ESCROW AGREEMENT
THIS
ESCROW AGREEMENT
(this
“Agreement”) is made and entered into as of the 16th
day of
July, 2007 by and among U.S. Bank National Association (the “Escrow Agent”),
Microwave Satellite Technologies, Inc.,
(the
“Purchaser”), and Newport Telecommunications Co. (the “Seller”). The Seller, the
Purchaser and the Escrow Agent may be individually referred to herein as a
“Party” and collectively as the “Parties”.
W
I T N E S S E T H:
WHEREAS,
Seller
and Purchaser are parties to an Asset Purchase Agreement of even date herewith
whereby the Seller is to sell and the Purchaser is to purchase certain assets
of
Seller in connection with Seller’s operation of its telecommunications business
(the “Purchase Agreement”), as more specifically provided for therein; and
WHEREAS,
in
connection with the consummation of the transactions described in the Purchase
Agreement, Purchaser is to deposit: (a) $510,000.00 (the “Cash Consideration”);
(b) stock certificates (the “Stock Certificates”) representing an aggregate
amount of shares (the “Shares”) of $0.001 par value common stock of Telkonet,
Inc., a Delaware corporation (“Telkonet”) equal to $1,530,000.00, (which is
acknowledged to be based on the average of the closing price for one share
of
Telkonet common stock for the ten (10) trading days occurring immediately prior
to the date hereof) (the “Stock Consideration”); and (c) stock powers for the
Shares duly endorsed by Telkonet, with the Escrow Agent; and
WHEREAS,
Purchaser and Seller wish to engage the Escrow Agent as the escrow agent for
the
deposit of the Cash Consideration, the Stock Certificates and the Stock Powers;
and
WHEREAS,
a
copy of
the Purchase Agreement has been delivered to the Escrow Agent, and the Escrow
Agent is willing to act as the Escrow Agent hereunder.
NOW,
THEREFORE,
in
consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, Seller, Purchaser and Escrow
Agent hereby agree as follows:
1. Escrow
Account and Deposit.
The
Escrow Agent has established, or simultaneously with the execution hereof will
establish, an account (the “Escrow Account”) into which Purchaser has deposited,
or simultaneously with the execution hereof will deposit: (a) the Cash
Consideration; (b) the Stock Certificates; and (c) the Stock Powers. The Cash
Consideration shall be deposited by wire transfer in immediately available
funds
to the account designated in, and pursuant to, the instructions set forth on
Exhibit
A
attached
hereto. The Cash Consideration shall be invested pursuant to Section 3 hereof.
The deposit of the Stock Certificates, Stock Powers and Cash Consideration
is
referred to herein as the “Deposit.” Upon receipt of the Deposit, the Escrow
Agent shall provide Purchaser and Seller confirmation thereof, and shall hold
and disburse such Deposit (plus any increase in the Cash Consideration due
to
investment earnings) as set forth in this Agreement.
2. Maintenance
of Escrow Deposit.
During
the term of this Agreement, the Escrow Agent shall hold and safeguard the
Deposit (including the earnings on the Cash Consideration) in accordance with
this Agreement and shall release and disburse the Deposit (and any earnings
on
the Cash Consideration) only in accordance with this Agreement. Neither the
Cash
Consideration (or any earnings thereon), the Stock Certificates nor the Stock
Powers shall be subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any third party, and shall be held and
distributed solely for purposes of and in accordance with this Agreement. In
furtherance thereof, Purchaser and Telkonet covenant and agree that they shall
not directly or indirectly assign, pledge, encumber or hypothecate the Deposit
(including any earnings on the Cash Consideration) held in escrow by Escrow
Agent.
3. Investment
of Cash Consideration.
