EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "AGREEMENT") is made effective as
of this ____ day of March, 2007 by and among Strativation, Inc., a Delaware
corporation ("STRV"), CNS Response, Inc., a California corporation ("CNSR" and
collectively, with STRV, the "COMPANY PARTIES") and the undersigned individuals
(each an "INDEMNITOR" and together the "INDEMNITORS"). Capitalized terms used
and not defined herein have the respective meanings ascribed to them in the
Merger Agreement (defined below).
RECITALS
WHEREAS, STRV, CNS Merger Corporation, a California corporation and
wholly-owned subsidiary of STRV ("MERGERCO"), and CNSR are parties to that
certain Agreement and Plan of Merger dated as of January 16, 2007 (the "MERGER
AGREEMENT");
WHEREAS, pursuant to the Merger Agreement, CNSR will merge with and
into MergerCo, with CNSR being the surviving corporation and a wholly-owned
subsidiary of STRV ("MERGER"); and
WHEREAS, as a condition to closing the transactions contemplated by the
Merger Agreement, the Indemnitors desire to jointly and severally indemnify the
Company Parties from any and all third party claims or actions brought against
any of the Company Parties relating to (i) the issuance of securities by STRV
from July 18, 2006, through the date immediately prior to the Closing of the
Merger or (ii) the receipt by Xxxxxxxxxx & Xxxxx, LLP, of payment pursuant to
that certain Financial Advisory Services Agreement between STRV and Xxxxxxxxxx &
Xxxxx, LLP dated March __, 2007 (the "SERVICES AGREEMENT").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Indemnitors, STRV and CNSR, intending to be
legally bound, hereby agree as follows:
1. CERTAIN DEFINITIONS. When used herein, the following terms
shall have the following meanings:
"ACTION" means any action, appeal, petition, plea, charge,
complaint, claim, suit, derivative suit, demand, litigation, arbitration,
mediation, hearing, inquiry, investigation or similar event, occurrence, or
proceeding.
"AFFILIATE" or "AFFILIATES" with respect to any specified
person, means a person that, directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
such specified person. For this definition, "control" (and its derivatives)
means the possession, directly or indirectly, or as trustee or executor, of the
power to direct or cause the direction of the management and policies of a
person, whether through
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ownership of voting equity interests, as trustee or executor, by contract or
credit arrangements or otherwise.
"DAMAGES" means all damages, losses (including any diminution
in value and the loss of any available tax deduction), liabilities, payments,
amounts paid in settlement, obligations, fines, penalties, expenses, costs
associated with obtaining injunctive relief, and other costs, including
reasonable fees and expenses of attorneys, accountants and other professional
advisors, and of expert witnesses and other out-of-pocket costs of
investigation, preparation, and litigation in connection with any Action or
threatened Action.
"INDEMNIFIED PARTIES" means collectively STRV, CNSR and their
respective officers, directors, managers, employees, agents, representatives,
and each of STRV's Affiliates and CNSR's Affiliates.
2. INDEMNIFICATION. Indemnitors agree, jointly and severally, to
indemnify and hold harmless the Indemnified Parties and each of them harmless
against, and pay any and all Damages directly or indirectly resulting from,
relating to, arising out of, or attributable to, any Action by a shareholder of
the Company existing from July 18, 2006 through the time immediately prior to
the closing of the Merger, against an Indemnified Party ("THIRD PARTY CLAIM")
relating to (i) the issuance of securities by STRV from July 18, 2006 through
the time immediately prior to the Closing of the Merger; and/or (ii) the receipt
by Xxxxxxxxxx & Xxxxx, LLP of payments pursuant to the Service Agreement.
3. INDEMNITOR REPRESENTATIVE. The Indemnitors hereby appoint
Xxxxx Xxxxx as their authorized representative (the "INDEMNITOR
REPRESENTATIVE"). The Indemnitors may designate a replacement Indemnitor
Representative at any time by action of a majority of the Indemnitors which
designation shall be made in writing to the Company Parties. The Indemnitor
Representative, with full and unqualified power to delegate to one or more
persons the authority granted to him hereunder, shall have the authority (a) to
receive and to accept on behalf of each Indemnitor any notice from any
Indemnified Party given in accordance with the terms of Section 4 hereof (and
any notice given to the Indemnitor Representative shall be deemed to have been
given to each Indemnitor);(b) to give on behalf of each Indemnitor any notice,
representation, demand, or other communication that it may be necessary,
desirable, or otherwise appropriate to give to secure and to preserve for each
Indemnitor the benefit of any policy or policies of insurance, surety,
indemnification, or other reimbursement for any amount for which the Indemnitor
may be liable directly or indirectly under this Agreement ("INDEMNIFICATION
INSURANCE"); and (c) to cooperate with any and all Indemnified Parties to
investigate, negotiate, settle, and compromise any claim of any Indemnified
Party asserted under this Agreement, and to execute on behalf of any Indemnitor
any agreement, instrument, or other document that, in the sole discretion of the
Indemnitor Representative, is necessary, desirable, or otherwise appropriate to
effect any such settlement or compromise; provided, however, that the Indemnitor
Representative shall have no liability or obligation to any Indemnified Party
otherwise than and to the extent of his individual liability as an Indemnitor.
