AGREEMENT, effective as of August 1, 1996, between The MicroCap Fund, Inc., a
Maryland corporation (the "Company"), and ___________ (the "Indemnitee").
WHEREAS, it is essential to the Company to attract and
retain as directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the
increased risk of litigation and other claims being asserted against directors
and officers of public companies in today's environment;
WHEREAS, the Company's Board of Directors and stockholders
have approved a plan of liquidation of the Company;
WHEREAS, certain directors and officers are the subject of
actual or potential regulatory or court proceedings instituted or to be
instituted by the Securities and Exchange Commission arising out of relating to
the proceedings currently entitled In the Matter of Commonwealth Associates
Growth Fund, Inc. (NY-6290) (the "Proceedings");
WHEREAS, the By-laws of the Company require the Company to
indemnify and advance expenses to its directors and officers to the full extent
permitted by law and the Indemnitee has continued to serve as a director or
officer of the Company, notwithstanding the pendency or threat of such
Proceedings in part in reliance on such By-laws;
WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability on the aforesaid By-laws, and in part to
provide Indemnitee with specific contractual assurance that the protection
promised by such By-laws will be available to Indemnitee (regardless of, among
other things, any amendment to or revocation of such By-laws or any change in
the composition of the Company's Board of Directors or transaction relating to
the Company), the Company wishes to provide in this Agreement for the
indemnification of and the advancing of expenses to Indemnitee to the fullest
extent (whether partial or complete) permitted by law and as set forth in this
Agreement, and, to the extent insurance is maintained, for the continued
coverage of Indemnitee under the Company's directors' and officers' liability
insurance policy;
NOW, THEREFORE, in consideration of the premises set out above
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound hereby, the
parties hereto agree as follows:
Certain Definitions:
Claim: any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether
instituted by the Company or any other party, that Indemnitee
in good faith believes might lead to the institution of any
such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
Disabling Conduct: any action or failure of action on the
part of the Indemnitee constituting willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office;
Expenses: include attorneys' fees and all other costs,
expenses and obligations paid or incurred in connection with
investigating, defending, being a witness in or participating
in (including on appeal), or preparing to defend, be a witness
in or participate in, any Claim relating to any Indemnifiable
Event and any such costs, expenses and obligations incurred by
the Indemnitee in successfully establishing his right to
indemnification hereunder or to a payment under any insurance
policy maintained by the Company.
Indemnifiable Event: any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee,
agent or fiduciary of the Company, or is or was serving at the
request of the Company as a director, officer, employee,
trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or
other enterprise, or by reason of anything done or not done by
Indemnitee in any such capacity other than any such event or
occurrence constituting or arising out of Disabling Conduct on
the part of the Indemnitee and other than any such event or
occurrence arising out of, related to or constituting any
Claim initiated by Indemnitee unless the Board of Directors
has authorized or consented to the initiation of such Claim.
Independent Legal Counsel: an attorney or firm of attorneys,
selected by the Company and approved by the Indemnitee (or, if
there is more than one Indemnitee with respect to a particular
Indemnifiable Event, a majority of such Indemnitees), whose
approval may not be unreasonably withheld.
Reviewing Party: (i) any appropriate person or body consisting
of a member or members of the Company's Board of Directors
appointed by the Board who is not an "interested person" of
the Company as that term is used in the Investment Company Act
of 1940 and the rules, regulations and releases promulgated
thereunder and is not a party to the particular Claim for
which Indemnitee is seeking indemnification, or (ii)
Independent Legal Counsel.
Voting Securities: any securities of the Company which vote
generally in the election of directors.
Basic Indemnification Arrangement. In the event Indemnitee
was, is or becomes a party to or witness or other participant in, or is
threatened to be made a party to or witness or other participant in, a Claim by
reason of (or arising in part out of) an Indemnifiable Event, the Company shall
indemnify, defend and hold harmless Indemnitee to the fullest extent permitted
by law as soon as practicable but in any event no later than thirty days after
written demand is presented to the Company, against any and all Expenses
(subject to requirements relating to advances set forth below), judgments,
fines, penalties and amounts paid in settlement (including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses (subject to requirements relating to advances set forth below),
judgments, fines, penalties or amounts paid in settlement) of such Claim. If so
requested by Indemnitee, the Company shall advance (within thirty days of such
request) any and all Expenses to Indemnitee (an "Expense Advance").
