Exhibit 2.2
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ESCROW AGREEMENT
This Escrow Agreement (this "Escrow Agreement") is made and entered into as
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of May 9, 2000 (the "Effective Time") by and among TranSwitch Corporation, a
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Delaware corporation ("Parent"); the undersigned security holders (collectively
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the "Holders") of Easics N.V., a Belgian corporation ("Easics"); Dr. Ivo
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Vandeweed, as the representative of the Holders (the "Indemnification
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Representative"); and State Street Bank and Trust Company, as escrow agent of
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the Escrow Shares (as defined below) (the "Escrow Agent").
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A. TranSwitch and certain stockholders of Easics have entered into a Share
for Share Exchange Agreement dated as of May 9, 2000 (the "Exchange Agreement")
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setting forth certain terms and conditions pursuant to which TranSwitch shall
acquire all of the outstanding stock (the "Shares") of Easics (the "Share
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Exchange").
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B. Pursuant to Section 2.1 of the Exchange Agreement, Parent Common Stock
(as defined therein) is to be issued to the Holders.
C. The Exchange Agreement provides that 25,266 (the "Escrow Amount") of
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the Parent Common Stock issued for outstanding Shares pursuant to the Share
Exchange will be placed in an escrow account, as contemplated under Clause 3.3
of the Exchange Agreement, to secure certain indemnification obligations of the
Holders to Parent under Article 7 of the Exchange Agreement on the terms and
conditions set forth therein and herein.
NOW THEREFORE, for and in consideration of the foregoing and the mutual
covenants and agreements contained in the Exchange Agreement and in this Escrow
Agreement, the parties agree as follows:
1. ESTABLISHMENT OF ESCROW ACCOUNT
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1.1 Deposit of Shares. Parent shall deposit as soon as practicable on
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the Holders' behalf with the Escrow Agent a certificate representing the number
of Escrow Shares issued pursuant to the Share Exchange registered in the name of
Embassy & Co. as nominee for the Escrow Agent (the "Initial Escrow Shares"). Any
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shares of Parent capital stock that result from any share dividend,
reclassification, stock split, subdivision or combination of shares,
recapitalization, merger or other events made with respect to any Escrow Shares
held in escrow under this Escrow Agreement ("Additional Shares") shall be issued
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in the name of the Escrow Agent or its nominee, delivered to the Escrow Agent
and shall be held by the Escrow Agent in accordance with this Escrow Agreement.
Unless otherwise indicated, as used in this Escrow Agreement, the term "Escrow
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Shares" includes the Initial Escrow Shares and any Additional Shares. The
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Escrow Agent agrees to accept delivery of the Escrow Shares and to hold such
Escrow Shares in escrow in accordance with this Escrow Agreement and to release
the Escrow Shares out of escrow as provided in this Escrow Agreement.
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1.2 Dividends; Voting and Rights of Ownership. Any cash dividends,
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dividends payable in property or other distributions of any kind (except for
Additional Shares) made in respect of the Escrow Shares shall be distributed
currently by Parent to the Holders on a pro rata basis. The Holders shall have
the right to direct the Escrow Agent in writing as to the exercise of any voting
rights pertaining to the Escrow Shares, and the Escrow Agent shall comply with
any such written instructions. In the absence of such instructions, the Escrow
Agent shall not vote any of the Escrow Shares. The Escrow Agent shall be under
no obligation to preserve, protect or exercise voting or other rights in the
Escrow Shares, and shall be responsible only for 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, except that it
shall, at the written request of the Holders given to the Escrow Agent at least
three business days prior to the date on which the Escrow Agent is requested
therein to take any action, deliver to the Holders a proxy or other instrument
in the form supplied to it by the Holders for voting or otherwise exercising any
right of consent with respect to any of the Escrow Shares held by it hereunder,
to authorize therein the Holders to exercise such voting or consent authority in
respect of the Escrow Shares. The Escrow Agent shall not be responsible for
forwarding to any party, notifying any party with respect to, or taking any
action with respect to, any notice, solicitation or other document or
information, written or otherwise, received from any issuer or other person with
respect to the Escrow Shares, including but not limited to, proxy material,
tenders, options, the pendency of calls and maturities and expiration of rights.
While the Escrow Shares remain in the Escrow Agent's possession pursuant to this
Escrow Agreement, the Holders shall retain and shall be able to exercise all
other incidents of ownership of the Escrow Shares that are not inconsistent with
the terms and conditions hereof.