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4. INDEMNIFICATION PROCEDURES.
4.1. NOTICE OF THIRD-PARTY CLAIM. If entitled to
indemnification hereunder, an Indemnified Party shall, with respect to claims
asserted against any such Indemnified Party, give written notice to Indemnitor
Representative of any liability which might give rise to a claim for indemnity
against the Indemnitors hereunder within thirty (30) days of the receipt of any
written claim or notice from any such third party, but no later than twenty (20)
days prior to the date any answer, responsive pleading or other response may be
due with respect thereto, and with respect to any other matter for which any
Indemnified Party may seek indemnification hereunder, the Indemnified Party
shall give prompt written notice to the Indemnitor Representative of any
liability which might give rise to a claim for indemnity; provided, however that
any failure to give such notice will not release the Indemnitors from their
obligations hereunder except to the extent that the rights of the Indemnifying
Party are materially prejudiced thereby.
4.2. DEFENSE. The Indemnitor Representative, upon receipt
of such notice, shall be entitled to participate in or, at the Indemnitor
Representative's option, assume, the defense, appeal or settlement of such
Third-Party Claim with respect to which such indemnity has been invoked with
counsel of the Indemnitor Representatives own choosing (who shall be reasonably
satisfactory to the Indemnified Party); provided, however, that if the
Indemnitor Representative assumes the defense, appeal or settlement of such
Third-Party Claim, the Indemnified Party shall nevertheless be entitled to
participate in (but not direct) the defense thereof with counsel of its own
choice at its own expense. Any Indemnified Party is hereby authorized prior to
the date on which it receives written notice from the Indemnitor Representative
that he intends to assume the defense, appeal or settlement of such Third-Party
Claim, to file any motion, answer or other pleading and take such other action
which such Indemnified Party shall reasonably deem necessary to protect its
interest until the date on which the Indemnified Party receives such notice from
the Indemnitor Representative.
4.3. SETTLEMENT. No claim or demand may be settled by the
Indemnified Party without the consent of the Indemnitor Representative, which
consent shall not be unreasonably delayed or withheld. Unless the claim or
demand seeks only dollar damages (all of which are to be paid by the
Indemnitors) and includes a full release of the Indemnified Parties, no such
claim or demand may be settled by the Indemnitor Representative without the
consent of the Indemnified Party, which consent shall not be unreasonably
delayed or withheld.
4.4. COOPERATION. The parties agree to cooperate in
defending such Third-Party Claims and the Indemnified Party shall provide such
cooperation and such access to its books, records and properties as the
Indemnitor Representative may reasonably request with respect to any matter for
which indemnification is sought hereunder, and the parties hereto agree to
cooperate with each other in order to insure the proper and adequate defense
thereof.
4.5. PAYMENT. With regard to Third-Party Claims for which
indemnification is payable hereunder, indemnification shall be paid by the
Indemnitors within five (5) business days following the earlier to occur of: (i)
entry of a final non-appealable judgment by a court of competent jurisdiction or
arbitration panel against an Indemnified Party which has not been stayed pending
appeal; or (ii) a settlement of the claim, in accordance with the terms of such
settlement.
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5. LIMITATIONS ON INDEMNIFICATION LIABILITY.
5.1. CEILING. The Indemnitors' aggregate liability for
Damages under this Agreement will not exceed an amount equal to $1,510,589.
5.2. BASKET/THRESHOLD. The Indemnitors will have no
liability for money Damages under this Agreement unless and until the aggregate
Damages claimed under SECTION 2 exceeds $25,000 (the "INDEMNIFIED PARTIES
THRESHOLD Amount"); provided, however, if the aggregate Damages claimed under
SECTION 2 exceeds the Indemnified Parties Threshold Amount, the Indemnitors'
liability will relate back to and include the first dollar of aggregate Damages
so claimed.
