EXHIBIT 10.40
INDEMNIFICATION AGREEMENT
-------------------------
This Agreement between E. Xxxxx Xxxxxxx and ChatCom, Inc., a California
Corporation (the "Company"), is effective as of February 27, 1998.
WHEREAS, it is essential to the Company to retain and attract as directors
and officers the most capable persons available;
WHEREAS, Indemnitee is an Officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors and officers in
today's environment;
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitees' 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 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 the Company's request, with
another enterprise, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Certain Definitions.
-------------------
a. Change in Control: shall be deemed to have occurred when (i) there
has been a change in control of the Company, not approved by a resolution of the
Company's Board of Directors, of a nature that would be required to be reported
by a company subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), in response to Schedule 14A of
Regulation 14A promulgated under the Exchange Act, including in any event the
acquisition by any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) of beneficial ownership, directly or indirectly, of
securities of the Company representing twenty-five percent (25%) or more of the
combined voting power of the Company's then outstanding securities, (ii)
followed within a period of not more than two (2) years by a change in the
identity of a majority of the members of the Company's Board of Directors
otherwise than through death, disability or retirement in accordance with the
Company's normal retirement policies.
1
b. Claim: any threatened, pending or completed 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 action, suit or proceeding, whether civil, criminal,
administrative, investigative or otherwise.
c. Expenses: include attorneys' fees and all 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.
d. Indemnifiable Event: any event or occurrence related to the fact
that Indemnitee is or was a director, officer, employee, agent or fiduciary of
the Company, or is or was serving at the request of the Company as a director,
officer, employee, trustee, agent or fiduciary 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.
e. Reviewing party: any appropriate person or body consisting of a
member or members of the Company's Board of Directors or any other person or
body appointed by the Board (including the special, independent counsel referred
to in Section 3) who is not a party to the particular Claim for which Indemnity
is seeking indemnification.
f. Voting Securities: any securities of the Company which vote
generally in the election of directors.
2. Basic Indemnification Arrangement.
---------------------------------
a. In the 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
thirty (30) days after written demand is presented to the Company, against any
and all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Claim. Notwithstanding anything in this
Agreement to the contrary, Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Claim initiated by Indemnitee
against the Company or any director or officer of the Company unless the Company
has joined in or consented to the initiation of such Claim. If so requested by
Indemnitee, the Company shall advance
2
(within two (2) business days of such request) any and all Expenses to
Indemnitee (an "Expense Advance").
b. Notwithstanding the foregoing (i) 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 3 hereof is involved) that
Indemnitee would not be permitted to be indemnified under applicable law, and
(ii) the obligation of the Company to make an Expense Advance pursuant to
Section 2(a) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided however, that if Indemnitee has
commenced legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law any
determination made by the Reviewing Party that Indemnitee would not be permitted
to be indemnified under applicable law shall not be binding and Indemnitee shall
not be required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed). If there has not been a Change
in Control, the Reviewing Party shall be selected by the Board of Directors, and
if there has been such a Change in Control, the Reviewing Party shall be the
special, independent counsel referred to in Section 3 hereof. 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 California having
subject matter jurisdiction thereof and in which venue is proper 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.
3. Change in Control. The Company agrees that if there is a Change in
-----------------
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or Company bylaw 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 ten (10) years (other than in connection with such matters) or for the
Indemnitee. Such counsel, among
3
other things, shall render its written opinion to the Company and Indemnitee as
to whether and to what extent the Indemnitee would be permitted to be
indemnified under applicable law. The Company agrees to pay the reasonable fees
of the special, independent counsel referred to above and to fully indemnify
such counsel against any and all expenses (including attorney's fees), claims,
liabilities and damages arising out of or relating to this agreement or its
engagement pursuant hereto.
4. Indemnification for Additional Expenses. The Company shall indemnify
---------------------------------------
Indemnitee against any and all expenses (including attorney's fees) and, if
requested by Indemnitee, shall (within two (2) business days of such request)
advance such expenses to Indemnitee, which are incurred by Indemnitee in
connection with any claim asserted against or action brought by Indemnitee for
(i) indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or Company bylaw now or hereafter in effect
relating to claims for Indemnifiable Events and/or (ii) recovery under any
directors' and officers' liability insurance 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.
5. Partial Indemnity. If Indemnitee is entitled under any provision of this
-----------------
Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of 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. Moreover, 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, the Indemnitee shall be indemnified against all Expenses incurred in
connection therewith. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
6. No Presumption. For purposes of this Agreement, the termination of any
--------------
claim, action, suit or proceeding, by judgement, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
7. Non-Exclusivity, Etc. The rights of the Indemnitee hereunder shall be in
--------------------
addition to any other rights Indemnitee may have under the Company's bylaws or
the California General
4
Corporation Law or otherwise. To the extent that a change in the California
General Corporation Law (whether by statute or judicial decision) permits
greater indemnification by agreement than would be afforded currently under the
Company's bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change.
8. Liability Insurance. 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 of officer.
9. Period of Limitations. No legal action shall be 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 (2) 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 an deemed released unless
asserted by the timely filing of a legal action within such two (2) 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. Amendments, Etc. 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 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.
11. Subrogation. In the event of payment under this Agreement the Company
-----------
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all 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.
12. No Duplication of Payments. The Company shall not be liable under this
--------------------------
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, bylaw or otherwise) of the amounts otherwise
indemnifiable hereunder.
13. Binding Effect, Etc. This Agreement shall be binding upon and inure to
-------------------
the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger,
5
consolidation or otherwise to all or substantially all of the business and/or
assets of the Company, spouses, heirs, and personal and legal representatives.
This Agreement shall continue in effect regardless of whether Indemnitee
continues to serve as an officer or director of the Company or of any other
enterprise at the Company's request.
14. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
15. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument, even though all parties
do not sign the same counterparts.
16. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of California applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
Executed as of the date first above written.
"INDEMNITEE" "COMPANY"
CHATCOM, INC.,
a California corporation
/s/ E. Xxxxx Xxxxxxx By: /s/ Xxxxxx X. Xxxxxxxx
-------------------- ----------------------
E. XXXXX XXXXXXX
6