Reserves. The Company shall from time to time estimate its
potential obligations under this Agreement and all other similar indemnification
agreements in light of all proceedings known or threatened and shall set aside
and segregate, in addition to any reserves or accruals for other obligations,
expenses and liabilities, whether matured or contingent, of the Company, an
amount sufficient in the reasonable judgment of the Board of Directors or the
trustee of any liquidating trust holding assets of the Company for the Company
to discharge its obligations under this Agreement and such other agreements;
provided, however, that the aggregate amount reserved in connection with the
Proceedings (including amounts reserved under this Agreement and all similar
indemnification agreements) shall not be less than the excess of $250,000 over
any indemnification payments incurred and made hereunder in connection with the
Proceedings from and after the date hereof (the "Minimum Reserve"), except as
agreed by the Indemnitee and each indemnitee under any similar agreements;
provided, further, that the Minimum Reserve shall be released upon a
determination by the Board of Directors of the Company or the trustee of any
liquidating trust holding assets of the Company that there is no substantial
likelihood that further indemnification payments will be required in connection
with the Proceeings.
Within 30 days after the date this Agreement is executed, the
Company shall establish an escrow account pursuant to an escrow agreement to be
entered into between the Company and an escrow agent (the "Agent"), and shall
deliver $250,000 in cash and/or cash equivalents (the "Escrowed Assets") into
such escrow account. The Escrowed Assets will be held by the Agent to provide
for the Company's obligations under this Agreement arising in connection with
the Proceedings; provided, however, that no indemnification payment shall be
made hereunder out of the Escrowed Assets unless and until a determination shall
have been made by the Board of Directors of the Company or the trustee of any
liquidating trust holding assets of the Company that such indemnification
payment is permitted under this Agreement; provided, further, that the Escrowed
Assets shall be released upon a determination by the Board of Directors of the
Company or the trustee of any liquidating trust holding assets of the Company
that there is no substantial likelihood that further indemnification payments
will be required in connection with the Proceedings.
Partial Indemnity, Etc. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines, penalties and amounts paid in
settlement of a Claim but not, however, for all of the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.
Burden of Proof. In connection with any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder the burden of proof shall be on the Indemnitee to
establish that Indemnitee is so entitled.
No Presumptions. For purposes of this Agreement, the
termination of any claim, action, suit or proceeding, by judgment, order,
settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law. In addition, neither the failure of the Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under applicable law shall be a defense to such proceeding
or create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief.
Nonexclusivity, Etc. The rights of the Indemnitee hereunder
shall be in addition to any other rights Indemnitee may have, subject to the
Investment Company Act of 1940 and the rules, regulations and releases
promulgated thereunder, under the Company's By-laws or the Maryland General
Corporation Law or otherwise. To the extent that a change in the Maryland
General Corporation Law (whether by statute or judicial decision) and the
Investment Company Act of 1940 (or the rules, regulations and releases
promulgated thereunder) permits greater indemnification by agreement than would
be afforded currently under the Company's By-laws and this Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change.
Liability Insurance. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company director or officer.
Amendments, Etc. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
No Duplication of Payments. The Company shall not be liable
under this Agreement to make any payment in connection with any Claim made
against Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any insurance policy, By-law or otherwise) of the amounts
otherwise indemnifiable hereunder.
Binding Effect, Etc. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns, including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Company, spouses, heirs, executors and personal
and legal representatives. This Agreement shall continue in effect regardless of
whether Indemnitee continues to serve as an officer or director of the Company
or of any other enterprise at the Company's request.
Severability. The provisions of this Agreement shall be
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) is held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable in any
respect, and the validity and enforceability of any such provision in every
other respect and of the remaining provisions hereof shall not be in any way
impaired and shall remain enforceable to the fullest extent permitted by law.
