ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("ESCROW AGREEMENT") is made and entered into as of
October 31, 1996 by and among Eltrax Systems, Inc., a Minnesota corporation
("PURCHASER"), Xxxxxx X. Xxxxxx, Xxxxxxx X. Xxxxxxxx and B. Xxxxxx Xxxxxx
(collectively, the "SHAREHOLDERS"), and Norwest Bank Minnesota, National
Association, a national banking association, as escrow agent (the "ESCROW
AGENT").
A. Purchaser, ANS Acquisition Corporation, a North Carolina corporation
and a wholly-owned subsidiary of Purchaser (the "ACQUISITION SUB"), Atlantic
Network Systems, Inc., a North Carolina corporation ("ANS") and the Shareholders
have entered into an Agreement and Plan of Merger dated as of October 31, 1996
(the "MERGER AGREEMENT") pursuant to which the Acquisition Sub will merge with
and into ANS, with ANS to survive the merger as a wholly-owned subsidiary of
Purchaser (the "Merger").
B. Pursuant to the terms of the Merger Agreement, Purchaser is to deposit
50,000 shares of its Common Stock, par value $.01 per share, ("PURCHASER'S
COMMON STOCK") issuable to the Shareholders upon the consummation of the Merger
with the Escrow Agent (with the certificate for such shares being registered in
the name of the Escrow Agent or its nominee) at the Closing, as defined in the
Merger Agreement.
Accordingly, for the purpose of establishing the terms and provisions of
escrow for the aforesaid shares, the parties hereto agree as follows:
1. ESCROW FUND. The Escrow Agent hereby acknowledges receipt of a certificate
for 50,000 shares of Purchaser's Common Stock (collectively, the "ESCROW FUND")
issuable to the Shareholders upon the consummation of the Merger. The Escrow
Agent is directed to hold, deal with and dispose of the Escrow Fund as
hereinafter set forth, and agrees not to commingle the Escrow Fund with any
other securities or funds held by the Escrow Agent.
2. CHARGES AGAINST ESCROW FUND. The Escrow Fund has been made for the purpose
of securing and providing an exclusive source for satisfying the indemnification
obligations of Shareholders to Purchaser pursuant to Article 8 of the Merger
Agreement. In the event that, and from time to time as, Purchaser determines
that amounts are chargeable or can be reserved against the Escrow Fund pursuant
to Article 8 of the Merger Agreement, Purchaser will provide a notice to the
Escrow Agent and to the Shareholders, in substantially the form attached hereto
as Exhibit 1, of such charge or reserve (a "CLAIM") against the Escrow Fund,
stating the amount thereof and a brief description of the facts upon which the
claim is based (the "SHAREHOLDER'S NOTICE"). The Escrow Agent will promptly
deliver a copy of any Shareholder's Notice to the Shareholders. Unless it
receives prior notice from the Shareholders pursuant to Section 3 below, the
Escrow Agent will deliver to Claimant out of the Escrow Fund that number of
shares of Purchaser's Common Stock, valued at $_____ which will be the closing
price per share on the Closing Date as defined in the Merger Agreement
(hereinafter called the "ESCROW VALUE") (but rounding such amount so as to avoid
a fractional share), equal to the amount of such Claim, or in the case of a
Claim for the establishment of a reserve, the Escrow Agent will establish, by
bookkeeping entry, such reserve using the same valuation approach. If only part
of a Claim is disputed pursuant to Section 3 below, the Escrow Agent will
promptly pay to the Purchaser the undisputed portion of such Claim.
3. DISPUTE OF CLAIM AGAINST ESCROW FUND.
(a) The Shareholders will have the right to dispute any Claim against the
Escrow Fund within the ten (10) business day period following delivery to
the Shareholders by the Escrow Agent of a Shareholder's Notice by
delivering to the Escrow Agent and Purchaser written notice in
substantially the form attached hereto as Exhibit 2 (an "OBJECTION NOTICE")
that the Shareholders dispute the matter(s) set forth in such Claim notice
either with respect to the validity or the amount of the Claim (or both).
Such notice will include the basis, with reasonable specificity, of the
objection. The Escrow Agent will promptly furnish Purchaser with a copy of
any Objection Notice.