The
Cash Consideration held by Escrow Agent shall be invested by the Escrow Agent,
to the extent permitted by law and as directed, in writing, by Seller from
time
to time, in a high yield interest bearing account until released pursuant to
this Agreement. Any income received by the Escrow Agent with respect to said
investment shall become part of the Cash Consideration and held, safeguarded,
invested, released and disbursed by Escrow Agent only in accordance with the
terms of this Agreement.
4. Calculation
of Subscribers and Adjustment to Purchase Price.
Within
fifteen (15) days following the date hereof, Seller shall deliver to Purchaser
and Escrow Agent written notice which shall identify: (a) all of the Subscribers
in good standing (as defined in Section 2(b) of the Purchase Agreement); (b)
all
credits to be provided to Purchaser or additional consideration to be provided
to Seller, if any, as calculated in accordance with Section 2(b) of the Purchase
Agreement; and (c) if any credits or additional consideration is to be provided
to Purchaser or Seller, as applicable, the amount of such credits or additional
consideration to be paid in cash and the amount that shall be paid in Telkonet
Shares as determined in accordance with Section 2(b) of the Purchase Agreement
(the information and calculations set forth in Sections 4(a), 4(b) and 4(c)
above, the “Subscriber Calculation”). Purchaser shall have sixty (60) days after
receipt of the Subscriber Calculation (the “Review Period”) to review the
Subscriber Calculation provided by Seller. The Subscriber Calculation provided
by Seller shall be conclusive and binding on Seller and Purchaser unless
Purchaser delivers written notification to Seller and Escrow Agent of
Purchaser’s disagreement with the Subscriber Calculation provided by Seller (the
“Notice of Disagreement”) prior to the expiration of the Review Period.
Purchaser’s Notice of Disagreement, if any, must state Purchaser’s specific
objections to the Subscriber Calculation provided by Seller and Purchaser’s
proposed calculation of the Subscriber Calculation. In the event that the Escrow
Agent does not receive Purchaser’s Notice of Disagreement prior to the
expiration of the Review Period, the Escrow Agent shall rely on the Subscriber
Calculation provided by Seller and release the Deposit (including any earnings
on the Cash Consideration) in accordance with the applicable provisions of
Section 5 of this Agreement. If Purchaser notifies the Seller and the Escrow
Agent of its disagreement with Seller’s prepared Subscriber Calculation prior to
the expiration of the Review Period, then Purchaser and Seller shall use their
good faith efforts to agree on the Subscriber Calculation and to execute Joint
Written Instructions (as hereinafter defined) within ten (10) days following
Seller’s receipt of Purchaser’s Notification of Disagreement (the “Negotiating
Period”). Any such Joint Written Instructions executed by Purchaser and Seller
within the Negotiation Period shall be delivered to the Escrow Agent no later
than 120 days after the date hereof and in the event that any such Joint Written
Instructions have not been delivered to the Escrow Agent prior to 120 days
after
the date hereof, the Purchaser and Seller agree that the Seller shall be
entitled to deliver any such Joint Written Instructions 120 days after the
date
hereof. In the event Purchaser and Seller are unable to resolve their
disagreement with respect to any issue relating to the Subscriber Calculation
within the Negotiating Period, Purchaser and Seller hereby agree that they
shall
jointly engage the accounting firm of XX Xxxxx, LLP (the “Independent
Accountants”) to resolve the issues in dispute and that they each shall provide
the Independent Accountants with all documents and information used by Seller
in
calculating the Subscriber Calculation or used by Purchaser in disputing
Seller’s Subscriber Calculation, as applicable, no later than ten (10) days
after the expiration of the Negotiating Period. Based upon the information
and
documents provided by Seller and Purchaser to the Independent Accountants,
the
Independent Accountants shall, within a commercially reasonable time, determine
the Subscriber Calculation by determining (the “Accountants’ Determination”):
(a) all of the Subscribers in good standing (as defined in Section 2(b) of
the
Purchase Agreement); (b) all credits to be provided to Purchaser or additional
consideration to be provided to Seller, if any, as calculated in accordance
with
Section 2(b) of the Purchase Agreement; and (c) if any credits or additional
consideration is to be provided to Purchaser or Seller, as applicable, the
amount of such credits or additional consideration to be paid in cash and the
amount that shall be paid in Telkonet Shares as determined in accordance with
Section 2(b) of the Purchase Agreement. The Independent Accountants shall
provide Seller, Purchaser and Escrow Agent written notice of the Accountants’
Determination promptly after it has completed all applicable calculations.
