EXHIBIT 2
ESCROW AGREEMENT
This Escrow Agreement (the "Escrow Agreement") is made as of this 8th
day of August, 2000, by and among National City Bank (the "Escrow Agent"), XXXX
COMMUNICATIONS AND SOFTWARE LTD., an Israeli company (the "Xxxx"), W2COM, LLC,
an Ohio limited liability company (the "Company"), CYMI, LTD., an Ohio limited
liability company ("CYMI"), M. E. XXXXX, INC., an Ohio corporation ("M. E.
Xxxxx, Inc."), and Xxxxxxxx X. Xxxxx ("Xxxxx") (each of the Company, CYMI, M. E.
Xxxxx, Inc. and Xxxxx, an "Indemnitor" and collectively, the "Indemnitors").
Xxxx and the Indemnitors agree between themselves that capitalized terms used
but not otherwise defined herein shall have the meaning set forth in the Asset
Purchase Agreement (as defined below). Terms used in describing the duties of
the Escrow Agent under this Escrow Agreement are defined herein and the Escrow
Agent is not charged with knowledge of the Asset Purchase Agreement.
WITNESSETH
WHEREAS, Xxxx, the Company, W2COM INTERNATIONAL, LLC, an Ohio limited
liability company, CYMI, M. E. Xxxxx, Inc. and Xxxxx have entered into an Asset
Purchase Agreement dated as of August 8, 2000 (the "Asset Purchase Agreement"),
pursuant to which Xxxx has agreed to purchase from the Company, and the Company
has agreed to sell to Xxxx, substantially all of the assets and liabilities of
the Company;
WHEREAS, pursuant to Section 4.2(c) of the Asset Purchase Agreement, an
escrow fund comprising of ordinary shares, nominal value NIS 0.001 per share, of
Xxxx is to be established with the Escrow Agent, so as to facilitate compliance
with the indemnification obligations set forth in Article 14 of the Asset
Purchase Agreement;
WHEREAS, the parties hereto desire to set forth further terms and
conditions in addition to those set forth in Article 14 of the Asset Purchase
Agreement, a copy of which is attached hereto as Annex A, relating to the
operation of the Escrow Fund (as defined in Section 1(b) below);
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained herein, and intending to be legally bound, hereby agree as
follows:
1. Escrow.
a. Appointment of Escrow Agent. Xxxx and the Indemnitors hereby appoint
the Escrow Agent to serve as, and the Escrow Agent hereby agrees to act as,
escrow agent for the benefit of all parties hereto (except for the Escrow Agent
itself) in accordance with the terms and conditions of this Escrow Agreement.
The Escrow Agent hereby represents and warrants to Xxxx and the Indemnitors that
it is a national banking with a bank holding parent company, a combined capital
and surplus of not less than $100,000,000.
b. Escrow Fund. Pursuant to the Asset Purchase Agreement, Xxxx shall
deposit in escrow with the Escrow Agent, on the date hereof, seven hundred
seventy seven thousand two hundred seventy two (777,272) ordinary shares,
nominal value NIS 0.001 per share, of Xxxx (the "Escrow Fund" or the "Escrow
Shares"). Each share certificate representing ordinary shares of Xxxx shall be
registered in the name of the Company and shall be accompanied by three (3)
fully-executed stock powers, each of which, if required by the applicable
transfer agent, shall bear a "medallion" signature guarantee. The Escrow Fund
shall be held by the Escrow Agent in a separate account (the "Escrow Account")
for the purpose and in accordance with the terms and conditions set forth in
Article 14 of the Asset Purchase Agreement and this Escrow Agreement.
c. Dividends, Voting and Rights of Ownership. Any cash dividends,
dividends payable in securities or other distributions of any kind made in
respect of the Escrow Shares and received by the Escrow Agent shall be deposited
in the Escrow Account by Xxxx immediately upon their payment and shall become
part of the Escrow Shares. While the Escrow Shares remain in the Escrow Account
pursuant to this Escrow Agreement, the Company will retain and will be able to
exercise all other incidents of ownership of said Escrow Shares that are not
inconsistent with the terms and conditions hereof.
d. Purpose of the Escrow Fund. The Escrow Fund will be deposited with
the Escrow Agent and will be held by the Escrow Agent to secure the
indemnification obligations of the Company, CYMI, M. E. Xxxxx, Inc., and Xxxxx
set forth in Article 14 of the Asset Purchase Agreement.
