INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made and entered into this 18th day of June,
1997 by and between the ▇▇▇▇-▇▇ Corporation, a Delaware corporation, and ▇▇▇▇-▇▇
HD, Inc., a California corporation (collectively, the "Indemnified Parties");
and Hollywood Digital, Inc., a Delaware corporation, The Palladion Limited
Partnership, a Delaware limited partnership, HDZ Digital Limited Partnership, a
Massachusetts limited partnership, Phemus Corporation, a Massachusetts
corporation, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
(each, an "Indemnitor and collectively, the "Indemnitors"), with reference to
the following facts:
A. Pursuant to that certain Agreement for the Purchase and Sale of Assets
dated June 18, 1997 (the "Purchase Agreement"), the Indemnified Parties are
purchasing from Hollywood Digital Limited Partnership, a Delaware limited
partnership (the "Seller"), all of Seller's business and assets subject to
certain liabilities of Seller as set forth in the Purchase Agreement.
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B. The delivery of this Indemnification Agreement is a condition to the
obligation of the Indemnified Parties under the Purchase Agreement.
C. Capitalized terms used in this Agreement and not defined herein shall have
the meanings ascribed to them in the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, covenants and other provisions contained in the Purchase Agreement
and herein, the parties agree as follows:
1. INDEMNIFICATION.
1.1 Subject to and in accordance with the terms and conditions of
this Agreement, each of the Indemnitors hereby severally agrees to indemnify and
hold harmless each of the Indemnified Parties, and their successors and
assignees, in respect of any damage, expense or loss (the "Losses") suffered by
the Indemnified Parties resulting from:
a. Any misrepresentation, breach of warranty or nonfulfillment
of any covenant, undertaking or agreement on the part of the
Seller or such
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Indemnitor under the Purchase Agreement or any
misrepresentation in or omission from any certificate or other
instrument furnished or to be furnished at the Closing by such
Indemnitor to the Purchaser thereunder;
b. All liabilities and obligations of and claims against the
Assets or arising from the conduct of the business of the
Seller prior to the Closing Date including all debts,
liabilities and obligations of any nature, absolute or
contingent, foreseen or unforeseen, which are attributable or
chargeable to the ownership and operation of the business of
the Seller prior to the Closing Date and which are not assumed
or paid by the Purchaser under the Purchase Agreement; and
c. All actions, suits, proceedings, demands, assessments,
judgments, costs and expenses (including interest paid thereon
and all reasonable attorneys' fees incurred) incident to the
foregoing.
1.2 The maximum aggregate liability of the Indemnitors under this
Agreement is an amount equal to one-tenth (1/10) of the
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Purchase Price (as defined in the Purchase Agreement) (the "Cap"). The maximum
liability of each Indemnitor under this Agreement is the product of (1) the Cap
and (2) a decimal fraction equal to the percentage set forth with respect to
such Indemnitor on Schedule 3.0 to the Purchase Agreement (an Indemnitor's
"Individual Cap"), except that the maximum liability of Hollywood Digital, Inc.,
the Palladion Limited Partnership, and HDZ Limited Partnership (collectively,
the "HD-Related Partners") is joint and several up to the amount of their
aggregate Individual Caps. Except as otherwise provided in Section 1.6 hereof,
the Indemnified Parties shall have the right to assert liability against any one
or more Indemnitors for any claim or claims indemnified under this Agreement, up
to the amount of such Indemnitor's Individual Cap or, in the case of an
HD-Related Partner, the aggregate of the HD-Related Partners' Individual Caps,
without regard for any rights to indemnification or contribution which such
Indemnitor may have against the other Indemnitors.
1.3. On the second anniversary of the Closing Date, the Indemnitors'
indemnification obligations provided for herein shall terminate, except with
respect to (1) any claim of which the Indemnitors have been notified prior to
the second anniversary of the Closing Date, or (2) any claim for transactional
taxes which
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are the responsibility of Seller under Section 14.2 of the Purchase Agreement (a
"Tax Claim") for which the Indemnitors have been notified within ninety (90)
days after the expiration of the statute of limitations for assessment of such
taxes.