(b) Upon receipt of an Objection Notice from the Shareholders, the Escrow
Agent will set aside in a separate fund (a "DISPUTE FUND") the number of
shares, valued at the Escrow Value, that it would have delivered to
Purchaser or established as a reserve had such Objection Notice not been
received. The Escrow Agent will take no action with respect to the Dispute
Fund, except upon receipt of joint written instructions from Purchaser and
the Shareholders in substantially the form attached hereto as Exhibit 3.
Upon receipt of such notice, the Escrow Agent will promptly follow the
instructions therein.
(c) If the amount necessary to satisfy any disputed Claim, as ultimately
determined via joint written instructions pursuant to Section 3(b) above,
is in excess of the amount held in the Dispute Fund with respect thereto,
valued at the Escrow Value, an additional amount necessary to satisfy such
Claim will be delivered from the Escrow Fund to Purchaser, valued at the
Escrow Value, or will be established as a reserve to be administered
according to the written instructions, as the case may be.
(d) If an Objection Notice is timely delivered by the Shareholders, the
objections which are described in such notice will be resolved by
arbitration pursuant to Section 9.12 of the Merger Agreement.
4. TERMINATION; RELEASE OF ESCROW FUND. The Escrow Fund will terminate as to
50,000 shares of Purchaser's Common Stock in the Escrow Fund six (6) months
after the date of this Agreement (the "TERMINATION DATE"). The Escrow Agent
will, on the business day next succeeding the Initial Termination Date, deliver
to the Shareholders in accordance with the allocation set forth on Exhibit 4
(the "ALLOCATION"), 50,000 shares of Purchaser's Common Stock held by it
hereunder; PROVIDED, HOWEVER, that any unpaid amounts with respect to which the
Escrow Agent will have been given notice of a Claim (whether or not yet reserved
against) on or prior to such date and any amounts then being held in a Dispute
Fund (with all claims described in Claims notices received during the last ten
(10) business days ending on and including the Termination Date being deemed to
be held in a Dispute Fund) will continue to be held hereunder by the Escrow
Agent, and this Escrow Agreement will continue in full force and effect until
each existing dispute with respect thereto has been resolved and each
contingency applicable to each reserve has been satisfied and joint written
instructions are given pursuant to Section 3(b) above (which instructions will
include, without limitation, a direction to deliver shares to the Exchange
Agent). On the business day next succeeding the Termination Date, the Escrow
Agent will deliver to the Shareholders in accordance with the Allocation, the
shares of Purchaser's Common Stock remaining in the Escrow Fund then held by it
hereunder; PROVIDED, HOWEVER, that any unpaid amounts with respect to which the
Escrow Agent will have been given notice of a Claim (whether or not yet reserved
against) on or prior to such date and any amounts then being held in a Dispute
Fund (with all claims described in
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Claims notices received during the last ten (10) business days ending on and
including the Termination Date being deemed to be held in a Dispute Fund) will
continue to be held hereunder by the Escrow Agent, and this Escrow Agreement
will continue in full force and effect until each existing dispute with respect
thereto has been resolved and each contingency applicable to each reserve has
been satisfied and joint written instructions are given pursuant to Section 3(b)
above (which instructions will include, without limitation, a direction to
deliver shares to the Escrow Agent).
5. VOTING RIGHTS AND DISTRIBUTIONS.
(a) Except as otherwise provided in this Escrow Agreement, each
Shareholder will have all rights of ownership, including without limitation
voting rights, with respect to the shares of Purchaser's Common Stock held
in the Escrow Fund in accordance with the Allocation.
(b) Except as otherwise provided in this Escrow Agreement, all cash
dividends and cash distributions made by Purchaser with respect to the
shares of Purchaser's Common Stock held in the Escrow Fund will be paid or
distributed to the Shareholders in accordance with the Allocation.
(c) Certificates evidencing all shares of Purchaser's Common Stock issued
or distributed by Purchaser with respect to the shares of Purchaser's
Common stock held in the Escrow Fund, including without limitation shares
issued upon a stock dividend or stock split, will be delivered to Escrow
Agent and held by the Escrow Agent in the Escrow Fund in accordance with
the provisions of this Escrow Agreement.
