INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of the date
set forth on the signature page by and between American Express Financial
Corporation, a Minnesota corporation ("AEFC"), and Xxxx X. Xxxxx and Xxxxxxx X.
Xxxxx, each an independent trustee (collectively, "Independent Trustees," as
defined herein) of the Advisory Hedged Opportunity Fund, a Delaware statutory
trust (the "Fund").
WHEREAS, Xx. Xxxxx and Xx. Xxxxx are Independent Trustees (as defined
herein) of the Fund, and AEFC wishes the Independent Trustees to continue to
serve in that capacity; and
WHEREAS, the Declaration of Trust and Bylaws of the Fund and applicable
laws permit the Independent Trustees to be indemnified for their service as
Trustees to the fullest extent permitted by law;
WHEREAS, AEFC wishes to provide the Independent Trustees with
indemnification: (a) under certain circumstances described herein, as
reimbursement for the indemnification that the Fund is otherwise obligated to
provide under the Fund's Declaration of Trust and Bylaws, and (b) in the event
that the Fund is unable to make indemnification payments due to insufficient
assets;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual agreements set forth herein, the parties hereby agree as set forth below.
1. Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(a) "Board" means the board of trustees of the Fund.
(b) "Claim" means (a) any complaint, claim, or other form of
commencement of a legal proceeding brought in any forum (including an
arbitration) where monetary or injunctive relief can be awarded; or (b)
any investigation, request for information, subpoena, or other
proceeding by any regulatory, governmental, or self-regulatory
organization.
(c) "Disabling Conduct" shall be as defined in Section 2 below.
(d) "Expenses" shall mean attorneys' fees, costs, judgments, amounts
paid in settlement, fines, penalties and all other liabilities
whatsoever.
(e) "Final decision" or "final judgment" shall mean a final
adjudication by court order or judgment of the court or other body
before which a matter is pending.
(f) "Independent counsel" shall mean a law firm, or a member of a law
firm, that is experienced in matters of investment company law and
neither at the time of designation
Page 2
is, nor in the five years immediately preceding such designation was,
retained to represent (A) the Fund or the Trustee in any matter
material to either, or (B) any other party to the Proceeding giving
rise to a claim for indemnification or advancements hereunder.
Notwithstanding the foregoing, however, the term "Independent Counsel"
shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest
in representing either the Fund or the Trustee in an action to
determine the Trustee's rights pursuant to this Agreement, regardless
of when the Trustee's act or failure to act occurred.
(g) "Independent Trustee" shall mean Xxxx X. Xxxxx and/or Xxxxxxx X.
Xxxxx, each a Trustee of the Fund who is neither an "interested person"
of the Fund as defined in Section 2(a)(19) of the Investment Company
Act of 1940, as amended, nor a party to the Proceeding with respect to
which indemnification or advances are sought.
(h) The term "Proceeding" shall include without limitation any
threatened, pending or completed claim, action, suit, or proceeding,
whether civil, criminal, administrative, or investigative.
2. Indemnification.
AEFC shall pay and/or indemnify and hold harmless the Independent
Trustees under the following circumstances:
(a) Spin-Off Related Claims. If the Independent Trustees of the Fund
shall determine that any Claim against the Independent Trustee(s) arises from,
is based in substantial part upon, is attributable to, or is a consequence of,
the actual or alleged action(s), omission(s), misrepresentation(s), or
failure(s) to act by AEFC (including its parent, subsidiaries, or affiliated
corporations) in connection with the spin-off of AEFC from its parent company,
American Express Company ("Spin-Off Related Claims"), AEFC shall pay, on behalf
of the Fund, all Expenses the Fund would otherwise incur by way of the
indemnification of Expenses of one or more Independent Trustees pursuant to the
terms of the Fund's Declaration of Trust and/or Bylaws, for the defense of any
such Claim, subject to the conditions set forth in subparagraphs (c) through (e)
below.
(b) Inability of the Fund to Make Indemnification Payments. In the
event that the Fund, for any reason, does not have sufficient assets to make
indemnification payments, AEFC shall indemnify the Independent Trustees,
pursuant to the terms of the Fund's Declaration of Trust and Bylaws for all
Expenses arising from the defense of any and all Claims of any kind brought
against the Independent Trustees to the full extent required by the Fund's
Declaration of Trust and Bylaws, subject to the conditions set forth in
subparagraphs (c) through (e) below.