1.3 No Encumbrance. None of the Escrow Shares or any beneficial
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interest therein may be pledged, sold, assigned or transferred, other than by
operation of law. Written notice of any assignment or transfer shall be given to
the Escrow Agent and Parent in writing, and no such assignment or transfer shall
be valid until such notice is given.
2. RESOLUTION OF CLAIMS
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2.1 Indemnification Obligations. The Escrow Shares shall serve as
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the sole source of payment for the indemnity obligations of the Holders under
Article 7 of the Exchange Agreement except as otherwise provided in said Article
7. For the purposes of this Escrow Agreement, those obligations shall continue
in accordance with Article 7 of the Exchange Agreement, notwithstanding the
purchase of all the Shares by Parent pursuant to the Exchange Agreement.
Payment for any amount determined as provided below to be owing to Parent under
such indemnity obligations under the Exchange Agreement ("Damages") and any
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award of attorneys' fees and charges owing to Parent pursuant to Section
2.3(c)(iv) or 12.2 of this Agreement (a "Prevailing Party Award") shall be made
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by the release of Escrow Shares to Parent (each such payment, an "Escrow
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Adjustment"), by the Escrow Agent. By the execution of this Escrow Agreement,
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each of the Holders agrees to be bound by the indemnification provisions set
forth in Article 7 of the Exchange Agreement and confirms that the issuance of
the Escrow Amount of the Parent Common Stock pursuant to the Exchange Agreement
is subject to this Escrow Agreement. Notwithstanding anything to the contrary
herein, Parent shall not be entitled to receive payment of any portion of a
Prevailing Party Award which is already a part of Damages (i.e., there shall be
no double payment of legal fees). Upon joint written instructions from the
Parent and/or Indemnification Representative, as the case may be, to the Escrow
Agent to make any
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Escrow Adjustment pursuant to Sections 2.3(a),(b),(c)(iv), 3.3 or 12.2, the
Escrow Agent shall be entitled to request that the Parent and Indemnification
Representative determine and certify to the Escrow Agent the amount of any
Escrow Adjustment, and to identify that portion of the Escrow Adjustment which
constitutes Damages and that portion of the Escrow Adjustment which constitutes
a Prevailing Party Award, to the extent applicable. Any Escrow Adjustments and
corresponding release to Parent of Escrow Shares shall be made in proportion to
each of the Holders' interest in the Escrow Shares as of the date or dates
specified and the manner provided for in this Escrow Agreement, which percentage
interests shall be certified in writing to the Escrow Agent. Each Escrow
Adjustment to the Escrow Shares shall be made by the release by the Escrow Agent
to Parent of Escrow Shares having an aggregate value equal to the Damages and
any Prevailing Party Award, with the per share value of such shares being based,
for all purposes under this Escrow Agreement, on the last sale price of Parent
Common Stock on the Closing Date (adjusted for any share dividend,
reclassification, stock split, subdivision or combination of shares,
recapitalization, merger or other events) notwithstanding any changes in market
value of Parent Common Stock after the Closing Date, as certified to the Escrow
Agent by Parent. In any circumstance in which the Escrow Agent is required to
make a determination of per share value of the Escrow Shares in order to perform
under or administer this Agreement, the Escrow Agent shall be entitled to
request Parent to determine and certify to the Escrow Agent the per share value
of any such Escrow Shares, and Parent shall promptly provide such written
certification to the Escrow Agent, with a copy to the Indemnification
Representative. The Escrow Agent shall be entitled to rely conclusively upon any
such certification of per share value without any duty to verify or recalculate
the same, and the Escrow Agent shall not be liable for any action or omission
of, or delay on the part of, Parent in such connection. Notwithstanding any term
hereof to the contrary, in any such instance, the Escrow Agent shall be entitled
to refrain from taking any action otherwise required hereunder (and which
requires a determination of per share value), without liability on its part,
until it is provided with notice in accordance with this Agreement. In lieu of
releasing any fractional Escrow Shares, any fraction of a released Escrow Share
that would otherwise be released shall be rounded to the nearest whole Escrow
Share.
