ESCROW AND INDEMNITY AGREEMENT
THIS ESCROW AND INDEMNITY AGREEMENT (the "Agreement") is made this 6th
day of November, 1998, by and among Clarus Corporation, formerly known as SQL
Financials International, Inc., a Delaware corporation ("SFI"), Elekom
Corporation ("Elekom"), the undersigned former holders of preferred stock of
Elekom as shown on Schedule 1 hereto (collectively the "Preferred Shareholders"
and individually a "Preferred Shareholder"), and NationsBank, N.A. (the "Escrow
Agent").
W I T N E S S E T H :
WHEREAS, SFI has entered into an Agreement and Plan of Reorganization
dated as of August 31, 1998 (the "Merger Agreement") with Elekom Corporation, a
Washington corporation ("Elekom") pursuant to which SFI has acquired all of the
stock and going business of Elekom pursuant to a forward triangular merger (the
"Merger"); and
WHEREAS, pursuant to the Merger Agreement, Elekom has agreed to place $2.5
million of the cash proceeds of the Merger to its shareholders (the
"Shareholders") in an escrow account to secure its obligations under Article IX
of the Merger Agreement; and
WHEREAS, the Preferred Shareholders owned shares of preferred stock of
Elekom and the Preferred Shareholders acknowledge and agree that the Merger and
the payment of the merger consideration to the Preferred Shareholders by SFI is
a direct and substantial benefit to the Preferred Shareholders; and
WHEREAS, as a material inducement to SFI to enter into the Merger
Agreement and consummate the Merger, Elekom has agreed to cause each of the
Preferred Shareholders to enter into this Agreement providing for
indemnification of SFI for the obligations of Elekom under the Merger Agreement
to the extent such obligations exceed the amount of the Escrow Funds (as defined
below); and
NOW, THEREFORE, for and in consideration of the mutual agreements
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged by each party, the parties
hereto agree as follows:
1. Definitions. For purposes of this Agreement, the following terms
have the meanings indicated below:
"Contesting Direction" means a written direction from the representative
of the Shareholders appointed pursuant to Section 9 of this Agreement (the
"Shareholder Representative"), which direction contests an SFI Direction in
whole or in part and specifies the amount contested and the amount, if any, not
contested. Each Contesting Direction must be delivered to the Escrow Agent in
the manner set forth in Section 16 hereof, and copies of such direction must be
delivered in like manner to SFI.
"Escrow Funds" has the meaning ascribed to such term in Section 2 hereof.
"Escrow Termination Date" means April 30, 2000.
"Estimated Indemnified Amount" means a good-faith estimate by SFI of an
Indemnified Amount.
"SFI Direction" means a written direction from SFI specifying that a claim
referred to in Article IX of the Merger Agreement and covered by a particular
Notice of Claim has been made, and further specifying the aggregate Indemnified
Amount. Each SFI Direction must be delivered to the Escrow Agent in the manner
set forth in Section 16 hereof, and copies of such direction must be delivered
in like manner to the Shareholder Representative.
"Indemnification Holdback" has the meaning ascribed to such term in
Section 4.1 hereof.
"Indemnified Amount," with respect to any Notice of Claim, means the
aggregate amount of indemnification determined to be due to SFI pursuant to
Article IX of the Merger Agreement.
"Joint Direction" means a written direction relating to (i) a Notice of
Claim, (ii) the investment of the Escrow Funds, or (iii) removal of the Escrow
Agent in accordance with Section 15 hereof, in each case executed by SFI and the
Shareholder Representative, and delivered to the Escrow Agent in the manner set
forth in Section 16 hereof.
"Notice of Claim" means a written notice from SFI delivered to the Escrow
Agent and the Shareholder Representative in the manner set forth in Section 16
hereof on or before the Escrow Termination Date, specifying that facts exist
which may give rise to an indemnifiable claim under Article IX of the Merger
Agreement, also specifying the Estimated Indemnified Amount and describing in
reasonable detail the nature of the matter or matters covered by the Notice of
Claim and the Estimated Indemnified Amount.
2. Establishment of Escrow. On the date hereof, concurrently with the
closing of the Merger, SFI has deposited with Escrow Agent the sum of US Two
Million Five Hundred Thousand Dollars ($2,500,000.00) in immediately available
funds (the "Escrow Funds"), which sum Escrow Agent hereby accepts and agrees to
hold for Shareholders in escrow subject to the terms of this Escrow Agreement
(the "Escrow"). Escrow Agent hereby confirms to SFI, Shareholders and the
Preferred Shareholders receipt by Escrow Agent of the Escrow Funds. The Escrow
Funds represent a portion of the merger consideration paid to the Shareholders
in the Merger and has been withheld from the cash consideration received by such
Shareholders pursuant to the terms of Section 1.5 of the Merger Agreement in
order to secure the obligations of Elekom pursuant to Article IX of the Merger
Agreement.
