Indemnification Claims; Escrow Arrangements. (a) If any Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may be entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9, such Indemnitee may deliver a notice to the Indemnitor (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement described in such Notice of Indemnification Claim being referred to as an “indemnification claim”), which shall: (i) state that such Indemnitee believes that that there is or has been an inaccuracy in or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9; (ii) contain a brief description of the circumstances supporting such Indemnitee’s belief that there is or has been such an inaccuracy or breach or that such Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursed; and (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential Damages that have arisen and may arise as a result of the inaccuracy, breach or other matter referred to in such notice (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, being referred to as the “Claimed Amount”). (b) During the 30-day period (the “Dispute Period”) commencing upon (i) the delivery by an Indemnitee to the Indemnitor of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal Proceeding, the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor shall deliver to the Indemnitee a written response (the “Response Notice”) in which the Indemnitor: (i) agrees that the full Claimed Amount is owed to the Indemnitee; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the Indemnitee; or (iii) asserts that no part of the Claimed Amount is owed to the Indemnitee. Any part of the Claimed Amount that is not agreed by the Indemnitor to be owed to the Indemnitee pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor asserts in the Response Notice that no part of the Claimed Amount is owed to the Indemnitee) shall be referred to as the “Contested Amount” (it being understood that the Contested Amount shall be modified from time to time to reflect any good faith modifications by the Indemnitee to the Claimed Amount). If a Response Notice is not received by the Indemnitee prior to the expiration of the Dispute Period, then the Indemnitor shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claim. (c) If the Indemnitor delivers a Response Notice to the Indemnitee agreeing that the full Claimed Amount is owed to the Indemnitee, or if the Indemnitor does not deliver a Response Notice to the Indemnitee during the Dispute Period, then, within three days following the earlier of the delivery of such Response Notice to the Indemnitee or the expiration of the Dispute Period: (i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the full Claimed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and (ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the full Claimed Amount. (d) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period agreeing that less than the full Claimed Amount is owed to the Indemnitee, then, within three days following the delivery of such Response Notice to the Indemnitee: (i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Agreed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and (ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Agreed Amount. (e) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period indicating that there is a Contested Amount, the Indemnitor and the Indemnitee shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee and the Indemnitor resolve such dispute in writing, then their resolution of such dispute shall be binding on the Indemnitor, the Escrow Participants and the Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee (the “Stipulated Amount”) shall be signed by the Indemnitee and the Indemnitor. Within three days after the execution of such settlement agreement: (i) if the Indemnitee is a Parent Indemnitee, then Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Stipulated Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and (ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Stipulated Amount. (f) If the Indemnitor and the Indemnitee are unable to resolve the dispute relating to any Contested Amount during the 30-day period commencing upon the delivery of the Response Notice to the Indemnitee, then either the Indemnitee or the Indemnitor may submit the contested portion of the indemnification claim to binding arbitration in the State of California in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee and the Indemnitor; provided, however, that if the Indemnitee and the Indemnitor fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount: (i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and (ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award Amount. (g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount. (h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000. (i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund (the “Aggregate Escrow Balance”) as of the Designated Date exceeds the aggregate dollar amount, as of the Designated Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid prior to the Designated Date in accordance with this Section 9.7 (each, an “Unresolved Escrow Claim”) (the amount of such excess being referred to as the “Aggregate Second Distribution Amount”), then within five business days after the Designated Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Second Distribution Amount. (j) Following the Designated Date, if an Unresolved Escrow Claim is finally resolved, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent, within three days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect thereto, a written notice instructing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the amount (if any) by which the Aggregate Escrow Balance as of such date exceeds the aggregate amount of the Claimed Amounts and Contested Amounts, as the case may be, associated with all remaining Unresolved Escrow Claims. (k) All cash released to Escrow Participants pursuant to this Section 9.7 will be deemed to have been released in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as the case may be. (l) The parties agree that any cash released from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, be treated as a reduction in the Aggregate Closing Transaction Value for federal income tax purposes.
Appears in 2 contracts
Samples: Merger Agreement (Conexant Systems Inc), Merger Agreement (Acquicor Technology Inc)
Indemnification Claims; Escrow Arrangements. (a) If any No Parent Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may shall be entitled to be held harmless, indemnified, compensated or reimbursed indemnification under this Section 9Article 8 unless he, such Indemnitee may deliver she or it has duly delivered a written notice to the Indemnitor Shareholder Representative and the Escrow Agent (any such notice being referred to as a “"Notice of Indemnification Claim,” " and the claim for indemnification, compensation and reimbursement indemnification described in such Notice of Indemnification Claim being referred to as an “indemnification claim”"Indemnification Claim"), which shallsetting forth: (i) state that the specific representation and warranty of the Company alleged to have been inaccurate or specific covenant of the Company alleged to have been breached, or other specific circumstance entitling Parent to such Indemnitee believes that that there is or has been an inaccuracy in or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9indemnification; (ii) contain a brief reasonably detailed description of the facts and circumstances supporting giving rise to the alleged inaccuracy in such Indemnitee’s belief that there is representation and warranty, breach of such covenant or has been other specific circumstance entitling the applicable Parent Indemnitees to such an inaccuracy or breach or that such Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursedindemnification; and (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential Damages the Losses that have arisen and may arise been incurred by the Parent Indemnitees as a direct result of the inaccuracy, inaccuracy or breach or other matter circumstance referred to in such notice (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, estimate being referred to as the “"Claimed Amount”").
(b) During the 30-day 60‑day period (the “Dispute Period”) commencing upon (i) the delivery receipt by an Indemnitee to the Indemnitor Shareholder Representative of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal ProceedingClaim, the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor shall Shareholder Representative may deliver to Parent and the Indemnitee Escrow Agent a written response (the “"Response Notice”") in which the IndemnitorShareholder Representative: (i) agrees that the full Claimed Amount is owed to the IndemniteeParent; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the IndemniteeParent; or (iii) asserts that no part of the Claimed Amount is owed to the IndemniteeParent. Any part of the Claimed Amount that is not agreed by the Indemnitor Shareholder Representative to be owed to Parent shall be referred to as the Indemnitee pursuant to "Contested Amount."
(c) If the Shareholder Representative delivers a Response Notice (to Parent agreeing that all or the entire Claimed Amount, if the Indemnitor asserts in the Response Notice that no any part of the Claimed Amount is owed to the Indemnitee) shall be referred to as the “Contested Amount” (it being understood that the Contested Amount shall be modified from time to time to reflect any good faith modifications by the Indemnitee to the Claimed Amount). If a Response Notice is not received by the Indemnitee prior to the expiration of the Dispute Period, then the Indemnitor shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claim.
(c) If the Indemnitor delivers a Response Notice to the Indemnitee agreeing that the full Claimed Amount is owed to the Indemnitee, or if the Indemnitor does not deliver a Response Notice to the Indemnitee during the Dispute PeriodParent, then, within three (3) days following the earlier of the delivery receipt of such Response Notice to the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee is a Parent Indemniteeby Parent, Parent and the Stockholders’ Shareholder Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release such amount agreed to by the full Shareholder Representative (or such lesser amount as may remain in the Escrow Fund) to Parent from the Escrow Fund. If the Shareholder Representative fails to deliver a Response Notice within 60 days after its receipt of a Notice of Indemnification Claim, the Escrow Agent shall release to Parent such portion of the Claimed Amount as Parent shall have certified in writing to the Escrow Agent as having been actually incurred by Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay prior to the Company Indemnitee, in cash, an amount equal to the full Claimed Amountsuch date.
(d) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period agreeing that less than the full Claimed Amount is owed to the Indemnitee, then, within three days following the delivery of such Response Notice to the Indemnitee:
(i) if the Indemnitee is a Shareholder Representative and Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Agreed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Agreed Amount.
(e) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period indicating that there is a Contested Amount, the Indemnitor and the Indemnitee shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee and the Indemnitor resolve such dispute in writing, then their resolution of such dispute shall be binding on the Indemnitor, the Escrow Participants and the Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee (the “Stipulated Amount”) shall be signed by the Indemnitee and the Indemnitor. Within three days after the execution of such settlement agreement:
(i) if the Indemnitee is a Parent Indemnitee, then Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Stipulated Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Stipulated Amount.
(f) If the Indemnitor and the Indemnitee are unable to resolve the any dispute relating to any Contested Amount during the 30-day 30‑day period commencing upon the delivery receipt of the Response Notice to the Indemniteeby Parent, then either the Indemnitee or the Indemnitor may submit the contested portion of the indemnification claim to binding arbitration in the State of California such dispute will be resolved in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee and the Indemnitor; provided, however, that if the Indemnitee and the Indemnitor fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award AmountSection 9.5.
(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.
(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(ie) If the aggregate amount of cash remaining in the Indemnity Escrow Fund (the “Aggregate Escrow Balance”) Balance as of the Designated Escrow Release Date exceeds the aggregate dollar amount, as of the Designated Escrow Release Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees Indemnification Claims that have not been finally resolved and paid prior to the Designated Escrow Release Date in accordance with this Section 9.7 8.8 (each, an “"Unresolved Escrow Claim”) (," and the aggregate dollar amount of such excess Contested Amounts as of the Escrow Release Date being referred to as the “"Aggregate Second Distribution Pending Claim Amount”"), then within five business days after the Designated Date, Parent and Escrow Agent shall release Escrow Property from the Stockholders’ Representative shall deliver joint written instructions Escrow Fund to the Escrow Agent directing Participants (with the Escrow Agent number of shares of Parent Common Stock and cash to release from the Indemnity Escrow Fund be released to each Escrow Participant, Participant being determined in accordance with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior Section 8.8(g)) in an amount equal to the Effective Time and each share Aggregate Escrow Balance as of Company Common Stock subject to an In-the-Money Company Option held by such the Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying Release Date minus the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Second Distribution Pending Claim Amount.
(jf) Following the Designated Escrow Release Date, if an Unresolved Escrow Claim is finally resolved, Parent and the Stockholders’ Shareholder Representative shall jointly execute and deliver to the Escrow Agent, within three days (3) Business Days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect theretoClaim, a written notice instructing the Escrow Agent to release from the Indemnity Escrow Fund to each the Escrow ParticipantParticipants, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior Property in an amount equal to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Timeexcess, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the amount (if any) , by which the Aggregate Escrow Balance as of the date of resolution of such date Unresolved Escrow Claim exceeds the then aggregate amount of the Claimed Contested Amounts and Contested Amounts, as the case may be, associated with all other remaining Unresolved Escrow Claims.
(kg) All cash released In the event the Escrow Agent is required to release Escrow Property to the Escrow Participants pursuant to Section 8.8(e), Section 8.8(f) or otherwise, then the Escrow Agent will release shares of Parent Common Stock and cash to each Escrow Participant as follows:
(i) a number of shares of Parent Common Stock equal to the product of (A) the lesser of (x) the Aggregate Release Amount divided by the Deemed Per-Share Value and (y) the aggregate number of shares of Parent Common Stock then remaining in the Escrow Fund (such lesser amount, the "Aggregate Number of Released Parent Shares"), multiplied by (B) such Escrow Participant's Escrow Participation Percentage; and
(ii) an amount of cash equal to the product of (A)(i) the Aggregate Release Amount minus (ii) the product of (x) the Aggregate Number of Released Parent Shares multiplied by (y) the Deemed Per-Share Value, multiplied by (B) such Escrow Participant's Escrow Participation Percentage. For purposes of this Section 9.7 will be deemed to have been released in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(E8.8(g), 1.5(a)(iii)(Ethe "Aggregate Release Amount" shall be the aggregate amount (specified as a dollar value) and 1.6(a)(v), as that the case may beEscrow Agent is then required to release.
(lh) The parties agree that any cash amounts released to Parent from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, Article 8 shall be treated as a reduction in the Aggregate Closing Transaction Value aggregate consideration paid in connection with the Merger for federal income tax Tax purposes.
Appears in 1 contract
Samples: Merger Agreement (Aerocentury Corp)
Indemnification Claims; Escrow Arrangements. (a) If any Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, suffered Damages for which it is or may be entitled to be held harmless, indemnified, compensated or reimbursed under this Section 97, such Indemnitee may deliver a notice to the Indemnitor (any such notice being referred to as a “Notice of Indemnification Claim,” ”) to the Stockholders’ Representative and to the claim for indemnification, compensation and reimbursement described in such Escrow Agent. Each Notice of Indemnification Claim being referred to as an “indemnification claim”), which shall: shall (i) state that such Indemnitee believes that that there is or has been an a possible inaccuracy in or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9; 7, (ii) contain a brief reasonably detailed description of the facts and circumstances supporting such Indemnitee’s belief that there is or has been such an a possible inaccuracy or breach or that such Indemnitee may is otherwise be entitled to be held harmless, indemnified, compensated or reimbursed; , and (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential Damages that have arisen and may arise as a result of the inaccuracy, inaccuracy or breach or other matter referred to in such notice Notice of Indemnification Claim (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, being referred to as the “Claimed Amount”).
(b) During the 30-day period commencing upon the delivery to the Stockholders’ Representative and the Escrow Agent of a Notice of Indemnification Claim (the “Dispute Period”) commencing upon (i) the delivery by an Indemnitee to the Indemnitor of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal Proceeding), the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor Stockholders’ Representative shall deliver to the Indemnitee who delivered the Notice of Indemnification Claim and to the Escrow Agent a written response (the “Response Notice”) in which the IndemnitorStockholders’ Representative: (i) agrees that the full Claimed Amount is owed to the Indemnitee; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the Indemnitee; or (iii) asserts that no part of the Claimed Amount is owed to the Indemnitee. Any part of the Claimed Amount that is not agreed by the Indemnitor Stockholders’ Representative to be owed owing to the Indemnitee pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor asserts in the Response Notice that no part of the Claimed Amount is owed to the Indemnitee) shall be referred to as the “Contested Amount.” (it being understood that the Contested Amount shall be modified from time to time to reflect any good faith modifications by the Indemnitee to the Claimed Amount). If a Response Notice is not received by the Indemnitee and the Escrow Agent prior to the expiration of the Dispute Period, then the Indemnitor Stockholders’ Representative shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claim.
(c) If (i) the Indemnitor Stockholders’ Representative delivers a Response Notice to the Indemnitee agreeing that the full Claimed Amount is owed to the Indemnitee, or if (ii) the Indemnitor Stockholders’ Representative does not deliver a Response Notice to the Indemnitee during the Dispute Period, thenthen Parent and the Stockholders’ Representative shall deliver to the Escrow Agent, within three days following the earlier of the delivery of such Response Notice to the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice executed by both such parties instructing the Escrow Agent to release the full Claimed Amount disburse to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, cash in cash, an amount equal to the full Claimed Amount.
