ESCROW AGREEMENT
Exhibit
10.2
This
Escrow Agreement (this “Agreement”) is entered into as of May 2, 2008, by and
among Kentucky USA Energy, Inc., formerly known as Las Rocas Mining Corp., a
Delaware corporation (the “Parent”), Xxxxxx X. Xxxxxxxx (“Xxxxxxxx”) (the
“Indemnification Representative”) and Gottbetter & Partners, LLP (the
“Escrow Agent”).
WHEREAS,
the Parent has entered into an Agreement and Plan of Merger and Reorganization
(the “Merger Agreement”) with KY USA Energy, Inc., a Kentucky corporation (the
“Company”), (i) pursuant to which a wholly-owned subsidiary of the Parent will
merge with and into the Company, with the Company surviving the merger and (ii)
as a result of which the Company will become a wholly-owned subsidiary of the
Parent;
WHEREAS,
the Merger Agreement provides that an escrow account will be established to
secure the indemnification obligations of the stockholders of the Company as of
the Closing Date, as such term is defined in the Merger Agreement (collectively,
the “Indemnifying Stockholders”), to the Parent; and
WHEREAS,
the parties hereto desire to establish the terms and conditions pursuant to
which such escrow account will be established and maintained.
NOW,
THEREFORE, the parties hereto hereby agree as follows:
1. Consent of Company
Stockholders. The Indemnifying Stockholders have, either by
virtue of their approval of the Merger Agreement or through the execution of an
instrument to such effect, consented to: (a) the establishment
of this escrow to secure the Indemnifying Stockholders’ indemnification
obligations under Article 6 of the Merger Agreement in the manner set forth
herein, (b) the appointment of the Indemnification Representative as their
representative for purposes of this Agreement and as attorneys-in-fact and agent
for and on behalf of each Indemnifying Stockholder, and the taking by the
Indemnification Representative of any and all actions and the making of any
decisions required or permitted to be taken or made by them under this Agreement
and (c) all of the other terms, conditions and limitations in this
Agreement.
2. Escrow and
Indemnification.
(a) Escrow of
Shares. Simultaneously with the execution of this Agreement,
the Parent shall deposit with the Escrow Agent certificates representing an
aggregate of 900,000 shares of common stock of the Parent, as determined
pursuant to Section 1.5(b) of the Merger Agreement, issued in the name of
the Escrow Agent or its nominee. The Escrow Agent hereby acknowledges
receipt of such stock certificates. The shares deposited with the
Escrow Agent pursuant to the first sentence of this Section 2(a) are
referred to herein as the “Escrow Shares.” The Escrow Shares shall be
held as a trust fund and shall not be subject to any lien, attachment, trustee
process or any other judicial process of any creditor of any party
hereto. The Escrow Agent agrees to hold the Escrow Shares in an
escrow account (the “Escrow Account”), subject to the terms and conditions of
this Agreement.
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(b) Indemnification. The
Indemnifying Stockholders have agreed in Section 6.1 of the Merger Agreement to
indemnify and hold harmless the Parent from and against certain Damages (as
defined in Section 6.1 of the Merger Agreement). The Escrow Shares
shall be (i) security for such indemnity obligation of the Indemnifying
Stockholders, subject to the limitations, and in the manner provided, in this
Agreement and the Merger Agreement and (ii) shall be the exclusive means for the
Parent to collect any Damages with respect to which the Parent is entitled to
indemnification under Article VI of the Merger Agreement.
(c) Dividends,
Etc. Any securities distributed in respect of or in exchange
for any of the Escrow Shares, whether by way of stock dividends, stock splits or
otherwise, shall be issued in the name of the Escrow Agent or its nominee and
shall be delivered to the Escrow Agent, who shall hold such securities in the
Escrow Account. Such securities shall be considered Escrow Shares for
purposes hereof. Any cash dividends or property (other than
securities) distributed in respect of the Escrow Shares shall promptly be
distributed by the Escrow Agent to the Indemnifying Stockholders in accordance
with Section 3(c).
(d) Voting of
Shares. The Indemnification Representative shall have the
right, in his sole discretion, on behalf of the Indemnifying Stockholders, 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 any of the Escrow Shares. The Indemnification
Representative shall have no obligation to solicit consents or proxies from the
Indemnifying Stockholders for purposes of any such vote.