3. Investment of the Funds. During the period specified in this Agreement,
the Escrow Agent shall hold the Escrow Funds (i) in an interest-bearing account
or other investment vehicle specified by Elekom, with a maturity no greater than
thirty (30) days and which is backed by the United States Government or such
financial institutions insured by the Federal Deposit Insurance Corporation,
having a net worth of not less than US One Hundred Million Dollars
($100,000,000) or (ii) in such other account or investment as may be specified
in a Joint Direction. The payments of interest on such account and other
distributions thereon shall be
added to and become a part of the Escrow Funds. Any and all interest which may
be earned and received on the Escrow Funds shall be for the account of the
Shareholders and shall not constitute part of the Escrow Funds.
4. Administration of Escrow Funds
4.1 Claims Against Escrow Funds
If, on or before the Escrow Termination Date, the Escrow Agent receives a
Notice of Claim from SFI, then, in each instance in which such a Notice of Claim
is received, the Escrow Agent shall, from and after its receipt of that Notice
of Claim, hold the portion of the Escrow Funds equal to the Estimated
Indemnified Amount or the remainder of the Escrow Funds should it be less than
the Estimated Indemnified Amount (the "Indemnification Holdback") until such
time (whether before or after the Escrow Termination Date) as the conditions of
Section 4.2 hereof have been complied with as to such Notice of Claim.
4.2 Distributions
4.2.1 Distributions on Joint Direction
If at any time, or from time to time, prior to, or on the Escrow
Termination Date, the Escrow Agent receives a Joint Direction regarding a Notice
of Claim, the Escrow Agent shall comply with such Joint Direction.
4.2.2 Distribution on SFI Direction
(a) If at any time, or from time to time, prior to, or on the Escrow
Termination Date, the Escrow Agent receives an SFI Direction, and if the Escrow
Agent does not within 30 days after the date of its receipt of that SFI
Direction receive a related Contesting Direction, then the Escrow Agent shall,
within 3 business days after such 30th day and after confirmation with SFI of
the amount, pay to SFI the Indemnified Amount, as specified in the SFI
Direction, or the remainder of the Escrow Funds should it be less than the
Indemnified Amount.
(b) If the Escrow Agent does receive a Contesting Direction within such
30-day period, then it shall (i) within 10 days of the receipt of such
Contesting Notice, distribute to SFI such portion of the Indemnified Amount
which is not disputed in the Contesting Direction (or the remainder of the
Escrow Funds should it be less than such undisputed portion of the Indemnified
Amount) and (ii) continue to hold any Indemnification Holdback amount necessary
to cover any disputed portion of the Indemnified Amount until such time as the
Escrow Agent receives either a Joint Direction, or a notice from SFI or the
Shareholder Representative directing the Escrow Agent with respect to the
disbursement, release or any other disposition of the amount of the
Indemnification Holdback accompanied by a copy of the final order, judgment or
decree from a court of competent jurisdiction with respect to such claim, and
the Escrow Agent has received an opinion of legal counsel (the reasonable fees
and cost for which shall be an additional Loss hereunder) acceptable to the
Escrow Agent that as to such order, judgment or decree all rights of appeal have
expired or been waived. Within 5 days of the receipt by the Escrow Agent of such
Joint Direction or such notice and legal opinion contemplated by the immediately
preceding sentence, the Escrow Agent shall distribute to SFI or the Shareholder
Representative (as specified in such Joint Direction or such notice) the
Indemnified Amount specified in such Joint Direction or the amount contemplated
by such notice, as the case may be, or the remainder of the Escrow Funds should
it be less.
4.2.3 Distributions on Escrow Termination Date
On the Escrow Termination Date, without further notice or request, the
Escrow Agent shall distribute to the Shareholder Representative on behalf of the
Shareholders of Elekom in the manner set forth in Section 4.3 hereof any amounts
remaining in the Escrow Funds which are not subject to Indemnification Holdback.
Amounts remaining in the Escrow Funds which are subject to Indemnification
Holdback will be distributed when the conditions of Section 4.2.2 hereof are
satisfied.
4.4 Distributions to the Shareholder Representative and SFI
In the event that the Escrow Agent is required to distribute any part of
the Escrow Funds to the Shareholder Representative or SFI, the Escrow Agent will
make payment, by issuance of its check, delivered by first class or overnight
mail address set forth in Section 16 hereof, representing an amount equal to the
total amount then to be distributed from the Escrow Funds.
