EXHIBIT 1
ESCROW AGREEMENT
This Escrow Agreement (the "Escrow Agreement") is made as of this 8th
day of August, 2000, by and among National City Bank (the "Escrow Agent"), XXXX
COMMUNICATIONS AND SOFTWARE LTD., an Israeli company (the "Xxxx"), W2COM, LLC,
an Ohio limited liability company ("W2COM"), and CYMI, LTD., an Ohio limited
liability company ("CYMI"). Xxxx, CYMI and W2COM agree between themselves that
capitalized terms used but not otherwise defined herein shall have the meaning
set forth in the Asset Purchase Agreement (as defined below). Terms used in
describing the duties of the Escrow Agent under this Escrow Agreement are
defined herein and the Escrow Agent is not charged with knowledge of the Asset
Purchase Agreement.
WITNESSETH
WHEREAS, Xxxx, W2COM, W2COM INTERNATIONAL, LLC, an Ohio limited
liability company, CYMI, M. E. Xxxxx, Inc., an Ohio Corporation and Xxxxxxxx X.
Xxxxx have entered into an Asset Purchase Agreement dated as of August 8, 2000
(the "Asset Purchase Agreement"), pursuant to which Xxxx has agreed to purchase
from the Company, and the Company has agreed to sell to Xxxx, substantially all
of the assets and liabilities of W2COM;
WHEREAS Xxxx desires that for the period commencing as of August 1,
2000 and ending December 31, 2000, the business that it or any of its Affiliates
shall conduct and operate by the use of the Assets subsequent to the Closing
(the "Purchased Business") shall generate a minimum level of revenues and
maximum net after tax losses; and;
WHEREAS, the parties hereto desire to set forth further terms and
conditions in addition to those set forth in Exhibit 5.5(z), a copy of which is
attached hereto as Annex A, relating to the operation of the Escrow Fund (as
defined in Section 1(b) below);
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained herein, and intending to be legally bound, hereby agree as
follows:
1. Escrow.
a. Appointment of Escrow Agent. Xxxx, CYMI and W2COM hereby
appoint the Escrow Agent to serve as, and the Escrow Agent hereby
agrees to act as, escrow agent for the benefit of all parties hereto
(except for the Escrow Agent itself) in accordance with the terms and
conditions of this Escrow Agreement. The Escrow Agent hereby represents
and warrants to Xxxx, CYMI and W2COM that it is a national banking
association organized under the laws of the United States of America
having, together with a bank holding parent company, a combined capital
and surplus of not less than one hundred million dollars
($100,000,000).
1
b. Escrow Fund. Pursuant to the Asset Purchase Agreement, Xxxx
shall deposit in escrow with the Escrow Agent, on the date hereof, two
hundred seventy two seven hundred twenty seven (272,727) ordinary
shares, nominal value NIS 0.001 per share, of Xxxx (the "Escrow Fund"
or the "Escrow Shares"). Each share certificate representing ordinary
shares of Xxxx shall be registered in the name of W2COM and shall be
accompanied by three (3) fully-executed stock powers, each of which, if
required by the applicable transfer agent, shall bear a "medallion"
signature guarantee. The Escrow Fund shall be held by the Escrow Agent
in a separate account (the "Escrow Account") for the purpose and in
accordance with the terms and conditions set forth in Exhibit 5.5(z) of
the Asset Purchase Agreement and this Escrow Agreement.
c. Dividends, Voting and Rights of Ownership. Any cash
dividends, dividends payable in securities or other distributions of
any kind made in respect of the Escrow Shares and received by the
Escrow Agent shall be deposited in the Escrow Account by Xxxx
immediately upon their payment and shall become part of the Escrow
Shares. While the Escrow Shares remain in the Escrow Account pursuant
to this Escrow Agreement, W2COM will retain and will be able to
exercise all other incidents of ownership of said Escrow Shares that
are not inconsistent with the terms and conditions hereof.
d. Purpose of the Escrow Fund. The Escrow Fund will be
deposited with the Escrow Agent and will be held by the Escrow Agent to
secure the obligations of CYMI as set forth in Exhibit 5.5(z) to the
Asset Purchase Agreement.
2. Escrow Period; Release of Escrow Fund. The Escrow Fund shall be held
by the Escrow Agent from the date hereof and until five (5) business days from
the delivery of the audited financial statements of the Purchased Business as
operated by Xxxx or any of its Affiliates ("NewCo") (the "Escrow Period").