Absent fraud, the Accountants’ Determination shall be final, binding and
conclusive upon Purchaser and Seller and shall be the sole and exclusive remedy
regarding any dispute concerning the Subscriber Calculation. Purchaser and
Seller shall share equally the fees and expenses of the Independent Accountants.
Upon the request of the Independent Accountants, Seller and Purchaser shall
promptly furnish to the Independent Accountants such additional work papers
and
other documents and information that has not been previously provided to the
Independent Accountants relating to the issues in dispute as the Independent
Accountants may request and that are available to such Party.
5. Release
by Escrow Agent.
(a) The
“Triggering Event” shall be the first to occur of: (i) the Escrow Agent’s
receipt of joint written instructions from Seller and Purchaser instructing
the
Escrow Agent to release the Deposit (including all earnings on the Cash
Consideration) (the “Joint Written Instructions”); (ii) the expiration of the
120 day period following the date hereof (the “Escrow Period”) if: (A) the
Purchaser has not delivered its Notice of Disagreement to both the Escrow Agent
and Seller during the Review Period; or (B) the Purchaser has delivered its
Notice of Disagreement to both the Escrow Agent and Seller during the Review
Period and the Escrow Agent has received the Accountants’ Determination during
the Escrow Period; or (iii) the Escrow Agent’s receipt of the Accountants’
Determination if such receipt occurs after the Escrow Period.
(b) Upon
the
occurrence of the Triggering Event, the Escrow Agent shall release and disburse
the Deposit (including all earnings on the Cash Consideration) in accordance
with the terms of this Section 5 and the instructions provided for in: (i)
the
Joint Written Instructions in the event that the Triggering Event is set forth
in subsection 5(a)(i) above, (ii) the Subscriber Calculation provided by Seller
to Purchaser which commenced the Review Period in the event that the Triggering
Event is set forth in subsection 5(a)(ii)(A) above, and (iii) the Accountants’
Determination in the event that the Triggering Event is set forth in subsection
5(a)(ii)(B) or 5(a)(iii) above. The instructions provided to the Escrow Agent
in
the Joint Written Instructions in the event that the Triggering Event is set
forth in subsection 5(a)(i) above or the Subscriber Calculation provided by
Seller to commence the Review Period in the event that the Triggering Event
is
set forth in subsection 5(a)(ii)(A) above or the Accountants’ Determination in
the event that the Triggering Event is set forth in subsection 5(a)(ii)(B)
or
5(a)(iii) above shall be referred to herein as the “Release
Instructions.”
(i) In
the
event that the Release Instructions do not provide for any credits or additional
consideration to be provided to Purchaser or Seller, as applicable, the Escrow
Agent shall, immediately upon the Triggering Event, release to Seller: (A)
the
Cash Consideration (plus all earnings thereon), in immediately available funds;
and (B) the Stock Certificates and Stock Powers.
(ii) In
the
event that the Release Instructions notifies the Escrow Agent that additional
consideration shall be delivered to Seller: (A) the Escrow Agent shall release
to Seller immediately upon the Triggering Event: (1) the Cash Consideration
(plus all earnings thereon) in immediately available funds; and (2) the Stock
Certificates and Stock Powers; and (B) Purchaser shall immediately upon the
Triggering Event deliver to Seller: (1) new Stock Certificates representing
the
additional Telkonet Shares to be paid to Seller as additional Stock
Consideration and new Stock Powers for such additional Telkonet Shares; and
(2)
an additional amount equal to the cash portion of the additional consideration
to be provided to Seller in immediately available funds.