5. Indemnification.
Indemnification. Subject to the requirements, limitations, and exclusions
and further provisions in Article IX of the Merger Agreement and this Agreement,
Elekom shall to the extent of the Escrow Funds, and the Preferred Shareholders
listed on Schedule 9.1 to the Merger Agreement (the Company, together with the
Preferred Shareholders are the "Indemnitors") shall severally in proportion to
the percentages set forth on Schedule 9.1 to the Merger Agreement, indemnify,
defend and hold harmless SFI and its officers, directors and affiliates (the
"SFI Indemnitees") from, against, and with respect to any and all action or
cause of action, loss, damage, claim, obligation, liability, penalty, fine, cost
and expense (including without limitation reasonable attorneys' and consultants'
fees and costs and expenses incurred in investigating, preparing, defending
against or prosecuting any litigation, claim, proceeding, demand or request for
action by any governmental or administrative entity), of any kind or character
(a "Loss") arising out of or in connection with any of the following:
(a) any breach of any of the representations or warranties of Elekom
contained in or made pursuant to the Merger Agreement or any of the
representations and warranties of the respective Preferred Shareholder in
any other Elekom Agreement (defined in the Merger Agreement);
(b) any failure by Elekom or the respective Preferred Shareholder to
perform or observe, or to have performed or observed, in full, any
covenant, agreement or condition to be performed or observed by it
pursuant to the Merger Agreement or any Elekom Agreement;
(c) any breach by Elekom of any representation set forth in Section
2.14 in the Merger Agreement (an "IP Claim");
(d) any claim by a Shareholder relating to the allocation by Elekom
of the cash and stock consideration to be received by each Shareholder in
connection with the Merger;
(e) any amount that shall have been paid by SFI to Shareholders in
respect of shares of Elekom with respect to which dissenters' rights have
been perfected that shall be in excess of the amount of the value, as of
the closing date of the Merger, of the consideration such Shareholders
would have received for such shares in the Merger if they had not
exercised dissenters' rights plus any fees and expenses incurred by SFI
Indemnitees in connection with defense of such dissenters' rights claim.
Notwithstanding anything herein to the contrary, the liability of the Preferred
Shareholders hereunder will not be greater than the liability of Elekom under
Article IX of the Merger Agreement.
6. Notice of Claim. Any SFI Indemnitee seeking to be indemnified pursuant
to Section 5 hereof shall, within fifteen (15) days following discovery of a
Loss (or 5 days if the SFI Indemnitee has been served with a lawsuit or other
proceeding), notify the Shareholder Representative with a Notice of Claim. Each
SFI Indemnitee will serve such Notice of Claim prior to initiating any court
action seeking to enforce any such right to indemnification. The SFI Indemnitee
shall provide to the Shareholder Representative as promptly as practicable
thereafter all information and documentation reasonably requested by the
Shareholder Representative to verify the claim for indemnification asserted.
Following receipt of such notice (i) the Preferred Shareholders will then have
the opportunity to discuss with the SFI Indemnitees the steps the Preferred
Shareholders plan to take to mitigate any alleged Loss (defined in Section 5)
SFI may have suffered and (ii) prior to SFI initiating such court action, the
Preferred Shareholders will be given a reasonable period of time (not to exceed
30 days following receipt of such notice without the written agreement of SFI to
cure completely the events giving rise to such alleged Losses (if such events
are capable of being cured completely); provided, however, that Elekom and the
Preferred Shareholders shall remain liable, to the extent set forth in the
Merger Agreement, for Losses actually incurred. The procedures set forth in
Section 7 shall govern Third-Party Claims.