2. Escrow Period; Release of Escrow Fund. The Escrow Fund shall be held by the
Escrow Agent from the date hereof and until the eighteen-month anniversary of
the date hereof (the "Escrow Period"); provided, however, with respect to three
hundred eighty eight six hundred thirty six (388,636) of the Escrow Shares the
Escrow Period shall only be until the nine-month anniversary of the date hereof.
Immediately upon the conclusion of the Escrow Period (but in any event not later
than ten (10) business days following the conclusion of the Escrow Period), the
Escrow Agent will disburse from escrow to the Company the Escrow Shares in
accordance with Section 5 below.
3. Claims from the Escrow Fund.
a. Subject to the provisions of the Asset Purchase Agreement, Xxxx
shall be entitled to make claims upon the Escrow Fund, provided any such claim
is made promptly after the receipt by Xxxx of notice, or discovery by Xxxx, of
any fact giving rise to indemnification rights under the Asset Purchase
Agreement, by delivery to the Escrow Agent and the Company, on or before the
last day of the Escrow Period, of a written notice signed by a duly authorized
representative of Xxxx specifying in reasonable detail the items of damages for
which indemnification is being sought, the amounts thereof (collectively the
"Claimed Amount"), the date each such item was paid, or properly accrued or
arose, the identity and address of any third party claimant (to the extent
reasonably available to Xxxx), copies of any formal demand or complaint, any
other relevant fact(s) or detail(s), and the nature of the misrepresentation,
breach of covenant or warranty or claim to which such item is related (a "Xxxx
Notice").
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b. The Escrow Agent will not transfer any of the Escrow Shares held in
the Escrow Account to Xxxx pursuant to an Xxxx Notice until such Xxxx Notice has
been resolved in accordance with Section 4 below and subject to the provisions
thereof.
4. Resolution of an Xxxx Notice and Transfer of Escrow Shares. Any Xxxx Notice
shall be resolved as follows:
a. Uncontested Claims. In the event that the Company does not within
twenty (20) days after receipt of a Xxxx Notice (the "Contest Period") by the
Escrow Agent and the subsequent receipt by the Company (such Xxxx Notice to be
delivered by the Escrow Agent in accordance with Section 14 herein), contest a
Xxxx Notice in writing to the Escrow Agent, the Company will be deemed to have
approved and consented to the release of the Claimed Amount from the Escrow
Fund, and the Escrow Agent will promptly transfer to Xxxx assets of the Escrow
Fund having a value equal to such Claimed Amount, and will notify the Company
and Xxxx of such transfer.
b. Contested Claims. In the event that the Company gives written notice
contesting all or a portion of an Xxxx Notice (the "Contested Claimed Amount")
to Xxxx and the Escrow Agent within the Contest Period (a "Contesting Notice"),
Xxxx and the Company shall comply with the following procedures:
(i) Xxxx and the Company shall make a good faith effort to
resolve such dispute by way of negotiations between Xxxx'x Chief
Executive Officer or President or Chief Financial Officer and the
holders of the controlling membership interests in the Company.
(ii) If Xxxx and the Company reach an agreement with respect
to the Contested Claimed Amount, then Xxxx and the Company shall send a
written notice to the Escrow Agent, and the Escrow Agent shall follow
their written instructions specified in such notice.
(iii) If Xxxx and the Company fail to reach an agreement with
respect to the Contested Claimed Amount, then Xxxx shall be entitled to
file a claim against the Company within fifteen (15) business days
following the conclusion of the Escrow Period with an appropriate court
having personal jurisdiction over the Company (the "Court"), with
respect to damages referred to in the Xxxx Notice (the "Claimed
Damages") (the "Xxxx Claim"). Xxxx shall send a copy of the Xxxx Claim
to the Escrow Agent and the Company.
In the event that the Escrow Agent does not receive a copy of
the Xxxx Claim along with written evidence of the due filing thereof
with the Court within fifteen (15) business days after the conclusion
of the Escrow Period, then Xxxx shall be deemed to have waived its Xxxx
Notice and all of the Escrow Shares that were held in escrow with
respect to the Xxxx Notice shall be immediately released by the Escrow
Agent and transferred to the Company.
