INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement"), dated as of March
31, 1998 is among the undersigned shareholders (each a "Shareholder") of RM
Electronics Inc., a New Hampshire corporation d/b/a Personal Electronics, Inc.
("Personal Electronics"), and EFTC Corporation, a Colorado corporation
("Parent").
RECITALS
A. Pursuant to the Agreement and Plan of Reorganization, dated as of
March 30, 1998 (the "Reorganization Agreement") among Parent, RM Acquisition
Corporation, a New Hampshire corporation and a wholly owned subsidiary of Parent
("Merger Sub"), and Personal Electronics, the Shareholders will receive shares
of Common Stock, $.01 par value, of Parent ("Parent Common Stock") in exchange
for their shares of Common Stock, no par value, of Personal Electronics
("Personal Electronics Stock"). Capitalized terms used herein without definition
have the meanings ascribed thereto in the Reorganization Agreement.
B. In consideration of Parent entering the Reorganization Agreement and
to induce Parent to consummate the transactions contemplated thereby, the
Indemnitors are making certain representations and warranties set forth herein
and indemnifying Parent with respect to certain matters under the Reorganization
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, covenants and agreements contained herein, the parties hereto
agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
1.1 Due Authorization; Enforceability; No Conflict. Each of the
Shareholders represents and warrants to Parent that such Shareholder has the
full power and authority to execute and deliver this Agreement and to perform
such Shareholder's obligations hereunder and has taken all actions necessary to
secure all approvals required in connection therewith. This Agreement has been
duly executed and delivered by such Shareholder and constitutes the valid and
binding obligation of such Shareholder enforceable against such Shareholder in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar statutes or rules of law affecting creditors' rights generally or
by general principles of equity. The execution and delivery of this Agreement
does not, and the performance hereof will not: (a) violate or conflict with any
permit, order, license, decree, judgment, statute, law, ordinance, rule or
regulation applicable to such Shareholder or (b) result in any breach or
violation of, or constitute a default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of, or result in the creation of any mortgage, pledge, lien,
encumbrance, charge, or other security interest (a "Lien") on any of the
properties or assets of
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such Shareholder pursuant to, or require the consent of any party to any
mortgage, indenture, lease, contract or other agreement or instrument, bond,
note, concession or franchise applicable to such Shareholder or any of such
Shareholder's properties or assets, except, in the case of this clause (c) only,
where such conflict, violation, default, termination, cancellation or
acceleration would not have and could not reasonably be expected to prevent
Parent from realizing the benefits of this Agreement. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
court, administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity") is required by or with respect to such
Shareholder in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated by the Reorganization
Agreement, including the payment and performance of all payment and other
obligations hereunder.
1.2 Other Representations and Warranties of Personal Electronics
Shareholders. Each of the Shareholders represents and warrants to Parent that
such Shareholder has not incurred, and will not incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or
investment bankers' fees or any similar charges (except as specified in Section
4.28 of the Reorganization Agreement) in connection with this Agreement or any
transaction contemplated by the Reorganization Agreement, including the payment
and performance of all payment and other obligations hereunder.
ARTICLE II
SURVIVAL; INDEMNIFICATION
2.1 Indemnification. (a) In the event Personal Electronics breaches a
covenant, or if any representation or warranty of Personal Electronics in the
Reorganization Agreement is inaccurate (and, if there is an applicable survival
period pursuant to Section 11.1 (Survival of Representations and Warranties) of
the Reorganization Agreement, provided that Parent makes a written claim for
indemnification against any Shareholder within the applicable survival period),
then each Shareholder shall indemnify and hold Parent harmless from and against
such Shareholder's Pro Rata Share (as defined in Section 2.1(b)) of any action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand,
injunction, judgment, order, decree, ruling, damage, dues, penalty, fines,
costs, amounts paid in settlement, liabilities, obligations, Taxes, Liens,
losses, expenses and fees, including court costs and attorneys' fees and
expenses (collectively, "Losses") that Parent or any of its subsidiaries may
suffer through and after the date of the claim for indemnification (including
any Losses Parent or its subsidiaries suffer after the end of any applicable
survival period) caused by or arising out of any such breach or inaccuracy.
