## Facts

- Advanced Mining Systems, Inc. (AMS), a Delaware corporation, manufactured and distributed roof-support systems for underground coal mines and related products and services.
- Richard A. Fricke was a principal shareholder, served as AMS’s president and as a director, then left management in 1986 and worked as a consultant for about a year; afterward, he remained only a shareholder.
- AMS sued Fricke in 1990, alleging he breached fiduciary duties (including loyalty) while serving as an officer and director.
- AMS’s certificate of incorporation and bylaws provided indemnification to officers and directors “to the fullest extent permitted by law,” tracking Delaware General Corporation Law (DGCL) § 145.
- During the litigation, Fricke moved to compel AMS to advance his defense expenses, offering the statutory undertaking to repay amounts advanced if later found not entitled to indemnification.
- The motion concerned interim advancement only, not the ultimate merits of AMS’s fiduciary-duty claims or final entitlement to indemnification.

## Issues

1. Whether DGCL § 145 and AMS’s charter/bylaw provisions entitled Fricke, sued for acts allegedly taken as an officer/director, to advancement of reasonable defense expenses upon an undertaking to repay if indemnification is later denied.
2. Whether “to the fullest extent permitted by law” language in corporate instruments should be read to include advancement as well as indemnification, notwithstanding the corporation’s accusations of disloyalty.

## Decision

- The Court of Chancery granted Fricke’s motion in substantial part and ordered AMS to advance reasonable defense expenses.
- The court required the customary undertaking by Fricke to repay advanced amounts if it is ultimately determined he is not entitled to indemnification.
- The court held that disputes about Fricke’s alleged misconduct and ultimate indemnification eligibility would be decided later and did not bar advancement at the outset.

## Legal Principles

- Advancement under DGCL § 145 is a distinct, preliminary remedy that allocates defense costs during litigation and does not decide the merits of the underlying claims.
- When a corporation’s charter/bylaws provide indemnification “to the fullest extent permitted by law” and track DGCL § 145, the provisions are generally construed broadly to include advancement, subject to the statutory undertaking.
- A claim that the corporation is suing the covered person for disloyalty does not, by itself, defeat advancement where the governing instruments and § 145 conditions are satisfied; the good-faith and related standards are addressed in the final indemnification determination.

## Conclusion

The court enforced AMS’s broad indemnification/advancement provisions and DGCL § 145 by requiring interim advancement of Fricke’s reasonable defense expenses, conditioned on an undertaking to repay if later found ineligible for indemnification, while leaving the fiduciary-duty merits and final indemnification issues for later proceedings.


Advanced Mining Sys., Inc. v. Fricke, 623 A.2d 82 (Del. Ch. 1992)