Immediately upon the conclusion of the Escrow Period, the Escrow Agent will
disburse from escrow to W2COM or to Xxxx the Escrow Shares in accordance with
Sections 3 and 4 below.
3. Transfer of Escrow Shares.
a. Minimum Revenues. In the event that NewCo does not generate
gross revenues of at least seven million three hundred fifty thousand
dollars ($7,350,000) for the five month period commencing on August 1,
2000 and ending December 31, 2000 (the "Revenue Target"), Escrow Shares
with a value equal to the difference between the Revenue Target and the
amount of gross revenues actually generated by the Purchased Business
for the five month period commencing on August 1, 2000 and ending
December 31, 2000 (the "Revenue Shortfall Amount") shall be released by
the Escrow Agent to Xxxx.
b. Maximum Net Losses. In the event that NewCo incurs net
after tax losses which exceed nine hundred twenty five thousand dollars
($925,000) for the five (5) month period commencing on August 1, 2000
and ending December 31, 2000 (the "Maximum Net Losses Target"), Escrow
Shares with a value equal to the difference
2
between the Maximum Net Losses Target and the amount of net after tax
losses actually incurred by the Purchased Business for the five (5)
month period commencing on August 1, 2000 and ending December 31, 2000
(the "Net Losses Shortfall Amount"), shall be released by the Escrow
Agent to Xxxx. The parties hereby agree that in determining net after
tax losses such amount shall not include any interest expense for
interest related to long term debt or other financing (other than
interest expenses for interest related to letters of credit in an
amount consistent with the past ordinary business practices of W2Com)
in an aggregate principal amount in excess of two million five hundred
thousand dollars ($2,500,000) or amortization relating to the increase
in the goodwill of the Purchased Business resulting from the
consummation of the transactions contemplated under the Asset Purchase
Agreement.
The Revenue Shortfall Amount and the Net Losses Shortfall
Amount shall be determined on the basis of the audited financial
statements of NewCo and the transfer of Escrow Shares to Xxxx with a
value equal to the Revenue Shortfall Amount or the Net Losses Shortfall
Amount, shall be made by the Escrow Agent to Xxxx within five (5)
business days of the delivery by Xxxx of the audited financial
statements of NewCo for the year ending December 31, 2000 to the Escrow
Agent, CYMI and W2COM.
For purposes of this Escrow Agreement, Escrow Shares shall be
valued at the average closing price of shares of Xxxx on the NASDAQ
National Market or such other United States national securities
exchange on which the shares of Xxxx are then authorized for listing
and are traded on the fourteen (14) trading days prior to the transfer
of such shares to Xxxx.
4. Distribution of Escrow Fund.
a. Upon the conclusion of the Escrow Period, the Escrow Agent
shall distribute to W2Com all the Escrow Shares, less any Escrow Shares
delivered to Xxxx in accordance with Section 3 above.
b. The duty of the Escrow Agent to deliver the Escrow Fund
pursuant to this Escrow Agreement shall terminate once delivery has
been made to W2Com.
5. Exculpatory Provisions.
a. The Escrow Agent shall be responsible only for the
performance of such duties as are specifically set forth herein and may
rely upon and shall be protected in relying upon or refraining from
acting, any instrument reasonably believed to be genuine and to have
been signed or presented by the proper party or parties. The Escrow
Agent shall not be subject to, nor required to comply with, any other
agreement between or among any or all of the parties hereto or to
comply with any direction or instruction from any party hereto or any
entity acting on its behalf (other than the agreements, directions and
instructions contained herein or the directions and instructions
delivered in accordance with this Escrow Agreement). The Escrow Agent
shall not be required to, and shall not, expend or risk any of its own
funds or otherwise incur any financial
3
liability in the performance of any of its duties hereunder, and shall
not be liable for any act committed or omitted as escrow agent
hereunder except for negligence or willful misconduct or breach of this
Escrow Agreement. The Escrow Agent shall in no case or event be liable
for any representations or warranties of the other parties hereto or
for punitive, incidental or consequential damages resulting from such
representations and warranties. Any act committed or omitted pursuant
to the advice or opinion of legal counsel shall be conclusive evidence
of the good faith of the Escrow Agent.
b. The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing
or delivering or purporting to execute or deliver this Escrow Agreement
or any documents or papers deposited or called for hereunder.
