ESCROW AGREEMENT
ESCROW
AGREEMENT, dated December 31, 2005 among Cancable Holding Corp., a Delaware
corporation (the “Purchaser”), Xxxxxxxxx Fund II Inc. (“Xxxxxxxxx”) and BMO
Capital Corporation (“BMO”, and together with Xxxxxxxxx, the “Stockholders” or
the “Sellers”) and Gowling Xxxxxxx Xxxxxxxxx LLP, as Escrow Agent (the “Escrow
Agent”).
The
Purchaser and the Sellers are parties to a Stock Purchase Agreement, dated
the
date hereof (as amended, supplemented or modified, the “Purchase Agreement”),
pursuant to which the Purchaser is acquiring all of the Interests held by the
Stockholders. The Purchase Agreement provides for the payment and delivery
by
the Purchaser of certain funds into the escrow hereby established, to be held
and dealt with by the Escrow Agent as herein provided. Unless otherwise
indicated, all capitalized terms used herein shall have the meanings ascribed
to
them in the Purchase Agreement.
Accordingly,
the parties agree as follows:
1. Establishment
of the Escrow Fund. Simultaneously
with the execution and delivery of this Agreement, the Purchaser is depositing
with the Escrow Agent the sum of ONE MILLION FOUR HUNDRED THOUSAND DOLLARS
($1,400,000) to secure the indemnification provisions of the Sellers set forth
in the Purchase Agreement. Such deposit, less any payments or
distributions pursuant to Sections 3.2 or 4 is herein called the “Escrow
Fund.” Any amounts earned from the investment of the Escrow Fund
(including amounts earned from investment of the interest earned on the Escrow
Fund) is herein called “Interest.” The Escrow Agent will hold, invest and
dispose of the Escrow Fund, and any accretions thereto or income with respect
thereto, in accordance with the terms and conditions hereof.
2. Investment
of the Escrow Fund.
2.1 Investment.
The Escrow Agent shall invest and reinvest as instructed by the Sellers from
time to time any or all of the Escrow Fund and Interest in interest-bearing
accounts, term deposits or guaranteed investment certificates with a Canadian
chartered bank or trust company.
2.2 Escrow
Ledger.
The Escrow Agent shall maintain and deliver to the Sellers and Purchaser upon
their respective request copies of a record of account for the Escrow Fund
(which may be in the form of standard bank statements).
3. Procedures
with Respect to Claims.
3.1 Claims
by the Purchaser.
If the Purchaser is entitled to be indemnified by the Sellers under Section
10.1
of the Purchase Agreement, the Purchaser shall give written notice to the
Sellers and the Escrow Agent of the Purchaser's right to such indemnification
(a
“Claim Notice”). Any such Claim Notice shall include the amount of the
indemnification payment that is claimed by the Purchaser and instructions from
the Purchaser to the Escrow Agent as to where such payments shall be made.
At
the Purchaser’s option, a Claim Notice may allocate (pro rata, in accordance
with Section 10.1 of the Purchase Agreement) the amount claimed as between
each
Seller. In that case, the Claim Notice shall be deemed to be two separate Claim
Notices (one with respect to each Seller) for all purposes of this Agreement.
In
addition, Claim Notices with respect to claims under Section 10.1(b) of the
Purchase Agreement arising from the breach by a Seller of any representation
or
warranty made in Section IV of the Purchase Agreement need not be provided
to
the non-breaching Seller.
3.2 Payment
of Claims under the Indemnification Provisions.
Unless the appropriate Seller(s) by written notice to the Purchaser and the
Escrow Agent object(s), in whole or in part, to the indemnification payment
requested in a Claim Notice within thirty (30) days after the Seller's receipt
of any Claim Notice, the Escrow Agent shall, after a lapse of such thirty
(30)-day period, deliver to the Purchaser an amount from the Escrow Fund equal
to the indemnification payment specified in such Claim Notice. If the Seller(s)
deliver(s) to the Purchaser and the Escrow Agent written notice of their
objection to a Claim Notice within such thirty (30)-day period, the Escrow
Agent
shall not release any amounts from the Escrow Fund or Interest with respect
to
such Claim Notice until (a) promptly following receipt by the Escrow Agent
of
unanimous written instructions from the Purchaser and the Seller(s) directing
that such a payment be made to the Purchaser, or (b) as directed by final order
of a court of competent jurisdiction which is not subject to further appeal
or
other appellate review; provided,
that
notwithstanding the foregoing, if the Seller(s) object(s) in part to the total
amount of the indemnification payment claimed in the Claim Notice, the Escrow
Agent shall, after the lapse of the aforesaid thirty (30)-day period, deliver
to
the Purchaser an amount from the Escrow Fund equal to the portion of the
indemnification payment specified in the Claim Notice not objected to by the
Seller(s). Any payments to the Purchaser under this Section 3.2 shall, unless
there is such an objection, be made to the Purchaser pursuant to the
instructions set forth in the Claim Notice. Any amount paid from the Escrow
Fund
pursuant to this Section 3.2 shall, for purposes of the indemnification
provisions of the Purchase Agreement, be attributed to the Seller(s) as
constituting satisfaction to that extent of their indemnification obligations
under the Purchase Agreement.
