EXECUTION COPY
INDEMNIFICATION AND ESCROW AGREEMENT dated as of November
5, 1999 (this "Agreement"), among LYCOS, INC., a Delaware
corporation ("Parent"), STATE STREET BANK AND TRUST COMPANY, as
Escrow Agent (the "Escrow Agent"), the shareholders of the
Company (as defined below) listed on the signature pages hereto
(the "Principal Shareholders") and ▇▇▇▇▇▇ ▇▇▇▇▇, as
representative of the Principal Shareholders.
WHEREAS Parent, Quicksilver Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Parent ("Sub"), and ▇▇▇▇▇.▇▇▇,
Inc. the Company, a California corporation (the "Company"), are parties to the
Agreement and Plan of Merger dated as of September 2, 1999 (as the same may be
amended or supplemented, the "Merger Agreement") providing for the merger of
Sub with and into the Company (the "Merger") upon the terms and subject to the
conditions set forth in the Merger Agreement;
WHEREAS, the Merger Agreement provides that as of the Effective Time
(such term and each other term used but not defined herein shall have the
meaning assigned to it in the Merger Agreement; notwithstanding the foregoing,
the Escrow Agent will have no duty to read or interpret the Merger Agreement
and may rely on the use of such defined terms in any communication received by
it), share certificates representing 10% of the shares (the "Escrow Shares" or
the "Escrow Fund") of Parent Common Stock to be issued in the Merger in
accordance with the terms of the Merger Agreement, shall be deposited in
escrow, to be held and disposed of by the Escrow Agent as provided herein; and
WHEREAS, Parent, the Principal Shareholders and the Representative
desire the Escrow Agent to serve as the escrow agent, and the Escrow Agent is
willing to do so, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, it is agreed:
ARTICLE I
Indemnification
SECTION 1.01. Survival of Covenants, Agreements, Representations and
Warranties. For purposes
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of this Agreement (and notwithstanding anything to the contrary provided under
applicable law or in the Merger Agreement), the representations, warranties,
covenants and agreements of the Company contained in the Merger Agreement or
in any certificate or other document delivered pursuant thereto or in
connection therewith (other than any representation, warranty, covenant or
agreement contained in any agreement specifically listed on the Company
Disclosure Schedule) shall be deemed to survive the Closing and to remain in
full force and effect for the period set forth in Section 1.04, regardless of
any investigation made by or on behalf of any party hereto; provided that any
and all rights of indemnification and any and all other remedies relating
thereto shall be subject to Section 1.04 and all other limitations contained
in this Agreement.
SECTION 1.02. Indemnification by the Principal Shareholders. (a)
"Losses" of any person shall mean any and all demands, claims, suits, actions,
causes of action, proceedings, assessments, losses, damages, liabilities,
Taxes, costs and expenses incurred by such person, including interest,
penalties, fines, judgments, awards and financial responsibility for
investigation and cleanup costs. "Losses" of Parent or its Affiliates (other
than the Company) shall also include any Losses incurred by the Company or its
subsidiaries (provided that the existence of any such breach or inaccuracy of
any such representation or warranty set forth in Section 1.02(c)(i) shall be
determined on the basis set forth in such Section 1.02(c)(i)). As used in this
Article I, an "Affiliate" of Parent shall include any direct or indirect
subsidiary of Parent and any officer, director or employee of Parent or any
such subsidiary. As used in this Article I, an "Indemnifying Party" shall
mean, with respect to any Loss, the person or persons that have agreed to
indemnify and hold harmless Parent and its Affiliates with respect to such
Loss pursuant to Section 1.02(b), (c) or (d), as provided below.
(b) Each Principal Shareholder agrees, severally and not jointly,
only as to itself, to indemnify and hold harmless each Indemnitee (such term
and each other term used herein but not defined in the Merger Agreement shall
have the meaning assigned to it in Article VIII or elsewhere herein) from and
against any and all Losses (other than Losses relating to Taxes, for which
indemnification provisions are set forth in Section 1.02(d)) asserted against,
imposed upon, or incurred by such Indemnitee which arise out of or in
connection with:
(i) the failure by such Principal Shareholder to perform any
covenant, agreement, obligation or undertaking in this Agreement or in
any certificate, instrument, document or agreement delivered by such
Principal Shareholder pursuant to or in connection with this Agreement;
and
(ii) any and all actions, suits, proceedings, demands, assessments,
judgments, damages, awards, costs and expenses (including fees) incident
to any of the foregoing or incurred in connection with the enforcement of
the rights of any Indemnitee with respect to the foregoing.
(c) Each Principal Shareholder agrees, severally and not jointly, to
indemnify and hold harmless, from and after the Effective Time, each
Indemnitee from and against any and all Losses (other than Losses relating to
Taxes, for which indemnification provisions are set forth in Section 1.02(d))
asserted against, imposed upon, or incurred by such Indemnitee which arise out
of or in connection with:
(i) any inaccuracy in, or any breach of, any representation or
warranty of the Company contained in the Merger Agreement, or in any
certificate, instrument, document or agreement delivered by the Company
pursuant to or in connection with the transactions contemplated thereby
(it being agreed that for purposes of determining the existence of any
such inaccuracy or breach, all such representations and warranties of the
Company that are directly or indirectly qualified as to materiality shall
be deemed to be not so qualified);
(ii) the failure by the Company to perform any covenant or agreement
in the Merger Agreement or in any certificate delivered by the Company
pursuant to the Merger Agreement, in each of the above cases which is
required to be performed at or prior to the Effective Time;
(iii) any and all actions, suits, proceedings, demands, assessments,
judgments, damages, awards, costs and expenses (including reasonable
attorney fees) incident to any of the foregoing or incurred in connection
with the enforcement of the rights of any person indemnified under this
Section with respect to the foregoing;
(iv) any obligation of the Company to pay royalties to ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ pursuant to the Software Marketing Agreement dated March 11,
1997, by and between ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇.▇▇▇, Inc.;
(v) any termination by ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ of the Software Tools
License Agreement dated April 2, 1997, by and between ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
and ▇▇▇▇▇▇'▇ Software, Inc.; and
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(vi) the termination by Parent or the Company after the Effective
Time of ▇▇. ▇▇▇▇▇▇ ▇▇▇▇, Mr. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ and Ms. ▇▇▇▇▇ ▇▇▇▇▇▇ or any of them (including, without
limitation, any severance or other termination payments resulting
therefrom).
(d) (i) Each Principal Shareholder agrees, severally and not
jointly, to indemnify and hold harmless, from and after the Effective Time,
each Indemnitee from and against, (A) all liability for Taxes of the Company
and any of its subsidiaries for the Pre-Closing Tax Period; (B) all liability
for Taxes (as a result of Treasury regulation Section 1.1502-6 or any
comparable provision of state, local or foreign Tax law) of any person which
at any time prior to the Closing is or has ever been affiliated with the
Company or any of its subsidiaries or with which at any time prior to the
Closing the Company or any of its subsidiaries joins or has ever joined or is
or has ever been required to join in filing any affiliated, consolidated,
combined, unitary or aggregate Tax Return; (C) all liability for Taxes that
result from the Company's (or any of its subsidiaries') failure to withhold
from amounts paid by the Company or any of its subsidiaries prior to the
Closing Date; (D) all liability for Taxes of the Company or any of its
subsidiaries for any Post-Closing Tax Period that result by reason of the
application in a Pre-Closing Tax Period of Section 481 of the Code or any
comparable provisions of state, local, domestic or foreign Tax law; (E) all
liability for Taxes of the Company as a result of a breach of a representation
or warranty set forth in Section 3.07 of the Merger Agreement; (F) all
liability for Taxes required to be paid after the Closing Date by the Company
or any of its subsidiaries under any Tax sharing, Tax indemnity, Tax
allocation or similar contract (whether or not written) to which the Company
or any of its subsidiaries is or was a party prior to the Closing; and (G) all
liability for reasonable legal and accounting fees and expenses for or with
respect to any item in clause (A), (B), (C), (D), (E) or (F) above.
