DEFENSE AND INDEMNIFICATION AGREEMENT
This Defense and Indemnification Agreement ("Agreement") is made as of
this 8th day of July, 1996, between and among the following parties:
(1) Tricord Systems, Inc. ("Tricord"), a Delaware corporation;
(2) Xxxxx X. Xxxxxxx, Xxxxxxx X. Xxxxxx, Xxxx X. Xxxxxxxx, and Xxxx
X. Xxxxxx ("Individual Insured(s)");
(3) The Home Insurance Company of Illinois ("The Home");
(4) Progressive Casualty Insurance Company ("Progressive"), an Ohio
corporation;
(5) Underwriters at Lloyd's, London ("Underwriters"); and
(6) the General Reinsurance Corporation ("General Re"), a Delaware
corporation
RECITALS
WHEREAS, The Home issued to Tricord the Directors and
Officers Liability and Company Reimbursement Insurance Policy No. PD0
F922315, effective for the policy period of March 19, 1994 through March 19,
1995, with a limit of liability of $2 million ("The Home Policy"); and
WHEREAS, Progressive issued to Tricord a first excess
Directors and Officers Liability and Company Reimbursement Insurance Policy
No. 04228871 (the "Progressive Policy"), effective for the policy period of
March 19, 1994 through March 19, 1995, with a limit of liability of $3
million in excess of The Home Policy; and
WHEREAS, Underwriters issued to Tricord a second excess
Directors and Officers Liability and Company Reimbursement Indemnity Policy
No. 542/94S00667 (the
"Underwriters Policy"), effective for the policy period of March 19, 1994
through March 19, 1995, with a limit of liability of $1 million in excess of the
aggregate of The Home Policy and the Progressive Policy; and
WHEREAS, Progressive and General Re have represented to
each of the other undersigned parties that General Re (or one or more of its
operating units or subsidiaries) is responsible for all of Progressive's
financial obligations under the Progressive Policy; and
WHEREAS, on or about July 1, 1994 through July 14, 1994,
several class action lawsuits alleging violations of the federal securities
laws were brought on behalf of certain present and former Tricord
shareholders (collectively "Claimants") against Tricord and the Individual
Insureds in the United States District Court for the District of Minnesota,
Third Division, which lawsuits have been consolidated as In re: Tricord
Systems, Inc. Securities Litigation, Master File No. 3-94 Civil 746 (the
"Action"), and presently are pending; and
WHEREAS, Tricord and the Individual Insureds each have
made a claim for coverage under The Home Policy, the Progressive Policy, and
the Underwriters Policy, have been defending the Action with counsel of their
choosing, and have engaged in settlement negotiations with counsel for
Claimants; and
WHEREAS, at the time of execution of the Agreement, the
Claimants have outstanding a settlement demand for $4.6 million; and
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WHEREAS, The Home has been and presently is ready,
willing, and able to contribute The Home Policy's limits of liability toward
a settlement of the Action, upon request of the Individual Insureds; and
WHEREAS, Underwriters shall be liable under the
Underwriters Policy only after the aggregate limits of liability under both
The Home Policy and the Progressive Policy have been exhausted; and
WHEREAS, Progressive and General Re do not believe that
$4.6 million is an appropriate amount for which to settle the Action, based
upon the facts and law as alleged and as known by them to date; and
WHEREAS, General Re desires to assume control over the
defense of Tricord and the Individual Insureds in the Action, including
control over continued settlement negotiations with Claimants' counsel; and
WHEREAS, each of The Home, Progressive, and Underwriters
has advised Tricord and the Individual Insureds that it does not object to
General Re assuming control over the defense of Tricord and the Individual
Insureds in the Action, subject to the terms and conditions set forth herein;
and
WHEREAS, Tricord and the Individual Insureds are willing
to allow General Re to assume control over the defense of the Action, subject
to the terms and conditions set forth herein; and
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WHEREAS, Tricord and the Individual Insureds have
requested that The Home deposit its $2 million policy limits into an escrow
account to be available to be used by General Re in the defense and/or
settlement of the Action;
AGREEMENT
NOW, THEREFORE, in consideration for the mutual covenants set forth
herein, the receipt and sufficiency of which each undersigned party hereby
expressly acknowledges, each of the undersigned parties agrees as follows:
NATURE OF THE AGREEMENT
1. The Agreement supplements The Home Policy, the
Progressive Policy, and the Underwriters Policy (collectively the "Policies")
with respect to the Action and the claims now or hereafter being made by
Claimants in the Action. The Policies remain in full force and effect as
written, except to the extent specifically modified herein.