(d) If the Indemnitor Stockholders’ Representative delivers a Response Notice to the Indemnitee during the Dispute Period agreeing that less than the full Claimed Amount is owed to the Indemnitee, thenthen Parent and the Stockholders’ Representative shall deliver to the Escrow Agent, within three days following the delivery of such Response Notice to the Indemnitee:
(i) if the Indemnitee is a Parent IndemniteeNotice, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice executed by both such parties instructing the Escrow Agent to release the Agreed Amount disburse to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, Fund cash in cash, an amount equal to the Agreed Amount.
(e) If the Indemnitor Stockholders’ Representative delivers a Response Notice to the Indemnitee during the Dispute Period indicating that there is a Contested Amount, the Indemnitor Stockholders’ Representative and the Indemnitee shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee and the Indemnitor Stockholders’ Representative resolve such dispute in writingdispute, then their resolution of such dispute shall be binding on the IndemnitorStockholders’ Representative, the Escrow Participants holders of Non-Series F Securities and the such Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee (the “Stipulated Amount”) shall be signed by the such Indemnitee and the IndemnitorStockholders’ Representative. Within three days after the execution of such settlement agreement:
(i) if the Indemnitee is a Parent Indemnitee, then Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent Agent, within three days following the execution of such settlement agreement, a written notice executed by both such parties instructing the Escrow Agent to release the Stipulated Amount disburse to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, cash in cash, an amount equal to the Stipulated Amountamount specified in such settlement agreement.
(f) If the Indemnitor Stockholders’ Representative and the Indemnitee are unable to resolve the dispute relating to any Contested Amount during the 30-day period commencing upon the delivery of the Response Notice to (the Indemnitee“Initial Resolution Period”), then either the Indemnitee or the Indemnitor Stockholders’ Representative may submit the contested portion claim described in the Notice of the indemnification claim Indemnification Claim to binding arbitration in the State of California Colorado in accordance with the JAMS Comprehensive Commercial Arbitration Rules and Procedures then in effecteffect of the American Arbitration Association. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee Parent and the IndemnitorStockholders’ Representative; provided, however, that if the Indemnitee Parent and the Indemnitor Stockholders’ Representative fail to mutually select an arbitrator within 15 five business days after following the contested portion expiration of the indemnification claim is submitted Initial Resolution Period, then arbitration will be conducted by three arbitrators: one selected by Parent; one selected by the Stockholders’ Representative; and the third selected by the first two arbitrators. If either Parent or the Stockholders’ Representative fails to arbitrationselect an arbitrator within 10 days following the expiration of the Initial Resolution Period, then the arbitrator other shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effectentitled to select the second arbitrator. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitratormutually-selected arbitrator or the last of the three arbitrators, as the case may be, and to use commercially reasonable efforts to cause the decision of the arbitrator arbitrator(s) to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority parties shall be confined toentitled to only limited discovery, at the discretion of the arbitrator(s), and agree that any discovery shall be completed at least 10 days prior to the commencement of the arbitration hearing. The decision of the arbitrator(s) shall relate solely: (i) to whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the such Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion determination of the other party’s attorneys’ fees and other expenses relating to the arbitrationnon-prevailing party as provided below. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and arbitrator(s) shall be furnished in writing to the IndemnitorStockholders’ Representative, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, and the Escrow Agent, Agent in writing and shall constitute a conclusive determination of the issues issue(s) in question, binding upon the IndemnitorStockholders’ Representative, the former holders of Company Capital Stock and InNon-the-Money Company Options Series F Securities and the IndemniteeIndemnitee and shall not be contested by any of them. Within The non-prevailing party in any such arbitration shall pay the reasonable expenses (including attorneys’ fees) of the prevailing party, and the fees and expenses associated with the arbitration (including the arbitrators’ fees and expenses). The non-prevailing party shall be determined solely by the arbitrator(s). Parent and the Stockholders’ Representative shall deliver to the Escrow Agent, within three days following the receipt of the arbitrator(s) final award decision, a written notice executed by both such parties instructing the Escrow Agent to disburse to such Indemnitee from the Escrow Fund cash in an amount equal to the amount specified in such final decision, if any.
(g) Within 10 days after the date that is seven months after the Closing Date, if the amount of cash remaining in the Escrow Fund exceeds 100% of the arbitrator setting forth sum of the Award Amount:
(i) if Claimed Amounts and Contested Amounts associated with all claims for indemnification made on or prior to the Indemnitee date that is a Parent Indemniteeseven months after the Closing Date under this Section 7 that have not been finally resolved and paid in accordance with Section 7.6 as of the date that is seven months after the Closing Date, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount disburse to the Parent Indemnitee holders of Non-Series F Securities from the Indemnity Escrow Fund; and
Fund cash having an aggregate value equal to the lesser of (i) $2,480,560 or (ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award Amount.
(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.
(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund exceeds the sum of such Claimed Amounts and Contested Amounts (such cash disbursed, the “Aggregate Seven Month Disbursement”).
(h) Within 10 days after the date that is 14 months after the Closing Date, if the amount of cash remaining in the Escrow Balance”) as Fund exceeds 100% of the Designated Date exceeds the aggregate dollar amount, as of the Designated Date, sum of the Claimed Amounts and Contested Amounts associated with all claims for indemnification claims made by Parent Indemnitees on or prior to the date that is 14 months after the Closing Date under this Section 7 that have not been finally resolved and paid prior to the Designated Date in accordance with this Section 9.7 7.6 (each, an “Unresolved Escrow ClaimClaims”) (as of the amount of such excess being referred to as the “Aggregate Second Distribution Amount”), then within five business days date that is 14 months after the Designated Closing Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing a written notice instructing the Escrow Agent to release disburse to the holders of Non-Series F Securities from the Indemnity Escrow Fund cash having an aggregate value equal to each the amount by which the amount of cash remaining in the Escrow ParticipantFund exceeds the sum of such Unresolved Escrow Claims.
(i) Notwithstanding anything to the contrary contained herein, with respect to each share of Company Capital Stock held by such within 10 days after the date that an Unresolved Escrow Participant immediately Claim made on or prior to the Effective Time date that is seven months after the Closing Date is resolved, if the sum of the Claimed Amounts and each share Contested Amounts associated with such Unresolved Escrow Claim (the “Seven Month Resolved Claim Amount”) exceeds the Damages resulting from such resolution (the “Seven Month Resolved Claim Damages”), Parent shall deliver to the Escrow Agent a written notice instructing the Escrow Agent to disburse to the holders of Company Common Stock subject Non-Series F Securities from the Escrow Fund cash having an aggregate value equal to an In-the-Money Company Option held by such the lesser of (A) $2,480,560 minus the Seven Month Disbursement minus the sum of the Claimed Amounts and Contested Amounts associated with all other Unresolved Escrow Participant immediately Claims made on or prior to the Effective Time, an date that is seven months after the Closing Date or (B) the amount in cash determined by multiplying which the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by Seven Month Resolved Claim Amount exceeds the Aggregate Second Distribution AmountSeven Month Resolved Claim Damages.
(j) Following Notwithstanding anything to the Designated Datecontrary contained herein, if within 10 days after the date that an Unresolved Escrow Claim made after the date that is finally seven months after the Closing Date is resolved, if the sum of the Claimed Amounts and Contested Amounts associated with such Unresolved Escrow Claim (the “Post Seven Month Resolved Claim Amount”) exceeds the Damages resulting from such resolution (the “Post Seven Month Resolved Claim Damages”), Parent shall deliver to the Escrow Agent a written notice instructing the Escrow Agent to disburse to the holders of Non-Series F Securities from the Escrow Fund cash having an aggregate value equal to the lesser of (A) $2,480,560 minus the sum of the Claimed Amounts and Contested Amounts associated with all other Unresolved Escrow Claims made after the Stockholders’ Representative date that is seven months after the Closing Date or (B) the amount by which the Post Seven Month Resolved Claim Amount exceeds the Post Seven Month Resolved Claim Damages; provided, however, that amounts disbursed from the Escrow Fund with respect to Damages relating to claims made after the date that is seven months after the Closing Date shall jointly execute and not exceed $2,480,560; provided, further, that upon final resolution of the last to be resolved of the Unresolved Escrow Claims, Parent shall deliver to the Escrow Agent, within three days after the such final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect theretoresolution, a written notice instructing the Escrow Agent to release disburse from the Indemnity Escrow Fund all of the cash held in the Escrow Fund to each Escrow Participant, with respect to each share the holders of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an InNon-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the amount (if any) by which the Aggregate Escrow Balance as of such date exceeds the aggregate amount of the Claimed Amounts and Contested Amounts, as the case may be, associated with all remaining Unresolved Escrow ClaimsSeries F Securities.
(k) All cash released Disbursements from the Escrow Fund to Escrow Participants the holders of Non-Series F Securities pursuant to this Section 9.7 will 7.6 shall be deemed to have been released in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), made as the case may be.follows:
(li) The parties agree that any cash released from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shallfirst, to the extent permitted pursuant holders of Replacement Preferred Stock, prior and in preference to applicable Legal Requirementsany disbursement to the other holders of Non-Series F Securities, be treated as a reduction an amount in the Aggregate Closing Transaction Value aggregate up to the Replacement Escrow Amount on a pro-rata basis based on the Replacement Proportionate Share of each respective holder of Replacement Preferred Stock until the entire Replacement Escrow Amount has been disbursed to the holders of the Replacement Preferred Stock; and
(ii) second, upon completion of the distribution set forth in Section 7.6(k)(i) of an amount in the aggregate equal to the Replacement Escrow Amount to the holders of Replacement Preferred Stock and if any cash remains available for federal income tax purposesdistribution, to the holders of Junior Preferred Stock, Company Common Stock, Company Common Warrants (other than the Assumed Warrants) and Company Options an amount in the aggregate up to the Remainder Escrow Amount on a pro-rata basis based on the Remainder Proportionate Share of each such respective holder.
Appears in 1 contract
Indemnification Claims; Escrow Arrangements. (a) If any Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may be entitled to be held harmless, indemnified, compensated or reimbursed under this Section 910, such Indemnitee may deliver a notice to the Indemnitor Stockholders’ Representative (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement described in such Notice of Indemnification Claim being referred to as an “indemnification claim”), which shall: shall (i) state that such Indemnitee believes that that there is or has been an inaccuracy in or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9; 10, (ii) contain a brief description of the circumstances supporting such Indemnitee’s belief that there is or has been such an inaccuracy or breach or that such Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursed; and , (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential Damages that have arisen and may arise as a result of the inaccuracy, breach or other matter referred to in such notice (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, being referred to as the “Claimed Amount”), and (iv) specify whether the indemnification claim described in such notice is being made by such Indemnitee (A) solely against the Escrow Fund pursuant to Section 10.2(a) (an “Escrow Claim”), (B) directly against the Key Stockholders pursuant to Section 10.2(b) (a “§10.2(b)Claim”), (C) both against the Escrow Fund pursuant to Section 10.2(a) and directly against the Key Stockholders pursuant to Section 10.2(b) (a “Combined Claim”), or (D) against a particular Key Stockholder pursuant to Section 10.2(c) (a “§10.2(c) Claim”).
(b) During the 30-day period (the “Dispute Period”) commencing upon (i) the delivery by an Indemnitee to the Indemnitor Stockholders’ Representative of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal Proceedingthe “Dispute Period”), the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor Stockholders’ Representative shall deliver to the Indemnitee a written response (the “Response Notice”) in which the IndemnitorStockholders’ Representative: (i) agrees that the full Claimed Amount is owed to the Indemnitee; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the Indemnitee; or (iii) asserts that no part of the Claimed Amount is owed to the Indemnitee. Any part of the Claimed Amount that is not agreed by the Indemnitor Stockholders’ Representative to be owed to the Indemnitee pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor Stockholders’ Representative asserts in the Response Notice that no part of the Claimed Amount is owed to the Indemnitee) shall be referred to as the “Contested Amount” (it being understood that the Contested Amount shall be modified from time to time to reflect any good faith modifications by the Indemnitee to the Claimed Amount). If a Response Notice is not received by the Indemnitee prior to the expiration of the Dispute Period, then the Indemnitor Stockholders’ Representative shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claim.
(c) If the Indemnitor Stockholders’ Representative delivers a Response Notice to the Indemnitee agreeing that the full Claimed Amount is owed to the Indemnitee, or if the Indemnitor Stockholders’ Representative does not deliver a Response Notice to the Indemnitee during the Dispute Period, then, within three days following the earlier of the delivery of such Response Notice to the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee indemnification claim is a Parent Indemniteean Escrow Claim, then Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the full Claimed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; andFund all or any portion of the Claimed Amount requested by the Indemnitee;
(ii) if the Indemnitee indemnification claim is a Company Indemnitee§10.2(b) Claim, Parent each Key Stockholder shall pay to the Company Indemnitee, in cash, an amount equal to such Key Stockholder’s Allocable Percentage of the full Claimed Amount, subject to the limitations set forth in Section 10.3;
(iii) if the indemnification claim is a Combined Claim, the Claimed Amount shall first be collected from the Escrow Fund and Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release to the Indemnitee from the Escrow Fund an amount equal to the Claimed Amount or, if the amount then remaining in the Escrow Fund is less than the Claimed Amount, the amount remaining in the Escrow Fund. If the amount remaining in the Escrow Fund is insufficient to fully satisfy the Claimed Amount, then each Key Stockholder shall pay to the Indemnitee, in cash, an amount equal to such Key Stockholder’s Allocable Percentage of the remainder of the Claimed Amount not satisfied from the Escrow Fund, subject to the limitations set forth in Section 10.3; and
(iv) if the indemnification claim is a §10.2(c) Claim, the particular Key Stockholder that is responsible for satisfying such indemnification claim shall pay the full Claimed Amount to the Indemnitee in cash, subject to the limitations set forth in Section 10.3.
(d) If the Indemnitor Stockholders’ Representative delivers a Response Notice to the Indemnitee during the Dispute Period agreeing that less than the full Claimed Amount is owed to the Indemnitee, then, within three days following the delivery of such Response Notice to the Indemnitee:
(i) if the Indemnitee indemnification claim is a Parent Indemniteean Escrow Claim, then Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release to the Indemnitee from the Escrow Fund all or any portion of the Agreed Amount to requested by the Parent Indemnitee from the Indemnity Escrow Fund; andIndemnitee;
(ii) if the Indemnitee indemnification claim is a Company Indemnitee§10.2(b) Claim, Parent each Key Stockholder shall pay to the Company Indemnitee, in cash, an amount equal to such Key Stockholder’s Allocable Percentage of the Agreed Amount, subject to the limitations set forth in Section 10.3;
(iii) if the indemnification claim is a Combined Claim, the Agreed Amount shall first be collected from the Escrow Fund and Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release to the Indemnitee from the Escrow Fund an amount equal to the Agreed Amount or, if the amount then remaining in the Escrow Fund is less than the Agreed Amount, the amount remaining in the Escrow Fund. If the amount remaining in the Escrow Fund is insufficient to fully satisfy the Agreed Amount, then each Key Stockholder shall pay to the Indemnitee, in cash, an amount equal to such Key Stockholder’s Allocable Percentage of the remainder of the Agreed Amount not satisfied from the Escrow Fund, subject to the limitations set forth in Section 10.3; and
(iv) if the indemnification claim is a §10.2(c) Claim, the particular Key Stockholder that is responsible for satisfying such indemnification claim shall pay the Agreed Amount to the Indemnitee in cash, subject to the limitations set forth in Section 10.3.