(ii) In the case of any taxable period that includes (but does not
end on) the Closing Date (a "Straddle Period"): (A) real, personal and
intangible property Taxes ("Property Taxes") of the Company with respect
to which the Indemnitees shall be indemnified shall be equal to the
amount of such Property Taxes for the entire Straddle Period multiplied
by a fraction, the numerator of which is the number of days during the
Straddle Period that are in the Pre-Closing Tax Period
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and the denominator of which is the number of days in the Straddle
Period; and (B) the Taxes of the Company (other than Property Taxes) for
the Pre-Closing Tax Period shall be computed as if such Taxable period
ended as of the close of business on the Closing Date, and, in the case
of any Taxes of the Company attributable to the ownership by the Company
of any equity interest in any partnership or other "flowthrough" entity,
as if a Taxable period of such partnership or other "flowthrough" entity
ended as of the close of business on the Closing Date. All
indemnification payments hereunder shall be due on the later of (i) the
date on which the relevant Taxes are required to be paid to the relevant
Taxing Authority (including with respect to estimated Taxes) and (ii)
five business days after Parent notifies the Representative that such
Taxes are due (and the amount thereof).
(iii) Any refund or credit of Taxes of the Company or any of its
subsidiaries for a Pre-Closing Tax Period with respect to which the
relevant Tax Return was filed by Parent or its subsidiaries after the
Effective Time shall be for the account of a Principal Shareholder but
only (x) if such refund or credit is received, or a claim with respect to
such refund or credit is filed with the relevant Taxing Authority, on or
before the close of business on the third anniversary of the Effective
Time and (y) to the extent that the amount of such refund or credit does
not exceed the aggregate amount of indemnification payments made
hereunder by such Principal Shareholder with respect to such Tax for the
relevant taxable period. Any refund or credit of Taxes of the Company or
any of its subsidiaries for a Straddle Period that meets the requirements
of clauses (x) and (y) above shall be equitably apportioned between
Parent or its subsidiaries, on the one hand, and the relevant Principal
Shareholder, on the other hand.
(e) For the purposes of the indemnity provided in this Section 1.02,
any Losses hereunder shall be determined on the basis of the net effect
after giving effect to any actual cash payments, setoffs or recoupment or
any payments in each case actually received, realized or retained by the
Indemnitee as a result of any eventgiving rise to a claim for such
indemnification. The amount of any Losses for which indemnification is
provided hereunder shall be net of any amount recovered by the Indemnitee
under insurance policies with respect to such Losses. To the extent that
an Indemnitee (or its Affiliate) has rights under insurance policies or
similar rights in respect of any Loss it shall use its commercially
reasonable efforts to exercise such
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rights. No claim for indemnification under this Article I (other than
Sections 1.02(c)(vi) and 1.02(d)) shall be brought under this Agreement
(x) unless and until the aggregate amount of all claims for
indemnification under this Article I (other than Sections 1.02(c)(vi) and
1.02(d)) exceeds $150,000, and then only to the extent of any such excess
or (y) for any individual item where the Loss relating thereto is less
than $25,000.
(f) All Losses (including Losses relating to Taxes) under this
Article I shall be calculated in a manner such that the net after-Tax effect
of the indemnification payment received by an Indemnitee equals the net
after-Tax Loss (including any Loss relating to Taxes) suffered or payable by
such Indemnitee for which such indemnification payment is being made. Without
limiting the generality of the foregoing, for the purposes of the indemnity
provided in this Section 1.02, all Losses (including Losses relating to Taxes)
hereunder shall be increased to take into account any net Tax cost incurred by
the Indemnitee as a result of the receipt or accrual of such indemnification
payment. Any indemnification payment hereunder shall initially be made without
regard to this paragraph and shall later be adjusted to reflect any net Tax
cost or net Tax benefit only after the Indemnitee has actually realized such
cost or benefit. For purposes of this agreement, the Indemnitee shall be
deemed to have "actually realized" a net Tax cost or a net Tax benefit to the
extent that, and at such times as, the amount of Taxes payable by such
Indemnitee is increased above or reduced below, as the case may be, the amount
of Taxes that such Indemnitee would be required to pay but for the receipt or
accrual of the indemnification payment or the payment or incurrence of such
Loss. Any indemnification payment under this Agreement shall be treated as an
adjustment to purchase price.
SECTION 1.03. Third-Party Claims. (a) If a claim by a third party (a
"Third Party Claim") is made against Parent or any of its Affiliates arising
out of a matter for which Parent or such Affiliate is entitled to be
indemnified pursuant to Section 1.02, Parent shall promptly notify the
Representative in writing of such claim. The failure to notify promptly the
Representative hereunder shall not relieve the Principal Shareholders of their
obligations hereunder except to the extent (and only to the extent) that the
Principal Shareholders are actually and materially prejudiced by such failure.
The Principal Shareholders shall be responsible for the fees and expenses of
the counsel employed by the indemnified party. In no event shall the Principal
Shareholders be liable for the fees and expenses of more than one counsel (in
addition to any local counsel) for all indemnified parties in connection with
any one action or separate but similar or related
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actions in the same jurisdiction arising out of the same general allegations
or circumstances.
(b) The Principal Shareholders shall be entitled to participate in
the defense of a Third Party Claim, individually or jointly, through their
counsel, at their own expense.
(c) So long as the Principal Shareholders are participating in the
defense of a Third Party Claim in good faith, Parent shall reasonably
cooperate with such Principal Shareholders by providing records and
information that are reasonably relevant to such Third Party Claim. Parent
shall not settle, compromise, admit to liability or confess to judgment with
respect to any Third Party Claim without the written consent of the
Representative, which consent will not be unreasonably withheld or delayed. No
such consent will be required if Parent agrees in writing to forego all claims
for indemnification from the Principal Shareholders with respect to such Third
Party Claim, or Parent is exposed to Losses in excess of amounts reasonably
expected to be received from the Principal Shareholders or to non-monetary
remedies; provided, however, that Parent uses reasonable efforts to obtain in
such settlement a release of the Principal Shareholders and the Company with
respect to all such Third Party Claims.
SECTION 1.04. Termination of Indemnification. The Escrow Fund shall
be held by the Escrow Agent on the terms and subject to the conditions set
forth herein until, and the obligations of any Principal Shareholder to
indemnify any Indemnitee pursuant to Section 1.02(b), Section 1.02(c) or
Section 1.02(d) shall terminate at, the close of business on the first
anniversary of the Effective Time (the "Expiration Date"), as certified to the
Escrow Agent in writing by Parent, and thereafter, with respect to such
amount, if any, as provided in Section 3.07, to be retained to satisfy any
Indemnity Claims with respect to matters not absolute as to liability or not
liquidated as to amount at such date but with respect to which Parent shall
have given the notice described in Section 3.01 hereof, until such time as
such liability is determined pursuant to the provisions hereof.
SECTION 1.05. Sole and Exclusive Remedy Against the Principal
Shareholders. Except with respect to fraud, wilful misconduct or wilful
concealment by or on behalf of the Company or a Principal Shareholder, claims
against the Escrow Fund pursuant to Article III constitute the Indemnitees'
sole and exclusive remedy for damages and monetary relief against such
Principal Shareholder pursuant to Sections 1.02(b), (c) or (d) with respect to
any inaccuracy in, or any breach of, any representation,
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warranty, covenant or agreement of the Company in the Merger Agreement or of
any Principal Shareholder in this Agreement.
ARTICLE II
Appointment of Escrow Agent;
Creation of Escrow
SECTION 2.01. Appointment of Escrow Agent. Parent and the
Representative hereby appoint the Escrow Agent, and the Escrow Agent hereby
agrees to act, as depository and administrator of the Escrow Fund, upon the
terms and conditions set forth below.
