EXHIBIT 10.4
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the "AGREEMENT") is made and entered into
as of the 1st day of July, 2002, by and between Liberte Investors Inc., a
Delaware corporation (including any successors thereto, the "COMPANY"), and
Xxxxxx X. Xxxxxxx ("INDEMNITEE").
RECITALS:
A. Competent and experienced persons are reluctant to serve or to continue
to serve corporations as directors, officers, or in other capacities unless they
are provided with adequate protection through insurance or indemnification (or
both) against claims and actions against them arising out of their service to
and activities on behalf of those corporations.
B. The current uncertainties relating to the availability of adequate
insurance for directors and officers have increased the difficulty for
corporations to attract and retain competent and experienced persons.
C. The Board of Directors of the Company (the "BOARD") has determined that
the continuation of present trends in litigation will make it more difficult to
attract and retain competent and experienced persons, that this situation is
detrimental to the best interests of the Company's stockholders, and that the
Company should act to assure its directors and officers that there will be
increased certainty of adequate protection in the future.
D. It is reasonable, prudent, and necessary for the Company to obligate
itself contractually to indemnify its directors and officers to the fullest
extent permitted by applicable law in order to induce them to serve or continue
to serve the Company.
E. Indemnitee is willing to serve and continue to serve the Company on the
condition that he be indemnified to the fullest extent permitted by law.
F. Concurrently with the execution of this Agreement, Indemnitee is
agreeing to serve or to continue to serve as a director or officer of the
Company.
AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing premises, Indemnitee's
agreement to serve or continue to serve as a director or officer of the Company,
and the covenants contained in this Agreement, the Company and Indemnitee hereby
covenant and agree as follows:
1. Certain Definitions:
For purposes of this Agreement:
(a) Change of Control: shall mean the occurrence of any of the
following events:
(i) The acquisition by any individual, entity, or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"))(a "PERSON") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (x) the then outstanding shares of common stock of the Company
(the "OUTSTANDING COMPANY COMMON STOCK") or (y) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "OUTSTANDING COMPANY VOTING SECURITIES");
provided, however, that for purposes of this paragraph (i), the following
acquisitions shall not constitute a Change of Control: (A) any acquisition
directly from the Company or any Subsidiary thereof, (B) any acquisition by the
Company or any Subsidiary thereof, (C) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any Subsidiary
of the Company, or (D) any acquisition by any entity or its security holders
pursuant to a transaction which complies with clauses (A) and (B) of paragraph
(iii) below; or
(ii) Individuals who, as of the date of this Agreement,
constitute the Board (the "INCUMBENT BOARD") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date of this Agreement whose election, or
nomination for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(iii) Consummation of a reorganization, merger, or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or an acquisition of assets of another entity (a "BUSINESS
COMBINATION"), in each case, unless, immediately following such Business
Combination, (A) the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock or other equity interests and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors (or similar governing body), as the case
may be, of the entity resulting from such Business Combination (including,
without limitation, an entity which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more Subsidiaries) in proportions not materially different from
their ownership, immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, and (B) at least a majority of the members of the board of
directors (or similar governing body) of the entity resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination, or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2
(b) Claim: shall mean any threatened, pending, or completed action,
suit, or proceeding (including, without limitation, securities laws actions,
suits, and proceedings and also any cross claim or counterclaim in any action,
suit, or proceeding), whether civil, criminal, arbitral, administrative, or
investigative in nature, or any inquiry or investigation (including discovery),
whether conducted by the Company or any other Person.
(c) Expenses: shall mean all costs, fees and expenses (including,
without limitation, attorneys' and expert witnesses' fees and disbursements,
fees of private investigators and professional advisors, court costs, transcript
costs and travel expenses), and obligations paid or incurred in connection with
investigating, defending (including affirmative defenses and counterclaims),
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.
(d) Indemnifiable Event: shall mean any actual or alleged act,
omission, statement, misstatement, event, or occurrence related to the fact that
Indemnitee is or was a director, officer, agent, or fiduciary of the Company, or
is or was serving at the request of the Company as a director, officer, trustee,
agent, or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust, or other enterprise, or by reason of any actual or alleged
thing done or not done by Indemnitee in any such capacity. For purposes of this
Agreement, the Company agrees that Indemnitee's service on behalf of or with
respect to any Subsidiary or employee benefits plan of the Company or any
Subsidiary of the Company shall be deemed to be at the request of the Company.
