Exhibit 10.5
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement"), effective as of
April , 1997, between Telegroup, Inc., an Iowa corporation (the
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"Company"), and (the "Indemnitee").
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Whereas, Indemnitee is a director or 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 of
public companies;
Whereas, the Company's Second Restated Articles of Incorporation (the
"Articles") and Amended and Restated ByLaws ("ByLaws") require the Company to
indemnify its directors and officers to the full extent permitted by law and
Indemnitee serves as a director or officer of the Company in reliance on such
Articles and ByLaws;
Whereas, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service
to the Company in an effective manner, and Indemnitee's reliance on the
aforesaid Articles and ByLaws, and to provide Indemnitee with specific
contractual assurance that the protection afforded by such Articles and ByLaws
will be available to Indemnitee (regardless of, among other things, any
amendment to or revocation of such Articles or ByLaws or any change in the
composition of the Board of Directors of the Company (the "Board") or
acquisition transaction relating to the Company), 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 and 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's
service to the Company, directly or indirectly, and intending to be legally
bound hereby, the parties hereto agree as follows:
1. Certain Definitions
(a) Approved Legal Counsel: shall mean any law firm having
100 or more attorneys and rated "av" by Xxxxxxxxxx-Xxxxxxx Law Directory;
provided that such law firm shall not, for a five-year period prior to the
Indemnifiable Event, have been engaged by the Company, the Acquiring Person or
the Indemnitee.
(b) Change in Control: shall be deemed to have occurred if
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than
(x) Xxxxxxxx Xxxx, Xxxx Xxxxxxx, and Xxxxxxx Xxxxxxx (collectively, the
"Principals"), or (y) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company in substantially the same proportions as
their ownership of common stock of the Company, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding Voting Securities
(such person being referred to herein as an "Acquiring Person"), or (ii)
during any period of two consecutive years, individuals who at the beginning
of such period constitute the Board and any new director whose election by the
Board or nomination for election by the Company's stockholders was approved by
a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the shareholders of the Company
approve a merger or consolidation of the Company with any other corporation,
partnership, unincorporated association or other entity, other than a merger
or consolidation which would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the combined voting power of the Voting
Securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or (iv) the shareholders of the Company
approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company (in one transaction or a series of
transactions) of all or substantially all the Company's assets.
(c) Claim: shall mean 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 any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or otherwise and whether formal or informal.
(d) Expenses: shall include attorneys' fees and all other
costs, expenses and obligations paid or incurred by Indemnitee in connection
with investigating, preparing for and defending, responding to or
participating in the defense of or response to (including an appeal) any Claim
relating to any Indemnifiable Event actually and reasonably incurred by
Indemnitee.
(e) Indemnifiable Event: shall mean 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, partner, employee, trustee, agent or fiduciary
of another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, or by reason of anything done or
not done by Indemnitee in any such capacity.
(f) IBCA: shall mean the Iowa Business Corporation Act.
(g) Potential Change In 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 in Control; (ii) any person
(including the Company) publicly announces an intention to take or to consider
taking actions which if consummated would constitute a Change in Control;
(iii) any person, other than the Principals or a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, who is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of the Company's
then outstanding Voting Securities, increases his beneficial ownership of such
securities by five percentage points (5%) or more over the percentage so owned
by such person; or (iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(h) Reviewing Party: shall be (i) the Board acting by quorum
consisting of directors who are not parties to the particular Claim with
respect to which Indemnitee is seeking indemnification, or (ii), if such a
quorum is not obtainable or, even if obtainable, if a quorum of disinterested
directors so directs, (A) the Board upon the written opinion of independent
legal counsel that indemnification is proper in the circumstances because the
applicable standard of conduct set forth in Section 490.851 of the IBCA has
been met by the Indemnitee or (B) the shareholders upon a finding that the
Indemnitee has met the applicable standard of conduct referred to in clause
(ii)(A) of this definition.
(i) Voting Securities: shall mean, with respect to a
corporation, securities of any class or series generally entitled to vote on
the election of its directors and, with respect to any other entity, any
equity interest generally entitled to vote on the election of the governing
body of such entity.
2. Indemnification. In the event Indemnitee was, is or becomes a
party to, or a witness or other participant in, or is threatened to be made a
party to, or a witness or other participant in, a Claim by reason of (or
arising in part out of) an Indemnifiable Event, the Company shall indemnify
Indemnitee and hold Indemnitee harmless, to the full extent permitted by law
as soon as practicable but in any event no later than ten days after written
demand is presented to the Company, from and against any and all Expenses,
judgments, fines, (including, excise taxes assessed Indemnitee with respect to
an employee benefit plan) penalties and amounts paid in settlement (including
all interest, assessments and other charges paid or payable in connection with
or in respect of such judgments, fines or penalties) of such Claim.