14. Exhibit. Attached hereto as Exhibit A is the form of Escrow
Agreement required by Section 3 hereof.
15. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Maryland
applicable to contracts made and to be performed in such state without giving
effect to the principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement this ___ day of September, 1996.
THE MICROCAP FUND, INC.
By _______________________
Name:
Title:
------------------------
[Indemnitee]
Exhibit A
ESCROW AGREEMENT
This ESCROW AGREEMENT is made and entered into as of September
___, 1996, between The MicroCap Fund, Inc., a Maryland corporation (the
"Company"), and _________________, as escrow agent (the "Escrow Agent").
WHEREAS, the Company has entered into indemnification agreements
effective as of August 1, 1996 (the "Indemnification Agreements") with certain
of its current and former directors and officers (the "Indemnitees"), which,
among other things, require the Company to establish and deliver $250,000 in
cash and cash equivalents (the "Escrowed Assets") to an escrow account for the
purpose of discharging certain of its obligations under the Indemnification
Agreements.
NOW, THEREFORE, in consideration of the premise set forth above, the
Company hereby transfers physical possession of the Escrowed Assets for the uses
and purposes stated herein, subject to the terms and provisions set out below,
and the Escrow Agent hereby accepts such Escrowed Assets, subject to the
following terms and provisions:
1. Certain Definitions. For purposes of this Escrow Agreement,
upon the establishment of a liquidating trust that will hold the assets of the
Company (the "Trust"), references to the Company shall mean the trustee of the
Trust (the "Trustee") and references to the stockholders of the Company (the
"Stockholders") shall mean the beneficiaries of the Trust (the "Beneficiaries").
2. Appointment and Agreement of Escrow Agent. The Company
hereby appoints the Escrow Agent as escrow agent, and the Escrow Agent agrees
to perform the duties of Escrow Agent under this Agreement.
3. Establishment of Escrow.
3.1 Delivery of Property and Receipt. Simultaneously with the execution of this
Escrow Agreement, the Company is delivering to the Escrow Agent the Escrowed
Assets, initially consisting of $250,000 in cash and cash equivalents. The
Escrow Agent hereby acknowledges receipt of the Escrowed Assets and agrees to
hold and disburse the Escrowed Assets in accordance with the terms and
conditions of this Escrow Agreement for the uses and purposes stated herein.
3.2 Investment and Income. Pending the disbursement of the Escrowed Assets
pursuant to this Escrow Agreement, the Escrow Agent shall invest the Escrowed
Assets as directed by the Company in (i) direct obligations of the United States
of America or obligations of any agency or instrumentality thereof which mature
not later than one year from the date of the acquisition thereof; (ii) money
market deposit accounts, checking accounts, savings accounts, or certificates of
deposit, or other time deposit accounts which mature not later than one year
from the date of acquisition thereof which are issued by a commercial bank or
savings institution organized under the laws of the United States of America or
any state thereof; or (iii) any other instruments which may be permissible under
Revenue Procedure 82-58, as the same may be amended, supplemented or modified.
All dividends, interest and other amounts received
with respect to Escrowed Assets shall be treated
for Federal, state and local tax purposes as having been received by the Company
or, upon the establishment of the Trust, by the Trustee for the benefit of the
Beneficiaries.
4. Obligations Secured. This Escrow Agreement has been executed and the deposit
of the Escrowed Assets hereunder has been made for the purpose of satisfying the
Company's obligations under the Indemnification Agreements arising in connection
with the Proceedngs (as defined therein).
5. Procedures for Disbursement of Escrowed Assets. The Escrow Agent shall hold
and distribute the Escrowed Assets as follows:
5.1 Disbursement of Escrowed Assets. Whenever there shall be delivered to the
Escrow Agent a certificate signed by the Company to the Escrow Agent (i) that a
payment under the Indemnification Agreement is due and payable and/or (ii) that
the Company believes that there is no substantial likelihood that further
indemnification payments will be required under the Indemnification Agreements
in connection with the Proceedings, then the Escrow Agent shall deliver to or at
the direction of the Company such amount of Escrowed Assets equal in value to
the amount requested in (i) above and/or, in case of (ii) above, any remaining
Escrowed Assets; provided, however, that the Escrow Agent shall not deliver any
Escrowed Assets pursuant to this Section 5.1 unless it shall have given each of
the Indemnitees at least three days' prior written notice of its intent to make
such delivery. The Escrow Agent shall deliver any such amount by wire transfer
upon request or by check.
