that such corporate agent did not meet the applicable standards of conduct set forth in paragraphs 14A:3-5(2)(a) and 14A:3-5(2)(b).
†††† (3)†† Any corporation organized for any purpose under any general or special law of this State shall have the power to indemnify a corporate agent against his expenses in connection with any proceeding by or in the right of the corporation to procure a judgment in its favor which involves the corporate agent by reason of his being or having been such corporate agent, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation.† However, in such proceeding no indemnification shall be provided in respect of any claim, issue or matter as to which such corporate agent shall have been adjudged to be liable to the corporation, unless and only to the extent that the Superior Court or the court in which such proceeding was brought shall determine upon application that despite the adjudication of liability, but in view of all circumstances of the case, such corporate agent is fairly and reasonably entitled to indemnity for such expenses as the Superior Court or such other court shall deem proper.
†††† (4)†† Any corporation organized for any purpose under any general or special law of this State shall indemnify a corporate agent against expenses to the extent that such corporate agent has been successful on the merits or otherwise in any proceeding referred to in subsections 14A:3-5(2) and 14A:3-5(3) or in defense of any claim, issue or matter therein.
†††† (5)†† Any indemnification under subsection 14A:3-5(2) and, unless ordered by a court, under subsection 14A:3-5(3) may be made by the corporation only as authorized in a specific case upon a determination that indemnification is proper in the circumstances because the corporate agent met the applicable standard of conduct set forth in subsection 14A:3-5(2) or subsection 14A:3-5(3).† Unless otherwise provided in the certificate of incorporation or bylaws, such determination shall be made
†††† (a)†† by the board of directors or a committee thereof, acting by a majority vote of a quorum consisting of directors who were not parties to or otherwise involved in the proceeding; or
†††† (b)†† if such a quorum is not obtainable, or, even if obtainable and such quorum of the board of directors or committee by a majority vote of the disinterested directors so directs, by independent legal counsel, in a written opinion, such counsel to be designated by the board of directors; or
†††† (c)†† by the shareholders if the certificate of incorporation or bylaws or a resolution of the board of directors or of the shareholders so directs.
†††† (6)†† Expenses incurred by a corporate agent in connection with a proceeding may be paid by the corporation in advance of the final disposition of the proceeding [as authorized by the board of directors] upon receipt of an undertaking by or on behalf of the corporate agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified as provided in this section.
†††† (7)†† (a) If a corporation upon application of a corporate agent has failed or refused to provide indemnification as required under subsection 14A:3-5(4) or permitted under subsections 14A:3-5(2), 14A:3-5(3) and 14A:3-5(6), a corporate agent may apply to a court for an award of indemnification by the corporation, and such court
†††† (i)†† may award indemnification to the extent authorized under subsections 14A:3-5(2) and 14A:3-5(3) and shall award indemnification to the extent required under subsection 14A:3-5(4), notwithstanding any contrary determination which may have been made under subsection 14A:3-5(5); and
†††† (ii)† may allow reasonable expenses to the extent authorized by, and subject to the provisions of, subsection 14A:3-5(6), if the court shall find that the corporate agent has by his pleadings or during the course of the proceeding raised genuine issues of fact or law.
†††† (b)†† Application for such indemnification may be made
†††† (i)†† in the civil action in which the expenses were or are to be incurred or other amounts were or are to be paid; or
†††† (ii)† to the Superior Court in a separate proceeding.† If the application is for indemnification arising out of a civil action, it shall set forth reasonable cause for the failure to make application for such relief in the action or proceeding in which the expenses were or are to be incurred or other amounts were or are to be paid.
†††† The application shall set forth the disposition of any previous application for indemnification and shall be made in such manner and form as may be required by the applicable rules of court or, in the absence thereof, by direction of the court to which it is made.† Such application shall be upon notice to the corporation.† The court may also direct that notice shall be given at the expense of the corporation to the shareholders and such other persons as it may designate in such manner as it may require.
†††† (8)†† The indemnification and advancement of expenses provided by or granted pursuant to the other subsections of this section shall not exclude any other rights, including the right to be indemnified against liabilities and expenses incurred in proceedings by or in the right of the corporation, to which a corporate agent may be entitled under a certificate of incorporation, bylaw, agreement, vote of shareholders, or otherwise; provided that no indemnification shall be made to or on behalf of a corporate agent if a judgment or other final adjudication adverse to the corporate agent establishes that his acts or omissions† (a) were in breach of his duty of loyalty to the corporation or its shareholders, as defined in subsection (3) of N.J.S.14A:2-7, (b) were not in good faith or involved a knowing violation of law or (c) resulted in receipt by the corporate agent of an improper personal benefit.
†††† (9)†† Any corporation organized for any purpose under any general or special law of this State shall have the power to purchase and maintain insurance on behalf of any corporate agent against any expenses incurred in any proceeding and any liabilities asserted against him by reason of his being or having been a corporate agent, whether or not the corporation would have the power to indemnify him against such expenses and liabilities under the provisions of this section.† The corporation may purchase such insurance from, or such insurance may be reinsured in whole or in part by, an insurer owned by or otherwise affiliated with the corporation, whether or not such insurer does business with other insureds.
†††† (10) The powers granted by this section may be exercised by the corporation, notwithstanding the absence of any provision in its certificate of incorporation or bylaws authorizing the exercise of such powers.
†††† (11) Except as required by subsection 14A:3-5(4), no indemnification shall be made or expenses advanced by a corporation under this section, and none shall be ordered by a court, if such action would be inconsistent with a provision of the certificate of incorporation, a bylaw, a resolution of the board of directors or of the shareholders, an agreement or other proper corporate action, in effect at the time of the accrual of the alleged cause of action asserted in the proceeding, which prohibits, limits or otherwise conditions the exercise of indemnification powers by the corporation or the rights of indemnification to which a corporate agent may be entitled.
†††† (12) This section does not limit a corporation's power to pay or reimburse expenses incurred by a corporate agent in connection with the corporate agent's appearance as a witness in a proceeding at a time when the corporate agent has not been made a party to the proceeding.
†††† (13) A right to indemnification or to advancement of expenses in favor of an officer or director pursuant to a corporation's certificate of incorporation or bylaws shall not be eliminated or impaired by an amendment to the certificate of incorporation or bylaws after the occurrence of an act or omission that is the subject of a civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought, unless the certificate of incorporation or bylaws in effect at the time of the act or omission explicitly authorizes that elimination or impairment after the action or omission has occurred.
(cf: P.L.2011, c.31, s.1)
†††† 2.††† This act shall take effect immediately.
†††† This bill amends the provision of law which allows corporations to indemnify corporate agents, such as directors, officers, and employees.† Under current law, a corporation may advance a corporate agentís expenses for a proceeding prior to a disposition in that proceeding only if authorized by the board of directors.† The bill removes the requirement that the board of directors authorize the advancement of expenses, allowing the board to delegate responsibility for the authorization to the officers of the corporation.
†††† The bill provides greater flexibility in the decision making process regarding the advancement of expenses.† Each corporation will now be free to determine the manner in which advancement decisions are made, including, but not limited to, by: the adoption of a policy by a board of directors; by the reservation of such decisions to a board of directors; or by the determination of senior management in the absence of any assertion by a board of directors to control those decisions.
†††† For many corporations, the decision regarding advancement of expenses has more to do with the creditworthiness of the corporate agent to repay the advanced funds if indemnification is not permitted and the strength of the corporationís financial position, rather than the nature of the underlying claim.† Boards of directors of large corporations may also prefer to delegate advancement decisions.† This bill makes the New Jersey corporate indemnification law consistent with that of Delaware and New York.