Notwithstanding the foregoing, any claim for indemnification against the
Shareholders hereunder shall be payable by the Shareholders only in the event,
and to the extent, that the accumulated amount of claims (measured, in the case
of losses arising from a breach of a representation or warranty, without regard
to any threshold determined with reference to "materiality' or a Material
Adverse Effect) in respect of the Shareholders' obligations to indemnify
hereunder shall exceed the amount of $250,000 in the aggregate (the
"Indemnification Threshold"). In addition, the aggregate liability of the
Shareholders for amounts in excess of the Indemnification Threshold
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shall not exceed an amount equal to 10% of the product of the Average Price Per
Share and the number of shares of the Parent Common Stock comprising the Merger
Consideration determined pursuant to Section 3.1(a) of the Reorganization
Agreement, unless such Losses are caused by or arise out of any breach or
inaccuracy that Personal Electronics or any Shareholder intentionally failed to
disclose at the time the Reorganization Agreement was entered into or at the
Effective Time, in which case the Indemnification Threshold shall not apply and
there shall be no limitation on the aggregate liability of the Shareholders
hereunder. No Losses incurred or amounts paid under Section 2.7 shall apply to
satisfying the Indemnification Threshold or the limitation on aggregate
liability contained in this Section 2.1(a).
(b) The term "Shareholder's Pro Rata Share" means, with respect to any
Shareholder, that fraction equal to the number of shares of Parent Common Stock
received by such Shareholder over the aggregate number of shares of Parent
Common stock comprising the Merger Consideration (as determined pursuant to
Section 3.1 of the Reorganization Agreement).
(c) If Parent has a claim for Losses pursuant to this Article II that
does not involve a Third Party Claim (as defined in Section 2.2(a)), Parent
shall notify the Representative (as defined in Section 2.3(a)) of such claim,
specifying the nature of the Losses and the amount or estimated amount thereof
if feasible. If the Representative does not notify Parent within 45 days from
the date it receives such notice that the Representative disputes such claim,
the amount of such claim shall be conclusively deemed a liability of the
Shareholders under this Agreement. Nothing herein shall be deemed to prevent
Parent from making a claim for potential or contingent Losses.
(d) For so long as any Shareholder holds any Parent Common Stock
received as Merger Consideration, payment of any indemnified amount hereunder to
Parent shall be made in the form of such Parent Common Stock, which shall be
valued for such purpose at the Average Price Per Share.
2.2 Third Party Claims. (a) If any third party notifies Parent with
respect to any matter that may give rise to a claim for indemnification against
any Shareholder under this Article II (a "Third Party Claim"), then Parent shall
promptly notify the Representative thereof in writing (a "Notice of Claim"). The
Representative will have the right to assume and thereafter conduct the defense
of the Third Party Claim with counsel of the Representative's choice reasonably
satisfactory to Parent so long as: (i) the Representative notifies Parent in
writing within ten (10) business days after Parent has given the Notice of Claim
that the Shareholders will indemnify the Parent from and against the entirety of
any Losses Parent may suffer caused by or arising from the Third Party Claim,
(ii) the Representative provides Parent with evidence reasonably acceptable to
Parent that the Shareholders will have the financial resources to defend against
the Third Party Claim and fulfill their indemnification obligations hereunder,
(iii) the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (iv) settlement of, or an adverse judgment
with respect to, the Third Party Claim is not, in the good faith judgment of
Parent, likely to establish a precedent, custom or practice materially adverse
to the continuing business, operations, assets, prospects or interests of Parent
or its subsidiaries, and (v) the Representative conducts the defense of the
Third Party Claim
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actively and diligently. In the event of a Third Party Claim that seeks an
injunction or other equitable relief, the Representative will be entitled to
participate with Parent in the defense of such Third Party Claim.
(b) While the Representative is conducting the defense of the Third
Party Claim: (i) Parent may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (ii) Parent
will not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Representative, which consent will not be unreasonably withheld, and (iii) the
Representative will not consent to the entry of any judgment or enter any
settlement with respect to the Third Party Claim without the prior written
consent of Parent, which consent will not be unreasonably withheld.
(c) If any condition under Section 2.2(a) is or becomes unsatisfied:
(i) Parent may defend against the Third Party Claim in any manner it reasonably
may deem appropriate, (ii) Parent will not consent to entry of any judgment or
enter into any settlement without the prior written consent of the Shareholders,
which consent will not be unreasonably withheld, (iii) each Shareholder will
reimburse Parent the Shareholder's Pro Rata Share within 30 days of receipt of
the written request of Parent for the costs of defending against the Third Party
Claim, including reasonable attorneys' fees and expenses, and (iv) the
Shareholders will remain responsible for any Losses Parent may suffer caused by
or arising from the Third Party Claim to the fullest extent provided by this
Article II.
