EXHIBIT 10.26
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "AGREEMENT") dated as of December 11,
1998 is made between Xxxxxx Xxxx ("XX. XXXX"), XxxxXxxxx.xxx, Inc., a Delaware
corporation (the "COMPANY") and all the current and future members of the
Company's board of directors (excluding Xx. Xxxx) (the "BOARD"). Collectively,
the Company and the members of the Board shall be referred to herein as the
"INDEMNIFIED PARTIES".
RECITAL
To induce the Company's current and future directors to accept the position
of, or to continue to serve as, directors of the Company, Xx. Xxxx has agreed to
indemnify the Board and the Company against certain losses.
AGREEMENT
1. INDEMNIFICATION OF THE COMPANY AND THE BOARD
(a) Xx. Xxxx agrees to hold harmless and indemnify the Company and the
Board from and against all losses, liabilities, damages or expenses incurred by
the Company or the Board that result from any obligation or liability arising
out of or in connection with each of the following (collectively, the "LOSSES"):
(i) the hiring or termination of any employee or consultant of the
Company on or before September 30, 1998;
(ii) any commercial contract of the Company entered into on or before
September 30, 1998 (including but not limited to contracts with
vendors, suppliers, content providers, affiliates, licensees and
licensors); provided, however, that this Section shall not apply
to any ordinary-course-of-business dispute arising out of any
written commerical contract that was disclosed in the corporate
records delivered to the Company's general outside counsel prior
to September 30, 1998, unless such dispute relates to the oral
modification or termination of such commercial contract;
(iii) the issuance of the Company's common stock ("SHARES") or options
to acquire Shares as the result of claims or potential claims
not known to the Board prior to September 30, 1998,
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except for such issuances involving, in the aggregate, 20,000 or
fewer Shares;
(iv) the issuance of Shares or options to acquire Shares as the
result of claims or potential claims, known to the Board on
September 30, 1998, to the extent any such issuance in the
aggregate involves the issuance of more than 500,000 shares;
(v) any act of fraud by Xx. Xxxx occurring on or before
September 30, 1998; and
(vi) any claim, or potential claim, known to Xx. Xxxx on the date of
this Agreement and not disclosed to the Board on or prior to the
date of this Agreement.
(b) Notwithstanding the foregoing, the indemnification provided hereby
shall be unavailable for any obligation or liability of the Company (other than
any obligation or liability set forth in Section 1(a)(iv) above) (i) that is
specifically reflected or reserved against in the Company's financial statements
for the fiscal years ended 1996, 1997 and the nine-month period ended September
30, 1998, or (ii) that was disclosed in the corporate records delivered to the
Company's general outside counsel prior to September 30, 1998.
2. LIMITATIONS
(a) Claims for indemnification made under this Agreement may be made only
during the period from the date hereof until five years after the date hereof.
(b) No indemnified party shall be entitled to receive any indemnification
payment with respect to claims for indemnification made under Section 1, until
aggregate Losses that all indemnified parties would be otherwise entitled to
receive as indemnification exceed $100,000 (the "THRESHOLD"); provided, however,
that once such aggregate Losses exceed the Threshold, such party shall be
entitled to receive indemnification payment for the aggregate Losses that they
would be entitled to receive without regard to the Threshold.
(c) The maximum aggregate amount that the indemnified parties shall be
entitled to under Section 1 is the Escrowed Stock (as defined below).
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3. PROCEDURE
(a) Any indemnified party hereto seeking indemnification hereunder shall
notify Xx. Xxxx in writing reasonably promptly after the assertion against the
indemnified party of any claim by a third party or a derivative claim (a "THIRD-
PARTY CLAIM") in respect of which the indemnified party intends to base a claim
for indemnification hereunder, but the failure or delay to so notify Xx. Xxxx
shall not relieve himof any obligation or liability that hemay have to the
indemnified party except to the extent that Xx. Xxxx demonstrates that his
ability to defend or resolve such Third Party Claim is adversely affected
thereby.
(b) (i) Xx. Xxxx shall have the right, upon written notice given to the
indemnified party within 30 days after receipt of the notice from the
indemnified party of any Third Party Claim, to assume the defense or handling of
such Third Party Claim, at Xx. Xxxx'x sole expense, in which case the provisions
of Section 3(b)(ii) below shall govern. (ii) Xx. Xxxx shall select counsel
reasonably acceptable to the indemnified party in connection with conducting the
defense or handling of such Third Party Claim, and Xx. Xxxx shall defend or
handle the same in consultation with the indemnified party, and shall keep the
indemnified party timely apprised of the status of such Third Party Claim, and
shall not, without the prior written consent of the indemnified party, directly
or indirectly assume any position or take any action that would impose any
obligation of any kind on or restrict the actions of the indemnified party. Xx.