7. Defense. If a claim by a third party (a "Third Party Claim") is made
against an SFI Indemnitee arising out of a matter for which the SFI Indemnitee
is entitled to be indemnified pursuant to Section 5 hereof, the Preferred
Shareholders may elect to assume the defense or the prosecution thereof. The
Preferred Shareholders shall have 30 days (which shall be shortened to 15 days
in the case of a commenced lawsuit or proceeding) after receipt of a Notice of
Claim to undertake to conduct and control, through counsel of their own choosing
as designated by the Shareholder Representative and at their sole risk and
expense, the good faith settlement or defense of such claim, and the SFI
Indemnitee(s) shall cooperate fully with the Preferred Shareholders in
connection therewith; provided that the SFI Indemnitee(s) shall be entitled to
participate in such settlement or defense through counsel chosen by it, provided
that the fees and expenses of such counsel shall be borne by the SFI
Indemnitee(s); and provided further that the
Preferred Shareholders can only assume the defense if (a) the amount of the
Third Party Claim does not exceed the amount of the Escrow Funds held hereunder
or (b) the Preferred Shareholders provide commercially reasonable evidence that
the Preferred Shareholders will have sufficient financial resources to defend
the claim and satisfy their indemnification obligations. During the interim the
SFI Indemnitee shall use its best efforts to take all action (not including
settlement) reasonably necessary to protect against further damage or loss with
respect to the alleged Loss. The Preferred Shareholders shall obtain the written
consent of the SFI Indemnitee prior to ceasing to defend, settling or otherwise
disposing of such claim if as a result thereof the SFI Indemnitee would become
subject to injunctive, declaratory or other equitable relief or the business of
the SFI Indemnitee would be materially adversely affected in any manner. Whether
or not the Preferred Shareholders choose so to defend or prosecute such claim,
all the parties hereto shall cooperate in the defense or prosecution thereof and
shall furnish such records, information and testimony and shall attend such
conferences, discovery proceedings and trials as may be reasonably requested in
connection therewith. Such cooperation shall include the retention and the
provision of records and information which are reasonably relevant to such Third
Party Claim, and making employees available on a mutually convenient basis to
provide additional information. The Preferred Shareholders shall not be liable
for any settlement of any such claim effected without their prior written
consent, which shall not be unreasonably withheld. However, if the Preferred
Shareholders, fail to defend such claim within the time period necessary to
preserve the rights and defense of the SFI Indemnitee, the SFI Indemnitee will
have the right to undertake the defense, compromise or settlement of such claim
on behalf of and for the account and risk of the Preferred Shareholders, subject
to the right of the Preferred Shareholders to assume the defense of such claim
at any time within the 30-day time period after receiving Notice of Claim .
If a claim is based on any suit or proceeding by a third party for
infringement which gives rise to an IP Claim (defined in Section 5) resulting in
SFI's use of the Software (defined in Section 2.14 of the Merger Agreement)
being enjoined or otherwise restricted, the Preferred Shareholders, if the
Preferred Shareholders elect through the Shareholder Representative to assume
defense of such proceeding after receiving notice hereunder, shall be entitled
at their sole expense to do any of the following: (i) procure for SFI, Clarus
CSA, Inc. and their licensees the unrestricted right to continue using the
Software, (ii) modify the Software so that it becomes noninfringing, (iii)
settle the third party's infringement claim in a manner that gives SFI, Clarus
CSA, Inc. and their licensees the unrestricted rights to the software being
enjoined or otherwise restricted, or (iv) pay the indemnified party's claim as
provided in this Agreement, provided that any settlement under this sentence
shall require SFI's prior written approval which shall not be unreasonably
withheld. SFI shall comply with any settlement or court order made in connection
with such proceeding in the foregoing sentence provided that such compliance by
SFI shall not limit the Preferred Shareholder's indemnification obligations
hereunder. No Preferred Shareholder shall be liable for any settlement of any
such claim effected without its prior written consent, which shall not be
unreasonably withheld. Before any claim may be brought against any of the
Preferred Shareholders hereunder, or under the Merger Agreement, all the Escrow
Funds shall be used first to pay any claims made under Article IX of the Merger
Agreement or this Agreement, and SFI hereby authorizes the Preferred
Shareholders to settle such claims without consent of SFI to the extent the
Escrow Funds will fully satisfy such claim. Preferred
Shareholders may also settle any claim for which they are liable hereunder
without consent of SFI so long as the payment or performance does not either (y)
exhaust the Escrow Funds or (y) exceed the maximum liability amounts set forth
below. Settlements requiring performance or payment in excess of the maximum
liability amounts shall require SFI's prior written consent.
8. Limitations.
The obligations of Elekom or any Preferred Shareholder to indemnify any
SFI Indemnitees pursuant to Article IX of the Merger Agreement shall accrue only
after and to the extent the aggregate dollar amount of Losses incurred by an
Indemnified Party for all matters indemnifiable thereunder exceeds One Hundred
Thousand Dollars (US $100,000) (the "Basket"), and then Indemnitors shall be
only liable for such Losses in excess of $100,000. In addition, no single Loss
in an amount of less than $10,000 may be applied to the Basket until such
threshold amount is reached, and thereafter, single claims of less than $10,000
must be aggregated so that no claim is made for an amount of less than $10,000
singly or in the aggregate. The obligations of the Indemnitors to indemnify the
SFI Indemnitees under this Agreement shall not exceed the $2,500,000 placed in
escrow hereunder for claims for indemnification other than (a) IP Claims, which
are addressed below, or (b) claims for indemnification related to a breach of
the representations contained in Section 2.1 of the Merger Agreement.