6. Alteration of Duties. The duties of the Escrow Agent may be altered,
amended, modified or revoked only by a writing signed by all of the parties
hereto.
7. Resignation and Removal of the Escrow Agent. The Escrow Agent may
resign as Escrow Agent at any time with or without cause by giving prior written
notice to each of Xxxx, CYMI and W2Com, such resignation to be effective at the
time specified in the notice, which may not be sooner than thirty (30) days
following the date such notice is delivered (the "Notice Period"). In addition,
Xxxx, CYMI and W2Com may jointly remove the Escrow Agent as escrow agent at any
time with or without cause, by an instrument (which may be executed in
counterparts) delivered to the Escrow Agent, which instrument shall designate
the effective date of such removal. In the event of any such resignation or
removal, a successor escrow agent, which shall be a bank or trust company
organized under the laws of the United States of America having (or in the case
of a subsidiary of a bank holding company, its parent shall have) a combined
capital and surplus of not less than one hundred million dollars ($100,000,000),
shall be jointly appointed by Xxxx, CYMI and W2Com within the Notice Period. Any
such successor Escrow Agent shall deliver to Xxxx, CYMI and W2Com a written
instrument accepting such appointment and the terms and conditions of this
Escrow Agreement, and thereupon it shall succeed to all the rights and duties of
the Escrow Agent hereunder and shall be entitled to receive the Escrow Fund
pursuant to the terms hereof.
8. Upon receipt of a written notice from Xxxx, CYMI and W2Com,
informing it of the appointment of the successor escrow agent, the Escrow Agent
shall deliver the Escrow Fund then held hereunder to the successor escrow agent.
Upon such delivery and the confirmation thereof by the successor escrow agent,
the Escrow Agent shall have no further duties, responsibilities or obligations
hereunder and all such duties, responsibilities and obligations shall be binding
upon the successor escrow agent.
9. Further Instruments. If the Escrow Agent reasonably requires other
or further instruments in connection with the performance of its duties, the
necessary parties hereto shall join in furnishing such instruments.
10. Escrow Fees and Expenses. Xxxx and W2Com shall each pay fifty
percent (50%) of the fees of the Escrow Agent set forth in the Fee Schedule
attached hereto as Annex B.
4
11. Indemnification. In consideration of the Escrow Agent's acceptance
of this appointment, each of Xxxx, CYMI and W2Com agree with respect to damages
caused by such party (i) to indemnify and hold the Escrow Agent harmless as to
any liability incurred by it to any person, firm or corporation by reason of its
having accepted such appointment or in carrying out the terms hereof and the
Asset Purchase Agreement and (ii) to reimburse the Escrow Agent for all its
costs and expenses, including, among other things, attorney's fees and expenses,
reasonably incurred by reason of any matter as to which an indemnity is paid;
provided, however, that no indemnity need be paid in case of the Escrow Agent's
negligence, willful misconduct or breach of this Escrow Agreement.
12. Actions by Escrow Agent. In the event conflicting demands are made
upon, or conflicting notices delivered to, the Escrow Agent with respect to any
assets in the Escrow Fund, the Escrow Agent shall be entitled, in its sole
discretion, to refuse to comply with any and all demands or instructions with
respect to such assets so long as such conflict shall continue, and the Escrow
Agent shall not be or become liable in any way to the parties for failure or
refusal to comply with such conflicting claims, demands or instructions. The
Escrow Agent shall be entitled to refuse to act until such conflicting claims or
demands shall have been resolved by a final un-appealable order, judgment or
decree of a court of competent jurisdiction, or settled by agreement between the
conflicting parties as evidenced in a writing satisfactory to the Escrow Agent
(a "Final Decision"). The Escrow Agent may, in addition, elect, in its sole
discretion, to commence an interpleader action or seek other judicial relief or
orders as it may deem, in its sole discretion, necessary. Xxxx and W2Com shall
each pay fifty percent (50%) of the costs and expenses (including reasonable
attorneys' fees and expenses) incurred in connection with such proceeding.
13. General.
a. All notices, requests and other communications hereunder
shall be in writing and shall be delivered by courier or other means of
personal service, or sent by telex or facsimile or mailed, postage
prepaid, by certified mail, return receipt requested, in all cases,
addressed as follows:
To Xxxx:
Xxxx Communications and Software Ltd.
0 Xxxxxxxx Xxxxxx
X.X.X. 00
Xxxxx 00000, Xxxxxx
Fax: (000-0) 000-0000
Attention: Xx. Xxxxx Xxxxx
With a copy to:
Xxxxx Xxxxx & Co.
