Exhibit 10.4
INDEMNIFICATION AGREEMENT
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AGREEMENT between The Xxxx Corporation, an Ohio
corporation (the "Company"), and Xxxxx X. Xxxxxxx (the
"Indemnitee").
WHEREAS, it is essential to the Company to retain and
attract as directors the most capable persons available;
WHEREAS, Indemnitee is a director of the Company;
WHEREAS, both the Company and Indemnitee recognize the
increased risk of litigation and other claims being asserted
against directors of public companies in today's
environment;
WHEREAS, basic protection against undue risk of
personal liability of directors heretofore has been provided
through insurance coverage providing reasonable protection
at reasonable cost, and Indemnitee has relied on the
availability of such coverage; but as a result of
substantial changes in the marketplace for such insurance it
has become increasingly more difficult to obtain such
insurance on terms providing reasonable protection at
reasonable cost;
WHEREAS, the Regulations of the Company and the Ohio
General Corporation Law each provide that the
indemnification provided therein shall not be exclusive;
WHEREAS, in recognition of Indemnitee's need for
substantial protection against personal liability in order
to enhance Indemnitee's continued service to the Company in
an effective manner, the Company wishes to provide in this
Agreement for the indemnification of and the advancing of
expenses to Indemnitee to the full extent (whether partial
or complete) permitted by law and as set forth in this
Agreement, and, to the extent insurance is maintained, for
the continued coverage of Indemnitee under the Company's
directors' and officers' liability insurance policies;
NOW, THEREFORE, in consideration of the premises and of
Indemnitee continuing to serve the Company directly or, at
its request, with another enterprise, and intending to be
legally bound, the Company and Indemnitee hereby agree as
follows:
1. Certain Definitions.
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(a) Change in Control: shall be deemed to have
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occurred if an event set forth in any one of the
following paragraphs shall have occurred:
(i) date of expiration of a Tender Offer
(other than an offer by the Company), if the
offeror acquires Shares pursuant to such Tender
Offer;
(ii) the date of approval by the shareholders
of the Company of a definitive agreement: (x) for
the merger or consolidation of the Company or any
direct or indirect subsidiary of the Company into
or with another corporation, other than (1) a
merger or consolidation which would result in the
voting securities of the Company outstanding
immediately prior thereto continuing to represent
((i) in the case of a merger or consolidation of
the Company, either by remaining outstanding or by
being converted into voting securities of the
surviving entity or any parent thereof, or (ii) in
the case of a merger or consolidation of any
direct or indirect subsidiary of the Company,
either by remaining
outstanding if the Company continues as a parent
of the merged or consolidated subsidiary or by
being converted into voting securities of the
surviving entity or any parent thereof) at least
51% of the combined voting power of the voting
securities of the Company or such surviving or
parent entity outstanding immediately after such
merger or consolidation, or (2) a merger or
consolidation effected to implement a
recapitalization of the Company (or similar
transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the
securities Beneficially Owned by such Person any
securities acquired directly from the Company or
its Affiliates) representing 20% or more of the
combined voting power of the Company's then
outstanding securities, or (y) for the sale or
disposition of all or substantially all of the
assets of the Company, other than a sale or
disposition by the Company of all or substantially
all of the Company's assets to an entity, at least
51% of the combined voting power of the voting
securities of which are owned (directly or
indirectly) by shareholders of the Company in
substantially the same proportions as their
ownership of the Company immediately prior to such
sale or disposition;
(iii) (x) any Person is or becomes the
Beneficial Owner of 20% or more of the voting
power of the then outstanding securities of the
Company (not including in the securities
beneficially owned by such Person any securities
acquired directly from the Company or its
affiliates), excluding any Person who becomes such
a Beneficial Owner in connection with a
transaction described in clause (x) (1) of
paragraph (ii) above or (y) the date of
authorization, by both a majority of the voting
power of the Company and a majority of the portion
of such voting power excluding the voting power of
interested Shares, of a control share acquisition
(as such term in defined in Chapter 1701 of the
Ohio Revised Code); and
(iv) a change in the composition of the Board
of Directors such that individuals who were
members of the Board of Directors on the date two
years prior to such change (and any new directors
(other than a director whose initial assumption of
office is in connection with an actual or
threatened election contest, including but not
limited to a consent solicitation, relating to the
election of directors of the Company) who were
elected, or were nominated for election, by the
Company's shareholders with the affirmative vote
of at least two-thirds of the directors then still
in office who either were directors at the
beginning of such two year period or whose
election or nomination for election was previously
so approved) no longer constitute a majority of
the Board of Directors.