(d) Once a notice of Claim has been received by the Escrow Agent, the
rights of the Shareholders to voting and cash distributions with respect to
the number of shares of Purchaser's Common Stock held in the Escrow Fund
equal in value to the amount of the loss stated in the Claim, based upon
the Escrow Value, will be suspended until the Claim has been resolved or
paid. Cash distributions received with respect to such shares prior to the
resolution of the Claim will be paid to the Escrow Agent and distributed to
the party ultimately determined to be entitled to such shares upon
resolution of the Claim.
6. REORGANIZATIONS. In the event of: (a) a capital reorganization of
Purchaser; (b) a reclassification of the Purchaser's Common Stock (other than a
change in par value); (c) the merger of Purchaser with or into any other
corporation (other than a merger in which Purchaser is the surviving corporation
and in which the then outstanding shares of Purchaser's Common Stock remain
outstanding without adjustment); or (d) the sale, lease, or other transfer of
all or substantially all of the assets of Purchaser to any other corporation,
Purchaser or the corporation formed by, resulting from, or surviving such
reclassification, consolidation, merger, or conversion, or the corporation which
shall have acquired such assets, as the case may be, shall as a condition
precedent thereto, execute such documents and instruments and take such action
as may be necessary, to provide that the shares of Purchaser's Common Stock then
held in the Escrow Fund will be converted into the kind and amount of shares of
stock or other securities and property receivable upon such reclassification,
consolidation, merger, conversion, sale, or transfer. All such shares of stock
or other securities and property received in connection with any of the
foregoing with respect to such shares shall be deposited in the Escrow Fund and
held by the Escrow Agent in accordance with the provisions with the provisions
of this Escrow Agreement and shall be treated the same as the shares of the
Purchaser's Common Stock for which they were exchanged or converted.
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7. REPORTS AND TAX INFORMATION.
(a) As soon as practicable after the end of each calendar year after the
date hereof and also after termination of this Escrow Agreement, the Escrow
Agent shall submit a written report and account to Purchaser and to each of
the Shareholders setting forth: (i) the number and aggregate value of the
shares of Purchaser's Common Stock held in the Escrow Fund at the end of
such periods and upon termination; (ii) the receipts and disbursements of
shares of Purchaser's Common Stock by the Escrow Agent for such periods and
upon termination; and (iii) any changes in the number and aggregate value
of the shares of Purchaser's Common Stock held in the Escrow Fund which it
has not previously reported. In addition, the Escrow Agent shall submit
such other reports for such other periods as it deems advisable.
(b) As soon as practicable after the end of each calendar year after the
date hereof and also after the termination of this Agreement, the Escrow
Agent shall submit a written statement to Purchaser and to each of the
Shareholders with respect to the dates and amounts of all distributions of
shares of Purchaser's Common Stock made by the Escrow Agent to Purchaser
and the Shareholders, and such other information as is reasonably available
to the Escrow Agent, which may be helpful in determining the amount of
taxable income directly attributable to the Escrow Account that Purchaser
and the Shareholders should include in their respective Federal, state, and
local income tax returns for the applicable tax year.
8. INVESTMENTS; ENTITLEMENT TO INVESTMENT EARNINGS. All cash deposited in the
Escrow Fund as a result of cash distributions received on the Escrow Fund will
be invested and reinvested by the Escrow Agent in the Norwest Funds, Ready Cash
Investment Fund (Institutional Shares).
9. INVESTMENT OF ESCROW FUND The Escrow Agent will hold the shares deposited
in the Escrow Fund as such and will have no duty with respect to reinvestment
thereof, regardless of an increase or a decrease in the market value thereof.
10. DESIGNATED OFFICERS AND NOTICES. The Purchaser will, from time to time,
provide the Shareholders and Escrow Agent with a written notice, who will be the
sole agent of Purchaser, and will contain (a) the name(s) of any substitute or
additional person(s) who are authorized to execute any written notice,
instruction or certificate to the Escrow Agent required or permitted by the
terms of this Escrow Agreement, and (b) specimen signature(s) of such authorized
persons. The initial agent of Purchaser and his signature is set forth below.
