ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Escrow Agreement") is made and entered
into as of the 2nd day of July, 1998, by and among Interiors, Inc., a Delaware
corporation ("Buyer"), U.S. Bank Trust, a national association (together with
its successors and assigns, the "Escrow Agent"), and Xxxxx X. Xxxxxxx (the
"Shareholders' Representative"). For purposes of this Escrow Agreement, all
capitalized terms shall have the meanings ascribed to such terms in the Merger
Agreement (defined below) unless otherwise defined herein.
RECITALS
A. Pursuant to that certain Agreement and Plan of Merger, dated as
of the date hereof (the "Merger Agreement") by and among Xxxx Lighting, Inc., an
Illinois corporation (the "Company"), certain shareholders of the Company (the
"Principal Shareholders"), Buyer and Xxxx Acquisition Corp., an Illinois
corporation ("Newco"), Newco is merging with and into the Company.
B. The Merger Agreement provides that the Shareholders shall be
obligated to indemnify Buyer pursuant to the terms set forth in the Merger
Agreement for certain Damages resulting from breaches of representations,
warranties and covenants made by the Principal Shareholders in the Merger
Agreement.
C. The Merger Agreement provides that an escrow account will be
established to secure the indemnification obligations of the Shareholders, and
the execution and delivery of this Escrow Agreement is a condition precedent to
the obligation of Buyer to consummate the transactions contemplated by the
Merger Agreement.
D. The Shareholders have appointed the Shareholders' Representative
to act as their representative in connection with, among other things, the
execution and delivery of this Escrow Agreement and the administration of the
matters contemplated hereby.
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained in this Escrow
Agreement, and intending to be legally bound, the parties hereto agree as
follows:
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1. Escrow.
(a) Buyer hereby delivers to the Escrow Agent a certificate in the
name of the Escrow Agent representing ______ shares of Buyer Common Stock (the
"Escrow Shares") pursuant to Section 2.10 of the Merger Agreement, the receipt
of which the Escrow Agent hereby acknowledges. Buyer may deposit additional
shares of Buyer Common Stock with the Escrow Agent as provided in Section 1(f)
hereof. The entitlement of the Shareholders to the Escrow Shares shall be in
proportion to their respective percentages set forth opposite their names on
Schedule A attached hereto (the "Allocable Percentages"). The Escrow Shares
shall be deposited in an account established at the Escrow Agent for receipt of
such Escrow Shares (the "Escrow Account") and shall be held in such Escrow
Account and distributed in accordance with the terms and provisions of this
Escrow Agreement.
(b) Any securities, non-cash dividends or other property
distributable in respect of or in exchange for any of the Escrow Shares, whether
by way of stock dividends, stock splits or otherwise, shall be delivered to the
Escrow Agent, who shall hold such securities, non-cash dividends or other
property in the Escrow Account. Such securities shall be issued in the name of
the Escrow Agent or its nominee and all such securities, cash dividends or other
property shall be considered part of the Escrow Account for purposes hereof.
(c) The Shareholders' Representative shall have the right, in its
sole discretion, on behalf of, and as directed by, the Shareholders, to direct
the Escrow Agent in writing as to the exercise of any voting rights pertaining
to the Escrow Shares, and the Escrow Agent shall comply with any such written
instructions. In the absence of such instructions, the Escrow Agent shall not
vote the Escrow Shares allocated to the Shareholder from whom written
instructions have not been received.
(d) The respective interests of the Shareholders in the Escrow
Account shall not be assignable or transferable, other than by operation of law.
Notice of any such assignment or transfer by operation of law shall be given to
the Escrow Agent and Buyer, and no such assignment or transfer shall be valid
until such notice is given.
(e) Should any Shareholder desire to sell any of the Escrow Shares
prior to the Anniversary Date but after the Escrow Shares have been registered
pursuant to Section 7.10 of the Merger Agreement, the Shareholders'
Representative shall so notify Buyer in writing, specifying the number of Escrow
Shares requested to be sold. Buyer shall have the right, in its sole discretion,
to present the notice to the Escrow Agent, and to (i) direct the Escrow Agent to
sell the number of the Escrow Shares specified in the notice (all parties
acknowledging that Buyer shall be
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disinclined to direct the sale of more than ten percent (10%) of the total
number of Escrow Shares during any calendar week) and (ii) deposit the proceeds
of such sale into the Escrow Account.