Notwithstanding the foregoing, a "Change in
Control" shall not be deemed to have occurred by
virtue of the consummation of any transaction or
series of integrated transactions immediately
following which the record holders of the common
stock of the Company immediately prior to such
transaction or series of transactions continue to
have substantially the same proportionate
ownership in an entity which owns all or
substantially all of the assets of the Company
immediately following such transaction or series
of transactions.
For purposes of this paragraph, the following
terms shall have the following meanings:
"Affiliate" shall have the meaning set forth
in Rule 12b-2 promulgated under Section 12 of the
1934 Act.
"Beneficial Owner" shall have the meaning
defined in Rule 13d-3 under the 1934 Act.
"Person" shall have the meaning given in
Section 3(a)(9) of the 1934 Act, as modified and
used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company
or any of its subsidiaries, (ii) a trustee or
other fiduciary holding securities under an
employee benefit plan of the Company or any of its
Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly
or indirectly, by the shareholders of the Company
in substantially the same proportions as their
ownership of stock of the Company.
(b) Claim: any threatened, pending or completed
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action, suit or proceeding, or any inquiry or investigation,
whether conducted by the Company or any other party, that
Indemnitee in good faith believes might lead to the
institution of any such action, suit or proceeding, whether
civil, criminal, administrative, investigative or other.
(c) Expenses: include attorneys' fees and all
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other costs, expenses and obligations paid or incurred in
connection with investigating, defending, being a witness in
or participating in (including on appeal) or preparing to
defend, be a witness in or participate in any Claim relating
to any Indemnifiable Event (including all interest,
assessments and other charges paid or payable in connection
with or in respect of any of the foregoing).
(d) Judgments: include judgments, fines,
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penalties and amounts paid in settlement that are paid or
payable in connection with any Claim relating to any
Indemnifiable Event (including all interest, assessments and
other charges paid or payable in connection with or in
respect of any of the foregoing).
(e) Indemnifiable Event: any event or occurrence
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related to the fact that Indemnitee is or was a director of
the Company, or is or was serving at the request of the
Company as a director, trustee, officer, employee, agent or
representative of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise,
or by reason of anything done or not done by Indemnitee in
any such capacity.
(f) Reviewing Party: any appropriate person or
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body consisting of a member or members of the Company's
Board of Directors or any other person or any other person
or body appointed by the Board (including the special,
independent counsel referred to in Section 4) who is not a
party to the particular Claim for which Indemnitee is
seeking indemnification.
(g) Voting Securities: any securities of the
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Company which vote generally in the election of directors.
2. Scope of Indemnification.
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(a) Basic Indemnification Arrangement. In the
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event Indemnitee was, is or becomes a party to or witness or
other participant in, or is threatened to be made a party to
or witness or other participant in, a Claim by reason of (or
arising in part out of), an Indemnifiable Event, the Company
shall indemnify Indemnitee to the fullest extent permitted
by law as soon as practicable but in any event no later than
30 days after written demand is presented to the Company
against any and all Judgments arising from or relating to
such Claim.
(b) Expenses. Any and all Expenses and any and
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all expenses referred to in Section 2(c) shall be paid by
the Company promptly as they are incurred by Indemnitee (any
such payment of expenses by the Company is hereinafter
referred to as an "Expense Advance"). Indemnitee hereby
agrees to repay the amount of Expenses so paid if it is
proved by clear and convincing evidence in a court of
competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate
intent to cause injury to the Company or undertaken with
reckless disregard for the best interests of the Company.
Indemnitee hereby further agrees to reasonably cooperate
with the Company concerning any Claim.
(c) Indemnification for Additional Expenses. The
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Company shall indemnify Indemnitee against any and all
expenses (including attorneys' fees) which are incurred by
Indemnitee in connection with any claim asserted against or
action brought by Indemnitee for (i) indemnification of
Expenses or Judgments or advance payment of Expenses by the
Company under this Agreement or under any other agreement,
the Company's Regulations, statute or rule of law now or
hereafter in effect relating to Claims for Indemnifiable
Events and/or (ii) recovery under any directors' and
officers' liability insurance policy or policies maintained
by the Company, regardless of whether Indemnitee ultimately
is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case
may be.
(d) Partial Indemnity. If Indemnitee is entitled
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under any provision of this Agreement to indemnification by
the Company for some or a portion of the Judgments arising
from or relating to a Claim but not, however, for all of the
total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.
(e) Indemnification of Successful Defense
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Expenses.
