Exhibit 99.1
INDEMNIFICATION ESCROW AGREEMENT
THIS INDEMNIFICATION ESCROW AGREEMENT (this "AGREEMENT") is made and
entered into as of September 15, 2003 (the "EFFECTIVE DATE"), by and among
MICROFIELD GROUP, INC., an Oregon corporation ("MICROFIELD"); XXXX X. XXXXXXXXX
and TSI TELECOMMUNICATION SERVICES, INC., a Delaware corporation (collectively,
the "VELAGIO SHAREHOLDERS"), XXXX X. XXXXXXXXX, as representative for the
Velagio Shareholders (the "VELAGIO REPRESENTATIVE"); XXXXXXXXXXX GROUP LLC, an
Oregon limited liability company (the "CTS SHAREHOLDER"); XXXXXX X. JESENIK, as
representative for the CTS Shareholder (the "CTS REPRESENTATIVE"); and XXXXXXX
X. XXXXXXXXXXXXXX (the "ESCROW AGENT").
All capitalized terms used in this Agreement and not otherwise defined
herein will have the meanings given them in the Agreement and Plan of Merger
dated the same date as this Agreement (the "VSI MERGER AGREEMENT"), by and among
Microfield, VSI Acquisition Co., an Oregon corporation ("VSI ACQUISITION"),
Velagio, Inc., an Oregon corporation ("VELAGIO"), and the Velagio Shareholders,
pursuant to which VSI Acquisition will merge with and into Velagio (the "VSI
MERGER"), and in the Agreement and Plan of Merger dated the same date as this
Agreement (the "CTS MERGER AGREEMENT"), by and among Microfield, CTS Acquisition
Co., an Oregon corporation ("CTS ACQUISITION"), Xxxxxxxxxxx Technology Services,
Inc., an Oregon corporation ("CTS"), and the CTS Shareholder, pursuant to which
CTS Acquisition will merge with and into CTS (the "CTS MERGER").
The VSI Merger and CTS Merger will be referred together as the "MERGERS",
the VSI Merger Agreement and CTS Merger Agreement will be referred together as
the "MERGER AGREEMENTS" or individually as a "MERGER AGREEMENT", the Velagio
Shareholders and CTS Shareholder will be referred together as the
"SHAREHOLDERS", and the Velagio Representative and CTS Representative will be
referred together as the "REPRESENTATIVES" or individually as a
"REPRESENTATIVE".
RECITALS
A. Section 12.7 of each of the Merger Agreements provides that the
Escrow Shares (as defined below) are to be deducted and withheld from the shares
of Common Stock of Microfield (the "MICROFIELD COMMON STOCK") to be issued in
the Mergers to the Shareholders and placed in an escrow account (the "ESCROW
ACCOUNT") to secure certain indemnification obligations of Velagio, CTS and the
Shareholders under Article 7 of the Merger Agreements on the terms and
conditions set forth in this Agreement. Attached EXHIBIT A sets forth the name
and address of each Shareholder, the number of Escrow Shares required to be
deposited in the Escrow Account by each Shareholder pursuant to the Merger
Agreements, and each Shareholder's pro rata percentage of the Escrow Shares.
B. The Representatives and each Shareholder are entering into this
Agreement as a material inducement and consideration for Microfield to enter
into the Merger Agreements and to
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consummate the transactions contemplated therein. As a condition precedent to
consummate such transactions, the parties desire to set forth in this Agreement
the terms and conditions pursuant to which the Escrow Shares shall be deposited,
held in, and disbursed from the Escrow Account.
AGREEMENT
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. ESCROW AND INDEMNIFICATION.
1.1 ESCROW OF SHARES. Promptly after the Closing Date, Microfield
will, or will cause its transfer agent to, deposit with the Escrow Agent in the
manner contemplated by Section 2, the Escrow Shares registered in the names of
each of the Shareholders, together with Stock Powers in blank and in the form
required by Microfield's transfer agent, and a written notice making reference
to this Agreement, setting forth the Closing Date, and identifying the shares so
deposited as the Escrow Shares. The Escrow Agent shall hold the Escrow Shares
and stock powers in escrow as a source of collateral for the indemnification
obligations of the Shareholders under Article 7 of the Merger Agreements until
the Escrow Agent is required to release such Escrow Shares in accordance with
the terms of this Agreement. As used in this Agreement, the term "ESCROW SHARES"
shall include all "INITIAL ESCROW SHARES" and "ADDITIONAL ESCROW SHARES" as
those terms are defined in Section 2 of this Agreement. The Escrow Agent agrees
to accept delivery of the Escrow Shares and stock powers and to hold such Escrow
Shares and stock powers in escrow subject to the terms and conditions of this
Agreement.
1.2 INDEMNIFICATION. The Indemnified Persons are indemnified by
the Shareholders pursuant to the terms of Section 7 of the Merger Agreements
(which terms are incorporated herein by reference) from and against any Claims
(as defined below), subject to the limitations set forth in Section 7.4 of the
Merger Agreements and in this Agreement. The Escrow Shares shall be a resource
of security for these indemnity obligations, subject to the terms and conditions
of Article 7 of the Merger Agreements and this Agreement. The Velagio
Representative on behalf of the Velagio Shareholders, and the CTS Representative
on behalf of the CTS Shareholder, shall each act as the Shareholders'
representative and attorney in fact for purposes of acting on their behalf and
taking all actions necessary to perform this Agreement, and resolve and settle
Claims under the Merger Agreements and this Agreement on behalf of the
respective Shareholders.
