INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is entered into as of
March 25, 1998, between the undersigned, The Sumitomo Bank, Limited, a
shareholder ("Parent") of The Sumitomo Bank of California, a California
corporation (the "Company"), and Zions Bancorporation, a Utah corporation
("Buyer").
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Buyer and the Company are entering into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), by which the
Company will merge, subject to the terms and conditions set forth therein, with
a wholly owned subsidiary of Buyer ("Merger Sub") and Buyer and Parent are
entering into a Voting Agreement, dated as of the date hereof (the "Voting
Agreement"; and
WHEREAS, in order to induce Buyer and Merger Sub to enter into the
Merger Agreement and the Voting Agreement, Parent wishes to indemnify Buyer
against certain claims.
NOW, THEREFORE, for good and valuable considera tion, the receipt,
sufficiency and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. Representations of Parent. Parent represents that it has full power
and authority to make, enter into and carry out the terms of this Agreement.
This Agreement has been duly and validly executed and delivered by Parent and
(assuming due authorization, execution and delivery by Buyer) this Agreement
constitutes a valid and binding obligation of Parent, enforceable against Parent
in accordance with its terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
2. Indemnification. From and after the Closing Date, Parent agrees to
indemnify and hold harmless Buyer, Merger Sub, the Surviving Bank (as defined in
the Merger Agreement) and each of their directors, officers, employees and
agents (the "Indemnified Parties") against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorney's fees and expenses
in advance of the disposition of any claim, suit, proceeding or investigation
and including reasonable attorney's fees and expenses incurred in connection
with prevailing in a suit by an
Indemnified Party to enforce its rights under this Section 2), judgments, fines
and amounts paid in settlement in connection with (i) any actual or threatened
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature (each, a "Third Party
Claim") based in whole or in part on, or arising in whole or in part out of, or
pertaining to this Agreement, the Merger Agreement, the Voting Agreement or any
of the transactions contemplated hereby or thereby, including the exercise of
dissenters' rights; provided, however, that any such indemnification obligation
under this clause (i) with respect to payments required to be paid to dissenting
shareholders (but not other expenses related thereto) shall only be to the
extent that the fair market value of the Dissenting Shares (as defined in the
Merger Agreement) which is required to be paid pursuant to Sections 1300-1312 of
the California General Corporation Law exceeds $38.25 per share; and (ii) any
Third Party Claims against the Company or any of its subsidiaries (a) existing
on the Closing Date or (b) threatened in writing (and notified in writing to
Parent) or commencing after the Closing Date and prior to the first anniversary
of the Closing Date where the event, act, omission or condition of the Company
or any of its subsidiaries giving rise to such Third Party Claim is in existence
or occurred prior to the Closing Date; provided, however, that, notwithstanding
the foregoing, (1) Parent shall have no indemnification obligation under this
clause (ii)(b) unless all the facts and circumstances sufficient to give rise to
the Third Party Claim are in existence or have occurred prior to the Closing
Date, (2) Parent shall have no indemnification obligation under this clause
(ii)(b) for any Third Party Claim relating to or arising out of a breach of
contract (x) unless the event, act, omission or condition of the Company or any
of its subsidiaries which constitutes a breach or violation of, or a default
under, the applicable contract is in existence or occurred prior to the Closing
Date and (y) unless, and any indemnification obligation shall only be to the
extent that, the damages incurred by the Company and its subsidiaries in
connection with such breach, violation or default exceeded the benefits obtained
by the Company and its subsidiaries under such contract, (3) Parent shall have
no indemnification obligation under this clause (ii)(b) with respect to any
Third Party Claim where the associated liability (x) was reflected or reserved
against in the consolidated balance sheet of the Company and its subsidiaries as
of December 31, 1997 or (y) is set forth in the Company Disclosure Schedule (as
defined in the Merger Agreement) and (4) Parent shall have no indemnification
obligation under this clause (ii)(b) with respect to any individual Third Party