SECTION 2.02. Creation of Escrow Fund; Deposit of Escrow Shares. (a)
Pursuant to the Merger Agreement, at the Effective Time Parent shall deposit
in escrow with the Escrow Agent, as escrow agent, a stock certificate or
certificates representing the Escrow Shares which shall be registered in the
name of the Escrow Agent as escrow agent hereunder, or in the Escrow Agent's
discretion, into the name of its nominee. The Escrow Agent shall have no
responsibility for the genuineness, validity, market value, title or
sufficiency for any intended purpose of the Escrow Fund. The Escrow Fund shall
be held and distributed by the Escrow Agent in accordance with the terms and
conditions of this Agreement. The number of Escrow Shares beneficially owned
by each Principal Shareholder is set forth in Schedule 2.04 attached hereto.
The Principal Shareholders hereby authorize Parent to deliver directly to the
Escrow Agent all dividends and other distributions paid in Parent Common Stock
made in respect of any Escrow Shares held in the Escrow Fund, all of which
dividends and distributions shall be added to and become part of the Escrow
Fund held for the respective Principal Shareholders on account of whose shares
such dividends or distributions were paid. Any cash dividends or distributions
of property (other than securities) received by the Escrow Agent in respect of
the Escrow Fund by the Escrow Agent to the Principal Shareholders according to
the Escrow Shares held by it for each Principal Shareholder. Parent, upon
depositing the Escrow Shares (and upon depositing any dividends and other
distributions made in respect of the Escrow Shares which are paid in
securities) with the Escrow Agent in the Escrow Fund, as hereinabove provided,
shall deliver to the Escrow Agent three copies of a schedule, signed by the
chief financial officer or the controller of Parent, identifying the
securities being deposited by Parent in the Escrow Fund, two copies of which
schedule shall be countersigned by an appropriate officer of the Escrow Agent,
acknowledging the deposit of such securities in the Escrow Fund, and returned
by the Escrow Agent to Parent and the
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Representative. The Escrow Agent shall hold the Escrow Fund in a separate
account and shall invest such account (to the extent of any cash held therein)
and disburse such account as hereinafter provided. The Escrow Fund, less any
amounts therefrom disbursed to Parent, shall be disbursed by the Escrow Agent
to the Principal Shareholders on or after the Expiration Date in accordance
with the provisions of this Agreement.
(b) If any dividends or distributions made on or in respect of an
Escrow Share that are required to be distributed to the Escrow Agent as
provided pursuant to clause (a) above are received by any Principal
Shareholder prior to the release of such Escrow Share to such Principal
Shareholder in accordance with the provisions of this Agreement, such
dividends or distributions shall not be commingled by such Principal
Shareholder with any of its other funds or property but shall be held separate
and apart therefrom, shall be held in trust for the benefit of the Escrow
Agent and shall be forthwith delivered to the Escrow Agent in the same form as
so received (with any necessary endorsement).
(c) Parent and each Principal Shareholder acknowledge and agree
that, to the extent and so long as any of the Escrow Shares are held by the
Escrow Agent hereunder, Parent shall have, as of and from the date such Escrow
Shares are received by the Escrow Agent, a perfected first priority security
interest in such Escrow Shares to secure the payment of the amount, if any,
payable by a Principal Shareholder pursuant to Article I of this Agreement. In
connection therewith, each Principal Shareholder expressly agrees (i) that the
Escrow Agent shall to the extent necessary perfect Parent's first priority
security interest in the Escrow Shares, (ii) to execute and deliver such
instruments as Parent may from time to time reasonably request for the purpose
of evidencing and perfecting such security interest and (iii) to execute and
deliver such instruments as Parent and the Representative may from time to
time reasonably request for the purpose of evidencing the release of such
security interest with respect to any Escrow Shares distributed to the
Principal Shareholders in accordance with the provisions of this Agreement. In
the event that any cash portion of the Escrow Shares is invested pursuant to
Section 4.01, the Escrow Agent shall take all actions necessary, including,
but not limited to, appropriate identification on the Escrow Agent's books and
records, to ensure that all such investments are deemed held by the Escrow
Agent as Parent's agent for the purpose of perfecting Parent's first-priority
security interest therein.
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SECTION 2.03. Principal Shareholder Rights. While any Escrow Shares
are held in escrow in the Escrow Fund, and pending the disbursement thereof to
Parent or the Principal Shareholders, as the case may be, in connection with
any disbursement of property from the Escrow Fund in accordance with Article
III hereof, the Principal Shareholders will have all rights with respect
thereto (including, without limitation, the right to vote such shares), except
(i) the right of possession thereof, (ii) the right to sell, assign, pledge,
hypothecate or otherwise dispose of such Escrow Shares or any interest therein
and (iii) the right to receive any dividends or other distributions in respect
thereof paid in securities. The Escrow Agent grants a proxy to the Principal
Shareholders to the extent necessary for them to vote their Escrow Shares. The
Parent shall deliver any stockholder communications directly to the Principal
Shareholders, and the Escrow Agent shall not be responsible for voting with
regard to the Escrow Shares. The Escrow Agent shall be under no obligation to
exercise rights in the Escrow Shares, and shall be responsible for only
reasonable measures to maintain the physical safekeeping thereof, and
otherwise to perform and observe such duties on its part as are expressly set
forth in this Agreement.
SECTION 2.04. Principal Shareholder Percentage Interest in Escrow
Fund. Attached hereto as Schedule 2.04 is a schedule listing each Principal
Shareholder, such Principal Shareholder's address and Social Security or other
tax identification number, the number of Escrow Shares delivered to the Escrow
Agent at the Effective Time on behalf of such Principal Shareholder, and each
Principal Shareholder's percentage interest in the Escrow Fund. At the time of
its delivery to the Escrow Agent of any shares of Parent Common Stock, Parent
shall notify the Escrow Agent of the Principal Shareholder's account for which
such shares are delivered.
ARTICLE III
Distributions from Escrow
SECTION 3.01. Claims by Parent. In the event of the occurrence of an
event which Parent asserts (on or prior to the Expiration Date) constitutes a
Loss against which an Indemnitee is entitled to indemnification pursuant to
Article I of this Agreement (each an "Indemnity Claim"), Parent shall notify
the Representative and the Escrow Agent promptly (and in any event on or prior
to the Expiration Date) of such event, and shall deliver for receipt by the
Escrow Agent a certificate signed by any officer of Parent: (1) stating the
aggregate amount of Parent's Losses
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or an estimate thereof and (2) specifying in reasonable detail the individual
items of Losses included in the amount so stated, the date each such item was
paid or properly accrued or arose, or the basis for such anticipated
liability, and the nature of the misrepresentation, breach of warranty or
covenant or other matter to which such item is related.
SECTION 3.02. Claims Not Disputed by Representative. If, within 20
days after receipt of the notice described in Section 3.01 hereof, the
Representative does not give the notice provided for in Section 3.03 hereof,
Parent shall be entitled to make demand upon the Escrow Agent that it retain
for future return to Parent as and when the amount of the Loss is determined
pursuant to the provisions hereof, if it is not then determined, or that it
then disburse to Parent, if the amount of the Loss has then been determined, a
number of Escrow Shares having a value equal to the lesser of (i) the full
amount set forth in the notice described in Section 3.01 (plus the value of
all securities held in the Escrow Fund which constitutes, or arose in respect
of, dividends and distributions on such Escrow Shares) and (ii) the entire
Escrow Fund. For purposes of this Agreement, the value of each Escrow Share
returned to Parent in satisfaction of Indemnity Claims shall be equal to the
Closing Date Average Closing Price.
SECTION 3.03. Claims Disputed by the Representative. If the
Representative disputes an Indemnity Claim described in a notice from Parent
given pursuant to Section 3.01 hereof, or the amount that Parent is claiming
on account of such Indemnity Claim, the Representative shall, within 20 days
after his receipt of such notice given by Parent, notify the Escrow Agent and
Parent of such dispute in writing, setting forth the basis therefor in
reasonable detail, based on his then good faith belief (the "Dispute Notice").