(f) If, on the Anniversary Date, Buyer is required to issue
Additional Shares to the Shareholders pursuant to Section 2.08(a) of the Merger
Agreement, a certificate in the name of the Escrow Agent representing such
Additional Shares shall be delivered to the Escrow Agent for deposit into the
Escrow Account within twenty (20) Business Days of the Anniversary Date. Such
Additional Shares shall be treated as Escrow Shares for all purposes of this
Escrow Agreement.
(g) If on the Anniversary Date the Shareholders are required to
return to Buyer shares of Buyer Common Stock pursuant to Section 2.08(b) of the
Merger Agreement, Buyer and the Shareholders' Representative shall give joint
written notice of such event to the Escrow Agent within twenty (20) Business
Days of the Anniversary Date. Such written notice shall include the number of
Escrow Shares to be returned to Buyer pursuant to Section 2.08(b) of the Merger
Agreement (the "Returned Shares"), and the Escrow Agent shall release the
Returned Shares to Buyer out of the Escrow Account promptly upon receipt of such
written notice.
2. Investment of Escrow Account. Cash dividends, if any, distributable in
respect of any of the Escrow Shares and any cash proceeds resulting from the
sale of the Escrow Shares pursuant to Section 1(e) above, shall be held and
invested or reinvested by the Escrow Agent at the written or oral request of the
Shareholders' Representative in any of the following securities:
(a) obligations issued or guaranteed by the United States or any
person controlled or supervised by and acting as an instrumentality of the
United States pursuant to authority granted by Congress; and
(b) certificates of deposit of banks or trust companies, including
those of the Escrow Agent, organized under the laws of the United States of
America. In the absence of written instructions, funds shall be deposited in an
U.S. Bank Trust money market account.
Such investments shall be made subject to any orders of the
Shareholders' Representative with respect thereto, provided that investments of
monies in the Escrow Account shall in any event mature or be redeemable or be
subject to liquidation by sale or otherwise at the option of the Escrow Agent at
such time as may be necessary to make timely disbursements from the Escrow
Account. Subject to any such orders with respect thereto, or in the absence of
any orders from the Shareholders' Representative, the Escrow Agent may from time
to time sell such investments and reinvest the proceeds therefrom in other
investments of the type described in
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this Section maturing or redeemable as aforesaid. Any such investments may be
purchased from the Escrow Agent or any affiliate of the Escrow Agent. The Escrow
Account shall be credited with all proceeds of sale and income from such
investment.
3. Term. Subject to indemnification claims made by Buyer against the
Shareholders pursuant to the Merger Agreement, the term of this Escrow Agreement
shall commence on the date hereof and terminate on the later of (a) ten (10)
weeks after the Anniversary Date or (b) the date on which the last pending claim
is resolved and paid.
4. Claims Against Escrow Account.
(a) If, at any time during the term of this Escrow Agreement, Buyer
has incurred or suffered Damages for which it is entitled to indemnification
under Article IX of the Merger Agreement, Buyer shall give written notice of
such claim to the Shareholders' Representative and the Escrow Agent, stating in
reasonably sufficient detail the events or circumstances which are the basis for
and amount of such claim. If the Shareholders' Representative objects to any
such claim, he shall give written notice of such objection to Buyer and the
Escrow Agent within ten (10) days after the date of receipt of Buyer's notice,
and shall state the basis for such objection. Notwithstanding the foregoing,
such ten (10) day period shall be extended to a twenty (20) day period if within
such original ten (10) day period the Shareholders' Representative gives written
notice to Buyer and the Escrow Agent that additional time is necessary to
respond to the claim. If no objection to Buyer's claim is made by the
Shareholders' Representative within such ten (10) day period, or twenty (20) day
period, as applicable, the claim shall be deemed conclusively resolved and shall
be paid by the Escrow Agent pursuant to Section 5 without further mutual
instructions from the parties.
(b) If the Shareholders' Representative provides timely notice of
objection to any claim, Buyer and the Shareholders' Representative shall attempt
to resolve the dispute and, if they are able to do so, shall give mutual written
notice to the Escrow Agent of the resolution of the dispute and the amount of
the claim resolved, if any.
(c) If Buyer and the Shareholders' Representative are unable
informally to resolve a disputed claim pursuant to Section 4(b) above within
twenty (20) days after the date of the Shareholders' Representative's timely
objection to Buyer's claim, the dispute shall be settled solely by a court of
competent jurisdiction in the State of California or the United States District
Court for the Central District of California. Any decision or award of such
court shall be treated as a claim resolved under this Escrow Agreement and shall
be final and
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conclusive on the parties to this Escrow Agreement and their respective
affiliates, heirs, successors and assigns. The parties hereto agree that any
action or proceeding pursuant to this Escrow Agreement shall be brought
exclusively in an appropriate California court or in the United States District
Court for the Central District of California, and in connection with such action
or proceeding, the laws of the State of California shall govern. The parties
hereto hereby consent to the exclusive jurisdiction of such court. Buyer and the
Shareholders' Representative may each respectively appoint such attorneys,
accountants and agents to act for them before the court.