5.2 Interim Distributions. Notwithstanding anything in this Escrow Agreement to
the contrary, any dividends, income or other amounts attributable to the
Escrowed Assets will be distributed to the Company for the benefit of its
Stockholders.
6. Termination of Escrow. This Escrow Agreement shall
terminate (the "Termination Date") upon the earliest of (i) a finding by the
Board of Directors of the Company or, upon establishment of the Trust, the
Trustee, that there is no substantial likelihood that further indemnification
payments will be required under the Indemnification Agreements in connection
with the Proceedings, and (ii) the disbursement of all of the Escrowed Assets in
accordance with Section 5. As soon as practicable following the Termination
Date, the Escrow Agent shall cause notice of such termination to be delivered to
each of the Indemnitees. On the fourth day following such notice of termination,
the Escrow Agent shall deliver the Escrowed Assets, if any, to the Company. With
respect to subparagraph (i) above, this Escrow Agreement shall be terminated
only upon the receipt by the Escrow Agent of a written notice of termination
executed by the Company directing the distribution of all Escrowed Assets then
held by the Escrow Agent under and pursuant to this Escrow Agreement.
7. The Escrow Agent.
7.1 Indemnification of Escrow Agent. The Company hereby agrees to indemnify and
hold the Escrow Agent and its respective directors, officers, agents and
employees harmless from and against any and all liabilities, claims, losses,
costs, charges, damages, and attorneys' fees which the Escrow Agent in good
faith may incur or suffer in connection with or arising out of this Escrow
Agreement.
7.2 Duties of Escrow Agent. The Escrow Agent shall have no duties other than
those expressly imposed on it herein. The Escrow Agent shall not be liable for
any act or omission except for its own negligence or willful misconduct. In no
event shall the Escrow Agent be liable for any action taken or omitted to be
taken in accordance with the instructions of the Company pursuant to this
Agreement.
7.3 Fees of Escrow Agent. The fees and charges of the Escrow Agent with respect
to this Escrow Agreement shall be paid by the Company in accordance with the
Escrow Agent's customary fees as charged from time to time. The Company agrees
that the Escrow Agent may deduct any unpaid fees from Escrowed Assets prior to
the Escrow Agent's distributing any assets in connection with the termination of
this Escrow Agreement.
7.4 Escrow Agent to Follow Instructions of the Company. Any provision herein
contained to the
contrary notwithstanding, the Escrow Agent shall at any time and from time to
time take such action hereunder with respect to the Escrowed Assets as shall be
agreed to in writing by the Company, provided that the Escrow Agent shall first
be indemnified to its satisfaction by the Company with respect to any of its
costs, expenses (including reasonable attorneys' fees) or liabilities which
might be incurred; provided, however, that distributions of Escrowed Assets
shall be made only in accordance with the provisions hereof.
7.5 Resignation of Escrow Agent. The Escrow Agent may resign at any time by
providing the Company with thirty days' written notice of its intention to do
so. Upon receiving such notice, the Company shall endeavor to appoint a
successor Escrow Agent. If the Company is unable to appoint a successor Escrow
Agent within thirty days of receipt by the Company of the Escrow Agent's notice
of its intention to resign, the Escrow Agent may petition a court of competent
jurisdiction to appoint a successor. The Escrow Agent's resignation shall be
effective upon delivery of the remaining Escrowed Assets to the successor Escrow
Agent and the successor assuming the obligations, rights and duties of the
Escrow Agent hereunder.