(e) Indemnifiable Liabilities: shall mean all Expenses and all other
liabilities, damages (including, without limitation, punitive, exemplary, and
the multiplied portion of any damages), judgments, payments, fines, penalties,
amounts paid in settlement, and awards paid or incurred that arise out of, or in
any way relate to, any Indemnifiable Event.
(f) Potential Change of Control: shall be deemed to have occurred if
(i) the Company enters into an agreement, the consummation of which would result
in the occurrence of a Change of Control; (ii) any Person (including the
Company) publicly announces an intention to take or to consider taking actions
that, if consummated, would constitute a Change in Control; or (iii) the Board
adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change of Control has occurred.
(g) Reviewing Party: shall mean (i) a member or members of the Board
who are not parties to the particular Claim for which Indemnitee is seeking
indemnification or (ii) if a Change of Control has occurred and Indemnitee so
requests, or if the members of the Board so elect, or if all of the members of
the Board are parties to such Claim, Special Counsel.
(h) Special Counsel: shall mean special, independent legal counsel
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld), and who has not otherwise performed material services
for the Company or for Indemnitee within the last three years (other than as
Special Counsel under this Agreement or similar agreement).
3
(i) Subsidiary: shall mean, with respect to any Person, any
corporation or other entity of which a majority of the voting power of the
voting equity securities or equity interest is owned, directly or indirectly, by
that Person.
2. Indemnification and Expense Advancement.
(a) The Company shall indemnify Indemnitee and hold Indemnitee
harmless 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, from and against any and all Indemnifiable Liabilities. In connection
with the foregoing obligation, the Company agrees that the Reviewing Party shall
make a determination (in a written opinion, in any case in which Special Counsel
is involved) as to Indemnitee's entitlement to indemnification under Section 145
of the Delaware General Corporation Law, as amended from time to time
("APPLICABLE LAW"). Notwithstanding the foregoing, nothing contained in this
Agreement shall require any determination under this Section 2(a) to be made by
the Reviewing Party prior to the disposition or conclusion of the Claim against
the Indemnitee. If there has been a Change of Control, the Reviewing Party shall
be Special Counsel, if Indemnitee so requests, in accordance with the terms of
Section 3 hereof.
(b) If so requested by Indemnitee, the Company shall advance to
Indemnitee all reasonable Expenses incurred by Indemnitee to the fullest extent
permitted by law (or, if applicable, reimburse Indemnitee for any and all
reasonable Expenses incurred by Indemnitee and previously paid by Indemnitee)
within ten business days after such request (an "EXPENSE ADVANCE"). The Company
shall be obligated from time to time at the request of Indemnitee to make or pay
an Expense Advance in advance of the final disposition or conclusion of any
Claim and in advance of any determination by the Reviewing Party as to
Indemnitee's entitlement to indemnification hereunder.
(c) If, when, and to the extent that the Reviewing Party determines
that Indemnitee would not permitted to be indemnified with respect to a Claim
under Applicable Law, the Company shall be entitled to be reimbursed by
Indemnitee and Indemnitee hereby agrees to reimburse the Company without
interest (which agreement shall be an unsecured obligation of Indemnitee) for
all related Expense Advances theretofore made or paid by the Company in the
event that it is determined that indemnification would not be permitted under
Applicable Law, if and only to the extent such reimbursement is required by
Applicable Law; provided, however, that if Indemnitee commences legal
proceedings in a court of competent jurisdiction to secure a determination that
Indemnitee could 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 the Company shall be obligated to
continue to make Expense Advances until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed), which determination shall be conclusive and binding. If
there has been no determination by the Reviewing Party or if the Reviewing Party
determines that Indemnitee substantively is not permitted to be indemnified in
whole or part under Applicable Law, Indemnitee shall have the right to commence
litigation in the Delaware Court of Chancery to enforce the Company's
obligations and the Indemnitee's rights under this Agreement or to challenge any
adverse determination made by the Reviewing Party or any aspect thereof, and the
Company hereby consents to service of process and to appear in any such
proceeding.