1.3 NOTICE OF CLAIM. As used herein, the term "CLAIM" means a
claim for indemnification under Article 7 of the Merger Agreements made by an
Indemnified Person. Microfield shall give written notice of a Claim (a "NOTICE
OF CLAIM") to the respective Representative and the Escrow Agent as promptly as
reasonably practicable after either: (i) the Indemnified Person's discovery,
after the Closing Date, of any fact or circumstance that gives rise to
indemnification rights under Section 7.2 of either Merger Agreement; or (ii) the
Indemnified Person's discovery, after the Closing Date, of written notice to
Microfield or to any other Indemnified Person of any claim, demand, suit,
action, arbitration, investigation, inquiry or
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proceeding brought by a third party against such Indemnified Person that is
based upon or includes facts or assertions that would, if true, give rise to
indemnification rights under Section 7.2 of either Merger Agreement (a "THIRD
PARTY CLAIM"). Each Indemnified Person agrees with the Shareholders and the
Representatives that it will make Claims only as permitted by Article 7 of the
Merger Agreements. No delay on the part of any Indemnified Person, and
Microfield, in giving the appropriate Representative notice of a Claim shall
relieve the Representative or any Shareholder from any of its obligations under
Section 7.2 of the Merger Agreements or this Agreement unless (and then only to
the extent that) the Representative and the Shareholders are materially
prejudiced thereby or the applicable survival period in Section 7.1 of the
Merger Agreements has expired.
1.4 ESCROW PERIOD. As used herein, the term "ESCROW PERIOD" means
that one (1) year time period set forth in Section 7.4(a)(i) of the Merger
Agreements, but shall terminate prior to such period if all of the Escrow Shares
have been released pursuant to Section 2.4.
2. DEPOSIT OF ESCROW SHARES; RELEASE FROM ESCROW.
2.1 DELIVERY OF ESCROW SHARES. On the Closing Date or as soon
thereafter as is reasonably practicable: (i) Microfield shall deliver to the
Escrow Agent, or cause its transfer agent to deliver to the Escrow Agent, for
deposit to the Escrow Account, the written notice contemplated in Section 1.1
accompanied by one or more duly authorized stock certificates in the name of
each of the Shareholders as shown on attached EXHIBIT A (the "INITIAL ESCROW
SHARES"). The Representatives agree to execute and deliver to the Escrow Agent
such additional stock powers relating to the Escrow Shares as may be necessary,
in the Escrow Agent's reasonable opinion, to carry out its responsibilities
under this Agreement. In the event Microfield issues any Additional Escrow
Shares (as defined below), Microfield shall deliver, or cause its transfer agent
to deliver, such Additional Escrow Shares to the Escrow Agent, in the same
manner as the Initial Escrow Shares. Unless and until stock certificates
representing Additional Escrow Shares are received by the Escrow Agent, the
Escrow Agent may assume that none have been issued.
2.2 DIVIDENDS, VOTING AND RIGHTS OF OWNERSHIP. Except for
dividends paid in shares of Microfield stock that are declared and paid with
respect to the Escrow Shares or shares of Microfield Common Stock issued with
respect to Escrow Shares and resulting from a stock split or other subdivision
("ADDITIONAL ESCROW SHARES"), any cash dividends, dividends payable in
securities or other distributions of any kind made or paid in respect of the
Escrow Shares shall be distributed by Microfield to each Shareholder at the time
of such dividend or other distribution. Each Shareholder shall have the right to
vote the Escrow Shares deposited in the Escrow Account for the account of such
Shareholder so long as such Escrow Shares are held in escrow and not the subject
of a Claim, and Microfield shall take all reasonable steps necessary to allow
the exercise of such rights. So long as the Escrow Shares remain in the Escrow
Agent's possession pursuant to this Agreement and have not been canceled as
provided herein or repurchased by Microfield AND ARE NOT THE SUBJECT OF A CLAIM,
the Shareholders shall retain and shall be able to exercise voting rights with
respect to such Escrow Shares and all other incidents of ownership of the Escrow
Shares that are not inconsistent with the terms and conditions of this
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Agreement or the Merger Agreements. Microfield and the Shareholders will arrange
for the payment of ordinary dividends and the delivery of proxies and other
notices among themselves, and the Escrow Agent need not be involved. Neither the
Escrow Agent nor its nominee shall be under any duty to take any action to
preserve, protect, exercise or enforce any rights or remedies under or with
respect to the Escrow Shares (including without limitation with respect to the
exercise of any voting or consent rights, conversion or exchange rights, defense
of title, preservation or rights against prior matters or otherwise).
Notwithstanding the foregoing, if the Escrow Agent is so requested in a written
request of a Representative received by the Escrow Agent at least three (3)
Business Days prior to the date on which the Escrow Agent is requested therein
to take such action (or such later date as may be acceptable to the Escrow
Agent), the Escrow Agent shall execute or cause its nominee to execute, and
deliver to the Representative a proxy or other instrument in the form supplied
to it by the Representative for voting or otherwise exercising any right of
consent with respect to any of the Escrow Shares hold by it hereunder, to
authorize therein the Representative to exercise such voting or consent
authority in respect of the Escrow Shares (provided, that the Escrow Agent shall
not be obliged to execute any such proxy or other instrument if, in its
judgment, the terms thereof may subject the Escrow Agent to any liabilities or
obligations in its individual capacity). The Escrow Agent shall not be under any
duty or responsibility to forward to Microfield, Shareholders and the
Representatives (each, an "INTERESTED PARTY"), or to notify any Interested Party
with respect to, or to take any action with respect to, any notice, solicitation
or other document or information, written or otherwise, received from an issuer
or other person with respect to the Escrow Shares, including but not limited to,
proxy material, tenders, options, the pendency of calls and maturities and
expiration of rights.