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In the event the Escrow Agent receives a copy of the Xxxx
Claim and written evidence of its due filing with the Court within
fifteen (15) business days after the conclusion of the Escrow Period,
the Escrow Agent shall continue to hold in escrow Escrow Shares with a
value equal to the Claimed Damages until a Final Decision (as defined
in Section 13 below) is rendered (and shall release all of the
remaining Escrow Shares in accordance with the provisions of the
previous paragraph). The Escrow Agent shall follow the instructions
contained in the Final Decision.
(iv) In the event the Company explicitly states in its
Contesting Notice that it consents to the payment of a specified
portion of the Claimed Amount (the "Agreed Amount"), the Escrow Agent
will promptly after receipt of such Contesting Notice transfer to Xxxx
assets of the Escrow Fund having a value equal to such Agreed Amount.
c. For purposes of this Section 4, during the Escrow Period the value
of the shares in the Escrow Fund will be calculated based on the average closing
price of such shares on the NASDAQ National Market or such other United States
national securities exchange on which the such shares are then authorized for
listing and are traded on the 14 trading days ("Average Price") immediately
preceding the transfer of such shares from the Escrow Account. In the event
Escrow Shares are held by the Escrow Agent beyond the Escrow Period, the value
of the shares in the Escrow Fund will be calculated based on the Average Price
immediately preceding the later of (i) the end of the Escrow Period, and (ii)
the receipt by the Escrow Agent of a copy of the Xxxx Claim and written evidence
of its due filing with the courts in accordance with the last paragraph of
Section 4(b)(iii), as the case may be.
5. Distribution of Escrow Fund.
a. Upon the conclusion of the Escrow Period, the Escrow Agent shall
distribute to the Company all the Escrow Shares, less (i) any Escrow Shares
delivered to Xxxx in accordance with Section 4 above in satisfaction of a Xxxx
Notice; and (ii) any Escrow Shares subject to delivery to Xxxx in accordance
with Section 4 hereof, with respect to any then pending but unresolved Xxxx
Notice (the "Remaining Escrow Shares"). For purposes of this Section 5, the
value of any Escrow Shares subject to delivery to Xxxx in accordance with
Section 4 hereof, with respect to any then pending but unresolved Xxxx Notice,
will be calculated based on the Average Price immediately preceding the last day
of the Escrow Period.
b. The Remaining Escrow Shares shall be distributed to the Company as
set forth in Section 4 hereof.
c. The duty of the Escrow Agent to deliver the Escrow Fund pursuant to
this Escrow Agreement shall terminate once delivery has been made to the
Company.
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6. Exculpatory Provisions.
a. The Escrow Agent shall be responsible only for the performance of
such duties as are specifically set forth herein and may rely upon and shall be
protected in relying upon or refraining from acting, any instrument reasonably
believed to be genuine and to have been signed or presented by the proper party
or parties. The Escrow Agent shall not be subject to, nor required to comply
with, any other agreement between or among any or all of the parties hereto or
to comply with any direction or instruction from any party hereto or any entity
acting on its behalf (other than the agreements, directions and instructions
contained herein or the directions and instructions delivered in accordance with
this Escrow Agreement). The Escrow Agent shall not be required to, and shall
not, expend or risk any of its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, and shall not be
liable for any act committed or omitted as escrow agent hereunder except for
negligence or willful misconduct or breach of this Escrow Agreement. The Escrow
Agent shall in no case or event be liable for any representations or warranties
of the other parties hereto or for punitive, incidental or consequential damages
resulting from such representations and warranties. Any act committed or omitted
pursuant to the advice or opinion of legal counsel shall be conclusive evidence
of the good faith of the Escrow Agent.
b. The Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Escrow Agreement or any documents or
papers deposited or called for hereunder.
7. Alteration of Duties. The duties of the Escrow Agent may be altered, amended,
modified or revoked only by a writing signed by all of the parties hereto.