(e) If the Indemnitor Stockholders’ Representative delivers a Response Notice to the Indemnitee during the Dispute Period indicating that there is a Contested Amount, the Indemnitor Stockholders’ Representative and the Indemnitee shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee and the Indemnitor Stockholders’ Representative resolve such dispute in writing, then their resolution of such dispute shall be binding on the IndemnitorStockholders’ Representative, the Escrow Participants Key Stockholders, the other Non-Dissenting Stockholders and the Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee (the “Stipulated Amount”) shall be signed by the Indemnitee and the IndemnitorStockholders’ Representative. Within three days after the execution of such settlement agreement:
(i) if the Indemnitee indemnification claim is a Parent Indemniteean Escrow Claim, then Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release to the Indemnitee from the Escrow Fund all or any portion of the Stipulated Amount to requested by the Parent Indemnitee from the Indemnity Escrow Fund; andIndemnitee;
(ii) if the Indemnitee indemnification claim is a Company Indemnitee§10.2(b) Claim, Parent each Key Stockholder shall pay to the Company Indemnitee, in cash, an amount equal to such Key Stockholder’s Allocable Percentage of the Stipulated Amount, subject to the limitations set forth in Section 10.3;
(iii) if the indemnification claim is a Combined Claim, the Stipulated Amount shall first be collected from the Escrow Fund and Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release to the Indemnitee from the Escrow Fund an amount equal to the Stipulated Amount or, if the amount then remaining in the Escrow Fund is less than the Stipulated Amount, the amount remaining in the Escrow Fund. If the amount remaining in the Escrow Fund is insufficient to fully satisfy the Stipulated Amount, then each Key Stockholder shall pay to the Indemnitee, in cash, an amount equal to such Key Stockholder’s Allocable Percentage of the remainder of the Stipulated Amount not satisfied from the Escrow Fund, subject to the limitations set forth in Section 10.3; and
(iv) if the indemnification claim is a §10.2(c) Claim, the particular Key Stockholder that is responsible for satisfying such indemnification claim shall pay the Stipulated Amount to the Indemnitee in cash, subject to the limitations set forth in Section 10.3.
(f) If the Indemnitor Stockholders’ Representative and the Indemnitee are unable to resolve the dispute relating to any Contested Amount during the 30-day period commencing upon the delivery of the Response Notice to the Indemnitee, then either the Indemnitee or the Indemnitor Stockholders’ Representative may submit the contested portion of the indemnification claim to binding arbitration in the State of California Delaware in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee Parent and the IndemnitorStockholders’ Representative; provided, however, that if the Indemnitee Parent and the Indemnitor Stockholders’ Representative fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award Amount.
(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.
(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund (the “Aggregate Escrow Balance”) as of the Designated Date exceeds the aggregate dollar amount, as of the Designated Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid prior to the Designated Date in accordance with this Section 9.7 (each, an “Unresolved Escrow Claim”) (the amount of such excess being referred to as the “Aggregate Second Distribution Amount”), then within five business days after the Designated Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Second Distribution Amount.
(j) Following the Designated Date, if an Unresolved Escrow Claim is finally resolved, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent, within three days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect thereto, a written notice instructing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the amount (if any) by which the Aggregate Escrow Balance as of such date exceeds the aggregate amount of the Claimed Amounts and Contested Amounts, as the case may be, associated with all remaining Unresolved Escrow Claims.
(k) All cash released to Escrow Participants pursuant to this Section 9.7 will be deemed to have been released in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as the case may be.
(l) The parties agree that any cash released from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, be treated as a reduction in the Aggregate Closing Transaction Value for federal income tax purposes.commercially
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Indemnification Claims; Escrow Arrangements. (a) If any Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes expects in good faith that it may could reasonably be expected incur or suffer, Damages for which it is or may would be entitled to be held harmless, indemnified, compensated or reimbursed under this Section 910, such Indemnitee may deliver a notice to the Indemnitor Stockholders’ Representative (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement described in such Notice of Indemnification Claim being referred to as an “indemnification claim”), which shall: shall (i) state that such Indemnitee believes that that there is or has been an inaccuracy in or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9; 10, (ii) contain a brief reasonably detailed description of the circumstances supporting such Indemnitee’s belief that there is or has been such an inaccuracy or breach or that such Indemnitee may is otherwise be entitled to be held harmless, indemnified, compensated or reimbursed; and , including a reference to the section of this Agreement that such Indemnitee then believes provides a basis for such claim, (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential the Damages that have arisen and may or that such Indemnitee expects in good faith to arise as a result of the inaccuracy, breach or other matter referred to in such notice (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, being referred to as the “Claimed Amount”), and (iv) specify whether the indemnification claim described in such notice is being made by such Indemnitee (A) pursuant to Section 10.2(a) other than as the result of a breach of a Specified Representation (a “General Indemnity Claim”), (B) pursuant to Section 10.2(a) as a result of a breach of a Specified Representation (a “Specified Indemnity Claim”) or (C) against a particular Key Stockholder pursuant to Section 10.2(b) (a “Key Stockholder Claim”).
(b) During the 30-day period (the “Dispute Period”) commencing upon (i) the delivery by an Indemnitee to the Indemnitor Stockholders’ Representative of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal Proceedingthe “Dispute Period”), the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor Stockholders’ Representative shall deliver to the Indemnitee a written response (the “Response Notice”) in which the IndemnitorStockholders’ Representative: (i) agrees that the full Claimed Amount is owed to the Indemnitee; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the Indemnitee; or (iii) asserts that no part of the Claimed Amount is owed to the Indemnitee. Any part of the Claimed Amount that is not agreed by the Indemnitor Stockholders’ Representative to be owed to the Indemnitee pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor Stockholders’ Representative asserts in the Response Notice that no part of the Claimed Amount is owed to the Indemnitee) shall be referred to as the “Contested Amount” (it being understood that the Contested Amount shall be modified from time to time to reflect any good faith modifications by the Indemnitee to the Claimed Amount). If a Response Notice is not received by the Indemnitee prior to the expiration of the Dispute Period, then the Indemnitor Stockholders’ Representative shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claim.
(c) If the Indemnitor Stockholders’ Representative delivers a Response Notice to the Indemnitee agreeing that the full Claimed Amount is owed to the Indemnitee, or if the Indemnitor Stockholders’ Representative does not deliver a Response Notice to the Indemnitee during the Dispute Period, then, within three days following the earlier of the delivery of such Response Notice to the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee indemnification claim is a Parent IndemniteeGeneral Indemnity Claim or a Specified Indemnity Claim, then upon the written request of Parent, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release disburse to the Indemnitee from the Escrow Fund an amount equal to the lesser of (A) the full Claimed Amount to or (B) the Parent Indemnitee from entire amount of any cash remaining in the Indemnity Escrow Fund; and;
(ii) if the Indemnitee indemnification claim is a Company IndemniteeSpecified Indemnity Claim, Parent then subject to the provisions of Section 10.3(d), upon the written request of Parent, the Non-Dissenting Stockholders shall pay to the Company Indemnitee, in cash, an amount equal to the excess (if any) of (A) the full Claimed AmountAmount over (B) the amount paid to the Indemnitee out of the Escrow Fund pursuant to Section 10.9(c)(i) with respect to such Specified Indemnity Claim; and
(iii) if the indemnification claim is a Key Stockholder Claim, the particular Key Stockholder that is responsible for satisfying such indemnification claim shall pay the full Claimed Amount to the Indemnitee in cash.
(d) If the Indemnitor Stockholders’ Representative delivers a Response Notice to the Indemnitee during the Dispute Period to the Indemnitee agreeing that less than the full Claimed Amount is owed to the IndemniteeIndemnitee (such amount as is agreed to be owed the “Agreed Amount”), then, within three days following the delivery of such Response Notice to the Indemnitee:
(i) if the Indemnitee indemnification claim is a Parent IndemniteeGeneral Indemnity Claim or a Specified Indemnity Claim, then upon the written request of Parent, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release disburse to the Indemnitee from the Escrow Fund an amount equal to the lesser of (A) the Agreed Amount to or (B) the Parent Indemnitee from entire amount of any cash remaining in the Indemnity Escrow Fund; and;
(ii) if the Indemnitee indemnification claim is a Company IndemniteeSpecified Indemnity Claim, Parent then subject to the provisions of Section 10.3(d), upon the written request of Parent, the Non-Dissenting Stockholders shall pay to the Company Indemnitee, in cash, an amount equal to the excess (if any) of (A) the Agreed AmountAmount over (B) the amount paid to the Indemnitee out of the Escrow Fund pursuant to Section 10.9(d)(i) with respect to such Specified Indemnity Claim; and
(iii) if the indemnification claim is a Key Stockholder Claim, the particular Key Stockholder that is responsible for satisfying such indemnification claim shall pay the Agreed Amount to the Indemnitee in cash.
(e) If the Indemnitor Stockholders’ Representative delivers a Response Notice to the Indemnitee during the Dispute Period indicating that there is a Contested Amount, the Indemnitor Stockholders’ Representative and the Indemnitee shall attempt in good faith to resolve the dispute related to the Contested AmountAmount in a mutually convenient location. One individual who is not an attorney and who has full settlement authority shall represent each side. That person may have an assistant who is not an attorney. If the Indemnitee and the Indemnitor Stockholders’ Representative resolve such dispute in writing, then their resolution of such dispute shall be binding on the IndemnitorStockholders’ Representative, the Escrow Participants Key Stockholders, the other Non-Dissenting Stockholders and the Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee (the “Stipulated Amount”) shall be signed by the Indemnitee and the IndemnitorStockholders’ Representative. Within three days after the execution of such settlement agreement:
(i) if the Indemnitee indemnification claim is a Parent IndemniteeGeneral Indemnity Claim or a Specified Indemnity Claim, then upon the written request of Parent, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release disburse to the Indemnitee from the Escrow Fund an amount equal to the lesser of (A) the Stipulated Amount to or (B) the Parent Indemnitee from entire amount of any cash remaining in the Indemnity Escrow Fund; and;
(ii) if the Indemnitee indemnification claim is a Company IndemniteeSpecified Indemnity Claim, Parent then subject to the provisions of Section 10.3(d), upon the written request of Parent, the Non-Dissenting Stockholders shall pay to the Company Indemnitee, in cash, an amount equal to the excess (if any) of (A) the Stipulated AmountAmount over (B) the amount paid to the Indemnitee out of the Escrow Fund pursuant to Section 10.9(e)(i) with respect to such Specified Indemnity Claim; and
(iii) if the indemnification claim is a Key Stockholder Claim, the particular Key Stockholder that is responsible for satisfying such indemnification claim shall pay the Stipulated Amount to the Indemnitee in cash.
(f) If the Indemnitor Stockholders’ Representative and the Indemnitee are unable to resolve the dispute relating to any Contested Amount during the 30-day period commencing upon the delivery of the Response Notice (the “Initial Resolution Period”), either party may request non-binding mediation with the assistance of a neutral mediator from a recognized mediation service. The party requesting the mediation shall arrange for the mediation services, subject to the Indemniteeapproval of the other party, which the other party shall not withhold or delay unreasonably. Mediation shall take place in a neutral, mutually convenient location. Mediation may be scheduled to begin any time after expiration of the Initial Resolution Period, but with at least 20 days’ notice to all parties. The persons attending the mediation shall have the authority to accept a settlement. The party requesting the mediation shall bear the cost of mediation except as provided elsewhere in this Agreement.
(g) If the Stockholders’ Representative and the Indemnitee are unable to resolve the dispute relating to any Contested Amount during the Initial Resolution Period, and neither party requests mediation, then either the Indemnitee or the Indemnitor Stockholders’ Representative may submit the contested portion of the indemnification claim to binding arbitration in the State of Orange County, California or Salt Lake City, Utah in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee and the Indemnitor; provided, however, that if the Indemnitee and the Indemnitor fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award Amount.
(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.
(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund (the “Aggregate Escrow Balance”) as of the Designated Date exceeds the aggregate dollar amount, as of the Designated Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid prior to the Designated Date in accordance with this Section 9.7 (each, an “Unresolved Escrow Claim”) (the amount of such excess being referred to as the “Aggregate Second Distribution Amount”), then within five business days after the Designated Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Second Distribution Amount.
(j) Following the Designated Date, if an Unresolved Escrow Claim is finally resolved, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent, within three days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect thereto, a written notice instructing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the amount (if any) by which the Aggregate Escrow Balance as of such date exceeds the aggregate amount of the Claimed Amounts and Contested Amounts, as the case may be, associated with all remaining Unresolved Escrow Claims.
(k) All cash released to Escrow Participants pursuant to this Section 9.7 will be deemed to have been released in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as the case may be.
(l) The parties agree that any cash released from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, be treated as a reduction in the Aggregate Closing Transaction Value for federal income tax purposes.Streamlined Arbitration
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Indemnification Claims; Escrow Arrangements. (a) If any Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may be entitled to be held harmless, indemnified, compensated or reimbursed under this Section 910, such Indemnitee may deliver a notice to the Indemnitor Stockholders’ Representative (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement described in such Notice of Indemnification Claim being referred to as an “indemnification claim”), which shall: shall (i) state that such Indemnitee believes that that there is or has been an inaccuracy in or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9; 10, (ii) contain a brief description of the circumstances supporting such Indemnitee’s belief that there is or has been such an inaccuracy or breach or that such Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursed; and , (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential Damages that have arisen and may arise as a result of the inaccuracy, breach or other matter referred to in such notice (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, being referred to as the “Claimed Amount”), and (iv) specify whether the indemnification claim described in such notice is being made by such Indemnitee (A) solely against the Escrow Fund pursuant to Section 10.2(a) (an “Escrow Claim”), (B) directly against the Key Stockholders pursuant to Section 10.2(b) (a “§10.2(b) Claim”), (C) both against the Escrow Fund pursuant to Section 10.2(a) and directly against the Key Stockholders pursuant to Section 10.2(b) (a “Combined Claim”), or (D) against a particular Key Stockholder pursuant to Section 10.2(c) (a “§10.2(c) Claim”).
