Exhibit 10.4
INDEMNIFICATION
AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this
“Agreement”) is made and entered March 10, 2004
(the “Effective Date”), by and between Five Star
Quality Care, Inc., a Maryland Corporation (the
“Company”), and Rosemary Esposito, R.N.
(“Indemnitee”).
WHEREAS Indemnitee currently serves
as an officer of the Company and may, in connection therewith, be
subjected to claims, suits or proceedings arising from such
service; and
WHEREAS, as an inducement to
Indemnitee to continue to serve as such officer, the Company has
agreed to indemnify and to advance expenses and costs incurred by
Indemnitee in connection with any such claims, suits or
proceedings, to the fullest extent permitted by law as hereinafter
provided; and
NOW, THEREFORE, in consideration of
the premises and the covenants contained herein, the Company and
Indemnitee do hereby covenant and agree as follows:
Section 1.
Definitions
. For purposes of this
Agreement:
(a)
“Change in
Control” means a change in control of the Company occurring
after the Effective Date of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of
Regulation 14A (or in response to any similar item on any similar
schedule or form) promulgated under the Securities Exchange
Act of 1934, as amended (the “Act”), whether or not the
Company is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall
be deemed to have occurred if after the Effective Date (i) any
“person” (as such term is used in Sections
13(d) and 14(d) of the Act) is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under
the Act), directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power in the
election of directors of the Company’s then outstanding
securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to
such person attaining such percentage interest; (ii) there
occurs a proxy contest, or the Company is a party to a merger,
consolidation, sale of assets, plan of liquidation or other
reorganization not approved by at least two-thirds of the members
of the Board of Directors then in office, as a consequence of which
members of the Board of Directors in office immediately prior to
such transaction or event constitute less than a majority of the
Board of Directors thereafter; or (iii) during any period of
two consecutive years, other than as a result of an event described
in clause (a)(ii) of this Section 1 , individuals
who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose
election or nomination for election by the Company’s
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning
of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
(b)
“Corporate
Status” means the status of a person who is or was a
director, trustee, officer or agent of the Company.
(c)
“Disinterested
Director” means a director of the Company who is not and was
not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(d)
“Expenses” means
all expenses, including, but not limited to, all reasonable
attorneys’ fees, retainers, court costs, transcript costs,
fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery
service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, or being or
preparing to be a witness in a Proceeding.
(e)
“Independent
Counsel” means a law firm, or a member of a law firm, that is
retained by Indemnitee and is not serving as counsel to the
Company.
(f)
“Proceeding”
means any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other proceeding, whether civil,
criminal, administrative or investigative (including on appeal),
except one initiated by an Indemnitee pursuant to
Section 9 .
Section 2.
Indemnification -
General . The
Company shall indemnify, and advance Expenses to, Indemnitee
(a) as provided in this Agreement and (b) otherwise to
the fullest extent permitted by Maryland law in effect on the date
hereof and as amended from time to time; provided ,
however , that no change in Maryland law shall have the
effect of reducing the benefits available to Indemnitee hereunder
based on Maryland law as in effect on the date hereof. The
rights of Indemnitee provided in this Section 2 shall
include, without limitation, the rights set forth in the other
sections of this Agreement, including any additional
indemnification permitted by Section 2-418(g) of the
Maryland General Corporation Law (“MGCL”).
Section 3.
Proceedings Other Than
Proceedings by or in the Right of the Company
. Indemnitee shall be entitled
to the rights of indemnification provided in this
Section 3 if, by reason of his Corporate Status, he is,
or is threatened to be, made a party to any threatened, pending, or
completed Proceeding, other than a Proceeding by or in the right of
the Company. Pursuant to this Section 3 ,
Indemnitee shall be indemnified against all judgments, penalties,
fines and amounts paid in settlement and all Expenses incurred by
him or on his behalf in connection with a Proceeding by reason of
Indemnitee’s Corporate Status unless it is established that
(i) the act or omission of Indemnitee was material to the
matter giving rise to the Proceeding and (a) was committed in
bad faith or (b) was the result of active and deliberate
dishonesty, (ii) Indemnitee actually received an improper
personal benefit in money, property or services, or (iii) in
the case of any criminal Proceeding, Indemnitee had reasonable
cause to believe that his conduct was unlawful.
