TAX ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated July 22, 1998 ("Agreement") by and among
Productivity Technologies Corp., a Delaware corporation, ("PTC"), formerly
Production Systems Acquisition Corporation, and the sole shareholder of Atlas
Technologies, Inc.; Atlas Technologies, Inc., a Michigan corporation ("Atlas,"
also sometimes referred to as the "Indemnitee"); Xxxxxx X. Prime and Xxxxxxx X.
Xxxxxx ("Prime and Austin," sometimes referred to collectively as the
"Indemnitor"), and NBD/First of Chicago, a Michigan banking corporation, as
escrow agent ("Escrow Agent").
WHEREAS, PTC, Prime and Austin entered into a certain Settlement
Agreement dated July 22, 1998 ("Settlement Agreement") resolving certain
outstanding issues concerning bonuses under employment contracts between Prime
and Austin and Atlas and other matters; and
WHEREAS, under paragraph 5 of the Settlement Agreement, specifically
entitled "Tax Indemnity and the Establishment of Tax Escrow," Prime and Austin
have jointly and severally agreed to hold Atlas harmless and indemnify Atlas
against certain Internal Revenue Service ("IRS") tax liabilities more
specifically defined herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereby agree as follows:
1. Indemnification Obligation
Prime and Austin have jointly and individually agreed to
indemnify and hold Atlas harmless and reimburse Atlas pursuant to the following
conditions:
A. Atlas claimed on its tax returns the following
research tax credits:
Tax Credit
Tax Year Taken
--------- ----------
1990 $ 75,381
1991 96,661
1992 221,782
1993 121,403
1994 142,639
1995 207,262
-------
TOTAL $ 865,128
The Internal Revenue Service has threatened to
disallow substantially all of the aforementioned tax
credits.
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B. With regard to each of the aforementioned tax
years, Prime and Austin will indemnify Atlas for
any disallowed research tax credits claimed
(including additional taxes, penalties and
interest thereon and further including any of such
liabilities arising from the utilization of said
credits in years subsequent to June 30,
1995) ("Disallowed Amounts"); provided, however,
the obligation of Prime and Austin to indemnify
Atlas shall apply only to the extent that the
aggregate Disallowed Amounts exceeds $187,000 and
provided further, that the indemnification
obligation of Prime and Austin shall in no event
exceed $560,000.00 plus an amount equal to all
interest earned, less expenses and losses, if any,
on the Escrow Amount deposited in escrow pursuant
to Section 2 of this Agreement.
2. Deposit of Escrow Funds
A. Upon the execution of this Agreement, Atlas will direct the
Escrow Agent to transfer $560,000 (the "Escrow Amount") from a certain Bonus
Escrow Account, Account No. 00-00000-00, to this newly established Tax
Indemnification Escrow Account (NBD served as the escrow agent under the Bonus
Escrow Account and will also serve as escrow agent under this Tax
Indemnification Escrow Account).
B. The Escrow Agent shall invest the Escrow Amount in an
account identified as established pursuant to this Agreement (the "Escrow
Account"). The Escrow Agent will hold the Escrow Amount together with all
investments thereof and all interest accumulated thereon and proceeds arising
therefrom (the "Escrow Funds") in escrow upon the terms and conditions set forth
in this Agreement and shall not withdraw or release the Escrow Funds or any part
thereof from the Escrow Account except as provided herein.
3. Investments
A. The Escrow Agent shall invest and reinvest from time to
time the Escrow Funds (i) in any obligation of, or guaranteed as to principal
and interest by, the United States or any agency or instrumentality thereof
(provided that the full faith and credit of the United States supports the
obligation or guarantee of such agency or instrumentality); (ii) in any money
market fund that invests solely in such obligations or types described in clause
(i); or (iii) in any other investment agreed to in writing by PTC and Prime and
Austin. In the absence of direction, the Escrow Agent shall invest the Escrow
Funds in U.S. Treasury money market fund. Investments may be executed by the
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Escrow Agent's own bond department. To the extent the Escrow Agent invests any
funds in the manner provided in this Section, no party hereto shall be liable
for any loss which may be incurred by reason of any such investment.