3. Expense Advances. If so requested by Indemnitee, the Company
shall advance (within four days after written demand is presented to the
Company) any and all such Expenses to Indemnitee; provided, however, that if,
when and to the extent 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 and undertakes
to reimburse the Company to the full extent required by Section 490.853 of the
IBCA) for all such amounts theretofore paid and the Company shall cease to
advance Expenses (unless Indemnitee has commenced or thereafter commences
legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, in
which event Indemnitee shall be entitled to have his Expenses advanced and
shall not be required to so reimburse the Company until a final judicial
determination requiring such reimbursement is made with respect thereto as to
which all rights of appeal therefrom have been exhausted or lapsed).
4. Payment. Notwithstanding the provisions of Section 2 hereof, the
obligations of the Company under Section 2 shall be subject to the condition
that the Reviewing Party shall have determined in the specific case that
indemnification of Indemnitee is proper under the applicable standard of
conduct set forth in applicable law. The Company shall promptly call a
meeting of the Board with respect to a Claim relating to an Indemnifiable
Event and agrees to use its best efforts to facilitate a prompt determination
by the Reviewing Party with respect to any such Claim. Indemnitee shall be
afforded the opportunity to make submissions to the Reviewing Party with
respect to any such Claim. If, by the expiration of the applicable written
demand periods set forth in Sections 2 and 3 hereof, Indemnitee has not been
indemnified or received Expense advances or the Reviewing Party determines
that Indemnitee would not be permitted to be indemnified or be entitled to
Expense advances in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation seeking from the court a finding that
Indemnitee is entitled to indemnification and Expense advances or enforcement
of Indemnitee's entitlement to indemnification and Expense advances or
challenging any determination by the Reviewing Party or any aspect thereof
that Indemnitee is not entitled to be indemnified or receive Expense advances;
any determination by the Reviewing Party otherwise shall be conclusive and
binding on the Company and Indemnitee. Indemnitee agrees to bring any such
litigation in any court in the State of Iowa having subject matter
jurisdiction thereof and in which venue is proper, and the Company hereby
consents to service of process and to appear in any such proceeding.
5. 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 Board who were directors immediately prior to
such Change in Control) then all determinations by the Company concerning the
rights of Indemnitee to indemnity payments and Expense advances under this
Agreement or any other agreement or the Articles or ByLaws now or hereafter in
effect relating to Claims for Indemnifiable Events: (i) arising prior to or
concurrently with such Change in Control shall be made pursuant to subsections
(2)(a), (b) or (c) of Section 490.855 of the IBCA; and (ii) arising after such
Change in Control shall be made pursuant to subsection (2)(c) of Section
490.855 of the IBCA. In the event that the Company elects or is required
(pursuant to this Section 5) to make an indemnification determination pursuant
to subsection (2)(c) of Section 490.855 of the IBCA, the Company (and the
Board) shall seek legal advice from (and only from) special, independent
counsel selected by Indemnitee and approved by the Company (which approval
shall not be unreasonably withheld or delayed). Unless Indemnitee has
selected counsel pursuant to this Section 5 and such counsel has been approved
by the Company (which approval shall not be unreasonably withheld or delayed),
the Approved Legal Counsel shall be deemed to satisfy the requirements set
forth above. Such counsel, among other things, shall determine whether and to
what extent Indemnitee is permitted to be indemnified, is entitled to Expense
advances under applicable law, or is obligated to reimburse the Company for
Expenses advanced and shall render its written opinion to the Company and
Indemnitee to such effect. The Company agrees to pay the reasonable fees and
expenses of the special, independent counsel referred to above and to fully
indemnify such counsel and hold such counsel harmless from and against any and
all expenses (including attorneys' fees), claims, liabilities and damages
arising out of or relating to this Agreement or its engagement pursuant hereto
except for willful misconduct or gross negligence.
6. Potential Change in Control. In the event of a Potential Change
in Control which has not ceased to exist, the Company shall, upon written
request by Indemnitee, create a trust for the benefit of Indemnitee and from
time to time upon written request of Indemnitee shall fund such trust in an
amount sufficient to satisfy any and all Expenses reasonably anticipated at
the time of each such request to be incurred in connection with investigating,
preparing for, responding to, defending or participating in the defense of or
response to any Claim relating to an Indemnifiable Event, and any and all
judgments, fines, penalties and settlement amounts of any and all Claims
relating to an Indemnifiable Event from time to time actually paid or claimed,
reasonably anticipated or proposed to be paid. The amount or amounts to be
deposited in the trust pursuant to the foregoing funding obligation shall be
determined by the Reviewing Party, in any case in which the independent legal
counsel referred to above is involved. The terms of the trust shall provide
that upon a Change in Control (i) the trust shall not be revoked or the
principal thereof invaded, without the express prior written consent of
Indemnitee, (ii) the trustee shall advance, within four days of a request by
Indemnitee, any and all Expenses to Indemnitee (and Indemnitee hereby agrees
to reimburse the trust under the circumstances under which Indemnitee would be
required to reimburse the Company under Section 3 of 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 shall promptly pay to
Indemnitee amounts for which Indemnitee shall be entitled to indemnification
pursuant to this Agreement or otherwise, and (v) all unexpended funds in such
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 shall be a bank organized under the laws of the United States of
America or of any state and having a combined capital surplus of at least
$50,000,000 and shall be chosen by Indemnitee. Nothing in this Section 6
shall relieve the Company of any of its obligations under this Agreement.