Notwithstanding anything in this Agreement to the contrary, the aggregate
maximum liability of the Indemnitors, for IP Claims shall not exceed (i) Twelve
Million Five Hundred Thousand Dollars ($12,500,000) for any IP Claims plus the
remaining amount of the Escrow Funds and no IP Claims may be made after the
expiration of the one (1) year period following the Closing Date of the Merger.
This Agreement and Article IX of the Merger Agreement set forth the sole
and exclusive remedy of an SFI Indemnitee for breaches of any representation,
warranty, or covenant under the Merger Agreement absent fraud or securities law
violations.
The maximum liability for claims for breach of the representation and
warranty in Section 2.1 in the Merger Agreement is the purchase price (cash paid
by SFI to Elekom's Shareholders at closing of the Merger plus the market value
of the shares transferred by SFI at closing of the Merger to the Elekom's
Shareholders), minus the amount of the cash transferred to SFI from the Escrow
Funds pursuant to this Agreement, further reduced by the aggregate amount paid
by Elekom and the Preferred Shareholders in connection with all claims for
breach of the representations and warranties made under Sections 2.14, 2.19, and
2.23(b) of the Merger Agreement. The maximum liability for claims for breach of
the representations or warranties in Sections 2.19, and 2.23(b) of the Merger
Agreement is equal to the purchase price (cash paid by SFI to Elekom's
shareholders at closing plus the market value of the shares transferred by SFI
at Closing to the Elekom's shareholders), minus the amount of the cash
transferred to SFI from the Escrow Funds, further reduced by the aggregate
amount paid by Elekom and Preferred Shareholders in connection with all claims
for breach of the representations and warranties made under Sections 2.1 or
2.14.
Notwithstanding anything in this Agreement to the contrary, no Preferred
Shareholders will have any liability for any claim that the Software infringes
the rights of a third party to the extent the claims arise from modification of
the Software by SFI after the Closing of the Merger
or to the extent the infringement claim arises out of a combination of the
Software with a program, product or material not transferred to SFI's subsidiary
as of the Closing of the Merger. In no event (except as specifically provided
below) will any Preferred Shareholder have any liability for indirect,
incidental, exemplary, or consequential damages whatsoever (including, without
limitation, damages for loss of profits, loss of data or other business
information) or cover arising under the Merger Agreement, even if the Preferred
Shareholder has been advised of the possibility of such damages; provided,
however, that although this sentence excludes claims for the lost profits, it
does not limit the liability of any Preferred Shareholder hereunder to an SFI
Indemnitee for indirect, incidental, exemplary or consequential damages to the
extent such damages, including lost profits, are included in a claim by a third
party against the SFI Indemnitee or arise as a result of such third party claim
that the Software is infringing, or claim of ownership rights in the Software
(excluding Third Party Software), and to the extent indemnification under the
Merger Agreement covers such third party claims. Notwithstanding the foregoing,
an SFI Indemnitee shall have the right to recover for direct out-of-pocket
expenses, including its direct, demonstrable internal costs (without overhead)
and/or external costs paid by such SFI Indemnitee to remediate any Loss, whether
or not such Loss arises in connection with a Third Party Claim.
9. Casahl Litigation. Elekom will endeavor to seek an indemnification of
the SFI and the Shareholders from Xxxxxxx.xxx, Inc. ("Xxxxxxx.xxx") covering the
claims in the litigation commenced by Elekom and Egghead Software, Inc. (now
known as Xxxxxxx.xxx) under Case No. 987331 pending in the Superior Court of
California for the County of San Francisco (the "Casahl Litigation"). Before
taking any action against the Preferred Shareholders (other than Xxxxxxx.xxx)
with respect to any Loss arising from the Casahl Litigation, SFI and Clarus CSA,
Inc. each agree to use their reasonable best efforts to enforce the following
with respect to the Casahl Litigation:
(a) The Separation Agreement, dated November 10, 1997, between
Egghead Software, Inc., now know as Xxxxxxx.xxx, Inc. and Elekom;
(b) Any reaffirmation by Xxxxxxx.xxx of the obligation in the last
sentence of Section 4.02(a) of the Separation Agreement (in favor of
Elekom, Clarus CSA, Inc. or SFI);
(c) Any other agreement with Xxxxxxx.xxx in which it agrees to
defend, indemnify, and hold harmless Elekom, its past, present and future,
successor and assigns, officers and directors, common shareholders
(specifically excluding past Shareholder Xxxxxxx.xxx and specifically
including future common shareholder Parent), the Preferred Shareholders
(other than Xxxxxxx.xxx), agents, and employees, to the extent Elekom,
Clarus CSA, Inc., or SFI is made a beneficiary of such agreement , from
and against any cost, expense, loss, liability whatsoever arising in
connection with the Casahl Litigation.
