DRAFT DATED NOVEMBER 26, 1997
VALLEY MEDIA, INC.
INDEMNIFICATION AGREEMENT
This indemnification agreement ("Agreement") is effective as of
____________, 199_, by and between Valley Media, Inc., a Delaware corporation
(the "Company"), and ____________________________________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the substantial increase
in corporate litigation subjecting directors, officers, employees, agents and
fiduciaries to expensive litigation risks;
WHEREAS, Indemnitee desires to have the indemnification provided
hereunder as a condition to further serving as a director, officer, employee,
agent or fiduciary of the Company, as the case may be;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and, in
part, in order to induce Indemnitee to continue to provide services to the
Company, wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law; and
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee agree as follows:
1. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or 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, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
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Company, or any subsidiary of the Company, or is or was serving at the request
of the Company as a director, officer, employee, agent or fiduciary of another
corporation, partnership, limited liability company, joint venture, trust or
other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity (hereinafter an "Indemnifiable
Event"), against any and all expenses (including attorneys' fees and all other
costs, expenses, and obligations 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 such action, suit,
proceeding, alternative dispute resolution mechanism, hearing, inquiry or
investigation), judgments, fines, penalties and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) of such Claim and any federal, state, local or foreign
taxes imposed on the Indemnitee as a result of the actual or deemed receipt of
any payments under this Agreement (collectively, hereinafter "Expenses"),
including all interest assessments and other charges paid or payable in
connection with or in respect of such Expenses. Such payment of Expenses shall
be made by the Company as soon as practicable but in any event no longer than
five days after written demand by Indemnitee therefor is presented to the
Company.
(b) REVIEWING PARTY. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the conditions
that the Reviewing Party (as described in Section 8(e) hereof), shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 8(c)
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hereof), the Reviewing Party shall be selected by the Board of Directors, and if
there has been such a Change in Control (other than a Change in Control which
has been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control), the Reviewing Party
shall be the Independent Legal Counsel referred to in Section 1(c) hereof. If
there has been no determination by the Reviewing Party or if the Reviewing Party
determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have the
right to commence litigation seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect thereof,
including the legal or factual basis therefor, and the Company hereby consents
to service of process and to appear in any such proceeding. Any determination
by the Reviewing Party otherwise shall be conclusive and binding on the Company
and Indemnitee.
(c) CHANGE IN CONTROL. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel (as defined in Section 8(d) hereof) shall be selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee has been successful
on the merits or otherwise, including, without limitation, the dismissal of an
action without prejudice, in defense of any action, suit, proceeding, inquiry or
investigation referred to in Section 1(a) hereof or in the defense of any claim,
issue or matter therein, Indemnitee shall be indemnified against all Expenses
incurred by Indemnitee in connection therewith.
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2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. Subject to Section 1(b), the
Company shall advance all Expenses incurred by Indemnitee. The advances to be
made hereunder shall be paid by the Company to Indemnitee as soon as practicable
but in any event no later than fifteen days after written demand by Indemnitee
therefor to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall give the
Company notice in writing as soon as practicable of any Claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this
Agreement, the termination of any Claim 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 Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether the Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) NOTICE TO INSURERS. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of
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such action, suit, proceeding, inquiry or investigation in accordance with the
terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company, if
appropriate, shall be entitled to assume the defense of such Claim with counsel
approved by Indemnitee, upon the delivery to Indemnitee of written notice of
its election so to do. After delivery of such notice, approval of such counsel
by Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same Claim; provided
that, Indemnitee shall have the right to employ separate counsel in any such
Claim at Indemnitee's expense. If (i) the employment of separate counsel by
Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall
have reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (iii) the Company,
in breach of its obligation under this Agreement, shall not continue to retain
such separate counsel to defend such Claim, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify the
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the Company's Certificate of
Incorporation or Bylaws or by statute. In the event of any change after the
date of this Agreement in any applicable law, statute or rule which expands the
right of a Delaware corporation to indemnify a member of its board of directors
or an officer, employee, agent or fiduciary, it is the intent of the parties
hereto that Indemnitee shall enjoy by this Agreement the greater benefits
afforded by such change. In the event of any change in any applicable law,
statute or rule which narrows the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary,
such change, to the extent not otherwise required by such law, statute or rule
to be applied to this Agreement, shall have no effect on this Agreement or the
parties' rights and obligations hereunder except as set forth in Section 6(a)
hereof.
