Exhibit 10.40
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of May 10, 1999, among CVC, Inc., a Delaware
corporation ("Parent"), Xxxxxx X. Xxxxxxxx, Xx., as representative (the
"Representative") of certain former stockholders of Commonwealth Scientific
Corporation (the "Former Commonwealth Stockholders"), and M&T Bank (the "Escrow
Agent").
WHEREAS, on April 1, 1999, Parent, CVC Acquisition Corp., a Virginia
corporation and wholly owned subsidiary of Parent, Commonwealth Scientific
Corporation, a Virginia corporation, and the 5% Stockholders entered into an
Agreement and Plan of Merger (the "Merger Agreement") (capitalized terms not
otherwise defined herein shall have the meanings set forth in the Merger
Agreement); and
WHEREAS, pursuant to Section 1.10 of the Merger Agreement, certain of
the Parent Shares the Former Commonwealth Stockholders would otherwise be
entitled to receive are to be held in escrow in accordance herewith.
NOW, THEREFORE, the parties agree as follows:
1. FORMATION OF ESCROW FUND. Simultaneously with the execution of this
Agreement, Parent is delivering to the Escrow Agent 975,000 Parent Shares
(together with any distributions and dividends of Parent Shares thereon, the
"Escrow Fund"). The Escrow Agent acknowledges receipt of the Escrow Fund and
agrees to act as Escrow Agent hereunder.
2. CLAIMS.
(a) INDEMNIFICATION. From time to time Parent may give notice
(a "Claim Notice") to the Representative and the Escrow Agent that it is making
a claim (a "Claim") under Article VIII of the Merger Agreement. The Escrow Agent
shall give the Representative notice of any Claim it receives, including a copy
of the Claim Notice. If the Escrow Agent does not receive a notice (an
"Objection Notice") from the Representative objecting to such Claim within 15
business days following the date of the notice of the Claim, the Escrow Agent
will pay the amount specified in the Claim Notice out of the Escrow Fund to
Parent within two business days following such 15 business-day period by
delivering Parent Shares with a Fair Market Value (as defined in (b) below)
equal to the amount of the Claim. If within such 15 business-day period the
Representative delivers to the Escrow Agent and Parent an Objection Notice, the
matter in dispute will be resolved as set forth in (c) below. The Escrow Agent
shall give Parent notice of any Objection Notice it receives, including a copy
of the Objection Notice.
(b) VALUATION OF PARENT SHARES. For purposes of this
Agreement, the "Fair Market Value" of a Parent Share shall be equal to $4.04.
(c) RESOLUTION. If the Representative delivers an Objection Notice to
Parent and Escrow Agent within the period specified above, the Escrow Agent
shall refrain from disbursing any portion of the Escrow Fund covered by such
Objection Notice until resolution of such dispute in the form of (x) a final
non-appealable order of a court of competent jurisdiction or (y) joint direction
of Parent and the Representative.
3. TERMINATION OF ESCROW.
(a) 1/3 of the amount of the Escrow Fund, less the aggregate
amount of any pending Claims against any portion of the Escrow Fund, shall be
paid to the Representative on the first anniversary of the Closing Date.
(b) 1/3 of the amount of the Escrow Fund, less the aggregate
amount of any pending Claims against any portion of the Escrow Fund, shall be
paid to the Representative on the second anniversary of the Closing Date.
(c) The balance of the Escrow Fund, less the aggregate amount
of any pending Claims against any portion of the Escrow Fund, shall be paid to
the Representative on the third anniversary of the Closing Date.
(d) All remaining amounts shall be held pending resolution of
such Claims as set forth in Section 2(c) above.
4. VOTING AND INVESTMENT. So long as Parent Shares are held in any
portion of the Escrow Fund, the Escrow Agent will be the record holder thereof,
provided that the Former Commonwealth Stockholders will be the beneficial owners
thereof, and shall have the right to direct, through the Representative, the
Escrow Agent in the voting thereof and to receive all cash dividends and
distributions with respect thereto. All Parent Shares held in any portion of the
Escrow Fund will be voted in the same proportion as all other outstanding shares
of capital stock of Parent are voted. All dividends and distributions of Parent
Shares in respect of the Parent Shares held in any portion of the Escrow Fund
shall be deposited into the escrow account. The Escrow Agent is authorized and
instructed to invest any portion of the Escrow Fund in the form of cash or cash
equivalents in obligations issued or guaranteed by the United States of America
or any agency or instrumentality thereof whose remaining maturities are no
greater than 45 days, or as otherwise specified by the Representative.
5. DUTIES OF THE ESCROW AGENT.
(a) INDEMNIFICATION. Parent and the Representative jointly
agree to indemnify and hold harmless the Escrow Agent from and against any
losses, claims, damages and liabilities, including reasonable attorney's fees
and disbursements ("Losses"), which may arise from or are based upon this
Agreement, unless such Losses arise from or are based upon a claim of willful
neglect, negligence or bad faith of Escrow Agent.
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(b) RELIANCE. Subject to the foregoing, Escrow Agent may rely
upon, and shall be protected in acting or refraining from acting upon, any
written notice, instruction, certificate, request, consent or other instrument
furnished to it in connection with its duties as Escrow Agent and reasonably
believed by Escrow Agent to be genuine.