2.2 Notice of Claims. Promptly after the receipt by Parent of notice or
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discovery of any claim, damage, or legal action or proceeding giving rise to
indemnification rights under the Exchange Agreement, after giving effect to the
aggregate minimum claims of BEF5,000,000, as provided in Clause 7.2.3 of the
Exchange Agreement (a "Claim"), Parent shall give the Indemnification
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Representative written notice of such Claim and shall provide a copy of such
notice to the Escrow Agent. Each notice of a Claim by Parent (a "Notice of
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Claim") shall be in writing and shall be delivered on or before the Release Date
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(as defined in Section 3.1 below).
2.3 Resolution of Claims. Any Notice of Claim received by the
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Indemnification Representative and the Escrow Agent pursuant to Section 2.2
above shall be resolved as follows:
(a) Uncontested Claims. In the event that the Indemnification
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Representative does not contest a Notice of Claim (an "Uncontested Claim") in
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writing within thirty (30) calendar days after receipt by the Escrow Agent of
such Notice of Claim, as provided below in Section 2.3(b), Parent may deliver to
the Escrow Agent, with a copy to the Indemnification Representative, a written
demand by Parent (a "Parent Demand") stating that a Notice of Claim has been
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given as required in this Escrow Agreement and that no notice of contest has
been received by the Escrow Agent from the Indemnification Representative during
the period specified in this Escrow Agreement, and further
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setting forth the proposed Escrow Adjustments to be made in accordance with this
Section 2.3(a). Within thirty (30) calendar days after receipt by the Escrow
Agent of the Parent Demand, the Indemnification Representative may object by a
written notice delivered to Parent and the Escrow Agent to the computations or
other administrative matters relating to the proposed Escrow Adjustments (but
may not object to the validity or amount of the Claim previously disclosed in
the Notice of Claim and not previously timely objected to under paragraph (b)),
whereupon the Escrow Agent shall not make any of the Escrow Adjustments until
either: (i) Parent and the Indemnification Representative shall have given the
Escrow Agent written notice setting forth agreed Escrow Adjustments, or (ii) the
matter is resolved as provided in Sections 2.3(b) and 2.3(c). Upon satisfaction
of the foregoing, the Escrow Agent, as directed in writing by Parent, and Parent
shall promptly take all steps to release the final Escrow Adjustments.
(b) Contested Claims. In the event that the Indemnification
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Representative gives written notice to Parent and the Escrow Agent contesting
all or a portion of a Notice of Claim (a "Contested Claim") within the 30-day
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period provided above, (i) matters that are subject to third party claims
against Parent or Easics in a litigation or arbitration shall await the final
decision, award or settlement of such litigation or arbitration, (ii) matters
that arise between Parent on the one hand, and Easics and/or the Holders on the
other hand, regarding performance or nonperformance of a party's obligations
under this Escrow Agreement ("Arbitrable Claims") shall be settled in accordance
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with Section 2.3(c) below, and (iii) matters that arise between Parent on the
one hand, and Easics and/or the Holders on the other hand regarding performance,
non-performance and/or breach under and/or of the Exchange Agreement shall be
settled in accordance with Clause 9.10 of the Exchange Agreement. Parent and
Indemnification Representative shall certify in writing to the Escrow Agent
whether a Contested Claim is an Arbitrable Claim, and is thus subject to Section
2.3(c). The Parent and Indemnification Representative agree that any Arbitrable
Claim or claim pursuant to Clause 9.10 of the Exchange Agreement is between the
Parent and Indemnification Representative, the Escrow Agent is not a party to
any Arbitrable Claim or claim pursuant to Clause 9.10 of the Exchange Agreement,
and shall have no duty or obligation to monitor or enforce the provisions of
Clause 9.10 of the Exchange Agreement and Section 2.3(c) of this Agreement,
including without limitation any payment of costs pursuant to Section
2.3(c)(iv), or to determine whether a Contested Claim is an Arbitrable Claim or
claim pursuant to Clause 9.10 of the Exchange Agreement. Any portion of a
Notice of Claim that is not contested or is subsequently settled by Parent and
the Indemnification Representative shall be resolved as set forth above in
Section 2.3(a), provided that in the case of a settlement the value of Escrow
Shares shall equal the last sale price of Parent Common Stock on the Closing
Date notwithstanding any change in the market value of Parent Common Shares. If
written notice is received by the Escrow Agent that a Notice of Claim is
contested in whole or in part by the Indemnification Representative, then the
Escrow Agent shall hold hereunder after what would otherwise be the Release Date
(as defined in Section 3.1 below), the number of Escrow Shares specified in the