8. Resignation and Removal of the Escrow Agent. The Escrow Agent may resign as
Escrow Agent at any time with or without cause by giving prior written notice to
each of Xxxx and the Company, such resignation to be effective at the time
specified in the notice, which may not be sooner than thirty (30) days following
the date such notice is delivered (the "Notice Period"). In addition, Xxxx and
the Company may jointly remove the Escrow Agent as escrow agent at any time with
or without cause, by an instrument (which may be executed in counterparts)
delivered to the Escrow Agent, which instrument shall designate the effective
date of such removal. In the event of any such resignation or removal, a
successor escrow agent, which shall be a bank or trust company organized under
the laws of the United States of America having (or in the case of a subsidiary
of a bank holding company, its parent shall have) a combined capital and surplus
of not less than $100,000,000, shall be jointly appointed by Xxxx and the
Company within the Notice Period. Any such successor Escrow Agent shall deliver
to Xxxx and the Company a written instrument accepting such appointment and the
terms and conditions of this Escrow Agreement, and thereupon it shall succeed to
all the rights and duties of the Escrow Agent hereunder and shall be entitled to
receive the Escrow Fund pursuant to the terms hereof.
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9. Upon receipt of a written notice from Xxxx and the Company, informing it of
the appointment of the successor escrow agent, the Escrow Agent shall deliver
the Escrow Fund then held hereunder to the successor escrow agent. Upon such
delivery and the confirmation thereof by the successor escrow agent, the Escrow
Agent shall have no further duties, responsibilities or obligations hereunder
and all such duties, responsibilities and obligations shall be binding upon the
successor escrow agent.
10. Further Instruments. If the Escrow Agent reasonably requires other or
further instruments in connection with the performance of its duties, the
necessary parties hereto shall join in furnishing such instruments.
11. Escrow Fees and Expenses. Xxxx and the Company shall each pay fifty percent
(50%) of the fees of the Escrow Agent set forth in the Fee Schedule attached
hereto as Annex B.
12. Indemnification. In consideration of the Escrow Agent's acceptance of this
appointment, each of Xxxx and the Company agree with respect to damages caused
by such party (i) to indemnify and hold the Escrow Agent harmless as to any
liability incurred by it to any person, firm or corporation by reason of its
having accepted such appointment or in carrying out the terms hereof and the
Asset Purchase Agreement and (ii) to reimburse the Escrow Agent for all its
costs and expenses, including, among other things, attorney's fees and expenses,
reasonably incurred by reason of any matter as to which an indemnity is paid;
provided, however, that no indemnity need be paid in case of the Escrow Agent's
negligence, willful misconduct or breach of this Escrow Agreement.
13. Actions by Escrow Agent. In the event conflicting demands are made upon, or
conflicting notices delivered to, the Escrow Agent with respect to any assets in
the Escrow Fund, the Escrow Agent shall be entitled, in its sole discretion, to
refuse to comply with any and all demands or instructions with respect to such
assets so long as such conflict shall continue, and the Escrow Agent shall not
be or become liable in any way to the parties for failure or refusal to comply
with such conflicting claims, demands or instructions. The Escrow Agent shall be
entitled to refuse to act until such conflicting claims or demands shall have
been resolved by a final un-appealable order, judgment or decree of a court of
competent jurisdiction, or settled by agreement between the conflicting parties
as evidenced in a writing satisfactory to the Escrow Agent (a "Final Decision").
The Escrow Agent may, in addition, elect, in its sole discretion, to commence an
interpleader action or seek other judicial relief or orders as it may deem, in
its sole discretion, necessary. Xxxx and the Company shall each pay fifty
percent (50%) of the costs and expenses (including reasonable attorneys' fees
and expenses) incurred in connection with such proceeding.
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14. General.
a. All notices, requests and other communications hereunder shall be in
writing and shall be delivered by courier or other means of personal service, or
sent by telex or facsimile or mailed, postage prepaid, by certified mail, return
receipt requested, in all cases, addressed as follows:
To Xxxx:
Xxxx Communications and Software Ltd.
0 Xxxxxxxx Xxxxxx
X.X.X. 00
Xxxxx 00000, Xxxxxx
Fax: (000-0) 000-0000
Attention: Xx. Xxxxx Xxxxx
With a copy to:
Xxxxx Xxxx & Xx.
