DIRECTOR INDEMNIFICATION
AGREEMENT
This Director
Indemnification Agreement, dated as of
___, 200___(this “ Agreement ”), is made
by and between Brush Engineered Materials Inc., an Ohio corporation
(the “ Company ”), and
(“ Indemnitee ”), who is a director of
the Company.
A. Section 1701.59
of the Ohio Revised Code (the “ORC” )
provides that the business and affairs of a corporation shall be
managed by or under the direction of its directors.
B. By virtue
of the managerial prerogatives vested in the directors of an Ohio
corporation, directors act as fiduciaries of the corporation and
its shareholders.
C. Thus, it
is critically important to the Company and its shareholders that
the Company be able to attract and retain the most capable persons
reasonably available to serve as directors of the
Company.
D. In
recognition of the need for corporations to be able to induce
capable and responsible persons to accept positions in corporate
management, ORC §1701.13(E) authorizes (and in some instances
requires) corporations to indemnify their directors, authorizes
(and sometimes requires) corporations to advance funds to pay for
expenses of its directors prior to the final disposition of an
action, suit or proceeding, and further authorizes corporations to
purchase and maintain insurance for the benefit of their
directors.
E. Indemnification
by a corporation serves the policies of (1) allowing directors
to resist unjustified lawsuits, secure in the knowledge that, if
vindicated, the corporation will bear the expense of litigation;
(2) encouraging capable women and men to serve as corporate
directors, secure in the knowledge that the corporation will absorb
the costs of defending their honesty and integrity; and
(3) allowing directors and corporations to dispose of
vexacious and distracting litigation through negotiation of
settlements.
F. The number
of lawsuits challenging the judgment and actions of corporate
directors, the costs of defending those lawsuits, and the threat to
directors’ personal assets have all materially increased over
the past several years, chilling the willingness of capable women
and men to undertake the responsibilities imposed on corporate
directors.
G. Federal
legislation and rules adopted by the Securities and Exchange
Commission and the national securities exchanges have imposed
additional disclosure and corporate governance obligations on
directors of public companies and have exposed such directors to
additional and substantially broadened civil
liabilities.
H. These
legislative and regulatory initiatives have also exposed directors
of public companies to a significantly greater risk of criminal
proceedings, with attendant defense costs and potential criminal
fines and penalties.
I. Under Ohio
law, a director’s right to be reimbursed for the costs of
defense of criminal actions, whether such claims are asserted under
state or federal law, does not depend upon the merits of the claims
asserted against the director, which are separate and distinct from
any right to indemnification the director may be able to establish,
and indemnification of the director against criminal fines and
penalties is permitted if the director satisfies the applicable
standard of conduct as a director.
J. Indemnitee
is a director of the Company and Indemnitee’s willingness to
continue to serve in such capacity is predicated, in substantial
part, upon the Company’s willingness to indemnify Indemnitee
in accordance with the principles reflected above, to the fullest
extent permitted by the laws of the state of Ohio, and upon the
other undertakings set forth in this Agreement.
K. Section 34
of the Company’s Amended and Restated Code of Regulations
(the “Regulations”) require the Company to indemnify
each director and former director of the Company to the full extent
then permitted by law. However, recent court decisions in Delaware,
while not binding on the courts of Ohio interpreting Ohio law, have
raised questions as to the ability of directors generally to rely
on such provisions following their retirement or other departure
from the board in the event that there is a subsequent amendment to
the [Regulations][Articles] that alters or eliminates the
indemnification provisions of those documents.
L. Section 36
of the Company’s Regulations provides that the Company, with
the approval of the Board of Directors may enter into agreements
with any persons that the Company may indemnify under the
Regulations, and undertake thereby to indemnify such persons and to
pay the expenses incurred by them in defending any action, suit or
proceeding against them, whether or not the Company would have
power under the law or the Articles to indemnify such
person.
M. Therefore,
in recognition of the need to provide Indemnitee with contractual
protection against personal liability, in order to procure
Indemnitee’s continued service as a director of the Company
and to enhance Indemnitee’s ability to serve the Company in
an effective manner, and in order to provide such protection
pursuant to express contract rights (intended to be enforceable
irrespective of, among other things, any amendment to the
Company’s Amended and Restated Articles of Incorporation or
the Regulations (collectively, the “ Constituent
Documents ”), any change in the composition of the
Company’s Board of Directors (the “ Board
”) or any change-in-control or business combination
transaction relating to the Company), or any change in the
director’s status through retirement or resignation, the
Company wishes to provide in this Agreement for the indemnification
of and the advancement of Expenses (as defined in
Section 1(e)) to Indemnitee as set forth in this Agreement and
for the continued coverage of Indemnitee under the Company’s
directors’ and officers’ liability insurance
policies.