Release Notice or as otherwise provided in Section 3.1, until the earlier of:
(i) receipt of a settlement agreement executed by Parent and the Indemnification
Representative setting forth a resolution of the Notice of Claim and the Escrow
Adjustments; (ii) receipt of a written notice from Parent (a "Parent
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Distribution Notice") attaching a copy of the final award or decision of an
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arbitrator under paragraph (c) below or Clause 9.10 of the Exchange Agreement
and setting forth the Escrow Adjustments (Parent shall at the same time provide
a copy of the Parent Distribution Notice to the Indemnification Representative);
or (iii) receipt of a written notice from the Indemnification Representative (a
"Representative Distribution Notice") attaching a copy of the final award or
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decision of an arbitrator under paragraph (c) below or Clause 9.10 of the
Exchange Agreement that no Escrow
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Adjustments are to be made as a result of such award (the Indemnification
Representative shall at the same time provide a copy of the Representative
Distribution Notice to Parent). If the earliest of the three events described in
the preceding sentence is (i) or (ii), the Escrow Agent shall, within twenty
(20) calendar days after receipt of the settlement agreement or the Parent
Distribution Notice, as applicable, (a) release to Parent the number of Escrow
Shares specified in the Escrow Adjustments and (b) if the Release Date has
occurred, and there are no remaining unresolved Contested Claims, release to the
Holders the balance of the Escrow Shares in accordance with their percentage
interests which shall be certified in writing to the Escrow Agent. If the
earliest of the three events described above is (iii) and the Release Date has
occurred, and there are no remaining unresolved Contested Claims, the Escrow
Agent shall, within twenty (20) calendar days after receipt of the
Representative Distribution Notice, release to the Holders the Retained Escrow
(as defined in Section 3.1), in accordance with the Holders' interests therein
as certified in writing to the Escrow Agent, provided that if the Release Date
has not occurred the Escrow Shares shall continue to be held pursuant to the
terms of this Agreement. If the award or decision of the arbitrator concludes
that Escrow Shares are to be released to Parent either in satisfaction of
Damages or as Prevailing Party Awards, the arbitrator shall specify the number
of Escrow Shares to be so released to Parent either in the arbitrator's final
award or decision or a supplementary report or finding. In the event that the
Escrow Agent institutes an action for interpleader in accordance with Section
4.6 of this Escrow Agreement as a result of a dispute between the parties, the
parties hereby agree to jointly seek to stay such interpleader action pending
the resolution of any arbitration commenced by the parties or any dispute
pursuant to this Section 2.3(b) and Section 2.3(c).
(c) Arbitration.
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(i) Arbitration Rules. Any Arbitrable Claim, and any dispute
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between the Holders and Parent under this Escrow Agreement, shall be submitted
to final and binding arbitration before a single arbitrator in Boston,
Massachusetts in accordance with the commercial arbitration rules of the
American Arbitration Association.
(ii) Binding Effect. The final decision of the arbitrator shall be
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furnished in writing to the Escrow Agent, the Indemnification Representative,
the Holders and Parent and will constitute a conclusive determination of the
issue in question, binding upon the Holders, the Indemnification Representative
and Parent. The arbitrator shall have the authority to grant any equitable and
legal remedies that would be available in any judicial proceeding instituted to
resolve an Arbitrable Claim. Any judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction over the subject
matter thereof.
(iii) Compensation of Arbitrator. The arbitrator will be compensated
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for his or her services, as provided below in Section 2.3(c)(iv), in accordance
with the commercial arbitration rules of the American Arbitration Association.
(iv) Payment of Costs. Subject to the limitations in Article 7 of
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the Exchange Agreement, the substantially prevailing party in any arbitration
shall be entitled to an award of attorneys' fees and costs, and all costs of
arbitration, including those provided for above, will be paid by the losing
party, subject in each case to a determination by the arbitrator as to which
party is the substantially prevailing party and the amount of such fees and
costs to be allocated to such party and subject to the terms of Section
2.3(c)(iii). Any amounts payable to Parent by or on account of the Holders under
this subsection will be reimbursed as if the amount of such awarded fees and
expenses
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were an Uncontested Claim.
(v) Terms of Arbitration. The arbitrator chosen in
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accordance with these provisions shall not have the power to alter, amend or
otherwise affect the terms of these arbitration provisions or the provisions of
this Escrow Agreement, the Exchange Agreement or any other documents that are
executed in connection therewith.
