ESCROW AGREEMENT
This Escrow Agreement ("Escrow Agreement"), dated as of July 1, 1998
(the "Closing Date"), is by and among Craftmade International, Inc., a
Delaware corporation ("Buyer"), Trade Source International, Inc., a Delaware
corporation ("Subsidiary"), Xxxxx and Xxxxxx Xxxxxxxx, individuals resident
in El Dorado Hills, California (collectively, "Xxxxxxxx"), Xxxx XxXxxxx, an
individual resident in Dedham, Massachusetts ("XxXxxxx" and, together with
Xxxxxxxx, the "Majority Shareholders") and The Frost National Bank, a
national banking association, as escrow agent ("Escrow Agent").
This is the Escrow Agreement referred to in the Merger Agreement dated
as of July 1, 1998 (the "Merger Agreement") among Buyer, Sellers (as defined
in the Merger Agreement), Subsidiary and Trade Source International, Inc., a
California Corporation (the "Company").
The parties, intending to be legally bound, hereby agree as follows:
1. ESTABLISHMENT OF ESCROW
(a) Pursuant to the Merger Agreement, Buyer and Subsidiary are
depositing (i) a certificate representing 39,697 shares of common stock,
$0.01 par value per share ("Buyer Shares"), of the Buyer in the name of
Xxxxxxxx and (ii) a certificate representing 25,895 shares of Buyer Shares
in the name of XxXxxxx (collectively, the "Escrow Shares") with Escrow
Agent. Escrow Agent acknowledges receipt thereof.
(b) Escrow Agent hereby agrees to act as escrow agent and to hold,
safeguard and disburse the Escrow Shares pursuant to the terms and
conditions hereof.
2. CLAIMS
(a) From time to time on or before July 1, 2000, Buyer or Subsidiary
may give notice (a "Notice") to the Majority Shareholders and Escrow Agent
specifying in reasonable detail the nature and dollar amount (the "Dollar
Amount") of any claim (a "Claim") it may have under Article XII of the
Merger Agreement, along with the exact number of Buyer Shares to be
disbursed with respect to such Claim; Buyer or Subsidiary may make more
than one claim with respect to any underlying state of facts. If the
Majority Shareholders give notice to Buyer, Subsidiary and Escrow Agent
disputing any Claim (a "Counter Notice") within thirty (30) days following
receipt by Escrow Agent of the Notice regarding such Claim, such Claim
shall be resolved as provided in Section 2(b). If no Counter Notice is
received by Escrow Agent within such 30-day period, then the Dollar Amount
of damages claimed by Buyer or Subsidiary as set forth in its respective
Notice shall be deemed established for purposes of this Escrow Agreement
and the Merger Agreement and, at the end of such 30-day period (the "Claim
Date"), Escrow Agent shall disburse to Buyer or Subsidiary the amount of
Buyer Shares specified in such Notice. The
number of Buyer Shares specified by Buyer or Subsidiary in the Notice
shall be equal to (i) the dollar amount claimed in the Notice divided by
(ii) the last reported sale price of the Buyer Shares on the Nasdaq
National Market System, as of the New York Stock Exchange, Inc. trading
day immediately preceding the Claim Date; provided, however, that such
disbursement shall be only to the extent of the Escrow Shares. Escrow
Agent shall not inquire into or consider whether a Claim complies with
the requirements of the Merger Agreement.
(b) If a Counter Notice is given with respect to a claim, Escrow
Agent shall make a disbursement of the Escrow Shares with respect
thereto only in accordance with (i) joint written instructions of Buyer,
Subsidiary and the Majority Shareholders or (ii) a final non-appealable
order of a court of competent jurisdiction. Any court order shall be
accompanied by a legal opinion by counsel for the presenting party
satisfactory to Escrow Agent to the effect that the order is final and
non-appealable. Escrow Agent shall act on such court order and legal
opinion without further question.
3. TERMINATION OF ESCROW; VOLUNTARY RELEASE OF ESCROW SHARES
On July 1, 2000 (the "Disbursement Date"), Escrow Agent shall pay and
distribute the then Escrow Shares to the Majority Shareholders (60.5217545%
to Xxxxxxxx and 39.4782455% to XxXxxxx), unless (i) any Claims are then
pending, in which case an amount of Escrow Shares equal to (A) the aggregate
Dollar Amount of such Claims (as shown in the Notices of such Claims) divided
by (B) the last reported sale price of the Buyer Shares on the Nasdaq
National Market System, as of the New York Stock Exchange, Inc. trading day
immediately preceding the Disbursement Date shall be retained by Escrow Agent
(and the balance disbursed to the Majority Shareholders in such proportions)
or (ii) Buyer or Subsidiary has given notice to the Majority Shareholders and
Escrow Agent specifying in reasonable detail the nature of any other claim it
may have under Article XII of the Merger Agreement with respect to which it,
in good faith, is unable to specify the amount of Damages, in which case the
entire Escrow Shares shall be retained by Escrow Agent, in either case until
it receives joint written instructions of Buyer, Subsidiary and the Majority
Shareholders or a final non-appealable order of a court of competent
jurisdiction as contemplated by Section 2(b).