2. General Re's obligations under the Agreement are not
subject to any exclusions or defenses that might exist or be claimed to exist
under the Progressive Policy with respect to coverage of Tricord or the
Individual Insureds.
3. As a condition precedent to the duty of General Re
to pay any judgment or settlement in the Action in excess of the funds in the
Escrow Account described in Paragraphs 15, 16, and 17 herein, the obligation
of Tricord and/or the Individual Insureds to pay Claimants, if any such
obligation exists, shall first have been finally determined, either by final
adjudication or by written agreement between Tricord, the Individual
Insureds, Claimants, and General Re; provided, however, that this condition
precedent does not apply
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to General Re's obligation to pay Defense Costs as set forth in Paragraph 7
herein and to reimburse and compensate Tricord, the Individual Insureds, and
outside professionals as set forth in Paragraph 14 herein.
4. The undersigned parties agree that the first $3
million General Re pays in excess of the funds in the Escrow Account
described in Paragraphs 15, 16, and 17 herein is paid pursuant to General
Re's financial responsibilities for the Progressive Policy.
5. No person or organization shall have the right under
the Progressive Policy or the Agreement to join General Re as a party to the
Action or to any claim against Tricord or the Individual Insureds, nor shall
General Re be impleaded by any person or their legal representative in any
such Action or claim.
6. Tricord understands and agrees that the Agreement is
not intended to, and does not, impair or adversely affect whatever rights of
indemnification exist in favor of the Individual Insureds against Tricord
under or by reason of Delaware law, the Articles of Incorporation or Bylaws
of Tricord, any contractual obligations or undertakings, or otherwise.
ASSUMPTION OF DEFENSE
7. General Re shall assume the complete defense of
Tricord and the Individual Insureds in the Action, and does hereby undertake
a duty to defend Tricord and the Individual Insureds with respect to the
Action and the claims now or hereafter being made by the Claimants, until the
final resolution of the Action by settlement, final judgment, or otherwise.
The duty to defend shall include, but not be limited to, the duty to select
and
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retain defense counsel, to arrange for payment of all Defense Costs from the
Escrow Account until exhausted, to thereafter pay all Defense Costs directly,
to make decisions about the conduct of the Action, and to control and conduct
any settlement negotiations with Claimants' counsel. As used in the
Agreement, "Defense Costs" includes all attorneys' fees, costs, and expenses,
legal or otherwise, associated with the defense of the Action and the claims
now or hereafter being made by the Claimants.
8. General Re agrees that it will not resolve,
compromise, or settle the Action or the claims now or hereafter being made by
Claimants on any basis that involves an admission that Tricord and the
Individual Insureds, or any of them, have liability to the Claimants or
committed any wrongdoing of any kind whatsoever. Any settlement documents
must be in a form and content acceptable to Tricord and the Individual
Insureds, and each of them.
9. Tricord and the Individual Insureds agree that none
of them will admit liability, voluntarily make any payment, agree to any
settlement, or confess or otherwise consent to any judgment with respect to
the Action or the claims now or hereafter being made by Claimants, without
the written consent of General Re.
10. The Home, Progressive, and Underwriters consent to
allowing General Re to assume the defense of the Action as set forth in
Paragraph 7 herein, and hereby relinquish their right to consent to any
Defense Costs, or any settlement amount, incurred on behalf of Tricord and/or
the Individual Insureds in the Action.