(iii) In
the
event that the Release Instructions notifies the Escrow Agent that a credit
shall be provided to Purchaser and a portion of the credit is to be satisfied
by
Telkonet Shares in accordance with Section 2(b) of the Purchase Agreement,
the
Purchaser shall on or prior to the Triggering Event, deliver to the Escrow
Agent
new Stock Certificates which shall represent an amount of Shares equal to the
Stock Consideration less all credits to the Stock Consideration to be provided
to Purchaser and new Stock Powers corresponding to such new Stock Certificates.
Immediately upon the Triggering Event, the Escrow Agent shall: (A) deliver
to
Seller: (1) new Stock Certificates which shall represent an amount of Shares
equal to the Stock Consideration less all credits to the Stock Consideration
and
the new Stock Powers for these new Stock Certificates; and (2) an amount equal
to the Cash Consideration (plus any earnings thereon) less any credits to be
provided to Purchaser, as provided for in the Release Instructions and to be
paid in immediately available funds; and (B) deliver to Purchaser: (1) the
Stock
Certificates and Stock Powers which have been deposited with the Escrow Agent
as
part of the Deposit; and (2) an amount equal to all credits to the Cash
Consideration, as provided for in the Release Instructions and to be paid in
immediately available funds.
(iv) In
the
event that the Release Instructions notifies the Escrow Agent that a credit
shall be provided to Purchaser but no portion of the credit is to be satisfied
by Telkonet Shares, the Escrow Agent shall immediately upon the Triggering
Event: (A) deliver to Seller, (1) the Stock Certificates and Stock Powers;
and
(2) an amount equal to the Cash Consideration (plus any earnings thereon) less
any credits to the Cash Consideration to be provided to Purchaser, as provided
for in the Release Instructions and to be paid in immediately available funds;
and (B) deliver to Purchaser, an amount equal to all credits to the Cash
Consideration, as provided for in the Release Instructions which reflects a
credit to the Cash Consideration to be provided to the Purchaser and to be
paid
in immediately available funds.
(c) Notwithstanding
anything contained in this Agreement to the contrary, the Escrow Agent shall
release all or any portion of the Cash Consideration (plus any earnings
thereof), the Stock Certificates and Stock Powers upon the Escrow Agent’s
receipt of a final order of a court of competent jurisdiction authorizing the
Escrow Agent to make any such release even if such authorization is received
by
the Escrow Agent prior the Escrow Agent’s receipt of the Release
Instructions.
6. Reliance
by Escrow Agent.
The
Escrow Agent shall be entitled to rely upon and act in accordance with any
of:
(a) the Release Instructions; and (b) a final order of a court of competent
jurisdiction authorizing the Escrow Agent to release the Deposit, or any portion
thereof, to Purchaser or Seller.
7. Conflicting
Demands.
If
conflicting demands are made upon the Escrow Agent, the Escrow Agent shall
not
be required to resolve such controversy or take any action, but may await
resolution of the controversy; provided;
however,
that
upon the occurrence of a Triggering Event, the Escrow Agent shall be required
to
release and disburse the Deposit (including all earnings on the Cash
Consideration) in accordance with the Release Instructions and Section 5 of
this
Agreement.
8. Indemnification;
Fees of Escrow Agent.
Purchaser and Seller shall jointly and severally pay, and hold the Escrow Agent
harmless against, all costs, charges, damages and attorneys’ fees which the
Escrow Agent in good faith may incur or suffer in connection with or arising
out
of this Agreement; provided, however, that, if either Purchaser and Seller
shall
act in bad faith and cause Escrow Agent to incur any costs, charges, damages
or
other expenses, including, but not limited to, any costs incurred by Escrow
Agent due to a Party’s failure to act in good faith or in a timely manner with
respect to the calculation and review of the Subscriber Calculation, such Party
acting in bad faith shall indemnify and hold the Escrow Agent harmless from
all
such costs and the other Party shall have no obligation to pay any amounts
to or
otherwise indemnify the Escrow Agent or the other Party.