(b) During the 30-day period (the “Dispute Period”) commencing upon (i) the delivery by an Indemnitee to the Indemnitor Stockholders’ Representative of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal Proceedingthe “Dispute Period”), the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor Stockholders’ Representative shall deliver to the Indemnitee a written response (the “Response Notice”) in which the IndemnitorStockholders’ Representative: (i) agrees that the full Claimed Amount is owed to the Indemnitee; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the Indemnitee; or (iii) asserts that no part of the Claimed Amount is owed to the Indemnitee. Any part of the Claimed Amount that is not agreed by the Indemnitor Stockholders’ Representative to be owed to the Indemnitee pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor Stockholders’ Representative asserts in the Response Notice that no part of the Claimed Amount is owed to the Indemnitee) shall be referred to as the “Contested Amount” (it being understood that the Contested Amount shall be modified from time to time to reflect any good faith modifications by the Indemnitee to the Claimed Amount). If a Response Notice is not received by the Indemnitee prior to the expiration of the Dispute Period, then the Indemnitor shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claim.
(c) If the Indemnitor delivers a Response Notice to the Indemnitee agreeing that the full Claimed Amount is owed to the Indemnitee, or if the Indemnitor does not deliver a Response Notice to the Indemnitee during the Dispute Period, then, within three days following the earlier of the delivery of such Response Notice to the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the full Claimed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the full Claimed Amount.
(d) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period agreeing that less than the full Claimed Amount is owed to the Indemnitee, then, within three days following the delivery of such Response Notice to the Indemnitee:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Agreed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Agreed Amount.
(e) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period indicating that there is a Contested Amount, the Indemnitor and the Indemnitee shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee and the Indemnitor resolve such dispute in writing, then their resolution of such dispute shall be binding on the Indemnitor, the Escrow Participants and the Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee (the “Stipulated Amount”) shall be signed by the Indemnitee and the Indemnitor. Within three days after the execution of such settlement agreement:
(i) if the Indemnitee is a Parent Indemnitee, then Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Stipulated Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Stipulated Amount.
(f) If the Indemnitor and the Indemnitee are unable to resolve the dispute relating to any Contested Amount during the 30-day period commencing upon the delivery of the Response Notice to the Indemnitee, then either the Indemnitee or the Indemnitor may submit the contested portion of the indemnification claim to binding arbitration in the State of California in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee and the Indemnitor; provided, however, that if the Indemnitee and the Indemnitor fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award Amount.
(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.
(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund (the “Aggregate Escrow Balance”) as of the Designated Date exceeds the aggregate dollar amount, as of the Designated Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid prior to the Designated Date in accordance with this Section 9.7 (each, an “Unresolved Escrow Claim”) (the amount of such excess being referred to as the “Aggregate Second Distribution Amount”), then within five business days after the Designated Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Second Distribution Amount.
(j) Following the Designated Date, if an Unresolved Escrow Claim is finally resolved, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent, within three days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect thereto, a written notice instructing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the amount (if any) by which the Aggregate Escrow Balance as of such date exceeds the aggregate amount of the Claimed Amounts and Contested Amounts, as the case may be, associated with all remaining Unresolved Escrow Claims.
(k) All cash released to Escrow Participants pursuant to this Section 9.7 will be deemed to have been released in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as the case may be.
(l) The parties agree that any cash released from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, be treated as a reduction in the Aggregate Closing Transaction Value for federal income tax purposes.Notice
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Indemnification Claims; Escrow Arrangements. (a) If any Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may Purchaser shall not be entitled to be held harmless, indemnified, compensated or reimbursed indemnification under this Section 9, such Indemnitee may deliver 6 unless it has duly delivered a written notice to the Indemnitor Seller and ATI and the Escrow Agent (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement indemnification described in such Notice of Indemnification Claim being referred to as an “indemnification claimIndemnification Claim”), which shallsetting forth: (i) state that such Indemnitee believes that that there is the specific representation and warranty or has covenant alleged to have been an inaccuracy in breached by Seller or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9ATI; (ii) contain a brief detailed description of the facts and circumstances supporting giving rise to the alleged breach of such Indemnitee’s belief that there is representation and warranty or has been such an inaccuracy or breach or that such Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursedcovenant; and (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential the Damages that have arisen and may arise been incurred by Purchaser as a direct result of the inaccuracy, breach or other matter referred to in such notice (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, estimate being referred to as the “Claimed Amount”).
(b) During the 30-day period (the “Dispute Period”) commencing upon (i) the delivery receipt by an Indemnitee to the Indemnitor Seller and ATI of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal ProceedingClaim, the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor shall Seller and ATI may deliver to Purchaser and the Indemnitee Escrow Agent a written response (the “Response Notice”) in which the IndemnitorSeller and ATI: (i) agrees agree that the full Claimed Amount is owed to the IndemniteePurchaser; (ii) agrees agree that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the IndemniteePurchaser; or (iii) asserts assert that no part of the Claimed Amount is owed to the IndemniteePurchaser. Any part of the Claimed Amount that is not agreed by the Indemnitor Seller and ATI to be owed to the Indemnitee Purchaser pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor asserts Seller and ATI assert in the Response Notice that no part of the Claimed Amount is owed to the IndemniteePurchaser) shall be referred to as the “Contested Amount.” (it being understood that the Contested Amount If no Response Notice is delivered during such 30-day period, then, for purposes of this Agreement, Seller and ATI shall be modified from time deemed to time have delivered to reflect any good faith modifications by Purchaser and the Indemnitee to the Claimed Amount). If Escrow Agent a Response Notice is not received by on the Indemnitee prior to the expiration last day of such 30-day period asserting that no part of the Dispute Period, then the Indemnitor shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claimPurchaser.
(c) If the Indemnitor delivers Seller and ATI deliver a Response Notice to the Indemnitee Purchaser agreeing that the full Claimed Amount is owed to the Indemnitee, or if the Indemnitor does not deliver a Response Notice to the Indemnitee during the Dispute PeriodPurchaser, then, within three days following the earlier of the delivery receipt of such Response Notice to the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee is a Parent Indemniteeby Purchaser, Parent Purchaser and the Stockholders’ Representative Seller and ATI shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the full Claimed Amount (or such lesser amount as may remain in the Escrow Fund) to the Parent Indemnitee Purchaser from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the full Claimed Amount.
(d) If the Indemnitor delivers Seller and ATI deliver a Response Notice to the Indemnitee during the Dispute Period Purchaser agreeing that less than the full Claimed Amount is owed to the IndemniteePurchaser, then, within three days following the delivery receipt of such Response Notice to the Indemnitee:
(i) if the Indemnitee is a Parent Indemniteeby Purchaser, Parent Purchaser and the Stockholders’ Representative Seller and ATI shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Agreed Amount (or such lesser amount as may remain in the Escrow Fund) to the Parent Indemnitee Purchaser from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Agreed Amount.
(e) If the Indemnitor delivers Seller and ATI deliver a Response Notice to the Indemnitee during the Dispute Period Purchaser indicating that there is a Contested Amount, the Indemnitor then Seller and the Indemnitee ATI and Purchaser shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee Purchaser and the Indemnitor Seller and ATI resolve such dispute in writing, then their resolution of such dispute shall be binding on the Indemnitor, the Escrow Participants and the Indemnitee and a settlement agreement stipulating the amount (if any) owed to the Indemnitee Purchaser (the “Stipulated Amount”) shall be signed by the Indemnitee Purchaser and the IndemnitorSeller and ATI. Within three days after the execution of such settlement [*** ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. agreement:
(i) if the Indemnitee is a Parent Indemnitee, then Parent Purchaser and the Stockholders’ Representative Seller and ATI shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Stipulated Amount (or such lesser amount as may remain in the Escrow Fund) to the Parent Indemnitee Purchaser from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Stipulated Amount.
(f) If the Indemnitor Seller and the Indemnitee ATI and Purchaser are unable to resolve the dispute relating to any Contested Amount during the 30-day period commencing upon the delivery receipt of the Response Notice to the Indemniteeby Purchaser, then either the Indemnitee Purchaser or the Indemnitor Seller and ATI may submit the contested portion of the indemnification claim to binding arbitration in the State of California Indemnification Claim for resolution in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee and the Indemnitor; provided, however, that if the Indemnitee and the Indemnitor fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award AmountSection 8.4.
(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.
(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund as of the Escrow Termination Date (the “Aggregate Escrow Balance”) as of the Designated Date exceeds the aggregate dollar amount, as of the Designated Escrow Termination Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees Indemnification Claims that have not been finally resolved and paid prior to the Designated Escrow Termination Date in accordance with this Section 9.7 6.4 (each, an “Unresolved Escrow Claim”) (,” and the aggregate dollar amount of such excess Contested Amounts as of the Escrow Termination Date being referred to as the “Aggregate Second Distribution Pending Claim Amount”), then within five business days after the Designated Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to shall release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time Seller and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying ATI the Aggregate Proceeds Contribution Fraction with respect to such share Distribution Amount. For purposes of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by this Section 6.4, the “Aggregate Distribution Amount” shall be the Aggregate Second Distribution Escrow Balance as of the Escrow Termination Date minus the Aggregate Pending Claim Amount.
(jh) Following the Designated Escrow Termination Date, if an Unresolved Escrow Claim is finally resolved, Parent Purchaser and the Stockholders’ Representative Seller and ATI shall jointly execute and deliver to the Escrow Agent, within three days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect theretoClaim, a written notice instructing the Escrow Agent to release from the Indemnity Escrow Fund to each Seller and ATI the Excess Escrow ParticipantAmount. For purposes of this Section 6.4, with respect to each share of Company Capital Stock held by such the “Excess Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by Amount” shall mean the amount (if any) by which the Aggregate aggregate amount remaining in the Escrow Balance Fund as of the date of resolution of such date Unresolved Escrow Claim exceeds the aggregate amount of the Claimed Contested Amounts and Contested Amounts, as the case may be, associated with all other remaining Unresolved Escrow Claims.
(k) All cash released to Escrow Participants pursuant to this Section 9.7 will be deemed to have been released in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as the case may be.
(l) The parties agree that any cash released from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, be treated as a reduction in the Aggregate Closing Transaction Value for federal income tax purposes.
Appears in 1 contract
Indemnification Claims; Escrow Arrangements. (a) If any Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may be entitled to be held harmless, indemnified, compensated or reimbursed under this Section 94, such Indemnitee may deliver a notice to the Indemnitor Stockholders’ Representative (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement described in such Notice of Indemnification Claim being referred to as an “indemnification claim”), which shall: shall (i) state that such Indemnitee believes that that there is or has been an inaccuracy in or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9; 4, (ii) contain a brief description of the circumstances supporting such Indemnitee’s belief that there is or has been such an inaccuracy or breach or that such Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursed; , and (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential Damages that have arisen and may arise as a result of the inaccuracy, breach or other matter referred to in such notice (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, being referred to as the “Claimed Amount”).
(b) During the 30-day period (the “Dispute Period”) commencing upon (i) the delivery by an Indemnitee to the Indemnitor Stockholders’ Representative of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal Proceedingthe “Dispute Period”), the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor Stockholders’ Representative shall deliver to the Indemnitee a written response (the “Response Notice”) in which the IndemnitorStockholders’ Representative: (i) agrees that the full Claimed Amount is owed to the Indemnitee; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the Indemnitee; or (iii) asserts that no part of the Claimed Amount is owed to the Indemnitee. Any part of the Claimed Amount that is not agreed by the Indemnitor Stockholders’ Representative to be owed to the Indemnitee pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor asserts in the Response Notice that no part of the Claimed Amount is owed to the Indemnitee) shall be referred to as the “Contested Amount” (it being understood that the Contested Amount shall be modified from time to time to reflect any good faith modifications by the Indemnitee to the Claimed Amount). If a Response Notice is not received by the Indemnitee prior to the expiration of the Dispute Period, then the Indemnitor shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claim.
(c) If the Indemnitor delivers a Response Notice to the Indemnitee agreeing that the full Claimed Amount is owed to the Indemnitee, or if the Indemnitor does not deliver a Response Notice to the Indemnitee during the Dispute Period, then, within three days following the earlier of the delivery of such Response Notice to the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the full Claimed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the full Claimed Amount.
(d) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period agreeing that less than the full Claimed Amount is owed to the Indemnitee, then, within three days following the delivery of such Response Notice to the Indemnitee:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Agreed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Agreed Amount.
(e) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period indicating that there is a Contested Amount, the Indemnitor and the Indemnitee shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee and the Indemnitor resolve such dispute in writing, then their resolution of such dispute shall be binding on the Indemnitor, the Escrow Participants and the Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee (the “Stipulated Amount”) shall be signed by the Indemnitee and the Indemnitor. Within three days after the execution of such settlement agreement:
(i) if the Indemnitee is a Parent Indemnitee, then Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Stipulated Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Stipulated Amount.
(f) If the Indemnitor and the Indemnitee are unable to resolve the dispute relating to any Contested Amount during the 30-day period commencing upon the delivery of the Response Notice to the Indemnitee, then either the Indemnitee or the Indemnitor may submit the contested portion of the indemnification claim to binding arbitration in the State of California in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee and the Indemnitor; provided, however, that if the Indemnitee and the Indemnitor fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award Amount.
(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.
(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund (the “Aggregate Escrow Balance”) as of the Designated Date exceeds the aggregate dollar amount, as of the Designated Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid prior to the Designated Date in accordance with this Section 9.7 (each, an “Unresolved Escrow Claim”) (the amount of such excess being referred to as the “Aggregate Second Distribution Amount”), then within five business days after the Designated Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Second Distribution Amount.
(j) Following the Designated Date, if an Unresolved Escrow Claim is finally resolved, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent, within three days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect thereto, a written notice instructing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the amount (if any) by which the Aggregate Escrow Balance as of such date exceeds the aggregate amount of the Claimed Amounts and Contested Amounts, as the case may be, associated with all remaining Unresolved Escrow Claims.
(k) All cash released to Escrow Participants pursuant to this Section 9.7 will be deemed to have been released in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as the case may be.
(l) The parties agree that any cash released from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, be treated as a reduction in the Aggregate Closing Transaction Value for federal income tax purposes.Response
Appears in 1 contract
Indemnification Claims; Escrow Arrangements. (a) If any Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may Purchaser and the other Purchaser Indemnified Parties shall not be entitled to be held harmless, indemnified, compensated or reimbursed indemnification under this Section 9, such Indemnitee may deliver 6 from the Escrow Fund unless Purchaser has duly delivered a written notice to Seller and the Indemnitor Escrow Agent (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement indemnification described in such Notice of Indemnification Claim being referred to as an “indemnification claim”), which shallsetting forth: (i) state that such Indemnitee believes that that there is the specific representation and warranty of Seller or has the Company or the provision alleged to have been an inaccuracy in inaccurate or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9breached; (ii) contain a brief reasonably detailed description of the facts and circumstances supporting giving rise to the alleged inaccuracy in such Indemnitee’s belief that there is representation and warranty or has been alleged breach of such an inaccuracy or breach or that such Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursedprovision; and (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential the Damages that have arisen and may arise been incurred by the applicable Purchaser Indemnified Party as a direct result of the inaccuracy, inaccuracy or breach or other matter referred to in such notice (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, estimate being referred to as the “Claimed Amount”).