3.3 Indemnification
Payments in Excess of the Escrow Fund.
If at any time during the period that this Agreement is in effect the amount
of
any payment required to be made by the Escrow Agent to the Purchaser pursuant
to
Section 3.2 with respect to a Claim Notice exceeds the Value (as defined in
Section 9.1) of the Escrow Fund, the Escrow Agent shall pay to the Purchaser
the
entire Escrow Fund (plus any amount of Interest until such payment obligation
is
satisfied). Notwithstanding any such payment, the rights of the Purchaser under
the Purchase Agreement shall not be satisfied or extinguished, and the Purchaser
shall be entitled to recover from the Sellers the balance of any amounts owed
to
them thereunder.
4. Distributions.
4.1 Distribution
of the Escrow Fund and Interest to the Sellers.
Subject to the provisions of this Section 4, promptly following the date that
is
three months after the Closing Date, the Escrow Agent shall distribute to the
Sellers $400,000 from the Escrow Fund, less all claims made by the Purchaser
then pending against the Escrow Fund with respect to Sections 3.11, 3.12(c)
and 3.22 of the Purchase Agreement pursuant to Section 10.08(c) thereof.
Subject to the provisions of this Section 4, promptly following the date
that is twelve months after the Closing Date, the Escrow Agent shall distribute
to the Sellers the remaining amount of the Escrow Fund, if any, plus all accrued
Interest, less all Claims made by the Purchaser then pending against the Escrow
Fund. If any claims by the Purchaser are pending against the Escrow Fund at
the
time of such distribution, the balance of the Escrow Fund, if any, shall be
distributed promptly following such time as all claims by the Purchaser against
the Escrow Fund have been finally resolved.
4.2 Distribution
Notice.
Sellers shall give the Escrow Agent and Purchaser 30 days prior to each
distribution pursuant to Section 4.1 above written notice (the
“Distribution Notice”) that a pending distribution is required to be made to
Sellers pursuant to Section 4.1. Within twenty (20) days after receipt of such
notice, the Purchaser shall, by notice to the Escrow Agent with copies to the
Sellers (a “Distribution Reply”), state (a) its agreement that the amount
specified in the Distribution Notice (or any lesser portion thereof) is properly
distributable to the Sellers; or (b) that it disputes that the amount is
properly distributable to the Sellers and the reasons therefor. Failure by
the
Purchaser to give a Distribution Reply within the specified period shall be
deemed an agreement that the amount specified in the Distribution Notice is
properly distributable to the Sellers.
4.3 Payment
of Distributions.
If the
Purchaser gives notice of any dispute pursuant to Section 4.2, the parties
shall
attempt to resolve such dispute as promptly as possible. The Escrow Agent shall
make distributions of the Escrow Fund pursuant to this Section 4 to the Sellers
(a) promptly following agreement by the Purchaser pursuant to Section 4.2 to
such distribution; (b) promptly following receipt by the Escrow Agent of
unanimous written instructions from the Purchaser and the Sellers directing
that
such a payment be made to the Sellers; or (c) as directed by a final order
of a
court of competent jurisdiction; provided, that such order is not subject to
further appeal or other appellate review. The foregoing distribution shall
be
made to the Sellers at the address set forth in the Sellers’ instructions. The
Escrow Agent shall be entitled to rely on the information set forth in the
Sellers’ instructions. Distributions made pursuant to this Section 4 shall be
made to the Sellers in the proportions described in the Distribution
Notice(s).
5. Termination. Subject
to Section 6.3, this Agreement shall terminate upon the distribution of all
of
the Escrow Fund, Interest and any other sums held by the Escrow Agent pursuant
to this Agreement.
6. Duties
of
the Escrow Agent.
6.1 Duties
Limited.
The Escrow Agent shall perform only the duties expressly set forth herein (each
of which is ministerial and shall not be considered fiduciary in nature) and
shall not be liable except for the performance of such duties and obligations
as
are expressly and specifically set forth in the Agreement (subject to Section
6.3). The Escrow Agent does not have any interest in the Escrow Fund or Interest
but is serving as escrow holder only.