5. Payment of Resolved Claims. Within five (5) days following the day on
which a claim is resolved pursuant to Section 4 above, the Escrow Agent shall
release to Buyer Escrow Shares out of the Escrow Account having a Fair Market
Value equal to the lesser of (i) the amount of any such resolved claim or (ii)
the then current Fair Market Value of all Escrow Shares remaining in the Escrow
Account. For purposes of this Section 5, the "Fair Market Value" of Escrow
Shares shall mean the average closing bid price per share of Buyer Common Stock
for the thirty (30) trading days preceding the date on which a claim is
resolved.
6. Sale of the Escrow Shares. On the Anniversary Date, all of the Escrow
Shares shall be sold by the Escrow Agent over a period of ten (10) weeks from
the Anniversary Date, at such times and in such amounts as Buyer determines in
its sole discretion. All proceeds from the sale of the Escrow Shares shall be
retained by the Escrow Agent or distributed to the Shareholders in accordance
with Section 7 below. Buyer and Shareholders' Representative acknowledge that,
pursuant to the terms of a Shareholder Agreement, Buyer has agreed to reimburse
the Shareholders' Representative, for the benefit of the Shareholders, to the
extent that the aggregate proceeds received by the Shareholders upon the sale of
the Escrow Shares which were not the subject of any resolved claim, plus all
customary brokerage commissions, are less than the fair market value of such
shares on the Anniversary Date. For purposes of Section 6 and 7 hereof, the fair
market value per share of the Escrow Shares as of the Anniversary Date shall
mean the average closing bid price per share of Buyer Common Stock for the
thirty (30) trading days preceding the Anniversary Date.
7. Release of Escrow Property.
7.1 Immediately after the Anniversary Date, the Escrow Agent shall
sell, hold and distribute the Escrow Shares and all other property then held in
the Escrow Account in accordance with the following:
(a) If there is on that date neither any claim asserted by the
Buyer which has not yet been resolved pursuant to
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Section 4 hereof (a "pending claim"), nor any claim of Buyer resolved but not
paid, the Escrow Agent shall (i) commence the sale of the Escrow Shares, if any,
in accordance with the provisions of Section 6 hereof, and (ii) distribute to
the Shareholders the proceeds of the sale and any other property retained in the
Escrow Account in accordance with their respective Allocable Percentages.
(b) If there is on that date any pending claim, or any claim
resolved but not paid, the Escrow Agent shall retain in the Escrow Account for
the purpose of satisfying any such pending or resolved but unpaid claims an
amount of cash or cash equivalents equal to the amount of all pending claims and
resolved but not paid claims. In addition to the foregoing, the Escrow Agent
shall (i) commence the sale of the Escrow Shares in accordance with the
provisions of Section 6 hereof, (ii) retain the proceeds of the sale of the
Escrow Shares to the extent of any pending claim or any claim resolved but not
paid, and (iii) distribute to the Shareholders any other property retained in
the Escrow Account in accordance with their respective Allocable Percentages.
7.2 Following the expiration of the term of this Escrow Agreement,
as each pending claim is paid for which an amount was reserved according to
Section 7.1(b) hereof, the Escrow Agent shall distribute to the Shareholders the
balance of the cash and cash equivalents, if any, in the Escrow Account in
accordance with their respective Allocable Percentages; provided, however, that
if at that time there remain other pending claims or resolved but not paid
claims, the Escrow Agent shall continue to hold cash and cash equivalents in an
amount equal to the lesser of (a) the value of all cash and cash equivalents in
the Escrow Account, or (b) the total amount of all pending claims or resolved
but not paid claims. When no pending claims or resolved but not paid claims
remain, the Escrow Agent shall distribute to the Shareholders the balance, if
any, of the cash and cash equivalents in the Escrow Account in accordance with
their respective Allocable Percentages.
7.3 Any distribution to any Shareholder provided for herein shall be
paid to the estate of the Shareholder if the Shareholder is then deceased.
8. Escrow Agent.
8.1 The duties of the Escrow Agent hereunder shall be entirely
administrative and not discretionary. The Escrow Agent shall be obligated to act
only in accordance with written or oral instructions received by it as provided
in this Escrow Agreement and is authorized hereby to comply with any orders,
judgments or decrees of any court with or without jurisdiction and shall not be
liable as a result of its compliance with the same.