After July 1, 1999, Buyer, in its sole discretion, may, by written
notice, cause the Escrow Agent to pay and distribute some or all of the
Escrow Shares to the Majority Shareholders (60.5217545% of such released
amount to Xxxxxxxx and 39.4782455% of such released amount to XxXxxxx). Any
such written notice delivered to Escrow Agent shall specify the exact number
of Escrow Shares to be delivered to each of Xxxxxxxx and XxXxxxx.
4. DUTIES OF ESCROW AGENT
(a) Escrow Agent shall not be under any duty to give the Escrow
Shares held by it hereunder any greater degree of care than it gives its
own similar property and shall
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not be required to invest any funds held hereunder except as directed in
this Escrow Agreement. Uninvested funds held hereunder shall not earn or
accrue interest.
(b) Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims
based upon such gross negligence or willful misconduct that are
successfully asserted against Escrow Agent, the other parties hereto
shall jointly and severally indemnify and hold harmless Escrow Agent
(and any successor Escrow Agent) from and against any and all losses,
liabilities, claims, actions, damages and expenses, including reasonable
attorneys' fees and disbursements, arising out of and in connection with
this Escrow Agreement. Without limiting the foregoing, Escrow Agent
shall in no event be liable in connection with its investment or
reinvestment of any cash held by it hereunder in good faith, in
accordance with the terms hereof, including, without limitation, any
liability for any delays (not resulting from its gross negligence or
willful misconduct) in the investment or reinvestment of the Escrow
Shares, or any loss of interest incident to any such delays.
(c) Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other writing
delivered to it hereunder without being required to determine the
authenticity or the correctness of any fact stated therein or the
propriety or validity of the service thereof. Escrow Agent may act in
reliance upon any instrument or signature believed by it to be genuine
and may assume that the person purporting to give receipt or advice or
make any statement or execute any document in connection with the
provisions hereof has been duly authorized to do so. Escrow Agent may
conclusively presume that the undersigned representative of any party
hereto which is an entity other than a natural person has full power and
authority to instruct Escrow Agent on behalf of that party unless
written notice to the contrary is delivered to Escrow Agent. If the
Escrow Agent obeys or complies with any court order, judgment or decree,
it shall not be liable to any of the parties, their respective
successors or assigns, or to any other person or entity because of such
compliance, even if such court order, judgment or decree is
substantially reversed, modified, annulled, set aside or vacated.
(d) Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Escrow Agreement and shall not be
liable for any action taken or omitted by it in good faith in accordance
with such advice. Escrow Agent shall never be required to calculate the
value, or determine the number of Escrow Shares necessary to satisfy a
Claim or to be distributed to the Majority Shareholders.
(e) Escrow Agent does not have any interest in the Escrow Shares
deposited hereunder but is serving as escrow holder only and having only
possession thereof. Any payments of income from this Escrow Shares shall
be subject to withholding regulations then in force with respect to
United States taxes. The parties hereto will provide Escrow Agent with
appropriate Internal Revenue Service Forms W-9 for tax identification
number certification, or non-resident alien certifications. This
Section 4(e) and Section 4(b) shall
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survive notwithstanding any termination of this Escrow Agreement or the
resignation of Escrow Agent.
(f) Escrow Agent makes no representation as to the validity, value,
genuineness or the collectability of any security or other document or
instrument held by or delivered to it.
(g) Escrow Agent shall not be called upon to advise any party as to
the wisdom in selling or retaining or taking or refraining from any action
with respect to any securities or other property deposited hereunder.
(h) Escrow Agent (and any successor Escrow Agent) may at any time
resign as such by delivering the Escrow Shares to any successor Escrow
Agent jointly designated by the other parties hereto in writing, or to
any court of competent jurisdiction, whereupon Escrow Agent shall be
discharged of and from any and all further obligations arising in
connection with this Escrow Agreement. The resignation of Escrow Agent
will take effect on the earlier of (a) the appointment of a successor
(including a court of competent jurisdiction) or (b) the day which is
thirty (30) days after the date of delivery of its written notice of
resignation to the other parties hereto. If at that time Escrow Agent
has not received a designation of a successor Escrow Agent, Escrow Agent
may, at Escrow Agent's election, (i) retain and safeguard the Escrow
Shares until receipt of a designation of successor Escrow Agent or a
joint written disposition instruction by the other parties hereto or a
final non-appealable order of a court of competent jurisdiction or (ii)
interplead the Escrow Shares with a court of competent jurisdiction in
Tarrant County, Texas, and recover from the other parties hereto,
jointly and severally, its attorneys' fees and costs in connection with
such interpleader.