2.3 DISTRIBUTIONS TO SHAREHOLDERS. Promptly after the Escrow Agent
receives notice of the date on which the Escrow Period expired (the "FINAL
RELEASE DATE"), the Escrow Agent shall release, or cause the transfer agent of
the Escrow Shares to release, from escrow to each Shareholder at each
Shareholders' address as set forth in EXHIBIT A, in proportion to each such
Shareholders' pro rata portion as set forth in EXHIBIT A, that number of shares
that is equal to the positive difference between (i) the total number of Escrow
Shares then remaining subject to this Agreement, less (ii) the total number of
such Shareholder's Escrow Shares that are owed to Microfield and are to be
canceled and forfeited in accordance with Section 4 in satisfaction of Claims by
Microfield or that are otherwise being held in escrow subject to a pending Claim
by Microfield. As used in this Agreement, a "SHAREHOLDER'S ESCROW SHARES" refers
to and means: (i) if no Additional Escrow Shares are issued, the Initial Escrow
Shares allocable to such Shareholder as set forth in EXHIBIT A; and (ii) if
Additional Escrow Shares are issued, that number of Escrow Shares obtained by
multiplying the total number of all Escrow Shares in the Escrow Account at the
time in question by such Shareholder's pro rata portion as set forth in EXHIBIT
A. Except for Additional Escrow Shares, in no event shall any Shareholder be
required to contribute additional shares to the Escrow.
2.4 RELEASE OF ESCROW SHARES. The Escrow Shares shall be held by
the Escrow Agent until such Escrow Shares are required to be released pursuant
to either: (i) Section 2.3; or (ii) when required under applicable provisions of
Section 4 (each such day, "RELEASE DATE"). The Escrow Agent shall deliver to
Microfield's transfer agent for further
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delivery to the Shareholders or to Microfield, as applicable hereunder, the
requisite number of Escrow Shares to be released on each applicable date as is
called for by this Agreement. Such delivery of Escrow Shares shall be in the
form of stock certificate(s) registered in the name of such Shareholders or
Microfield, as applicable, in accordance with this Agreement. The Escrow Agent
shall coordinate with Microfield's transfer agent who shall cause such stock
certificates to be registered in the appropriate names as determined by the
Escrow Agent in accordance with this Agreement. Microfield shall give the Escrow
Agent prompt written notice of the name and address of the current and any new
transfer agent for Microfield's Common Stock. Microfield and the Representatives
shall undertake to deliver a prompt written notice to the Escrow Agent
identifying the number of Escrow Shares to be released to each of the
Shareholders and/or Microfield, as applicable, in accordance with this
Agreement. Escrow Shares released to the Shareholders shall be released to them
in proportion to their respective pro rata portions as set forth in EXHIBIT A.
The Escrow Agent may, from time to time, request from Microfield or from the
Representatives written confirmation of the accuracy and completeness of
information respecting the Shareholders set forth in EXHIBIT A. Cash, which
shall be furnished to the Escrow Agent by Microfield, shall be paid in lieu of
any distribution of a fraction of an Escrow Share held by any Shareholder
(computed for each Shareholder by aggregating all Escrow Shares held by such
Shareholder) in an amount equal to the applicable fraction of an Escrow Share
multiplied by the per share market value of Microfield Common Stock (as set
forth in Section 4.5) as set forth in a certificate of Microfield delivered to
and received by the Escrow Agent (such price per share to be adjusted to reflect
any stock dividend, stock split, reverse stock split, combination of shares,
reclassification, recapitalization or other similar event affecting Microfield
Common Stock (each a "CAPITAL CHANGE"), whether occurring at or after the
Closing Date if the written notice described below has been received by the
Escrow Agent). Within five (5) business days Microfield shall give the Escrow
Agent and the Representatives written notice of the occurrence of any Capital
Change and the impact thereof on such price per share of Microfield Common Stock
referred to above. Within two (2) business days prior to the scheduled date for
releasing shares to the Shareholders hereby, Microfield shall submit to the
Escrow Agent and the Representatives a certified schedule of the cash amounts
payable for fractional shares (if any) to each of the Shareholders as set forth
in EXHIBIT A and shall deposit with the Escrow Agent sufficient funds to pay
such cash amounts for fractional shares. The Escrow Agent may be required by the
Internal Revenue Code, as it may be amended from time to time, to withhold a
portion of any cash distribution to any Shareholder unless such Shareholder
delivers to the Escrow Agent an IRS Form W-9 (or Form W-8 for non-U.S. persons)
for tax reporting purposes, duly completed and executed by such Shareholder
prior to such distribution.
2.5 NO ENCUMBRANCE. No Escrow Shares or any beneficial interest
therein may be pledged, encumbered, sold, assigned or transferred (including any
transfer by operation of law), by a Shareholder or be taken or reached by any
legal or equitable process in satisfaction of any debt or other liability of
such Shareholder, prior to the delivery to such Shareholder of such Escrow
Shares by the Escrow Agent in accordance with this Agreement. The Escrow Agent
shall have no responsibility for determining or enforcing compliance with this
Section 2.5, except that the Escrow Agent shall retain possession of the stock
certificates evidencing the Escrow Shares as required by this Agreement.
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2.6 POWER TO TRANSFER ESCROW SHARES. The Escrow Agent is hereby
granted the power to effect any transfer of Escrow Shares contemplated by this
Agreement. Microfield shall cooperate with the Escrow Agent in causing
Microfield's transfer agent to promptly issue stock certificates to effect such
transfers.