Each notice, instruction or other certificate required or permitted by the terms
hereof will be in writing and will be communicated by registered or certified
mail, return receipt requested, or telecopier, to the parties hereto at the
respective addresses shown below, or at such other address as any such party may
designate by notice given to the other parties:
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(i) IF TO THE SHAREHOLDERS, TO: WITH A COPY TO:
Atlantic Network Systems, Inc. Xxxxxxxxx & Xxxxx, P.L.L.C.
0000 Xxxxxxxxxx Xxxxx 0000 Xxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxx, XX 00000 Xxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxxx Attn: J. Xxxxxx Xxxxx, III, Esq.
Fax: (000) 000-0000 Fax: (000) 000-0000
Xxxxxx X. Xxxxxx
0000 Xxxx Xxxxxxx Xxxx
Xxxxxxx, XX 00000
Xxxxxxx X. Xxxxxxxx
000 Xxxxxxxx Xxxx
Xxxx, XX 00000
B. Xxxxxx Xxxxxx
0000 Xxxxxxxxx Xxx
Xxxxxxx, XX 00000
(ii) IF TO PURCHASER, TO: WITH A COPY TO:
Eltrax Systems, Inc. Xxxxxxxxxxx Xxxxx & Xxxxxxxx
Xxxx Xxxx Xxxxxxxx Xxxx Xxxxx XXX, Xxxxx 0000
1775 Old Highway 8 00 Xxxxx Xxxxxxx Xxxxxx
Xx. Xxxx, XX 00000 Xxxxxxxxxxx, XX 00000-0000
Attn: Xxxx X. Xxxxxxx, III Attn: Xxxxxx X. Xxxxx, Esq.
Chief Executive Officer Fax: (000) 000-0000
Fax: (000) 000-0000
(iii) IF TO THE ESCROW AGENT, TO:
Norwest Bank Minnesota, National Association
6th and Marquette
Xxxxxxxxxxx, XX 00000-0000
Attn: Xxxxxxxx Xxxxx
Fax: (000) 000-0000
All notices, instructions or certificates given hereunder to the Escrow Agent
will be deemed delivered and to be effective only upon receipt by the Escrow
Agent. All notices given hereunder by the Escrow Agent will be effective and
deemed delivered and received three (3) calendar days after mailing by the
Escrow Agent. The Escrow Agent is not obligated to take any action with respect
to any request or demand of the Shareholders or Purchaser unless in the form
required hereunder and properly signed.
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11. REGARDING THE ESCROW AGENT. In consideration of the acceptance by the
Escrow Agent of its duties hereunder, it is agreed by all parties hereto that:
(a) The Escrow Agent's duties and responsibilities will be limited to
those expressly set forth in this Escrow Agreement, and it will not be
subject to, or obliged to recognize, any other agreement between the
parties hereto even though reference thereto may be made herein.
(b) The Escrow Agent is authorized, in its reasonable discretion, to
disregard any and all notices or instructions given by any of the parties
hereto or by any other person, firm or corporation, except only (i) such
notices or instructions as are herein specifically provided for, and
(ii) orders or process of any court with jurisdiction. If any property
subject hereto is at any time attached, garnished or levied upon or under
any court order or in case the payment, assignment, transfer, conveyance or
delivery of any such property is stayed or enjoined by any court order, or
in case any order, judgment or decree is made or entered by any court
affecting such property or any part thereof, then, and in any of such
events, the Escrow Agent is authorized, in its sole discretion, to rely
upon and comply with any such order, writ, judgment or decree which it is
advised by legal counsel of its own choosing is binding upon it; and if it
complies with any such order, writ, judgment or decree it will not be
liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance even though such order, writ,
judgment or decree may be subsequently reversed, modified, annulled, set
aside or vacated.