Xxxx shall not, without the prior written consent of the indemnified party,
which consent shall not be unreasonably withheld, agree to a settlement of any
Third Party Claim that could directly or indirectly lead to liability or create
any financial or other obligation on the part of the indemnified party for which
the indemnified party is not entitled to indemnification hereunder. The
indemnified party shall cooperate with Xx. Xxxx and shall be entitled to
participate in the defense or handling of such Third Party Claim with its own
counsel and at its own expense. Notwithstanding the foregoing, in the event Xx.
Xxxx fails to conduct the defense or handling of any Third Party Claim in good
faith after having assumed such defense or handling, then the provisions of
Section 3(c)(ii) below shall govern.
(c) (i) If Xx. Xxxx does not give written notice to the indemnified
party, within 30 days after receipt of the notice from the indemnified party of
any Third Party Claim, of Xx. Xxxx'x election to assume the defense or handling
of such Third Party Claim, the provisions of Section 3(c)(ii) below shall
govern. (ii) The indemnified party may select counsel in connection with
conducting the defense or handling of such Third Party Claim and defend or
handle such Third Party Claim in such manner as it may deem appropriate,
provided, however, that the indemnified
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party shall keep Xx. Xxxx timely apprised of the status of such Third Party
Claim. If the indemnified party defends or handles such Third Party Claim, Xx.
Xxxx shall cooperate with the indemnified party and shall be entitled to
participate in the defense or handling of such Third Party Claim with his own
counsel and at his own expense. If the indemnified party is not the prevailing
party in such Third Party Claim, then Xx. Xxxx shall pay all reasonable fees and
expenses of counsel incurred by the indemnified party in connection with the
defense and handling of such Third Party Claim. In the event such Third Party
Claim is settled by the indemnified party, Xx. Xxxx shall pay the fees and
expenses of counsel incurred by the indemnified party but only if the amount of
such settlement is over $50,000.
(d) If the indemnified party intends to seek indemnification hereunder,
other than for a Third Party Claim, then it shall notify Xx. Xxxx in writing
within six months after its discovery of facts upon which it intends to base its
Claim for indemnification hereunder, but the failure or delay so to notify Xx.
Xxxx shall not relieve Xx. Xxxx of any obligation or liability that Xx. Xxxx may
have to the indemnified party except to the extent that Xx. Xxxx demonstrates
that Xx. Xxxx'x ability to defend or resolve such Claim is adversely affected
thereby.
4. ESTABLISHMENT OF ESCROW FUND
(a) On the date hereof, Xx. Xxxx shall deliver to the Escrow Agent
certificates representing 1,000,000 shares of the Company's Common Stock (the
"ESCROWED STOCK"), along with an assignment separate from such certificate
properly endorsed for assignment in blank. The Escrowed Stock and all cash
obtained by the Escrow Agent hereunder shall be referred to as the "ESCROW
FUND".
(b) Xx. Xxxx will have all rights to the Escrowed Stock, including,
without limitation, the right to vote the Escrowed Stock and the right to
receive cash dividends in respect of the Escrowed Stock; provided, however,
that, until this Agreement is terminated pursuant to Section 8, the Escrow Agent
shall have (i) the right to possess the Escrowed Stock and (ii) the right to
receive securities or other property in exchange therefor or in respect thereof
or dividends (other than cash dividends) or other distributions thereon or with
respect thereto.
(c) Xx. Xxxx will have the right to sell the Escrowed Stock, provided that
all the proceeds of such sale remain part of the Escrow Fund and available for
payment to an indemnified party pursuant to Section 6 until this Agreement is
terminated pursuant to Section 8. Any such sale shall be made only through a
brokers' transaction on the open market for cash consideration. Xx. Xxxx shall
be entitled to invest the proceeds of such sale in a manner consistent with the
Company's
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investment policy as established by the Board, and to the extent that the face
amount of such investment plus accrued interest exceeds the consideration
received for the Escrowed Stock sold by Xx. Xxxx, such excess funds may be
withdrawn by Xx. Xxxx.
5. CLAIMS ON ESCROW FUND
(a) If the indemnified party shall incur Losses, it shall within ten days
of learning of facts giving rise to the claim for Losses deliver to the Escrow
Agent and Xx. Xxxx a certificate (a "CLAIM CERTIFICATE") signed by a member of
the Board or an officer of the Company stating that one or more members of the
Board and/or Company has incurred the Losses specified in such Claim Certificate
and setting forth in reasonable detail the facts giving rise to the claim and
the basis for the claim.