3. CONTENTS OF NOTICE OF CLAIM.
3.1 WRITTEN CLAIM. Each Notice of Claim given by Microfield
pursuant to Section 1.3 shall be in writing and shall contain the following
information to the extent it is reasonably available to Microfield:
(a) Microfield's statement of the amount of the damages that
Microfield believes have been actually incurred by Microfield and/or any other
Indemnified Person in connection with the Claim and/or Microfield's statement of
its good faith estimate of the reasonably foreseeable amount of the alleged
damages that will ultimately be incurred by Microfield and/or any other
Indemnified Person in connection with such Claim; and
(b) A brief description in reasonable detail of the facts,
circumstances or events giving rise to the alleged Damages based on Microfield's
or any other affected Indemnified Person's good faith belief thereof, and, if
applicable, the identity and address of any third-party claimant (to the extent
reasonably available to Microfield) and copies of any formal demand or complaint
of any such third-party claimant.
3.2 NO TRANSFER. The Escrow Agent shall not transfer any of the
Escrow Shares held in the Escrow Account to Microfield pursuant to a Notice of
Claim until such Notice of has been resolved in accordance with Section 4.
4. RESOLUTION OF CLAIMS AND TRANSFERS OF ESCROW SHARES. Any Notice of
Claim received by the Shareholders' Representative and the Escrow Agent pursuant
to Section 1.3 and Section 3 shall be resolved as follows:
4.1 UNCONTESTED CLAIMS. If, within thirty (30) calendar days after
a Notice of Claim containing a statement of claimed damages has been received
by, or is deemed to have been delivered by Microfield to, the respective
Representative and the Escrow Agent pursuant to Section 7, the appropriate
Representative has not contested such Notice of Claim in a written notice
received by Escrow Agent as provided in Section 4.2 (an "UNCONTESTED CLAIM"),
then the Escrow Agent shall: (i) promptly release or cause the transfer agent of
the Escrow Shares to release from escrow and transfer to Microfield for
cancellation and forfeiture that number of Escrow Shares having a value (as
determined in accordance with Section 4.5) equal to the amount of damages
specified in such Notice of Claim, which transferred and forfeited Escrow Shares
shall be taken from and forfeited by the Shareholders as set forth in Section
4.5; and (ii) notify the Representatives in writing of such transfer and
forfeiture of Escrow Shares as promptly as reasonably practicable.
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4.2 CONTESTED CLAIMS. In the event that the respective
Representative delivers to Microfield and the Escrow Agent a written notice
contesting all, or a portion of, a Notice of Claim (a "CONTESTED CLAIM") and
such written notice has been received by, or is deemed, under the provisions of
Section 7, to have been delivered to, Microfield and the Escrow Agent within the
thirty (30) day period described in Section 4.1, then: (i) such Contested Claim
shall be resolved by either (1) a written settlement agreement executed by
Microfield and appropriate Representative, or (2) in the absence of such a
written settlement agreement, by nonbinding arbitration in accordance with the
provisions of Section 4.3. Any portion of the Notice of Claim that is not
contested by the Representative in accordance with the foregoing provisions of
this Section 4.2 shall be treated as an Uncontested Claim and resolved in
accordance with Section 4.1.
4.3 NONBINDING ARBITRATION OF CONTESTED CLAIMS. Microfield and the
Representatives agree that they shall use best reasonable efforts to settle
amicably disagreements arising from or in connection with this Agreement. To
this effect, following notice of either to the other (with copy to the Escrow
Agent) of a disagreement, which shall include any failure to agree upon a matter
to be agreed upon (a "DISPUTE"), the parties shall consult and negotiate with
one another in good faith an understanding to reach a just and equitable
solution. If those attempts fail after a period of ten (10) business days from
the time the parties have been notified of the Dispute, then every such Dispute
shall be settled by nonbinding arbitration in Multnomah County, Oregon, in
accordance with the commercial arbitration rules of Arbitration Services of
Portland, Inc. ("ASP") then in effect. Upon completion of the arbitration, any
award rendered by the arbitrator may be entered by the parties in the circuit
court for Multnomah County, Oregon; provided, however, that such award may be
appealed as set forth below. The arbitrator shall have the authority to grant
any equitable and legal remedies that would be available in a judicial
proceeding instituted to resolve the Dispute.
(A) SELECTION OF ARBITRATOR. ASP will have the authority to
select an arbitrator from a list of arbitrators who are lawyers familiar with
Oregon contract law; provided, however, that such lawyers cannot work for a firm
then performing services for either party, that each party will have the
opportunity to make such reasonable objection to any of the arbitrators listed
as such party may wish and that ASP will select the arbitrator from the list of
arbitrators as to whom neither party makes any such objection. In the event that
the foregoing procedure is not followed, each party will choose one person from
the list of arbitrators provided by ASP (provided that such person does not have
a conflict of interest), and the two persons so selected will select from the
list provided by ASP the person who will act as arbitrator.
(B) PAYMENT OF COSTS. Microfield and the respective
Shareholders will bear the expense of deposits and advances required by the
arbitrator. Microfield shall pay fifty percent (50%) and the Shareholders
collectively shall pay fifty percent (50%) of such deposits and advances, with
each Shareholder paying in proportion to their respective escrow percentage, but
either party may advance such amounts, subject to recovery as an addition or
offset to any award. The arbitrator will award to the prevailing party, as
determined by the arbitrator, all costs, fees and expenses related to the
arbitration, including reasonable fees and expenses of attorneys, accountants
and other professionals incurred by the prevailing party.