N. In light
of the considerations referred to in the preceding recitals, it is
the Company’s intention and desire that the provisions of
this Agreement be construed liberally, subject to their express
terms, to maximize the protections to be provided to Indemnitee
hereunder.
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NOW, THEREFORE,
the parties hereby agree as follows:
1. Certain Definitions. In addition to terms defined
elsewhere herein, the following terms have the following meanings
when used in this Agreement with initial capital
letters:
(a)
“Change in Control” means the occurrence after the date of this
Agreement of any of the following events:
(i) the
acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
“Person” ) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of the combined voting power of the
then-outstanding Voting Stock of the Company; provided ,
however , that:
(A) for
purposes of this Section 1(a)(i), the following acquisitions
will not constitute a Change in Control: (1) any acquisition
of Voting Stock of the Company directly from the Company that is
approved by a majority of the Incumbent Directors, (2) any
acquisition of Voting Stock of the Company by the Company or any
Subsidiary, (3) any acquisition of Voting Stock of the Company
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, and (4) any
acquisition of Voting Stock of the Company by any Person pursuant
to a Business Combination that complies with clauses (A),
(B) and (C) of Section 1(a)(iii) below;
(B) if
any Person acquires beneficial ownership of 20% or more of combined
voting power of the then-outstanding Voting Stock of the Company as
a result of a transaction described in clause (A)(1) of
Section 1(a)(i) and such Person thereafter becomes the
beneficial owner of any additional shares of Voting Stock of the
Company representing 1% or more of the then-outstanding Voting
Stock of the Company, other than in an acquisition directly from
the Company that is approved by a majority of the Incumbent
Directors or other than as a result of a stock dividend, stock
split or similar transaction effected by the Company in which all
holders of Voting Stock are treated equally, such subsequent
acquisition will be deemed to constitute a Change in
Control;
(C) a
Change in Control will not be deemed to have occurred if a Person
acquires beneficial ownership of 20% or more of the Voting Stock of
the Company as a result of a reduction in the number of shares of
Voting Stock of the Company outstanding unless and until such
Person thereafter becomes the beneficial owner of any additional
shares of Voting Stock of the Company representing 1% or more of
the then-outstanding Voting Stock of the Company, other than in an
acquisition directly from the Company that is approved by a
majority of the Incumbent Directors or other than as a result of a
stock dividend, stock split or similar transaction effected by the
Company in which all holders of Voting Stock are treated equally;
and
(D) if
at least a majority of the Incumbent Directors determine in good
faith that a Person has acquired beneficial ownership of 20% or
more of the Voting Stock of the Company inadvertently, and such
Person divests as promptly as practicable a sufficient number of
shares so that such Person beneficially owns less than 20% of the
Voting
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Stock of the
Company, then no Change in Control will have occurred as a result
of such Person’s acquisition; or
(ii) a
majority of the Directors are not Incumbent Directors;
or
(iii) the
consummation of a reorganization, merger or consolidation, or sale
or other disposition of all or substantially all of the assets of
the Company or the acquisition of assets of another corporation, or
other transaction (each, a “Business
Combination” ), unless, in each case, immediately
following such Business Combination (A) all or substantially
all of the individuals and entities who were the beneficial owners
of Voting Stock of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60%
of the combined voting power of the then outstanding shares of
Voting Stock of the entity resulting from such Business Combination
(including, without limitation, an entity which as a result of such
transaction owns the Company or all or substantially all of the
Company’s assets either directly or through one or more
subsidiaries), (B) no Person (other than the Company, such
entity resulting from such Business Combination, or any employee
benefit plan (or related trust) sponsored or maintained by the
Company, any Subsidiary or such entity resulting from such Business
Combination or a holding company as described in ORC
§1701.802(A)) beneficially owns, directly or indirectly, 20%
or more of the combined voting power of the then outstanding shares
of Voting Stock of the entity resulting from such Business
Combination, and (C) at least a majority of the members of the
Board of Directors of the entity resulting from such Business
Combination were Incumbent Directors at the time of the execution
of the initial agreement or of the action of the Board providing
for such Business Combination; or
(iv) approval
by the shareholders of the Company of a complete liquidation or
dissolution of the Company, except pursuant to a Business
Combination that complies with clauses (A), (B) and (C) of
Section 1(a)(iii).