(b) Xx. Xxxx shall have 20 business days after delivery to the Escrow
Agent of any Claim Certificate to give to the Escrow Agent and the Board or the
Company, as the case may be, written notice of a dispute ("DISPUTE NOTICE") with
respect to such Claim Certificate setting forth in reasonable detail the nature
of the dispute.
(c) If at the end of the 20-day period described in Section 5(b) the
Escrow Agent shall not have received a Dispute Notice with respect to any Claim
Certificate, such Claim Certificate shall constitute full authority to the
Escrow Agent to proceed to pay pursuant to the provisions of Section 6 the
Losses specified in such Claim Certificate; provided, however, that, if the
Escrow Agent shall have received a Dispute Notice, the Escrow Agent shall not
pay any part of the Escrow Fund to the indemnified party until notified of the
resolution of the dispute pursuant to the provisions of Section 8.
6. PAYMENT OF CLAIMS
The Escrow Agent shall pay a Claim Certificate in cash by selling such
number of shares of the Escrowed Stock that shall have a value equal to the
amount stated in the Claim Certificate. In the event that the Claim Certificate
states a claim payable in the Company's Common Stock, the Escrow Agent shall pay
such claim by transferring, delivering and assigning to the Board or the
Company, as the case may be, such number of shares of the Escrowed Stock stated
in the Claim Certificate.
7. DISPUTE RESOLUTION
Any dispute with respect to any Claim Certificate or any other provision of
this Agreement shall be resolved as follows:
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(a) The disputing parties shall first attempt to settle the dispute. Any
settlement shall be reflected in writing and delivered to the Escrow Agent. The
Escrow Agent shall act according to such written settlement agreement.
(b) If within 30 days of when the Dispute Notice was delivered to the
Escrow Agent the disputing parties have not arrived at a settlement agreement,
the dispute shall be submitted to arbitration as follows:
(i) the Board shall select one arbitrator, Xx. Xxxx shall select one
arbitrator and the Board and Xx. Xxxx together shall select a third arbitrator;
(ii) The arbitration shall then be resolved in accordance with the
Commercial Arbitration Rules of the American Arbitration Association;
(iii) Judgment may be rendered upon the award determined by the
arbitrators in any court having jurisdiction thereof;
(iv) Should an injunction be sought, the amount of any bond required
shall not exceed $500; and
(v) Within ten days of receiving notice of an arbitration award,
unless restrained by court order, the Escrow Agent shall act according to the
mandate of such arbitration award.
8. TERMINATION
(a) The escrow provided for herein shall terminate five years after the
date hereof (the "TERMINATION DATE")
(b) Notwithstanding the provisions of (a) and (c) of this Section 8, if
the Board or the Company shall in good faith, prior to the Termination Date,
have filed with the Escrow Agent and Xx. Xxxx a certificate signed by a member
of the Board (on behalf of the entire Board) to the effect that an item of
Losses (the maximum amount of which shall be specified in good faith in such
certificate) has been incurred by or asserted against the Board or the Company,
in respect of the settlement or discharge of which the Board or the Company
would be entitled to receive a payment under this Agreement, and that the
existence or the amount of such Losses remains undetermined, then the Escrow
Agent shall withhold from distribution that would otherwise be made pursuant to
Section 8(c) a number of shares of Escrowed Stock that shall have a value equal
to the maximum amount of such item of Losses as set forth in such certificate,
and shall distribute the remainder of the Escrow Fund deliverable under Section
8(c) to Xx. Xxxx.
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(c) Upon the termination of the escrow as aforesaid, the Escrow Agent
shall disburse and Xx. Xxxx shall be entitled to receive that portion of the
Escrow Fund as to which the escrow shall have so terminated. Any delivery of
shares of Escrowed Stock pursuant to this Section 8(c) shall be of full shares,
and the Escrow Agent shall sell the number of shares of Escrowed Stock that
shall equal the aggregate of all fractions to which Xx. Xxxx would otherwise be
entitled. Promptly after the resolution of any item of Losses that was asserted
but not resolved by the Termination Date, the Escrow Agent shall deliver to the
Board or the Company, as the case may be, such portion of the Escrow Fund to
which it is entitled and shall deliver the balance of the Escrow Fund to Xx.
Xxxx.
9. NOTICES
Unless written designation of a different address is filed with each of the
other parties hereto, all notices required to be given under this Agreement
shall be deemed to have been properly given if mailed by registered mail,
addressed as follows:
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the Board or the Company:
Xx. Xxxx X. Xxxxxxxxxx XX
c/o Perkins Coie LLP
0000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxx, XX 00000-0000
Fax: (000) 000-0000
Attention: Xxxxxxx Xxxxxx
with a copy to:
Xxxxxxx Coie LLP
0000 Xxxxx Xxx., 00xx Xxxxx
Xxxxxxx, XX 00000-0000
Fax: (000) 000-0000
Attention: Xxxxxxx Xxxxxx
Xxxxxx Xxxx:
XxxxXxxxx.xxx, Inc.