7. Assumption of Defense. In the event the Company shall be
obligated hereunder to pay Expenses of any action, suit or proceeding against
or otherwise involving or affecting Indemnitee, the Company shall be entitled
to assume the defense thereof, with counsel approved by Indemnitee (such
approval not to be unreasonably withheld or delayed) upon the delivery to
Indemnitee of written notice of its election to do so. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under
this Agreement for any fees or expenses of counsel subsequently incurred by
Indemnitee with respect to the same matter; provided that (i) Indemnitee
shall have the right to employ separate counsel in any such proceeding at
Indemnitee's expense and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded, upon the advice of independent legal counsel, that there
may be a conflict of interest between the Company and 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, then the Company
shall pay the reasonable fees and expenses of Indemnitee's counsel; provided
that the Company's obligation shall be limited to the fees and expenses of one
law firm for Indemnitee.
8. Indemnification of Additional Expenses. The Company shall
indemnify Indemnitee and hold Indemnitee harmless from and against any and all
expenses (including reasonable attorneys' fees and expenses) and, if requested
by Indemnitee, shall (within four days of such request) advance such expenses
to Indemnitee, which are incurred by Indemnitee in connection with any claim
asserted or action brought by Indemnitee for (i) indemnification or advance
payment of Expenses by the Company under this Agreement or any other agreement
or the Articles or ByLaws 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
the Indemnitee ultimately is determined to be entitled to such
indemnification, advance payment of Expenses or insurance recovery, as the
case may be.
9. 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, Indemnitee shall be indemnified and held harmless
from and 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.
10. 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 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 Indemnitee is not entitled to indemnification or expense
advances or that indemnification or expense advances are not permitted by
applicable law. In addition, neither the failure of the Reviewing Party to
have made a determination as to whether Indemnitee has met any particular
standard of conduct or had any particular belief, nor an actual determination
by the Reviewing Party that Indemnitee has not met such standard of conduct or
did not have such belief, prior to the commencement of legal proceedings by
Indemnitee to secure a judicial determination that Indemnitee should be
indemnified under applicable law, shall be a defense to Indemnitee's claim or
create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief.
11. Nonexclusivity. The rights of Indemnitee hereunder shall be in
addition to any other rights Indemnitee may have under the Company's Articles
or ByLaws as in effect on the date of this Agreement or the IBCA or otherwise.
To the extent a change in the IBCA (whether by statute or judicial decision)
permits greater indemnification by agreement than would be afforded currently
under the Company's Articles, 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.
12. Notification; Period of Limitations. Indemnitee shall promptly
notify the Company in writing of the institution of any action, suit,
proceeding, inquiry or investigation that is or may be subject to this
Agreement. Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within Indemnitee's power. No
legal action under this Agreement shall be brought and no cause of action
under this Agreement shall be asserted by or in the right of the Company
against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company under
this Agreement shall be extinguished and deemed released unless asserted by
the timely filing of a legal action within such two-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.
13. 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 or officer.
14. 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 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.
15. 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.
16. 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, the Company's Articles or ByLaws or
otherwise) of the amounts otherwise indemnifiable hereunder.
17. Specific Performance. The Company recognizes that if any
provision of this Agreement is violated by the Company, Indemnitee may be
without an adequate remedy at law. Accordingly, in the event of any such
violation, the Indemnitee shall be entitled, if Indemnitee so elects, to
institute proceedings, either in law or at equity, to obtain damages, to
enforce specific performance, to enjoin such violation, or to obtain any
relief or any combination of the foregoing as Indemnitee may elect to pursue.
18. 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
purchase, merger, consolidation or otherwise to all or substantially all of
the business and/or assets of the Company, spouses, heirs, executors 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.
19. 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.
20. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Iowa applicable to
contracts made and to be performed exclusively in such state, but excluding
any conflicts of law, rule or principle which might refer such governance,
construction or enforcement to the laws of another state or country.
IN WITNESS WHEREOF, the Company and Indemnitee have caused this
Agreement to be executed as of the date first above written.
TELEGROUP, INC.
By:
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Name:
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Title:
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INDEMNITEE
By:
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Name:
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Title:
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