(c) Disabling Conduct. The Independent Trustee shall be indemnified
pursuant to this Section 2 against any Expenses unless such Expenses arose by
reason of the Trustee's willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the
Page 3
conduct of his or her office as defined in Section 17(h) of the Investment
Company Act of 1940, as amended ("Disabling Conduct").
(d) Conditions to Indemnification. The Independent Trustee shall be
indemnified pursuant to this Section 2 if either:
(1) the court or other body before which the Proceeding
relating to the Independent Trustee's liability is brought shall have
rendered a final decision on the merits and such decision did not
include a finding the Independent Trustee had engaged in Disabling
Conduct;
(2) the Proceeding against the Independent Trustee shall have
been dismissed; or
(3) in the absence of such a final decision, dismissal or
withdrawal, a determination shall have been made that the Independent
Trustee has not engaged in Disabling Conduct, based upon a review of
the available facts, by Independent Counsel in a written opinion.
(e) Other Limit on Indemnification. Pursuant to the Fund's Declaration
of Trust, no indemnification shall be provided to an Independent Trustee who has
been adjudicated by a court or body before which the Proceeding was brought not
to have acted in good faith in the reasonable belief that his or her action was
in the best interests of the Fund.
3. Advancement of Expenses. AEFC shall promptly advance funds to the
Independent Trustee to cover any and all Expenses the Independent Trustee incurs
with respect to any Proceeding arising out of or in connection with any Spin-Off
Related Claim, to the fullest extent permitted by law subject to the provisions
of subparagraphs (a) and (b) below. In addition, if the Fund is unable to make
indemnification payments (as provided under subparagraph 2(b)), AEFC shall
promptly advance funds to the Independent Trustee for all Expenses arising from
the defense of any and all Claims of any kind brought against the Independent
Trustees to the full extent required by the Fund's Declaration of Trust and
Bylaws, subject to the conditions set forth in subparagraphs (a) through (b)
below.
(a) Affirmation of Conduct and Undertaking. A request by the
Independent Trustee for advancement of funds pursuant to this Section 3 shall be
accompanied by the Independent Trustee's (i) written affirmation of his or her
good faith belief that he or she met the standard of conduct necessary for
indemnification, and (ii) written undertaking to repay such advancements upon
the occurrence of any of the events barring indemnification set forth in
subparagraphs 2(c) through (e)
(b) Conditions to Advancement. Funds shall be advanced to the
Independent Trustee pursuant to this Section 3 if a determination is made by
Independent Counsel in a written opinion, based on a review of the readily
available facts then known (as opposed to a full trial-
Page 4
type inquiry), that there is reason to believe that the Independent Trustee
ultimately will be found to be entitled to indemnification pursuant to Section
2. In any such determination by Independent Counsel pursuant to this
subparagraph, any Independent Trustee shall be afforded a rebuttable presumption
that the Independent Trustee did not engage in Disabling Conduct.
4. Procedure for Determination of Entitlement to Indemnification and
Advancements. A request by the Independent Trustee for indemnification or
advancement of Expenses shall be made in writing, and shall be accompanied by
such relevant documentation and information as is reasonably available to the
Independent Trustee. The Secretary of the Fund shall promptly advise the Board
and AEFC of such request.
(a) Methods of Determination. Upon the Independent Trustee's request
for indemnification or advancement of Expenses, provided such request is made
with respect to Expenses related to a claim for which has the court or other
body with jurisdiction over the Claim has not yet rendered a final decision on
the merits, AEFC may request a determination with respect to the Independent
Trustee's entitlement thereto be made by Independent Counsel. The Independent
Trustee shall cooperate with the person or persons making such determination,
including without limitation providing to such persons upon reasonable advance
request any documentation or information that is not privileged or otherwise
protected from disclosure and is reasonably available to the Independent Trustee
and reasonably necessary to such determination. Any Expenses incurred by the
Independent Trustee in so cooperating shall be borne by AEFC, irrespective of
the determination as to the Independent Trustee's entitlement to indemnification
or advancement of Expenses.
(b) Independent Counsel. In connection with the determination of
entitlement to indemnification or advancement of Expenses by Independent
Counsel, such Independent Counsel shall be selected by the Board, and the Fund
shall give written notice to the Independent Trustee advising the Independent
Trustee of the identity of the Independent Counsel selected.