B. The Escrow Agent shall have the power to reduce, sell or
liquidate the foregoing investments whenever the Escrow Agent shall be required
to release all or any portion of the Escrow Funds pursuant to Section 4 hereof.
The Escrow Agent shall have no liability for any investment losses resulting
from the investment, reinvestment, sale or liquidation of any portion of the
Escrow Funds, except in the case of the gross negligence or willful misconduct
of the Escrow Agent.
4. Claims Against the Escrow Funds
A. At any time and from time to time, during the period from
the signing of this Agreement through the final settlement or other disposition
of any tax dispute relating to the research tax credits claimed, Atlas, or PTC,
on behalf of Atlas, may give to the Escrow Agent and to Prime and Austin one or
more notices stating that, pursuant to this Agreement, Atlas is asserting its
right to indemnity with respect to an obligation of Prime and Austin hereunder
(a "Claim"). Should no objection be made by Prime and Austin within thirty (30)
days of any such notice, the Escrow Agent shall release to Atlas that portion of
the Escrow Funds claimed by Atlas. In the event that Prime and Austin object to
the release of any part of the Escrow Funds by written notice to Atlas, PTC and
the Escrow Agent given with such 30-day period, Escrow Agent shall withhold the
release of such funds until it receives notice from Atlas, PTC, Prime and Austin
of agreement to any release of the Escrow Funds or it receives a certified order
from a court of competent jurisdiction directing such release.
5. Settlement Authority for the Underlying Tax Dispute With
the IRS
A. Should the IRS be willing to allow Atlas not less than
$678,128 of the aforementioned research tax credits claimed, Atlas and PTC may,
in their joint discretion, settle any dispute with the IRS relating to said
credits without the consent of Prime and Austin. No settlement of any such
dispute under which the IRS allows less than $678,128 of the research tax
credits claimed may be made without the unanimous consent of Atlas, PTC and
Prime and Austin.
B. Any dispute which may arise under this Agreement with
respect to the delivery and/or ownership or right to possession of the Escrow
Funds or any part thereof, or the duties of the Escrow Agent hereunder, shall be
settled either by mutual agreement of Atlas, PTC and Prime and Austin (evidenced
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by appropriate instructions in writing to the Escrow Agent, signed by such
parties) or by a binding arbitration award or a final order, decree or judgment
of any appropriate court located in the State of Michigan (the time for appeal
having expired and no appeal having been perfected), each party or parties,
other than the Escrow Agent, bearing its own costs and expenses with respect to
the dispute. The Escrow Agent shall be under no duty whatsoever to institute or
defend any such proceedings. Prior to the settlement of any such dispute, the
Escrow Agent is authorized and directed to retain in its possession, without
liability to anyone, that portion of the Escrow Funds which is the subject of
such dispute.
6. Termination of Escrow Agreement
A. This Agreement shall terminate upon the earlier to occur
of: (i) the disbursement of all Escrow Funds to the Indemnitee, or (ii) three
months after the date of settlement or other final and non-appealable
disposition of all issues between the IRS and Atlas arising under the matters
referred to in Section 1(A).
B. As soon as practicable after the Escrow Expiration Date,
the Escrow Agent shall promptly deliver to Prime and Austin out of the Escrow
Funds the excess, if any, of the total amount remaining in the Escrow Funds over
the sum of all amounts under unresolved or unsettled Claims then outstanding,
and the Escrow Agent shall continue to retain in the Escrow Funds all such
amounts under unresolved or unsettled Claims then outstanding, subject to the
terms of this Agreement until resolution of such Claims.
7. Concerning the Escrow Agent
A. The Escrow Agent shall have no duties or responsibilities
except those expressly set forth herein. The Escrow Agent may consult with
counsel and shall have no liability hereunder except for its own negligence or
willful misconduct. It may rely on any notice, instruction, certificate,
statement, request, consent, confirmation, agreement or other instrument which
it reasonably believes to be genuine and to have been signed or presented by a
proper person or persons.