1.4. The Indemnified Parties agree that the Indemnitors shall not be
liable for any claim under the foregoing indemnification provisions except to
the extent that the Indemnified Parties have incurred Losses for which they
would otherwise be indemnified hereunder in the aggregate amount of $100,000 or
more (the "Threshold Amount"). Once the Threshold Amount has been attained, the
Indemnified Parties will be entitled to indemnification from the Indemnitors to
the extent that the aggregate Losses exceed the Threshold Amount, subject to the
other limitations in this Article 1. Notwithstanding the foregoing, in the
event that an individual indemnifiable claim is in excess of the Threshold
Amount, the Indemnified Parties shall be fully indemnified for Losses relating
to such claim, subject to the other limitations in this Article 1.
1.5. Without limiting the Indemnified Parties' rights to recover
their claims by action, proceeding or otherwise, the Indemnified Parties shall
have the right to recover such claims by offset against any amounts owing by
either of the Indemnified
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Parties to the Indemnitors or any of them under or pursuant to the ▇▇▇▇ Notes or
other arrangement; provided, however, that as long as each of the Indemnitors is
in compliance with the retention requirement of Section 9.7 of the Purchase
Agreement, this right of offset shall apply only to claims represented by a
binding settlement or a final adjudication.
1.6. Notwithstanding anything to the contrary herein, the
Indemnified Parties shall be indemnified against any Losses arising from a Tax
Claim without regard to the Cap. Any Tax Claim which is indemnified by the
Indemnitors shall not be included in determining whether the Cap or any
Individual Cap has been attained. Each of the Indemnitors shall be severally
liable for that portion of any Tax Claim equal to the product of (1) the amount
of the Tax Claim and (2) a decimal fraction equal to the percentage set forth
with respect to such Indemnitor on Schedule 3.0 to the Purchase Agreement (and
subject to the joint and several liability of the HD-Related Partners as to
their aggregate proportionate interests).
1.7. The Indemnified Parties agree to indemnify and hold harmless
the Indemnitors against any damage, expense or loss suffered by the Indemnitor
with respect to (1) any liability or obligation attributable to the operation of
the Assets after the Closing Date, (2) any liabilities of Seller assumed by the
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Indemnified Parties pursuant to the Purchase Agreement, or (3) any breach by any
Indemnified Party of a representation, warranty or covenant contained in the
Purchase Agreement or this Indemnification Agreement. The liability of the
Indemnified Parties under this Section 1.7 shall be joint and several. The
maximum aggregate liability of the Indemnified Parties under clause (3) of the
first sentence of this Section 1.7 shall be equal to the Cap and the provisions
of Section 1.4 relating to the Threshold Amount shall also apply thereto. Any
claim under clause (3) of the first sentence of this Section 1.7 shall be
brought within the two-year period specified in Section 1.3.
1.8. In no event shall any Indemnitor be required to make payments
of any amounts under this Agreement, whether made to another Indemnitor pursuant
to Section 7 or directly to an Indemnified Party, which in the aggregate exceed
such Indemnitor's Individual Cap.
2. SETTLEMENT OF CLAIMS.
2.1. The Indemnified Parties shall use their best efforts to give
prompt notice to the Representative (as defined in Section 2.6) of claims for
which the Indemnitors would have been liable under Article 1 but for the
Threshold Amount of Section 1.4. The
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Indemnified Parties shall provide the Representative with a description of each
claim which they assert is counted against the Threshold Amount and the amount
paid or asserted in connection with such claim.
2.2. If any claim which is covered by Section 1 above is made
against the Indemnified Parties, they shall give written notice of such claim to
the Representative. The Representative shall have 10 days from the receipt of
such notice to give written notice to the Indemnified Parties of the
Indemnitors' intention to defend or dispute such claim, which notice will
acknowledge the obligation of the Indemnitors to indemnify the Indemnified
Parties against such claim. If such notice is given by the Representative
within the 10-day period, the Indemnitors shall have the right to compromise or
defend any such claim through counsel of their own choosing and at their own
expense, provided that each of the Indemnitors is in compliance with the
retention requirement of Section 9.7 of the Purchase Agreement and provides the
Indemnified Parties with evidence reasonably satisfactory to them of such
compliance. If any Indemnitor is not then in compliance with such retention
requirement, or at any time during the pendency of such claim ceases to be in
compliance with the retention requirement, then the right of Indemnitors to
compromise or defend such claim
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shall lapse unless each Indemnitor which is not in compliance shall post any
security reasonably required by the Indemnified Parties to protect them fully
from any loss or liability. For purposes of the foregoing, the value of any
security reasonably required will not exceed the maximum amount of the exposure
of the Indemnified Parties to liability in connection with such claims plus a
good faith estimate by the Indemnified Parties of reasonable attorneys' fees.
