ESCROW AGREEMENT
This
Escrow Agreement (this “Agreement”) is entered into as of December 18, 2007, by
and among UFood Restaurant Group, Inc., formerly known as UFood Franchise
Company, a Nevada corporation (the “Parent”), Xxxxxx Xxxxxxx (“Xxxxxxx”), Xxxx
Xxxxx (“Xxxxx”) (Xxxxxxx and Xxxxx shall be referred to individually as an
“Indemnification Representative” and collectively as the “Indemnification
Representatives”) 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 KnowFat Franchise Company, Inc., a Delaware
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 Representatives as their representatives 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 Representatives
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 575,049 shares
of common stock of the Parent, as determined pursuant to Section 1.5(b) of
the Merger Agreement, or such other number as adjusted pursuant to Section
1.8(e) 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.
(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 Representatives shall have the right, in their 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 Representatives 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 Representatives 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 December 17, 2009 (the “Termination Date”), the Escrow
Agent shall 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.
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(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 Representatives 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).
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.
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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.
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 the Escrow
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 Representatives; Successors and
Assignees.
(a) The
Indemnification Representatives shall not incur any liability to the
Indemnifying Stockholders with respect to any action taken or suffered by them
in reliance upon any note, direction, instruction, consent, statement or other
documents believed by them to be genuinely and duly authorized, nor for other
action or inaction except their own willful misconduct or gross negligence.
The
Indemnification Representatives may, in all questions arising under the Escrow
Agreement, rely on the advice of counsel and the Indemnification Representatives
shall not be liable to the Indemnifying Stockholders for anything done, omitted
or suffered in good faith by the Indemnification Representatives based on such
advice.
(b) In
the
event of the death or permanent disability of any Indemnification
Representative, or his or her 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.
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(c) The
Indemnification Representatives 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 Representatives 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
Representatives 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.
(d) The
Escrow Agent may rely on the Indemnification Representatives as the exclusive
agents 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
Representatives 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 Representatives), within five business days after delivery
of
such notice by the Indemnification Representatives, 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.
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If
to the
Parent:
000
Xxxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx,
XX 00000
Attn:
Xxxxxx Xxxxxxx, Chief Executive Officer
Facsimile:
(000) 000-0000
with
a
copy to (which shall not constitute notice hereunder):
Xxxxxxxx
& Xxxx LLP
000
Xxxx
Xxxx Xxxxxx
Xxxxxxxx,
XX 00000
Attn:
Xxxxxxx X. Xxxxxx, Esq.
Facsimile:
(000) 000-0000
If
to the
Indemnification Representatives:
Xxxxxx
Xxxxxxx
Xxxx
Xxxxx
c/o
KnowFat Franchise Company, Inc.
000
Xxxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx,
XX 00000
Facsimile:
(000) 000-0000
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 Representatives so long as such
successor is a bank with assets of at least $500 million, and may appoint any
other successor Escrow Agent with the consent of the Indemnification
Representativse, 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 Representatives.
(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 Escrow
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.
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IN
WITNESS WHEREOF, the parties have duly executed this Escrow Agreement as of
the
day and year first above written.
| UFOOD RESTAURANT GROUP, INC. | ||
| |
|
|
| By: | /s/ Xxxxx Xxxx | |
|
Name: Xxxxx Xxxx |
||
| Title: President | ||
| /s/ Xxxxxx Xxxxxxx | ||
|
Xxxxxx
Xxxxxxx, in his capacity as an
Indemnification
Representative
|
||
| |
|
|
| /s/ Xxxx Xxxxx | ||
|
Xxxx
Xxxxx, in his capacity as an
Indemnification
Representative
|
||
| GOTTBETTER & PARTNERS, LLP | ||
| |
|
|
| By: | /s/ Xxxx Xxxxxxxxxx | |
|
Name: Xxxx X. Xxxxxxxxxx, Esq. |
||
| Title: Partner | ||
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