9. Rights
and Duties of Escrow Agent.
(a) No
assignment of the interest of any of the parties hereto shall be binding upon
the Escrow Agent unless and until written evidence of such assignment in a
form
reasonably satisfactory to the Escrow Agent shall be delivered to the Escrow
Agent.
(b) The
Escrow Agent may rely or act upon orders or directions signed by the proper
parties, or bearing a signature or signatures reasonably believed by the Escrow
Agent to be genuine.
(c) The
Escrow Agent shall have no duties other than those expressly imposed on it
herein and shall not be liable for any act or omission except for its own gross
negligence or willful misconduct.
(d) In
the
event that the Deposit or any proceeds thereof shall be attached, garnished,
or
levied upon by an order of any court, or the delivery thereof shall be stayed
or
enjoined by an order of court, or any order, judgment or decree shall be made
or
entered by any court affecting the property deposited under this Agreement,
or
any part thereof, the Escrow Agent is hereby expressly authorized in its sole
discretion to obey and comply with all writs, orders or decrees so entered
or
issued, which it is advised by legal counsel of its own choosing is binding
upon
it, whether with or without jurisdiction, and in case the Escrow Agent obeys
or
complies with any such writ, order or decree it shall not be liable to any
of
the parties hereto or to any other person, firm or corporation, by reason of
such compliance notwithstanding that such writ, order or decree be subsequently
reversed, modified, annulled, set aside or vacated.
(e) The
Escrow Agent may resign by giving sixty (60) days written notice of resignation,
specifying the effective date thereof. Within thirty (30) days after receiving
the aforesaid notice, Seller and Purchaser agree to appoint a successor escrow
agent to which the Escrow Agent shall transfer the Deposit or any proceeds
thereof then held in escrow under this Agreement. If a successor escrow agent
has not been appointed and/or has not accepted such appointment by the end
of
the 30-day period, the Escrow Agent may at its sole option: (i) apply to a
court
of competent jurisdiction for the appointment of a successor escrow agent,
and
the costs, expenses and reasonable attorneys’ fees which are incurred in
connection with such a proceeding shall be paid one-half by Seller and one-half
by Purchaser, or (ii) continue to hold the Deposit until the occurrence of
a
Triggering Event (in such event the Escrow Agent must release and disburse
the
Deposit in accordance with the Release Instructions and Section 5 of this
Agreement) or it receives an order from a court of competent jurisdiction
directing the Escrow Agent to release the Deposit.
10. Notices.
Any
notice or other correspondence to be given in connection with this Agreement
shall be in writing and shall be delivered by hand, overnight courier or by
facsimile (provided that the sender receives printed confirmation of receipt)
to
the addresses and/or facsimile numbers set forth below or to such other address
or facsimile number as a party may designate by notice given to the other party
in accordance with the terms hereof. Any notice to be given by a party may
be
given by such party’s counsel. Each notice shall be deemed effective upon its
receipt or refusal.
|
(a)
if to Seller:
|
Xxxxx
Xxxxx
|
|
Newport
Telecommunications Co.
|
|
|
000
Xxxx Xxxxxx Xxxxx
|
|
|
Xxxxxx
Xxxx, Xxx Xxxxxx 00000
|
|
with
a copy (which shall
|
|
|
not
constitute notice) to:
|
Xxxxx
X. XxXxxx
|
|
LeFrak
Organization, Inc.