(b) During the 3060-day period (the “Dispute Period”) commencing upon (i) the delivery receipt by an Indemnitee to the Indemnitor Seller of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal ProceedingClaim, the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor shall Seller may deliver to Purchaser and the Indemnitee Escrow Agent a written response (the “Response Notice”) in which the IndemnitorSeller: (i) agrees that the full Claimed Amount is owed to the IndemniteePurchaser or any other Purchaser Indemnified Party; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the IndemniteePurchaser or any other Purchaser Indemnified Party; or (iii) asserts that no part of the Claimed Amount is owed to the IndemniteePurchaser or any other Purchaser Indemnified Party. Any part of the Claimed Amount that is not agreed by the Indemnitor Seller to be owed to the Indemnitee Purchaser or any other Purchaser Indemnified Party pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor Seller asserts in the Response Notice that no part of the Claimed Amount is owed to the IndemniteePurchaser or any other Purchaser Indemnified Party) shall be referred to as the “Contested Amount.” (it being understood that the Contested Amount If no Response Notice is delivered during such 60-day period, then, for purposes of this Agreement, Seller shall be modified from time deemed to time have delivered to reflect any good faith modifications by Purchaser and the Indemnitee to the Claimed Amount). If Escrow Agent a Response Notice is not received by (in accordance with Section 6.6(c) below) on the Indemnitee prior to the expiration last day of the Dispute Period, then the Indemnitor shall be conclusively and irrevocably deemed to have agreed such 60-day period asserting that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claimPurchaser or any other Purchaser Indemnified Party.
(c) If the Indemnitor Seller delivers a Response Notice to the Indemnitee Purchaser agreeing that the full Claimed Amount is owed to the Indemnitee, Purchaser or if the Indemnitor does not deliver a Response Notice to the Indemnitee during the Dispute Periodany other Purchaser Indemnified Party, then, within three days following the earlier of the delivery receipt of such Response Notice to the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee is a Parent Indemniteeby Purchaser, Parent Purchaser and the Stockholders’ Representative Seller shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the full Claimed Amount (or such lesser amount as may remain in the Escrow Fund) to Purchaser or the Parent Indemnitee applicable Purchaser Indemnified Party from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the full Claimed Amount.
(d) If the Indemnitor Seller delivers a Response Notice to the Indemnitee during the Dispute Period Purchaser agreeing that less than the full Claimed Amount is owed to the IndemniteePurchaser or any other Purchaser Indemnified Party, then, within three days following the delivery receipt of such Response Notice to the Indemnitee:
(i) if the Indemnitee is a Parent Indemniteeby Purchaser, Parent Purchaser and the Stockholders’ Representative Seller shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Agreed Amount (or such lesser amount as may remain in the Escrow Fund) to Purchaser or the Parent Indemnitee applicable Purchaser Indemnified Party from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Agreed Amount.
(e) If the Indemnitor Seller delivers a Response Notice to the Indemnitee during the Dispute Period Purchaser indicating that there is a Contested Amount, the Indemnitor Seller and the Indemnitee Purchaser shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee Purchaser and the Indemnitor Seller resolve such dispute in writing, then their resolution of such dispute shall be binding on the Indemnitor, the Escrow Participants and the Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee Purchaser (the “Stipulated Amount”) shall be signed by the Indemnitee Purchaser and the IndemnitorSeller. Within three days after the execution of such settlement agreement:
(i) if the Indemnitee is a Parent Indemnitee, then Parent Purchaser and the Stockholders’ Representative Seller shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Stipulated Amount (or such lesser amount as may remain in the Escrow Fund) to Purchaser or the Parent Indemnitee applicable Purchaser Indemnified Party from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Stipulated Amount.
(f) If the Indemnitor Seller and the Indemnitee Purchaser are unable to resolve the dispute relating to any Contested Amount during the 30-day period commencing upon the delivery receipt of the Response Notice to the Indemniteeby Purchaser, then either the Indemnitee Purchaser or the Indemnitor Seller may submit the contested portion of the indemnification claim to binding arbitration in the State of California in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee and the Indemnitor; provided, however, that if the Indemnitee and the Indemnitor fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award Amount.
(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.
(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund (the “Aggregate Escrow Balance”) as of the Designated Date exceeds the aggregate dollar amount, as of the Designated Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid prior to the Designated Date in accordance with this Section 9.7 (each, an “Unresolved Escrow Claim”) (the amount of such excess being referred to as the “Aggregate Second Distribution Amount”), then within five business days after the Designated Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Second Distribution Amount.
(j) Following the Designated Date, if an Unresolved Escrow Claim is finally resolved, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent, within three days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect thereto, a written notice instructing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the amount (if any) by which the Aggregate Escrow Balance as of such date exceeds the aggregate amount of the Claimed Amounts and Contested Amounts, as the case may be, associated with all remaining Unresolved Escrow Claims.
(k) All cash released to Escrow Participants pursuant to this Section 9.7 will be deemed to have been released in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as the case may be.
(l) The parties agree that any cash released from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, be treated as a reduction in the Aggregate Closing Transaction Value for federal income tax purposes.accordance
Appears in 1 contract
Samples: Purchase Agreement (Ipass Inc)
Indemnification Claims; Escrow Arrangements. (a) If any No Parent Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may shall be entitled to be held harmless, indemnified, compensated or reimbursed indemnification under this Section 9, such Indemnitee may deliver Article VII out of the Escrow Fund unless it has duly delivered a written notice to the Indemnitor Escrow Representative and the Escrow Agent (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement indemnification described in such Notice of Indemnification Claim being referred to as an “indemnification claimIndemnification Claim”), which shallsetting forth to the extent known at such time: (i) state that the specific representation and warranty of the Company alleged to have been inaccurate or specific covenant of the Company alleged to have been breached or other specific circumstance entitling such Parent Indemnitee believes that that there is or has been an inaccuracy in or breach of a representation, warranty, covenant or obligation contained in this Agreement or that to such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9indemnification; (ii) contain a brief reasonably detailed description of the facts and circumstances supporting giving rise to the alleged inaccuracy in such Indemnitee’s belief that there is or has been such an inaccuracy representation and warranty or breach of such covenant or that other specific circumstance entitling such Parent Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursedsuch indemnification; and (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential Damages the Losses that have arisen been incurred by Parent or that Parent reasonably and may arise in good faith estimates it will incur as a result of the inaccuracy, inaccuracy or breach or other matter circumstance referred to in such notice (the aggregate amount of such estimateactual or estimated Losses, as it may be modified by such Indemnitee in good faith amended from time to timetime by Parent upon delivery of written notice to the Escrow Representative and the Escrow Agent, being referred to as the “Claimed Amount”).
(b) During the 30-day period (the “Dispute Period”) commencing upon (i) the delivery receipt by an Indemnitee to the Indemnitor Escrow Representative of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal ProceedingClaim, the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor shall Escrow Representative may deliver to Parent and the Indemnitee Escrow Agent a written response (the “Response Notice”) in which the IndemnitorEscrow Representative: (i) agrees that the full Claimed Amount is owed to the IndemniteeParent; (ii) agrees agree that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the IndemniteeParent; or (iii) asserts assert that no part of the Claimed Amount is owed to the IndemniteeParent. Any part of the Claimed Amount that is not agreed by the Indemnitor Escrow Representative to be owed to the Indemnitee pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor asserts in the Response Notice that no part of the Claimed Amount is owed to the Indemnitee) Parent shall be referred to as the “Contested Amount.” (it being understood that If the Contested Amount shall be modified from time Escrow Representative fails to time to reflect any good faith modifications by the Indemnitee to the Claimed Amount). If deliver a Response Notice is not received within 30 days after its receipt of a Notice of Indemnification Claim, the Escrow Agent shall release to Parent such portion of the Claimed Amount as Parent shall have certified in writing to the Escrow Agent as having been actually incurred by the Indemnitee Parent prior to the expiration of the Dispute Period, then the Indemnitor shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claimdate.
(c) If the Indemnitor delivers Escrow Representative and Parent are unable to resolve any dispute relating to any Contested Amount during the 30-day period commencing upon the receipt of the Response Notice by Parent, then such dispute will be resolved in accordance with Section 10.14.
(d) Upon final determination that a Parent Indemnitee is entitled to be indemnified out of the Escrow Fund for all or any portion of any Indemnification Claim, whether as a result of the Escrow Representative delivering a Response Notice to the Indemnitee Parent agreeing that the full all or any part of a Claimed Amount is owed to the Indemnitee, any Parent Indemnitee or if the Indemnitor does not deliver a Response Notice to the Indemnitee during the Dispute Periodafter any dispute is resolved in accordance with Section 10.14, then, within three days five Business Days following the earlier of the delivery receipt of such Response Notice to the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee is a Parent Indemniteeby Parent, Parent and the Stockholders’ Escrow Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the full Claimed Amount applicable resolved amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the full Claimed Amount.
(d) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period agreeing that less than the full Claimed Amount is owed to the Indemnitee, then, within three days following the delivery of such Response Notice to the Indemnitee:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Agreed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Agreed Amount.
(e) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period indicating that there is a Contested Amount, the Indemnitor and the Indemnitee shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee and the Indemnitor resolve such dispute in writing, then their resolution of such dispute shall be binding on the Indemnitor, the Escrow Participants and the Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee (the “Stipulated Amount”) shall be signed by the Indemnitee and the Indemnitor. Within three days after the execution of such settlement agreement:
(i) if the Indemnitee is a Parent Indemnitee, then Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Stipulated Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Stipulated Amount.
(f) If the Indemnitor and the Indemnitee are unable to resolve the dispute relating to any Contested Amount during the 30-day period commencing upon the delivery of the Response Notice to the Indemnitee, then either the Indemnitee or the Indemnitor may submit the contested portion of the indemnification claim to binding arbitration in the State of California in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee and the Indemnitor; provided, however, that if the Indemnitee and the Indemnitor fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award Amount.
(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.
(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund Fund, including any interest accrued or income otherwise earned thereon, as of the Escrow Release Date (the “Aggregate Escrow Balance”) as of the Designated Date exceeds the aggregate dollar amount, as of the Designated Escrow Release Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees Indemnification Claims that have not been finally resolved and paid prior to the Designated Escrow Release Date in accordance with this Section 9.7 7.4(e) (each, an “Unresolved Escrow Claim”) (,” and the aggregate dollar amount of such excess Contested Amounts being referred to as the “Aggregate Second Distribution Pending Claim Amount”), then within five business days after the Designated Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to shall release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option Escrow Participant's Escrow Participation Percentage by the Aggregate Second Distribution Amount. For purposes of this Section 7.4(e), the “Aggregate Distribution Amount” shall be the Aggregate Escrow Balance as of the Escrow Release Date minus the Aggregate Pending Claim Amount.
(jf) Following the Designated Escrow Release Date, if an Unresolved Escrow Claim is finally resolved, Parent and the Stockholders’ Escrow Representative shall jointly execute and deliver to the Escrow Agent, within three days five Business Days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect theretoClaim, a written notice instructing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option Escrow Participant's Escrow Participation Percentage by the amount (if any) by which the Aggregate aggregate amount remaining in the Escrow Balance Fund, including any interest accrued or income otherwise earned thereon, as of the date of resolution of such date Unresolved Escrow Claim exceeds the aggregate amount of the Claimed Amounts and Contested Amounts, as the case may be, associated with all other remaining Unresolved Escrow Claims.
(k) All cash released to Escrow Participants pursuant to this Section 9.7 will be deemed to have been released in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as the case may be.
(l) The parties agree that any cash released from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, be treated as a reduction in the Aggregate Closing Transaction Value for federal income tax purposes.
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Indemnification Claims; Escrow Arrangements. (a) If any Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may be entitled to be held harmless, indemnified, compensated or reimbursed To seek indemnity under this Section 96, such Indemnitee may Purchaser shall deliver a written notice to Seller and the Indemnitor Escrow Agent (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement indemnification described in such Notice of Indemnification Claim being referred to as an “indemnification claimIndemnification Claim”), which shallsetting forth: (i) state that such Indemnitee believes that that there is the specific representation and warranty or has covenant alleged to have been an inaccuracy in or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9breached by Seller; (ii) contain a brief detailed description of the facts and circumstances supporting giving rise to the alleged breach of such Indemnitee’s belief that there is representation and warranty or has been such an inaccuracy or breach or that such Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursedcovenant; and (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential the Damages that have arisen and been or in the estimate of Purchaser may arise be incurred by Purchaser Indemnified Parties as a direct result of the inaccuracy, breach or other matter claims referred to in such notice (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, Damages being referred to as the “Claimed Amount”).
(b) During the thirty (30-) day period (the “Dispute Period”) commencing upon (i) the delivery receipt by an Indemnitee to the Indemnitor Seller of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal ProceedingClaim, the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor shall Seller may deliver to Purchaser and the Indemnitee Escrow Agent a written response (the “Response Notice”) in which the IndemnitorSeller: (i) agrees that the full Claimed Amount is owed to the IndemniteePurchaser Indemnified Parties; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the IndemniteePurchaser Indemnified Parties; or (iii) asserts that no part of the Claimed Amount is owed to the IndemniteePurchaser Indemnified Parties. Any part of the Claimed Amount that is not agreed by the Indemnitor Seller to be owed to the Indemnitee Purchaser Indemnified Parties pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor Seller asserts in the Response Notice that no part of the Claimed Amount is owed to the IndemniteePurchaser Indemnified Parties) shall be referred to as the “Contested Amount.” If no Response Notice is delivered during such thirty (it being understood that the Contested Amount 30) day period, then, for purposes of this Agreement, Seller shall be modified from time deemed to time have delivered to reflect any good faith modifications by Purchaser and the Indemnitee to the Claimed Amount). If Escrow Agent a Response Notice is not received by on the Indemnitee prior to the expiration of the Dispute Period, then the Indemnitor shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation last day of such claim.
thirty (c30) If the Indemnitor delivers a Response Notice to the Indemnitee day period agreeing that the full Claimed Amount is owed to the Indemnitee, Purchaser Indemnified Parties.