If, after notice to Xxxxxxx.xxx by SFI and Clarus CSA, Inc., Xxxxxxx.xxx fails
or refuses to honor its indemnity, or other obligations to Elekom, its past,
present and future, successors and assigns, officers and directors, agents,
employees, and, after the Effective Time, SFI, then to the
extent Elekom or an SFI Indemnitee suffers a Loss as a result of the Casahl
Litigation notwithstanding any of the above, then in such event each of the
Preferred Shareholders identified on Schedule 9.6 to the Merger Agreement (other
than Xxxxxxx.xxx), severally in proportion which they bear to each other
excluding Xxxxxxx.xxx based on the percentage set forth in Schedule 9.6 to the
Merger Agreement, agree to defend, indemnify, and hold harmless an SFI
Indemnitee from and against any cost, expense, loss or liability resulting from
the Casahl Litigation. The indemnity obligations set forth in this Section 9 are
in addition to Section 5 and are not subject to the limitations set forth in
Section 8. Except as set forth in Section 10(a), payments made hereunder this
Section 9 by a Preferred Shareholder shall not be reimbursed from Escrow Funds
nor count toward the maximum liability of Elekom or a Preferred Shareholder. In
the event that a Preferred Shareholder fails to pay any amount due hereunder,
such amount may be withdrawn from the Escrow Funds by an SFI Indemnitee to the
extent of that Preferred Shareholder's proportionate share in the Escrow Funds
after giving effect to Section 10(b) of this Agreement.
10. Disbursements at Escrow Termination Date.
(a) Fees or Expenses of Preferred Shareholder. After April 30, 2000,
all fees, expenses and costs of any kind (including, without limitation,
attorneys' fees and costs) incurred by any Preferred Shareholder in defense of
any claim indemnified hereunder shall be reimbursed from the remaining Escrow
Funds before any such funds are distributed to Shareholders.
(b) Distributions on Account of Common Shareholdings of Elekom.
After making the distributions described in Section 10(a), holders of Elekom's
Common Shares as of the date of the Closing of the Merger Agreement will receive
a distribution of the proportionate share of the Escrow Funds, which they would
have received from the Escrow Funds in the event no Notice of Claim had been
asserted by any SFI Indemnitee hereunder asserting a claim to the Escrow Funds.
(c) Distributions on Account of Preferred Shareholdings of Elekom.
After making the distributions described in section 10(b), holders of Elekom's
Preferred Shares as of the date of the Closing of the Merger Agreement will
receive a distribution of the remaining funds in the Escrow Funds in the
proportions set forth on Schedule 9.1 to the Merger Agreement.
11. Appointment of Shareholder Representative. Elekom and the Shareholders
hereby appoint Xxxx Xxxxxx, or his designated successor agreeable to Preferred
Shareholders holding more than fifty percent (50%) of the potential liability
set forth on Exhibit A, to serve as Shareholder Representative for all purposes
pertaining to this Agreement, who shall be authorized to make all decisions and
elections of the Shareholders hereunder and agree that the SFI Indemnitees shall
be entitled to rely on all actions, decisions, and notice of the Shareholder
Representative. The Shareholder Representative has been appointed by Elekom and
the Shareholders as their attorney-in-fact, for the giving and receipt on their
behalf of all notices, instructions and deliveries and for the taking on their
behalf of all other actions under this Agreement and the Merger Agreement, to
serve in such capacity until such time as SFI and the Escrow Agent have received
joint written notice from all Shareholders that they have appointed a
new Shareholders Representative. Accordingly, except as otherwise set forth
herein and the Merger Agreement, the Shareholder Representative has unlimited
authority and power to act on behalf of the Shareholders with respect to this
Agreement and the disposition, settlement or other handling of all claims,
rights or obligations arising hereunder, provided such actions by the
Shareholder Representative are taken in good faith in the exercise of reasonable
judgment. Except as otherwise set forth herein, the Shareholder shall be bound
by all actions taken by the Shareholder Representative in connection with this
Agreement, and the Escrow Agent, Elekom and SFI shall be entitled to rely on any
action or decision of the Shareholder Representative in accordance herewith. The
Shareholder Representative shall be entitled to reimbursement out of the
remaining amount of Escrow Funds on the Escrow Termination Date, prior to
distribution of such funds, for any reasonable out-of-pocket expenses incurred
by the Shareholder Representative in connection with the performance of the
representation duties under this Agreement or the Merger Agreement, including,
without limitation, legal fees and expenses. No bond shall be required of the
Shareholders Representative, and the Shareholders Representative shall not
receive compensation for his or her services. The Shareholder Representative
shall not be liable for any act done or omitted hereunder as Shareholder
Representative while acting in good faith and in the exercise of reasonable
judgment. The Shareholders on whose behalf the Escrow Funds were contributed to
the Escrow shall severally indemnify the Shareholders Representative and hold
the Shareholders Representative harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the Shareholders
Representative and arising out of or in connection with the acceptance or
administration of the Shareholders Representative's duties hereunder, including
the reasonable fees and expenses of any legal counsel retained by the
Shareholders Representative in connection with his representation of
Shareholders.