(e) Transferability. The
respective interests of the Indemnifying Stockholders in the Escrow Shares 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 the Parent, and no such assignment or
transfer shall be valid until such notice is given.
3. Distribution of Escrow
Shares.
(a) The
Escrow Agent shall distribute the Escrow Shares only in accordance with (i) a
written instrument delivered to the Escrow Agent that is executed by both the
Parent and the Indemnification Representative and that instructs the Escrow
Agent as to the distribution of some or all of the Escrow Shares, (ii) an
order of a court of competent jurisdiction, a copy of which is delivered to the
Escrow Agent by either the Parent or the Indemnification Representative, that
instructs the Escrow Agent as to the distribution of some or all of the Escrow
Shares, or (iii) the provisions of Section 3(b) hereof.
(b) Within
five business days after May 1, 2010 (the “Termination Date”), the Escrow Agent
shall, automatically, without any notice required, distribute to the
Indemnifying Stockholders all of the Escrow Shares then held in escrow,
registered in the names of the Indemnifying
Stockholders. Notwithstanding the foregoing, if the Parent has
previously delivered to the Escrow Agent a copy of a Claim Notice (as
hereinafter defined) and the Escrow Agent has not received written notice of the
resolution of the claim covered thereby, or if the Parent has previously
delivered to the Escrow Agent a copy of an Expected Claim Notice (as hereinafter
defined) and the Escrow Agent has not received written notice of the resolution
of the anticipated claim covered thereby, the Escrow Agent shall retain in
escrow after the Termination Date such number of Escrow Shares as have a Value
(as defined in Section 4 below) equal to the Claimed Amount (as hereinafter
defined) covered by such Claim Notice or equal to the estimated amount of
Damages set forth in such Expected Claim Notice, as the case may
be. Any Escrow Shares so retained in escrow shall be distributed only
in accordance with the terms of clauses (i) or (ii) of Section 3(a)
hereof. For purposes of this Agreement, a Claim Notice means a written
notification under the Merger Agreement given by the Parent to the Indemnifying
Stockholders which contains (i) a description and the amount (the “Claimed
Amount”) of any Damages incurred or reasonably expected to be incurred by the
Parent, (ii) a statement that the Parent is entitled to indemnification under
Article 6 of the Merger Agreement for such Damages and a reasonable
explanation of the basis therefor, and (iii) a demand for payment (in the manner
provided in Section 9.7 of the Merger Agreement) in the amount of such Damages.
For purposes of this Agreement, an Expected Claim Notice means a notice
delivered pursuant to the Merger Agreement by the Parent to an Indemnifying
Stockholder, before expiration of a representation or warranty, to the effect
that, as a result a legal proceeding instituted by or written claim made by a
third party, the Parent reasonably expects to incur Damages as a result of a
breach of such representation or warranty.
(c) Any
distribution of all or a portion of the Escrow Shares (or cash or other property
pursuant to Section 2(c)) to the Indemnifying Stockholders shall be made by
delivery of stock certificates issued in the name of the Indemnifying
Stockholders (or cash or other property), covering such percentage of the Escrow
Shares (or cash or other property) being distributed as is calculated in
accordance with the percentages set forth opposite such holders’ respective
names on Attachment A
attached hereto; provided, however, that the
Escrow Agent shall withhold the distribution of the portion of the Escrow Shares
otherwise distributable to an Indemnifying Stockholder who has not, according to
a written notice provided by the Parent to the Escrow Agent, prior to such
distribution, surrendered pursuant to the terms of the Merger Agreement his, her
or its documents formerly representing equity interests of the
Company. Any such withheld shares shall be delivered to the Parent
promptly after the Termination Date, and shall be delivered by the Parent to the
Indemnifying Stockholders to whom such shares would have otherwise been
distributed upon surrender of documents evidencing their Company equity
interests. Distributions to the Indemnifying Stockholders shall be made by
mailing stock certificates to such holders at their respective addresses shown
on Attachment A (or
such other address as may be provided in writing to the Escrow Agent by any such
holder). No fractional Escrow Shares shall be distributed to
Indemnifying Stockholders pursuant to this Agreement. Instead, the
number of shares that each Indemnifying Stockholder shall receive shall be
rounded up or down to the nearest whole number (provided that the
Indemnification Representative shall have the authority to effect such rounding
in such a manner that the total number of whole Escrow Shares to be distributed
equals the number of Escrow Shares then held in the Escrow
Account).
