INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this 23rd day of December, 1997
between Applied Digital Access, Inc., a Delaware corporation ("Corporation"),
whose address is 0000 Xxxxxxxx Xxxx, Xxx Xxxxx, Xxxxxxxxxx 00000 and
__________________ ("Director"), whose address is __________________.
RECITALS:
A. WHEREAS, Director, a member of the Board of Directors of
Corporation, performs a valuable service in such capacity for Corporation; and
B. WHEREAS, the stockholders of Corporation have adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers, directors,
agents and employees of Corporation to the maximum extent authorized by
Section 145 of the Delaware General Corporation Law, as amended (the "Law");
and
C. WHEREAS, the Bylaws and the Law, as amended and in effect from
time to time or any successor or other statutes of Delaware having similar
import and effect, currently purports to be the controlling law governing
Corporation with respect to certain aspects of corporate law, including
indemnification of directors and officers; and
D. WHEREAS, in accordance with the authorization provided by the Law,
Corporation may from time to time purchase and maintain a policy or policies
of Directors and Officers Liability Insurance ("D & O Insurance"), covering
certain liabilities which may be incurred by its directors and officers in
the performance of services as directors and officers of Corporation; and
E. WHEREAS, as a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded members of the Board
of Directors by such D & O Insurance, if any, and by statutory and bylaw
indemnification provisions; and
F. WHEREAS, in order to induce Director to continue to serve as a
member of the Board of Directors of Corporation, Corporation has determined
and agreed to enter into this contract with Director.
NOW, THEREFORE, in consideration of Director's continued service as a
director after the date hereof, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. The following terms used in this Agreement
shall have the meanings set forth below. Other terms are defined where
appropriate in this Agreement.
(a) "Disinterested Director" shall mean a director of Corporation
who is not or was not a party to the Proceeding in respect of which
indemnification is being sought by Director.
(b) "Expenses" shall include all direct and indirect costs
(including, without limitation, attorneys' fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, duplicating
costs, printing and binding costs, telephone charges, postage, delivery
service fees, all other disbursements or out-of-pocket expenses and
reasonable compensation for time spent by Director for which he or she is
otherwise not compensated by Corporation) actually and reasonably incurred in
connection with a Proceeding or establishing or enforcing a right to
indemnification under this Agreement, applicable law or otherwise; provided,
however, that "Expenses" shall not include any Liabilities.
(c) "Final Adverse Determination" shall mean that a determination
that Director is not entitled to indemnification shall have been made
pursuant to Section 5 hereof and either (i) a final adjudication in a
Delaware court or decision of an arbitrator pursuant to Section 13(a) hereof
shall have denied Director's right to indemnification hereunder, or (ii)
Director shall have failed to file a complaint in a Delaware court or seek an
arbitrator's award pursuant to Section 13(a) for a period of one hundred
twenty (120) days after the determination made pursuant to Section 5 hereof.
(d) "Independent Legal Counsel" shall mean a law firm or member of
a law firm selected by Corporation and approved by Director (which approval
shall not be unreasonably withheld) and that neither is presently nor in the
past five years has been retained to represent: (i) Corporation, in any
material matter, or (ii) any other party to the Proceeding giving rise to a
claim for indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Legal 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 Corporation or Director in an
action to determine Director's right to indemnification under this Agreement.
(e) "Liabilities" shall mean liabilities of any type whatsoever
including, but not limited to, any judgments, fines, ERISA excise taxes and
penalties, penalties and amounts paid in settlement (including all interest
assessments and other charges paid or payable in connection with or in
respect of such judgments, fines, penalties or amounts paid in settlement) of
any proceeding.
(f) "Proceeding" shall mean any threatened, pending or completed
action, claim, suit, arbitration, alternative dispute resolution mechanism,
investigation, administrative hearing or any other proceeding whether civil,
criminal, administrative or investigative, including any appeal therefrom.
