Exhibit 10.26
EXHIBIT 10.26
ENOVA SYSTEMS, INC. DIRECTOR INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "AGREEMENT") is made effective as of
July _____, 2005, by and between Enova Systems, Inc., a California corporation
(the "Company"), and ________________, a Director of the Company (the
"INDEMNITEE").
RECITALS:
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A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors and officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, due
to increased exposure to litigation costs and risks resulting from their service
to such corporations, and due to the fact that the exposure frequently bears no
reasonable relationship to the compensation of such directors or officers.
B. The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors and officers with adequate, reliable
knowledge of legal risks to which they are exposed or information regarding the
proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is beyond the personal resources of
directors and officers.
D. The Company believes that it is unfair for its directors and officers to
assume the risk of huge judgments and other expenses which may occur in cases in
which the director or officer received no personal profit and in cases where the
director or officer was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director or officer of a corporation such as the Company are often
related to the knowledge, motives, and intent of such director or officer, that
he or she is usually the only witness with knowledge of the essential facts and
exculpating circumstances regarding such matters and that the long period of
time which usually elapses before the trial or other disposition of such
litigation often extends beyond the time that the director or officer can
reasonably recall such matters and may extend beyond the normal time for
retirement for such director or officer with the result that he or she, after
retirement or in the event of death, his or her spouse, heirs, executors or
administrators, may be faced with limited ability and undue hardship in
maintaining an adequate defense, which may discourage such a director or officer
from serving in that position.
F. Based upon their experience as business managers, the Board of Directors
of the Company (the "BOARD") has concluded that, to retain and attract talented
and experienced individuals to serve as directors and officers of the Company
and to encourage such individuals to take the business risks necessary for the
success of the Company, it is necessary for the Company to contractually
indemnify its directors and officers, and to assume for itself maximum liability
for expenses and damages in connection with claims against such directors and
officers in connection with their service to the Company, and has further
concluded that the failure to provide such contractual indemnification could
result in great harm to the Company and the Company's shareholders.
G. Section 317 of the California Corporations Code (the "CODE"), under
which the Company is organized ("SECTION 317"), empowers the Company to
indemnify persons who serve, at the request of the Company, as the directors,
officers, employees or agents of other corporations or enterprises, and
expressly provides that the indemnification provided by Section 317 is not
exclusive.
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H. The Company is also investigating obtaining increased coverage of
director's and officer's liability insurance ("D&O INSURANCE"). The Company
believes that the interests of the Company's shareholders would best be served
by a combination of such insurance as the Company may obtain in the future
pursuant to the Company's obligations hereunder and the indemnification by the
Company of the directors and officers of the Company.
I. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director of the Company free from undue concern for
claims for damages arising out of or related to such services to the Company.
J. The Indemnitee is willing to serve, or to continue to serve, the
Company, provided that he or she is furnished the indemnity provided for herein.
THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
Section 1.1 "AGENT" of the Company shall mean any person who is or was
a director, officer, employee or other agent of the Company or a Subsidiary (as
defined below); or is or was serving at the request of, for the convenience of,
or to represent the interests of the Company or a Subsidiary as a director,
officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise; or was a director,
officer, employee or agent of a foreign or domestic corporation which was a
predecessor corporation of the Company or a Subsidiary or was a director,
officer, employee or agent of another enterprise at the request of, for the
convenience of, or to represent the interests of such predecessor corporation.
Section 1.2 "EXPENSES" shall mean all direct and indirect costs of any
type or nature whatsoever (including, without limitation, all attorneys' fees
and related disbursements, other out of pocket costs and reasonable compensation
for time spent by the Indemnitee for which he or she is not otherwise
compensated by the Company or any third party) actually and reasonably incurred
by the Indemnitee in connection with either the investigation, defense or appeal
of a proceeding or establishing or enforcing a right to indemnification under
this Agreement, Section 317 or otherwise; provided, however, that expenses shall
not include any judgments, fines, ERISA excise taxes or penalties or amounts
paid in settlement of a proceeding.
Section 1.3 "PROCEEDING" shall mean any threatened, pending, or
completed action, suit or other proceeding, whether civil, criminal,
administrative, investigative or any other type whatsoever.