(c) If Seller delivers or if the Indemnitor does not deliver is deemed to have delivered a Response Notice to Purchaser agreeing that the Indemnitee during the Dispute Periodfull Claimed Amount is owed to Purchaser Indemnified Parties, then, within three (3) days following the earlier of the delivery receipt or deemed receipt of such Response Notice to the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee is a Parent Indemniteeby Purchaser, Parent Purchaser and the Stockholders’ Representative Seller shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the full Claimed Amount (or such lesser amount as may remain in the Indemnity Escrow Fund) to the Parent Indemnitee Purchaser from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the full Claimed Amount.
(d) If the Indemnitor Seller delivers a Response Notice to the Indemnitee during the Dispute Period Purchaser agreeing that less than the full Claimed Amount is owed to the IndemniteePurchaser, then, within three (3) days following the delivery receipt of such Response Notice to the Indemnitee:
(i) if the Indemnitee is a Parent Indemniteeby Purchaser Indemnified Parties, Parent Purchaser and the Stockholders’ Representative Seller shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Agreed Amount (or such lesser amount as may remain in the Indemnity Escrow Fund) to the Parent Indemnitee Purchaser from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Agreed Amount.
(e) If the Indemnitor Seller delivers a Response Notice to the Indemnitee during the Dispute Period Purchaser indicating that there is a Contested Amount, the Indemnitor then Seller and the Indemnitee Purchaser shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee Purchaser and the Indemnitor Seller resolve such dispute in writing, then their resolution of such dispute shall be binding on the Indemnitor, the Escrow Participants and the Indemnitee and a settlement agreement stipulating the amount (if any) owed to the Indemnitee Purchaser Indemnified Parties (the “Stipulated Amount”) shall be signed by the Indemnitee Purchaser and the IndemnitorSeller. Within three (3) days after the execution of such settlement agreement:
(i) if the Indemnitee is a Parent Indemnitee, then Parent Purchaser and the Stockholders’ Representative Seller shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Stipulated Amount (or such lesser amount as may remain in the Indemnity Escrow Fund) to the Parent Indemnitee Purchaser from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Stipulated Amount.
(f) If the Indemnitor Seller and the Indemnitee Purchaser are unable to resolve the dispute relating to any Contested Amount during the thirty (30-) day period commencing upon the delivery receipt of the Response Notice to the Indemniteeby Purchaser, then either the Indemnitee Purchaser or the Indemnitor Seller may submit the contested portion of the indemnification claim Indemnification Claim to binding arbitration in the State a court of California competent jurisdiction in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee and the Indemnitor; provided, however, that if the Indemnitee and the Indemnitor fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award AmountSection 9.4.
(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.
(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund as of the Representation Termination Date (the “Aggregate Indemnity Escrow Balance”) as of the Designated Date exceeds the aggregate dollar amount, as of the Designated Representation Termination Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees Indemnification Claims that have not been finally resolved and paid prior to the Designated Representation Termination Date in accordance with this Section 9.7 6.4 (each, an “Unresolved Indemnity Escrow Claim”) (,” and the aggregate dollar amount of such excess Contested Amounts as of the Representation Termination Date being referred to as the “Aggregate Second Distribution Pending Claim Amount”), then within five business days after the Designated Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to shall release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying Seller the Aggregate Proceeds Contribution Fraction with respect to such share Distribution Amount. For purposes of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by this Section 6.4, the “Aggregate Distribution Amount” shall be the Aggregate Second Distribution Indemnity Escrow Balance as of the Representation Termination Date minus the Aggregate Pending Claim Amount.
(jh) Following the Designated Representation Termination Date, if an Unresolved Indemnity Escrow Claim is finally resolved, Parent Purchaser and the Stockholders’ Representative Seller shall jointly execute and deliver to the Escrow Agent, within three (3) days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect theretoClaim, a written notice instructing the Escrow Agent to release to Purchaser the portion of the Claimed Amount that is deemed payable to the Purchaser Indemnified Parties and to release from the Indemnity Escrow Fund to each Seller the Excess Indemnity Escrow ParticipantAmount. For purposes of this Section 6.4, with respect to each share of Company Capital Stock held by such the “Excess Indemnity Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by Amount” shall mean the amount (if any) by which the Aggregate aggregate amount remaining in the Indemnity Escrow Balance Fund as of the date of resolution of such date Unresolved Indemnity Escrow Claim exceeds the aggregate amount of the Claimed Contested Amounts and Contested Amounts, as the case may be, associated with all other remaining Unresolved Indemnity Escrow Claims.
(k) All cash released to Escrow Participants pursuant to this Section 9.7 will be deemed to have been released in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as the case may be.
(l) The parties agree that any cash released from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, be treated as a reduction in the Aggregate Closing Transaction Value for federal income tax purposes.
Appears in 1 contract
Indemnification Claims; Escrow Arrangements. (a) If any Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may be entitled to be held harmless, indemnified, compensated or reimbursed under this Section 910, such Indemnitee may deliver a notice to the Indemnitor Stockholders’ Representative (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement described in such Notice of Indemnification Claim being referred to as an “indemnification claim”), which shall: shall (i) state that such Indemnitee believes that that there is or has been an inaccuracy in or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9; 10, (ii) contain a brief description of the circumstances supporting such Indemnitee’s belief that there is or has been such an inaccuracy or breach or that such Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursed; and , (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential Damages that have arisen and may arise as a result of the inaccuracy, breach or other matter referred to in such notice (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, being referred to as the “Claimed Amount”), and (iv) specify whether the indemnification claim described in such notice is being made by such Indemnitee (A) solely against the Escrow Fund pursuant to Section 10.2(a) (an “Escrow Claim”), (B) directly against the Key Stockholders pursuant to Section 10.2(b) (a “§10.2(b) Claim”), (C) both against the Escrow Fund pursuant to Section 10.2(a) and directly against the Key Stockholders pursuant to Section 10.2(b) (a “Combined Claim”), or (D) against a particular Key Stockholder pursuant to Section 10.2(c) (a “§10.2(c) Claim”).
(b) During the 30-day period (the “Dispute Period”) commencing upon (i) the delivery by an Indemnitee to the Indemnitor Stockholders’ Representative of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal Proceedingthe “Dispute Period”), the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor Stockholders’ Representative shall deliver to the Indemnitee a written response (the “Response Notice”) in which the IndemnitorStockholders’ Representative: (i) agrees that the full Claimed Amount is owed to the Indemnitee; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the Indemnitee; or (iii) asserts that no part of the Claimed Amount is owed to the Indemnitee. Any part of the Claimed Amount that is not agreed by the Indemnitor to be owed to the Indemnitee pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor asserts in the Response Notice that no part of the Claimed Amount is owed to the Indemnitee) shall be referred to as the “Contested Amount” (it being understood that the Contested Amount shall be modified from time to time to reflect any good faith modifications by the Indemnitee to the Claimed Amount). If a Response Notice is not received by the Indemnitee prior to the expiration of the Dispute Period, then the Indemnitor shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claim.
(c) If the Indemnitor delivers a Response Notice to the Indemnitee agreeing that the full Claimed Amount is owed to the Indemnitee, or if the Indemnitor does not deliver a Response Notice to the Indemnitee during the Dispute Period, then, within three days following the earlier of the delivery of such Response Notice to the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the full Claimed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the full Claimed Amount.
(d) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period agreeing that less than the full Claimed Amount is owed to the Indemnitee, then, within three days following the delivery of such Response Notice to the Indemnitee:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Agreed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Agreed Amount.
(e) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period indicating that there is a Contested Amount, the Indemnitor and the Indemnitee shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee and the Indemnitor resolve such dispute in writing, then their resolution of such dispute shall be binding on the Indemnitor, the Escrow Participants and the Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee (the “Stipulated Amount”) shall be signed by the Indemnitee and the Indemnitor. Within three days after the execution of such settlement agreement:
(i) if the Indemnitee is a Parent Indemnitee, then Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Stipulated Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Stipulated Amount.
(f) If the Indemnitor and the Indemnitee are unable to resolve the dispute relating to any Contested Amount during the 30-day period commencing upon the delivery of the Response Notice to the Indemnitee, then either the Indemnitee or the Indemnitor may submit the contested portion of the indemnification claim to binding arbitration in the State of California in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee and the Indemnitor; provided, however, that if the Indemnitee and the Indemnitor fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award Amount.
(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.
(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund (the “Aggregate Escrow Balance”) as of the Designated Date exceeds the aggregate dollar amount, as of the Designated Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid prior to the Designated Date in accordance with this Section 9.7 (each, an “Unresolved Escrow Claim”) (the amount of such excess being referred to as the “Aggregate Second Distribution Amount”), then within five business days after the Designated Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Second Distribution Amount.
(j) Following the Designated Date, if an Unresolved Escrow Claim is finally resolved, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent, within three days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect thereto, a written notice instructing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the amount (if any) by which the Aggregate Escrow Balance as of such date exceeds the aggregate amount of the Claimed Amounts and Contested Amounts, as the case may be, associated with all remaining Unresolved Escrow Claims.
(k) All cash released to Escrow Participants pursuant to this Section 9.7 will be deemed to have been released in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as the case may be.
(l) The parties agree that any cash released from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, be treated as a reduction in the Aggregate Closing Transaction Value for federal income tax purposes.
Appears in 1 contract
Indemnification Claims; Escrow Arrangements. (a) If any Section 8.7.1 No Parent Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may shall be entitled to be held harmless, indemnified, compensated or reimbursed indemnification under this Section 9, such Article VIII unless the Parent Indemnitee may deliver has duly delivered a written notice to the Indemnitor and the Escrow Agent (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement indemnification described in such Notice of Indemnification Claim being referred to as an “indemnification claimIndemnification Claim”), which shallsetting forth: (i) state that the specific representation and warranty of the Company or the Purchaser Parties, as applicable, alleged to have been inaccurate or specific covenant of the Company or the Purchaser Parties, as applicable, alleged to have been breached or other specific circumstance entitling the Parent Indemnitee to such Indemnitee believes that that there is or has been an inaccuracy in or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9indemnification; (ii) contain if known, a brief reasonably detailed description of the facts and circumstances supporting giving rise to the alleged inaccuracy in such Indemnitee’s belief that there is or has been such an inaccuracy representation and warranty or breach of such covenant or that other specific circumstance entitling the Parent Indemnitee to such Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursedindemnification; and (iii) contain a good faithif known, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential the Damages that have arisen been, or are reasonably expected to be, incurred and may arise as a result of for which the inaccuracy, breach or other matter referred to in such notice Parent Indemnitee is seeking indemnification hereunder (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, estimate being referred to as the “Claimed Amount”).
(b) Section 8.7.2 During the thirty (30-) day period (the “Dispute Period”) commencing upon (i) the delivery receipt by an Indemnitee to the Indemnitor of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal Proceeding, the final resolution or settlement of such claim or Legal ProceedingClaim, the Indemnitor shall may deliver to the Parent Indemnitee and the Escrow Agent a written response (the “Response Notice”) in which the Indemnitor: (i) agrees that the full Claimed Amount is owed to the Parent Indemnitee; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the Parent Indemnitee; or (iii) asserts that no part of the Claimed Amount is owed to the Parent Indemnitee. Any Response Notice contemplated by clause (ii) or (iii) shall include a reasonably detailed description of the Indemnitor’s reasons for such objection. Any part of the Claimed Amount that is not agreed by the Indemnitor to be owed to the Parent Indemnitee pursuant shall be referred to as the “Contested Amount.”
Section 8.7.3 If the Indemnitor delivers a Response Notice to the Response Notice (Parent Indemnitee agreeing that all or the entire Claimed Amount, if the Indemnitor asserts in the Response Notice that no any part of the Claimed Amount is owed to the Parent Indemnitee) shall be referred to as the “Contested Amount” (it being understood that the Contested Amount shall be modified from time to time to reflect any good faith modifications by the Indemnitee to the Claimed Amount). If a Response Notice is not received by the Indemnitee prior to the expiration of the Dispute Period, then the Indemnitor shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claim.
(c) If the Indemnitor delivers a Response Notice to the Indemnitee agreeing that the full Claimed Amount is owed to the Indemnitee, or if the Indemnitor does not deliver a Response Notice to the Indemnitee during the Dispute Period, then, within three days (3) Business Days following the earlier of the delivery receipt of such Response Notice to by the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee is a Parent Indemnitee, the Parent Indemnitee and the Stockholders’ Representative Indemnitor shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release such amount agreed to by the full Claimed Amount Indemnitor (or such lesser amount as may remain in the Indemnity Escrow Fund) to the Parent Indemnitee from the Indemnity Escrow Fund; and
. If the Indemnitor fails to deliver a Response Notice within thirty (ii30) if days after its receipt of a Notice of Indemnification Claim, the Indemnitee is a Company Indemnitee, Parent Escrow Agent shall pay release to the Company Indemnitee, in cash, an amount equal to Parent Indemnitee the full Claimed Amount.
(d) Section 8.7.4 If the Indemnitor delivers a and the Parent Indemnitee are unable to resolve any dispute relating to any Contested Amount during the thirty (30) day period commencing upon the receipt of the Response Notice by Parent, then such dispute will be resolved in accordance with Section 9.10.3 or otherwise by written agreement between the Parent Indemnitee and the Indemnitor. Following any such resolution, the Parent Indemnitee and the Indemnitor shall jointly execute and deliver to the Indemnitee during the Dispute Period agreeing that less than the full Claimed Amount is owed to the Indemnitee, thenEscrow Agent, within three days following (3) Business Days after such resolution, a written notice instructing the delivery Escrow Agent to make payment, if any, from the Indemnity Escrow Fund consistent with such resolution.
Section 8.7.5 If the aggregate amount remaining in the Indemnity Escrow Fund, including any interest accrued or income otherwise earned thereon, as of the Expiration Date (the “Aggregate Escrow Balance”) exceeds the aggregate dollar amount, as of the Expiration Date, of the Contested Amounts associated with all Indemnification Claims that have not been finally resolved and paid prior to the Expiration Date in accordance with this Section 8.5 (each, an “Unresolved Escrow Claim,” and the aggregate dollar amount of such Response Notice Contested Amounts as of the Expiration Date being referred to as the Indemnitee:
(i) if “Aggregate Pending Claim Amount”), then the Parent Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative Indemnitor shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Agreed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Agreed Amount.
(e) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period indicating that there is a Contested Amount, the Indemnitor and the Indemnitee shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee and the Indemnitor resolve such dispute in writing, then their resolution of such dispute shall be binding on the Indemnitor, the Escrow Participants and the Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee (the “Stipulated Amount”) shall be signed by the Indemnitee and the Indemnitor. Within three days after the execution of such settlement agreement:
(i) if the Indemnitee is a Parent Indemnitee, then Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Stipulated Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Stipulated Amount.