(i) If there is any disagreement or dispute in connection with the
Escrow Shares or the subject matter hereof, or in the event of adverse
or inconsistent claims or demands upon, or inconsistent instructions to,
the Escrow Agent, or if the Escrow Agent in good faith is in doubt as to
what action to take pursuant to the Escrow Agreement, the Escrow Agent
may, at its election, refuse to comply with any such claims, demands or
instructions, or refuse to take any other action pursuant to this Escrow
Agreement until:
(i) the rights of all persons involved in the dispute have
been fully and finally adjudicated by a court of competent
jurisdiction or the Escrow Agent has resolved any such doubts to
its good faith satisfaction; or
(ii) all disputes have been resolved between the parties
involved, and the Escrow Agent has received written notice thereof
satisfactory to it from all such persons.
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Without limiting the generality of the foregoing, the Escrow Agent may,
at its election, interplead the Escrow Shares or any portion thereof
with a court of competent jurisdiction in Tarrant County, Texas, or
commence judicial proceedings for declaratory judgment, and the Escrow
Agent shall be entitled to recover from the other parties to this Escrow
Agreement, jointly and severally, its attorneys' fees and costs in
connection with any such interpleader or declaratory judgment action.
(j) Buyer shall pay Escrow Agent compensation (as payment in full)
for the services to be rendered by Escrow Agent hereunder in the amounts
set forth on EXHIBIT A attached hereto. Buyer agrees to reimburse
Escrow Agent for all reasonable expenses, disbursements and advances
incurred or made by Escrow Agent in performance of its duties hereunder
(including reasonable fees, expenses and disbursements of its counsel).
Any fees or expenses of Escrow Agent or its counsel that are not paid as
provided for herein may be taken from any property held by Escrow Agent
hereunder.
(k) No printed or other matter in any language (including, without
limitation, prospectuses, notices, reports and promotional material)
that mentions Escrow Agent's name or the rights, powers, or duties of
Escrow Agent shall be issued by the other parties hereto or on such
parties' behalf unless Escrow Agent shall first have given its specific
written consent thereto.
(l) The other parties hereto authorize Escrow Agent, for any
securities held hereunder, to use the services of any United States
central securities depository it reasonably deems appropriate,
including, without limitation, the Depositary Trust Company and the
Federal Reserve Book Entry System.
(m) If the number of Escrow Shares to be disbursed at any time by
Escrow Agent to any other party pursuant to the terms of this Escrow
Agreement is less than the total amount of Escrow Shares held by Escrow
Agent, Escrow Agent shall tender the certificates representing the
Escrow Shares to North American Transfer, the transfer agent for Buyer,
to reduce such certificates into smaller denominations sufficient to
permit such partial disbursement.
5. LIMITED RESPONSIBILITY
This Escrow Agreement expressly sets forth all the duties of Escrow
Agent with respect to any and all matters pertinent hereto. No implied duties
or obligations shall be read into this Escrow Agreement against Escrow Agent.
Escrow Agent shall not be bound by, or charged with notice of, the provisions
of any agreement among the other parties hereto except this Escrow Agreement.
6. OWNERSHIP FOR TAX PURPOSES; VOTING AND PECUNIARY BENEFITS
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(a) The parties agree that, for purposes of federal and other taxes
based on income, Xxxxxxxx and XxXxxxx will be treated as the owner of
60.5217545% and 39.4782455% the Escrow Shares, respectively, and that
Xxxxxxxx and XxXxxxx will report all income, if any, that is earned on, or
derived from, the Escrow Shares as their income, in such proportions, in
the taxable year or years in which such income is properly includible and
pay any taxes attributable thereto.
(b) The Majority Shareholders shall have all voting and pecuniary
benefits associated with the Escrow Shares but shall not have dispositive
power over the Escrow Shares, while the Escrow Shares remain in escrow.
Xxxxxxxx shall exercise the voting rights and receive the pecuniary
benefits with respect to 60.5217545% of the Escrow Shares, and DeBlois
shall exercise the voting rights and receive the pecuniary benefits with
respect to 39.4782455% of the Escrow Shares.