(b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any other
agreement, any vote of stockholders or disinterested directors, the General
Corporation Law of the State of Delaware, or otherwise. The
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indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though Indemnitee may have ceased to serve in such capacity.
4. 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, Certificate of Incorporation, Bylaw or
otherwise) of the amounts otherwise indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some portion
of Expenses incurred in connection with any Claim, but not, however, for all of
the total amount thereof, the Company shall nevertheless indemnify Indemnitee
for the portion of such Expenses to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee understands
and acknowledges that the Company has undertaken or may be required in the
future to undertake with the Securities and Exchange Commission to submit the
question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnity
Indemnitee.
7. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for
acts, omissions or transactions from which Indemnitee may not be relieved of
liability under applicable law.
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) as otherwise required under Section 145 of
the Delaware General Corporation Law.
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(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous.
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities and
Exchange Act of 1934, as amended, or any similar successor statute.
8. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, reference to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership, limited
liability company, joint venture, employee benefit plan, trust or other
enterprise, Indemnitee shall stand in the same position under the provisions of
this Agreement with respect to the resulting of surviving corporation as
Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall
be deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended),
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other than Barnet and Xxxxxxx Xxxxx and their children, or their estates or
administrators, or any trust or other entity of which they are the primary
beneficiaries or own a majority of the voting rights, a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company
acting in such capacity, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the total voting power represented
by the Company's then outstanding Voting Securities, (ii) during any period of
two consecutive years or less, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director whose
election by the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the stockholders
of the Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 50% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation in the same
proportions as the Voting Securities of the Company were owned prior to such
merger or consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of (in one transaction or a series of related transactions) all
or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall
mean any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee is
seeking indemnification, or Independent Legal Counsel.
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(f) For purposes of this Agreement, "Voting Securities" shall
mean any securities of the Company that vote generally in the election of
directors.
9. COUNTERPARTS. This Agreement may be exercised in one or more
counterparts, each of which shall constitute an original.
10. BINDING EFFECT; SUCCESSORS AND ASSIGNS. 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 of
substantially all of the business or assets of the Company, spouses, heirs, and
personal and legal representatives.
11. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action a court
of competent jurisdiction over such action determines that each of the material
assertions made by Indemnitee as a basis for such action were not made in good
faith or were frivolous. In the event of an action instituted by or in the name
of the Company under this Agreement to enforce or interpret any of the terms of
this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee's counterclaims and cross-claims made in such action), and
shall be entitled to the advancement of Expenses with respect to such action,
unless as a part of such action a court having jurisdiction over such action
determines that each of Indemnitee's material defenses to such action were made
in bad faith or were frivolous.
12. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
personally delivered on the date of such delivery, or (ii) if mailed by domestic
certified or registered mail with postage prepaid, on the third business day
after the date postmarked. Addresses for notice to either party are as shown on
the signature page of this Agreement, or as subsequently modified by written
notice.
13. 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) are held by a court
of
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competent jurisdiction to be invalid, void or otherwise unenforceable, and the
remaining provisions shall remain enforceable to the fullest extent permitted by
law. Furthermore, to the fullest extent possible, the provisions of this
Agreement (including, without limitations, each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
14. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
15. 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 documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
16. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is in
writing signed by both 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 wavier.
17. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
18. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in
this Agreement shall be construed as giving Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
VALLEY MEDIA, INC.
By:
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Title:
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Address:
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AGREED TO AND ACCEPTED
INDEMNITEE:
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(signature)
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(name of Indemnitee)
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(address)
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