|
|
|
00
Xxxx 00xx Xxxxxx, 00xx Xxxxx
|
|
|
Xxx
Xxxx, Xxx Xxxx 00000
|
|
|
with
a copy (which shall
|
|
|
not
constitute notice) to:
|
|
|
Xxxxx,
Danzig, Scherer, Xxxxxx & Xxxxxxxx, LLP
|
|
|
Xxxxxxxxxxxx
Xxxxx
|
|
|
Xxx
Xxxxxxxxx Xxxxxx
|
|
|
Xxxxxxxxxx,
Xxx Xxxxxx 00000
|
|
|
Attention:
Xxxxx Xxxxx
|
|
|
Facsimile
(000) 000-0000
|
|
|
(b)
if to Purchaser:
|
Xxxxx
X. Xxxxxxxxx
|
|
000-000
Xxxxxx Xxxx
|
|
|
Xxxxxxxxx,
Xxx Xxxxxx 00000
|
|
|
Fax:
(000) 000-0000
|
|
|
with
a copy (which shall
|
|
|
not
constitute notice) to:
|
Xxxxxx
Xxxxxxx Xxxxxxxxx & Xxxx, PLLC
|
|
0000
X Xxxxxx, X.X. 0xx Xxxxx
|
|
|
Xxxxxxxxxx,
XX 00000
|
|
|
Attention:
Xxxxxx X. Xxxx
|
|
|
Facsimile:
(000) 000-0000
|
(c)
if to
Escrow Agent:
or
to
such other address as may be specified by any party in a written notice to
the
other parties. Notices
and other communications so delivered personally shall be deemed delivered
when
actually received. Notices and other communications so sent by certified mail
or
by reputable overnight air delivery service shall be deemed delivered and
received on the first to occur of (x) three business days following deposit
in the United States mail or
one
business day following delivery of the same to such delivery service, as
applicable, (y) written acceptance of delivery by the recipient thereof or
(z) written rejection of delivery by the recipient thereof. Notices and other
communications sent by a Party’s counsel shall be deemed duly and properly given
in accordance with the terms hereof so long as all of the other requirements
contained herein are satisfied. Notices and other communications so transmitted
by telecopier shall be deemed delivered upon telephone or electronic
confirmation of receipt. If a notice or other communication is received on
a day
that is not a business day, it shall be deemed received on the next business
day
following such day.
11. Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws
of
New
Jersey without giving effect to the principles of conflicts of
laws.
12. Waiver.
This
Agreement may be amended or modified, and any term may be waived, only if such
amendment, modification or waiver is in writing and signed by all
parties.
13. No
Third Party Beneficiaries.
This
Agreement is a personal one, the duty of the Escrow Agent being only to the
parties hereto, their successors or assigns, and to no other person
whatsoever.
14. Counterparts.
This
Agreement may be executed in counterparts that together shall constitute a
single instrument. A facsimile copy of any signature hereto and to any amendment
or supplement hereto shall be valid.
[Remainder
of Page Intentionally Omitted; Signature Page Follows]
IN
WITNESS WHEREOF,
the
parties have caused this Agreement to be duly executed by their respective
duly
authorized officers all as of the day and year first above written.
| PURCHASER: | MICROWAVE SATELLITE TECHNOLOGIES, INC. | |
| |
|
|
| By: | /s/ Xxxxx X. Xxxxxxxxx | |
|
|
||
| Name: Xxxxx X. Xxxxxxxxx | ||
| Title: President | ||
| SELLER: | NEWPORT TELECOMMUNICATIONS CO. | |
| |
|
|
| By: Newport Telecommunications Company, Inc., its partner | ||
| By: | /s/ Xxxxx X. XxXxxx | |
|
|
||
| Name: Xxxxx X. XxXxxx | ||
| Title: Vice President | ||
| ESCROW AGENT: | U.S. BANK NATIONAL ASSOCIATION | |
| |
|
|
| By: | /s/ Xxxxxxxxxxx X. Xxxxxxx | |
|
|
||
| Name: Xxxxxxxxxxx X. Xxxxxxx | ||
| Title: Vice President | ||