Section 4.
Proceedings by or in the Right of
the Company .
Indemnitee shall be entitled to the rights of indemnification
provided in this Section 4 if, by reason of his
Corporate Status, he is, or is threatened to be, made a party to
any threatened, pending or completed Proceeding brought by or in
the right of the Company to procure a judgment in its favor.
Pursuant to this Section 4 , Indemnitee shall be
indemnified against all amounts paid in settlement and all Expenses
incurred by him or on his behalf in connection with such Proceeding
unless it is established that (i) the act or omission of
Indemnitee was material to the matter giving rise to such a
Proceeding and (a) was committed in bad faith or (b) was
the result of active and
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deliberate dishonesty or (ii) Indemnitee
actually received an improper personal benefit in money, property
or services.
Section 5.
Indemnification for Expenses of a
Party Who is Partly Successful . Without limitation on
Section 3 and Section 4 , if Indemnitee is
not wholly successful in any Proceeding covered by this Agreement,
but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the
Company shall indemnify Indemnitee under this Section 5
for all Expenses incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter, allocated
on a reasonable and proportionate basis. For purposes of this
Section and without limitation, the termination of any claim,
issue or matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
Section 6.
Advance of
Expenses . The Company shall
advance all Expenses incurred by or on behalf of Indemnitee in
connection with any Proceeding to which Indemnitee is, or is
threatened to be, made a party or a witness, within ten days after
the receipt by the Company of a statement or statements from
Indemnitee requesting such advance or advances from time to time,
whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by Indemnitee and shall include or
be preceded or accompanied by a written affirmation by Indemnitee
of Indemnitee’s good faith belief that the standard of
conduct necessary for indemnification by the Company as authorized
by law and by this Agreement has been met and a written undertaking
by or on behalf of Indemnitee, in substantially the form attached
hereto as Exhibit A or in such form as may be required
under applicable law as in effect at the time of the execution
thereof, to reimburse the portion of any Expenses advanced to
Indemnitee relating to claims, issues or matters in the Proceeding
as to which it shall ultimately be established that the standard of
conduct has not been met and which have not been successfully
resolved as described in Section 5 . To the
extent that Expenses advanced to Indemnitee do not relate to a
specific claim, issue or matter in the Proceeding, such Expenses
shall be allocated on a reasonable and proportionate basis.
The undertaking required by this Section 6 shall be an
unlimited general obligation by or on behalf of Indemnitee and
shall be accepted without reference to Indemnitee’s financial
ability to repay such advanced Expenses and without any requirement
to post security therefor.
Section 7.
Procedure for
Determination of Entitlement to Indemnification
.
(a)
To obtain
indemnification under this Agreement, Indemnitee shall submit to
the Company a written request, including such documentation and
information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of
the Company shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that
Indemnitee has requested indemnification.
(b)
Upon written
request by Indemnitee for indemnification pursuant to the first
sentence of Section 7(a) hereof, a determination,
if required by applicable law, with respect to Indemnitee’s
entitlement thereto shall promptly be made in the specific case:
(i) if a Change in Control shall have occurred, by Independent
Counsel in a written opinion to the Board of
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Directors, a copy of which
shall be delivered to Indemnitee; or (ii) if a Change of
Control shall not have occurred or if after a Change of Control
Indemnitee shall so request, (A) by the Board of Directors (or
a duly authorized committee thereof) by a majority vote of a quorum
consisting of Disinterested Directors (as herein defined), or
(B) if a quorum of the Board of Directors consisting of
Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent
Counsel in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee, or (C) if so directed
by a majority of the members of the Board of Directors, by the
stockholders of the Company; and, if it is so determined that
Indemnitee is entitled to indemnification, payment to Indemnitee
shall be made within ten days after such determination.
Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee’s
entitlement to indemnification, including providing to such person,
persons or entity upon reasonable advance request any documentation
or information which is not privileged or otherwise protected from
disclosure and which is reasonably available to Indemnitee and
reasonably necessary to such determination. Any Expenses
incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Company
(irrespective of the de
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