The attorney representing the Indemnified Parties in such matter and the
attorney representing the noncomplying Indemnitor(s) in such matter shall
determine the amount of the required security in accordance with the foregoing
standard. If they are unable to agree on the amount, they will appoint a third
attorney qualified to practice law in the jurisdiction in which such claim is
pending and the attorney so appointed will determine the amount of the required
security in accordance with the foregoing standard. The Indemnified Parties
agree to cooperate with the Indemnitors in the defense of any claim which the
Indemnitors have undertaken to defend under this Section 2.2. The Indemnified
Parties shall have the right to participate in any such defense, at their own
expense and through counsel of their own choosing.
2.3. Notwithstanding the foregoing provisions, the Indemnitors may
not control the settlement of a claim which
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involves (1) obtaining injunctive or other nonmonetary relief against any of the
Indemnified Parties; (2) a liability asserted against the Indemnified Parties in
excess of $6,000,000; or (3) any claim with respect to which the maximum
potential liability of the Indemnified Parties exceeds the maximum remaining
potential liability of the Indemnitors hereunder, the settlement of which claims
shall be controlled solely by the Indemnified Parties; provided, however, that
in the case of any claim which involves an asserted liability in excess of
$4,000,000 but less than $6,000,000 and is not described in clause (3) above,
the Indemnitors shall have the right to control the defense of such claim but
the consent of the Indemnified Parties shall be required (which consent may not
be unreasonably withheld) for any settlement which requires a contribution from
the Indemnified Parties. The Indemnitors shall have the right to participate in
the defense of any claim controlled by the Indemnified Parties under this
Section 2.3, at their own expense and through counsel of their own choosing.
Any settlement effected by the Indemnified Parties which involves the payment of
funds by the Indemnitors shall be an indemnifiable claim hereunder unless, in
effecting such settlement, the Indemnified Parties acted fraudulently or
oppressively with respect to the Indemnitors.
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2.4. If, within the 10-day period specified in Section 2.2, the
Representative fails to give written notice to the Indemnified Parties of the
Indemnitors' intention to defend such claim at their own expense and
acknowledging their obligation to indemnify the Indemnified Parties against such
claim, or if such notice is given but any Indemnitor required to do so fails to
post reasonable security as required by the Indemnified Parties in accordance
with Section 2.2 above or the Indemnitors fail to defend diligently and
continuously such claim, the Indemnified Parties shall have the right to
compromise or defend such claim through counsel of their own choosing, but for
the account and at the expense of the Indemnitors.
2.5. If a claim, indemnified under Article 1 which the Indemnitors
have not undertaken to defend under Section 2.2, is determined favorably to the
Indemnified Parties, they shall give notice to the Representative of the amount
of the expenses (including reasonable attorneys' fees) incurred with respect to
such claim, and each Indemnitor shall remit an amount equal to the product of
(1) such amount and (2) a decimal fraction equal to the percentage set forth
with respect to such Indemnitor on Schedule 3.0 to the Purchase Agreement to the
Indemnified Parties promptly.
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If such claim is finally determined adversely to the Indemnified Parties or if
the Indemnified Parties compromise such claim, they shall give notice to the
Representative of the amount of such claim as finally determined or compromised
(including the amount of the Indemnified Parties' costs and interest with
respect thereto and attorneys' fees, if applicable), and the Indemnitors shall
remit such amount to the Indemnified Parties promptly. Attorneys' fees and
costs and interest with respect thereto incurred by the Indemnified Parties
shall not be considered in determining whether the Cap or any Individual Cap has
been attained. References herein to costs and reasonable attorneys' fees shall
also include all costs and reasonable attorneys' fees incurred in appeals.