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11. Underwriters hereby relinquishes its right to pursue
any claim for failure to effectuate a settlement of the Action below the
Claimants' current $4.6 million demand and without implication of the
Underwriters Policy layer, as well as the right to assure that such a
settlement occurs below Underwriters Policy layer through continued
involvement in the settlement negotiations.
12. Tricord and the Individual Insureds hereby
relinquish all rights, if any, to recover from The Home, Progressive,
Underwriters, and General Re any and all Defense Costs incurred up to and
through the date of execution of the Agreement. Tricord shall pay the
Defense Costs incurred by or on behalf of the Individual Insureds up to and
through the date of execution of the Agreement.
DUTY TO INFORM
13. General Re shall keep each other undersigned party
advised of all material developments in the Action on a timely basis, and
shall provide to each other undersigned party in a timely manner such
information relating to the Action as each such party may reasonably request,
including but not limited to information about all settlement discussions,
developments, and agreements, as well as the status and developments in the
Action.
COOPERATION
14. Tricord and the Individual Insureds shall cooperate
with General Re in the defense of the Action and shall provide General Re
with such information and assistance as it may reasonably request. General
Re shall promptly reimburse Tricord and/or the
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Individual Insureds for any and all out-of-pocket expenses that each or any
of them may incur as a result of his/its involvement as defendants or
witnesses in the Action. General Re also shall promptly compensate: (a) the
Individual Insureds, for the reasonable value of their time spent to provide
information and assistance to General Re with respect to the Action
(provided, however, that the Individual Insureds will not be compensated by
General Re for their testimony at deposition or trial in the Action); (b)
Tricord, for the reasonable value of the time spent and expenses incurred by
Tricord and Tricord's directors, officers, employees, agents, and outside
professionals (including but not limited to accountants and attorneys) to
provide information and assistance to General Re with respect to the Action
(provided, however, that no such person will be compensated by General Re for
his or her testimony at deposition or trial in the Action); and (c) outside
professionals for Tricord and the Individual Insureds (including but not
limited to accountants and attorneys) for the reasonable value of the time
spent and expenses incurred by such professionals to provide information and
assistance to General Re with respect to the Action, to the extent that such
time and expenses are billed directly to General Re.
ESCROW ACCOUNT
15. The Home shall deposit the sum of $2 million,
representing its full limit of liability under The Home Policy, into an
interest-bearing escrow account to be established by General Re (the "Escrow
Account") within thirty (30) days after the execution of the Agreement.
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16. Within thirty (30) days after the execution of the
Agreement, Tricord shall deposit the the sum of $400,000 into the Escrow
Account. Tricord shall make available to General Re for settlement purposes,
upon General Re's request, warrants to purchase 100,000 shares of Tricord
common stock at an exercise price of $6.00 per share for a period of five (5)
years from the date of the Agreement. The provisions for transfer and
disposition of such warrants shall be specified in a separate written
agreement between General Re and Tricord.
17. General Re acknowledges and hereby agrees that the
funds placed into the Escrow Account are to be used to pay all Defense Costs,
settlements, and/or judgments incurred in connection with the Action on or
after the date of execution of the Agreement, until the Escrow Account is
depleted or the Action is resolved, whichever comes first. Eighty-three
percent (83%) of all such Defense Costs, settlements, and/or judgments are
payable out of the funds to be deposited by The Home, and seventeen percent
(17%) of all such Defense Costs, settlements, and/or judgments are payable
out of the funds to be deposited by Tricord.
18. General Re will provide an accounting of all funds
withdrawn from the Escrow Account on a calendar quarterly basis to The Home
and to Tricord and, at the conclusion of the Action, any funds remaining in
the Escrow Account will revert back to the Home and to Tricord in proportion
to their respective cash contributions.
19. The interest earned on the deposited funds in the
Escrow Account will accrue solely for the benefit of The Home and Tricord,
and will be paid by General Re or the
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escrow agent to The Home and Tricord in proportion to their respective cash
contributions to the Escrow Account as such interest accrues.