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4. Valuation of Escrow
Shares. For purposes of this Agreement, the “Value” of any
Escrow Shares shall be $1.00 per share, multiplied by the number of such Escrow
Shares.
5. Fees and Expenses of Escrow
Agent. The Parent, on the one hand, and the Indemnifying
Stockholders, on the other hand, shall each pay one-half of the fees of the
Escrow Agent for the services to be rendered by the Escrow Agent hereunder,
which fees shall not exceed $1,000 in the aggregate.
6. Limitation of Escrow Agent’s
Liability.
(a) The
Escrow Agent shall incur no liability with respect to any action taken or
suffered by it in reliance upon any notice, direction, instruction, consent,
statement or other documents believed by it to be genuine and duly authorized,
nor for other action or inaction except its own willful misconduct or gross
negligence. The Escrow Agent shall not be responsible for the
validity or sufficiency of this Agreement. In all questions arising
under this Agreement, the Escrow Agent may rely on the advice of counsel, and
the Escrow Agent shall not be liable to anyone for anything done, omitted or
suffered in good faith by the Escrow Agent based on such advice. The
Escrow Agent shall not be required to take any action hereunder involving any
expense unless the payment of such expense is made or provided for in a manner
reasonably satisfactory to it. In no event shall the Escrow Agent be
liable for indirect, punitive, special or consequential damages.
(b) The
Parent and the Indemnifying Stockholders agree to indemnify the Escrow Agent
for, and hold it harmless against, any loss, liability or expense incurred
without gross negligence or willful misconduct on the part of Escrow Agent,
arising out of or in connection with its carrying out of its duties
hereunder. The Parent, on the one hand, and the Indemnifying
Stockholders, on the other hand, shall each be liable for one-half of such
amounts.
7. Liability and Authority of
Indemnification Representative; Successors and Assignees.
(a) The
Indemnification Representative shall not incur any liability to the Indemnifying
Stockholders with respect to any action taken or suffered by him in reliance
upon any note, direction, instruction, consent, statement or other documents
believed by him to be genuinely and duly authorized, nor for other action or
inaction except his own willful misconduct or gross negligence. The
Indemnification Representative may, in all questions arising under this
Agreement, rely on the advice of counsel and the Indemnification Representative
shall not be liable to the Indemnifying Stockholders for anything done, omitted
or suffered in good faith by the Indemnification Representative based on such
advice.
(b) In the
event of the death or permanent disability of any Indemnification
Representative, or his resignation as an Indemnification Representative, a
successor Indemnification Representative shall be appointed by the other
Indemnification Representative or, absent its appointment, a successor
Indemnification Representative shall be elected by a majority vote of the
Indemnifying Stockholders, with each such Indemnifying Stockholder (or his, her
or its successors or assigns) to be given a vote equal to the number of votes
represented by the shares of stock of the Company held by such Indemnifying
Stockholder immediately prior to the effective time of the share purchase under
the Merger Agreement. Each successor Indemnification Representative
shall have all of the power, authority, rights and privileges conferred by this
Agreement upon the original Indemnification Representative, and the term
“Indemnification Representative” as used herein shall be deemed to include each
successor Indemnification Representative.
(c) The
Indemnification Representative shall have full power and authority to represent
the Indemnifying Stockholders, and their successors, with respect to all matters
arising under this Agreement and Article 6 of the Merger Agreement and all
actions taken by the Indemnification Representative hereunder or under Article 6
of the Merger Agreement shall be binding upon the Indemnifying Stockholders, and
their successors, as if expressly confirmed and ratified in writing by each of
them. Without limiting the generality of the foregoing, the
Indemnification Representative shall have full power and authority to interpret
all of the terms and provisions of this Agreement, to compromise any claims
asserted hereunder and to authorize any release of the Escrow Shares to be made
with respect thereto, on behalf of the Indemnifying Stockholders and their
successors.
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(d) The
Escrow Agent may rely on the Indemnification Representative as the exclusive
agent of the Indemnifying Stockholders under this Agreement and shall incur no
liability to any party with respect to any action taken or suffered by it in
good faith reliance thereon.