6.2 Reliance.
The Escrow Agent may rely upon (and assume the proper authorization of) and
shall be protected in acting or refraining from acting upon, any written notice,
instruction, instrument or request furnished to it hereunder and believed by
it
to be genuine and to have been signed or presented by the proper party or
parties. The Escrow Agent shall have no duty to make inquiry as to the
genuineness, accuracy or validity of any such notice, instruction, instrument
or
request or any signature thereon
6.3 Indemnification.
(a) The
Sellers and the Purchaser shall jointly and severally indemnify the Escrow
Agent
(and its partners, employees and agents) and hold them harmless against any
loss, liability, tax of any kind or expense incurred on its part arising out
of
or in connection with this Agreement, including the costs and expenses incurred
in defending any such claim of liability (including reasonable attorneys' fees
(whether incurred in an action between the Escrow Agent and the Sellers, the
Purchaser, a third party or otherwise) except to the extent that the Escrow
Agent has acted with gross negligence as determined by a final order of a court
of competent jurisdiction which is not subject to further appeal or appellate
review. In no event shall the Escrow Agent be liable for indirect, punitive,
special or consequential damage or loss (including but not limited to lost
profits) whatsoever, even if the Escrow Agent has been informed of the
likelihood of such loss or damage and regardless of the form of action. Each
of
the Purchaser and the Sellers acknowledge and agree that the Escrow Agent (i)
shall not be responsible for or required to take notice of the Purchase
Agreement, or for determining or compelling compliance therewith, and shall
not
otherwise be bound thereby and (ii) shall not be obligated to take any legal
or
other action hereunder which might in its judgment cause it to incur any expense
or liability unless it shall have been furnished with acceptable
indemnification. The Escrow Agent may consult with its own counsel, and shall
have full and complete authorization and protection for any action taken or
suffered in good faith and in accordance with the opinion of such counsel.
The
indemnification and agreement to hold the Escrow Agent harmless set forth in
this Section 6.3 shall survive the termination of this Agreement and the
resignation or termination of the Escrow Agent.
(b) Regardless
of the actual disposition of the Escrow Fund or Interest, the Sellers shall
be
considered the owner and recipient for the reporting of all income earned by
the
Escrow Fund or Interest for federal, state, local and foreign income tax
purposes.
7. Resignation
and Termination of the Escrow Agent.
7.1 Resignation.
The Escrow Agent may resign at any time by giving 30 days' notice of such
resignation to the Purchaser and the Sellers. Thereafter, the Escrow Agent
shall
have no further obligation hereunder except to hold the Escrow Fund as
depository. In such event the Escrow Agent shall not take any action until
the Purchaser and the Sellers have jointly designated a banking corporation,
trust company, attorney or other person as successor Escrow Agent. Upon
receipt of such joint instructions, the Escrow Agent shall promptly deliver
the
Escrow Fund and all Interest to such successor Escrow Agent and shall thereafter
have no further obligations hereunder.
7.2 Termination.
The Purchaser and the Sellers together may terminate the appointment of the
Escrow Agent hereunder upon notice specifying the date upon which such
termination shall take effect. In the event of such termination, the
Purchaser and the Sellers shall within 30 days of such notice jointly appoint
a
successor Escrow Agent and the Escrow Agent shall promptly deliver to such
successor Escrow Agent the Escrow Fund and Interest. Upon receipt of the funds,
the successor Escrow Agent shall thereupon be bound by all of the provisions
hereof.
8. Fees
and Expenses.
The
Purchaser and Sellers shall split all expenses, disbursements and advances
incurred in carrying out the Escrow Agent’s duties hereunder, (with 50% for the
Purchaser’s account, 50% for Xxxxxxxxx’x and BMO’s account).
9. Miscellaneous.
9.1 Certain
Definitions.
As used in this Agreement, the following terms have the following meanings
unless the context otherwise requires:
(i) “Value”
means
with respect to the Escrow Fund, any asset thereof or the Interest as at any
date, means the market value thereof determined by the Escrow Agent, whose
determination with respect thereto shall be final.
9.2 Notices.
Any notice or other communication required or which may be given hereunder
shall
be in writing and shall be delivered personally, or sent by certified,
registered or express mail, postage prepaid, and shall be deemed given when
so
delivered personally, or if mailed, five days after the date of mailing, as
follows:
(i)
if
to the
Purchaser to:
Cancable
Holding Corp.
0000
Xxxxxx Xxxxxx, Xxxxx 0-00
Xxxxxx,
Xxxxxxx X0X 0X0, Xxxxxx
Telephone:
(000)-000-0000
Attn:
Chief Financial Officer
with
a
copy to:
Torys
LLP
000
Xxxx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attn:
Xxxxxx X. Xxxx, Esq.