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(C) AWARD AND APPEAL. Upon the conclusion of the arbitration
proceedings hereunder, the arbitrator will render findings of fact and
conclusions of law and a written opinion setting forth the basis and reasons for
any decision reached and will deliver such documents to each party to this
Agreement along with a signed copy of the award. The parties shall then have
thirty (30) days to enter the award as a judgment in the circuit court of
Multnomah County, Oregon, and then thirty (30) additional days after entry of
the award as a judgment to appeal it in the circuit court. The judge at trial or
appeal will award to the prevailing party, as determined by the judge, all
costs, fees and expenses related to any trial or appeal, including reasonable
fees and expenses of attorneys, accountants and other professionals incurred by
the prevailing party.
(D) TERMS OF ARBITRATION. The arbitrator chosen in
accordance with these provisions will not have the power to alter, amend or
otherwise affect the terms of these arbitration provisions or the provisions of
this Agreement.
(E) TREATMENT OF DAMAGES. Upon (i) issuance of a final
written opinion by the arbitrator or the judge in any trial or appeal, and (ii)
after all appeal periods have expired (a "FINAL AWARD"), Microfield will
immediately be entitled to recover solely from the Escrow Account the amount of
any incurred damages determined and awarded to Microfield under such Final
Award, all in accordance with Section 4.3(f), and such incurred damages will be
deemed to be owed to Microfield for purposes of this Agreement; provided,
however, that the limitation on damages set forth in Section 7.4 of the Merger
Agreements shall limit the total damages payable to Microfield under this
Agreement.
(F) RELEASE OF ESCROW SHARES PURSUANT TO ARBITRATION AWARD.
Upon its receipt of a copy of the Final Award and after all appeal periods have
expired, the Escrow Agent shall (i) promptly release from escrow and transfer to
Microfield for cancellation that number of Escrow Shares having a value
(determined in accordance with Section 4.5) equal to the amount of damages (if
any) owed to Microfield (as determined under Section 4.3(e)), which transferred
and forfeited Escrow Shares shall be taken from and forfeited by each of the
Shareholders in proportion to such Shareholder's respective pro rata portion of
the Escrow Shares as set forth on EXHIBIT A, and (ii) notify the appropriate
Representative in writing of such transfer and forfeiture of Escrow Shares as
promptly as reasonably practicable.
4.4 SETTLED CLAIMS. If a Claim (including a Contested Claim) is
settled by a written settlement agreement executed by a Representative and
Microfield (a "SETTLED CLAIM"), then the Representative and Microfield shall
promptly deliver a copy of such executed settlement agreement to the Escrow
Agent together with written instructions executed by both Microfield and the
Representative to the Escrow Agent ("SETTLEMENT INSTRUCTIONS") which shall, in
accordance with and subject to the terms of the written settlement agreement,
instruct the Escrow Agent: (i) to release a stated number of Escrow Shares to
Microfield pursuant to such settlement agreement; (ii) that no action need be
taken by the Escrow Agent with respect to such Claim; or (iii) that a stated
number of Escrow Shares shall be released to the Shareholders pursuant to such
settlement agreement. Upon its receipt of such settlement agreement and
Settlement Instructions instructing the Escrow Agent to release Escrow Shares to
Microfield, the Escrow Agent shall:
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(i) promptly release or cause to be released from escrow and transfer to
Microfield for cancellation that number of Escrow Shares that Microfield and the
Representative have agreed shall be transferred and forfeited by the
Shareholders in such Settlement Instructions, which transferred and forfeited
Escrow Shares shall be forfeited by each of the Shareholders as set forth in
Section 4.5; and (ii) notify the Representative in writing of such transfer and
forfeiture of Escrow Shares as promptly as reasonably practicable.
4.5 DETERMINATION OF NUMBER OF ESCROW SHARES FORFEITED.
(a) Any amount of damages owed to Microfield or any other
Indemnified Person hereunder, determined pursuant to the foregoing provisions of
Section 4, but limited by Section 7.4 of the Merger Agreements, shall be payable
to Microfield as provided in this Agreement out of the Escrow Shares then held
by the Escrow Agent. For any Claim or Claims arising under either or both of the
Merger Agreements, Microfield shall be entitled to receive all of the Escrow
Shares; provided, however, that the Escrow Shares shall first be forfeited by
the CTS Shareholder in the event of a Claim under the CTS Merger Agreement, or
first by the Velagio Shareholders in the event of a Claim under the VSI Merger
Agreement (each of the Velagio Shareholders in proportion to their respective
pro rata percentage of the Escrow Shares as set forth on EXHIBIT A). For
example, if a Claim arises under the CTS Merger Agreement that represents
450,000 Escrow Shares, Microfield shall receive all of the CTS Shareholder's
Escrow Shares and then the balance from the Velagio Shareholders' Escrow Shares.
If for example, a subsequent Claim arises under the CTS Merger Agreement that
represents an additional 100,000 Escrow Shares, Microfield shall receive the
remaining 50,000 Escrow Shares from the Velagio Shareholders, at which time the
limitation of Section 7.4 of the Merger Agreements shall be reached.
(b) For purposes of this Agreement, Escrow Shares shall be
deemed to have a per share value equal to the per share market value of
Microfield Common Stock (based on the Microfield Stock Value as set forth in the
Merger Agreements, which is defined as the average bid price as reported on the
OCTBB or NASDAQ or other exchange upon which Microfield Common Stock is trading
for the thirty (30) days immediately prior to and including the last trading day
prior to the applicable date for which the value is determined) which will be
set forth in a certificate of Microfield delivered to and received by the Escrow
Agent (such price per share and certificate to be adjusted to reflect any
Capital Change, whether occurring at or after the Closing Date, if the written
notice contemplated by Section 2.4 has been received by the Escrow Agent).
Microfield shall promptly give the Escrow Agent and the Representative written
notice of the occurrence of any Capital Change and the impact thereof on such
price per share of Microfield Common Stock referred to above.