For purposes of
this Section 1(a) and as used elsewhere in this Agreement, the
following terms have the following meanings:
(A) “
Exchange Act ” means the Securities Exchange
Act of 1934, as amended.
(B)
“Incumbent Directors” means the
individuals who, as of the date hereof, are Directors of the
Company and any individual becoming a Director subsequent to the
date hereof whose election, nomination for election by the
Company’s shareholders, or appointment, was approved by a
vote of at least two-thirds of the then Incumbent Directors (either
by a specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director,
without objection to such nomination); provided ,
however , that an individual will not be an Incumbent
Director if such individual’s election or appointment to the
Board occurs as a result of an actual or threatened election
contest (as described in Rule 14a-12(c) of the Exchange Act)
with respect to the election or removal of Directors or other
actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board.
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(C)
“Subsidiary” means an entity in which the
Company or any holding company as described in ORC
§1701.802(A) directly or indirectly beneficially owns 50% or
more of the outstanding Voting Stock.
(D)
“Voting Stock” means securities entitled
to vote generally in the election of directors (or similar
governing bodies).
(b)
“ Claim ” means (i) any threatened,
asserted, pending or completed claim, demand, action, suit or
proceeding, whether civil, criminal, administrative, arbitrative,
investigative or other, and whether made pursuant to federal, state
or other law; and (ii) any threatened, pending or completed
inquiry or investigation, whether made, instituted or conducted by
the Company or any other person, including without limitation any
federal, state or other governmental entity, that Indemnitee
determines might lead to the institution of any such claim, demand,
action, suit or proceeding.
(c)
“Controlled Affiliate” means any
corporation, limited liability company, partnership, joint venture,
trust or other entity or enterprise, whether or not for profit,
that is directly or indirectly controlled by the Company. For
purposes of this definition, “control” means the
possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of an entity or
enterprise, whether through the ownership of voting securities,
through other voting rights, by contract or otherwise;
provided that direct or indirect beneficial ownership of
capital stock or other interests in an entity or enterprise
entitling the holder to cast 20% or more of the total number of
votes generally entitled to be cast in the election of directors
(or persons performing comparable functions) of such entity or
enterprise will be deemed to constitute control for purposes of
this definition.
(d) “
Disinterested Director ” means a director of
the Company who is not and was not a party to the Claim in respect
of which indemnification is sought by Indemnitee.
(e)
“ Expenses ” means attorneys’ and
experts’ fees and expenses and all other costs and expenses
paid or payable in connection with investigating, defending, being
a witness in or otherwise participating in (including on appeal),
or preparing to investigate, defend, be a witness in or otherwise
participate in (including on appeal), any Claim, and any amounts
paid in settlement prior to a final, nonappealable judgment or
conviction.
(f)
“ Indemnifiable Claim ” means any Claim
based upon, arising out of or resulting from (i) any actual,
alleged or suspected act or failure to act by Indemnitee in his or
her capacity as a director, officer, employee or agent of the
Company or as a director, officer, employee, member, manager,
trustee or agent of any other corporation, limited liability
company, partnership, joint venture, trust or other entity or
enterprise, whether or not for profit, as to which Indemnitee is or
was serving at the request of the Company as a director, officer,
employee, member, manager, trustee or agent, (ii) any actual,
alleged or suspected act or failure to act by Indemnitee in respect
of any business, transaction, communication, filing, disclosure or
other activity of the Company or any other entity or enterprise
referred to in clause (i) of this sentence, or
(iii) Indemnitee’s status as a current or former
director, officer, employee or agent of the Company or as a current
or former director, officer, employee, member, manager, trustee or
agent of the Company or any other entity or enterprise referred to
in clause (i) of this sentence or any actual, alleged or
suspected act or failure to act by Indemnitee in connection with
any obligation or restriction imposed upon Indemnitee by reason of
such status. In addition to any
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service at the
actual request of the Company, for purposes of this Agreement,
Indemnitee will be deemed to be serving or to have served at the
request of the Company as a director, officer, employee, member,
manager, trustee or agent of another entity or enterprise if
Indemnitee is or was serving as a director, officer, employee,
member, manager, trustee or agent of such entity or enterprise and
(i) such entity or enterprise is or at the time of such
service was a Controlled Affiliate, (ii) such entity or
enterprise is or at the time of such service was an employee
benefit plan (or related trust) sponsored or maintained by the
Company or a Controlled Affiliate, or (iii) the Company or a
Controlled Affiliate directly or indirectly caused or authorized
Indemnitee to be nominated, elected, appointed, designated,
employed, engaged or selected to serve in such capacity.