CONDITIONAL RELEASE OF THE HOME
20. Effective upon payment by The Home pursuant to
Paragraph 15 herein, Tricord and the Individual Insureds, on their own behalf
and on behalf of their agents, representatives, attorneys, successors, heirs,
assigns and all other insureds under The Home Policy, hereby release and
forever discharge The Home, its agents, representatives, attorneys,
successors, owners, assigns, executors, administrators, principals,
directors, officers, employees, insurers and reinsurers, from any and all
actions, causes of action, suits, claims for sums of money, contracts,
controversies, agreements, costs, attorneys' fees, expenses, damages,
judgments and demands whatsoever in law or in equity, known or unknown, which
Tricord and/or the Individual Insureds have or may have against The Home
under The Home Policy, arising out of or related to the Action, including but
not limited to any action, proceeding, or claim arising from The Home's
investigation, evaluation, handling, or settlement of the Action or alleging
any "bad faith" or breach of any promise, oral or written, or breach of any
duty grounded in law or in contract relating thereto.
INDEMNIFICATION
21. To the fullest extent permitted by law, General Re
shall defend, protect, indemnify, and hold harmless Tricord, the Individual
Insureds, The Home, and Underwriters, any and all of them, and any and all of
their respective heirs, administrators, executors, representatives, and legal
successors, and their owners, principals, directors, officers,
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employees, agents, insurers, and reinsurers (collectively "Indemnitees"), of,
from and against any and all actions, liabilities, losses, damages, injuries,
controversies, costs, expenses, interest, attorneys' fees, settlements, or
judgments, of any kind or nature whatsoever, whether or not now known or
anticipated, that the Indemnitees, or any of them, may incur or become
subject to, arising from or out of, or in any way involving, the Action or
the claims now or hereafter being made by Claimants. General Re's
undertaking to defend, protect, indemnify, and hold harmless includes, but is
not limited to: (a) any established financial loss or injury that may be
caused to any Individual Insured, to his career, employment, or reputation,
or to his opportunity to serve as an officer or director of any corporation
or other entity, if the ultimate resolution of the Action is a verdict or
judgment adverse to such Individual Insured; (b) any action, proceeding, or
claim arising from or in any way involving any investigation, evaluation,
handling, or settlement of the Action by The Home or Underwriters, or
alleging any "bad faith" or breach of any promise, oral or written, or breach
of any duty grounded in law or in contract relating thereto; and (c) any
action, proceeding, or claim for the payment of any portion of The Home's or
Underwriters' policy limits. Payment by an Indemnitee shall not be a
precondition to General Re's obligations under this paragraph.
ATTORNEYS' FEES
22. Should it become necessary for the Indemnitees, or
any of them, to commence or pursue any proceeding, legal or otherwise
(including without limitation arbitration), against General Re for breach of
the Agreement, or to enforce any Indemnitee's rights under the Agreement,
then such Indemnitee(s) who prevails shall be entitled to recover
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from General Re the amount of attorneys' fees, costs, and expenses that he/it
incurs in connection with such proceeding.
ACKNOWLEDGMENTS, REPRESENTATIONS, WARRANTIES, AND AGREEMENTS
23. Progressive acknowledges that General Re (or one or
more of its operating units or subsidiaries) is the financially responsible
party under the Progressive Policy. Progressive further acknowledges that it
has no objection to General Re's entry into the Agreement, and in particular,
has no objection to General Re's undertaking of the duties set forth herein,
provided however that such acknowledgment shall not diminish or impair
Progressive's rights and responsibilities under its separate agreements with
General Re.
24. Each of the undersigned parties warrants and
represents that he/it has carefully read all of the terms of the Agreement,
and that he/it understands them and intends to be legally bound thereby.
Each of the undersigned parties further warrants and represents that he/it
has full authority to execute the Agreement, and that the execution and
performance of the Agreement has been duly authorized by all requisite
corporate action.