4
(d) Nothing in this Agreement, however, shall require the Company to
indemnify Indemnitee with respect to any Claim initiated by Indemnitee, other
than a Claim solely seeking enforcement of the Company's indemnification
obligations to Indemnitee or the Indemnitee's rights under this Agreement, any
counterclaims or affirmative defenses asserted by Indemnitee in an action
brought against Indemnitee, or a Claim authorized by the Board.
3. Change of Control. The Company agrees that if there is a Change of
Control and if Indemnitee requests in writing that Special Counsel be the
Reviewing Party, then Special Counsel shall be the Reviewing Party. In such a
case, the Company agrees not to request or seek reimbursement from Indemnitee of
any indemnification payment or Expense Advances unless Special Counsel has
rendered its written opinion to the Company and Indemnitee that the Company was
not or is not permitted under Applicable Law to indemnify Indemnitee. However,
if Indemnitee has commenced legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee could be indemnified
under Applicable Law, any determination made by Special Counsel that Indemnitee
would not be permitted to be indemnified under Applicable Law shall not be
binding, and the Company shall be obligated to continue to make Expense
Advances, until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefore have been exhausted or lapsed), which
determination shall be conclusive and binding. The Company agrees to pay the
fees of Special Counsel and to indemnify Special Counsel against any and all
expenses (including attorneys' fees), claims, liabilities, and damages arising
out of or relating to this Agreement or Special Counsel's engagement pursuant
hereto.
4. Establishment of Trust. In the event of a Potential Change of Control or
a Change of Control, the Company shall, upon written request by Indemnitee,
create a trust for the benefit of Indemnitee (the "TRUST") and from time to time
upon written request of Indemnitee shall fund the Trust in an amount equal to
all Indemnifiable Liabilities reasonably anticipated at the time to be incurred
in connection with any Claim. The amount to be deposited in the Trust pursuant
to the foregoing funding obligation shall be determined by the Reviewing Party.
The terms of the Trust shall provide that, upon a Change of Control, (i) the
Trust shall not be revoked or the principal thereof invaded, without the written
consent of Indemnitee; (ii) the trustee of the Trust shall advance, within ten
business days of a request by Indemnitee, any and all reasonable Expenses to
Indemnitee (and Indemnitee hereby agrees to reimburse the Trust under the
circumstances in which Indemnitee would be required to reimburse the Company for
Expense Advances under this Agreement), (iii) the Trust shall continue to be
funded by the Company in accordance with the funding obligation set forth above;
(iv) the trustee of the Trust shall promptly pay to Indemnitee all amounts for
which Indemnitee shall be entitled to indemnification pursuant to this
Agreement; and (v) all unexpended funds in the Trust shall revert to the Company
upon a final determination by the Reviewing Party or a court of competent
jurisdiction, as the case may be, that Indemnitee has been fully indemnified
under the terms of this Agreement. The trustee of the Trust shall be chosen by
Indemnitee, and shall be an institution that is not affiliated with Indemnitee.
Nothing in this Section 4 shall relieve the Company of any of its obligation
under this Agreement.
5. Indemnification for Additional Expenses. The Company shall indemnify
Indemnitee against any and all costs and expenses (including attorneys' and
expert witnesses' fees) and, if requested by Indemnitee, shall (within two
business days of that request) advance those costs and
5
expenses to Indemnitee, that are incurred by Indemnitee if Indemnitee, whether
by formal proceedings or through demand and negotiation without formal
proceedings: (a) seeks to enforce Indemnitee's rights under this Agreement, (b)
seeks to enforce Indemnitee's rights to expense advancement or indemnification
under any other agreement or provision of the Company's Certificate of
Incorporation (the "CERTIFICATE OF INCORPORATION") or Bylaws (the "BYLAWS") now
or hereafter in effect relating to Claims for Indemnifiable Events, or (c) seeks
recovery under any directors' and officers' liability insurance policies
maintained by the Company, in each case regardless of whether Indemnitee
ultimately prevails; provided that a court of competent jurisdiction has not
found Indemnitee's claim for indemnification or expense advancements under the
foregoing clauses (a), (b) or (c) to be frivolous, presented for an improper
purpose, without evidentiary support, or otherwise sanctionable under Federal
Rule of Civil Procedure No. 11 or an analogous rule or law, and provided
further, that if a court makes such a finding, Indemnitee shall reimburse the
Company for all amounts previously advanced to Indemnitee pursuant to this
Section 5. Subject to the provisos contained in the preceding sentence, to the
fullest extent permitted by law, the Company waives any and all rights that it
may have to recover its costs and expenses from Indemnitee.