2.3 Representative. (a) To the fullest extent permitted by law, each
Shareholder hereby irrevocably constitutes and appoints Xxxxxx Xxxxxx as such
Shareholder's attorney-in-fact and legal and judicial representative (the
"Representative"), with full power of substitution, for the purposes of: (i)
receiving all notices and communications directed to any Shareholder under this
Agreement and taking any action (or determining to take no action) with respect
thereto as the Representative may deem appropriate, including the settlement or
compromise on behalf of any Shareholder of any Third Party Claim or Losses, and
(ii) executing and delivering on behalf of any Shareholder all instruments and
documents of every kind the Representative may deem necessary or advisable to
accomplish the foregoing. Each Shareholder hereby ratifies and confirms, as the
Shareholder's own act, all that the Representative shall do or cause to be done
pursuant to this Agreement.
(b) If the Representative resigns, Xxxxxxx Xxxxxxxx shall automatically
become the successor representative (the "Successor Representative"). The
resigning Representative's resignation shall not be effective until the
Successor Representative shall have agreed in writing to accept such
appointment. If the Representative should die or become incapacitated, Xxxxxxx
Xxxxxxxx shall automatically become the Successor Representative. Upon
acceptance by a Successor Representative of the Successor Representative's
appointment, the appointment shall be final and binding on the Shareholders.
(c) Each Shareholder irrevocably agrees that with respect to any Third
Party Claim or any claim for indemnification hereunder, any service of process,
writ, judgment or other notice of
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legal process shall be deemed and held in every respect to be effectively served
upon the Shareholder if delivered by registered or certified mail, postage
prepaid with return receipt requested to the Representative at the
Representative's address set forth in Section 4.1, whom each Shareholder
irrevocably appoints as its authorized agent for service of process.
(d) The death or incapacity of any Shareholder shall not terminate the
authority and agency of the Representative.
(e) Each Shareholder hereby agrees to indemnify the Representative and
to hold the Representative harmless against any loss, liability or expense
incurred without negligent conduct or bad faith on the part of the
Representative and arising out of or in connection with his duties as
Representative, including court costs and attorneys' fees and expenses incurred
by the Representative in defending against any Third Party Claim or Losses in
connection with this Agreement, unless the Representative shall have received
written notice from the other Shareholder to the effect that the Representative
no longer represents the other Shareholder.
2.4 Payment Terms. If all or part of any indemnification obligation
under this Agreement is not paid the forty-fifth day after the date of the
applicable judgment or settlement or notice given by Parent under Section 2.1(c)
(if Parent has a claim for Losses pursuant to this Article II that does not
involve a Third Party Claim), the Shareholders shall pay Parent interest
thereon, payable on demand, for each day from such forty-fifth day until the
date of payment in full at a rate of 10% per annum.
2.5 Other Indemnification Matters. Parent's claims pursuant to the
foregoing indemnification provisions shall not be limited by any examination
made by or on behalf of Parent or its subsidiaries, the knowledge of Parent or
it subsidiaries or any of their respective officers, directors, stockholders,
employees or agents, or the acceptance by Parent of any certificate or opinion.
Section 2.6 Special Covenant. The Shareholders, jointly and severally,
agree to take all actions necessary or appropriate, in consultation with Parent,
to cure any and all defects in the status of Personal Electronics as an S
Corporation within the meaning of Section 1361 of the Code at all times from its
inception through the Effective Time; provided, however, that the Shareholders
shall take no action as to which Parent reasonably objects. All such actions
shall be taken at the personal cost and expense of the Shareholders.
Section 2.7 Special Indemnification. In the event Personal Electronics
breaches the representation and warranty contained in the first sentence of
Section 4.17 of the Reorganization Agreement (without regard to any
qualification thereof contained in the Personal Electronics Disclosure Schedule)
or the Shareholders breach the covenant contained in Section 2.6 of this
Agreement, then each Shareholder shall indemnify and hold Parent harmless from
and against such Shareholder's Pro Rata Share of any and all Losses that Parent
or any of its subsidiaries may suffer through and after the date of the claim
for indemnification caused by or arising out of any such breach. Notwithstanding
the foregoing, the aggregate liability of the Shareholders under this Section
2.7 shall not exceed $6.0 million, and the aggregate liability of each
Shareholder
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under this Section 2.7 shall not exceed $3.0 million. The obligations of the
Shareholders with respect to the representation and warrant contained in the
first sentence of Section 4.17 shall continue until the expiration of any
applicable statute of limitations notwithstanding any prior termination or
limitation on survival contained in the Reorganization Agreement. For the
avoidance of doubt, the limitations on the obligations of the Shareholders
otherwise contained in this Article II shall not apply to this Section 2.7.