25. Except as stated in the final sentence of Paragraph
16 herein, the Agreement is the complete agreement of the undersigned parties
concerning the subject matter hereof. It supersedes all prior or
contemporaneous understandings, discussions, or agreements with respect to
the subjects contained herein. It also supersedes that certain Settlement
Agreement and Release entered into on or about June 10, 1996 between and
among Tricord, The Home, and Progressive.
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26. No breach of any provision of the Agreement by any
undersigned party can be waived by any other party hereto, unless expressly
done so in writing. Waiver of any one breach shall not be deemed to be a
waiver of any other breach of the same or any other provision hereof.
27. The Agreement may not be supplemented, changed, or
assigned by any party without the express written consent of all of the
undersigned parties.
28. Each of the undersigned parties acknowledges and
represents that he/it has been represented by competent legal counsel of
his/its own choosing in connection with his/its consideration and execution
of the Agreement. Each undersigned party acknowledges that he/it has had
adequate opportunity to investigate the factual and legal bases for the
Action and the claims being made by Claimants in the Action, and to form
his/its own independent judgment about the merit or lack of merit of the
Action, how the Action should be handled, and whether the Agreement should be
made and entered into. Each undersigned party further represents and
declares that in executing the Agreement, he/it has relied solely upon
his/its own judgment, belief and knowledge, and the advice and recommendation
of his/its own legal counsel, concerning the nature, extent and duration of
any rights, obligations and claims, and that he/it has not been influenced to
any extent whatsoever in executing the Agreement by any representations or
statements except those expressly contained or referred to herein.
29. Each undersigned party acknowledges and agrees that
if any fact or law now believed to be true is discovered hereafter to be
other than, or different from, that which
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he/it now believes, he/it expressly assumes the risk of such difference in
fact or law and agrees that the Agreement shall be and will remain effective
notwithstanding any such difference in fact or law. The Agreement is
intended to be final and binding between and among the undersigned parties,
regardless of any claims of fraud, misrepresentation, promise made without
intention of performance, concealment of fact, mistake of fact, mistake of
law, or any other circumstances whatsoever.
30. Each undersigned party acknowledges and agrees that
he/it will not take any action that would interfere with the performance of
the Agreement by any other undersigned party or that would adversely affect
any of the rights provided for in the Agreement.
GOVERNING LAW AND VENUE
31. The Agreement shall be construed in accordance with,
and be governed by, the law of the State of Minnesota. Any action brought to
enforce or interpret the Agreement shall be brought in the state or federal
courts for the State of Minnesota. Each undersigned party consents to the
exercise of personal jurisdiction over he/it by the state and federal courts
for the State of Minnesota in any action brought to enforce or interpret the
Agreement.
CONSTRUCTION AND INTERPRETATION
32. The terms of the Agreement are to be construed in an
evenhanded fashion as between and among the undersigned parties. Should it
be determined that there is ambiguity or a lack of clarity in any of the
language of the Agreement, the disputed issue
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shall be resolved in a manner most consistent with the relevant terms of the
Agreement and with the expressed intentions and goals of the Agreement,
without regard to authorship. The normal rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not
be used in the interpretation of the Agreement.
33. The headings, titles, and subtitles herein are used
solely for convenience, shall not be used in interpreting the Agreement, and
shall not be construed in any way to limit, modify, or affect the terms of
the Agreement.
COUNTERPARTS
34. The Agreement may be executed in counterparts, each
of which shall be deemed to be one and the same instrument. The undersigned
parties shall exchange among themselves original signed counterparts.
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GENERAL REINSURANCE CORPORATION
By
------------------------------
Its
-----------------------------
STATE OF CONNECTICUT)
) SS.
COUNTY OF __________)
On this ___ day of _______, 1996, before me a notary public of the
State of Connecticut, personally appeared __________________, to me
personally known and known to be an officer of General Reinsurance
Corporation, who represented that he was authorized to execute the foregoing
instrument on behalf of the corporation, who executed the foregoing
instrument on behalf of the corporation, and who acknowledged that he read
the same and executed it as his free act and deed.