6. Partial Indemnity. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some, but not all, of
Indemnitee's Indemnifiable Liabilities, the Company shall indemnify Indemnitee
for the portion thereof to which Indemnitee is entitled.
7. Contribution.
(a) Contribution Payment. To the extent the indemnification provided
for under any provision of this Agreement is determined (in the manner
hereinabove provided) not to be permitted under applicable law, the Company, in
lieu of indemnifying Indemnitee, shall, to the extent permitted by law,
contribute to the amount of any and all Indemnifiable Liabilities incurred or
paid by Indemnitee for which such indemnification is no permitted. The amount
the Company contributes shall be in such proportion as is appropriate to reflect
the relative fault of Indemnitee, on the one hand, and of the Company and any
and all other parties (including officers and directors of the Company other
than Indemnitee) who may be at fault (collectively, including the Company, the
"THIRD PARTIES"), on the other hand.
(b) Relative Fault. The relative fault of the Third Parties and the
Indemnitee shall be determined (i) by reference to the relative fault of
Indemnitee as determined by the court or other governmental agency or (ii) to
the extent such court or other governmental agency does not apportion relative
fault, by the Reviewing Party after giving effect to, among other things, the
relative intent, knowledge, access to information, and opportunity to prevent or
correct the relevant events, of each party, and other relevant equitable
considerations. The Company and Indemnitee agree that it would not be just and
equitable if contribution were determined by pro rata allocation or by any other
method of allocation that does take account of the equitable considerations
referred to in this Section 7(b).
8. Burden of Proof. In connection with any determination by the Reviewing
Party or in any judicial proceeding to determine whether Indemnitee is entitled
to be indemnified under any provisions of this Agreement or to receive
contribution pursuant to Section 7 of this Agreement, to
6
the extent permitted by law the burden of proof shall be on the Company to
establish that Indemnitee is not so entitled.
9. No Presumption. 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 on nolo contendere, or its equivalent, or an entry
of an order of probation prior to judgment shall not create a presumption (other
than any presumption arising as a matter of law that the parties may not
contractually agree to disregard) 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.
10. Non-exclusivity; Changes in Law. The rights of Indemnitee hereunder
shall be in addition to any other rights Indemnitee may have under the Bylaws or
Certificate of Incorporation or the Delaware General Corporation Law or
otherwise. To the extent that a change in the Delaware General Corporation Law
(whether by statute or judicial decision) permits greater indemnification or
advancement of expenses by agreement than would be afforded currently under this
Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by
this Agreement the greater benefits so afforded by that change, and this
Agreement shall be deemed to be amended to such extent. Indemnitee's rights
under this Agreement shall not be diminished by any amendment to the Certificate
of Incorporation or Bylaws, or of any other agreement or instrument to which
Indemnitee is not a party, and shall not diminish any other rights that
Indemnitee now or in the future has against the Company.
11. Liability Insurance. The Company shall use commercially reasonable
efforts to obtain and maintain in effect an insurance policy or policies with a
reputable insurer providing directors' and officers' liability insurance
coverage to Indemnitee in an amount which is not less than the greater of (i)
$10 million, or (ii) the maximum amount of coverage available for the most
favorably insured of the Company's officers and directors, which policy or
policies shall name the Indemnitee as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's officers and directors.
12. Period of Limitations. No action, lawsuit, or proceeding may be brought
against Indemnitee or Indemnitee's spouse, heirs, executors, or personal or
legal representatives, nor may any cause of action be asserted in any such
action, lawsuit, or proceeding, by or on behalf of the Company, after the
expiration of two years after the statute of limitations commences with respect
to Indemnitee's act or omission that gave rise to the action, lawsuit,
proceeding, or cause of action; provided, however, that, if any shorter period
of limitations is otherwise applicable to any such action, lawsuit, proceeding,
or cause of action, the shorter period shall govern.