Notwithstanding the foregoing, attorneys' fees and costs incurred by the
Indemnified Parties in defending a claim described (i) in the first sentence of
Section 2.3 shall not be indemnifiable under this Agreement or (ii) which the
Indemnitors are not permitted to compromise or defend by operation of Section
2.2 hereof.
2.6. Whenever under this Section 2, notice is required to be given
to, or an action is required to be taken by, the Indemnitors, such notice or
action shall be deemed given to or taken by the Indemnitors and each of them if
given to or taken by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, III (the "Representative"), provided,
however, that a copy of such notice shall also be given to Phemus. The
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Representative shall be responsible for communicating with each of the
Indemnitors with respect to all matters which may arise under this Agreement,
and the Indemnified Parties shall not be responsible for providing notice to or
communicating with the Indemnitors other than through the Representative with
respect thereto. Any action taken or omitted to be taken by the Representative
under this Agreement shall be deemed to be an action or omission by the
Indemnitors and each of them, and the Indemnified Parties shall have no duty of
further inquiry of the other Indemnitors. Each of the Indemnitors hereby
irrevocably appoints the Representative its true and lawful attorney for it and
in its name, place and stead and for its use or benefit to take all actions and
execute all instruments and agreements which the Representative considers
necessary or advisable in acting for the Indemnitor pursuant to this Agreement,
agrees to be bound by any representations made or actions taken by the
Representative pursuant to this power of attorney, and waives any and all
defenses which may be available to contest, negate or disaffirm any action of
the Representative taken under this power of attorney. Notwithstanding any
provision of Article 2 hereof, no action or omission of the Representative shall
have the affect of (1) increasing the aggregate liability of any Indemnitor
hereunder above such Indemnitor's Individual Cap, without such Indemnitor's
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written consent or (2) causing any liability under this Agreement to be borne
other than pro rata in accordance with the percentages set forth in Exhibit 3.0
to the Purchase Agreement without such Indemnitor's written consent.
3. ATTORNEYS FEES. In the event of any litigation between any Indemnitor
and the Indemnified Parties in connection with a claim for indemnification made
by the Indemnified Parties hereunder, if the Indemnified Parties obtain a
judgment and are awarded damages in an amount equal to or greater than one-half
of the difference between (1) the amount of damages asserted by the Indemnified
Parties with respect to their claim and (2) the amount asserted by such
Indemnitor to be payable with respect to such claim (the "Difference"), such
Indemnitor shall be liable for and shall pay to the Indemnified Parties all
reasonable legal expenses incurred by the Indemnified Parties in prosecuting
their claim against such Indemnitor, and if the Indemnified Parties are awarded
damages of less than one-half of the Difference, with respect to their claim,
they shall be liable for and shall pay to such Indemnitor all reasonable legal
expenses incurred by such Indemnitor in defending against the claim of the
Indemnified Parties. Such expenses shall not be considered in determining
whether the Cap or any Individual Cap has been attained.
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4. DISPUTE RESOLUTION. Any controversy or claim arising out of or
relating to this Agreement, its enforcement or interpretation, shall be resolved
in accordance with the dispute resolution procedure set forth in Article 17 of
the Purchase Agreement.
5. EXCLUSIVE REMEDY. Except as provided below, notwithstanding anything
to the contrary in the Purchase Agreement or any certificate, agreement or
document delivered in connection therewith, this Agreement constitutes the sole
and exclusive remedy of the Indemnified Parties with respect to any breach by
the Seller or the Partners of the representations, warranties and covenants
contained in the Purchase Agreement, including all certificates agreements and
documents referred to therein against any of the Indemnitors or the Seller,
directly or indirectly, and each Indemnified Party hereby waives and releases
each of the Indemnitors and the Seller from, and agrees not to ▇▇▇ any of the
Indemnitors or the Seller with respect to any and all other claims and causes of
action arising therefrom including, without limitation, claims for
contributions, except for claims for indemnification under this Agreement.