B. The Escrow Agent shall have no duties with respect to any
agreement or agreements with respect to any or all of the Escrow Funds other
than as provided in this Agreement. In the event that any of the terms and
provisions of any other agreement between any of the parties hereto conflict or
are inconsistent with any of the terms and provisions of this Agreement, the
terms and provisions of this Agreement shall govern and control in all respects.
Notwithstanding any provision to the contrary contained in any other agreement,
the Escrow Agent shall have no interest in the Escrow Funds except as provided
in this Agreement.
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C. So long as the Escrow Agent shall have any obligation to
pay any amount to the Indemnitor and/or the Indemnitee from the Escrow Funds
hereunder, the Escrow Agent shall keep proper books of record and account, in
which full and correct entries shall be made of all receipts, disbursements and
investment activity in the Escrow Account.
D. The Escrow Agent shall not be bound by any modification of
this Agreement affecting the rights, duties and obligations of the Escrow Agent,
unless such modification shall be in writing and signed by the other parties
hereto and the Escrow Agent. The Escrow Agent shall not be bound by any other
modification of this Agreement unless the Escrow Agent shall have received
written notice thereof.
E. The Escrow Agent may resign as escrow agent at any time by
giving thirty (30) days written notice by registered or certified mail to the
Indemnitee and Indemnitor and such resignation shall take effect at the end of
such thirty (30) days or upon earlier appointment of a successor. A successor
escrow agent hereunder may be appointed by designation in writing signed by the
Indemnitee and Indemnitor. The Indemnitee and the Indemnitor undertake to
utilize their best efforts to arrange for the appointment of a successor escrow
agent. If any instrument of acceptance by a successor escrow agent shall not
have been delivered to the Escrow Agent within sixty (60) days after the giving
of such notice of resignation, the resigning Escrow Agent may at the expense of
the Indemnitee and the Indemnitor petition any court of competent jurisdiction
for the appointment of a successor escrow agent.
F. If at any time hereafter the Escrow Agent shall resign, be
removed, be dissolved or otherwise become incapable of acting, or the bank or
trust company acting as the Escrow Agent shall be taken over by any governmental
official, agency, department or board, or the position of the Escrow Agent shall
become vacant for any of the foregoing reasons or for any other reason, the
Indemnitee and the Indemnitor shall appoint a successor escrow agent to fill
such vacancy.
G. Every successor escrow agent appointed hereunder shall
execute, acknowledge and deliver to its predecessor, and also to the Indemnitee
and the Indemnitor an instrument in writing accepting such appointment
hereunder, and thereupon such successor escrow agent, without any further act,
shall become fully vested with all rights, immunities and powers and shall be
subject to all of the duties and obligations, of its predecessor; and every
predecessor escrow agent shall deliver all property and monies held by it
hereunder to its successor.
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H. The fee charged by the Escrow Agent for performing its
services hereunder shall be paid by the Indemnitee. Except as provided in
subsection 7(I) hereof, the Indemnitee and the Indemnitor shall share equally
any reasonable out-of-pocket costs incurred by the Escrow Agent in performing
its duties hereunder. This covenant shall survive termination of this Agreement.
I. The Indemnitee and the Indemnitor shall indemnify and hold
the Escrow Agent harmless from and against any and all expenses (including
reasonable attorneys' fees), liabilities, claims, damages, actions, suits or
other charges ("Agent Claims") incurred by or assessed against the Escrow Agent
for anything done or omitted by the Escrow Agent in the performance of the
Escrow Agent's duties hereunder, except such which result from the Escrow
Agent's bad faith, gross negligence or willful misconduct. Agent Claims payable
hereunder shall be paid one-half by the Indemnitee and one-half by the
Indemnitor. This indemnity shall survive the resignation of the Escrow Agent or
the termination of this Agreement.