(g) "Change of Control" shall mean the occurrence of any of the
following events after the date of this Agreement:
(i) A change in the composition of the Board of Directors of
Corporation (the "Board"), as a result of which fewer than two-thirds (2/3)
of the incumbent directors are directors who either (1) had been directors of
Corporation twenty-four (24)
-2-
months prior to such change or (2) were elected, or nominated for election,
to the Board with the affirmative votes of at least a majority of the
directors who had been directors of Corporation 24 months prior to such
change and who were still in office at the time of the election or
nomination; or
(ii) Any "person" (as such term is used in section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) through the
acquisition or aggregation of securities is or becomes the beneficial owner,
directly or indirectly, of securities of Corporation representing twenty
percent (20%) or more of the combined voting power of Corporation's then
outstanding securities ordinarily (and apart from rights accruing under
special circumstances) having the right to vote at elections of directors
(the "Capital Stock"), except that any change in ownership of Corporation's
securities by any person resulting solely from a reduction in the aggregate
number of outstanding shares of Capital Stock, and any decrease thereafter in
such person's ownership of securities, shall be disregarded until such person
increases in any manner, directly or indirectly, such person's beneficial
ownership of any securities of Corporation.
2. INDEMNITY OF DIRECTOR. Corporation hereby agrees to hold harmless
and indemnify Director to the fullest extent authorized or permitted by the
provisions of the Law, as may be amended from time to time.
3. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth in
Section 4 hereof, Corporation hereby further agrees to hold harmless and
indemnify Director:
(a) against any and all expenses (including attorneys' fees),
witness fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Director in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including an action by or in the right of Corporation) to
which Director is, was or at any time becomes a party, or is threatened to be
made a party, by reason of the fact that Director is, was or at any time
becomes a director, officer, employee or agent of Corporation, or is or was
serving or at any time serves at the request of Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Director
by Corporation under the non-exclusivity provisions of the Bylaws of
Corporation and the Law.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which the Director is
indemnified pursuant to Section 2 hereof or reimbursed pursuant to any D & O
Insurance purchased and maintained by Corporation;
(b) in respect of remuneration paid to Director if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
-3-
(c) on account of any action, suit or proceeding in which judgment
is rendered against Director for an accounting of profits made from the
purchase or sale by Director of securities of Corporation pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law;
(d) on account of Director's conduct which is finally adjudged to
have been knowingly fraudulent or deliberately dishonest, or to constitute
willful misconduct if such conduct has been established by a judgment or
other final adjudication adverse to Director (an "Adverse Judgment");
(e) provided there has been no Change of Control, on account of or
arising in response to any action, suit or proceeding (other than an action,
suit or proceeding referred to in Section 14(b) hereof) initiated by Director
or any of Director's affiliates against Corporation or any officer, director
or stockholder of Corporation unless such action, suit or proceeding was
authorized in the specific case by action of the Board of Directors of
Corporation;
(f) if a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification is not lawful; or
(g) on account of any action, suit or proceeding to the extent
that Director is a plaintiff, a counter-complainant or a cross-complainant
therein (other than an action, suit or proceeding permitted by Section 4(e)
hereof).
5. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) Whenever Director believes that he or she is entitled to
indemnification pursuant to this Agreement, Director shall submit a written
request for indemnification to Corporation. Any request for indemnification
shall include sufficient documentation or information reasonably available to
Director to support his or her claim for indemnification. Director shall
submit his or her claim for indemnification within a reasonable time not to
exceed five years after any judgment, order, settlement, dismissal,
arbitration award, conviction, acceptance of a plea of nolo contendere or its
equivalent, final termination or other disposition or partial disposition of
any Proceeding, whichever is the later date for which Director requests
indemnification. The President or the Secretary or other appropriate officer
shall, promptly upon receipt of Director's request for indemnification,
advise the Board of Directors in writing that Director has made such a
request. Determination of Director's entitlement to indemnification shall be
made not later than ninety (90) days after Corporation's receipt of his or
her written request for such indemnification.
(b) The Director shall be entitled to select the forum in which
Director's request for indemnification will be heard, which selection shall
be included in the written request for indemnification required in Section
5(a). This forum shall be any one of the following:
-4-
(i) The stockholders of Corporation;
(ii) A quorum of the Board of Directors consisting of
Disinterested Directors;
(iii) Independent Legal Counsel, who shall make the
determination in a written opinion; or
(iv) A panel of three arbitrators, one selected by
Corporation, another by Director and the third by the first two arbitrators
selected. If for any reason three arbitrators are not selected within thirty
(30) days after the appointment of the first arbitrator, then selection of
additional arbitrators shall be made by the American Arbitration Association.
