1
EXHIBIT 10.4
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (this "Agreement"), is made and entered into as of this
_____ day of ______________, 1999, between Quest Software, Inc., a California
corporation (the "Corporation"), and ____________________ ("Indemnitee").
WHEREAS, Indemnitee, as a member of the Board of Directors and/or an
officer of the Corporation, performs a valuable service in such capacity for the
Corporation;
WHEREAS, the Articles of Incorporation and Bylaws of the Corporation
authorize and permit contracts between the Corporation and a member of its Board
of Directors or officers with respect to indemnification of such individuals;
WHEREAS, in accordance with the authorization as provided by the
California General Corporation Law, as amended ("Code"), the Corporation may
purchase and maintain a policy or policies of Directors' and Officers' Liability
Insurance ("D & O Insurance"), covering certain liabilities which may be
incurred by Indemnitee in his or her performance as a director or officer of the
Corporation;
WHEREAS, as a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded members of the Board of Directors and officers of
the Corporation by such D & O Insurance and by statutory and bylaw
indemnification provisions; and
WHEREAS, in recognition of past services and in order to induce
Indemnitee to continue to serve as an officer and/or a director of the
Corporation, the Corporation has determined and agreed to enter into this
Agreement with Indemnitee.
NOW, THEREFORE, in consideration of Indemnitee's service as a director
and/or officer, the parties hereto agree as follows:
1. Indemnity of Indemnitee. The Corporation hereby agrees to hold
harmless and indemnify Indemnitee to the fullest extent authorized or permitted
by the provisions of the Code, as it may be amended from time to time.
2. Additional Indemnity. Subject only to the limitations set forth in
Section 3 hereof, the Corporation hereby further agrees to hold harmless and
indemnify Indemnitee:
a. against any and all expenses (including attorneys' fees), witness
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by Indemnitee in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of the Corporation) to
which Indemnitee is, was, or at any time becomes a party, or is threatened to be
made a party, by reason of the fact that Indemnitee is, was, or at any time
becomes a director, officer, employee or agent of the Corporation, or is or was
serving or at any time serves at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise; and
2
b. otherwise to the fullest extent as may be provided to Indemnitee
by the Corporation under the Articles of Incorporation of the Corporation and
the Code.
3. Limitations on Additional Indemnity.
a. No indemnity pursuant to Section 2 hereof shall be paid by the
Corporation for any of the following:
(i) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which Indemnitee is indemnified
pursuant to Section 1 hereof or pursuant to any D & O Insurance purchased and
maintained by the Corporation;
(ii) in respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(iii) on account of Indemnitee's acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law;
(iv) on account of any action, claim or proceeding initiated by
Indemnitee unless such action, claim or proceeding was authorized in the
specific case by action of the Board of Directors;
(v) on account of Indemnitee's conduct which is the subject of an
action, suit or proceeding described in Section 7(c)(ii) hereof; or
(vi) if a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification is not lawful (and, in this
respect, both the Corporation and Indemnitee have been advised that the
Securities and Exchange Commission believes that indemnification for liabilities
arising under the federal securities laws is against public policy and is,
therefore, unenforceable and that claims for indemnification should be submitted
to appropriate courts for adjudication).
b. In addition to those limitations set forth above in paragraph (a)
of this Section 3, no indemnity pursuant to Section 2 hereof in an action by or
in the right of the Corporation shall be paid by the Corporation for any of the
following:
(i) on account of acts or omissions that Indemnitee believes to be
contrary to the best interests of the Corporation or its shareholders or that
involve the absence of good faith on the part of Indemnitee;
(ii) with respect to any transaction from which Indemnitee derived
an improper personal benefit;
(iii) on account of acts or omissions that show a reckless
disregard for Indemnitee's duty to the Corporation or its shareholders in
circumstances in which
2
3
Indemnitee was aware, or should have been aware, in the ordinary course of
performing such Indemnitee's duties, of a risk of serious injury to the
Corporation or its shareholders;
(iv) on account of acts or omissions that constitute an unexcused
pattern of inattention that amounts to an abdication of Indemnitee's duty to the
corporation or its shareholders;
(v) to the extent prohibited by Section 310 of the California
Corporations Code, "Contracts In Which Indemnitee Has Material Financial
Interest";
(vi) to the extent prohibited by Section 316 of the California
Corporations Code, "Corporate Actions Subjecting Directors To Joint And Several
Liability" (for prohibited distributions, loans and guarantees);
(vii) in respect of any claim, issue or matter as to which
Indemnitee shall have been adjudged to be liable to the Corporation in the
performance of Indemnitee's duty to the Corporation and its shareholders, unless
and only to the extent that the court in which such proceeding is or was pending
shall determine upon application that, in view of all the circumstances of the
case, Indemnitee is fairly and reasonably entitled to indemnity for expenses and
then only to the extent that the court shall determine;
(viii) of amounts paid in settling or otherwise disposing of a
pending action without court approval; or
(ix) of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
4. Contribution. If the indemnification provided in Sections 1 and 2
hereof is unavailable and may not be paid to Indemnitee by reason of a Court
decision described in subsection 3(a)(vi) hereof based on grounds other than any
of those set forth in subsections 3(a)(ii) through (v) hereof or in subsections
3(b)(i) through (vi) hereof, then in respect of any threatened, pending or
completed action, suit or proceeding in which the Corporation is jointly liable
with Indemnitee (or would be if joined in such action, suit or proceeding), the
Corporation shall contribute to the amount of expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by Indemnitee in such proportion as is appropriate
to reflect (i) the relative benefits received by the Corporation on the one hand
and Indemnitee on the other hand from the transaction from which such action,
suit or proceeding arose, and (ii) the relative fault of the Corporation on the
one hand and of Indemnitee on the other hand in connection with the events which
resulted in such expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the
Corporation on the one hand and of Indemnitee on the other hand shall be
determined by reference to, among other things, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent the
circumstances resulting in such expenses, judgments, fines or settlement
amounts. The Corporation agrees that it would not be just and equitable if
contribution pursuant to this Section 4 were determined by pro rata allocation
or any other method of allocation which does not take account of the foregoing
equitable considerations.