4.6 MULTIPLE CLAIMS PERMITTED. The assertion of any single Claim
for indemnification hereunder shall not bar Microfield from asserting any other
Claims hereunder.
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5. LIMITATION OF ESCROW AGENT'S LIABILITY.
5.1 LIMITATION OF LIABILITY. The Escrow Agent shall incur no
liability with respect to any action taken or suffered by it in reliance upon
any notice, direction, instruction, consent, statement or other document
believed by it to be genuine and duly authorized, nor for any other action or
inaction, except its own willful misconduct, fraud or gross negligence. The
Escrow Agent shall have no duty to inquire into or investigate the validity,
accuracy or content of any document delivered to it. The Escrow Agent shall not
be responsible for the validity or sufficiency of this Agreement. In all
questions arising under this Agreement, the Escrow Agent may rely on the advice
or opinion of counsel, and for anything done, omitted or suffered in good faith
by the Escrow Agent based on such advice, the Escrow Agent shall not be liable
to anyone. The Escrow Agent shall not be required to take any action hereunder
involving any expense unless the payment of such expense is made or provided for
in a manner satisfactory to it. The Escrow Agent shall have no duties or
responsibilities other than those expressly set forth in this Agreement and the
implied duty of good faith and fair dealing.
5.2 RESOLUTION OF CONFLICTING DEMANDS. In the event conflicting
demands are made or conflicting notices are served upon the Escrow Agent with
respect to the Escrow Account, the Escrow Agent shall have the absolute right,
at the Escrow Agent's election, to do either or both of the following: (i) file
a suit in interpleader with a court of competent jurisdiction, deposit the
Escrow Shares at issue with the clerk of such court and obtain an order from
such court requiring the parties to interplead and litigate in such court their
several claims and rights among themselves; or (ii) give written notice to the
Representative(s) and Microfield that it has received conflicting instructions
and is refraining from taking action with respect to the subject matter of the
conflicting instructions until it receives instructions consented to in writing
by both Microfield and the respective Representative. In the event an
interpleader suit as described in clause (i) above is brought, the Escrow Agent
shall thereby be fully released and discharged from all further obligations
imposed upon it under this Agreement with respect to the matters that are the
subject of such interpleader suit, and Microfield and the Shareholders shall pay
the Escrow Agent all costs, expenses and reasonable attorney fees expended or
incurred by the Escrow Agent pursuant to the exercise of Escrow Agent's rights
under this Section 5.2 (such costs, fees and expenses shall be treated as
extraordinary fees and expenses for the purposes of Section 9).
5.3 INDEMNIFICATION. Each party to this Agreement other than the
Escrow Agent (each an "INDEMNIFYING PARTY" and together the "INDEMNIFYING
PARTIES"), hereby jointly and severally covenants and agrees to reimburse,
indemnify and hold harmless Escrow Agent, the Escrow Agent's officers,
directors, employees, counsel and agents (severally and collectively for
purposes of this Sections 5.3, 5.4 and 5.5 only, "ESCROW AGENT"), from and
against any loss, damage, liability or loss suffered, incurred by, or asserted
against Escrow Agent (including amounts paid in settlement of any action, suit,
proceeding, or claim brought or threatened to be brought and including
reasonable expenses of legal counsel) arising out of, in connection with or
based upon, any act or omission by Escrow Agent (not involving gross negligence,
willful misconduct or fraud on Escrow Agent's part) relating in any way to this
Agreement or the Escrow Agent's services hereunder. The aggregate liability of
the Shareholders and Microfield
10 - INDEMNIFICATION ESCROW AGREEMENT
to the Escrow Agent under this indemnity shall be limited to the Escrow Shares
then in escrow hereunder. Anything in this Agreement to the contrary
notwithstanding, in no event shall the Escrow Agent be liable for special,
indirect or consequential loss or damage of any kind whatsoever (including but
not limited to lost profits), even if the Escrow Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action. Any
Indemnifying Party who reimburses or indemnifies the Escrow Agent pursuant to
this Section 5.3 shall have a right to seek contribution from any and all other
Indemnifying Parties according to their relative fault or, if such relative
fault is not determinable, in accordance with each Shareholder's pro rata
ownership of Escrow Shares; provided, that the aggregate liability of the
Shareholders for any such contribution shall be limited to the Escrow Shares
then in escrow hereunder.
5.4 DEFENSE. Each Indemnifying Party may participate at its own
expense in the defense of any claim or action that may be asserted against
Escrow Agent, and if the Indemnifying Parties so elect, the Indemnifying Parties
may assume the defense of such claim or action; provided, however, that if there
exists a conflict of interest that would make it inappropriate, in the sole
discretion of the Escrow Agent, for the same counsel to represent both Escrow
Agent and the Indemnifying Parties, Escrow Agent's retention of separate counsel
shall be reimbursable as hereinabove provided. Escrow Agent's right to
indemnification hereunder shall survive Escrow Agent's resignation or removal as
Escrow Agent and shall survive the termination of this Agreement by lapse of
time or otherwise.
5.5 NOTICE TO INDEMNIFYING PARTIES. The Escrow Agent shall notify
each Indemnifying Party by letter, or by telephone or telecopy confirmed by
letter, of any receipt by Escrow Agent of a written assertion of a claim against
Escrow Agent, or any action commenced against Escrow Agent, for which
indemnification is required under Section 5.3, within ten (10) days after Escrow
Agent's receipt of written notice of such claim. The Indemnifying Parties will
be relieved of their indemnification obligations under this Section 5 if Escrow
Agent fails to timely give such notice and such failure adversely affects the
Indemnifying Parties' ability to defend such claim. However, Escrow Agent's
failure to so notify each Indemnifying Party shall not operate in any manner
whatsoever to relieve an Indemnifying Party from any liability that it may have
otherwise than on account of this Section 5.