7. NOTICES
All notices, consents, waivers and other communications under this
Escrow Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt) provided that a
copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses
and telecopier numbers as a party may designate by notice to the other
parties):
Majority Shareholders:
Xxxxx and Xxxxxx Xxxxxxxx
c/o Trade Source International, Inc.
0000 Xxxxxxxxx Xxxxxx
Xx Xxxxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Xxxx XxXxxxx
00 Xxxxxxxxx Xxxx #000
Xxxxxx, Xxxxxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxx X. Xxxxxx
Xxxxxxxxx Genshlea & Xxxxxx
000 Xxxxxxx Xxxx
Xxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
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Buyer:
Craftmade International, Inc.
000 Xxxxx Xxxxx Xxxx
Xxxxx 000
P.O. Box #1037
Coppell, Texas 75019-1037
Attention: Xxxxx Xxxxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxx X. Xxxxxxx
Xxxxxx and Xxxxx, LLP
000 Xxxx Xxxxxx
Xxxxx 0000
Xxxx Xxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
Subsidiary:
Trade Source International, Inc.
000 Xxxxx Xxxxx Xxxx
Xxxxx 000
P.O. Box #1037
Coppell, Texas 75019-1037
Attention: Xxxxx Xxxxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxx X. Xxxxxxx
Xxxxxx and Xxxxx, LLP
000 Xxxx Xxxxxx
Xxxxx 0000
Xxxx Xxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
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Escrow Agent:
The Frost National Bank
0000 Xxxxx Xxxxx
Xxxx Xxxxx, Xxxxx 00000
Attention: Xxxx Xxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxxxx X. Xxxxxx
Xxxxxx, Xxxxxxxx & Pappas, L.L.P.
000 Xxxx 0xx Xxxxxx
Xxxxx 000
Xxxx Xxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
8. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Escrow Agreement shall be brought against
any of the parties in the courts of the State of Texas, County of Tarrant,
or, if it has or can acquire jurisdiction, in the United States District
Court for the Northern District of Texas, Fort Worth Division, and each of
the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred
to in the preceding sentence may be served on any party anywhere in the world.
9. COUNTERPARTS
This Escrow Agreement may be executed in one or more counterparts, each
of which will be deemed to be an original and all of which, when taken
together, will be deemed to constitute one and the same.
10. SECTION HEADINGS
The headings of sections in this Escrow Agreement are provided for
convenience only and will not affect its construction or interpretation.
11. WAIVER
The rights and remedies of the parties to this Escrow Agreement are
cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Escrow
Agreement or the documents referred to in this Escrow Agreement will operate
as a waiver of such right, power, or privilege, and no single or partial
exercise of any
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such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power,
or privilege. To the maximum extent permitted by applicable law, (a) no claim
or right arising out of this Escrow Agreement or the documents referred to in
this Escrow Agreement can be discharged by one party, in whole or in part, by
a waiver or renunciation of the claim or right unless in writing signed by
the other parties; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Escrow Agreement or the documents referred to in this Escrow Agreement.
12. EXCLUSIVE AGREEMENT AND MODIFICATION
This Escrow Agreement supersedes all prior agreements among the parties
with respect to its subject matter and constitutes a complete and exclusive
statement of the terms of the agreement among the parties with respect to its
subject matter. This Escrow Agreement may not be amended except by a written
agreement executed by the Buyer, Subsidiary, the Majority Shareholders and
the Escrow Agent.
13. GOVERNING LAW
This Escrow Agreement shall be governed by the laws of the State of
Texas, without regard to conflicts of law principles.
14. SUBSIDIARY
As used in this Escrow Agreement, the term "Subsidiary" shall refer to
Trade Source International, Inc., a Delaware corporation, and any successor
in interest thereto.
* * * * *
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IN WITNESS WHEREOF, the parties have executed and delivered this Escrow
Agreement as of the date first written above.
/s/ Xxxxx Xxxxxxxx
---------------------------------
Xxxxx Xxxxxxxx
/s/ Xxxxxx Xxxxxxxx
---------------------------------
Xxxxxx Xxxxxxxx
/s/ Xxxx XxXxxxx
---------------------------------
Xxxx XxXxxxx
CRAFTMADE INTERNATIONAL, INC.
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxx
Title: President and Chief Executive Officer
TRADE SOURCE INTERNATIONAL, INC.
a Delaware corporation
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxx
Title: President and Chief Executive Officer
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THE FROST NATIONAL BANK
By: /s/ Xxxxxxx X. Xxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxx
---------------------------------
Title: Senior Vice President
---------------------------------
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EXHIBIT A
ESCROW AGENT COMPENSATION
$1,000 annually.