If any arbitrator resigns or is unable to serve in such capacity for any
reason, the American Arbitration Association shall select his or her
replacement. The arbitration shall be conducted pursuant to the commercial
arbitration rules of the American Arbitration Association now in effect.
If Director fails to make such designation, his or her claim
shall be determined by the forum selected by Corporation.
6. PRESUMPTION AND EFFECT OF CERTAIN PROCEEDINGS. Upon making a
request for indemnification, Director shall be presumed to be entitled to
indemnification under this Agreement and Corporation shall have the burden of
proof to overcome that presumption in reaching any contrary determination.
The termination of any Proceeding by judgment, order, settlement, arbitration
award or conviction, or upon a plea of nolo contendere or its equivalent
shall not affect this presumption or, except as may be provided in Section 4
hereof, establish a presumption with regard to any factual matter relevant to
determining Director's rights to indemnification hereunder. If the person or
persons so empowered to make a determination pursuant to Section 5(b) hereof
shall have failed to make the requested determination within thirty (30) days
after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, or
other disposition or partial disposition of any Proceeding or any other event
which could enable Corporation to determine Director's entitlement to
indemnification, the requisite determination that Director is entitled to
indemnification shall be deemed to have been made.
7. CONTRIBUTION. If the indemnification provided in Sections 2 and 3
is unavailable and may not be paid to Director for any reason other than
those set forth in Section 4, then in respect of any threatened, pending or
completed action, suit or proceeding in which Corporation is or is alleged to
be jointly liable with Director (or would be if joined in such action, suit
or proceeding), Corporation shall contribute to the amount of expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred and paid or payable by Director in such
proportion as is appropriate to reflect (i) the relative benefits received by
Corporation on the one hand and Director on the other hand from the
transaction from which such action, suit or proceeding arose, and (ii) the
relative fault of Corporation on the one hand and of Director on the other
hand in connection with the events which resulted in such expenses,
judgments, fines or settlement amounts, as well as any other relevant
equitable
-5-
considerations. The relative fault of Corporation on the one hand and of
Director on the other shall be determined by reference to, among other
things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such
expenses, judgments, fines or settlement amounts. Corporation agrees that it
would not be just and equitable if contribution pursuant to this Section 7
were determined by pro rata allocation or any other method of allocation
which does not take account of the foregoing equitable considerations.
8. INSURANCE AND FUNDING. Corporation hereby represents and warrants
that it shall purchase and maintain insurance to protect itself and/or
Director against any Expenses and Liabilities in connection with any
Proceeding to the fullest extent permitted by the Law. In the event of a
Change of Control, Corporation shall establish a letter of credit, as
provided in Section 9, to ensure the payment of such amounts as may be
necessary to effect indemnification or advancement of Expenses as provided in
this Agreement.
9. LETTER OF CREDIT.
(a) In order to secure the obligations of Corporation to indemnify
and advance Expenses to Director pursuant to this Agreement, Corporation
shall obtain at the time of any Change of Control, upon request of any
director, an irrevocable standby letter of credit naming the directors of the
Corporation in office at the time of a Change of Control as joint
beneficiaries (the "Letter of Credit"). The Letter of Credit shall be in an
appropriate amount not less than two million dollars ($2,000,000), shall be
issued by a commercial bank headquartered in the United States having assets
in excess of $10 billion and capital according to its most recent published
reports equal to or greater than the then applicable minimum capital
standards promulgated by such bank's primary federal regulator and shall
contain terms and conditions reasonably acceptable to all directors. The
Letter of Credit shall provide that Director may from time to time draw
certain amounts thereunder, upon written certification by Director to the
issuer of the Letter of Credit that (i) Director has made written request
upon Corporation for an amount not less than the amount he or she is drawing
under the Letter of Credit and that Corporation has failed or refused to
provide him with such amount in full within thirty (30) days after receipt of
the request, and (ii) Director believes that he or she is entitled under the
terms of this Agreement to the amount which he or she is drawing upon under
the Letter of Credit. The issuance of the Letter of Credit shall not, in any
way, diminish Corporation's obligation to indemnify Director against Expenses
and Liabilities to the full extent required by this Agreement.