0 Xxxxxx Xxxxxx Xxxxxx
Xxx Xxxx 00000, Israel
Fax: (000-0) 000-0000
Attention: Xxxxx X. Xxxxxxxx, Esq
Company:
W2COM LLC
0000 Xxxx Xxxxxx Xxxxx
Xxxxxx, Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxxx X. Xxxxx
With copies to:
CYMI, Ltd.
0000 Xxxx Xxxx Xxxx
Xxxxx 000
Xxxxxx, Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx
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and
Xxxxxxxxx, Xxxxxx & Xxxxx P.L.L.
00 Xxxxxxxxxx Xxxxx, X X., Xxxxx 0000
X.X. Xxx 0000
Xxxxxx, Xxxx 00000-0000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxxx, Esq.
To the Escrow Agent:
National City Bank
0 Xxxxx Xxxx Xxxxxx
Xxxxxx, Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx Xxxxx
Xxxx Xxxxxx
or to such other address as any party may have furnished in writing to the other
parties in the manner provided above. All notices, requests and other
communications shall be deemed given on the date of actual receipt or delivery
as evidenced by written receipt, acknowledgement or other evidence of actual
receipt or delivery to the address. In case of service by facsimile, a copy of
such notice shall be personally delivered or sent by registered or certified
mail, in the manner set forth above, within three (3) business days thereafter.
Notwithstanding the foregoing, notices addressed to the Escrow Agent shall be
effective only upon receipt. When any notice, claim, objection to a claim or
other document of any kind is required to be delivered to the Escrow Agent and
any other person, the Escrow Agent shall forward such notice, claim or other
document within 3 business days after the date on which it was received by the
Escrow Agent to the parties hereto, and such notice shall be subject to the
provisions of this Section 14.
b. The captions in this Escrow Agreement are for convenience only and
shall not be considered a part of or affect the construction or interpretation
of any provision of this Escrow Agreement.
c. This Escrow Agreement may be executed in any number of counterparts,
each of which when so executed shall constitute an original copy hereof, but all
of which together shall constitute one agreement.
d. No party may, without the prior express written consent of each
other party, assign this Escrow Agreement in whole or in part. This Escrow
Agreement shall be binding upon and inure to the benefit of the respective
successors and assigns of the parties hereto.
e. This Escrow Agreement shall be construed in accordance with, and
governed in all respects by, the internal laws of the State of Ohio (without
giving effect to principles of conflicts of laws).
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f. Each party hereby represents and warrants that (a) this Escrow
Agreement has been duly authorized, executed and delivered on its behalf and
constitutes its legal, valid and binding obligation and (b) the execution,
delivery and performance of this Escrow Agreement by such party do not and will
not violate any applicable law or regulation.
g. This Escrow Agreement shall constitute the entire agreement of the
parties with respect to its subject matter and supersedes all prior oral or
written agreements in regard thereto.
h. The Escrow Agent does not have any interest in the property
deposited in escrow hereunder but is serving as escrow holder only and having
only possession thereof.
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IN WITNESS WHEREOF, each of the parties has executed this Escrow
Agreement as of the date first above written.
W2COM, LLC,
an Ohio limited liability corporation
By: /s/ XXXXXXXX X. XXXXX
---------------------------------
Name: Xxxxxxxx X. Xxxxx
--------------------------------
Title: CEO
------------------------------
XXXX COMMUNICATIONS
AND SOFTWARE LTD.,
a company organized under the laws of
Israel
By: /s/ XXXXX XXXXX
---------------------------------
Name:
--------------------------------
Title:
-------------------------------
CYMI, LTD.,
an Ohio limited liability company
By: /s/ XXXXXX X. XXXXXXX
---------------------------------
Name: Xxxxxx X. Xxxxxxx
-------------------------------
Title: Pres.