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Notwithstanding any other provision of this Agreement, to
the extent that Indemnitee has been successful on the merits
or otherwise in defense of any or all Claims relating in
whole or in part to an Indemnifiable Event or in defense of
any issue or matter therein, including dismissal without
prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
3. Reviewing Party Determinations.
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(a) General Rules. Notwithstanding the
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provisions of Section 2, the obligations of the Company
under Section 2(a) shall be subject to the condition that
the Reviewing Party shall not have determined (in a written
opinion, in any case in which the special, independent
counsel referred to in Section 4 hereof is involved) that
Indemnitee would not be permitted to be indemnified under
applicable law; provided, however, that if Indemnitee has
commenced 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 until a final judicial
determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed)
and any such determination by the Reviewing Party shall be
modified, to the extent necessary, to conform to such final
judicial determination.
(b) Selection of Reviewing Party. If there has
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not been a Change in Control, the Reviewing Party shall be
selected by the Board of Directors. If there has been such
a Change in Control, the Reviewing Party shall be the
special, independent counsel referred to in Section 4
hereof.
(c) Judicial Review. If there has been no
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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 in any court in the state of Ohio having
subject matter jurisdiction thereof and in which venue is
proper seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or
any aspect thereof, 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.
(d) Burden of Proof. In connection with any
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determination by the Reviewing Party pursuant to Section
3(a), or by a court of competent jurisdiction pursuant to
Section 3(c) or otherwise, as to whether Indemnitee is
entitled to be indemnified hereunder, the burden of proof
shall be on the Company to establish by clear and convincing
evidence that Indemnitee is not so entitled.
4. Change in Control. The Company agrees that if
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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 indemnity payments under this
Agreement or under any other agreement, the Company's
Regulations, statute or rule of law now or hereafter in
effect relating to Claims for Indemnifiable Events, the
Company shall seek legal advice only from special,
independent counsel selected by Indemnitee and approved by
the Company (which approval shall not be unreasonably
withheld), and who has not otherwise performed services for
the Company within the last five years (other than in
connection with such matters) or Indemnitee. Unless
Indemnitee has theretofore selected counsel pursuant to this
Section 4 and such counsel has been approved by the Company,
the firms on the attached Exhibit I hereto shall be deemed
to satisfy the requirements set forth above, except with
respect to any such firms which the Company or Indemnitee
shall have engaged for any purpose at any time within the
five years preceding such engagement (other than, in the
case of the Company, with respect to matters concerning the
rights of Indemnitee (or of other indemnitees under similar
indemnity agreements) to indemnity payments). The Company
agrees to pay the reasonable fees of the special,
independent counsel referred to above and to indemnify fully
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.
5. No Presumption. For purposes of this Agreement,
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the termination of any claim, action, suit or proceeding, by
judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo
----
contendere, or its equivalent, shall not create a
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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.
6. Non-exclusivity. The rights of Indemnitee
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hereunder shall be in addition to any other rights
Indemnitee may now or hereafter have to indemnification by
the Company. More specifically, the parties intend that
Indemnitee shall be entitled to indemnification to the
maximum extent permitted by any or all of the following:
(a) The fullest benefits provided by
the Company's Regulations in effect on the
date hereof, a copy of the relevant portions
of which are attached hereto as Exhibit II;
(b) The fullest benefits provided by
the Articles of Incorporation, Regulations,
or Bylaws or their equivalent of
the Company in effect at the time the
Indemnifiable Event occurs or at the time
Expenses are incurred by Indemnitee;
(c) The fullest benefits allowable
under Ohio law in effect at the date hereof,
a copy of the relevant portions of which are
attached hereto as Exhibit III, or as the
same may be amended to the extent that such
benefits are increased thereby;
(d) The fullest benefits allowable
under the law of the jurisdiction under which
the Company exists at the time the
Indemnifiable Event occurs or at the time
Expenses are incurred by the Indemnitee; and
(e) Such other benefits as are or may
be otherwise available to Indemnitee pursuant
to this Agreement, any other agreement or
otherwise.
The parties intend that combination of two or more of the
benefits referred to in (a) through (e) shall be available to
Indemnitee to the extent that the document or law providing
for such benefits does not require that the benefits provided
therein be exclusive of other benefits. The Company hereby
undertakes to use its best efforts to assist Indemnitee, in
all proper and legal ways, to obtain all such benefits to
which Indemnitee is entitled.