(b) Once Corporation has obtained the Letter of Credit,
Corporation shall maintain and renew the Letter of Credit or substitute
letter of credit meeting the criteria of Section 9(a) during the term of this
Agreement so that the Letter of Credit shall have an initial term of five
years, be renewed for successive five-year terms, and always have at least
one year of its term remaining.
10. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
Corporation contained herein shall continue during the period Director is a
director, officer,
-6-
employee or agent of Corporation (or is or was serving at the request of
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
and shall continue thereafter so long as Director shall be subject to any
possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact
that Director was serving Corporation or such other entity in any capacity
referred to herein.
11. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
Director of notice of the commencement of any action, suit or proceeding,
Director will, if a claim in respect thereof is to be made against
Corporation under this Agreement, notify Corporation of the commencement
thereof; but the omission so to notify Corporation will not relieve it from
any liability which it may have to Director otherwise than under this
Agreement. With respect to any such action, suit or proceeding as to which
Director notifies Corporation of the commencement thereof:
(a) Corporation will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may
wish, Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Director. After notice from Corporation to
Director of its election to assume the defense thereof, Corporation will not
be liable to Director under this Agreement for any legal or other expenses
subsequently incurred by Director in connection with the defense thereof
other than reasonable costs of investigation or as otherwise provided below.
Director shall have the right to employ his or her own counsel in such
action, suit or proceeding but the fees and expenses of such counsel incurred
after notice from Corporation of its assumption of the defense thereof shall
be at the expense of Director unless (i) the employment of counsel by
Director has been authorized by Corporation, (ii) Director shall have
reasonably concluded that there may be a conflict of interest between
Corporation and Director in the conduct of the defense of such action or
(iii) Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of
Director's separate counsel shall be at the expense of Corporation.
Corporation shall not be entitled to assume the defense of any action, suit
or proceeding brought by or on behalf of Corporation or as to which Director
shall have made the conclusion provided for in (ii) above; and
(c) Provided there has been no Change of Control, Corporation
shall not be liable to indemnify Director under this Agreement for any
amounts paid in settlement of any action or claim effected without its
written consent, which consent shall not be unreasonably withheld.
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty,
out-of-pocket liability, or limitation on Director without Director's written
consent.
12. ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) In the event that Director employs his or her own counsel
pursuant to Section 11(b)(i) through (iii) above, Corporation shall advance
to Director, prior to any final disposition of any threatened or pending
action, suit or proceeding, whether civil, criminal,
-7-
administrative or investigative, any and all reasonable expenses (including
legal fees and expenses) incurred in investigating or defending any such
action, suit or proceeding within ten (10) days after receiving copies of
invoices presented to Director for such expenses.
(b) Director agrees that Director will reimburse Corporation for
all reasonable expenses paid by Corporation in defending any civil or
criminal action, suit or proceeding against Director in the event and only to
the extent it shall be ultimately determined by a final judicial decision
(from which there is no right of appeal) that Director is not entitled, under
the provisions of the Law, the Bylaws, this Agreement or otherwise, to be
indemnified by Corporation for such expenses.
13. REMEDIES OF DIRECTOR.
(a) In the event that (i) a determination pursuant to Section 5
hereof is made that Director is not entitled to indemnification, (ii)
advances of Expenses are not made pursuant to this Agreement, (iii) payment
has not been timely made following a determination of entitlement to
indemnification pursuant to this Agreement, or (iv) Director otherwise seeks
enforcement of this Agreement, Director shall be entitled to a final
adjudication in an appropriate court of his or her rights. Alternatively,
Director at his or her option may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the commercial arbitration rules
of the American Arbitration Association now in effect, whose decision is to
be made within ninety (90) days following the filing of the demand for
arbitration. The Corporation shall not oppose Director's right to seek any
such adjudication or arbitration award.
(b) In the event that a determination that Director is not
entitled to indemnification, in whole or in part, has been made pursuant to
Section 5 hereof, the decision in the judicial proceeding or arbitration
provided in paragraph (a) of this Section 13 shall be made de novo and
Director shall not be prejudiced by reason of a determination that he or she
is not entitled to indemnification.