(c) ADVICE OF COUNSEL. As to any legal questions arising in
connection with Escrow Agent's performance of its duties and responsibilities
hereunder, Escrow Agent may consult or obtain opinions from legal counsel
selected by it and reasonably satisfactory to Parent and the Representative, and
Escrow Agent shall be free from any liability for acting in reliance on such
advice of counsel so long as in doing so Escrow Agent shall not have acted with
willful neglect, negligence or bad faith.
(d) DISPUTE. If there is any disagreement between Parent and
the Representative as to the disposition of any portion of the Escrow Fund or if
the Escrow Agent is in doubt as to what action it should take hereunder, the
Escrow Agent shall be entitled to retain such portion of the Escrow Fund until
the Escrow Agent shall have received (x) a final non-appealable order of a court
of competent jurisdiction or (y) joint direction of Parent and the
Representative.
(e) NO INTEREST IN ESCROW FUND. The Escrow Agent does not have
any interest in the Escrow Fund, but is serving as escrow holder only and having
only possession thereof.
(f) INFORMATION. The Escrow Agent shall furnish to Parent and
the Representative any information regarding the Escrow Fund or the matters
contemplated by this Agreement which either of them may reasonably request.
6. RESIGNATION OR TERMINATION OF ESCROW AGENT; APPOINTMENT OF A
SUCCESSOR.
(a) The Escrow Agent may resign and be discharged from its
duties and obligations hereunder for any reason. Such resignation shall be made
by written notice of such resignation to Parent and the Representative but shall
not become effective until a successor Escrow Agent shall have been appointed by
mutual agreement of Parent and the Representative and shall have accepted such
appointment in writing. Parent and the Representative shall use reasonable best
efforts to appoint any such successor Escrow Agent as promptly as practicable
following receipt of the notice of resignation as contemplated by the
immediately preceding sentence. Parent and the Representative shall also have
the right, by mutual agreement, to terminate the appointment of Escrow Agent by
giving to it notice of such termination, specifying the date on which such
termination shall take effect and designating a successor Escrow Agent. In any
such event, Parent and the Representative shall, by mutual agreement, reasonably
approve and designate a successor Escrow Agent.
(b) Any successor Escrow Agent shall execute and deliver to
the then serving Escrow Agent a written instrument accepting the appointment and
agreeing to the terms of this Agreement. Upon receipt thereof from such
successor Escrow Agent, all
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property in the Escrow Fund, and all related records, shall be turned over and
delivered to such successor Escrow Agent who shall thereupon be bound by all of
the provisions hereof as if an original signatory hereto. No resignation or
removal of the Escrow Agent shall be effective until the acceptance of
appointment by the successor Escrow Agent in the manner provided above.
7. NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed given upon receipt by Parent and the Representative
at the addresses set forth in the Merger Agreement and the Escrow Agent at
Manufacturers & Traders Trust Company, One M&T Xxxxx 0xx Xxxxx, Xxxxxxx, Xxx
Xxxx 00000, Attention: Xxxxxxx X. Xxxxxxx(or at such other address for a party
as shall be specified by like notice).
8. FEES AND EXPENSES OF ESCROW AGENT. For its services hereunder,
Escrow Agent shall be entitled to a fee for each month it holds any portion of
the Escrow Fund equal to the amount set forth in Exhibit A and reimbursement of
reasonable and documented out-of-pocket expenses incurred by Escrow Agent in
connection with the performance of such services. All amounts due to Escrow
Agent pursuant to this Section 8 shall be paid by Parent.
9. HEADINGS; COUNTERPARTS. The headings herein are inserted for
convenience only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same instrument.
10. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement and the Merger
Agreement constitute the entire agreement among the parties hereto with respect
to the subject matter hereof, and supersedes all prior and contemporaneous
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof. The Former Commonwealth Stockholders may
not transfer any interest in any portion of the Escrow Fund or any other right
under this Agreement to any other party, by operation of law or otherwise,
except that (i) in the case of a Former Commonwealth Stockholder that is a
trust, such interests and rights hereunder shall be transferable to the
beneficiaries of such trust by the trustee in accordance with the terms of the
governing trust instrument; provided that (a) such transfer shall not be in
violation of federal and state securities laws and (b) any beneficiary of such
trust shall be bound by the provisions of this Agreement and (ii)upon prior
written notice from the legal representative of the estate of any Former
Commonwealth Stockholder to the Escrow Agent, the rights of such stockholder
under this Agreement may transfer to the estate of the stockholder, and
subsequently to any beneficiary thereof, in the event of the death of such
Former Commonwealth Stockholder; provided, however, that any such beneficiary or
the legal representative of such stockholder's estate shall be bound by the
provisions of this Agreement. This Agreement shall not be assigned by Parent by
operation of law or otherwise, PROVIDED, that Parent may assign its rights and
obligations hereunder to any wholly owned subsidiary of Parent, but no such
assignment shall relieve Parent of its obligations hereunder if such assignee
does not perform such obligations. No amendment,
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modification, supplement, or termination of this Agreement shall bind or be
enforceable against any party unless set forth in a written document signed by
all of the parties hereto.
11. BINDING NATURE; NO THIRD PARTY BENEFICIARIES. This Agreement shall
be binding upon and inure solely to the benefit of each party hereto and their
permitted successors and assigns, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person or persons any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
12. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without regard to any
applicable conflicts of law principles.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CVC, INC.
By:
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Name:
Title:
The Representative:
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M&T Bank
By:
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Name:
Title:
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