(f) If the Indemnitor and the Indemnitee are unable to resolve the dispute relating to any Contested Amount during the 30-day period commencing upon the delivery of the Response Notice to the Indemnitee, then either the Indemnitee or the Indemnitor may submit the contested portion of the indemnification claim to binding arbitration in the State of California in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee and the Indemnitor; provided, however, that if the Indemnitee and the Indemnitor fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award Amount.
(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any (i) each holder of shares of Common Stock or Preferred Stock, Company Warrants or Company Notes, the amount determined by multiplying such Equityholder’s Percentage Share for shares of Common Stock and Preferred Stock, Company Warrants or Company Notes by the Aggregate Distribution Amount and (ii) the Surviving Corporation or a third party designated by Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount pay holders of all Claimed Amounts or Contested AmountsCompany Options and Company RSUs, as the case may beapplicable, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share Percentage Share for Company Options for all holders of Company Capital Stock Options or such share Company RSUs for all holders of Company Common Stock subject to such In-the-Money Company Option RSUs, as applicable, by the Aggregate Initial Distribution Amount.
. Within five (h5) Following Business Days following the Initial Release Date, upon the final resolution receipt of any indemnification claim that was amounts specified in the preceding sentence by the Surviving Corporation or such third party designated by Parent, Parent shall cause the Surviving Corporation through its payroll or such third party to promptly pay to each holder of Company Options and Company RSUs, as applicable, an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect equal to such Unresolved Claim is less than holder’s share of the amount of such Unresolved Claim used for purposes of determining amounts specified in the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participantspreceding sentence, in the respective proportions accordance with such holder’s Percentage Share for such Company Options and Company RSUs, as applicable, less applicable withholding as set forth in Section 9.7(g)2.12. For purposes of this Section 8.5, any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund (the “Aggregate Distribution Amount” shall be the Aggregate Escrow Balance”) Balance as of the Designated Expiration Date exceeds the aggregate dollar amount, as of the Designated Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid prior to the Designated Date in accordance with this Section 9.7 (each, an “Unresolved Escrow Claim”) (the amount of such excess being referred to as the “Aggregate Second Distribution Amount”), then within five business days after the Designated Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying minus the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Second Distribution Pending Claim Amount.
(j) Section 8.7.6 Following the Designated Expiration Date, if an Unresolved Escrow Claim is finally resolved, the Parent Indemnitee and the Stockholders’ Representative Indemnitor shall jointly execute and deliver to the Escrow Agent, within three days (3) Business Days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect theretoClaim, a written notice instructing the Escrow Agent to release make payments, if any, from the Indemnity Escrow Fund consistent with such resolution. The payment of any amount released from the Indemnity Escrow Fund to (i) each Escrow Participant, with respect to each share holder of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share shares of Company Common Stock subject to an In-the-Money or Preferred Stock, Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash Warrants or Company Notes shall be determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share Equityholder’s Percentage Share for shares of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money and Preferred Stock, Company Option Warrants or Company Notes by the amount (if any) by which the Aggregate aggregate amount remaining in the Indemnity Escrow Balance Fund, including any interest accrued or income otherwise earned thereon, as of the date of resolution of such date Unresolved Escrow Claim exceeds the aggregate amount of the Claimed Contested Amounts and Contested Amounts, as the case may be, associated with all other remaining Unresolved Escrow Claims and (ii) to (ii) the Surviving Corporation or a third party designated by Parent to pay holders of Company Options and Company RSUs, as applicable, the amount determined by multiplying the Percentage Share for Company Options for all holders of Company Options and Company RSUs for all holders of Company RSUs, as applicable, by the amount (if any) by which the aggregate amount remaining in the Indemnity Escrow Fund, including any interest accrued or income otherwise earned thereon, as of the date of resolution of such Unresolved Escrow Claim exceeds the aggregate amount of the Contested Amounts associated with all other remaining Unresolved Escrow Claims.
. Within five (k5) All cash released Business Days following the receipt of any amounts specified in the preceding sentence by the Surviving Corporation or such third party designated by Parent, Parent shall cause the Surviving Corporation through its payroll or such third party to Escrow Participants pursuant promptly pay to this Section 9.7 will be deemed each holder of Company Options and Company RSUs, as applicable, an amount equal to have been released in full satisfaction such holder’s share of the rights of amounts specified in the preceding sentence, in accordance with such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) holder’s Percentage Share for such Company Options and 1.6(a)(v)Company RSUs, as the case may beapplicable, less applicable withholding as set forth in Section 2.12.
(l) The parties agree that any cash released from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, be treated as a reduction in the Aggregate Closing Transaction Value for federal income tax purposes.
Appears in 1 contract
Samples: Merger Agreement (Nuvasive Inc)
Indemnification Claims; Escrow Arrangements. (a) If any Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may be entitled to be held harmless, indemnified, compensated or reimbursed under this Section 910, such Indemnitee may deliver a notice to the Indemnitor Selling Shareholders’ Agent (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement described in such Notice of Indemnification Claim being referred to as an “indemnification claim”), which shall: shall (i) state that such Indemnitee believes that that there is or has been an a possible inaccuracy in or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9; 10, (ii) contain a brief description of the circumstances supporting such Indemnitee’s belief that there is or has been such an a possible inaccuracy or breach or that such Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursed; and , (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential Damages that have arisen and may arise as a result of the inaccuracy, breach or other matter referred to in such notice (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, being referred to as the “Claimed Amount”), and (iv) specify whether the indemnification claim described in such notice is being made by such Indemnitee (A) pursuant to Section 10.2(a) (a “General Indemnity Claim”) or (B) against a particular Selling Shareholder pursuant to Section 10.2(b) (a “Selling Shareholder Claim”).
(b) During the 30-day period (the “Dispute Period”) commencing upon (i) the delivery by an Indemnitee to the Indemnitor Selling Shareholders’ Agent of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal Proceedingthe “Dispute Period”), the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor Selling Shareholders’ Agent shall deliver to the Indemnitee a written response (the “Response Notice”) in which the IndemnitorSelling Shareholders’ Agent: (i) agrees that the full Claimed Amount is owed to the Indemnitee; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the Indemnitee; or (iii) asserts that no part of the Claimed Amount is owed to the Indemnitee. Any part of the Claimed Amount that is not agreed by the Indemnitor Selling Shareholders’ Agent to be owed to the Indemnitee pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor Selling Shareholders’ Agent asserts in the Response Notice that no part of the Claimed Amount is owed to the Indemnitee) shall be referred to as the “Contested Amount” (it being understood that the Contested Amount shall be modified from time to time to reflect any good faith modifications by the Indemnitee to the Claimed Amount). If a Response Notice is not received by the Indemnitee prior to the expiration of the Dispute Period, then the Indemnitor Selling Shareholders’ Agent shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claim.
(c) If the Indemnitor Selling Shareholders’ Agent delivers a Response Notice to the Indemnitee agreeing that the full Claimed Amount is owed to the Indemnitee, or if the Indemnitor Selling Shareholders’ Agent does not deliver a Response Notice to the Indemnitee during the Dispute Period, then, within three days following the earlier of the delivery of such Response Notice to the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee indemnification claim is a Parent IndemniteeGeneral Indemnity Claim, Parent then upon the written request of Purchaser, Purchaser and the StockholdersSelling Shareholders’ Representative Agent shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release disburse to the Indemnitee from the Escrow Fund an amount equal to the lesser of (A) the full Claimed Amount to or (B) the Parent Indemnitee from entire amount of any cash remaining in the Indemnity Escrow Fund; and
(ii) if the Indemnitee indemnification claim is a Company IndemniteeSelling Shareholder Claim, Parent the particular Selling Shareholder that is responsible for satisfying such indemnification claim shall pay to the Company Indemnitee, in cash, an amount equal to the full Claimed AmountAmount to the Indemnitee in cash.
(d) If the Indemnitor Selling Shareholders’ Agent delivers a Response Notice to the Indemnitee during the Dispute Period to the Indemnitee agreeing that less than the full Claimed Amount is owed to the IndemniteeIndemnitee (such amount as is agreed to be owed the “Agreed Amount”), then, within three days following the delivery of such Response Notice to the Indemnitee:
(i) if the Indemnitee indemnification claim is a Parent IndemniteeGeneral Indemnity Claim, Parent then upon the written request of Purchaser, Purchaser and the StockholdersSelling Shareholders’ Representative Agent shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release disburse to the Indemnitee from the Escrow Fund an amount equal to the lesser of (A) the Agreed Amount to or (B) the Parent Indemnitee from entire amount of any cash remaining in the Indemnity Escrow Fund; and
(ii) if the Indemnitee indemnification claim is a Company IndemniteeSelling Shareholder Claim, Parent the particular Selling Shareholder that is responsible for satisfying such indemnification claim shall pay the Agreed Amount to the Company Indemnitee, Indemnitee in cash, an amount equal to the Agreed Amount.
(e) If the Indemnitor Selling Shareholders’ Agent delivers a Response Notice to the Indemnitee during the Dispute Period indicating that there is a Contested Amount, the Indemnitor Selling Shareholders’ Agent and the Indemnitee shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee and the Indemnitor Selling Shareholders’ Agent resolve such dispute in writing, then their resolution of such dispute shall be binding on the IndemnitorSelling Shareholders’ Agent, the Escrow Participants Selling Shareholders, the other Selling Shareholders and the Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee (the “Stipulated Amount”) shall be signed by the Indemnitee and the IndemnitorSelling Shareholders’ Agent. Within three days after the execution of such settlement agreement:
(i) if the Indemnitee indemnification claim is a Parent IndemniteeGeneral Indemnity Claim, then Parent upon the written request of Purchaser, Purchaser and the StockholdersSelling Shareholders’ Representative Agent shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release disburse to the Indemnitee from the Escrow Fund an amount equal to the lesser of (A) the Stipulated Amount to or (B) the Parent Indemnitee from entire amount of any cash remaining in the Indemnity Escrow Fund; and
(ii) if the Indemnitee indemnification claim is a Company IndemniteeSelling Shareholder Claim, Parent the particular Selling Shareholder that is responsible for satisfying such indemnification claim shall pay the Stipulated Amount to the Company Indemnitee, Indemnitee in cash, an amount equal to the Stipulated Amount.
(f) If the Indemnitor Selling Shareholders’ Agent and the Indemnitee are unable to resolve the dispute relating to any Contested Amount during the 30-day period commencing upon the delivery of the Response Notice to (the Indemnitee“Initial Resolution Period”), then either the Indemnitee or the Indemnitor Selling Shareholders’ Agent may submit the contested portion of the indemnification claim to binding arbitration in the State of California Montreal, Quebec in accordance with the JAMS Comprehensive Arbitration Rules and Procedures Code of Civil Procedure then in effect. Arbitration will be conducted by one arbitratorarbitrator (it being understood and agreed that such arbitrator shall be a member of the Quebec Bar), mutually selected by the Indemnitee Purchaser and the IndemnitorSelling Shareholders’ Agent; provided, however, that if the Indemnitee Purchaser and the Indemnitor Selling Shareholders’ Agent fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then the rules regarding the selection of arbitrators as set forth in effectthe Code of Civil Procedure. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority parties shall be confined toentitled to only limited discovery at the discretion of the arbitrator, and agree that any discovery shall be completed at least 10 days prior to the commencement of the arbitration hearing. The decision of the arbitrator shall relate solely: (i) to whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the such Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion determination of whether the other party’s attorneys’ fees and other expenses relating to Indemnitee is the arbitrationprevailing party as provided below. The final decision of the arbitrator shall include the dollar amount of the award be furnished to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the IndemnitorSelling Shareholders’ Agent, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, and the Escrow AgentAgent in writing, shall constitute a conclusive determination of the issues in question, binding upon the IndemnitorSelling Shareholders’ Agent, the former holders of Company Capital Stock and In-the-Money Company Options Selling Shareholders, the other Selling Shareholders and the Indemnitee and shall not be contested by any of them. If the Indemnitee is determined by the arbitrator to be the prevailing party, then the aggregate dollar amount of the arbitrator’s award to the Indemnitee shall be increased by the amount of the reasonable expenses (including attorneys’ fees) of the Indemnitee, and the fees and expenses associated with the arbitration (including the arbitrator’s fees and expenses). If the Indemnitee is determined by the arbitrator not to be the prevailing party and the arbitrator determines that the Selling Shareholders’ Agent is the prevailing party, then any amount awarded by the arbitrator to the Indemnitee shall be reduced by the amount of the reasonable expenses (including attorneys’ fees) of the Selling Shareholders’ Agent, and the fees and expenses associated with the arbitration (including the arbitrator’s fees and expenses), and if no amount is awarded to the Indemnitee, the Indemnitee shall reimburse the Selling Shareholders’ Agent for its reasonable expenses (including attorneys’ fees) and pay the fees and expenses associated with the arbitration (including the arbitrator’s fees and expenses). Within three days following the receipt of the final award of the arbitrator setting forth the aggregate amount owed to the Indemnitee (the “Award Amount:”):
(i) if the Indemnitee indemnification claim is a Parent IndemniteeGeneral Indemnity Claim, Parent then upon the written request of Purchaser, Purchaser and the StockholdersSelling Shareholders’ Representative Agent shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release disburse to the Indemnitee from the Escrow Fund an amount equal to the lesser of (A) the Award Amount to or (B) the Parent Indemnitee from entire amount of any cash remaining in the Indemnity Escrow Fund; and
(ii) if the Indemnitee indemnification claim is a Company IndemniteeSelling Shareholder Claim, Parent the particular Selling Shareholder that is responsible for satisfying such indemnification claim shall pay the Award Amount to the Company Indemnitee, Indemnitee in cash, an amount equal to the Award Amount.
(g) Within five business 10 days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.
(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Expiration Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund (the “Aggregate Escrow Balance”) as of the Designated Date exceeds the aggregate dollar amount, as amount of Damages for which indemnification is being sought under Section 10.2 pursuant to all Notices of Indemnification Claims delivered prior to the Designated Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees Expiration Date that have not been finally resolved and paid prior to the Designated Expiration Date in accordance with this Section 9.7 10.10 (each, an “Unresolved Escrow Claim”) (the amount of such excess being referred to as the “Aggregate Second Distribution Amount”), then within five business days after the Designated Date, Parent Purchaser and the StockholdersSelling Shareholders’ Representative Agent shall jointly execute and deliver joint written instructions to the Escrow Agent directing a written notice instructing the Escrow Agent to release disburse to each Selling Shareholder from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior an amount equal to the Effective Time product of (i) such Selling Shareholder’s Escrow Percentage and each share (ii) the amount by which the Escrow Balance exceeds the aggregate amount of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount Damages claimed in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share Notices of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Second Distribution AmountIndemnification Claims.