5.6 USE OF AGENTS. The Escrow Agent may execute any of its powers
or responsibilities hereunder and exercise any rights hereunder either directly
or by or through its agents or attorneys and shall be entitled to consult with
its legal counsel, including in-house legal counsel, as to any questions or
matters arising hereunder and the reasonable, good faith written opinion of such
legal counsel shall be full and complete authorization and protection to Escrow
Agent in respect of any act or omission by Escrow Agent undertaken in good faith
and in accordance with the opinion of such legal counsel. The Escrow Agent shall
have no liability for the conduct of any outside attorneys, accountants or other
similar professionals it retains. Nothing in this Agreement shall be deemed to
impose upon Escrow Agent any duty to qualify to do business or to act as a
fiduciary or otherwise in any jurisdiction other than the State of Oregon.
11 - INDEMNIFICATION ESCROW AGREEMENT
6. REPRESENTATIVES OF THE SHAREHOLDERS. The Representatives each
represent and warrant to the Escrow Agent that he has the irrevocable right,
power and authority (i) to enter into and perform this Agreement and to bind the
CTS Shareholder with respect to the CTS Representative, and the Velagio
Shareholders with respect to the Velagio Representative, to the terms of this
Agreement, (ii) to give and receive directions and notices hereunder; and (iii)
to make all determinations. Unless and until the Escrow Agent receives written
notice of the appointment of a successor Representative, the Escrow Agent may
assume without inquiry that the last Representative of which it has notice
remains in that capacity. The Representative shall not be entitled to receive
any compensation from Microfield in connection with this Agreement.
7. NOTICES. All notices, instructions and other communications required
or permitted to be given hereunder or necessary or convenient in connection
herewith must be in writing and shall be deemed delivered (i) when personally
served, or (ii) when delivered by an overnight courier service as shown by the
records of such delivery service, addressed as follows:
12 - INDEMNIFICATION ESCROW AGREEMENT
(i) IF TO THE ESCROW AGENT:
Xxxxxxx X. Xxxxxxxxxxxxxx
Xxxxxxxxxxxxxx & Xxxxxxxx, LLP
Suite 200
000 XX Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxxx 00000
Telephone: (000) 000-0000
(ii) IF TO MICROFIELD:
Microfield Group, Inc.
Xxxxx 000
0000 Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Phone: (000) 000-0000
WITH A COPY TO:
Dunn, Carney, Xxxxx, Xxxxxxx & Tongue LLP
Suite 1500
000 XX Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxx 00000
Attention: Xxxxxxxx X. Xxxxxxx
Phone: (000) 000-0000
(iii) IF TO THE VELAGIO SHAREHOLDERS OR THE VELAGIO REPRESENTATIVE:
Xxxx X. Xxxxxxxxx
Suite 400
0000 Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxx 00000
Phone: (000) 000-0000
WITH A COPY TO:
White & Xxx LLP
Suite 2440
000 XX Xxxxxxxx
Xxxxxxxx, Xxxxxx 00000
Attention: Xxx X. Xxxxxxx
Phone: (000) 000-0000
13 - INDEMNIFICATION ESCROW AGREEMENT
(v) IF TO THE CTS SHAREHOLDER OR THE CTS REPRESENTATIVE:
Xxxxxxxxxxx Group LLC
Xxxxx 000
0000 Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxx 00000
Attention: Xxxxxx X. Jesenik and Xxxxxx X. Xxxxx
(000) 000-0000
or to such other address as the parties designate in a writing delivered to each
of the other parties hereto in accordance with this Section 7. Notwithstanding
the foregoing, notices and the like addressed to the Escrow Agent shall be
effective only upon receipt. The Escrow Agent may assume without inquiry (unless
the Escrow Agent has written notice to the contrary) that notices received by
it, which are also required to be delivered to another party have, in fact, been
delivered to such other party.
8. MISCELLANEOUS.
8.1 CHOICE OF LAW. The internal laws of the State of Oregon
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto.
8.2 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts (including
by facsimile), with the same effect as if all parties had signed the same
document. All such counterparts shall be deemed an original, shall be construed
together and shall constitute one and the same instrument.
8.3 SEVERABILITY. Should any one or more of the provisions of this
Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.
8.4 PARTIES IN INTEREST. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the parties hereto and their respective successors and permitted assigns
and shall inure to the benefit of and be enforceable by each such person.
Neither this Agreement nor any right or obligation hereunder shall be assignable
or delegable by the Shareholders except with the prior written consent of
Microfield. This Agreement shall be assignable or delegable by Microfield, with
or without the prior written consent of the other parties hereto, including to
any successor in interest of Microfield, whether by merger, reorganization, sale
of assets or otherwise so long as such successor assumes the obligations hereof.
14 - INDEMNIFICATION ESCROW AGREEMENT
8.5 HEADINGS. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
8.6 NO STRICT CONSTRUCTION. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
8.7 ENTIRE AGREEMENT. As between Microfield, the Representatives
and the Shareholders, except as otherwise provided in the Merger Agreements,
this Agreement constitutes the entire understanding and agreement of the parties
with respect to the subject matter of this Agreement and supersedes all prior
agreements or understandings, written or oral, between the parties with respect
to the subject matter hereof. As between the Escrow Agent and the other parties
hereto, all such parties agree that the Escrow Agent's duties are defined only
in this Agreement, any contrary provisions of the Merger Agreements
notwithstanding.