------------------------------
XXXXXXXX X. XXXXX
/s/ XXXXXXXX X. XXXXX
-------------------------------------
M. E. XXXXX, INC.,
an Ohio corporation
By: /s/ XXXXXXXX X. XXXXX
---------------------------------
Name: Xxxxxxxx X. Xxxxx
-------------------------------
Title: CEO
------------------------------
NATIONAL CITY BANK,
as Escrow Agent
By: /s/ XXXXX X. XXXXX
---------------------------------
Name: Xxxxx X. Xxxxx
------------------------------
Title: Vice President + Trust Officer
------------------------------
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ANNEX A
ASSET PURCHASE AGREEMENT ARTICLE 14
14.1 INDEMNIFICATION. Provided the Indemnitee's claim therefor is instituted by
written notice within the time period specified in Article XII and subject to
Section 14.3 below, from and after the Effective Time, each of the Covenantors,
shall, jointly and severally, indemnify, defend and hold harmless the
Indemnitees from and against any and all Losses which may be incurred or
suffered by any such party and which may arise out of or result from:
(a) any breach of any representation, warranty, covenant or agreement
of the Company contained in this Agreement or in any other Company Document,
including, without limitation, any attempt (whether or not successful) by any
Person to cause or require Purchaser to pay, perform or discharge any debt,
obligation, deficiency, liability or commitment the existence of which
constitutes a breach of any such representation, warranty, covenant or
agreement;
(b) any litigation, arbitration, governmental investigation, suit,
action or other proceeding disclosed in Section 6.8 of the Company Disclosure
Schedule, other than those specifically assumed by the Purchaser pursuant to
Section 3.1;
(c) any debt, liability or obligation of the Company, direct or
indirect, fixed, contingent or otherwise, now or as of the Effective Time known
or unknown, and whether or not then due or payable, which exists at or as of the
Effective Time or which arises after the Effective Time but which is based upon
or arises from any act, omission, transaction, circumstance, sale of goods or
services, state of facts or other condition which occurred or existed on or
before the Effective Time, except to the extent the same are liabilities
expressly assumed by the Purchaser pursuant to Section 3.1; and
(d) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without limitation,
reasonable legal fees and expenses, incurred in enforcing this indemnity.
Notwithstanding the foregoing, the Covenantors shall be required to
indemnify the indemnified parties hereunder only if the Losses exceed one
hundred fifty thousand US dollars (US $150,000), but if and when the Losses so
exceed one hundred fifty thousand US dollars (US $150,000), all of the Losses
shall be subject to indemnification hereunder; provided, however, that any right
to indemnification pursuant to this Section 14.1 shall not be subject to any
minimum amount with respect to any adjustments or payments to be made by W2Com
pursuant to Section 5.
14.2 INDEMNIFICATION BY PURCHASER. Provided the Company's claim therefor is
instituted by written notice within the time period specified in Article XII and
subject to Section 14.3 below, Purchaser shall indemnify, defend and hold
harmless the Company and the Covenantors from and against any Losses arising out
of or due to a breach of any representation, warranty, covenant or agreement of
Purchaser contained in this Agreement or in any Purchaser Document.
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Notwithstanding the foregoing, Purchaser shall be required to indemnify
the Company only if, any such Losses exceed one hundred fifty thousand US
dollars (US $150,000) but if such Losses exceed one hundred fifty thousand US
dollars (US $150,000), all of the Losses shall be subject to indemnification
hereunder; provided, however, that any right to indemnification pursuant to this
Section 14.2 shall not be subject to any minimum amount with respect to
liabilities and obligations assumed by the Purchaser pursuant to Section 3.1,
payment of the Purchase Consideration or other payments to be made by Purchaser
pursuant to this Agreement.
14.3 NOTICE TO INDEMNIFYING PARTY. If any party (the "Indemnified Party")
receives notice of any claim or other commencement of any action or proceeding
with respect to which any other party (or parties) (the "Indemnifying Party") is
obligated to provide indemnification pursuant to Sections 14.1 or 14.2, the
Indemnified Party shall promptly give the Indemnifying Party written notice
thereof which notice shall specify, if known, the amount or an estimate of the
amount of the liability arising therefrom. Such notice shall be a condition
precedent to any liability of the Indemnifying Party for indemnification
hereunder. The Indemnified Party shall not settle or compromise any claim by a
third party for which it is entitled to indemnification hereunder, without the
prior written consent of the Indemnifying Party (which shall not be unreasonably
withheld or delayed) unless suit shall have been instituted against it and the
Indemnifying Party shall not have taken control of such suit after notification
thereof as provided in Section 14.4. Failure by the Indemnified Party to give
notice promptly will not affect the indemnification obligations of the
Indemnifying Party except and to the extent the Indemnifying Party is prejudiced
thereby.