(g)
“ Indemnifiable Losses” means any and all
Losses relating to, arising out of or resulting from any
Indemnifiable Claim.
(h) “
Independent Counsel ” means a law firm, or a
member of a law firm, that is experienced in matters of corporation
law and neither presently is, nor in the past five years has been,
retained to represent: (i) the Company (or any Subsidiary) or
Indemnitee in any matter material to either such party (other than
with respect to matters concerning the Indemnitee under this
Agreement, or of other indemnitees under similar indemnification
agreements), or (ii) any other named (or, as to a threatened
matter, reasonably likely to be named) party to the Indemnifiable
Claim giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term “Independent
Counsel” will not include any person who, under the
applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or
Indemnitee in an action to determine Indemnitee’s rights
under this Agreement.
(i) “
Losses ” means any and all Expenses, damages,
losses, liabilities, judgments, fines, penalties (whether civil,
criminal or other) and amounts paid in settlement following a
final, nonappealable judgment or conviction, including without
limitation all interest, assessments and other charges paid or
payable in connection with or in respect of any of the
foregoing.
2. Indemnification Obligation. Subject to
Section 7, the Company shall indemnify, defend and hold
harmless Indemnitee, to the fullest extent permitted or required by
the laws of the State of Ohio in effect on the date hereof or as
such laws may from time to time hereafter be amended to increase
the scope of such permitted indemnification, against any and all
Indemnifiable Claims and Indemnifiable Losses; provided ,
however , that, except as provided in Sections 4 and
20, Indemnitee will not be entitled to indemnification pursuant to
this Agreement in connection with any Claim initiated by Indemnitee
against the Company or any director or officer of the Company
unless the Company has joined in or consented to the initiation of
such Claim.
3. Advancement of Expenses. Indemnitee will have the
right to advancement by the Company prior to the final disposition
of any Indemnifiable Claim of any and all Expenses relating to,
arising out of or resulting from any Indemnifiable Claim paid or
incurred by Indemnitee or which Indemnitee determines are
reasonably likely to be paid or incurred by Indemnitee.
Indemnitee’s right to such advancement is not subject to the
satisfaction of any standard of conduct. Without limiting the
generality or effect of the foregoing, within five
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business days
after any request by Indemnitee, the Company shall, in accordance
with such request (but without duplication), (a) pay such
Expenses on behalf of Indemnitee, (b) advance to Indemnitee
funds in an amount sufficient to pay such Expenses, or
(c) reimburse Indemnitee for such Expenses; provided
that Indemnitee shall repay, without interest any amounts actually
advanced to Indemnitee that, at the final disposition of the
Indemnifiable Claim to which the advance related, were in excess of
amounts paid or payable by Indemnitee in respect of Expenses
relating to, arising out of or resulting from such Indemnifiable
Claim. For purposes of obtaining payments of Expenses in advance of
final disposition, the Indemnitee shall submit to the Company a
sworn request for advancement of Expenses substantially in the form
of Exhibit A attached hereto and made a part hereof (subject
to Indemnitee filling in the blanks therein and selecting from
among the bracketed alternatives therein, the “
Undertaking ”), averring that the Indemnitee
has reasonably incurred or will reasonably incur actual Expenses in
defending an Indemnifiable Claim. The Undertaking need not be
secured and the Company must accept the Undertaking without
reference to Indemnitee’s ability to repay the Expenses.
Unless at the time of the Indemnitee’s act or omission at
issue, the Constituent Documents prohibit such advances by specific
reference to ORC Section l701.13(E)(5)(a) or unless the only
liability asserted against the Indemnitee in the subject action,
suit or proceeding is pursuant to ORC Section 1701.95, the
Indemnitee will be eligi
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