(ii)
if
to the
Escrow Agent to:
Gowling
Xxxxxxx Xxxxxxxxx LLP
0
Xxxxx
Xxxxxxxx Xxxxx, Xxx. 0000
000
Xxxx
Xxxxxx Xxxx
Xxxxxxx,
Xxxxxxx X0X 0X0
Attn:
Xxxx X. Xxxxxxxx, Esq.
(iii)
if
to the
Sellers to:
Xxxxxxxxx
Fund II Inc.
Xxxxx
0000
000
Xxxxx
Xxxxxx Xxxx
Xxxxxxx,
XX X0X 0X0
Attn:
Xxxx Xxxx
and
BMO
Capital Corporation
000
Xxxx
Xxxxxx Xxxx
11th
Floor, First Canadian Place
Toronto,
ON M5X 1A1
Attn:
Xxxxxx XxXxxxxxxx
with
a
copy to:
Gowling
Xxxxxxx Xxxxxxxxx LLP
0
Xxxxx
Xxxxxxxx Xxxxx, Xxx. 0000
000
Xxxx
Xxxxxx Xxxx
Xxxxxxx,
Xxxxxxx X0X 0X0
Attn:
Xxxx X. Xxxxxxxx, Esq.
Any
party
may by notice given in accordance with this Section to the other parties
designate another address or person for receipt of notice.
9.3 Entire
Agreement.
This
agreement is entered into and delivered pursuant to the Purchase Agreement
and
contains the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements, written or oral, with respect
thereto.
9.4 Waivers
and Amendments.
This Agreement may be amended, modified, superseded, canceled, renewed or
extended, and the terms and conditions hereof may be waived, only by a written
instrument signed by the parties hereto, or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor
shall
any waiver on the part of any party or any right, power or privilege hereunder,
nor any single or partial exercise of any right, power or privilege hereunder,
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder.
9.5 Governing
Law.
This Agreement shall be governed by and construed in accordance with the laws
of
the Province of Ontario and the laws of Canada applicable therein, without
prejudice to or limitation of any other rights or remedies available under
the
laws of any jurisdiction where Property or assets of the parties hereto may
be
found and without regard to principles of conflict of law. Each of the parties
hereto irrevocably submits to the non-exclusive jurisdiction of the courts
of
the Province of Ontario and hereby irrevocably agrees that all claims in respect
of such action or proceeding may be heard and determined in such court. Each
of
the parties hereto hereby irrevocably waives, to the fullest extent it may
effectively do so, the defense of an inconvenient forum to the maintenance
of
such action or proceeding. Each of the parties hereto hereby irrevocably
consents to the service of any and all process in such action or proceeding
by
the delivery of such process to each of the parties hereto at its address
provided in accordance with Section 9.2 hereof.
9.6 Assignment.
The Agreement shall be binding upon the successors, legal representatives and
permitted assigns of the parties. This Agreement is not assignable except
by operation of law except that the Purchaser may assign any or all of its
rights, together with its obligations hereunder, to any of its affiliates or
to
any successor to all or a portion of its business.
9.7 Further
Assurances.
Each of the Purchaser and the Sellers shall execute such documents and other
papers and take such further actions as may be reasonably required to carry
out
the provisions hereof and the transactions contemplated hereby.
9.8 Variations
in Pronouns.
All pronouns and any variations thereof refer to the masculine, feminine or
neuter, singular or plural, as the identity of the person or persons may
require.
9.9 Severability.
If any
provision of this Agreement or the application thereof to any circumstance
is
held invalid, such invalidity shall not affect any other provision which can
be
given effect without the invalid provision or application, and to this end
the
provisions hereof shall be severable.
9.10 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.
9.11 Headings.
The headings in this Agreement are for reference purposes only and shall not
in
any way affect the meaning or interpretation of this Agreement.
[Remainder
of Page Intentionally Left Blank.]
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.
| CANCABLE HOLDING CORP. | ||
| |
|
|
| By: | /s/ Xxxxx Xxxxxxxxxx | |
|
Name: Xxxxx Xxxxxxxxxx |
||
| Title: Chairman and CEO | ||
| XXXXXXXXX FUND II INC. | ||
| |
|
|
| By: | /s/ Xxxx Xxxx | |
|
Name: Xxxx Xxxx |
||
| Title: | ||
| BMO CAPITAL CORPORATION | ||
| |
|
|
| By: | /s/ Xxxxxx XxXxxxxxxx | |
|
Name: Xxxxxx XxXxxxxxxx |
||
| Title: Director | ||
| GOWLING XXXXXXX XXXXXXXXX LLP | ||
| |
|
|
| By: | /s/ Xxxx Xxxxxxxx | |
|
Name: Xxxx Xxxxxxxx |
||
| Title: Partner | ||
[Signature
Page to Escrow Agreement]
