INDEMNIFICATION AGREEMENT
AGREEMENT, dated as of November 21, 1996, by and between Xxxxxxx Medical
Management Holdings Corporation, a Delaware corporation (the "Company"), and
________________ (the "Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as directors
and officers the most capable persons available; and
WHEREAS, the Indemnitee is an officer and/or director of the Company; and
WHEREAS, both the Company and the Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment; and
WHEREAS, the Bylaws of the Company require the Company to indemnify and
advance expenses to its directors and officers and to persons who serve at the
request of the Company as directors and officers of another corporation to the
full extent permitted by law and the Indemnitee has been serving and continues
to serve at the request of the Company, as a director and/or officer of the
Company in part in reliance on such Bylaws; and
WHEREAS, in recognition of the Indemnitee's need for substantial protection
against personal liability in order to enhance the Indemnitee's continued
service to the Company in an effective manner, the increasing difficulty in
obtaining satisfactory director and officer liability insurance coverage and the
Indemnitee's reliance on the aforesaid Bylaws, and in part to provide the
Indemnitee with specific contractual assurance that the protection promised by
such Bylaws will be available to the Indemnitee (regardless of, among other
things, any amendment to or revocation of such Bylaws or any change in the
composition of the Company's Board of Directors 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 the Indemnitee to the
fullest 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 the Indemnitee under the Company's directors' and officers'
liability insurance policies.
NOW, THEREFORE, in consideration of the premises and of the Indemnitee
continuing to serve the Company directly or, at its request, another enterprise,
and intending to be legally bound hereby, the parties hereto agree as follows:
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1. CERTAIN DEFINITIONS:
(a) "CHANGE IN CONTROL" shall be deemed to have occurred if (1) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than (i) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, (ii) a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
or (iii) FHP International Corporation ("FHP"), if FHP as a result of the rights
offering to purchase the Company's Common Stock being made in connection with
PacifiCare Health Systems, Inc.'s acquisition of FHP and more fully described in
the Form S-1 Registration Statement filed with the Securities and Exchange
Commission on December 11, 1996, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing 20% or more of the total voting power represented by
the Company's then outstanding Voting Securities; (2) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors 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 of whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or (3) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
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 total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all the Company's assets.
(b) "CLAIM" shall mean any threatened, pending or completed action,
suit or proceeding, or any inquiry or investigation, whether instituted by the
Company or any other party, that the Indemnitee in good faith believes might
lead to the institution of any such action, suit or proceeding, whether civil,
criminal, administrative, investigative or other.
(c) "EXPENSES" shall 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" shall mean any event or occurrence related
to the fact that the 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 the Indemnitee in any
such capacity.
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(e) "INDEPENDENT LEGAL COUNSEL" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 3, who shall
not have otherwise performed services for the Company or the Indemnitee within
the last five years (other than with respect to matters concerning the rights of
the Indemnitee under this Agreement, or of other indemnities under similar
indemnity agreements).
(f) "POTENTIAL CHANGE IN CONTROL" shall be deemed to have occurred if
(1) the Company enters into an agreement, the consummation of which would result
in the occurrence of a Change in Control; (2) 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; (3) any person, other than (i)
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company, (ii) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, (iii) FHP, if FHP as a result of the rights
offering to purchase the Company's Common Stock being made in connection with
PacifiCare Health Systems, Inc.'s acquisition of FHP and more fully described in
the Form S-1 Registration Statement filed with the Securities and Exchange
Commission on December 11, 1996, is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 15% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases by three percentage points (3%) or more over the percentage so owned
by such person; or (4) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(g) "REVIEWING PARTY" shall mean 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 who is not a party to the particular
Claim for which the Indemnitee is seeking indemnification, or Independent Legal
Counsel.