12. Remedies. The SFI Indemnitees need not exhaust any other remedies that
may be available to them but may proceed directly in accordance with the
provisions of this Agreement; provided, that SFI Indemnitees must first pursue
recourse to the Escrow Funds before asserting any claim against any Preferred
Shareholder based on Article IX of the Merger Agreement. The SFI Indemnitees may
institute claims against the Escrow Funds and in satisfaction thereof may
recover Escrow Funds, in accordance with the terms of the Merger Agreement and
this Agreement, without making any other claims directly against the
Shareholders and without rescinding or attempting to rescind the transactions
consummated pursuant to the Merger Agreement. The assertion of any single claim
for indemnification hereunder will not bar the SFI Indemnitees from asserting
other claims hereunder. All rights and remedies provided to the SFI Indemnitees
hereunder shall be cumulative and shall be in addition to any other rights or
remedies available to such party at law, in equity, by contract or otherwise.
13. Fees and Expenses. Escrow Agent shall be entitled to its customary
fees for its services hereunder, and to reimbursement of all out-of-pocket
expenses incurred, including reasonable attorney's fees, which fees and expenses
shall be borne by SFI.
14. Limited Duties; Indemnification. Escrow Agent shall have no
responsibilities to SFI or the Shareholders except those specifically set forth
herein, and, in performing any of its duties under this Agreement, or upon the
claimed failure to perform its duties hereunder, the
Escrow Agent shall not be liable for any acts taken or omitted to be taken by it
except for its own gross negligence or willful misconduct. Accordingly, the
Escrow Agent shall be entitled to rely conclusively on any notice, authorization
or other document delivered to it hereunder and believed by it to be genuine,
and may, at its discretion, obtain the advice of counsel with respect to any
matter relating hereto and shall not incur any liability with respect to (i) any
action taken or omitted to be taken in good faith upon advice of its counsel, or
(ii) any action taken or omitted to be taken in reliance upon any such notice,
authorization or other document believed to be genuine. Escrow Agent shall not
be under any obligation to institute legal proceedings of any kind with respect
hereto, and SFI and the Preferred Shareholders hereby jointly and severally
agree to hold Escrow Agent harmless in respect of any claim, suit or proceeding
based upon this Agreement or any act taken or not taken by Escrow Agent
hereunder, other than with respect to Escrow Agent's gross negligence or willful
misconduct. Provided, however, in the event of any dispute regarding the proper
distribution of the Escrow Funds, Escrow Agent shall be entitled to file an
interpleader action to tender the Escrow Funds into the registry or custody of
any court of competent jurisdiction, whereupon the Escrow Agent shall be
discharged from any further duty hereunder. The provisions of this Section shall
survive any resignation of the Escrow Agent or the termination of this
Agreement.
15. Removal and Resignation. Escrow Agent agrees that SFI and the
Shareholders may, by their agreement, at any time remove Escrow Agent as escrow
agent hereunder, and substitute another person or entity as escrow agent, in
which event Escrow Agent shall, upon receipt of a Joint Direction requesting
such removal, account for and deliver to such substituted escrow agent all
amounts held in the Escrow, and Escrow Agent shall thereafter be discharged from
its duties hereunder. Escrow Agent may resign from serving as escrow agent
hereunder by written notice to such effect given to SFI and the Shareholder
Representative, whereupon SFI and the Shareholder Representative shall agree
upon a successor escrow agent and shall so notify Escrow Agent, which shall then
account for and deliver to such successor all amounts held in the Escrow, and
such resignation shall thereupon be effective. If no successor escrow agent is
agreed upon within a reasonable time after such notice is given, the Escrow
Agent shall be entitled to tender into the registry or custody of any court of
competent jurisdiction the Escrow Funds, together with such legal proceedings as
the Escrow Agent deems appropriate, and thereupon the Escrow Agent shall be
discharged from all further duties hereunder.