(jh) Following the Designated Expiration Date, if an Unresolved Escrow Claim is finally resolved, Parent Purchaser and the StockholdersSelling Shareholders’ Representative Agent shall jointly execute and deliver to the Escrow Agent, within three days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect theretoFund, a written notice instructing the Escrow Agent to release disburse to each Selling Shareholder from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior an amount equal to the Effective Time product of (i) such Selling Shareholder’s Escrow Percentage and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by (ii) the amount (if any) by which the Aggregate Escrow Balance as of such date exceeds the aggregate amount of the Claimed Amounts and Contested Amounts, as the case may be, associated Damages claimed in Notices of Indemnification Claims with respect to all remaining Unresolved Escrow Claims.
(ki) All cash released Notwithstanding anything contained in this Agreement or the Escrow Agreement to Escrow Participants pursuant to the contrary, in the event that there is a pending General Indemnity Claim or a pending Selling Shareholder Claim brought by Purchaser directly against any Selling Shareholder that has not been finally resolved and paid in accordance with this Section 9.7 will 10.10 at the time that any distribution to such Selling Shareholder is to be deemed made from the Escrow Fund in accordance with Section 10.10(g) or 10.10(h), Purchaser may, in its sole discretion, elect to have been released require the Escrow Agent to deduct from the amount that would otherwise be distributed to such Selling Shareholder, and to retain in full satisfaction the Escrow Fund, the aggregate amount claimed by the Indemnitee to be owed by such Selling Shareholder pending final resolution and payment of the rights of Indemnitee’s indemnification claim against such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as the case may beSelling Shareholder.
(lj) The parties agree that any cash released Notwithstanding anything to the contrary herein, in the event an Indemnitee shall make an indemnification claim against the Escrow and, as a result of such claim, amounts are to be paid from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shallan Indemnitee, then (i) the amount payable from the Escrow Fund as a result of the claim shall be equal to the extent permitted pursuant full amount to applicable Legal Requirements, be treated paid as a reduction in result of the claim or deficit (the “Claim Payment”) reduced by an amount equal to the product of (x) the Claim Payment multiplied by (y) the Bonus Plan Escrow Contribution Percentage (such product, the “Holdback Claim Amount”), and (ii) an Indemnitee shall be entitled to set off and recover from the Aggregate Closing Transaction Value for federal income tax purposesBonus Holdback Amount, on a pro rata basis, an amount equal to the Holdback Claim Amount, and the Aggregate Bonus Holdback Amount shall be reduced on a pro rata basis by the amount so set off and recovered.
Appears in 1 contract
Indemnification Claims; Escrow Arrangements. (a) If any Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may No Indemnified Person shall be entitled to be held harmless, indemnified, compensated or reimbursed indemnification under this Section 9, Article X unless Buyer (on behalf of such Indemnitee may deliver Indemnified Person) has duly delivered a written notice to the Indemnitor Representative and the Escrow Agent (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement indemnification described in such Notice of Indemnification Claim being referred to as an “indemnification claimIndemnification Claim”), which shallsetting forth: (i) state that the specific representation and warranty of the Company alleged to have been inaccurate or breached or specific covenant of the Company alleged to have been breached or other specific circumstance entitling the Indemnified Person to such Indemnitee believes that that there is or has been an indemnification; (ii) if known, a reasonably detailed description of the facts and circumstances giving rise to the alleged inaccuracy in or breach of a representation, warranty, such representation and warranty or breach of such covenant or obligation contained in this Agreement or that other specific circumstance entitling the Indemnified Person to such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9; (ii) contain a brief description of the circumstances supporting such Indemnitee’s belief that there is or has been such an inaccuracy or breach or that such Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursedindemnification; and (iii) contain a good faithif known or reasonably estimable, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential the Damages that have arisen been, or are reasonably expected to be, incurred and may arise as a result of for which the inaccuracy, breach or other matter referred to in such notice Indemnified Person is seeking indemnification hereunder (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, estimate being referred to as the “Claimed Amount”).
(b) During the 30-day period (the “Dispute Period”) commencing upon (i) the delivery receipt by an Indemnitee to the Indemnitor Representative of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal ProceedingClaim, the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor shall Representative may deliver to Buyer and the Indemnitee Escrow Agent a written response (the “Response Notice”) in which the IndemnitorRepresentative: (i) agrees that the full Claimed Amount is owed to the IndemniteeBuyer; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the IndemniteeBuyer; or (iii) asserts that no part of the Claimed Amount is owed to Buyer. Any Response Notice contemplated by clause (ii) or (iii) shall include a reasonably detailed description of the IndemniteeRepresentative’s reasons for such objection. Any part of the Claimed Amount that is not agreed by the Indemnitor Representative to be owed to the Indemnitee pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor asserts in the Response Notice that no part of the Claimed Amount is owed to the Indemnitee) Buyer shall be referred to as the “Contested Amount” (it being understood that the Contested Amount shall be modified from time to time to reflect any good faith modifications by the Indemnitee to the Claimed Amount). If a Response Notice is not received by the Indemnitee prior to the expiration of the Dispute Period, then the Indemnitor shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claim.”
(c) If the Indemnitor Representative delivers a Response Notice to the Indemnitee Buyer agreeing that all or any part of the full Claimed Amount is owed to the Indemnitee, or if the Indemnitor does not deliver a Response Notice to the Indemnitee during the Dispute PeriodBuyer, then, within three days (3) Business Days following the earlier of the delivery receipt of such Response Notice to the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee is a Parent Indemniteeby Buyer, Parent Buyer and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release such amount agreed to by the full Claimed Amount Representative (or such lesser amount as may remain in the Escrow Fund) to the Parent Indemnitee Buyer from the Indemnity Escrow Fund; and
. If the Representative fails to deliver a Response Notice within thirty (ii30) if days after its receipt of a Notice of Indemnification Claim, the Indemnitee is a Company Indemnitee, Parent Escrow Agent shall pay release to Buyer the Company Indemnitee, in cash, an amount equal to the full entire Claimed Amount.
(d) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period agreeing that less than the full Claimed Amount is owed to the Indemnitee, then, within three days following the delivery of such Response Notice to the Indemnitee:
(i) if the Indemnitee is a Parent Indemnitee, Parent Representative and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Agreed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Agreed Amount.
(e) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period indicating that there is a Contested Amount, the Indemnitor and the Indemnitee shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee and the Indemnitor resolve such dispute in writing, then their resolution of such dispute shall be binding on the Indemnitor, the Escrow Participants and the Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee (the “Stipulated Amount”) shall be signed by the Indemnitee and the Indemnitor. Within three days after the execution of such settlement agreement:
(i) if the Indemnitee is a Parent Indemnitee, then Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Stipulated Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Stipulated Amount.
(f) If the Indemnitor and the Indemnitee Buyer are unable to resolve the any dispute relating to any Contested Amount during the 30-day period commencing upon the delivery receipt of the Response Notice to the Indemniteeby Buyer, then either the Indemnitee or the Indemnitor may submit the contested portion of the indemnification claim to binding arbitration in the State of California such dispute will be resolved in accordance with the JAMS Comprehensive Arbitration Rules Section 11.17 and Procedures then in effect. Arbitration will be conducted Section 11.18 or otherwise by one arbitrator, mutually selected by the Indemnitee written agreement between Buyer and the Indemnitor; providedRepresentative. Following any such resolution, however, that if the Indemnitee Buyer and the Indemnitor fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award Amount.
(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.
(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund (the “Aggregate Escrow Balance”) as of the Designated Date exceeds the aggregate dollar amount, as of the Designated Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid prior to the Designated Date in accordance with this Section 9.7 (each, an “Unresolved Escrow Claim”) (the amount of such excess being referred to as the “Aggregate Second Distribution Amount”), then within five business days after the Designated Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Second Distribution Amount.
(j) Following the Designated Date, if an Unresolved Escrow Claim is finally resolved, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent, within three days (3) Business Days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect theretoresolution, a written notice instructing the Escrow Agent to release make payment, if any, from the Indemnity Escrow Fund consistent with such resolution; provided that in connection with any such resolution, no payment from the Escrow Fund shall be made to the Paying Agent for payment in accordance with Section 1.08 of the Merger Agreement if such payment would reduce the Aggregate Escrow Balance at the time of any such payment below the Aggregate Pending Claim Amount as of such time.
(e) If the aggregate amount remaining in the Escrow Fund, including any interest accrued or income otherwise earned thereon (as of any particular time, the “Aggregate Escrow Balance”), as of the Expiration Date exceeds the aggregate dollar amount of the Contested Amounts associated with all Indemnification Claims that have not been finally resolved and (if applicable) paid (each, an “Unresolved Escrow Claim” and the aggregate dollar amount of all such Contested Amounts being referred to as the “Aggregate Pending Claim Amount”) prior to the Expiration Date in accordance with this Section 10.08, then the Escrow Agent shall release the Aggregate Distribution Amount from the Escrow Fund to each Escrow Participantthe Paying Agent for payment in accordance with Section 1.08. For purposes of this Section 10.08, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the “Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the amount (if any) by which Distribution Amount” shall be the Aggregate Escrow Balance as of such date exceeds the aggregate amount Expiration Date minus the Aggregate Pending Claim Amount as of the Claimed Amounts and Contested Amounts, as the case may be, associated with all remaining Unresolved Escrow ClaimsExpiration Date.
(kf) All cash released Following the Expiration Date, if an Unresolved Escrow Claim is finally resolved, Buyer and the Representative shall jointly execute and deliver to the Escrow Participants pursuant Agent, within three (3) Business Days after the final resolution of such Unresolved Escrow Claim, a written notice instructing the Escrow Agent to this make payments, if any, from the Escrow Fund consistent with such resolution; provided that in connection with any such resolution, no payment from the Escrow Fund shall be made to the Paying Agent for payment in accordance with Section 9.7 will be deemed to have been released in full satisfaction 1.08 of the rights Merger Agreement if such payment would reduce the Aggregate Escrow Balance at the time of any such payment below the Aggregate Pending Claim Amount as of such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as the case may betime.
(lg) The parties agree that any cash amounts released to Buyer from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, Article X shall be treated as a reduction in the Aggregate Closing Transaction Value aggregate consideration paid in connection with the Merger for federal income tax purposes.
Appears in 1 contract
Samples: Merger Agreement (Stryker Corp)
Indemnification Claims; Escrow Arrangements. (a) If any Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may Parent shall not be entitled to be held harmless, indemnified, compensated or reimbursed indemnification under this Section 9, such Indemnitee may deliver Article 8 unless it has duly delivered a written notice to the Indemnitor Shareholders’ Representative and the Escrow Agent (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement indemnification described in such Notice of Indemnification Claim being referred to as an “indemnification claimIndemnification Claim”), which shallsetting forth: (i) state that the specific representation and warranty of the Company alleged to have been inaccurate or specific covenant of the Company alleged to have been breached or other specific circumstance entitling Parent to such Indemnitee believes that that there is or has been an inaccuracy in or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9indemnification; (ii) contain a brief reasonably detailed description of the facts and circumstances supporting giving rise to the alleged inaccuracy in such Indemnitee’s belief that there is or has been such an inaccuracy representation and warranty or breach of such covenant or that other specific circumstance entitling Parent to such Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursedindemnification; and (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential the Damages that have arisen and may arise been incurred by Parent as a direct result of the inaccuracy, inaccuracy or breach or other matter circumstance referred to in such notice (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, estimate being referred to as the “Claimed Amount”).
(b) During the 3060-day period (the “Dispute Period”) commencing upon (i) the delivery receipt by an Indemnitee to the Indemnitor Shareholders’ Representative of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal ProceedingClaim, the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor shall Shareholders’ Representative may deliver to Parent and the Indemnitee Escrow Agent a written response (the “Response Notice”) in which the IndemnitorShareholders’ Representative: (i) agrees that the full Claimed Amount is owed to the IndemniteeParent; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the IndemniteeParent; or (iii) asserts that no part of the Claimed Amount is owed to the Indemnitee. Any part of the Claimed Amount that is not agreed by the Indemnitor to be owed to the Indemnitee pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor asserts in the Response Notice that no part of the Claimed Amount is owed to the Indemnitee) shall be referred to as the “Contested Amount” (it being understood that the Contested Amount shall be modified from time to time to reflect any good faith modifications by the Indemnitee to the Claimed Amount). If a Response Notice is not received by the Indemnitee prior to the expiration of the Dispute Period, then the Indemnitor shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claim.
(c) If the Indemnitor delivers a Response Notice to the Indemnitee agreeing that the full Claimed Amount is owed to the Indemnitee, or if the Indemnitor does not deliver a Response Notice to the Indemnitee during the Dispute Period, then, within three days following the earlier of the delivery of such Response Notice to the Indemnitee or the expiration of the Dispute Period:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the full Claimed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the full Claimed Amount.
(d) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period agreeing that less than the full Claimed Amount is owed to the Indemnitee, then, within three days following the delivery of such Response Notice to the Indemnitee:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Agreed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Agreed Amount.
(e) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period indicating that there is a Contested Amount, the Indemnitor and the Indemnitee shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee and the Indemnitor resolve such dispute in writing, then their resolution of such dispute shall be binding on the Indemnitor, the Escrow Participants and the Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee (the “Stipulated Amount”) shall be signed by the Indemnitee and the Indemnitor. Within three days after the execution of such settlement agreement:
(i) if the Indemnitee is a Parent Indemnitee, then Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Stipulated Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Stipulated Amount.
(f) If the Indemnitor and the Indemnitee are unable to resolve the dispute relating to any Contested Amount during the 30-day period commencing upon the delivery of the Response Notice to the Indemnitee, then either the Indemnitee or the Indemnitor may submit the contested portion of the indemnification claim to binding arbitration in the State of California in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee and the Indemnitor; provided, however, that if the Indemnitee and the Indemnitor fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount:
(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award Amount.
(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.
(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.
(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund (the “Aggregate Escrow Balance”) as of the Designated Date exceeds the aggregate dollar amount, as of the Designated Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid prior to the Designated Date in accordance with this Section 9.7 (each, an “Unresolved Escrow Claim”) (the amount of such excess being referred to as the “Aggregate Second Distribution Amount”), then within five business days after the Designated Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Second Distribution Amount.
(j) Following the Designated Date, if an Unresolved Escrow Claim is finally resolved, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent, within three days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect thereto, a written notice instructing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the amount (if any) by which the Aggregate Escrow Balance as of such date exceeds the aggregate amount of the Claimed Amounts and Contested Amounts, as the case may be, associated with all remaining Unresolved Escrow Claims.
(k) All cash released to Escrow Participants pursuant to this Section 9.7 will be deemed to have been released in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as the case may be.
(l) The parties agree that any cash released from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, be treated as a reduction in the Aggregate Closing Transaction Value for federal income tax purposes.or
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Samples: Merger Agreement