Claim where the associated liability
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does not exceed $50,000 and, where such liability exceeds $50,000, Parent's
indemnification obligation shall only be with respect to the portion of such
liability in excess of $50,000. In the event of any such threatened or actual
claim, action, suit, proceeding or investigation (whether asserted or arising
before or after the Expiration Date), the Indemnified Parties may retain counsel
reasonably satisfactory to Parent; provided, however, that (1) Parent shall have
the right to assume the defense thereof and upon such assumption Parent shall
not be liable to any Indemnified Party for any legal expenses of other counsel
or any other expenses subsequently incurred by any Indemnified Party in
connection with the defense thereof, except that if Parent elects not to assume
such defense or counsel for the Indemnified Parties reasonably advises that
there are issues which raise conflicts of interest between Parent and the
Indemnified Parties, the Indemnified Parties may retain counsel reasonably
satisfactory to them after consultation with Parent, and Parent shall pay the
reasonable fees and expenses of such counsel for the Indemnified Parties, (2)
Parent shall in all cases be obligated pursuant to this paragraph to pay for
only one firm of counsel for all Indemnified Parties, (3) Parent shall not be
liable for any settlement effected without its prior written consent (which
consent shall not be unreasonably withheld) and (4) Parent shall have no
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and nonappealable, that indemnification of such Indemnified Party
in the manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim indemnification under this Section 2, upon
learning of any such claim, action, suit, proceeding or investigation, shall
promptly notify Parent thereof, provided that the failure to so notify shall not
affect the obligations of Parent under this Section 2 except to the extent such
failure to notify materially prejudices Parent. Subject to the terms and
conditions hereof, Parent's obligations under this Section 2 shall continue in
full force and effect without time limit from and after the Effective Time.
3. Liability for Taxes and Related Matters. (a) Indemnification. (i)
Subject to subparagraph (ii) below, Parent agrees to indemnify Buyer and the
Company (each a "Tax Indemnified Party" and together, the "Tax Indemnified
Parties") against the following taxes (the "Subject Taxes") for any taxable year
or period or portion thereof ending on or before the Closing Date to the extent
that the Subject Taxes were not paid or adequately reserved for (in accordance
with generally accepted accounting principles) in
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the financial statements of the Company as of the Closing Date: (1) any income
or franchise taxes (including any interest and any penalties with respect
thereto) imposed on the Company by the State of California (the "California
Taxes"); (2) any income or franchise taxes (including any interest and any
penalties with respect thereto) imposed on the Company as a result of any
transactions between the Company and Parent or any affiliate of Parent entered
into prior to the Closing Date; and (3) any withholding taxes (including any
interest and any penalties with respect thereto) imposed on the Company as a
result of any transaction entered into by the Company prior to the Closing Date.
(ii) Anything herein to the contrary notwithstanding, no
indemnification shall be available pursuant to clause (1) in subparagraph (i)
above for California Taxes unless and until such indemnity exceeds the sum of
(x) the Company's reserves for California Taxes as of the Closing Date and (y)
any refunds of California Taxes attributable to any year or period or portion
thereof ending on or before the Closing Date which are received after the
Closing Date (such sum being the "Threshold Amount"), and such indemnity shall
be solely for the amount of California Taxes indemnifiable pursuant to clause
(1) of subparagraph (i) above (without giving effect to this subparagraph (ii))
which is in excess of the Threshold Amount. It is understood and agreed by the
parties that (1) the Company establishes reserves for California Taxes at the
end of each calendar quarter, (2) the Company is permitted to continue to
establish reserves for California Taxes in a manner consistent with past
practice and (3) the Company is permitted for purposes of this Agreement during
the ten (10) days prior to the Closing Date to establish a reserve for
California Taxes in a manner consistent with past practice for the period
beginning on the day after the last calendar quarter for which such reserves
were established through the Closing Date.