13. Amendments. No supplement, modification, or amendment of this Agreement
shall be binding unless executed in writing by both of the parties hereto. No
waiver of any provision of this Agreement shall be effective unless in a writing
signed by the party granting the waiver. 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 that waiver constitute a
continuing waiver.
7
14. Other Sources. Indemnitee shall not be required to exercise any rights
that Indemnitee may have against any other Person (for example, under an
insurance policy) before Indemnitee enforces his rights under this Agreement.
However, to the extent the Company actually indemnifies Indemnitee or advances
him Expenses, the Company shall be subrogated to the rights of Indemnitee and
shall be entitled to enforce any such rights which Indemnitee may have against
third parties. Indemnitee shall assist the Company in enforcing those rights if
it pays his costs and expenses of doing so. If Indemnitee is actually
indemnified or advanced Expenses by any third party, then, for so long as
Indemnitee is not required to disgorge the amounts so received, to that extent
the Company shall be relieved of its obligation to indemnify Indemnitee or
advance Indemnitee Expenses.
15. Binding Effect. 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 merger or
consolidation), spouses, heirs, and personal and legal representatives. This
Agreement shall continue in effect regardless of whether Indemnitee continues to
service as an officer or director of the Company or another enterprise at the
Company's request.
16. Severability. If any provision of this Agreement is held to be illegal,
invalid, or unenforceable under present or future laws effective during the term
hereof, that provision shall be fully severable; this Agreement shall be
construed and enforced as if that illegal, invalid, or unenforceable provision
had never comprised a part hereof; and the remaining provisions shall remain in
full force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Agreement. Furthermore, in
lieu of that illegal, invalid, or unenforceable provision, there shall be added
automatically as a part of this Agreement a provision as similar in terms to the
illegal, invalid, or unenforceable provision as may be possible and be legal,
valid, and enforceable.
17. Governing Law; Consent to Jurisdiction; Service of Process. This
Agreement shall be governed by and construed and enforced in accordance with the
laws of the State of Delaware applicable to contracts made and to be performed
in that state without giving effect to the principles of conflicts of laws. Each
of the Company and the Indemnitee hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of the Court of Chancery of the
State of Delaware and the courts of the United States of America located in the
State of Delaware (the "DELAWARE COURTS") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such courts), waives
any objection to the laying of venue of any such litigation in the Delaware
Courts and agrees not to plead or claim in any Delaware Court that such
litigation brought therein has been brought in an inconvenient forum. Each of
the parties hereto agrees (a) to the extent such party is not otherwise subject
to service of process in the State of Delaware, to appoint and maintain an agent
in the State of Delaware as such party's agent for acceptance of legal process,
and (b) that service of process may also be made on such party by prepaid
certified mail with a proof of mailing receipt validated by the United States
Postal Service constituting evidence of valid service. Service made pursuant to
(a) or (b) above shall have the same legal force and effect as if served upon
such party personally within the State of Delaware.
8
18. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
19. Notices. Whenever this Agreement requires or permits notice to be given
by one party to the other, such notice shall be in writing and shall be deemed
to have been duly given (a) when delivered by hand, (b) when transmitted by
facsimile and receipt is acknowledged, or (c) if mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed, to the address of the respective party as listed on
the signature page hereto, or to such other address as may have been furnished
in the same manner by any party to the other. Receipt of a notice by the
Secretary of the Company shall be deemed receipt of such notice by the Company.
20. Complete Agreement. This Agreement and the other agreements entered
into concurrently herewith by the Company and the Indemnitee constitute the
complete understanding and agreement among the parties with respect to the
subject matter hereof and supersedes all prior agreements and understandings
between the parties with respect to the subject matter hereof, other than any
indemnification rights that Indemnitee may enjoy under the Certificate of
Incorporation, the Bylaws, or the Delaware General Corporation Law.
21. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but in making proof
hereof it shall not be necessary to produce or account for more than one such
counterpart.
* * * * *
9
EXECUTED as of the date first written above.
LIBERTE INVESTORS INC.
By: /s/ Xxxxxx X. Xxxx
-------------------------------------
Name: Xxxxxx X. Xxxx
Title: Chairman
INDEMNITEE
/s/ Xxxxxx X. Xxxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxxx
10