J. To the extent any amount due to the Escrow Agent pursuant
to Sections 7(H) or 7(I) is not paid, the Escrow Agent may deduct the same from
the Escrow Account.
K. The Escrow Agent's fees shall be Four Hundred ($400.00)
Dollars per year, payable in advance on the date this Agreement is executed by
the Escrow Agent and on each subsequent anniversary date thereof, as long as the
Escrow Agent is holding any of the Escrow Funds hereunder.
8. Miscellaneous
A. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Michigan, without
regard to such jurisdiction's conflicts of law principles. The parties agree
that venue for any suit, action, proceeding or litigation arising out of or in
relation to this Agreement shall be in any federal or state court in the State
of Michigan having subject matter jurisdiction.
B. This Agreement shall be binding upon and shall inure to the
benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties hereto.
C. This Agreement may be executed in one or more counterparts
which taken together shall constitute but one and the same instrument.
D. Section headings contained herein have been inserted for
reference purposes only and shall not be construed as part of this Agreement.
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E. This Agreement may be modified or amended only by a written
instrument duly executed by all parties hereto or their respective successors or
assigns.
F. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
(unless otherwise specifically provided for herein) if delivered personally
(including by courier), telecopied (which is confirmed) or mailed (registered or
certified mail), postage prepaid:
If to Indemnitee:
Atlas Technologies, Inc.
Attention:
000 X. Xxxxx
Xxxxxx, XX 00000
Telecopier No. (000) 000-0000
with a copy to:
Xxxx Xxxxxxx, Esq.
Xxxxxxxx Mollen & Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Telecopier No. (000) 000-0000
If to Indemnitor:
Xxxxxx X. Prime
Xxxxxxx X. Xxxxxx
000 X. Xxxxx
Xxxxxx, XX 00000
Telecopier No. (000) 000-0000
with a copy to:
Xxxxxx X. Xxxxxxxx, Esq.
Xxxxx, Xxxxxxxxx & Xxxxxxxx, P.C.
0000 Xxxxxx Xxxxxxx, Xxxxx 000
Xxxxx, XX 00000
Telecopier No. (000) 000-0000
If to the Escrow Agent:
NBD/First of Chicago
Plaza One Financial Center
Attention: Xxxxxx X. Xxxxxxxx
000 X. Xxxxx Xxxxxx, Xxxxx 000
Xxxxx, XX 00000
Telecopier No. (000) 000-0000
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or to such other addresses or persons as any party may have furnished to the
other parties in writing, in accordance herewith, provided, however, that
notices to the Escrow Agent shall be deemed effective only upon receipt.
G. The Escrow Agent shall not be liable to pay tax on any
interest earned on the Escrow Amount, it being the understanding of the parties
that such tax shall be the responsibility of the Indemnitor. The tax
identification number for the Indemnitor appear next to their signatures set
forth below.
H. If any party hereto refuses to comply with, or at any time
violates or attempts to violate, any term, covenant or agreement contained in
this Agreement, any other party hereto may, by injunctive action, compel the
defaulting party to comply with, or refrain from violating, such term, covenant
or agreement, and may, by injunctive action, compel specific performance of the
obligations of the defaulting party.
I. Except as provided herein, the rights and obligations of
the parties under this Agreement shall not be assigned to any person or entity,
without the written consent of the other parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first above written.
WITNESSES: Atlas Technologies, Inc.
/s/ Xxxxxx X. Prime
By: ______________________________
Xxxxxx X. Prime
Its: Chief Executive Officer
/s/ Xxxxxx X. Prime
__________________________________
Xxxxxx X. Prime (###-##-####)
/s/ Xxxxxxx X. Xxxxxx
__________________________________
Xxxxxxx X. Xxxxxx (###-##-####)
Productivity Technologies Corp.
/s/ Xxxxx X. Xxxxxx
By: _____________________________
Xxxxx X. Xxxxxx
Its: Chief Financial Officer
ESCROW AGENT:
NBD/First of Chicago
By: ________________________
Its: ______________
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