-----------------------
Notary Public
* * *
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THE HOME INSURANCE COMPANY OF
ILLINOIS
By_______________________________________
Its_____________________________________
STATE OF _____________)
) SS.
COUNTY OF ____________)
On this ___ day of _______, 1996, before me a notary
public of the State of________________, personally appeared
__________________, to me personally known and known to be an officer of The
Home Insurance Company of Illinois, who represented that he was authorized to
execute the foregoing instrument on behalf of the corporation, who executed
the foregoing instrument on behalf of the corporation, and who acknowledged
that he read the same and executed it as his free act and deed.
_____________________________________
Notary Public
* * *
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PROGRESSIVE CASUALTY INSURANCE
COMPANY
By_______________________________________
Its_____________________________________
STATE OF _____________)
) SS.
COUNTY OF ____________)
On this ___ day of _______, 1996, before me a notary
public of the State of________________, personally appeared
__________________, to me personally known and known to be an officer of
Progressive Casualty Insurance Company, who represented that he was
authorized to execute the foregoing instrument on behalf of the corporation,
who executed the foregoing instrument on behalf of the corporation, and who
acknowledged that he read the same and executed it as his free act and deed.
_____________________________________
Notary Public
* * *
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UNDERWRITERS AT LLOYD'S, LONDON
By_______________________________________
Its_____________________________________
STATE OF _____________)
) SS.
COUNTY OF ____________)
On this ___ day of _______, 1996, before me a notary
public of the State of________________, personally appeared
__________________, to me personally known and known to be counsel for
Underwriters at Lloyd's, London, who represented that he was authorized to
execute the foregoing instrument on behalf of Underwriters at Lloyd's,
London, who executed the foregoing instrument on behalf of Underwriters at
Lloyd's, London, and who acknowledged that he read the same and executed it
as his free act and deed.
_____________________________________
Notary Public
* * *
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TRICORD SYSTEMS, INC.
By_______________________________________
Its_____________________________________
STATE OF MINNESOTA)
) SS.
COUNTY OF HENNEPIN)
On this ___ day of _______, 1996, before me a notary
public of the State of Minnesota, personally appeared __________________, to
me personally known and known to be an officer of Tricord Systems, Inc., who
represented that he was authorized to execute the foregoing instrument on
behalf of the corporation, who executed the foregoing instrument on behalf of
the corporation, and who acknowledged that he read the same and executed it
as his free act and deed.
_____________________________________
Notary Public
* * *
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_______________________________________
XXXXX X. XXXXXXX
STATE OF _____________)
) SS.
COUNTY OF ____________)
On this ___ day of _______, 1996, before me a notary
public of the State of___________________, personally appeared Xxxxx X.
Xxxxxxx, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to this instrument, and
acknowledged that he read the same and executed it as his free act and deed.
_____________________________________
Notary Public
* * *
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_______________________________________
XXXXXXX X. XXXXXX
STATE OF MINNESOTA)
) SS.
COUNTY OF HENNEPIN)
On this ___ day of _______, 1996, before me a notary
public of the State of Minnesota, personally appeared Xxxxxxx X. Xxxxxx,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to this instrument, and
acknowledged that he read the same and executed it as his free act and deed.
_____________________________________
Notary Public
* * *
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_______________________________________
XXXX X. XXXXXXXX
STATE OF MASSACHUSETTS)
) SS.
COUNTY OF ____________)
On this ___ day of _______, 1996, before me a notary
public of the State of Massachusetts, personally appeared Xxxx X. Xxxxxxxx,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to this instrument, and
acknowledged that he read the same and executed it as his free act and deed.
_____________________________________
Notary Public
* * *
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_______________________________________
XXXX X. XXXXXX
STATE OF MINNESOTA)
) SS.
COUNTY OF HENNEPIN)
On this ___ day of _______, 1996, before me a notary
public of the State of Minnesota, personally appeared Xxxx X. Xxxxxx,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to this instrument, and
acknowledged that he read the same and executed it as his free act and deed.
_____________________________________
Notary Public
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