(c) The Escrow Agent will not be personally liable for any act taken or
omitted hereunder if taken or omitted by it in good faith, except its own
negligence or willful misconduct. In taking any action whatsoever
hereunder, the Escrow Agent will be protected in relying upon any notice,
paper or other document reasonably believed by it to be genuine, or upon
any evidence reasonably deemed by it to be sufficient. The Escrow Agent
may consult with counsel in connection with its duties hereunder and will
be fully protected in any act taken, suffered or permitted by it in good
faith in accordance with the advice of counsel, except its own negligence
or willful misconduct. It will also be fully protected in relying upon any
written notice, demand, certificate or document which it in good faith
believes to be genuine, except its own negligence or willful misconduct.
The Escrow Agent will not be responsible for the sufficiently or accuracy
of the form, execution, validity or genuineness of documents now or
hereafter deposited hereunder, nor will it be responsible or liable in any
respect on account of the identity, authority or rights of the persons
executing and delivering or purporting to execute or deliver any such
document.
(d) If the Escrow Agent believes it to be reasonably necessary to consult
with counsel concerning any of its duties in connection with this Escrow
Agreement, or in case it becomes involved in litigation on account of being
Escrow Agent hereunder or on account of having received property subject
hereto, then in either case, the Escrow Agent's costs, expenses, and
reasonable attorneys' fees will be paid as set forth in subparagraph (e).
(e) The Escrow Agent will be entitled to a $1,000 acceptance fee and a
$1,000 annual administration fee, which two amounts, plus all reasonable
expenses of the Escrow Agent as shown on Exhibit 4 hereof, will be invoiced
to and paid by Purchaser.
(f) The Escrow Agent may at any time resign by giving thirty (30) days
written notice of resignation to Purchaser and to Shareholders. In such
event Purchaser and the Shareholders will appoint a successor escrow agent
to be effective on the effective date of the aforesaid
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resignation. All right, title and interest to the Escrow Deposit and to
the dividends and distributions and the investment earnings with respect
thereto will be transferred to the successor agent and this Escrow
Agreement will be assigned to such successor, and the resigning Escrow
Agent will thereupon be released from further obligations hereunder.
12. GOVERNING AGREEMENT; AMENDMENTS. The Escrow Agent hereby acknowledges
receipt of a copy of the Merger Agreement, but except for reference thereto for
definitions of certain words and terms not defined herein, the Escrow Agent is
not charged with any duty or obligation arising under the Merger Agreement and
the responsibilities and duties of the Escrow Agent will be governed by this
Escrow Agreement. As between the Escrow Agent, on the one hand, and the other
parties hereto, on the other hand, this Escrow Agreement constitutes the entire
agreement with respect to the subject matter herein. As between the other
parties hereto, this Escrow Agreement will govern to the extent of any conflict
between it and the Merger Agreement or any other agreement or writing. No
change in, addition to, or waiver of the terms and conditions hereof will be
binding upon any of the parties hereto unless approved in writing by the other
parties hereto.
13. BINDING EFFECT. This Escrow Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors, assigns and
legal representatives. Except with respect to such successions contemplated in
the Merger Agreement, or otherwise as contemplated in this Escrow Agreement, no
party hereto may assign any of its rights, interests or obligations hereunder.
14. APPLICABLE LAW. This Escrow Agreement will be governed by and construed in
accordance with the laws of the State of Minnesota.
15. COUNTERPARTS AND DEFINITIONS. This Escrow Agreement may be executed in one
or more counterparts, each of which is an original but all of which together
will constitute one and the same instrument. Terms not otherwise defined herein
will have the meaning given to them in the Merger Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be
duly executed.
PURCHASER ESCROW AGENT
Eltrax Systems, Inc. Norwest Bank Minnesota, National
Association, as Escrow Agent
By: /s/ Xxxx X. Xxxxxxx, III By: /s/ Xxxxxxxx Xxxxx
--------------------------------- ---------------------------------
Xxxx X. Xxxxxxx, III Xxxxxxxx Xxxxx
Title: Chief Executive Officer Title: /s/ Administrative
Assistant
---------------------
SHAREHOLDERS
/s/ Xxxxxx X. Xxxxxx
------------------------------------
Xxxxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxxxxxx
------------------------------------
Xxxxxxx X. Xxxxxxxx
/s/ B. Xxxxxx Xxxxxx
------------------------------------
B. Xxxxxx Xxxxxx
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