In the event the Representative disputes the entire Indemnity Claim, the
Escrow Agent shall not distribute any amount with respect thereto until the
Escrow Agent receives a written agreement signed by the Representative and
Parent stating the amount to which Parent is entitled in connection with such
Indemnity Claim, or delivery of a copy of the final decision of the majority of
the arbitrators made in accordance with Section 3.05 setting forth instructions
to the Escrow Agent as to the distribution of Escrow Shares, if any, that shall
be made with respect to any disputed claim (the "Arbitration Award"), at which
time the Escrow Agent shall disburse to Parent the lesser of (i) a number of
Escrow Shares having a value (determined in accordance with the final sentence
of Section 3.02 hereof) equal to the amount set forth in such agreement or
Arbitration Award (plus the value of all securities held in the Escrow Fund
which constitutes, or
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(ii) the entire Escrow Fund.
SECTION 3.04. Claims Disputed by Representative in Part. In the
event the Representative notifies the Escrow Agent that it disputes part of,
but not all of, an Indemnity Claim, the Escrow Agent shall, if the amount is
undetermined, retain, or, if the amount is determined, distribute to Parent,
the lesser of (i) a number of Escrow Shares having a value (determined in
accordance with the last sentence of Section 3.02 hereof) equal to an amount
attributable to that portion of the Indemnity Claim which is not disputed by
the Representative (together with the value of all securities held in the
Escrow Fund which constitutes, or arose in respect of, dividends and
distributions on such Escrow Shares) and (ii) the entire Escrow Fund. The
Escrow Agent shall not distribute any amount with respect to the balance of
the Indemnity Claim except in accordance with the procedures set forth in
Section 3.03.
SECTION 3.05. Arbitration. If the Representative disputes an
Indemnity Claim described in a notice from Parent given pursuant to Section
3.01 hereof, or the amount that Parent is claiming on account of such
Indemnity Claim (the "Contested Amount"), the matter shall be settled by
binding arbitration in Wilmington, Delaware. All claims shall be settled by
three arbitrators in accordance with the Commercial Arbitration Rules then in
effect of the American Arbitration Association (the "AAA Rules"). If the
Representative and Parent are unable to resolve any such dispute within 45
days after delivery of the Dispute Notice, the Representative and Parent shall
each designate one arbitrator within 15 days after the termination of such
45-day period. The Representative and Parent shall cause such designated
arbitrators mutually to agree upon and designate a third arbitrator; provided,
however, that (i) failing such agreement within 70 days of delivery of the
Dispute Notice, the third arbitrator shall be appointed in accordance with the
AAA Rules and (ii) if either the Representative or Parent fails to timely
designate an arbitrator, the dispute shall be resolved by the one arbitrator
timely designated. Parent shall notify the Escrow Agent of the selection of
arbitrators pursuant to this Section 3.05 within three business days after the
appointment of the last of such arbitrators, and a summary of the dispute
being submitted to such arbitrators. The non-prevailing party shall pay the
fees and expenses of the three arbitrators. The Representative and Parent
shall cause the arbitrators to decide the matter to be arbitrated pursuant
hereto within 30 days after the appointment of the last arbitrator. The
arbitrators' decision shall relate solely to whether Parent is entitled to
receive the Contested Amount (or a portion thereof) pursuant to the applicable
terms of this Agreement.
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The final decision of the majority of the arbitrators shall be furnished to
the Representative, Parent and the Escrow Agent in writing and shall
constitute the conclusive determination of the issue in question binding upon
the Representative, the Principal Shareholders and Parent, and shall not be
contested by any of them. Such decision may be used in a court of law only for
the purpose of seeking enforcement of the arbitrators' decision.
SECTION 3.06. Notice To Withhold on Expiration Date; Distribution
Following Expiration Date. (a) On or prior to the Expiration Date, Parent
shall notify the Escrow Agent and the Representative of the amount, if any, to
be retained after the Expiration Date on account of Indemnity Claims with
respect to which Parent has given the notice specified in Section 3.01 hereof
which are not, at such time, absolute as to liability or liquidated as to
amount, such notice to contain the information specified in Section 3.01 to
the extent it requires supplementation or change based on Parent's then
knowledge, whereupon the Escrow Agent shall retain Escrow Shares having a
value (determined in accordance with Section 3.02 hereof) equal to the amount
set forth in the notice given by Parent pursuant to this Section 3.06(a) (plus
the value of all shares held in the Escrow Fund which constitute, or arose in
respect of, dividends and distributions on such Escrow Shares). In the event
Parent does not timely provide the notice required by this Section 3.06(a) all
remaining property held in the Escrow Fund shall be distributed by the Escrow
Agent to the Principal Shareholders promptly after the Expiration Date.
(b) As soon as practicable following the Expiration Date, such
number of Escrow Shares (including any fractional shares) and such other
property as shall
14
remain in the Escrow Fund, less all Escrow Shares required by Parent to be
retained in the Escrow Fund pursuant to notice given under clause (a) of this
Section 3.06, shall be released from the provisions of this Agreement,
submitted by the Escrow Agent to Parent's transfer agent for transfer, and,
upon return, distributed promptly by the Escrow Agent to the Principal
Shareholders, in the proportions indicated on Schedule 2.04, by first class
mail or expedited courier service to each Principal Shareholder at the address
indicated on such Schedule, or such other address as shall have been specified
in a written notice to the Escrow Agent from the relevant Principal
Shareholder or the Representative, with any cash amounts paid in the form of a
check issued by and drawn on the Escrow Agent.
SECTION 3.07. Retention of Escrow Fund After Expiration Date. Upon
receipt of a notice pursuant to Section 3.06(a) hereof, the Escrow Agent shall
continue to hold after the Expiration Date, with respect to each Indemnity
Claim included in such notice, the amount specified by such notice in respect
of such Indemnity Claim until such time as the Escrow Agent receives a written
agreement signed by the Representative and Parent stating the amount, if any,
which Parent is entitled to receive from the Escrow Fund in connection with
such Indemnity Claim, or a copy of an Arbitration Award with respect to such
Indemnity Claim, at which time the Escrow Agent shall return to Parent's
transfer agent, with respect to such Indemnity Claim, Escrow Shares having a
value (determined in accordance with the final sentence of Section 3.02
hereof) equal to the amount specified in such agreement or Arbitration Award
(plus the value of all securities held in the Escrow Account which
constitutes, or arose in respect of, dividends and distributions on such
Escrow Shares) and shall distribute to the Principal Shareholders, in the
proportions indicated on Schedule 2.04, such property, if any, which the
Escrow Agent was holding after the Expiration Date pursuant to Section 3.06(a)
by reason of such Indemnity Claim and which is in excess of the amount so
distributed to Parent with respect thereto; provided, however, that, to the
extent the distribution of such property from the Escrow Fund to the Principal
Shareholders would cause the value of the property remaining in the Escrow
Fund after such distribution to fall below the amount (as stipulated in
Parent's Section 3.06(a) notice) of all still unresolved Indemnity Claims
identified in the Section 3.06(a) notice, such property shall be retained by
the Escrow Agent in the Escrow Fund and shall be available for distribution to
Parent upon the resolution of any unresolved Indemnity Claims, and such
property shall not be distributed to the Principal Shareholders until such
time, if any, as such
15
distribution can be made without causing the value of all property remaining
in the Escrow Fund to fall below the amount of all remaining unresolved
Indemnity Claims identified in the Section 3.06(a) notice.
SECTION 3.08. Allocation of Shares Distributed to Parent. In the
event Escrow Shares are retained by the Escrow Agent or distributed to Parent
pursuant to any provisions of this Article III, such Escrow Shares shall be
taken from the Escrow Shares deposited by each Principal Shareholder in
proportion to such Principal Shareholder's percentage interest in the Escrow
Fund as set forth on Schedule 2.04.