7. Liability Insurance. The rights of the Indemnitee
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hereunder shall also be in addition to any other rights
Indemnitee may now or hereafter have under policies of
insurance maintained by the Company or otherwise. To the
extent the Company maintains an insurance policy or policies
providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of
the coverage available for any Company director. The
parties hereby acknowledge that the Company presently
maintains directors' and officers' liability insurance under
policies issued by the following insurers and with the
following limits of liability: National Union Fire
Insurance Company of Pittsburgh ($25 million); Federal
Insurance Company ($25 million in excess of $25 million);
Continental Casualty Company ($15 million in excess of $50
million); Zurich - American Insurance Company ($25 million
in excess of $65 million); and Executive Risk Indemnity,
Inc. of New York ($10 million in excess of $90 million).
The scope of such insurance is described in the "Executive
Summary" attached hereto as Exhibit IV. The Company shall
maintain such insurance coverage for so long as Indemnitee's
services are covered hereunder, provided and to the extent
that such insurance is available on a basis acceptable to
the Company. In the event that such insurance becomes
unavailable in the amount of the present policy limits or in
the present scope of coverage at premium costs and on other
terms acceptable to the Company, then the Company may forego
maintenance of all or a portion of such insurance coverage.
However, in the event of any reduction in (or cancellation
of) such insurance coverage (whether voluntary or
involuntary), the Company shall, and hereby agrees to, stand
as a self-insurer with respect to the coverage, or portion
thereof, not retained and shall indemnify the Indemnitee
against any loss arising out of the reduction in or
cancellation of such insurance coverage; provided that the
Company's obligation as a self-insurer and indemnitor
hereunder shall only extend to the first $60 million of such
coverage.
8. Escrow Fund. As collateral security for its
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obligations hereunder (including specifically its indemnity
obligations (other than Judgments) and other obligations
pursuant to Sections 2, 6 and 7) and under similar
agreements with other directors, officers and
representatives, in the event of a Change in Control, the
Company shall dedicate and maintain, for a period of five
years following the Change in Control, an escrow account in
the aggregate
of TEN MILLION DOLLARS ($10,000,000) by depositing assets or
bank letters of credit in escrow or reserving lines of
credit that may be drawn down by an escrow agent in said
amount (the "Escrow Reserve"). The Company shall promptly,
following establishment of the Escrow Reserve, provide
Indemnitee with a true and complete copy of the agreement
relating to the establishment and operation of the Escrow
Reserve, together with such additional documentation or
information with respect to the Escrow Reserve as Indemnitee
may from time to time reasonably request. The Company shall
promptly, following establishment of the Escrow Reserve,
deliver an executed copy of this Agreement to the escrow
agent for the Escrow Reserve to evidence to that agent that
Indemnitee is a beneficiary of the Escrow Reserve and shall
deliver to Indemnitee the escrow agent's signed receipt
evidencing that delivery. Notwithstanding anything to the
contrary contained in this Section 8, any assets deposited
by the Company in the Escrow Reserve shall at all times be
and remain subject to the claims of the general creditors of
the Company.
9. Period of Limitations. No legal action shall be
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brought and no cause of action shall be asserted by or on
behalf of the Company or any affiliate of the Company
against Indemnitee, Indemnitee's spouse, heirs, executors or
personal or legal representatives after the expiration of
two years from the date of accrual of such cause of action,
and any claim or cause of action of the Company or its
affiliate shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such
two year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such
cause of action such shorter period shall govern.
10. Liability Standards. This Agreement shall be
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construed on the basis of the duties owed by Indemnitee as a
director of the Company, and the standards for determining
liability in damages for a breach thereof, which apply to
each particular Claim. The parties acknowledge that changes
in such duties or such liability standards may result in an
expansion or contraction of the Company's indemnification
exposure hereunder.
11. Amendments, Etc. No supplement, modification or
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amendment of this Agreement shall be binding unless executed
in writing by both of the parties hereto. No waiver of any
of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions hereof (whether
or not similar) nor shall such waiver constitute a
continuing waiver.
12. Subrogation. In the event of payment under this
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Agreement, the Company shall be subrogated to the extent of
such payment to all of the rights of recovery of Indemnitee,
who shall execute all papers required and shall do
everything that may be necessary to secure such rights,
including the execution of such documents necessary to
enable the Company effectively to bring suit to enforce such
rights.
13. No Duplication of Payments. The Company shall not
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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, the Company's Regulations or
otherwise) of the amounts otherwise indemnifiable hereunder.