6. PAYMENT OF DAMAGES
Subject to the limitations of SECTION 5, the first $475,000 of
Damages payable by Indemnitors to the Indemnified Parties in accordance with
this Agreement shall be paid in cash. The balance of any such Damages (the
"EXCESS DAMAGES"), shall be satisfied by surrendering for redemption that
quantity of shares of STRV common stock (the "STRV COMMON SHARES"), equal in
value to such Excess Damages. For purposes of this SECTION 6, the per share
value of STRV Common Shares will be $1.35. If this SECTION 6 requires the
redemption of STRV Common Shares, STRV shall provide notice to STRV's transfer
agent with respect to the STRV Common Shares to be redeemed hereby and provide a
copy of such notice to the Indemnitor Representative. Each Indemnitor hereby
authorizes such transfer agent to transfer title to such STRV Common Shares on
STRV's stock ledger and holds such transfer agent harmless from and indemnifies
such transfer agent against any liabilities of the transfer agent arising as a
result of such transfer.
7. THIRD PARTY BENEFICIARIES. Indemnitors agrees that each
Indemnified Party is a third party beneficiary with respect to each provision of
this Agreement applicable to such Indemnified Party and may enforce each of
these provisions as if such Indemnified Party was a party to this Agreement.
8. TERM. This Agreement shall have a term of twenty-four (24)
months after the date hereof, and upon expiration of this Agreement, the
obligations of the parties hereunder shall terminate with respect to any claims
asserted against an Indemnified Party with respect to which the Indemnitor has
not been provided notice pursuant to SECTION 4.1 hereof.
9. MISCELLANEOUS.
9.1. ENTIRE AGREEMENT. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
9.2. GOVERNING LAW; CONSENT TO JURISDICTION. This
Agreement and the obligations of the parties hereunder shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to any choice of law principles that may require the application of any
other laws. Each party hereby consents to the non-exclusive jurisdiction of any
governmental body, arbitrator, or mediator in which an Action is brought
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against any Indemnified Party for purposes of any Indemnification Claim that an
Indemnified Party may have under this Agreement with respect to such Action or
the matters alleged therein.
9.3. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.4. AMENDMENTS AND WAIVERS. No amendment, modification,
waiver, replacement, termination, or cancellation of any provision of this
Agreement shall be valid, unless the same shall be in writing and signed by all
of the parties to this Agreement.
9.5. SEVERABILITY. If this Agreement or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Indemnitors shall nevertheless jointly and severally, indemnify the
Indemnified Parties to the full extent permitted by any applicable portion of
this Agreement that shall not have been invalidated, and the balance of this
Agreement not so invalidated shall be enforceable in accordance with its terms.
9.6. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the Indemnitors and its successors and assigns, and shall inure to
the benefit of the Indemnified Parties and their respective estate, heirs, legal
representatives and assigns.
9.7. ATTORNEYS' FEES. In the event that any Action is
instituted by an Indemnified Party under this Agreement to enforce or interpret
any of the terms hereof, the Indemnified Party shall be entitled to be paid all
court costs and expenses, including reasonable attorneys' fees, incurred by the
Indemnified Party with respect to such Action.
9.8. NOTICE. All notices, requests, demands, claims, and
other communications hereunder shall be in writing, addressed to the intended
recipient as set forth below, and shall be deemed to have been duly given when
actually received or refused by the intended recipient:
If to Indemnitors:
Xxxxxxxxxx & Xxxxx, LLP
00000 Xxxxxxxx Xxxx., Xxxxx 000
Xxx Xxxxxxx, XX 00000
Attn: Xxxxx Xxxxx, Indemnitor Representative
Fax: (000) 000-0000
If to any Indemnified Party:
CNS Response, Inc.
0000 Xxxxxxx Xxxxxx
Xxxxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxx, CEO
Fax: (000) 000-0000
with a copy to (which shall not constitute notice):
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Xxxxxx Xxxxxxxx & Markiles, LLP
00000 Xxxxxxx Xxxx., 00xx Xxxxx
Xxxxxxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxxx, Esq.
Fax: (000) 000-0000
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
means (including personal delivery, expedited courier, messenger service,
registered or certified mail, return receipt requested and postage prepaid). Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other parties
notice in the manner herein set forth.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CNS RESPONSE, INC.
By:
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Name: Xxxxxxx X. Xxxxxx
Title: Chief Executive Officer
STRATIVATION, INC.
By:
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Name: Xxxxx Xxxxxxxx
Title: Chief Executive Officer
[INDEMNITORS SIGNATURE PAGE FOLLOWS]
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INDEMNITOR:
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Name
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Signature
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Date
Address: --------------------------------
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[INDEMNITORS' SIGNATURE PAGE
TO INDEMNIFICATION AGREEMENT]
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