Section 1.4 "SUBSIDIARY" shall mean any corporation of which more than
50% of the outstanding voting securities is owned directly or indirectly by the
Company, by the Company and one or more other subsidiaries, or by one or more
other subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue to
serve as a director of the Company, at its will, so long as the Indemnitee is
duly appointed or elected and qualified in accordance with the applicable
provisions of the by laws of the Company or until such time as the Indemnitee
tenders his/her resignation in writing.
3. FUTURE LIABILITY INSURANCE. The Company hereby covenants and agrees that
the Company shall use its reasonable best efforts consistent with prudent
business practice to maintain in full force and effect D&O Insurance in
reasonable amounts from established and reputable insurers. The parties
acknowledge that such insurance in the future may not be available at an
acceptable price or at all.
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4. MANDATORY INDEMNIFICATION.
Section 4.1 Third Party Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any Proceeding (other than
an action by or in the right of the Company) by reason of the fact that the
Indemnitee is or was an Agent of the Company, or by reason of anything done or
not done by the Indemnitee in any such capacity, the Company shall indemnify the
Indemnitee against any and all Expenses and liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes or
penalties, and amounts paid in settlement) actually and reasonably incurred by
the Indemnitee in connection with the investigation, defense, settlement or
appeal of such proceeding if the Indemnitee acted in good faith and in a manner
the Indemnitee reasonably believed to be in or not opposed to the best interests
of the Company, and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful.
Section 4.2 Derivative Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any Proceeding by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that the Indemnitee is or was an Agent of the Company, or by reason of anything
done or not done by the Indemnitee in any such capacity, the Company shall
indemnify the Indemnitee against any amounts paid in settlement of any such
proceeding and all Expenses actually and reasonably incurred by the Indemnitee
in connection with the investigation, defense, settlement, or appeal of such
proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company; except that no indemnification under this subsection shall be made in
respect of any claim, issue or matter as to which such person shall have been
finally adjudged to be liable to the Company by a court of competent
jurisdiction due to willful misconduct of a culpable nature in the performance
of a duty to the Company unless and only to the extent that the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
court shall deem proper.
Section 4.3 Actions where Indemnitee is Deceased. If the Indemnitee is
a person who was or is a party or is threatened to be made a party to any
Proceeding by reason of the fact that the Indemnitee is or was an Agent of the
Company, or by reason of anything done or not done by the Indemnitee in any such
capacity, the Company shall indemnify the Indemnitee against any and all
Expenses and liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by or for the Indemnitee in
connection with the investigation, defense, settlement or appeal of such
proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, prior to, during the pendency or after completion of such
proceeding Indemnitee is deceased, except that in a proceeding by or in the
right of the Company no indemnification shall be due under the provisions of
this subsection in respect of any claim, issue or matter as to which such person
shall have been finally adjudged to be liable to the Company, by a court of
competent jurisdiction, due to willful misconduct of a culpable nature in the
performance of his duty to the Company, unless and only to the extent that the
court in which such proceeding was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
amounts which the court shall deem proper.
Section 4.4 Payments from D&O Insurance. Notwithstanding the foregoing,
the Company shall not be obligated to indemnify the Indemnitee for Expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by D&O Insurance.
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5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any Expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts
paid in settlement) incurred by the Indemnitee in the investigation, defense,
settlement or appeal of a proceeding but not entitled, however, to
indemnification for all of the total amount thereof, the Company shall
nevertheless indemnify the Indemnitee for that portion thereof to which the
Indemnitee is entitled.
6. MANDATORY ADVANCEMENT OF EXPENSES. Subject to Section 10.1 below, the
Company shall advance all Expenses incurred by the Indemnitee in connection with
the investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an Agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined pursuant to Section 8 hereof that the Indemnitee
is not entitled to be indemnified by the Company as authorized hereby, and such
undertaking should be deemed to satisfy the requirements of Section 317(f) of
the Code. The advances to be made hereunder shall be paid by the Company to the
Indemnitee within 20 days following delivery of a written request therefor by
the Indemnitee to the Company.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
Section 7.1 Commencement of Proceeding. Promptly after receipt by the
Indemnitee of notice of the commencement of, or the threat of commencement of,
any Proceeding, the Indemnitee shall, if the Indemnitee believes that
indemnification with respect thereto may be sought from the Company under this
Agreement, notify the Company of the commencement or threat of commencement
thereof.