8. Provisions.
8.1 Notices. A copy of all notices and communications delivered by the Escrow
Agent pursuant to
this Agreement shall be sent to the Indemnitees. All notices and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally or sent by cable, telegram, telecopier or
telex to the parties hereto and to the Indemnitees at the following addresses or
at such other addresses as shall be specified by the parties by like notice:
If to the Company or to the Trust:
The MicroCap Fund, Inc.
c/o Xxxxxxx X. Xxxxxx
Xxx Xxxxxxxxxxx Xxxxx
Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
with a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
If to the Escrow Agent:
==============================
------------------------------
(c) If to the Indemnitees:
Xxxxx X. Brands
0000 Xxxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Facsimile: (000) 000-0000
Xxxxxxx X. Xxxxxxx
Hub Associates
X.X. Xxx 000
Xxxx Xxxxxx, Xxxxxxxxxxxxx 00000
Facsimile: (000) 000-0000
Xxxxxxx X. XxXxxx
BZW Securities Inc.
000 Xxxxxxxx
0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Xxxxxxx Xxxxx
X.X. Xxxxx Associates, Inc.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Xxxxxx X. Xxxxxxxx, Ph.D.
Xxxxxxx Xxxxxxxx & Associates
X.X. Xxx 0000
Xxxxxxxx, Xxxxxxxxxxxx 00000-0000
Facsimile: (000) 000-0000
Xxxxxxx X. Xxxxxx
Xxx Xxxxxxxxxxx Xxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Xxxxxx X. Xxxxxx
000 Xxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxx 00000
Facsimile: (000) 000-0000
Notwithstanding the foregoing, the Escrow Agent agrees in respect of any action,
suit or proceeding it might initiate against the Company, the Trust, the
Stockholders or the Beneficiaries to furnish a duplicate copy of all such papers
so served to the Company, up until the time it dissolves, and thereafter to the
Trustee by a nationally recognized overnight courier at the address of each such
party set forth above.
8.2 Benefit and Assignment. The rights and obligations of each party under this
Escrow Agreement may not be assigned without the prior written consent of the
other party except that the Company in connection with its dissolution may
assign this Escrow Agreement to the Trustee on behalf of the Beneficiaries. This
Escrow Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns (and, in the case of the
Company, the Beneficiaries and the Trustee). Nothing in this Escrow Agreement,
expressed or implied, is intended to or shall (i) confer on any person other
than the parties hereto, or their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Escrow Agreement
other than in respect to the rights conferred hereunder on the Indemnitees, or
(ii) constitute the parties hereto as partners or participants in a joint
venture. The Escrow Agent shall not be obligated to recognize any such
succession or assignment, until satisfactory written evidence thereof shall have
been received by it.
8.3 Third Party Beneficiary. (a) The Company and the Escrow Agent each
acknowledge that each of the Indemnitees is a third party beneficiary of this
Escrow Agreement.
8.4 Entire Agreement; Amendment. This Escrow Agreement and the Indemnification
Agreements contain all the terms agreed upon by the parties with respect to the
subject matter hereof. This Escrow Agreement may be amended only by a written
instrument signed by the party against which enforcement of any waiver, change,
modification, extension or discharge is sought.
8.5 Headings. The headings of the sections and subsections of this Escrow
Agreement are for ease of reference only and shall not be deemed to evidence or
affect the meaning or construction of any of the provisions hereof.
8.6 Governing Law and Submission to Jurisdiction. This Escrow Agreement shall be
construed, as to
both validity and performance, enforced in accordance with and interpreted and
governed by the laws of the State of New York, without regard to any of the
conflicts of laws provisions thereof.
The Company and the Trustee agree that any claim, suit, action or other
proceeding for indemnity or otherwise provided for in this Escrow Agreement,
brought by the Company, the Stockholders, the Trustee or the Beneficiaries shall
be brought only in a court sitting in New York, New York.
8.7 Counterparts. This Escrow Agreement may be executed in multiple
counterparts, all of which taken together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this Escrow
Agreement to be executed by their respective duly authorized officers, all as of
the day and year first above written.
THE MICROCAP FUND, INC.
By:
Xxxxxxx X. Xxxxxx
President and Chief Executive Officer
[ESCROW AGENT]
By:
Name:
Title:
