EXHIBIT 10.1
ESCROW AND REMEDY AGREEMENT
ESCROW AND REMEDY AGREEMENT, dated ________, 200___, by and among the
TARGET SHAREHOLDERS (as defined below), XXXXXXXXXX.XXX INC., a Delaware
corporation ("Parent"), ___________, the Parent's Rights Monitor, and
_________________, as escrow agent (the "Escrow Agent"). Capitalized terms used
herein, which are not otherwise defined herein, shall have the meanings ascribed
to them in the Merger Agreement (as defined below).
WHEREAS, Direct Petroleum Exploration, Inc., a Colorado corporation
("Target"), Parent and DPE Acquisition Corp., a Colorado corporation and wholly
owned subsidiary of Parent ("Merger Sub"), are consummating, concurrently with
the execution of this Agreement, the merger of Merger Sub with and into Target,
with Target surviving the Merger as a wholly owned subsidiary of Parent,
pursuant to the terms of an Agreement and Plan of Merger and Reorganization,
dated as of September _____, 2003 (the "Merger Agreement"), by and among such
parties.
WHEREAS, under the terms of the Merger Agreement, Parent is issuing,
subject to adjustment after the date hereof, an aggregate of __________ shares
of its common stock ("Transaction Shares") to the shareholders of Target
("Target Shareholders"), as a group, in exchange for all of the outstanding
capital stock of Target.
WHEREAS, under the terms of the Merger Agreement, 10% of the Transaction
Shares otherwise issuable to the Target Shareholders as of the date hereof (and
10% of any additional shares of Parent Stock ("Adjustment Shares") issuable to
the Target Shareholders after the date hereof pursuant to Section 1.7(b) of the
Merger Agreement) are to be placed in an escrow fund ("Escrow Fund") in order to
be available for either (i) recapture by Parent as its sole remedy in the event
of a claim for relief for Damages under Section 10.1(a) of the Merger Agreement
or (ii) release to the Target Shareholders if remedy has not been sought under
Section 10.1(a) of the Merger Agreement within the prescribed periods under
Section 10.1(a).
WHEREAS, under the terms of the Merger Agreement, Parent may be obligated
to issue to the Target Shareholders, as a group, certain additional shares of
Parent's common stock ("Remedy Shares") as the sole remedy on their behalf in
the event of a claim for relief for Damages under Section 10.1(b) of the Merger
Agreement.
NOW THEREFORE, the parties agree as follows:
1. Creation of Escrow Fund.
(a) Concurrently with the execution hereof, Parent has caused to be
issued an aggregate of ___________ Transaction Shares. _________ of such
Transaction Shares, representing 10% of the total Transaction Shares issued
on the date hereof, have been issued in the name of the persons and in the
quantities set forth on Schedule 1(a) hereto and delivered directly to the
Escrow Agent. 10% of any Adjustment Shares issued after the date hereof
under Section 1.7(b) of the Merger Agreement also shall be placed into
escrow under the terms of this Agreement and shall become part of the
Escrow Fund. Any Transaction Shares and Adjustment Shares placed into
escrow under the terms of this Agreement shall be referred to collectively
herein as the "Escrow Shares." Any stock dividends and distributions made
by Parent on or with respect to the Escrow Shares on or after the date
hereof while any Escrow Shares remain in the Escrow Fund shall be deposited
into the Escrow Fund and shall attach to the specific Escrow Shares with
respect to which such dividend or distribution was made and shall be
distributed from the escrow together with such Escrow Shares.
(b) The Escrow Agent hereby agrees to act as the escrow agent and to
hold, safeguard and disburse the Escrow Fund pursuant to the terms and
conditions hereof. Its duties hereunder shall cease upon the earlier of (i)
its distribution of the entire Escrow Fund in accordance with this
Agreement, or (ii) its resignation pursuant to Section 4(f) below.
2. Procedure for Parent Relief under Section 10.1(a) of the Merger Agreement.
(a) Generally. The Parent's Rights Monitor shall determine whether Parent
shall seek relief for Damages under Section 10.1(a) of the Merger Agreement. If
the Parent Rights Monitor determines, in his good faith opinion, that such
relief is warranted, he will give written notice ("Parent Relief Instruction
Notice") to the board of directors of Parent ("Parent Board") and to the Escrow
Agent requesting that the Parent Board authorize relief under Section 10.1(a) of
the Merger Agreement. The Parent Relief Instruction Notice shall set forth
whether relief is sought as a result of a direct claim ("Direct Claim") or a
claim by a third party ("Third Party Claim") for Damages arising from (a) the
operations of Target on or prior to the Closing Date or (b) breaches of any of
Target's covenants, representations, warranties, agreements, obligations or
undertakings contained in the Merger Agreement.
(b) Relief for Direct Claim.
(i) If relief is sought under Section 10.1(a) as a result of a Direct
Claim, the Parent Relief Instruction Notice shall set forth the amount of
the Damages and the number of Escrow Shares to be released to Parent in
accordance with Section 10.2(d) of the Merger Agreement ("Escrow Share
Release Demand").
(ii) Within fifteen business days after receiving the Parent Relief
Instruction Notice, the Parent Board shall deliver written notice, signed
by the Chairman of the Board, to the Parent's Rights Monitor and to the
Escrow Agent setting forth one of the following ("Parent Board Response"):
2
(1) that the Parent has assented to the Escrow Share Release
Demand ("Authorized Direct Claim Release"); or
(2) that the Parent Board disagrees in good faith with the
substance set forth in the Parent Relief Instruction Notice and
refuses to honor the Escrow Share Release Demand ("Direct Claim
Refusal").
(iii) In the event of a Direct Claim Refusal, within ten business days
of the Parent Board Response setting forth such Direct Claim Refusal, the
Parent's Rights Monitor shall meet with the Parent Board at a meeting at
which minutes are taken and the Parent's Rights Monitor, on the one hand,
and the Parent Board, on the other hand, shall attempt to resolve the
disagreement by voluntary settlement. If a settlement is reached with
respect to any such dispute, the Parent Board shall adopt in its minutes a
written resolution of settlement specifying the terms thereof, including
the number of Escrow Shares, if any, to be released from escrow
("Settlement Release") and shall notify the Escrow Agent in writing of
same. If no such settlement is reached, such dispute shall be resolved in
accordance with paragraph (iv) immediately below.
(iv) Any claim for relief under Section 10.1(a) of the Merger
Agreement that is a Direct Claim and not resolved in accordance with
paragraphs (b)(ii) or (b)(iii) above shall be submitted by the Parent's
Rights Monitor to JAMS/ENDISPUTE, or its successor, for mediation. Any
resolution resulting therefrom which involves the release of Escrow Shares
to Parent shall be referred to herein as the "Mediation Release." If the
matter is not resolved in mediation after two sessions which must be held
within 60 days of the request for mediation, then the Parent's Rights
Monitor may order, by written notice to the Parent Board, that the claim
for relief under Section 10.1(a) of the Merger Agreement be submitted for
final and binding arbitration as provided in paragraph (v) immediately
below. The Parent's Rights Monitor, on the one hand, and the Parent Board,
on the other hand, shall cooperate with JAMS/ENDISPUTE and with one another
in selecting a mediator from JAMS/ENDISPUTE's panel of neutral mediators,
and in scheduling the mediation proceedings. Parent shall bear all costs of
this process, including the reasonable cost of one counsel for the Parent's
Rights Monitor, which counsel shall be reasonably acceptable to Parent.
(v) For Direct Claims that cannot be resolved in accordance with
paragraph (b)(iv) above, the resolution thereof shall be by accomplished
through final and binding arbitration before a single arbitrator in Chicago
(or any other city agreed upon by the parties) in accordance with the
commercial arbitration rules of the American Arbitration Association then
in effect ("Binding Arbitration Release"). The parties shall attempt to
agree upon an arbitrator; if the parties are unable to agree upon an
arbitrator within 10 business days after the proposed list of arbitrators
is submitted to the parties, then any of the parties to the arbitration may
apply for appointment of an arbitrator by the American Arbitration
Association (or any successor thereto). Parent shall bear the reasonable
fees and expenses of counsel used by it and the Parent's Rights Monitor and
the fees and expenses of the arbitrator and of other expenses of the
arbitration. Such decision and award shall be in writing and shall be final
and conclusive on the parties, and counterpart copies thereof shall be
delivered to each of the parties. Judgment may be obtained on the decision
of the arbitrator so rendered in any court having jurisdiction.
3
(c) Relief for Third Party Claim. If relief is sought under Section 10.1(a)
of the Merger Agreement as a result of a Third Party Claim, the Escrow Agent
shall not release any portion of the Escrow Fund until it has received joint
written notice from Parent and the Parent's Rights Monitor advising the Escrow
Agent that such Third Party Claim has been settled or adjudicated ("Third Party
Claim Resolution"). No settlement of any Third Party Claim shall be made by
Parent without the prior written consent of the Parent's Rights Monitor (which
shall not be unreasonably withheld).
(d) Established Claim for Release. As used in this Section 2, "Established
Claim for Release" means any claim for relief under Section 10.1(a) of the
Merger Agreement that has been validated, ordered and/or agreed to under (i) an
Authorized Direct Claim Release, (ii) a Settlement Release, (iii) a Mediation
Release,(iv) a Binding Arbitration Release or (v) a Third Party Claim
Resolution, in each case as described in this Section 2.
(e) Distribution to Parent. Promptly after a claim becomes an Established
Claim for Release, the Parent shall deliver a notice to the Escrow Agent
directing the Escrow Agent to deliver to the Parent the appropriate portion of
the Escrow Fund, if any. The number of Escrow Shares so distributed shall be
determined in accordance with Section 10.2(d) of the Merger Agreement. If an
Established Claim for Release results in all Escrow Shares being released to
Parent, then all such shares shall be immediately canceled by Parent upon
receipt and no longer deemed outstanding. If an Established Claim for Release
results in less than all of the Escrow Shares being released to Parent, then the
shares to be so released shall be taken pro rata from each Target Shareholder's
portion of the Escrow Shares in accordance with each Target Shareholder's
respective Sharing Ratio as set forth in the Merger Agreement by the following
mechanism: (i) all of the Escrow Shares shall be returned to Parent and shall be
immediately cancelled and deemed no longer outstanding and (ii) new shares of
Parent Stock shall be issued in the names and quantities determined by reference
to each Target Shareholder's Sharing Ratio as set forth in the Merger Agreement
to replace that portion of the Escrow Shares not being returned to Parent
("Replacement Shares"). If no further claims exist under Section 10.1(a) of the
Merger Agreement and the first anniversary of the date hereof has occurred at
the time of the issuance of the Replacement Shares, the Replacement Shares shall
be issued directly to the Target Shareholders. Otherwise, such Replacement
Shares shall be issued to the Escrow Agent to be held in the Escrow Fund under
the terms hereof.
(f) No Further Obligation. If the amount of an Established Claim for
Release (or the aggregate amount of all Established Claims for Release) requires
the return of all of the Escrow Shares to Parent, Parent shall have no further
claim hereunder.
4
(g) Release to Target Shareholders. As soon as practicable after the first
anniversary hereof, if no claim has been made by or on behalf of Parent under
Section 10.1(a) of the Merger Agreement, the Escrow Agent shall release the
Escrow Fund to the Target Shareholders in accordance with their Sharing Ratios
as set forth in the Merger Agreement. In the event any claim for relief has been
made by Parent under Section 10.1(a) of the Merger Agreement, no Escrow Shares
shall be released to Target Shareholders until such claim has become an
Established Claim for Release (at which time the Escrow Agent shall promptly
distribute to Parent the appropriate portion of the Escrow Fund and any
remaining portion of the Escrow Fund to the Target Shareholders in accordance
with their respective Sharing Ratios.
3. Relief of Target Shareholders under Section 10.1(b) of the Merger
Agreement.
(a) Generally. The Parent Board shall determine whether to seek relief for
Damages on behalf of the Target Shareholders under Section 10.1(b) of the Merger
Agreement. If the Parent Board determines, in its good faith opinion, that such
relief is warranted, they will give written notice ("Target Shareholders Relief
Instruction Notice") to the Parent's Rights Monitor requesting that the Parent's
Rights Monitor authorize relief under Section 10.1(b). The Target Shareholders
Relief Instruction Notice shall set forth whether relief is sought as a result
of a Direct Claim or Third Party Claim for Damages arising from breaches of any
of Parent's covenants, representations, warranties, agreements, obligations or
undertakings contained in the Merger Agreement.
(b) Relief for Direct Claim.
(i) If relief is sought under Section 10.1(b) as a result of a Direct
Claim, the Target Shareholders Relief Instruction Notice shall set forth
the amount of the Damages and the number of Additional Shares to be issued
by Parent in accordance with Section 10.3(b) of the Merger Agreement
("Additional Share Issuance Demand").
(ii) Within fifteen business days after receiving the Target
Shareholders Relief Instruction Notice, the Parent's Rights Monitor shall
deliver a signed, written notice to the Parent Board setting forth one of
the following ("Parent's Rights Monitor Response"):
(1) that the Parent's Rights Monitor has assented to the
Additional Share Issuance Demand ("Authorized Direct Claim Issuance");
or
(2) that the Parent's Rights Monitor disagrees in good faith with
the substance set forth in the Target Shareholders Relief Instruction
Notice and refuses to honor the Additional Share Issuance Demand
("Direct Claim Issuance Refusal").
(iii) In the event of a Direct Claim Issuance Refusal, within ten
business days of the Parent's Rights Monitor setting forth such Direct
Claim Issuance Refusal, the Parent's Rights Monitor shall meet with the
Parent Board at a meeting at which minutes are taken and the Parent's
Rights Monitor, on the one hand, and the Parent Board, on the other hand,
shall attempt to resolve the disagreement by voluntary settlement. If a
settlement is reached with respect to any such dispute, the Parent Board
shall adopt in its minutes a written resolution of settlement specifying
the terms thereof, including the number of Additional Shares, if any, to be
issued by Parent ("Settlement Issuance"). If no such settlement is reached,
such dispute shall be resolved in accordance with paragraph (iv)
immediately below.
5
(iv) Any claim for relief under Section 10.1(b) of the Merger
Agreement that is a Direct Claim and not resolved in accordance with
paragraphs (b)(ii) or (b)(iii) above shall be submitted by the Parent Board
to JAMS/ENDISPUTE, or its successor, for mediation. Any resolution
resulting therefrom which involves the issuance of Additional Shares to the
Target Shareholders shall be referred to herein as the "Mediation
Issuance." If the matter is not resolved in mediation after two sessions
which must be held within 60 days of the request for mediation, then the
Parent Board may order, by written notice to the Parent's Rights Monitor,
that the claim for relief under Section 10.1(b) of the Merger Agreement be
submitted for final and binding arbitration as provided in paragraph (v)
below. The Parent's Rights Monitor, on the one hand, and the Parent Board,
on the other hand, shall cooperate with JAMS/ENDISPUTE and with one another
in selecting a mediator from JAMS/ENDISPUTE's panel of neutral mediators,
and in scheduling the mediation proceedings. Parent shall bear all costs of
this process, including the reasonable cost of one counsel for the Parent's
Rights Monitor, which counsel shall be reasonably acceptable to Parent.
(v) For Direct Claims that cannot be resolved in accordance with
paragraph (b)(iv) above, the resolution thereof shall be by accomplished
through final and binding arbitration before a single arbitrator in Chicago
(or any other city agreed upon by the parties) in accordance with the
commercial arbitration rules of the American Arbitration Association then
in effect ("Binding Arbitration Issuance"). The parties shall attempt to
agree upon an arbitrator; if the parties are unable to agree upon an
arbitrator within 10 business days after the proposed list of arbitrators
is submitted to the parties, then any of the parties to the arbitration may
apply for appointment of an arbitrator by the American Arbitration
Association (or any successor thereto). Parent shall bear the reasonable
fees and expenses of counsel used by it and the Parent's Rights Monitor and
the fees and expenses of the arbitrator and of other expenses of the
arbitration. Such decision and award shall be in writing and shall be final
and conclusive on the parties, and counterpart copies thereof shall be
delivered to each of the parties. Judgment may be obtained on the decision
of the arbitrator so rendered in any court having jurisdiction.
(c) Relief for Third Party Claim. If relief is sought under Section 10.1(b)
of the Merger Agreement as a result of a Third Party Claim, within three
business days of receipt of the Target Shareholders Relief Instruction Notice,
Parent and the Parent's Rights Monitor shall jointly acknowledge in writing that
there is pending a Third Party Claim that may result in the issuance of
Additional Shares and, once such claim has been settled or adjudicated ("Third
Party Claim Resolution"), shall authorize Parent to issue the required number of
Additional Shares (if any) promptly after the Third Party Claim Resolution. No
settlement of any Third Party Claim shall be made by Parent without the prior
written consent of the Parent's Rights Monitor (which shall not be unreasonably
withheld).
6
(d) Established Claim for Issuance. As used in this Section 3, "Established
Claim for Issuance" means any claim for relief under Section 10.1(b) of the
Merger Agreement that has been validated, ordered and/or agreed to under (i) an
Authorized Direct Claim Issuance, (ii) a Settlement Issuance, (iii) a Mediation
Issuance, (iv) a Binding Arbitration Issuance or (v) a Third Party Claim
Resolution, in each case as defined in this Section 3.
(e) Issuance. Promptly after a claim becomes an Established Claim for
Issuance, the Parent Board shall cause to be issued to the Target Shareholders
(in accordance with their respective Sharing Ratios as set forth in the Merger
Agreement) that number of Additional Shares determined in accordance with
Section 10.3(b) of the Merger Agreement.
(f) No Further Obligation. If the aggregate amount of the Established
Claims for Issuance would otherwise require the issuance of an aggregate number
of shares of Additional Shares that is greater than the aggregate number of
Escrow Shares, Parent shall not be required and shall not issue any Additional
Shares beyond an amount equal to such number of Escrow Shares.
4. Miscellaneous.
(a) The Escrow Agent shall cooperate in all respects with the parties in
the calculation of any amounts of Escrow Shares determined to be distributable
in accordance with this Agreement.
(b) The Escrow Agent undertakes to perform only such duties as are
expressly set forth herein and acknowledges that its duties may be altered,
amended, modified or revoked only by a writing signed by Parent and the Parent's
Rights Monitor.
(c) The Escrow Agent may rely and shall be protected in acting or
refraining from acting upon any written notice, instruction or request furnished
to it hereunder and believed by it to be genuine and to have been signed or
presented by the proper party or parties, including an award made by an
arbitration or a judgment entered by a court of competent jurisdiction. The
Escrow Agent may conclusively presume that the undersigned representative of any
party hereto which is a legal entity other than a natural person has full power
and authority to instruct the Escrow Agent on behalf of that party unless
written notice to the contrary is received by the Escrow Agent.
(d) The Escrow Agent's sole responsibility upon receipt of any notice
requiring any delivery of Escrow Stock is to deliver to the appropriate parties
the number of shares of Escrow Stock as determined in accordance with this
Agreement, and the Escrow Agent shall have no duty to determine the validity,
authenticity or enforceability of any specification or certification made in
such notice.
7
(e) The Escrow Agent shall not be liable for any action taken by it in good
faith and believed by it to be authorized or within the rights or powers
conferred upon it by this Agreement, and may consult with counsel of its own
choice and shall have full and complete authorization and protection for any
action taken or suffered by it hereunder in good faith and in accordance with
the opinion of such counsel.
(f) The Escrow Agent may resign and be discharged from its duties or
obligations hereunder by giving notice in writing of such resignation specifying
a date upon which such resignation shall take effect, whereupon a successor
Escrow Agent, which shall be a bank or trust company with a combined capital and
surplus of not less than $50,000,000, shall be appointed by mutual agreement of
the Parent's Rights Monitor, on the one hand, and Parent, on the other hand.
(g) The Target Shareholders have authorized Parent to deposit with the
Escrow Agent any certificates evidencing the Escrow Shares to be held by the
Escrow Agent hereunder and any additions and substitutions to said Escrow Shares
provided for in this Agreement or the Merger Agreement.
(h) Subject to the provisions of this Agreement, the Target Shareholders
shall exercise all rights and privileges (including, without limitation, all
voting rights) of a shareholder of Parent with respect to the Escrow Shares (in
proportion to their respective Sharing Ratios) while the Escrow Shares are held
by the Escrow Agent.
(i) In the event of a dispute between the parties as to the proper
disposition of the Escrow Fund, the Escrow Agent shall be entitled (but not
required) to deliver the Escrow Fund to a court of competent jurisdiction and,
giving notice to Parent and the Parent's Rights Monitor of such action, shall
thereupon be relieved of all further responsibility.
(j) As long as _________ is the Escrow Agent, there shall be no fees or
expenses payable to the Escrow Agent for its services hereunder.
(k) This Agreement expressly sets forth all the duties of the Escrow Agent
with respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Agreement against the Escrow Agent. The
Escrow Agent shall not be bound by the provisions of any agreement among the
parties hereto except this Agreement and shall have no duty to inquire into the
terms and conditions of any agreement made or entered into in connection with
this Agreement, including, without limitation, the Merger Agreement.
8
(l) This Agreement shall inure to the benefit of and be binding upon the
parties and their respective heirs, successors, assigns and legal
representatives, shall be governed by and construed in accordance with the law
of New York applicable to contracts made and to be performed therein and cannot
be changed or terminated except by a writing signed by the parties and Parent's
Rights Monitor.
(m) The Parent's Rights Monitor shall have the right to resign at any time
and upon such resignation to designate his replacement to serve as a Parent's
Right Monitor; provided, however, that such designee must become a signatory to
this Agreement. Upon such designation and execution of this Agreement by such
designee, the resigning Parent's Rights Monitor shall have no further
obligations under this Agreement.
(n) All notices and other communications given or made pursuant hereto
shall be in writing and shall be deemed to have been duly given or made as of
the date delivered or mailed if delivered personally or by telecopy, one day
after delivery to a nationally recognized courier, or three business days after
mailed by registered mail (postage prepaid, return receipt requested), in each
case, to the parties at the following addresses (or at such other address for a
party as shall be specified by like notice, except that notices of changes of
address shall be effective upon receipt):
To the Parent or Target:
Golf Xxxxxx.xxx, Inc.
Attention: Xxxxxx Xxxxxxxxx and Xxxxxx Xxxxx
[___________________]
[___________________]
Tel: [__________]
Fax: [__________]
To the Parent's Rights Monitor:
[Address]
and
with a copy in all cases to:
Xxxxxxx Xxxxxxxxx & Xxxxxx LLC
0000 Xxxxx Xxxxxx
Xxxxx 0X
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx Xxxxxxxxx, Esq.
Tel: 000-000-0000
Fax: 000-000-0000
9
Xxxxxxxx Xxxxxx
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxx Xxxxxx
Tel: 000-000-0000
Fax: 000-000-0000
or to such other person or address as any of the parties hereto shall specify by
notice in writing to all the other parties hereto. (b) This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original instrument and all of which together shall constitute a single
agreement.
10
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement on the date first above written.
XXXXXXXXXX.XXX INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
[SHAREHOLDERS OF DPE]
ESCROW AGENT
By:____________________________________
Name:__________________________________
Title:_________________________________
_______________________________________
, Parent's Right Monitor
11
SCHEDULE 1(a)
---------------------- -------------------- -----------------------------
Number of Shares
and Stock Certificate
Name of Issuee Address Number
---------------------- -------------------- -----------------------------
---------------------- -------------------- -----------------------------
---------------------- -------------------- -----------------------------
---------------------- -------------------- -----------------------------
---------------------- -------------------- -----------------------------
---------------------- -------------------- -----------------------------
---------------------- -------------------- -----------------------------
---------------------- -------------------- -----------------------------
Total
---------------------- -------------------- -----------------------------
12