ARTICLE IV
Investment of Escrow Deposit and Accounting
SECTION 4.01. Investment of Escrow Fund. All cash held in the Escrow
Fund shall be invested by the Escrow Agent in an insured, interest-bearing
money market account, or in such other investments as Parent and the
Representative may agree in a writing delivered to the Escrow Agent. All
interest and other income earned on the Escrow Fund shall be added to and
become part of the Escrow Fund, and the distribution thereof shall be subject
to the terms of this Agreement. Any losses on investments will be debited to
the Escrow Fund, and the Escrow Agent shall have no liability for investment
losses, including losses on investments required to be liquidated before
maturity in order to make a required distribution from the Escrow Fund.
SECTION 4.02. Accounting. In the event cash is held in the Escrow
Fund, the Escrow Agent shall supply a written account to Parent and the
Representative at the end of each month prior to the Expiration Date in which
there is cash in the Escrow Fund (and thereafter to the extent any amounts
remain in escrow pursuant to Section 3.07 hereof) listing all transactions
with respect to the Escrow Fund during the immediately preceding month.
SECTION 4.03. Sale Instructions. (a) In connection with any sale of
the Escrow Shares pursuant to Section and 6.01(d) of this Agreement for
purposes of paying fees pursuant to such Section, the Escrow Agent shall
receive and be entitled to rely upon, prior to taking any action in that
regard, written direction from Parent as to the manner and method to be
undertaken in carrying out such sale, including without limitation written
direction (i) identifying the number of Escrow Shares to be sold, (ii)
identifying the brokerage firm
16
Parent requests to be used or instructing the Escrow Agent to use its
affiliated brokerage service and (iii) setting forth any necessary or special
instructions with respect to the sale (including any stop loss or minimum
price per share instruction); and Parent shall execute and deliver any
instruments reasonably required by the Escrow Agent in order to carry out such
sale or liquidation.
(b) The Escrow Agent shall have no responsibility in connection with
such sale other than to make delivery of the Escrow Shares to the selected
brokerage firm, with instructions (including any special instructions provided
by Parent), and to receive and deposit into the Escrow Fund (to be
administered and distributed in accordance with this Agreement) any net sale
proceeds received therefrom. The Escrow Agent shall have no liability for any
actions or omissions of any such brokerage firm, and shall have no liability
for the price or execution achieved. Without limiting the generality of the
foregoing, Parent expressly acknowledges that (a) the Escrow Shares may need
to be sent to a transfer agent to be reissued in saleable form, (b) the Escrow
Shares may be subject to transfer restrictions that may limit their
marketability and impose restrictions upon the number or types of purchasers
to whom they can be offered or sold and (c) the Escrow Agent shall have no
liability for any failure or delay (or any price change during any such delay)
on the part of Parent or any transfer agent, or caused by any necessary
registration or delivery procedures, or compliance with any applicable
transfer restrictions, involved in the transfer of such Escrow Shares.
(c) The net sale proceeds of any such sale of Escrow Shares received
by the Escrow Agent shall be apportioned among the Principal Shareholders on a
pro rata basis as set forth in Schedule 2.04 less a $5.00 per Principal
Shareholder fee for the proration of the net sales price and individual 1099-B
Reporting (the "Sales Administration Fee"). The Sales Administration Fee shall
be assessed each day a sale is effected until the total number of shares
specified in a written direction from Parent are sold.
SECTION 4.04. Tax Reporting. The parties hereto agree that, for Tax
reporting purposes, all interest or other income earned from the investment of
the Escrow Fund shall be allocable to the Principal Shareholders in the
proportions set forth at Schedule 2.04 as such proportions may be modified due
to the receipt by the Escrow Agent of any additional shares of Parent Common
Stock.
17
SECTION 4.05. Certification of Tax Identification Number. The
Representative agrees to provide the Escrow Agent with each Principal
Shareholder's certified Tax identification number on a completed and executed
Form W-9 (or Form W-8, in the case of non-U.S. persons), to deliver such Form
W-9s (or Form W-8s, in the case of non-U.S. persons) to the Escrow Agent
within 30 days from the date hereof. The Representative has advised the
Principal Shareholders that, in the event their Tax identification numbers are
not certified to the Escrow Agent, the U.S. Internal Revenue Code of 1986, as
amended, may require withholding of a portion of any interest or other income
earned on the investment of the Escrow Fund in accordance with the U.S.
Internal Revenue Code of 1986, as amended.
ARTICLE V
Representative; Successor Representative
SECTION 5.01. Appointment of Representative. (a) Each of the
Principal Shareholders hereby irrevocably constitutes and appoints ▇▇▇▇▇▇
▇▇▇▇▇ as such Principal Shareholder's true and lawful agent and
attorney-in-fact to act on such Principal Shareholder's behalf with respect to
any and all Indemnity Claims. In such representative capacity, ▇▇▇▇▇▇ ▇▇▇▇▇,
or any person who shall succeed in such representative capacity pursuant to
the terms of this Agreement, is referred to in this Agreement as the
"Representative". The Representative shall take, and the Principal
Shareholders agree that the Representative shall take, any and all actions
which he believes are necessary or appropriate under this Agreement for and on
behalf of the Principal Shareholders, as fully as if the Principal
Shareholders were acting on their own behalf, including, without limitation,
defending all Indemnity Claims, consenting to, compromising or settling all
Indemnity Claims, conducting negotiations with Parent and its representatives
regarding such claims, dealing with Parent and the Escrow Agent under this
Agreement with respect to all matters arising under this Agreement, taking any
and all other actions specified in or contemplated by this Agreement and
engaging counsel, accountants or other representatives in connection with the
foregoing matters. Parent and the Escrow Agent shall have the right to rely
upon all actions taken or omitted to be taken by the Representative pursuant
to this Agreement, all of which actions or omissions shall be legally binding
upon each of the Principal Shareholders. The Representative shall have
reasonable access to information of and concerning any Indemnity Claim and
which is in the possession, custody or control of the Company and the
reasonable assistance of
18
the Company's officer's and employees for purposes of performing the
Representative's duties under this Agreement and exercising its rights under
this Agreement, including for the purpose of evaluating any Indemnity Claim
against the Escrow Fund by Parent; provided that the Representative shall
treat confidentially and not disclose any nonpublic information from or
concerning any Indemnity Claim to anyone (except to the Representative's
attorneys, accountants and other advisers, to former shareholders of the
Company whose shares are held in escrow pursuant to this Agreement, to the
arbitrators appointed to resolve disputes pursuant to this Agreement, and on a
need-to-know basis to other individuals who agree to keep such information
confidential).
(b) Each Principal Shareholder hereby ratifies and confirms, and
hereby agrees to ratify and confirm, any action taken by the Representative in
the exercise of the agency and power of attorney granted to the Representative
pursuant to this Section 5.01, which agency and power of attorney, being
coupled with an interest, is irrevocable and a durable agency and power of
attorney and shall survive the death, incapacity or incompetence of such
Principal Shareholder.
(c) Each Principal Shareholder agrees and acknowledges that the
Representative shall represent and bind all of the Principal Shareholders and
that Parent and the Escrow Agent shall be entitled to rely exclusively on the
Representative for all purposes specified herein, and that no suit, action,
proceeding or claim may be brought against Parent, the Escrow Agent or any of
their respective affiliates by any Principal Shareholder with respect to any
matter herein that is to be effected by the Representative.
(d) Until notified in writing by the Representative that he has
resigned or by a majority in interest of the Principal Shareholders that he
has been removed, the Escrow Agent may act upon the directions, instructions
and notices of the Representative who is an original party to this Agreement,
and thereafter, upon the directions, instructions and notices of any successor
named in a writing executed by a majority-in-interest of the Principal
Shareholders filed with the Escrow Agent.