3
4
5. Continuation of Obligations. All agreements and obligations of the
Corporation contained herein shall continue during the period Indemnitee is a
director, officer, employee or agent of the Corporation (or is or was serving at
the request of the Corporation as a director, officer employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise) and shall continue thereafter so long as Indemnitee shall be
subject to any possible claim or threatened, pending or completed action, suit
or proceeding, whether civil, criminal or investigative, by reason of the fact
that Indemnitee was an officer or director of the Corporation or serving in any
other capacity referred to herein.
6. Notification and Defense of Claim. Not later than thirty (30) days
after receipt by Indemnitee of notice of the commencement of any action, suit or
proceeding, Indemnitee will, if a claim in respect thereof is to be made against
the Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Indemnitee otherwise than under this
Agreement. With respect to any such action, suit or proceeding as to which
Indemnitee notifies the Corporation of the commencement thereof:
a. the Corporation will be entitled to participate therein at its own
expense;
b. except as otherwise provided below, to the extent that it may
wish, the Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee. After notice from the Corporation to Indemnitee of
its election to assume the defense thereof, the Corporation will not be liable
to Indemnitee under this Agreement for any legal or other expenses subsequently
incurred by Indemnitee in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below. Indemnitee
shall have the right to employ its counsel in such action, suit or proceeding
but the fees and expenses of such counsel incurred after notice from the
Corporation of its assumption of the defense thereof shall be at the expense of
Indemnitee unless (i) the employment of counsel by Indemnitee has been
authorized by the Corporation, (ii) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Corporation and Indemnitee
in the conduct of the defense of such action or (iii) the Corporation shall not
in fact have employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of Indemnitee's separate counsel shall be at
the expense of the Corporation. The Corporation shall not be entitled to assume
the defense of any action, suit or proceeding brought by or on behalf of the
Corporation or as to which Indemnitee shall have made the conclusion provided
for in (ii) above; and
c. the Corporation shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Corporation shall be permitted to
settle any action except that it shall not settle any action or claim in any
manner which would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent. Neither the Corporation nor Indemnitee will
unreasonably withhold its consent to any proposed settlement.
4
5
7. Advancement and Repayment of Expenses.
a. In the event that Indemnitee employs his own counsel pursuant to
Section 6(b)(i) through (iii) above, the Corporation shall advance to
Indemnitee, prior to any final disposition of any threatened or pending action,
suit or proceeding, whether civil, criminal, administrative or investigative,
any and all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving copies of invoices presented to Indemnitee for such
expenses; and
b. Indemnitee agrees that Indemnitee will reimburse the Corporation
for all reasonable expenses paid by the Corporation in defending any civil or
criminal action, suit or proceeding against Indemnitee in the event and only to
the extent it shall be ultimately determined by a final judicial decision (from
which there is no right of appeal) that Indemnitee is not entitled, under
applicable law, the Bylaws, this Agreement or otherwise, to be indemnified by
the Corporation for such expenses.
c. Notwithstanding the foregoing, the Corporation shall not be
required to advance such expenses to Indemnitee if Indemnitee (i) commences any
action, suit or proceeding as a plaintiff unless such advance is specifically
approved by a majority of the Board of Directors or (ii) is a party to an
action, suit or proceeding brought by the Corporation and approved by a majority
of the Board of Directors which alleges willful misappropriation of corporate
assets by Indemnitee, disclosure of confidential information in violation of
Indemnitee's fiduciary or contractual obligations to the Corporation, or any
other willful and deliberate breach in bad faith of Indemnitee's duty to the
Corporation or its shareholders.
8. Indemnification for Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of his
position as an officer and/or director of the Corporation, called as a witness
in any action, suit or proceeding to which Indemnitee is not a party, he shall
be indemnified against all expenses actually and reasonably incurred by him or
on his behalf in connection therewith.
9. Enforcement. In the event Indemnitee is required to bring any action
to enforce rights or to collect moneys due under this Agreement and is
successful in such action, the Corporation shall reimburse Indemnitee for all of
Indemnitee's reasonable fees and expenses in bringing and pursuing such action.
10. Subrogation. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. Non-Exclusivity of Rights. The rights conferred on Indemnitee by
this Agreement shall not be exclusive of any other right which Indemnitee may
have or hereafter acquire under any statute, provision of the Corporation's
Articles of Incorporation or Bylaws, agreement, vote of shareholders or
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office.
5
6
12. Survival of Rights. The rights conferred on Indemnitee by this
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee or other agent of the Corporation and shall inure to the benefit of
Indemnitee's heirs, executors and administrators.
13. Severability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof.
14. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of California.
15. Binding Effect. This Agreement shall be binding upon Indemnitee and
upon the Corporation, its successors and assigns, and shall inure to the benefit
of Indemnitee, his heirs, personal representatives and assigns and to the
benefit of the Corporation, its successors and assigns.
16. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
6
7
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement on and as of the day and year first above written.
QUEST SOFTWARE, INC.
By
----------------------------------
Name:
Title:
INDEMNITEE
-------------------------------------
Name:
7