EXHIBIT 10.5
ADDENDUM
TO
INDEMNIFICATION AGREEMENT
This Addendum to Indemnification Agreement (this "Addendum") is
entered into as of February 4, 2001, by and between Xxxx X. XxXxxx, an
individual ("McAfee") and MindArrow Systems, Inc., a Delaware corporation (the
"Company").
WHEREAS, on October 25, 1999, the Company and McAfee entered into that
certain Indemnification Agreement (the "Indemnification Agreement").
WHEREAS, as of the date hereof, the amount of McAfee's obligation
under the Indemnification Agreement is $1,354,879 (the "Obligation").
WHEREAS, pursuant to the terms of the Indemnification Agreement,
McAfee has pledged 500,000 shares of common stock of the Company owned by McAfee
to the Company to secure McAfee's payment to the Company of the Obligation.
WHEREAS, at the request of the Company, McAfee has delivered Stock
Certificate No. 17 representing 500,000 shares of common stock of the Company
(the "Pledged Shares") to the Company to allow the Company to perfect its
security interest in the Pledged Shares.
WHEREAS, the Company, McAfee and Xxxxxx X. Xxxxxxxx have entered into
that certain Agreement, dated the date hereof (the "Share Cancellation
Agreement"), pursuant to which McAfee has agreed to deliver to the Company for
cancellation, stock certificates representing 554,026 shares of common stock of
the Company owned by McAfee.
WHEREAS, McAfee has requested that the Company release 198,915 (the
"Released Shares") of the Pledged Shares so that McAfee may deliver the Pledged
Shares to the Company for cancellation under the Share Cancellation Agreement.
WHEREAS, McAfee has agreed the balance of the Pledged Shares (301,085
shares and referred to herein as the "Obligation Shares") be surrendered to the
Company in satisfaction of the Obligation (subject to the adjustments described
below) and the Company has and hereby does accept such shares in satisfaction of
the Obligation.
NOW, THEREFORE, as an inducement to the Company to enter into the
Share Cancellation Agreement and to release the Released Shares for delivery to
the Company pursuant to the Share Cancellation Agreement and in consideration of
the foregoing recitals, the parties hereto, intending to be legally bound, agree
as follows:
1. Release of Pledged Shares. The Company hereby releases the Released Shares
as collateral for the Obligation conditioned on the concurrent delivery by
McAfee to the Company of the Released Shares and 355,111 additional shares of
the Company's Common Stock for cancellation by the Company under the Share
Cancellation Agreement.
2. Schedule of Cancellation of Obligation Shares. The Company
hereby accepts for cancellation and McAfee hereby agrees to the cancellation of
the Obligation Shares in satisfaction of the Obligation, as follows.
(a) 102,170 Shares will be cancelled immediately upon execution of this
Agreement; and
(b) 198,915 Shares will be held by the Company subject to the Excess
Value calculation in section 3 below.
3. Excess Value. The Company hereby agrees that in the event that the product
of (A) 301,085 and (B) the average closing trading price of the Company's Common
Stock during the 20 trading days preceding June 30, 2001 exceeds $1,354,879 (the
"Excess Value"), then the Company shall return to McAfee up to 198,915 shares of
the Company's Common Stock (subject to adjustment for any stock splits or stock
dividends effected after the date hereof), with the exact number of shares to be
returned to be determined by the following formula: Number of shares of Common
Stock to be returned = A divided by B, where A is the Excess Value and B is
$4.50. In no event shall more than 198,915 shares be returned to McAfee pursuant
to this provision regardless of the dollar amount of the Excess Value. Any
shares not returned to McAfee by June 30, 2001 will be cancelled.
4. Ratification of Indemnification Agreement. Except as specifically modified
by this Addendum, the Indemnification Agreement shall remain in full force and
effect and the Company and McAfee each hereby reaffirms all of the provisions of
the Indemnification Agreement as amended by this Addendum.
5. Counsel to the Company. O'Melveny & Xxxxx LLP is legal counsel to the
Company. McAfee acknowledges that O'Melveny & Xxxxx LLP has represented the
Company in connection with this Addendum and does not represent, and has not
represented in connection with this Addendum, McAfee. McAfee acknowledges that
he has been advised to engage his own legal counsel or other professional
advisors and has either engaged such separate counsel or advisors or has waived
the opportunity to do so.
6. Attorneys' Fees and Costs. If any legal action, arbitration or other
proceeding is brought to enforce or interpret this Addendum or the
Indemnification Agreement, or matters relating to either, the substantially
prevailing party will be entitled to recover from the other party reasonable
attorneys' fees and other costs incurred in such action, arbitration or
proceeding, in addition to any other relief which the prevailing party is
entitled.
7. Savings Clause. Any provision of this Addendum which is invalid, illegal, or
unenforceable shall be ineffective only to the extent of such invalidity,
illegality, or unenforceability, without affecting in any way the remaining
provisions hereof or rendering the remaining provisions hereof invalid, illegal,
or unenforceable.
8. Governing Law. The validity, meaning and effect of this Addendum shall be
determined in accordance with the laws of the State of California applicable to
contracts made and to be performed in that state.
9. Counterparts. This Addendum may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed to be an original
for all purposes, but all such counterparts shall constitute but one in the same
instrument.
IN WITNESS WHEREOF, the undersigned parties have caused this Addendum
to be duly executed and delivered as of the date set forth above.
MCAFEE:
/s/ Xxxx X. XxXxxx
____________________________
Xxxx X. XxXxxx
COMPANY:
MINDARROW SYSTEMS, INC.
/s/ Xxxxxx X. Xxxxxx
By:____________________________
Xxxxxx X. Xxxxxx
Name:____________________________
President/CEO
Title:____________________________