SECTION 5.02. Reliance. In the performance of his duties hereunder,
the Representative shall be entitled to rely upon any document or instrument
reasonably believed by him to be genuine, accurate as to content and signed by
any Principal Shareholder or Parent. The Representative may assume that any
person purporting to
19
give any notice in accordance with the provisions hereof has been duly
authorized to do so.
SECTION 5.03. Liability. (a) If the Representative is required by
the terms hereof to determine the occurrence of any event or contingency, the
Representative shall, in making such determination, be liable to the Principal
Shareholders only for his proven bad faith or wilful misconduct, as determined
in light of all the circumstances, including the time and facilities available
to him in the ordinary conduct of business. In determining the occurrence of
any such event or contingency, the Representative may request from any of the
Principal Shareholders or any other person such reasonable additional evidence
as the Representative in his sole discretion may deem necessary to determine
any fact relating to the occurrence of such event or contingency, and may at
any time inquire of and consult with others, including any of the Principal
Shareholder, and the Representative shall not be liable to any Principal
Shareholder for any damages resulting from his delay in acting hereunder
pending his receipt and examination of additional evidence requested by him.
(b) The Representative is authorized, in his sole discretion, to
comply with final, nonappealable orders issued or process entered by any court
of competent jurisdiction with respect to the Escrow Fund. If any portion of
the Escrow Fund is disbursed to the Representative and is at any time
attached, garnished or levied upon under any court order, or in case the
payment, assignment, transfer, conveyance or delivery of any such property
shall be stayed or enjoined by any court order, or in case any order, judgment
or decree shall be made or entered by any court affecting such property or any
part thereof, then and in any such event, the Representative is authorized, in
his sole discretion, but in good faith, to rely upon and comply with any such
order, writ, judgment or decree which he is advised by legal counsel selected
by him is binding upon him without the need for appeal or other action; and if
the Representative complies with any such order, writ, judgment or decree, he
shall not be liable to any Principal Shareholder or to any other Person by
reason of such compliance even though such order, writ, judgment or decree may
be subsequently reversed, modified, annulled, set aside or vacated.
(c) In no event shall the Representative be liable to any Principal
Shareholder for incidental, indirect, special, consequential, or punitive
damages.
(d) Each Principal Shareholder shall be liable for its proportionate
percentage of the expenses
20
(including reasonable attorneys' fees) paid or incurred by the Representative.
The Representative shall be entitled, but not limited to, reimbursement of any
such expenses from the Escrow Fund prior to any distribution thereof to the
Principal Shareholders.
SECTION 5.04. Successor Representative. If ▇▇▇▇▇▇ ▇▇▇▇▇ resigns (by
giving at least 60 days' written notice of such resignation to Parent and the
Escrow Agent) or dies or becomes incapable of continuing to act as the
Representative for any reason, a successor Representative shall be appointed
by a writing signed by Principal Shareholders holding in the aggregate a
majority of the Principal Shareholders' interest in the Escrow Fund, such
appointment to become effective upon the delivery of executed counterparts of
such writing to Parent and the Escrow Agent, together with an acknowledgment
signed by the successor Representative named in such writing that he or she
accepts the responsibility of successor Representative and agrees to perform
and be bound by all provisions of this Agreement applicable to the
Representative. Pending the election of a successor Representative, the
Principal Shareholder holding the largest number of outstanding shares of
Company Capital Stock as of the Effective Time (excluding the former
Representative) shall act as the interim Representative. Failing such
appointment, Parent, the Escrow Agent or any Principal Shareholder may apply
to a court of competent jurisdiction for the appointment of a successor
Representative.
SECTION 5.05. Removal of Representative. Principal Shareholders who
in the aggregate hold at least a majority of the Principal Shareholders'
interest in the Escrow Fund shall have the right at any time during the term
of this Agreement to remove the then-acting Representative and to appoint a
successor Representative; provided, however, that neither such removal of the
then acting Representative nor such appointment of a successor Representative
shall be effective until the delivery to Parent and the Escrow Agent of
executed counterparts of a writing signed by each such Principal Shareholder
with respect to such removal and appointment, together with an acknowledgment
signed by the successor Representative appointed in such writing that he or
she accepts the responsibility of successor Representative and agrees to
perform and be bound by all of the provisions of this Agreement applicable to
the Representative.
SECTION 5.06. Authority of Successor Representative. Each interim
and successor Representative shall have all of the power, authority, rights
and privileges conferred by this Agreement upon the original
21
Representative, and the term "Representative" as used herein shall be deemed
to include any interim or successor Representative.
SECTION 5.07. Notices. Any notices given by Parent or the Escrow
Agent while there is no Representative shall be sufficiently given if given to
the other, with a copy provided directly to the Principal Shareholder holding
the largest number of Escrow Shares pursuant to Schedule 2.04. A copy of all
such notices shall be delivered to the successor Representative upon his or
her appointment and he or she shall have 30 days thereafter to take such
actions as may be required under the terms of this Agreement in connection
with any such notice.
ARTICLE VI
Escrow Agent
SECTION 6.01. Escrow Agent Duties, Protections, Indemnifications,
Etc. (a) The other parties hereto acknowledge and agree that the Escrow Agent
(i) shall not be responsible for any of the agreements referred to herein but
shall be obligated only for the performance of such duties as are specifically
set forth in this Escrow Agreement; (ii) shall not be obligated to take any
legal or other action hereunder which might in its judgment involve expense or
liability unless it shall have been furnished with indemnity acceptable to it;
(iii) may rely on and shall be protected in acting or refraining from acting
upon any written notice, instruction (including, without limitation, wire
transfer instructions, whether incorporated herein or provided in a separate
written instruction), instrument, statement, request or document furnished to
it hereunder and believed by it to be genuine and to have been signed or
presented by the proper person, and shall have no responsibility for making
any investigation into the facts or matters set forth therein or otherwise
determining the accuracy or rightfulness thereof; and (iv) may consult counsel
satisfactory to it, including in-house counsel, and the written advice or
opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the written advice or opinion of such
counsel.
(b) Neither the Escrow Agent nor any of its directors, officers or
employers shall be liable to anyone for any action taken or omitted to be
taken by it or any of its directors, officers or employees hereunder except
22
in the case of gross negligence, bad faith or willful misconduct. Parent and
the Principal Shareholders as a group, in proportion to their respective
percentage interests in the Escrow Fund, jointly and severally, covenant and
agree to indemnify the Escrow Agent and hold it harmless without limitation
from and against any loss, liability or expense of any nature incurred by the
Escrow Agent arising out of or in connection with this Agreement or with the
administration of its duties hereunder, including, but not limited to, legal
fees and expenses and other costs and expenses of defending or preparing to
defend against any claim of liability in the premises, unless such loss,
liability or expense shall be caused by the Escrow Agent's gross negligence,
bad faith or willful misconduct. In no event shall the Escrow Agent be liable
for indirect, punitive, special or consequential damages.
(c) The Principal Shareholders, severally and not jointly, in
proportion to their respective percentage interests in the Escrow Fund, agree
to assume any and all obligations imposed now or hereafter by any applicable
Tax law with respect to the payment of Escrow Funds under this Agreement, and
to indemnify and hold the Escrow Agent harmless from and against any additions
for late payment, interest, penalties and other expenses, that may be assessed
against the Escrow Agent on any such payment or other activities under this
Agreement. The Principal Shareholders undertake to instruct the Escrow Agent
in writing with respect to the Escrow Agent's responsibility for withholding
and other Taxes, assessments or other governmental charges, certifications and
governmental reporting in connection with its acting as Escrow Agent under
this Agreement. The Principal Shareholders, severally and not jointly, in
proportion to their respective percentage interests in the Escrow Fund, agree
to indemnify and hold the Escrow Agent harmless from any liability on account
of Taxes, assessments or other governmental charges, including without
limitation Taxes withheld or deducted or penalties imposed for failure to
withhold or deduct Taxes, and any liability for failure to obtain proper
certifications or to properly report to governmental authorities, to which the
Escrow Agent may be or become subject in connection with or which arises out
of this Agreement, including costs and expenses (including reasonable fees and
expenses), interest and penalties.