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8.2 As to any legal questions arising in connection with the
administration of this Escrow Agreement, the Escrow Agent may rely absolutely
upon the opinions given to it by its counsel and shall be free of liability for
acting in reliance on such opinions.
8.3 The Escrow Agent may rely absolutely upon the genuineness and
authorization of the signature and purported signature of any party upon any
instruction, notice, release, receipt or other document delivered to it pursuant
to this Escrow Agreement.
8.4 The Escrow Agent may, as a condition to the disbursement of
monies as provided herein, require from the payee or recipient a receipt
therefor and, upon final payment or disposition, a release of the Escrow Agent
from any liability arising out of its execution or performance of this Escrow
Agreement, such release to be in a form satisfactory to the Escrow Agent.
8.5 The parties agree that the Escrow Agent will be compensated for
its services by Buyer until termination of this Escrow Agreement or resignation
of the Escrow Agent.
9. Indemnity.
9.1 Buyer and the Shareholders' Representative agree to and hereby
do waive any suit, claim, demand or cause of action of any kind which they or it
may have or may assert against the Escrow Agent arising out of or relating to
the execution or performance by the Escrow Agent of this Escrow Agreement,
unless such suit, claim, demand or cause of action is based upon the wilful
neglect or gross negligence or bad faith of the Escrow Agent. They further agree
to indemnify the Escrow Agent against and from any and all claims, demands,
costs, liabilities and expenses, including reasonable counsel fees, which may be
asserted against it or to which it may be exposed or which it may incur by
reason of its execution or performance of this Escrow Agreement, unless they
arise from any suit, claim, demand or cause of action based upon the wilful
neglect or gross negligence or bad faith of the Escrow Agent. Such agreement to
indemnify shall survive the termination of this Escrow Agreement until
extinguished by any applicable statute of limitations.
9.2 In case any litigation is brought against the Escrow Agent in
respect of which indemnity may be sought hereunder, the Escrow Agent shall give
prompt notice of that litigation to the parties hereto, and the parties upon
receipt of that notice shall have the obligation and the right to assume the
defense of such litigation, provided that failure of the Escrow Agent to give
that notice shall not relieve the parties hereto from any of their obligations
under this Section unless that failure prejudices the
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defense of such litigation by said parties. At its own expense, the Escrow Agent
may employ separate counsel and participate in the defense. The parties hereto
shall not be liable for any settlement without their respective consents.
10. Acknowledgment by the Escrow Agent. By execution and delivery of this
Escrow Agreement, the Escrow Agent acknowledges that the terms and provisions of
this Escrow Agreement are acceptable and it agrees to carry out the provisions
of this Escrow Agreement on its part.
11. Resignation or Removal of Escrow Agent; Successors.
11.1 (a) The Escrow Agent may resign as such following the giving of
thirty (30) days' prior written notice to the other parties hereto. Similarly,
the Escrow Agent may be removed and replaced following the giving of thirty (30)
days' prior written notice to the Escrow Agent by both the Shareholders'
Representative and Buyer. In either event, the duties of the Escrow Agent shall
terminate thirty (30) days after the date of such notice (or as of such earlier
date as may be mutually agreeable); and the Escrow Agent shall then deliver the
balance of the escrow fund then in its possession to a successor Escrow Agent as
shall be appointed by the other parties hereto as evidenced by a written notice
filed with the Escrow Agent.
(b) If for any reason any person or entity is unwilling to
serve as successor Escrow Agent and if the other parties hereto are unable to
agree upon a successor or shall have failed to appoint a successor prior to the
expiration of thirty (30) days following the date of the notice of resignation
or removal, the then acting Escrow Agent may petition any court of competent
jurisdiction for the appointment of a successor Escrow Agent or other
appropriate relief; and any such resulting appointment shall be binding upon all
of the parties hereto.
11.2 Every successor Escrow Agent appointed hereunder shall execute,
acknowledge and deliver to its predecessor and the other parties hereto, an
instrument in writing accepting such appointment hereunder, and thereupon such
successor, without any further act, shall become fully vested with all the
duties, responsibilities and obligations of its predecessor; but such
predecessor shall, nevertheless, on the written request of its successor or any
of the parties hereto, execute and deliver an instrument or instruments
transferring to such successor all the rights of such predecessor hereunder, and
shall duly assign, transfer and deliver all property, securities and monies held
by it pursuant to this Escrow Agreement to its successor. Should any instrument
be required by any successor for more fully vesting in such successor the
duties, responsibilities and obligations hereby vested or intended to be vested
in the predecessor, any and all such instruments in writing shall, on the
request of any of the
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other parties hereto, be executed, acknowledged and delivered by the
predecessor.