8. Amounts Payable by
Indemnifying Stockholders. The amounts payable by the
Indemnifying Stockholders under this Agreement (i.e., the fees of the Escrow
Agent payable pursuant to Section 5 and the indemnification obligations
pursuant to Section 6(b)) shall be payable solely as follows. The Escrow
Agent shall notify the Indemnification Representative of any such amount payable
by the Indemnifying Stockholders as soon as it becomes aware that any such
amount is payable, with a copy of such notice to the Parent. On the
sixth business day after the delivery of such notice, the Escrow Agent shall
sell such number of Escrow Shares (up to the number of Escrow Shares then
available in the Escrow Account), subject to compliance with all applicable
securities laws, as is necessary to raise such amount, and shall be entitled to
apply the proceeds of such sale in satisfaction of such indemnification
obligations of the Indemnifying Stockholders; provided that if the Parent
delivers to the Escrow Agent (with a copy to the Indemnification
Representative), within five business days after delivery of such notice by the
Indemnification Representative, a written notice contesting the legitimacy or
reasonableness of such amount, then the Escrow Agent shall not sell Escrow
Shares to raise the disputed portion of such claimed amount except in accordance
with the terms of clauses (i) or (ii) of Section 3(a).
9. Termination. This
Agreement shall terminate upon the distribution by the Escrow Agent of all of
the Escrow Shares in accordance with this Agreement; provided that the
provisions of Sections 6 and 7 shall survive such termination.
10. Notices. All
notices, instructions and other communications given hereunder or in connection
herewith shall be in writing. Any such notice, instruction or
communication shall be sent either (i) by registered or certified mail,
return receipt requested, postage prepaid, or (ii) via a reputable
nationwide overnight courier service, in each case to the address set forth
below. Any such notice, instruction or communication shall be deemed
to have been delivered five business days after it is sent by registered or
certified mail, return receipt requested, postage prepaid, or one business day
after it is sent via a reputable nationwide overnight courier
service.
If to the
Parent:
000
Xxxxxxxx Xxxx
Xxxxxx,
XX 00000
Attn:
Xxxxxx X. Xxxxxxxx, Chief Executive Officer
with a
copy to (which shall not constitute notice hereunder):
Gottbetter
& Partners, LLP
000
Xxxxxxx Xxxxxx, 00xx
Xxxxx
Xxx Xxxx,
XX 00000
Attn:
Xxxx X. Xxxxxxxxxx, Esq.
Facsimile:
(000) 000-0000
If to the
Indemnification Representative:
Xxxxxx X.
Xxxxxxxx
c/o KY
USA Energy, Inc.
000
Xxxxxxxx Xxxx
Xxxxxx,
XX 00000
If to the
Escrow Agent:
Gottbetter
& Partners, LLP
000
Xxxxxxx Xxxxxx, 00xx
Xxxxx
Xxx Xxxx,
XX 00000
Attn:
Xxxx X. Xxxxxxxxxx, Esq.
Facsimile:
(000) 000-0000
Any party
may give any notice, instruction or communication in connection with this
Agreement using any other means (including personal delivery, telecopy or
ordinary mail), but no such notice, instruction or communication shall be deemed
to have been delivered unless and until it is actually received by the party to
whom it was sent. Any party may change the address to which notices,
instructions or communications are to be delivered by giving the other parties
to this Agreement notice thereof in the manner set forth in this
Section 10.
11. Successor Escrow
Agent. In the event the Escrow Agent becomes unavailable or
unwilling to continue in its capacity herewith, the Escrow Agent may resign and
be discharged from its duties or obligations hereunder by delivering a
resignation to the parties to this Escrow Agreement, not less than 60 days
prior to the date when such resignation shall take effect. The Parent
may appoint a successor Escrow Agent without the consent of the Indemnification
Representative so long as such successor is a chartered bank and may appoint any
other successor Escrow Agent with the consent of the Indemnification
Representative, which shall not be unreasonably withheld. If, within
such notice period, the Parent provides to the Escrow Agent written instructions
with respect to the appointment of a successor Escrow Agent and directions for
the transfer of any Escrow Shares then held by the Escrow Agent to such
successor, the Escrow Agent shall act in accordance with such instructions and
promptly transfer such Escrow Shares to such designated successor. If
no successor Escrow Agent is named as provided in this Section 11 prior to the
date on which the resignation of the Escrow Agent is to properly take effect,
the Escrow Agent may apply to a court of competent jurisdiction for appointment
of a successor Escrow Agent.