(d) Parent, on the one hand, and the Principal Shareholders, on the
other hand, agree to each pay or reimburse one-half of the Escrow Agent's fees
and expenses (up to an aggregate $1,800) for any legal fees and expenses
incurred in connection with the preparation of this Agreement and to each pay
one-half of the Escrow Agent's reasonable compensation for its normal services
23
hereunder in accordance with the fee schedule attached as Schedule 6.01(d)
hereto, which may be subject to change on an annual basis. The Escrow Agent
shall be entitled to reimbursement on demand for all expenses incurred in
connection with the administration of the escrow created hereby which are in
excess of its compensation for normal services hereunder, including without
limitation payment of any legal fees and expenses incurred by the Escrow Agent
in connection with the resolution of any claim by any party hereunder. The
Escrow Agent may deduct each Principal Shareholder's portion of such fees and
expenses from the Escrow Fund.
(e) The provisions of paragraphs (b), (c) and (d) of this Section
6.01 shall survive the resignation or removal of the Escrow Agent or the
termination of this Agreement.
SECTION 6.02. Disputes. In the event that the Escrow Agent shall be
uncertain as to its duties or rights hereunder, or shall receive instructions
from any party hereto with respect to the Escrow Fund which, in its opinion,
are in conflict with any of the provisions of this Agreement, it shall be
entitled to refrain from taking any action at its sole discretion and election
until such time as there has been a final determination of the rights of
Parent and the Representative with respect to the Escrow Fund (or relevant
portion thereof). For purposes of this Section 6.02, there shall be deemed to
have been a final determination of the rights of Parent and the Representative
with respect to the Escrow Fund (or relevant portion thereof) at such time as
the Escrow Agent shall receive (i) an executed counterpart of an agreement
between the Representative and Parent or (ii) a copy of an Arbitration Award,
which provides for the disposition of the Escrow Fund (or relevant portion
thereof).
SECTION 6.03. Resignation. The Escrow Agent may at any time resign
and be discharged of the duties imposed hereunder (but without prejudice for
any liability for bad faith, gross negligence or wilful misconduct hereunder)
by giving notice to the Representative and Parent at least 60 business days
prior to the date specified for such resignation to take effect, in which
case, upon the effective date of such resignation:
(a) all property then held by the Escrow Agent hereunder shall be
delivered by it to such person as may be designated in writing by Parent and
the Representative, whereupon the Escrow Agent's obligations hereunder shall
cease and terminate;
24
(b) if no such person has been designated by such date, all
obligations of the Escrow Agent hereunder shall, nevertheless, cease and
terminate, subject to clause (c) below; and
(c) the Escrow Agent's sole responsibility thereafter shall be to
(i) keep all property then held by it (and to make the investments as
hereinbefore provided) and to account for and deliver the same to the
successor escrow agent designated in writing by Parent and the Representative
or, if no such successor escrow agent shall have been so designated, in
accordance with the directions of an Arbitration Award, and the provisions of
Section 6.01(d) and Section 6.01(e) shall remain in effect, or (ii) deposit
the Escrow Fund with a court of competent jurisdiction, whereupon its duties
hereunder shall terminate.
SECTION 6.04. Removal of Escrow Agent. Parent and the Representative
may, upon at least 30 business days prior written notice to the Escrow Agent
executed by each of them, dismiss the Escrow Agent hereunder and appoint a
successor. In such event, the Escrow Agent shall promptly account for and
deliver to the successor escrow agent named in such notice the then balance of
the Escrow Fund, including all investments thereof and accrued income thereon.
Upon acceptance thereof and of such accounting by such successor escrow agent,
and upon reimbursement to the Escrow Agent of all expenses and other amounts
due to it hereunder through the date of such accounting and delivery, the
Escrow Agent shall be released and discharged from all of its duties and
obligations hereunder, but without prejudice to any liability of the Escrow
Agent for its bad faith, gross negligence or wilful misconduct hereunder.
ARTICLE VII
Miscellaneous
SECTION 7.01. Term. This Agreement shall continue in force until the
final distribution of all amounts held by the Escrow Agent hereunder.
SECTION 7.02. Notices. (a) 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
25
address set forth below. Any such notice, instruction or communication shall
be deemed to have been delivered and received three business days after it is
sent prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service.
If to Parent:
Lycos, Inc.
▇▇▇-▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: General Counsel
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Cravath, Swaine & ▇▇▇▇▇
Worldwide Plaza
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Principal Shareholders or the Representative,
to the Representative, at:
Shawmut Capital Partners, Inc.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP
Two Embarcadero Place
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention:▇▇▇▇▇▇ ▇. Mo, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
26
If to the Escrow Agent, to:
By Overnight or Courier:
State Street Corporation
Corporate Trust
▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
By Mail:
State Street Corporation
Corporate Trust
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Lycos/Quicksilver Escrow
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or, in each case, to such other address as may be specified in writing to the
other parties.
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 7.02.
(b) Wiring Instructions. Any funds to be paid to the Escrow Agent
hereunder shall be sent by wire transfer pursuant to the following
instructions (or by such method of payment and pursuant to such instruction as
may have been given in advance and in writing by the Escrow Agent, in
accordance with Section 7.02(a) above).
If to the Escrow Agent:
Bank: State Street Bank & Trust Company
ABA #: 0110 0002 8
A/C #: ▇▇▇▇-▇▇▇-▇
Attn: Corporate Trust Department
Ref: Lycos/Quicksilver Escrow
SECTION 7.03. Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
representatives, successors and assigns. Neither this Agreement nor any
rights,
27
duties or obligations hereunder shall be assigned by any party hereto without
the prior written consent of the parties hereto (except as contemplated by
Article V and Article VI hereof with respect to the successor Representative
or any successor escrow agent).
SECTION 7.04. Governing Law. The parties hereto agree that this
Agreement, and the respective rights, duties and obligations of the parties
hereunder, shall be governed by and continued in accordance with the laws of
the State of Delaware, without giving effect to principles of conflicts of law
thereunder. Each of the parties hereby (i) irrevocably consents and agrees
that any legal or equitable action or proceeding arising under or in
connection with this Agreement shall be brought exclusively in any court
sitting in the State of Delaware and any court to which an appeal may be taken
in any such litigation, provided, however, that the Escrow Agent may in its
discretion, bring any action in any court sitting in Boston, Massachusetts and
(ii) by execution and delivery of this Agreement, irrevocably submits to and
accepts, with respect to any such action or proceeding, for itself and in
respect of its properties and assets, generally and unconditionally, the
jurisdiction of the aforesaid courts, and irrevocably waives any and all
rights such party may now or hereafter have to object to such jurisdiction.
SECTION 7.05. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original.
SECTION 7.06. Headings. The Article and Section headings in this
Agreement are for convenience only and do not constitute part of this
Agreement.
SECTION 7.07. Amendment. This Agreement supersedes any prior
agreements among the parties relating to the subject matter hereof (except for
the Merger Agreement and the documents executed and delivered in connection
therewith) and can be amended only by a writing signed by Parent, the Escrow
Agent and the Representative or their respective successors in interest.
SECTION 7.08. Force Majeure. Neither Parent nor Representative nor
Escrow Agent shall be responsible for delays or failures in performance
resulting from acts beyond its control. Such acts shall include but not be
limited to acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters.
28
SECTION 7.09. Reproduction of Documents. This Agreement and all
documents relating thereto, including, without limitation, (a) consents,
waivers and modifications which may hereafter be executed and (b) certificates
and other information previously or hereafter furnished, may be reproduced by
any photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
SECTION 7.10. Certain Definitions. As used in this Agreement, the
following terms shall have the meanings specified below:
"Indemnitee" shall mean Parent, any Affiliate of Parent, the Company
and any subsidiary of the Company, and their respective successors and
assigns.