16. Notices. All notices, demands and other communications required or
permitted hereunder shall be in writing and may be telexed or telecopied, which
shall be followed forthwith by letter, and such notice, request, demand or other
communication shall be deemed to have been received on the next business day
following dispatch and acknowledgment of receipt by the recipient's telex or
telecopy machine. In addition, notices hereunder may be delivered by hand, in
which event the notice shall be deemed effective when delivered, or by overnight
courier, in which event the notice shall be deemed to have been received on the
next business day following delivery to such courier. Notices, requests, demands
and other communications may not be given by regular or certified mail. All
notices and other communications under this Agreement shall be given to the
parties hereto at the following addresses:(or such other address for a party as
shall be specified by like notice):
If to Company:
Elekom Corporation
Pacific First Plaza, Eighth Floor
000 - 000xx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx, President and CEO
Facsimile: (000) 000-0000
With a copy (which shall not constitute notice) to:
Xxxxxxx Coie LLP
000 - 000xx Xxxxxx X.X.
Xxxxx 0000
Xxxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxx Xxxxxx
Facsimile: (000) 000-0000
If to SFI:
Clarus Corporation, formerly known as SQL Financials
International, Inc.
0000 Xxxxx Xxxxx Xxxxx
Xxxxx 000
Xxxx, Xxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, President and CEO
Facsimile: (000) 000-0000
With a copy (which shall not constitute notice) to:
Xxxxxx Xxxxxxx Xxxxxxxxx & Xxxx, PLLC
0000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: G. Xxxxxx Xxxxxxx, Esq.
Facsimile: (000) 000-0000
(b) If to the Shareholder Representative:
Xxxx Xxxxxx
Hummer Winblad Venture Partners
0 Xxxxx Xxxx, 0xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxx Xxxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Xxxx Xxxxxx
Xxxxxxx Coie LLP
Suite 1800, 411 - 108th Ave. N.E
Bellevue, WA 98004-5584
Attention: Xxxx Xxxxxx
Facsimile No.: (000) 000-0000
(c) If to Escrow Agent:
Nations Bank, N.A.
Peachtree Street, X.X.
00xx Xxxxx
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxxx Xxxxxxxxx
Facsimile No.: (000) 000-0000
Any party hereto may change its address specified for notices herein by
designating a new address by notice in accordance with this Section 16.
17. Interpretation. This Agreement and Article IX of the Merger Agreement
are to be read together. To the extent of any inconsistency between this
Agreement and Article IX of the Merger Agreement, the terms and provisions of
Article IX of the Merger Agreement shall control.
18. Tax Reporting. For purposes of tax reporting, all income earned on the
funds in the Escrow shall be deemed to have been earned for the account of the
party to whom the funds are disbursed, and Escrow Agent is authorized to act
accordingly.
19. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
20. Governing Law and Jurisdiction. This Agreement shall be governed by
and construed according to the laws of the State of Washington, without regard
to any rules regarding choice of law. The exclusive jurisdiction for any action
by any SFI Indemnitee against Shareholders, Preferred Shareholders, or with
respect to the Escrow Funds shall be the state and federal courts situated in
Hennepin County, Minnesota.
21. Defined Terms. Capitalized terms not otherwise defined herein shall
have the meaning ascribed to such term in the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
ELEKOM CORPORATION CLARUS CORPORATION, formerly
known SQL Financials International, Inc.
By: /s/ Xxxxxx X. Xxxxx By: /s/ Xxxxxx X. Xxxxx, Xx.
------------------------ ---------------------------
Name: Xxxxxx Xxxxx Name: Xxxxxx X. Xxxxx, Xx.
Title: President and CEO Title: Secretary
ESCROW AGENT:
NATIONSBANK, N.A.
By: /s/ Xxxxxxx X. Xxxxxxx
-----------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: Senior Vice President
PREFERRED SHAREHOLDERS:
/s/ Xxxxxx X. Xxxxx
----------------------------------------
XXXXXX XXXXX
XXXXXXX.XXX, INC.
By: /s/ X. Xxxxx
-------------------------
Name: Xxxxxx X. Xxxxx
Title: CEO
HUMMER WINBLAD VENTURE PARTNERS
By: /s/ Xxxx Xxxxxx
-----------------------
Name: Xxxx Xxxxxx
Title: Partner
HUMMER WINBLAD TECHNOLOGIES FUND
By: /s/ Xxxx Xxxxxx
------------------------
Name: Xxxx Xxxxxx
Title: Partner
OLYMPIC VENTURE PARTNERS IV L.P.
By: OVMC IV, L.L.C., Its GP
---------------------------
By: /s/ Xxxxxx X. Xxxxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Its Managing Member
OVP IV ENTREPRENEURS FUND
By: OVMC IV, LLC, Its GP
-------------------------
By: /s/ Xxxxxx X. Xxxxxxxx
-------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Its Managing Member
LAZARUS FAMILY INVESTMENTS, LLC
By: /s/ Xxxxxxxx X. Xxxxxxx
--------------------------
Name: Xxxxxxxx X. Xxxxxxx
Title: Manager