(iii) Parent shall pay to Buyer all indemnity amounts in respect of any
Tax Claim (as defined below) within twenty (20) business days after such Tax
Claim is disposed of or a Final Determination has been made with respect
thereto. "Final Determination" shall mean (1) the entry of a decision by a court
of competent jurisdiction at such time as an appeal may no longer be taken from
such decision or (2) the execution of a closing agreement or its equivalent
between the particular taxpayer and the particular, relevant taxing authority.
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(b) Control of Contests.
(i) If a notice of deficiency, proposed adjustment, adjustment,
assessment, audit, examination, suit, dispute or other claim (a "Tax Claim")
shall be delivered, sent, commenced, or initiated to or against the Company,
Buyer or any affiliate of the Company or Buyer, by any taxing authority (whether
foreign or domestic) with respect to Subject Taxes for which the Indemnified
Parties are entitled to indemnification under this Section 3, Buyer shall notify
Parent of the Tax Claim in writing at the address provided in Section 7(g) of
this Agreement within five (5) business days of receiving the Tax Claim,
provided that the failure to so notify shall not affect the obligations of
Parent under this Section 3 except to the extent that such failure to notify
materially prejudices Parent.
(ii) Parent shall have the sole right to represent the interests of the
Company in any tax audit or administrative proceeding to the extent such audit
or administrative proceeding relates to Subject Taxes for any taxable periods
ending on or before the Closing Date, and to employ counsel of its choice at its
expense. Notwithstanding the foregoing, Parent shall not be entitled to settle
any claim for Subject Taxes which would adversely affect the liability for
Subject Taxes of Buyer or the Company for any taxable period after the Closing
Date without the prior written consent of Buyer, which consent shall not be
unreasonably withheld; provided, however, such consent shall not be necessary to
the extent that Parent has indemnified Buyer against the effects of any such
settlement.
(iii) Parent shall be entitled to participate at its expense in the
defense of any claim for Subject Taxes for a year or period ending after the
Closing Date which may be the subject of indemnification by Parent pursuant to
this Section 3, with the written consent of Buyer, which consent shall not be
unreasonably withheld.
(iv) None of Buyer or the Company may agree to settle any Tax Claim
which may be the subject of indemnification by Parent under this Section 3
without the prior written consent of Parent, which consent shall not be
unreasonably withheld.
(c) Mutual Cooperation. The Company and Parent each shall provide the
other with such assistance as may reasonably be requested by either of them in
connection with any Tax Claim relating to Subject Taxes, and each will
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retain and provide the other with any records or information that may be
relevant to such Tax Claim. Such assistance shall include making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder and shall include providing
copies of any relevant Tax Returns (as defined in the Merger Agreement) and
supporting work schedules.
(d) Dispute Resolution. If Parent and the Indemnified Parties cannot
agree as to the amount of Parent's indemnification obligation under this Section
3 or the interpretation of any provision of this Section 3, Parent and the
Indemnified Parties shall choose an independent, "Big Six" accounting firm,
acceptable to each of them (the "Selected Accounting Firm"), and the decision of
the Selected Accounting Firm as to the amount of Parent's indemnification
obligation, if any, or the interpretation of any such provision shall be final
and binding. Following the decision of the Selected Accounting Firm, the parties
shall each take (or cause to be taken) any action that is necessary or
appropriate to implement such decision.
(e) Section 338 Election. Notwithstanding anything in this Agreement to
the contrary, Parent, Buyer and the Company agree that an election under Section
338 of the Internal Revenue Code of 1986, as amended (or any similar provision
of the law of any taxing jurisdiction) (a "Section 338 Election") will not be
made with respect to the transactions contemplated pursuant to the Merger
Agreement, and if Buyer, the Company or any affiliate of Buyer or the Company
makes such a Section 338 Election, the Parent shall have no indemnity
obligations under this Section 3.
(f) Miscellaneous.