3 Xxxxxx Xxxxxx Xxxxxx
Xxx Xxxx 00000, Xxxxxx
Fax: (000-0) 000-0000
Attention: Xxxxx X. Xxxxxxxx, Esq
5
To W2COM:
W2COM LLC
0000 Xxxx Xxxxxx Xxxxx
Xxxxxx, Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxxx X. Xxxxx
To CYMI:
CYMI, Ltd.
0000 Xxxx Xxxx Xxxx
Xxxxx 000
Xxxxxx, Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx
With copies to
Xxxxxxxxx, Xxxxxx & Xxxxx P.L.L.
00 Xxxxxxxxxx Xxxxx, XX, Xxxxx 0000
X.X. Xxx 0000
Xxxxxx, Xxxx 00000-0000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxxx, Esq.
To the Escrow Agent:
National City Bank
0 Xxxxx Xxxx Xxxxxx
Xxxxxx, Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx Xxxxx
Xxxx Xxxxxx
or to such other address as any party may have furnished in writing to
the other parties in the manner provided above. All notices, requests
and other communications shall be deemed given on the date of actual
receipt or delivery as evidenced by written receipt, acknowledgement or
other evidence of actual receipt or delivery to the address. In case of
service by facsimile, a copy of such notice shall be personally
delivered or sent by registered or certified mail, in the manner set
forth above, within three (3) business days thereafter. Notwithstanding
the foregoing, notices addressed to the Escrow Agent shall be effective
only upon receipt. When any notice, claim, objection to a claim or
other document of any kind is required to be delivered to the Escrow
Agent and any other person, the Escrow Agent shall forward such notice,
claim or other document within three (3) business days after the date
on which it was received by the Escrow Agent to the parties hereto, and
such notice shall be subject to the provisions of this Section 13.
6
b. The captions in this Escrow Agreement are for convenience
only and shall not be considered a part of or affect the construction
or interpretation of any provision of this Escrow Agreement.
c. This Escrow Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an
original copy hereof, but all of which together shall constitute one
agreement.
d. No party may, without the prior express written consent of
each other party, assign this Escrow Agreement in whole or in part.
This Escrow Agreement shall be binding upon and inure to the benefit of
the respective successors and assigns of the parties hereto.
e. This Escrow Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State
of Ohio (without giving effect to principles of conflicts of laws).
f. Each party hereby represents and warrants that (a) this
Escrow Agreement has been duly authorized, executed and delivered on
its behalf and constitutes its legal, valid and binding obligation and
(b) the execution, delivery and performance of this Escrow Agreement by
such party do not and will not violate any applicable law or
regulation.
g. This Escrow Agreement shall constitute the entire agreement
of the parties with respect to its subject matter and supersedes all
prior oral or written agreements in regard thereto.
h. The Escrow Agent does not have any interest in the property
deposited in escrow hereunder but is serving as escrow holder only and
having only possession thereof.
7
IN WITNESS WHEREOF, each of the parties has executed this Escrow
Agreement as of the date first above written.
W2COM, LLC
an Ohio limited liability corporation
By: /s/ XXXXXXXX X. XXXXX
--------------------------------
Name: Xxxxxxxx X. Xxxxx
------------------------------
Title: C.E.O.
-----------------------------
XXXX COMMUNICATIONS AND
SOFTWARE LTD.,
a company organized under the laws
of Israel
By: /s/ XXXXX XXXXX
--------------------------------
Name:
-------------------------------
Title:
------------------------------
CYMI, LTD.
an Ohio limited liability company
By: /s/ XXXXXX X. XXXXXXX
--------------------------------
Name: Xxxxxx X. Xxxxxxx
------------------------------
Title: President
-----------------------------
NATIONAL CITY BANK
as Escrow Agent
By: /s/ XXXXX X. XXXXX
--------------------------------
Name: Xxxxx X. Xxxxx
-------------------------------
Title: V. P. + Trust Officer
---------------------
8
ANNEX A
ASSET PURCHASE AGREEMENT EXHIBIT 5.5(z)
9
ANNEX B
ESCROW AGENT FEE SCHEDULE
Fees for the services to be provided shall be at a rate of $1,000 per year. The
parties agree that a payment of $1,000 will be made to the Escrow Agent within
30 days of the date of this Agreement in payment for the fees due.
10