14. Binding Effect, Etc. This Agreement shall be
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binding upon and inure to the benefit of and be enforceable
by the parties hereto and their respective successors,
assigns, including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the
Company, spouses, heirs, personal and legal representatives.
This Agreement shall continue in effect regardless of
whether Indemnitee continues to serve as a director of the
Company or as a director, trustee, officer, agent or
representative of any other enterprise at the Company's
request.
15. Severability. The provisions of this Agreement
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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 competent
jurisdiction to be invalid, void or otherwise unenforceable,
and the remaining provisions shall remain enforceable to the
fullest extent permitted by law.
16. Governing Law. This Agreement shall be governed
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by and construed and enforced in accordance with the laws of
the state of Ohio applicable to contracts made and to be
performed in such state without giving effect to the
principles of conflicts of laws.
Executed and effective this 24th day of June, 1999.
XXXXXX X. XXXXX
By ________________________
Xxxxxx X. Xxxxx
Chairman of the Board
XXXXX X. XXXXXXX
________________________
Xxxxx X. Xxxxxxx
Director
Exhibit I
Special, Independent, Counsel
Xxxx, Xxxxxxxxxx & Xxxxxxxxx LLP Xxxxxxxx & Xxxxx
1800 Firstar Tower 000 Xxxx Xxxxxxxx Xx.
000 Xxxxxx Xxxxxx Xxxxxxx, XX 00000
Xxxxxxxxxx, Xxxx 00000-0000 (000) 000-0000
(000) 000-0000
Xxxxx & Xxxxxxxxx Vorys, Xxxxx, Xxxxxxx and Xxxxx
3200 National City Center 00 Xxxx Xxx Xxxxxx
0000 Xxxx Xxxxx Xxxxxx X.X. Xxx 0000
Xxxxxxxxx, Xxxx 00000 Xxxxxxxx, XX 00000-0000
(000) 000-0000 (000) 000-0000
Exhibit IV
EXECUTIVE SUMMARY
Director & Officer
Indemnification & Insurance
Xxxx provides two methods of protecting its directors:
indemnification and insurance.
Indemnification
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Under Xxxx'x indemnification, the Company must reimburse
----
a director for expenses and attorneys fees if he or she
prevails in the defense of a claim for an indemnifiable
event. In addition, the Company may reimburse a director
---
for expenses, attorneys' fees, settlement amounts, fines
and judgments (even if he or she does not prevail on the
claim), if Xxxx'x Board, Xxxx'x legal counsel, Xxxx'x
shareholders or an appropriate court decides that the
director acted in good faith and in a manner he believed
was in, or not opposed to, Xxxx'x best interests. In a
criminal matter the director must have had no reason to
believe his conduct was unlawful. Xxxx'x Board may also
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indemnify a director (regardless of whether he or she
prevails in the defense of a claim), against expenses,
attorneys fees, fines, settlement amounts and judgments
if the Board decides such indemnification is in the best
interest of Xxxx.
Under Ohio law, Xxxx may not, however, indemnify a
director against fines, settlement amounts and judgments
in an action brought by Xxxx or in a derivative action
brought by a shareholder on behalf of Xxxx, if the
director is judged to be negligent or guilty of
misconduct. Xxxx does have insurance to protect a
director in such event.
Xxxx may advance expenses to a director, provided he or
she agrees to repay Xxxx if it is later determined that
indemnification is not available.
Insurance
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Xxxx carries insurance which provides two types of
coverage: indemnification coverage and "D&O" coverage.
Under the indemnification coverage, the insurance
carrier(s) reimburse Xxxx for amounts paid to indemnify
directors and officers. Under the D&O, the insurance
carrier pays amounts directly to the director or officer
involved in the claim for nonindemnifiable acts.
These coverages have a $100 million aggregate limit.
Defense costs are included within the limit. The
indemnification coverage has a $500,000 per incident
deductible. The D&O coverage has no deductible. Xxxx
currently pays $443,407 (August 1, 1999 - August 1, 2000)
for the coverage, and this premium is renegotiated
annually.
The following matters, among others, are excluded from
coverage under the policies:
. Libel and slander.
. Gains attributable to personal profit to which a
director was not entitled.
. Xxxxxxx xxxxxxx liability.
. Active and deliberate dishonesty with actual
dishonest purpose and intent.
. Any claim related to or arising from pollution.
. Bodily injury to or sickness, disease or death of a person.
. Injury or destruction to tangible property.
. Illegal payments.
. Suit brought by a director or officer of Xxxx.
Xxxx'x coverage does protect the directors for acts and
omissions related to takeover situations, subject to
policy exclusions.