"Post-Closing Tax Period" shall mean all taxable periods beginning
after the Closing Date and the portion ending after the Closing Date of any
taxable period that includes (but does not end on) such day.
"Pre-Closing Tax Period" shall mean all taxable periods ending on or
before the Closing Date and the portion ending on the Closing Date of any
taxable period that includes (but does not end on) such day.
29
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed as of the date first written above.
LYCOS, INC.,
by
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and CEO
REPRESENTATIVE,
/s/ ▇▇▇ ▇▇▇▇▇
---------------------------
Name: ▇▇▇ ▇▇▇▇▇
STATE STREET BANK AND TRUST
COMPANY, as Escrow Agent,
by
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Assistant Vice
President
PRINCIPAL SHAREHOLDERS:
SEQUOIA CAPITAL PARTNERS,
by
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
SEQUOIA 1997,
by
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
SEQUOIA TECHNOLOGY PARTNERS VII,
by
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
30
SEQUOIA 1995,
by
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
SEQUOIA INTERNATIONAL PARTNERS,
by
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
BARRA, INC.,
by
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Financial Officer
SHAWMUT EQUITY PARTNERS L.P.,
by
/s/ ▇▇▇ ▇▇▇▇▇
----------------------------
▇▇▇ ▇▇▇▇▇
HIGHLAND CAPITAL PARTNERS III
LIMITED PARTNERSHIP,
by
/s/ ▇▇▇ Nova
----------------------------
▇▇▇ Nova
General Partner
HIGHLAND ENTREPRENEURS' FUND
III LIMITED PARTNERSHIP,
by
/s/ ▇▇▇ Nova
----------------------------
▇▇▇ Nova
Member
AZ COMPANY,
by
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
----------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
31
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
----------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇
----------------------------
▇▇▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇
----------------------------
▇▇▇▇▇▇▇ ▇▇▇▇
RIVA INVESTMENTS,
by
/s/ ▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------
▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------
▇▇▇▇▇ ▇▇▇▇▇ c/o ▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ Avon ▇. ▇▇▇▇▇▇▇▇
----------------------------
Avon ▇. ▇▇▇▇▇▇▇▇
/s/ ▇▇▇ ▇▇▇▇▇▇
----------------------------
▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
----------------------------
▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
32
L.E. HOLDING LTD.,
by
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
MARO CORPORATION,
by
/s/ ▇▇▇▇ ▇▇▇▇▇
----------------------------
▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
MLS-I, L.P.,
by
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇.▇▇▇
ESCROW CALCULATIONS
If Barra
Signs Shares
in Escrow (10% % of total
Shareholder Common Series A Series B Series C Series D Equivalent Lycos of total Issued to
Shares Issued pro-rata) holder
AZ Company 1,725,000 1,341,281 0 0 0 561,491 68,509 12.2%
▇▇▇▇ ▇▇▇▇▇▇▇▇ 453,610 0 0 0 0 62,698 7,650 12.2%
▇▇▇▇▇▇ ▇▇▇▇▇▇ 55,000 0 0 0 0 7,602 928 12.2%
▇▇▇▇▇▇▇ ▇▇▇▇▇ 52,656 0 0 0 0 7,278 888 12.2%
▇▇▇▇▇▇▇ ▇▇▇▇ 50,000 0 0 0 0 6,911 843 12.2%
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 32,024 0 0 0 0 4,426 540 12.2%
▇▇▇▇ ▇▇▇▇▇ 30,000 0 0 0 0 4,147 506 12.2%
Riva Investments 21,667 21,667 0 0 0 8,214 1,002 12.2%
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 21,250 0 0 0 0 2,937 358 12.2%
▇▇▇ ▇▇▇▇▇▇ 16,667 16,667 0 0 0 6,318 358 12.2%
Maro Corporation 15,500 15,500 0 0 0 5,876 717 12.2%
▇▇▇▇▇ ▇▇▇▇▇▇ 33,000 12,000 0 0 0 7,452 909 12.2%
▇▇▇▇▇▇ ▇▇▇▇ 11,222 0 0 0 0 1,551 189 12.2%
MLSI, C.C. (▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇) 10,000 0 0 0 0 11,382 169 12.2%
▇▇▇▇▇ ▇▇▇▇▇▇▇ 10,000 0 0 0 0 1,382 169 12.2%
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 10,000 0 0 0 0 1,382 169 12.2%
Avon ▇. ▇▇▇▇▇▇▇▇ 8,333 8,334 0 0 0 1,382 385 12.2%
▇▇▇▇▇▇ ▇▇▇▇▇▇ 17,083 8,334 0 0 0 4,369 533 12.2%
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ 8,333 8,334 0 0 0 3,159 385 12.2%
▇▇▇▇▇ ▇▇▇▇▇ 8,333 8,334 0 0 0 3,159 385 12.2%
Barra, Inc. 18,000 0 0 114,405 0 38,616 4,712 12.2%
Highland Capital Partners III 0 0 0 549,144 0 173,413 21,159 12.2%
Highland Entrepreneurs' Fund III 0 0 0 22,881 0 7,226 882 12.2%
Sequoia Capital VII 0 0 789,635 68,796 0 218,671 26,680 12.2%
Sequoia Technology Partners VII 0 0 38,415 3,356 0 10,641 1,298 12.2%
Sequoia International Partners 0 0 0 1,907 0 602 73 12.2%
Sequoia 1995 0 0 25,609 0 0 6,387 779 12.2%
Sequoia 1997 0 0 0 2,211 0 698 85 12.2%
Shawmut Equity Partners L.P. 0 0 0 0 413,793 138,528 16,902 12.2%
---------------------------------------------------------------------------------------------------------------
TOTAL 2,607,678 1,440,451 853,659 762,700 413,793 1,299,677 158,576
---------------------------------------------------------------------------------------------------------------
Total Lycos Shares Distributed in merger = 1,585,760
Total Lycos Shares to be put in escrow (10%) = 158,576
check 21,069,570 20,281,292 12,446,195 14,079,305 8,097,855 75,974,217
75,974,217 0
check 360,433 346,948 212,915 240,852 138,528 1,299,677 0
SCHEDULE 6.01(d)
STATE STREET ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Vice President
Global Investor Services Group
Corporate Trust
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
August 30, 1999 Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Lycos, Inc.
▇▇▇-▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
RE: Lycos, Inc./Quicksilver Acquisition Corp.
Dear ▇▇. ▇▇▇▇▇▇:
On behalf of State Street Bank and Trust Company, I am pleased to provide our
fee schedule to act as Escrow Agent for the above-referenced transaction. Our
fees are outlined below:
FEES AND EXPENSES:
ACCEPTANCE FEE: Waived
ANNUAL FEE: $3,500.00 per year or any part thereof
WIRE FEE: $20.00 per wire
SWEEP FEE: 40 basis points per annum of
(SSgA or selected other the average daily net assets
Money Market Funds)
OUT-OF-POCKET EXPENSES: At Cost
LEGAL FEE: At Cost
(State Street will use ▇▇▇ ▇▇▇▇▇▇▇▇ of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ as Counsel)
The transaction underlying this proposal and all related legal documentation
is subject to review and acceptance by State Street in accordance with its
policies and procedures. Should the actual transaction materially differ from
the assumptions used herein, State Street reserves the right to modify this
proposal. In the event that the subject transaction fails to close for reasons
beyond the control of State Street, the party requesting these services agrees
to pay State Street's acceptance fees, legal fees and out-of-pocket expenses.
Please do not hesitate to call me at (▇▇▇) ▇▇▇-▇▇▇▇ with any questions. We
look forward to hearing from you.
Sincerely,
▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President