10-640

10-640. Distribution to shareholders

A. A board of directors may authorize and the corporation may make distributions to
its shareholders subject to restriction by the articles of incorporation and the
limitation in subsection C.

B. If the board of directors does not fix the record date for determining
shareholders entitled to a distribution, other than one involving any purchase,
redemption or other acquisition of the corporation's shares, it is the date the board of
directors authorizes the distribution.

C. A distribution shall not be made if, after giving it effect, either:

1. The corporation would not be able to pay its debts as they become due in the
usual course of business.

2. The corporation's total assets would be less than the sum of its total
liabilities plus, unless the articles of incorporation permit otherwise, the amount that
would be needed, if the corporation were to be dissolved at the time of the distribution,
to satisfy the preferential rights on dissolution of shareholders whose preferential
rights are superior to those receiving the distribution.

D. The board of directors may base a determination that a distribution is not
prohibited under subsection C either on financial statements prepared on the basis of
accounting practices and principles that are reasonable in the circumstances, which in
the absence of special circumstances shall be generally accepted accounting principles or
applicable regulatory accounting principles, or on a fair valuation or other method that
is reasonable in the circumstances.

E. Except as provided in subsection G, the effect of a distribution under
subsection C is measured:

1. In the case of distribution by purchase, redemption or other acquisition of the
corporation's shares, as of the earlier of either:

(a) The date money or other property is transferred or debt is incurred by the
corporation.

(b) The date the shareholder ceases to be a shareholder with respect to the
acquired shares.

2. In the case of any other distribution of indebtedness, as of the date the
indebtedness is distributed.

3. In all other cases, as of either:

(a) The date the distribution is authorized if the payment occurs within one
hundred twenty days after the date of authorization.

(b) The date the payment is made if it occurs more than one hundred twenty days
after the date of authorization.

F. A corporation's indebtedness to a shareholder incurred by reason of a
distribution made in accordance with this section is at parity with the corporation's
indebtedness to its general, unsecured creditors except to the extent subordinated by
agreement.

G. Indebtedness of a corporation, including indebtedness issued as a distribution,
is not considered a liability for purposes of determinations under subsection C if its
terms provide that payments of principal and interest are made only if and to the extent
that payment of a distribution to shareholders could then be made under this section. If
the indebtedness is issued as a distribution, each payment of principal or interest is
treated as a distribution, the effect of which is measured on the date the payment is
actually made.