AEFC shall pay all reasonable fees and Expenses charged or
incurred by Independent Counsel in connection with his or her determinations
pursuant to this Agreement, and shall pay all reasonable fees and Expenses
incident to the procedures described in this paragraph, regardless of the manner
in which such Independent Counsel was selected or appointed.
(c) Failure to Make Timely Determination. If the person or persons
empowered or selected under subparagraphs (a) or (b) to determine whether the
Independent Trustee is entitled to indemnification or advancement of Expenses
shall not have made such determination within thirty days after receipt by the
Fund and AEFC of the request therefor, the requisite determination of
entitlement to indemnification or advancement of Expenses shall be deemed to
have been made, and the Independent Trustee shall be entitled to such
indemnification or advancement, absent (i) an intentional misstatement by the
Independent Trustee of a material fact, or an intentional omission of a material
fact necessary to make the Independent Trustee's statement not materially
misleading, in connection with the request for indemnification or
Page 5
advancement of Expenses, or (ii) a prohibition of such indemnification or
advancements under applicable law; provided, however, that such period may be
extended for a reasonable period of time, not to exceed an additional thirty
days, if the person or persons making the determination in good faith require
such additional time to obtain or evaluate documentation or information relating
thereto.
(d) Payment Upon Determination of Entitlement. If a determination is
made pursuant to Sections 2, 3, and 4 (a) through (c) above that the Independent
Trustee is entitled to indemnification or advancement of Expenses, payment of
any indemnification amounts or advancements owing to the Independent Trustee
shall be made by AEFC within ten business days after such determination (and, in
the case of advancements of further Expenses, within ten business days after
submission of supporting information).
(e) Arbitration Upon Determination of Non-Entitlement. If a
determination is made that the Independent Trustee is not entitled to
indemnification or advancement of Expenses pursuant to Sections 2 through 4(c)
above, the Independent Trustee shall be entitled to an adjudication of the
Independent Trustee's entitlement to such indemnification or advancement by a
single arbitrator appointed by the American Arbitration Association in an
arbitration conducted pursuant to that Association's then-existing commercial
arbitration rules. The Independent Trustee shall commence such arbitration
seeking an adjudication within one year following the date on which receives the
determination denying indemnification or advancement. In any such proceeding,
the Independent Trustee and AEFC shall be bound by the determination of the
arbitrator, subject to rights of appeal to a court of competent jurisdiction to
review such an arbitration award and to vacate such an award only on one or more
of the bases set forth in Sections 10 and 11 of the Federal Arbitration Act, 9
U.S.C. Sections 10 and 11. AEFC shall advance the costs of such an arbitration
to the American Arbitration Association but the arbitrator shall, as part of the
award, make a final award of such costs (including arbitrator's fees) to the
prevailing party in the arbitration.
Section 5. General Provisions.
(a) No Indemnification if Otherwise Reimbursed. AEFC shall not be
liable under this Agreement to make any payment of amounts otherwise
indemnifiable hereunder if and to the extent that the Independent Trustee has
otherwise received such payment under any insurance policy, contract, agreement
or otherwise.
(b) Continuation of Provisions. This Agreement shall be binding upon
and inure to the benefit of all successors of AEFC, including without limitation
any transferee of all or substantially all assets of AEFC and any successor by
merger, consolidation, reorganization, transfer or operation of law, and shall
inure to the benefit of the Independent Trustee's spouse, heirs, assigns,
devisees, executors, administrators and legal representatives. No amendment of
the Declaration of Trust or Bylaws of the Fund shall limit or eliminate the
right of the Independent Trustee to indemnification and advancement of expenses
set forth in this
Page 6
Agreement. Moreover, unless contrary to applicable law, the procedures set forth
in Paragraphs 3 through 5 of this Agreement shall be the exclusive means by
which the parties' rights and obligations with regard to indemnification and
advancement of expenses shall be determined, regardless of whether those rights
and obligations arise by operation of law, Declaration of Trust, Bylaws or this
Agreement.
(c) Selection of Counsel. The Independent Trustee agrees to choose
Counsel to represent him/her in any Proceeding for which indemnification is
claimed in a manner designed to minimize Expenses, consistent with the goal of
vigorously defending the Independent Trustee. In that regard, the Independent
Trustee shall seek joint representation by Counsel with other Trustee defendants
in any such Proceeding to the extent such Independent Trustees' interests may be
jointly represented by Counsel consistent with the applicable canons of ethics
regarding conflicts of interest. Moreover, where the Fund and the Independent
Trustee are both defendants in a Proceeding, the Independent Trustee and Fund
shall agree to be jointly represented by Counsel to the extent consistent with
the applicable canons of ethics regarding conflicts of interest. Notwithstanding
the foregoing, an Independent Trustee can retain counsel provided the fees,
costs and expenses associated with such retention are borne by the Independent
Trustee.