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12. General.
(a) Governing Law;
Assigns. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to
conflict-of-law principles and shall be binding upon, and inure to the benefit
of, the parties hereto and their respective successors and assigns.
(b) Counterparts. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
(c) Entire
Agreement. Except for those provisions of the Merger Agreement
referenced herein, this Agreement constitutes the entire understanding and
agreement of the parties with respect to the subject matter of this Agreement
and supersedes all prior agreements or understandings, written or oral, between
the parties with respect to the subject matter hereof.
(d) Waivers. No
waiver by any party hereto of any condition or of any breach of any provision of
this Agreement shall be effective unless in writing. No waiver by any
party of any such condition or breach, in any one instance, shall be deemed to
be a further or continuing waiver of any such condition or breach or a waiver of
any other condition or breach of any other provision contained
herein.
(e) Amendment. This
Agreement may be amended only with the written consent of the Parent, the Escrow
Agent and the Indemnification Representative.
(f) Consent to Jurisdiction and
Service. The parties hereby absolutely and irrevocably consent
and submit to the jurisdiction of the courts in the State of New York and of any
federal court located in the State of New York in connection with any actions or
proceedings brought against any party hereto by the Escrow Agent arising out of
or relating to this Agreement. In any such action or proceeding, the
parties hereby absolutely and irrevocably waive personal service of any summons,
complaint, declaration or other process and hereby absolutely and irrevocably
agree that the service thereof may be made by certified or registered
first-class mail directed to such party, at their respective addresses in
accordance with Section 10 hereof.
(g) Acknowledgement and Waiver
of Conflict. The parties hereby acknowledge that the Escrow
Agent has represented the Parent in connection with the Merger. The
Parent and the Indemnification Representative hereby waive any conflict of
interest arising by virtue of the Escrow Agent’s representation of the Parent,
and hereby agree to acknowledge and approve the taking of any action by the
Escrow Agent reasonably necessary to protect and preserve its rights under this
Agreement.
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IN
WITNESS WHEREOF, the parties have duly executed this Escrow Agreement as of the
day and year first above written.
By: /s/ Xxxxxxxxxxx
Xxxxxxxxx
Name: Xxxxxxxxxxx
Xxxxxxxxx
Title: President
/s/ Xxxxxx X.
Xxxxxxxx
Xxxxxx X.
Xxxxxxxx, in his capacity as an Indemnification Representative
GOTTBETTER
& PARTNERS, LLP
By: /s/ Xxxx X.
Xxxxxxxxxx
Name: Xxxx
X. Xxxxxxxxxx, Esq.
Title: Partner
ATTACHMENT
A
|
Indemnifying
Stockholder
|
Shares
|
Address
|
|
Xxxxxx
X. Xxxxxxxx
|
1,600,000
|
c/o
KY USA Energy, Inc.
000
Xxxxxxxx Xxxx
Xxxxxx,
XX 00000
|
|
Saddlebrook
Holdings, LLC
|
6,900,000
|
Saddlebrook
Holdings, LLC
00
Xxxxxxxxxxx Xxxxxx
Xxxxxx,
XX 00000
|
|
Xxxxxxx
Family Trust
|
3,600,000
|
Xxxxxxx
Family Trust
000
Xxxxxx Xxxxx Xxxxx
Xxxxxxxxxxxxxx,
XX 00000
|
|
Trinity
Group Holdings, LLC
|
3,600,000
|
Trinity
Group Holdings, LLC
00
Xxxxx Xxxxxx Xxxxx
Xxxxxxxx,
XX 00000
|
|
Xxxxx
Family Trust
|
2,200,000
|
Xxxxx
Family Trust
0000
Xxxxxxxxxx Xx.
Xxxxx,
XX 00000
|
|
Xxxxxxx
Xxxxxxx
|
25,000
|
|
|
Xxxxx
XxXxx
|
25,000
|
|
|
Xxxx
and Xxxxxx Xxxx
|
50,000
|
|
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