14.4 DEFENSE BY INDEMNIFYING PARTY. In connection with any claim giving rise to
indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the Indemnifying
Party at its sole cost and expense may, upon written notice to the Indemnified
Party, assume the defense of any such claim or legal proceeding using counsel of
its choice (subject to the approval of the Indemnified Party, which approval may
not be unreasonably withheld or delayed). The Indemnified Party shall be
entitled to participate in the defense of any such action, with its counsel and
at its own expense; provided, however, that if the Indemnified Party, in its
sole discretion, determines that there exists a conflict of interest between the
Indemnifying Party (or any constituent party thereof) and the Indemnified Party,
the Indemnified Party (or such constituent party thereof) shall have the right
to engage separate counsel, the reasonable costs and expenses of which shall be
paid by the Indemnifying Party, but in no event shall the Indemnifying Party be
liable to pay for the costs and expenses of more than one such separate counsel.
If the Indemnifying Party does not assume the defense of any such claim or
litigation resulting therefrom, the Indemnified Party may defend against such
claim or litigation, after giving notice of the same to the Indemnifying Party,
on such terms as the Indemnified Party may deem appropriate, the reasonable
costs and expenses of which shall be paid by the Indemnifying Party, and the
Indemnifying Party shall be entitled to participate in the defense of such
action, with its counsel and at its own expense. Notwithstanding the foregoing,
however, Purchaser shall in all cases be entitled to control the defense of any
such action if it (i) may result in injunctions or other equitable remedies in
respect of Purchaser or the Business; (ii)
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may result in liabilities which, taken with other then existing claims by
Purchaser under this Article XIV, would not be fully indemnified hereunder; or
(iii) may have an adverse impact on the Business or the financial condition of
Purchaser (including an effect on the Tax liabilities, earnings or ongoing
business relationships of Purchaser) even if the Covenantors pay all
indemnification amounts in full.
14.5 MAXIMUM LIABILITY. Other than with respect to (i) breaches of
representations and warranties of the Company contained in Sections 6.4, 6.6,
6.9.1(a), 6.9.2(a), 6.9.3 and 6.20, (ii) Adjustments or payments made in
accordance with Sections 5 and 13, and (iii) intentional breaches of covenants
contained herein, and absent fraud or intentional misstatement, the maximum
amount recoverable by the Indemnitees from the Covenantors for all Losses shall
in the aggregate be equal to the sum of (i) the current value of the Xxxx Shares
then being held in escrow by the Holdback Escrow Agent, and (ii) the current
value of any Xxxx Shares previously transferred to Purchaser as an Adjustment or
payment in accordance with Sections 5 and 13.
14.6 USE OF ESCROW SHARES. The parties acknowledge and agree that any
satisfaction of the Covenantors' indemnification obligations to Purchaser under
this Article XIV may be accomplished, in the Covenantors' sole discretion, by
notifying the Holdback Escrow Agent to tender such number of Xxxx Shares then
held by the Holdback Escrow Agent equal in value to the amount of indemnity to
be paid, with such shares to be valued at the average closing price of such
shares on the NASDAQ National Market or such other United States national
securities exchange on which the Xxxx Shares are then authorized for listing and
are traded on the 14 trading days prior to the date of such delivery.
14.7 SUBROGATION. Upon making any payment to an Indemnified Party for any
indemnification claim pursuant to this Article XIV, the Indemnifying Party shall
be subrogated, to the extent of such payment, to any rights which the
Indemnified Party may have against any other parties with respect to the subject
matter underlying such indemnification claim.
14.8 EXCLUSIVE REMEDY. If the Closing shall occur, absent fraud or intentional
misstatement and with the exception of equitable relief, the provisions of this
Article XIV shall be the sole and exclusive remedy in respect of any breach of a
representation or warranty contained herein.
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ANNEX B
ESCROW AGENT FEE SCHEDULE
Fees for the services to be provided shall be at a rate of $1,000 per
year. The parties agree that a payment of $1,500 will be made to the
Escrow Agent within 30 days of the date of this Agreement in payment of
the fees due for the first 18 months of the term hereunder. In the
event the Escrow Agent is required to hold the Escrow Shares longer
than 18 months additional fees shall be due at the rate described
above.
14