Section 7.2 Notice to Insurers. If, at the time of the receipt of a
notice of the commencement of a Proceeding pursuant to Section 7.1 hereof, the
Company has D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such Proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such Proceeding in
accordance with the terms of such policies.
Section 7.3 Assumption of Defense. If the Company shall be obligated to
pay the Expenses of any Proceeding against the Indemnitee, the Company, if
appropriate, shall be entitled to assume the defense of such Proceeding, with
counsel approved by the Indemnitee, upon the delivery to the Indemnitee of
written notice of its election so to do. After delivery of such notice, approval
of such counsel by the Indemnitee and the retention of such counsel by the
Company, the Company will not be liable to the Indemnitee under this Agreement
for any fees of counsel subsequently incurred by the Indemnitee with respect to
the same Proceeding, provided that: (i) the Indemnitee shall have the right to
employ his counsel in any such Proceeding at the Indemnitee's expense; and (ii)
if (A) the employment of counsel by the Indemnitee has been previously
authorized by the Company, (B) the Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and the Indemnitee
in the conduct of any such defense or (C) the Company shall not, in fact, have
employed counsel to assume the defense of such Proceeding, the fees and expenses
of Indemnitee's counsel shall be at the expense of the Company.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
Section 8.1 Appeal of Proceeding. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding referred to
in Sections 4.1, 4.2, or 4.3 of this Agreement or in the defense of
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any claim, issue or matter described therein, the Company shall indemnify the
Indemnitee against Expenses actually and reasonably incurred by him/her in
connection with the investigation, defense, or appeal of such Proceeding.
Section 8.2 No Indemnification. In the event that Section 8.1 is
inapplicable, the Company shall also indemnify the Indemnitee unless, and only
to the extent that, the Company shall prove by clear and convincing evidence to
a forum listed in Section 8.3 below that the Indemnitee has not met the
applicable standard of conduct required to entitle the Indemnitee to such
indemnification.
Section 8.3 Selection of Forum. The Indemnitee shall be entitled to
select the forum in which the validity of the Company's claim under Section 8.2
hereof that the Indemnitee is not entitled to indemnification will be heard from
among the following: (a) A quorum of the Board consisting of directors who are
not parties to the proceeding for which indemnification is being sought; (b) The
shareholders of the Company; (c) Legal counsel selected by the Indemnitee, and
reasonably approved by the Board, which counsel shall make such determination in
a written opinion; or (d) A panel of three arbitrators, one of whom is selected
by the Company, another of whom is selected by the Indemnitee and the last of
whom is selected by the first two arbitrators so selected.
Section 8.4 Submission of Claim. As soon as practicable, and in no
event later than 30 days after written notice of the Indemnitee's choice of
forum pursuant to Section 8.3 above, the Company shall, at its own expense,
submit to the selected forum in such manner as the Indemnitee or the
Indemnitee's counsel may reasonably request, its claim that the Indemnitee is
not entitled to indemnification; and the Company shall act in the utmost good
faith to assure the Indemnitee a complete opportunity to defend against such
claim.
Section 8.5 Binding Judgment. If the forum listed in Section 8.3 hereof
selected by Indemnitee determines that Indemnitee is entitled to indemnification
with respect to a specific Proceeding, such determination shall be final and
binding on the Company. If the forum listed in Section 8.3 hereof selected by
Indemnitee determines that Indemnitee is not entitled to indemnification with
respect to a specific Proceeding, the Indemnitee shall have the right to apply
to the court in which that Proceeding is or was pending or any other court of
competent jurisdiction, for the purpose of enforcing the Indemnitee's right to
indemnification pursuant to this Agreement.