(c) If a determination that Director is entitled to
indemnification has been made pursuant to Section 5 hereof or otherwise
pursuant to the terms of this Agreement, Corporation shall be bound by such
determination in the absence of (i) a misrepresentation of a material fact by
Director or (ii) a specific finding (which has become final) by an
appropriate court that all or any part of such indemnification is expressly
prohibited by law.
(d) In any court proceeding pursuant to this Section 13,
Corporation shall be precluded from asserting that the procedures and
presumptions of this Agreement are not valid, binding and enforceable. The
Corporation shall stipulate in any such court or before any such arbitrator
that Corporation is bound by all the provisions of this Agreement and is
precluded from making any assertion to the contrary.
(e) Expenses reasonably incurred by Director in connection with
his or her request for indemnification under this Agreement, meeting
enforcement of this Agreement or to recover damages for breach of this
Agreement shall be borne by Corporation.
-8-
(f) Corporation and Director agree herein that a monetary remedy
for breach of this Agreement, at some later date, will be inadequate,
impracticable and difficult of proof, and further agree that such breach
would cause Director irreparable harm. Accordingly, Corporation and Director
agree that Director shall be entitled to temporary and permanent injunctive
relief to enforce this Agreement without the necessity of proving actual
damages or irreparable harm. The Corporation and Director further agree that
Director shall be entitled to such injunctive relief, including temporary
restraining orders, preliminary injunctions and permanent injunctions,
without the necessity of posting bond or other undertaking in connection
therewith. Any such requirement of bond or undertaking is hereby waived by
Corporation, and Corporation acknowledges that in the absence of such a
waiver, a bond or undertaking may be required by the court.
14. ENFORCEMENT.
(a) Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on Corporation hereby
in order to induce Director to continue as a director of Corporation, and
acknowledges that Director is relying upon this Agreement in continuing in
such capacity.
(b) In the event Director is required to bring any action to
enforce rights or to collect moneys due under this Agreement and is
successful in such action, the Corporation shall reimburse Director for all
Director's reasonable fees and expenses in bringing and pursuing such action.
15. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
or all of the provisions hereof shall be held to be invalid or unenforceable
to any extent for any reason, such invalidity or unenforceability shall not
affect the validity or enforceability of the other provisions hereof, or the
obligation of the Corporation to indemnify the Director to the full extent
provided by the Bylaws or the Law, and the affected provision shall be
construed and enforced so as to effectuate the parties' intent to the maximum
extent possible.
16. GOVERNING LAW. This Agreement shall be governed by and interpreted
and enforced in accordance with the internal laws of the State of Delaware.
17. CONSENT TO JURISDICTION. The Corporation and Director each
irrevocably consent to jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out
of or relates to this Agreement and agree that any action instituted under
this Agreement shall be brought only in the state courts of the State of
Delaware.
18. BINDING EFFECT. This Agreement shall be binding upon Director and
upon Corporation, its successors and assigns, and shall inure to the benefit
of Director, his or her heirs, executors, administrators, personal
representatives and assigns and to the benefit of Corporation, its successors
and assigns.
-9-
19. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties hereto and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter
of this Agreement, except as specifically referred to herein. This Agreement
supersedes any and all agreements regarding indemnification heretofore
entered into by the parties.
20. AMENDMENT AND TERMINATION. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be effective for any
purpose unless set forth in writing signed by both parties hereto.
21. SUBROGATION. In the event of payment under this agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Director, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
22. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Director by
this Agreement shall not be exclusive of any other right which Director may
have or hereafter acquire under any statute, provision of Corporation's
Certificate of Incorporation or Bylaws, agreement, vote of stockholders or
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office.
23. SURVIVAL OF RIGHTS. The rights conferred on Director by this
Agreement shall continue after Director has ceased to be a director, officer,
employee or other agent of Corporation or such other entity.
24. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed to Director or to
Corporation, as the case may be, at the address shown on page 1 of this
Agreement, or to such other address as may have been furnished by either
party to the other, and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the
date on which it is so mailed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
DIRECTOR: APPLIED DIGITAL ACCESS, INC.
By:
---------------------------- ---------------------------------------------
(Signature)
-10-
----------------------------- ---------------------------------------------
Print Name Print Name and Title
-11-