(i) Any and all costs and expenses of the Selected Accounting Firm
shall be borne equally by Parent and the Indemnified Parties.
(ii) All payments between the parties pursuant to this Agreement shall
be treated as adjustments to the purchase price for all tax purposes.
(g) Termination of Tax Sharing Agreements. Any tax allocation or
sharing agreement or arrangement, whether or not written, that may have been
entered into by Parent or any affiliate of Parent (other than the Company) and
the Company shall be terminated as to the Company as of the Closing Date, and no
payments which are owed by or to the Company pursuant thereto shall be made
thereunder.
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4. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns and shall not be assignable without the written consent of all other
parties hereto.
5. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the subject matter hereof, and this
Agreement supersedes all prior agreements, written or oral, between the parties
hereto with respect to the subject matter hereof. This Agreement may not be
amended, supplemented or modified, and no provisions hereof may be modified or
waived, except by an instrument in writing signed by all the parties hereto. No
waiver of any provisions hereof by any party shall be deemed a waiver of any
other provisions hereof by any such party, nor shall any such waiver be deemed a
continuing waiver of any provision hereof by such party.
6. Service Agreements. Buyer agrees that from and after the Effective
Time (as defined in the Merger Agreement) it shall cause the Company (or any
successor or permitted assign thereof) to perform all of its obligations under
each of (i) the Service Agreement, effective as of March 29, 1996, as amended
(the "L.A. Service Agreement"), between the Company and Parent's Los Angeles
Branch and (ii) the Service Agreement, effective as of March 25, 1996, as
amended (the "S.F. Service Agreement" and, together with the L.A. Service
Agreement, the "Service Agreements"), between the Company and Parent's San
Xxxxxxxxx Xxxxxx. Buyer agrees that it will not permit the Company (or any
successor or permitted assign thereof) (i) to give less than 90 days notice of
termination of either Service Agreement and (ii) to give any notice of
termination of, or take any action to terminate, any Service Agreement prior to
90 days prior to the first anniversary of the Effective Time. Buyer and Parent
also agree to negotiate in good faith an agreement to be entered into prior to
the Effective Time providing for cooperation with respect to existing
relationships with and services provided to customers of Parent and the Company.
7. Miscellaneous.
(a) This Agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the State of
California.
(b) If any provision of this Agreement or the application of such
provision to any person or
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circumstances shall be held invalid by a court of competent jurisdiction,
the remainder of the provision held invalid and the application of such
provision to persons or circumstances, other than the party as to which it
is held invalid, shall not be affected.
(c) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
(d) This Agreement shall terminate upon the termination of the Merger
Agreement (if terminated prior to the consummation of the Merger) and shall
survive the consummation of the Merger.
(e) All Section headings herein are for convenience of reference only
and are not part of this Agreement, and no construction or reference shall be
derived therefrom.
(f) The parties agree that there is not and has not been any other
agreement, arrangement or understanding between the parties hereto with respect
to the matters set forth herein.
(g) All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(i) If to Parent to:
The Sumitomo Bank, Limited
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Managing Director,
Head of North American Operations
and
The Sumitomo Bank, Limited
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: General Counsel
with copies to:
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Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxxx, Esq.
Xxxxxxxx X. Xxxxxxx, Esq.
(ii) If to Buyer to:
Zions Bancorporation
Xxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Chief Executive Officer
with copies to:
Xxxxxxxx & Xxxxxxxx
000 Xxxxx Xxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
(h) Buyer agrees that the provisions of Section 7.9 of the Merger
Agreement are also intended to be for the benefit of, and shall be enforceable
by, Parent.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
ZIONS BANCORPORATION
By: /s/ Xxxx X. Xxxxxxx
-------------------
Name: Xxxx X. Xxxxxxx
Title: Chief Financial Officer
THE SUMITOMO BANK, LIMITED
By: /s/ Akira Kondoh
---------------------
Name: Akira Kondoh
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