(d) Subrogation. In the event of any payment by AEFC pursuant to this
Agreement, AEFC shall be subrogated to the extent of such payment to all of the
rights of recovery (other than the right of indemnification from the Fund
itself) of the Independent Trustee, who shall, upon reasonable written request
by AEFC and at AEFC's expense, execute all such documents and take all such
reasonable actions as are necessary to enable AEFC to enforce such rights.
Nothing in this Agreement shall be deemed to diminish or otherwise restrict the
right of AEFC, the Fund or the Independent Trustee to proceed or collect against
any insurers and to give such insurers any rights against AEFC under or with
respect to this Agreement, including without limitation any right to be
subrogated to the Independent Trustee's rights hereunder, unless otherwise
expressly agreed to by AEFC in writing, and the obligation of such insurers to
the Fund and the Independent Trustee shall not be deemed to be reduced or
impaired in any respect by virtue of the provisions of this Agreement.
(e) Notice of Proceedings. The Independent Trustee shall promptly
notify the Fund and AEFC in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document
commencing any Proceeding which may be subject to indemnification or advancement
of expense pursuant to this Agreement, but no delay in providing such notice
shall in any way limit or affect the Independent Trustee's rights or AEFC's
obligations under this Agreement. Thereafter, the Independent Trustee, and/or
his Counsel, shall work with the representative(s) of the Fund and AEFC to keep
the Fund and AEFC informed of the status of the Proceeding and the positions
taken by the parties to the Proceeding as the matter progresses.
(f) Notices. All notices, requests, demands and other communications to
a party pursuant to this Agreement shall be in writing, addressed to such party
(and/or designated representative) at the address(es) specified on the signature
page of this Agreement (or such
Page 7
other address as may have been furnished by such party by notice in accordance
with this paragraph), and shall be deemed to have been duly given when delivered
personally (with a written receipt signed by the addressee or his/her
representative) or two days after being sent (1) by certified or registered
mail, postage prepaid, return receipt requested, or (2) by nationally recognized
overnight courier service.
(g) Severability. If any provision of this Agreement shall be held to
be invalid, illegal, or unenforceable, in whole or in part, for any reason
whatsoever, (1) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any provision that is not itself invalid,
illegal or unenforceable) shall not in any way be affected or impaired thereby,
and (2) to the fullest extent possible, the remaining provisions of this
Agreement shall be construed so as to give effect to the intent manifested by
the provision held invalid, illegal or unenforceable.
(h) Modification and Waiver. This Agreement supersedes any existing or
prior agreement between AEFC and the Independent Trustee pertaining to the
subject matter of indemnification, advancement of expenses and insurance and any
such prior written or oral agreement shall be of no further force or effect. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by both parties or their respective successors or legal
representatives. Any waiver by either party of any breach by the other party of
any provision contained in this Agreement to be performed by the other party
must be in writing and signed by the waiving party or such party's successor or
legal representative, and no such waiver shall be deemed a waiver of similar or
other provisions at the same or any prior or subsequent time.
(i) Headings. The headings of the Sections of this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
(j) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original, and all of which when taken
together shall constitute one document.
(k) Applicable Law. This Agreement shall be governed by and construed
and enforce in accordance with the laws of the state of Delaware without
reference to principles of conflict of laws of the State of Delaware.
Page 8
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth below.
Dated: June 15, 2005
AMERICAN EXPRESS FINANCIAL CORPORATION
--------------------------------------
a Minnesota corporation
By: /s/ Xxxxx Xxxxx
------------------
Name: Xxxxx Xxxxx
Title: Senior Vice President
Address for notices:
50239 AXP Financial Center
Xxxxxxxxxxx, XX 00000
INDEPENDENT TRUSTEES:
/s/ Xxxx X. Xxxxx
-----------------------------
Xxxx X. Xxxxx
Address for notices:
0000 Xxxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000
/s/ Xxxxxxx X. Xxxxx
-----------------------------
Xxxxxxx X. Xxxxx
Address for notices:
0000 Xxxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxxx, XX 00000