11.3 In the event of an appointment of a successor, the predecessor
shall cease to be custodian of any funds, securities or other assets and records
it may hold pursuant to this Escrow Agreement, and the successor shall become
such custodian.
11.4 Upon acknowledgment by any successor Escrow Agent of the
receipt of the then remaining balance of the escrow fund, the then acting Escrow
Agent shall be fully released and relieved of all duties, responsibilities and
obligations under this Escrow Agreement.
12. Entire Agreement, Amendments and Waivers. This Escrow Agreement, the
Shareholders Agreement and the Merger Agreement contain the entire agreement
among the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements, negotiations, discussions, arrangements or
understandings with respect thereto. No amendment, supplement, modification or
waiver of this Escrow Agreement shall be binding unless executed in writing by
the Escrow Agent, Buyer and the Shareholders' Representative. No waiver of any
of the provisions of this Escrow Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided. In
addition to the remedies provided in this Escrow Agreement, any party may pursue
any and all remedies now or hereafter existing at law or in equity.
13. Execution Counterparts. This Escrow Agreement may be executed in one
or more counterparts (including by facsimile), each of which shall be regarded
as an original and all of which shall constitute but one and the same
instrument.
14. Severability. If any provision of this Escrow Agreement, or any
covenant, obligation or agreement contained herein is determined by a court to
be invalid or unenforceable, such determination shall not affect any other
provision, covenant, obligation or agreement, each of which shall be construed
and enforced as if such invalid or unenforceable portion were not contained
therein. Such invalidity or unenforceability shall not affect any valid and
enforceable application thereof, and each such provision, covenant, obligation
or agreement shall be deemed to be effective, operative, made, entered into or
taken in the manner and to the full extent permitted by law.
15. Headings. The headings in this Escrow Agreement shall be solely for
convenience of reference and shall in no way define, limit or describe the scope
or intent of any provisions or sections of this Escrow Agreement.
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16. Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and shall be deemed to be sufficiently
given (a) if delivered personally, upon delivery, (b) if delivered by registered
or certified mail (return receipt requested), postage prepaid, upon the earlier
of actual delivery or upon three days after being mailed, and (c) if delivered
by telecopy, upon confirmation of transmission by telecopy, in each case to the
parties at the following address:
(a) As to Buyer: Interiors, Inc.
000 Xxxxxxxxxx Xxxxxx
Xx. Xxxxxx, Xxx Xxxx 00000
Attention: Xxx Xxxx
Facsimile: (000) 000-0000
With a copy to: XxXxxx X. Xxxxx, Esq.
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxxx Xxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
(b) As to Escrow Agent: U.S. Bank Trust
Global Escrow Depository Services
000 Xxxxx Xxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxxxx
Facsimile: (000) 000-0000
(c) As to Shareholders'
Representative: Xxxxx X. Xxxxxxx
00 Xxxx Xxxxxx
X.X. Xxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
With a copy to: Xxxxxx X. Xxxxxx, Esq.
Katten, Muchin & Zavis
000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
Any of the parties hereto may, by notice given hereunder, designate any further
or different address to which subsequent notices or other communications shall
be sent.
17. Expenses. Except as otherwise provided for herein, each party shall be
responsible for its own costs and expenses with respect to matters involving
this Escrow Agreement.
18. Successors. This Escrow Agreement shall be binding upon, and inure to,
the benefit of the heirs, executors,
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successors and assignees of the parties hereto, and no other person shall have
any right, benefit or obligation hereunder.
19. Gender. Words of the masculine gender include the feminine and the
neuter, and when the context so requires, words of the neuter gender may refer
to any gender.
20. Applicable Law. This Escrow Agreement shall be governed by and
construed and enforced in accordance with the internal laws (and not the law of
conflicts) of the State of California.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Escrow Agreement to be executed on its behalf as of the day and year first above
written.
BUYER:
INTERIORS, INC.
By: /s/ Xxxxxx X'Xxxxx
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An Authorized Officer
ESCROW AGENT:
U.S. BANK TRUST
By: /s/ Xxxxxx Xxxxxxx
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An Authorized Officer
SHAREHOLDERS' REPRESENTATIVE:
/s/ Xxxxx X. Xxxxxxx
------------------------------------
Xxxxx X. Xxxxxxx
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