ARTICLE III
DISPUTE RESOLUTION
3.1 Remedies. Parent may proceed to enforce the obligations of the
Shareholders hereunder in any court or other tribunal by an action at law, suit
in equity or other appropriate proceedings, whether for damages, for the
specific performance of any term hereof, or otherwise, or in aid of the exercise
of any power granted hereby or by law. In the event of any such proceeding, the
prevailing party in such proceeding shall be entitled to receive from the losing
party all reasonable costs and expenses, including the reasonable fees of
attorneys, accountants, and other experts, incurred by the prevailing party in
investigating and prosecuting (or defending) such action at trial or upon any
appeal. The amount of any such costs or expenses awarded hereunder shall not be
subject to the limitations on liability contained in Section 2.1.
3.2 Jurisdiction and Consent to Suit. Any action, suit or proceeding by
Parent to enforce this Agreement may be brought in the District Court in and for
the City and County of Denver, State of Colorado, in the United States District
Court for the District of Colorado or in any other court in which venue and
jurisdiction are proper. Each Shareholder and the Representative consent and
submit to the non-exclusive jurisdiction in personam of any such court in
respect of any such action, suit or proceeding.
ARTICLE IV
GENERAL PROVISIONS
4.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail, return receipt
requested, or sent via facsimile, with confirmation of receipt, to the parties
at the following address or at such other address for a party as shall be
specified by notice hereunder:
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(a) if to Parent, to:
EFTC Corporation
0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Holme Xxxxxxx & Xxxx LLP
0000 Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Facsimile No.: (000) 000-0000
(b) if to the Shareholders, to the Representative:
Personal Electronics, Inc
0 Xxxxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Ropes & Xxxx
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attention Xxxxxxxx X. Xxxxx, Xx.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
4.2 Interpretation. When a reference is made in this Agreement to
Articles or Sections, such reference shall be to an Article or Section to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The table of contents and Article and Section
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. In this
Agreement, any reference to any event, change, condition or effect being
"material" with respect to any entity or group of entities means any material
event, change, condition or effect related to the condition (financial or
otherwise), properties, assets (including intangible assets), liabilities,
business, operations or results of operations of such entity or group of
entities. In this Agreement, any
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reference to a party's "knowledge" means such party's actual knowledge of a
particular fact or matter after due and diligent inquiry of officers, directors
and other employees of such party reasonably believed to have knowledge of such
matters. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms, and with respect to the
parties shall include where the context does not prohibit, their respective
permitted successors and assigns.
4.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to the other parties hereto, it being
understood that all parties hereto need not sign the same counterpart.
4.4 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement, the Reorganization Agreement and the documents and instruments and
other agreements specifically referred to herein or delivered pursuant hereto:
(a) constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties hereto with respect to the subject
matter hereof; (b) are not intended to confer upon any other person any rights
or remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided. This Agreement will bind
and inure to the benefit of the respective successors and assigns of the parties
hereto, whether so expressed.
4.5 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties hereto further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
4.6 Remedies Cumulative; No Waiver. Any and all remedies herein or in
the Reorganization Agreement expressly conferred upon a party shall be the sole
and exclusive remedy for all Losses or other liability sustained or incurred by
Parent as the result of any breach of a representation, warranty or covenant of
Personal Electronics or the Shareholders contained in this Agreement or in the
Reorganization Agreement or any other document contemplated thereby, other than
the Registration Rights Agreement; provided that nothing contained herein shall
be deemed to limit any right or remedy of Parent based on an assertion of fraud
or other tortious acts. No failure or delay on the part of any party hereto in
the exercise of any right hereunder shall impair such right or be construed to
be a waiver of, or acquiescence in, any breach of any representation, warranty
or agreement herein, nor shall any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right.
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4.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado (without regard to the
principles of conflicts of law thereof).
4.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
IN WITNESS WHEREOF, the parties hereto have caused this Indemnification
Agreement to be executed and delivered as of the date first written above.
Parent:
EFTC CORPORATION,
a Colorado corporation
By: /s/ Xxxx Xxxxxxxx
Name: Xxxx Xxxxxxxx
Title: President and CEO
Shareholders:
/s/ Xxxxxxx Xxxxxxxx
Xxxxxxx Xxxxxxxx
/s/ Xxxxxx Xxxxxx
Xxxxxx Xxxxxx
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