8.8 FURTHER ASSURANCES. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use its commercially
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
legal requirements or otherwise, to consummate and make effective the
transactions contemplated by this Agreement. If at any time after the date
hereof any further action is necessary or desirable to carry out the purposes of
this Agreement, all parties shall use their commercially reasonable efforts to
take or cause to be taken all such necessary or convenient action and execute,
and deliver and file, or cause to be executed, delivered and filed, all
necessary or convenient documentation.
8.9 FORCE MAJEURE. Neither Microfield nor the Shareholders nor
Escrow Agent shall be responsible for any delays or failures in performance
resulting from acts beyond its control. Such acts shall include but not be
limited to acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, earthquakes or other
disasters.
8.10 REPRODUCTION OF DOCUMENTS. This Agreement and all documents
relating thereto, including, without limitation, (a) consents, waivers and
modifications which may hereafter be executed, and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties hereto agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction shall likewise be admissible in evidence.
15 - INDEMNIFICATION ESCROW AGREEMENT
8.11 AMENDMENT. This Agreement may be amended by the written
agreement of Microfield, the Escrow Agent and the Representatives, provided
that, if the Escrow Agent does not agree to an amendment agreed upon by
Microfield and the Representatives, the Escrow Agent shall resign and Microfield
shall appoint a successor Escrow Agent in accordance with Section 10. No
amendment of the Merger Agreements shall increase Escrow Agent's
responsibilities or liability hereunder without Escrow Agent's written
agreement.
9. COMPENSATION AND EXPENSES OF ESCROW AGENT. All fees and expenses of
the Escrow Agent incurred in the ordinary course of performing its
responsibilities hereunder in accordance with the fee schedule attached hereto
as EXHIBIT B shall be paid by Microfield upon receipt of a written invoice by
Escrow Agent. Any extraordinary fees and expenses, including without limitation
any fees or expenses incurred by the Escrow Agent in connection with a dispute
over the distribution of Escrow Shares or the validity of a Notice of Claim,
shall be paid fifty percent (50%) by Microfield and fifty percent (50%) by the
Shareholders (each Shareholder paying it or his escrow percentage) upon receipt
of a written invoice by Escrow Agent, and subject to the provisions of Section
4.3(b) shall be allocated to the non-prevailing party in any action,
arbitration, trial or appeal.
10. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes unable
or unwilling to continue in its capacity herewith, the Escrow Agent may resign
and be discharged from its duties or obligations hereunder by giving notice of
its resignation to the other parties to this Agreement, specifying a date not
less than thirty (30) days following the date of receipt of such notice when
such resignation shall take effect. Microfield and the Representatives shall
designate a successor escrow agent prior to the expiration of such thirty (30)
day period by giving written notice of such successor to the Escrow Agent.
Microfield and the Representatives may only appoint a successor escrow agent
upon their mutual agreement. If no successor escrow agent is named by Microfield
and the Representatives, the Escrow Agent may apply to a court of competent
jurisdiction for the appointment of a successor escrow agent. The Escrow Agent
shall promptly transfer the Escrow Shares to such designated successor.
11. LIMITATION OF RESPONSIBILITY. The Escrow Agent's duties are limited
to those set forth in this Agreement, and Escrow Agent, acting as such under
this Agreement, is not charged with knowledge of or any duties or
responsibilities under any other document or agreement, including without
limitation the Merger Agreements. Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either directly or
by or through its agents or attorneys. Nothing in this Escrow Agreement shall be
deemed to impose upon the Escrow Agent any duty to qualify to do business or to
act as a fiduciary or otherwise in any jurisdiction other than the State of
Oregon. Escrow Agent shall not be responsible for and shall not be under a duty
to examine into or pass upon the validity, binding effect, execution or
sufficiency of this Escrow Agreement or of any agreement amendatory or
supplemental hereto. In no event shall the Escrow Agent have any duty or
obligation to determine or enforce compliance with the requirements of any
agreement or instrument other than this Agreement (including without limitation
the Merger Agreements).
[SIGNATURES ON FOLLOWING PAGE]
16 - INDEMNIFICATION ESCROW AGREEMENT
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
ESCROW AGENT: MICROFIELD:
MICROFIELD GROUP, INC.
an Oregon corporation
_____________________________________________ By: _____________________________
XXXXXXX X. XXXXXXXXXXXXXX, as the Escrow Agent Xxxxxx X. Xxxxxx, President
SHAREHOLDERS: REPRESENTATIVES:
XXXXXXXXXXX GROUP, LLC
an Oregon limited liability company
By: JMW CAPITAL PARTNERS, INC.
Its Manager
By: ___________________________________ _________________________________
Xxxxxx X. Jesenik, XXXXXX X. JESENIK, as the CTS
Chief Executive Officer Representative
TSI TELECOMMUNICATION
SERVICES INC.
a Delaware corporation
By:__________________________________________ _________________________________
Name:________________________________________ XXXX X. XXXXXXXXX, as the Velagio
Its:_________________________________________ Representative
_____________________________________________
XXXX X. XXXXXXXXX, individually
17 - INDEMNIFICATION ESCROW AGREEMENT
EXHIBIT A
SHAREHOLDER LIST
INITIAL PRO RATA
SHAREHOLDER NAME ADDRESS ESCROW SHARES PERCENTAGE
---------------- ------- ------------- ----------
XXXX X. XXXXXXXXX Xxxxx 000
0000 Xxxxxxx Xxxxxx 203,008 40.60%
Xxxxxxxx, Xxxxxx 00000
TSI TELECOMMUNICATION
SERVICES INC. 46,992 9.40%
XXXXXXXXXXX GROUP LLC Xxxxx 000
0000 Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxx 00000 250,000 50.00%
TOTAL 500,000 100.00%
EXHIBIT B
FEES AND EXPENSES OF ESCROW AGENT