Nothing contained in this Article 5 shall limit the right of any party to seek
specific
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performance or other injunctive relief against any other party or parties where
appropriate to enforce the Purchase Agreement.
6. WARRANTY, ETC. COVERAGE. To the extent that insurance or
"pass-through" warranty coverage from a manufacturer or other recovery or
reimbursement from a third party is available to the Indemnified Parties to
cover any item for which indemnification may be sought under this Agreement, the
Indemnified Parties shall exhaust all available remedies or causes of action to
recover the amount of their Losses as may be available from any other party and
shall only seek indemnification against the Indemnitors if the Indemnified
Parties fail to obtain that coverage or reimbursement or if that coverage or
reimbursement is insufficient to satisfy the Losses (and in the latter instance
shall only seek indemnity for the amount of the deficiency). To the extent that
the Indemnitors indemnify the Indemnified Parties on any claim referred to in
the previous sentence, the Indemnified Parties shall assign to the Indemnitors,
to the fullest extent allowable, the Indemnified Parties' claim against any
insurance, warranty coverage or third-party claim, or if assignment is not
permissible, the Indemnitors shall be allowed to pursue the claim in the name of
the Indemnified Parties. The Indemnitors shall be entitled to retain all
recoveries made as a result of that action up to the amount
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previously indemnified, and shall remit any excess recovery to the Indemnified
Parties. The Indemnified Parties shall make their books and records relating to
any such claim available to the Indemnitors and make the Indemnified Parties'
employees available for interviews and similar matters to assist the Indemnitors
prosecuting any such claim.
7. CONTRIBUTION. The Indemnitors agree that payments of indemnified
claims pursuant to this Agreement are intended to be made by the Indemnitors in
proportion to their respective Individual Caps. In the event that any
Indemnitor (a Paying Indemnitor) is required with respect to any indemnified
claim to pay more than such Indemnitors' proportionate share of such
indemnifiable claim, each other Indemnitor agrees to reimburse to the Paying
Indemnitor, upon demand by the Paying Indemnitor, such amount as will result in
the payment by each of the Indemnitors of their proportionate share of the
amount of the indemnified claim, PROVIDED, HOWEVER, that no Indemnitor shall be
obligated to make any payment which would cause such Indemnitor to pay
indemnified claims which in the aggregate would exceed such Indemnitor's
Individual Cap or which would cause the total amount paid by all of the
Indemnitors to exceed the Cap (except as otherwise provided in Sections 1.6, 2.5
or Article 3 of this Agreement). Any payment
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required to be made under this Section 7 shall be made within 15 business days
after the Indemnitor obligated to make payment has received a demand therefor
from a Paying Indemnitor.
8. NOTICES. All notices and other communications provided for hereunder
shall be in writing, unless otherwise specified, and shall be deemed to have
been duly given on the date of delivery if delivered personally or by facsimile
transmission, or three (3) days after the date mailed, postage prepaid,
registered or certified mail, to the following addresses or at such other
addresses as the parties hereto may designate from time to time in writing:
If to the Representative:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, III
c/o ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇, Hall & ▇▇▇▇▇▇▇
Exchange Place
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
And a copy to: Ropes & ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇, Esq.
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
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If to the Indemnified Parties:
The ▇▇▇▇-▇▇ Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
President and Chief Executive
Officer
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇▇ Glusker Fields
Claman & Machtinger LLP
1900 Avenue of the Stars, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
9. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of California applicable to agreements
made and to be performed in such jurisdiction.
10. SEVERABILITY. The invalidity or unenforceability of any provision of
the Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Indemnified Parties"
The ▇▇▇▇-▇▇ Corporation
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By:
--------------------------------
Its:
-------------------------------
▇▇▇▇-▇▇ HD, Inc.
By:
--------------------------------
Its:
-------------------------------
"Indemnitors"
Hollywood Digital, Inc.
By:
--------------------------------
Its:
-------------------------------
The Palladion Limited Partnership
By:
--------------------------------
Its:
-------------------------------
HDZ Digital Limited Partnership
By:
--------------------------------
Its:
-------------------------------
Phemus Corporation
By:
--------------------------------
Its:
-------------------------------
------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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