(h) "VOTING SECURITIES" shall mean any securities of the Company
which vote generally in the election of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT. (a) In the event the 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 the Indemnitee to the fullest extent permitted by law as soon as
practicable but in any event no later than thirty 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, except that no indemnification shall be made pursuant to this Agreement
for any Claim by reason of the Indemnitee's liability under Section 16(b) of the
Exchange Act or under federal or state securities laws for "xxxxxxx xxxxxxx,"
conduct that is finally adjudged as constituting active or deliberate dishonesty
or willful fraud or illegality, or conduct that is finally adjudged as producing
an unlawful personal benefit. Notwithstanding anything in this Agreement to the
contrary, prior to a Change in Control, the Indemnitee shall not be entitled to
indemnification pursuant to this Agreement in connection with any Claim
initiated by the Indemnitee (other than pursuant to
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Section 5 hereof) against the Company or any director or officer of the Company
unless the Board of Directors has authorized or consented to the initiation of
such Claim. If so requested by the Indemnitee, the Company shall advance
(within ten (10) business days of such request) any and all Expenses to the
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
Independent Legal Counsel referred to in Section 3 hereof is involved) that the
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 the Indemnitee would not be permitted
to be so indemnified under applicable law, the Company shall be entitled to be
reimbursed by the Indemnitee (who hereby agrees to reimburse the Company) for
all such amounts theretofore paid; provided, however, that if the Indemnitee has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that the Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that the
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and the 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 (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), the Reviewing Party shall be the Independent Legal Counsel
referred to in Section 3 hereof. If there has been no determination by the
Reviewing Party or if the Reviewing Party determines that the Indemnitee
substantively would not be permitted to be indemnified in whole or in part under
applicable law, the Indemnitee shall have the right to commence litigation in
any court in the States of California or Delaware having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, 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 the 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 the 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 Independent Legal Counsel selected by
the Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and the 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 Independent Legal Counsel
referred to
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above and to fully indemnify such counsel against any and all expenses
(including attorneys' fees), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant thereto.
4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in
Control, the Company shall, upon written request by the Indemnitee, create a
trust for the benefit of the Indemnitee and from time to time upon written
request of the 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 and
defending 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 written consent of the Indemnitee, (ii)
the trustee shall advance, within ten business days of a request by the
Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby
agrees to reimburse the trust under the circumstances under which the Indemnitee
would be required to reimburse the Company under Section 2(b) 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 the Indemnitee all amounts for which the 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 the Indemnitee has been fully indemnified under the terms
of this Agreement. The trustee shall be chosen by the Indemnitee; PROVIDED THAT
neither the Company nor any of its directors or officers may serve as the
trustee. Nothing in this Section 4 shall relieve the Company of any of its
obligations under this Agreement.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
the Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by the Indemnitee, shall (within ten business days of such request)
advance such expenses to the Indemnitee which are incurred by the Indemnitee in
connection with any action brought by the 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
the Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be.
6. PARTIAL INDEMNITY, ETC. If the 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 the Indemnitee for the portion thereof to
which the Indemnitee is entitled. Moreover, notwithstanding any other provision
of this
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Agreement, to the extent that the 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.
7. BURDEN OF PROOF. In connection with any determination by the
Reviewing Party or otherwise as to whether the Indemnitee is entitled to be
indemnified hereunder the burden of proof shall be on the Company to establish
that the Indemnitee is not so entitled.
8. NO PRESUMPTIONS. For purposes of this Agreement, the termination of
any claim, action, suit or proceeding, 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 the
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. In addition, neither the failure of the Reviewing
Party to have made a determination as to whether the Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that the Indemnitee has not met such
standard of conduct or did not have such belief, prior to the commencement of
legal proceedings by the Indemnitee to secure a judicial determination that the
Indemnitee should be indemnified under applicable law shall be a defense to the
Indemnitee's claim or create a presumption that the Indemnitee has not met any
particular standard of conduct or did not have any particular belief.
9. NONEXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be
in addition to any other rights the Indemnitee may have under the Company's
Bylaws or the Delaware General Corporation Law or otherwise. To the extent that
a change in the Delaware 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 the Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change.
10. LIABILITY INSURANCE. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance, the
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.
11. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against the
Indemnitee, the 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 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.
12. 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
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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.
13. 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 the 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.
14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against the
Indemnitee to the extent the Indemnitee has otherwise actually received payment
(under any insurance policy, Bylaw or otherwise) of the amounts otherwise
indemnifiable hereunder.
15. 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, 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. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation, liquidation or otherwise)
to all, substantially all, or a substantial part, of the business and/or assets
of the Company, by written agreement in form and substance satisfactory to the
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. This Agreement shall continue in effect
regardless of whether the Indemnitee continues to serve as an officer or
director of the Company or of any other enterprise at the Company's request.
16. 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) is held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable in any respect, and
the validity and enforceability of any such provision in every other respect and
of the remaining provisions hereof shall not be in any way impaired and shall
remain enforceable to the fullest extent permitted by law.
17. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
18. EFFECTIVENESS. This Agreement shall become effective only if FHP
holds less than 50% of the Company's Common Stock upon completion of the rights
offering to purchase the Company's Common Stock being made in connection with
PacifiCare Health Systems, Inc.'s acquisition of FHP and more fully described in
the Form S-1 Registration Statement filed with the Securities and Exchange
Commission on December 11, 1996.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of November 21, 1996.
XXXXXXX MEDICAL MANAGEMENT
HOLDINGS CORPORATION
By:
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Name: Xxxx X. Xxxxxxxxx
Title: President and Chief Executive Officer
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Indemnitee
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