00000 X.X. 00xx Xxxxxx
Xxxxxxx, XX 00000
Fax: (000) 000-0000
with a copy to:
Xxxxx Xxxxxxxxx
Xxxxxx, Xxxxxxxx & Xxxxx
0000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
(000) 000-0000
10. DUTIES AND LIABILITY OF ESCROW AGENT
The Escrow Agent may act on any instrument or other writing believed by the
Escrow Agent to be genuine and to be signed or presented by the proper person
and
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shall not be liable in connection with the performance by the Escrow Agent of
its duties pursuant to the provisions of this Agreement, except for its own
willful default or gross negligence. The Escrow Agent shall be, and hereby is,
jointly and severally indemnified and saved harmless, by the parties hereto,
from all losses, costs and expenses that may be incurred by it as a result of
its involvement in any litigation arising from performance of its duties
hereunder, provided that such litigation shall not result from any action taken
or omitted by the Escrow Agent and for which it shall have been adjudged
negligent.
11. SUCCESSORS
This Agreement and all action taken hereunder in accordance with its terms
shall be binding on and inure to the benefit of the Board, the Company and the
Escrow Agent and their respective successors and assigns, and Xx. Xxxx and their
respective successors, assigns, heirs, executors, administrators and legal
representatives.
12. SUBSTITUTION OF ESCROW AGENT
The Escrow Agent, or any successor to it hereafter appointed, may at any
time resign by giving notice in writing to the Board, the Company and Xx. Xxxx
and shall be discharged of its duties hereunder upon the appointment of a
successor Escrow Agent as hereinafter provided. In the event of any such
resignation, a successor Escrow Agent, who shall be a shall be appointed by the
Board. Any such successor Escrow Agent shall deliver to the Board, the Company
and Xx. Xxxx a written instrument accepting such appointment hereunder, and
thereupon it shall succeed to all the rights and duties of the Escrow Agent
hereunder.
13. APPOINTMENT OF ESCROW AGENT
The Board, the Company and Xx. Xxxx hereby appoint the Company as the
Escrow Agent to serve in accordance with the terms of this Agreement for the
period beginning on the date hereof and ending six months from the date hereof,
during which period the Company, the Board and Xx. Xxxx shall conduct a good
faith search to find a successor Escrow Agent that is mutually agreeable to all
the parties. The Company hereby agrees to act as Escrow Agent under this
Agreement.
14. FEE OF ESCROW AGENT
The Company shall pay the fees of the Escrow Agent serving under this
Agreement, if any.
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15. ENTIRE AGREEMENT
This Agreement is the entire agreement of the parties regarding its subject
matter and supersedes all prior written or oral communications or agreements.
16. SEVERABILITY
The provisions of this Agreement shall be severable. If this Agreement or
any portion shall be invalidated on any ground by any court of competent
jurisdiction, then the remainder of this Agreement shall not be affected thereby
and shall be given full force and effect and remain binding upon the parties.
17. GOVERNING LAW
This Agreement and the rights and obligations of the parties shall be
governed by and construed in accordance with the laws of the state of
Washington, without giving effect to principles of conflicts of law.
18. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
instrument.
19. AMENDMENTS; WAIVERS; ADDITION OF NEW BOARD MEMBERS
(a) Neither this Agreement nor any provision may be amended except by
written agreement signed by the parties. No waiver of any breach or default
shall be considered valid unless in writing, and no such waiver shall be deemed
a waiver of any subsequent breach or default.
(b) Notwithstanding the foregoing, this Agreement shall be deemed
automatically amended to include as a party and a member of the Board each
additional director elected or appointed to the Company's board of directors.
20. SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon Xx. Xxxx and his successors and
assigns, and inure to the benefit of the Board and the Company and their heirs,
legal representatives and assigns.
(Signature page follows)
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
XXXXXXXXX.XXX, INC.
/s/ Xxxx Xxxxxxxxxx
____________________________________
By:
Title:
XXXXXX XXXX
/s/ Xxxxxx Xxxx
____________________________________
THE BOARD:
XXXXX XXXXXX
/s/ Xxxxx Xxxxxx
____________________________________
XXXX LIST
/s/ Xxxx List
____________________________________
XXXX XXXXX
/s/ Xxxx Xxxxx
____________________________________
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XXXX X. XXXXXXXXXX, XX.
/s/ Xxxx Xxxxxxxxxx
____________________________________
BERNEE X. X. XXXXX
/s/ Xxxxxx Xxxxx
____________________________________
XXXXX X. XXXXX
/s/ Xxxxx Xxxxx
____________________________________
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