Section 8.6 Interpretation of Agreement. Notwithstanding any other
provision in this Agreement to the contrary, the Company shall indemnify the
Indemnitee against all Expenses incurred by the Indemnitee in connection with
any Proceeding under this Section 8 involving the Indemnitee and against all
Expenses incurred by the Indemnitee in connection with any other Proceeding
between the Company and the Indemnitee involving the interpretation or
enforcement of the rights of the Indemnitee under this Agreement unless a court
of competent jurisdiction finds that each of the claims and/or defenses of the
Indemnitee in any such Proceeding was frivolous or made in bad faith.
9. LIMITATION OF ACTIONS AND RELEASE OF CLAIMS. No Proceeding shall be
brought and no cause of action shall be asserted by or on behalf of the Company
or any Subsidiary against the Indemnitee, Indemnitee's spouse, heirs, estate,
executors or administrators after the expiration of one year from the act or
omission of the Indemnitee upon which such Proceeding is based; however, in a
case where the Indemnitee fraudulently conceals the facts underlying such cause
of action, no Proceeding shall be brought and no cause of action shall be
asserted after the expiration of one year from the earlier of: (i) the date the
Company or any Subsidiary of the Company discovers such facts; or (ii) the date
the Company or any Subsidiary of the Company could have discovered such facts by
the exercise of reasonable diligence. Any claim or cause of action of the
Company or any Subsidiary of the Company, including claims predicated upon the
negligent act or omission of the Indemnitee, shall be extinguished and deemed
released unless asserted by filing of a legal action within such period. This
Section 9 shall not apply to any cause of action which has accrued on the date
hereof and of which the Indemnitee is aware on the date hereof, but as to which
the Company has no actual knowledge apart from the Indemnitee's knowledge.
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10. EXCEPTIONS. Any other provisions herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
Section 10.1 Claims Initiated by Indemnitee. To indemnify or advance
expenses to the Indemnitee with respect to Proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
respect to Proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise as
required under Section 317 but such indemnification or advancement of Expenses
may be provided by the Company in specific cases if the Board finds it to be
appropriate; or
Section 10.2 Lack of Good Faith. To indemnify the Indemnitee for any
Expenses incurred by the Indemnitee with respect to any Proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such Proceeding was made in bad faith or was frivolous; or
Section 10.3 Unauthorized Settlements. To indemnify the Indemnitee
under this Agreement for any amounts paid in settlement of a Proceeding effected
within seven calendar days after delivery by the Indemnitee to the Company of
the notice provided for in Section 7.1 hereof, unless the Company consents to
such settlement.
11. NON-EXCLUSIVITY. The provisions for indemnification and advancement of
Expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Articles of Incorporation or Bylaws, the vote of the Company's shareholders or
disinterested directors, other agreements, or otherwise, both as to action in
Indemnitee's official capacity and to action in another capacity while occupying
the position as an Agent of the Company, and the Indemnitee's rights hereunder
shall continue after the Indemnitee has ceased acting as an Agent of the Company
and shall inure to the benefit of the heirs, executors and administrators of the
Indemnitee.
12. INTERPRETATION OF AGREEMENT. It is understood that the parties hereto
intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.
13. SEVERABILITY. If any provision or provisions of this Agreement shall be
held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the
validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 12 hereof.
14. MODIFICATION AND WAIVER. 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 provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
15. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall bind, and
shall inure to the benefit of, the successors and assigns of the parties hereto.
16. NOTICE. All notices, requests, demand and other communications under
this Agreement shall be in writing and shall be deemed duly given: (i) if
delivered by hand and receipted for by the party addressee; or (ii) if mailed by
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certified or registered mail with postage prepaid, on the third business day
after the mailing date. Address for notice to either party are as shown on the
signature pages of this Agreement, or as subsequently modified by written
notice.
17. GOVERNING LAW. This Agreement shall be governed exclusively by and
construed according to the laws of the State of California, as applied to
contracts between California residents entered into and to be performed entirely
within California.
18. CONSENT TO JURISDICTION. The Company and the Indemnitee each hereby
irrevocably consent to the jurisdiction of the state and federal courts in the
State of California for all purposes in connection with any action or proceeding
which arises out of or relates to this Agreement and agree that any action
instituted under this Agreement shall be brought only in the state or federal
courts in the State of California.
IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first above written.
ENOVA SYSTEMS. INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
INDEMNITEE
__________________________________
[NAME OF DIRECTOR]
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