(vi) Exclusive Remedy. Arbitration or mediation under this
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Section 2.3(c) shall be the sole and exclusive remedy of the parties for any
Arbitrable Claim arising out of this Escrow Agreement.
3. RELEASE FROM ESCROW
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3.1 Release of Escrow Shares. The Escrow Shares shall be released by
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the Escrow Agent and Parent as soon as practicable, taking into account the
notices to be delivered under this Section 3.1, on the date that is the earlier
of (i) one (1) year after the Effective Time or (ii) the date on which KPMG LLP
shall have delivered to Parent the audited consolidated financial statements of
Parent for the year ending December 31, 2000, which date shall be certified in
writing to the Escrow Agent (the "Release Date") less: (a) any Escrow Shares
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delivered to or deliverable to Parent in satisfaction of Uncontested Claims or
Contested Claims which have been settled by the parties hereto, and (b) any of
the Escrow Shares subject to delivery to Parent in accordance with Section
2.3(b) with respect to any then pending Contested Claims. Within ten (10) of the
Escrow Agent's business days ("Business Days") after the Release Date, Parent
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and the Indemnification Representative shall deliver to the Escrow Agent a
written notice (a "Release Notice") setting forth the number of Escrow Shares to
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be released by the Escrow Agent (the "Released Escrow"), including the number of
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Escrow Shares to be released to each Holder and the number of Escrow Shares to
be retained as provided in this Section 3.1 (the "Retained Escrow"), Parent and
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the Indemnification Representative shall make a good faith effort to agree on a
reasonable portion of the Escrow Shares to retain for pending Contested Claims
and Prevailing Party Awards and related expenses. Until such agreement is
reached, or a determination is made in accordance with Section 2.3(c), the
remaining Escrow Shares shall be the Retained Escrow. The Escrow Agent shall be
authorized to act in accordance with any Release Notice, and shall have no duty
or obligation to determine whether the Retained Escrow, if any, is sufficient to
pay any outstanding Contested Claims and/or Prevailing Party Awards, to the
extent applicable. The Released Escrow shall be released to the Holders in
proportion to their respective interests in the Initial Escrow Shares as
certified in writing to the Escrow Agent. In lieu of releasing any fractional
Escrow Shares, any fraction of a released Escrow Share that would otherwise be
released shall be rounded to the nearest whole Escrow Share. Within ten (10)
Business Days after receipt of the Release Notice, Escrow Agent shall deliver
(by overnight courier service) to each Holder evidence of ownership of the
number of Escrow Shares in the names of the appropriate Holders as certified in
writing to the Escrow Agent. The Escrow Agent shall not be required to take
such action until the Escrow Agent has received the Release Notice executed by
Parent and the Indemnification Representative or, in the event Parent and the
Indemnification Representative fail to execute and deliver a jointly approved
Release Notice, a final award or decision which specifies the distribution of
the Escrow Shares.
3.2 Release of Retained Escrow. Upon the resolution of Contested
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Claims as provided for in Section 2.3(b), the Retained Escrow shall be subject
to release by the Escrow Agent to Parent and/or to the Holders in accordance
with Section 2.3(b), this Section and as otherwise provided
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for in this Escrow Agreement. The Escrow Agent and Parent shall cause the
transfer agent to transfer to Parent the number of Escrow Shares to be released
to Parent pursuant to Section 2.3(b) and reissue certificates for Escrow Shares
that are to be either distributed to the Holders pursuant to Section 3.1 or
further retained by the Escrow Agent pending the resolution of Contested Claims
and/or Prevailing Party Awards. Any Escrow Shares released from escrow to Parent
shall be subject to cancellation by Parent without requiring Parent to pay any
consideration whatsoever in receipt thereof to Easics or any of the Holders.
3.3 Expenses of Indemnification Representative. The Indemnification
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Representative shall be entitled to be reimbursed his reasonable out-of-pocket
expenses and the reasonable fees and disbursements of counsel retained by him.
Such reimbursements shall be treated as an Uncontested Claim on a pro rata basis
among the contributors to the Escrow Shares, for all services performed pursuant
to the Exchange Agreement and this Escrow Agreement; provided, however, that
payment of any Escrow Adjustment shall take priority over payments to the
Indemnification Representative, as provided herein. The Escrow Agent shall
follow the joint written instructions of the Indemnification Representative and
Parent concerning the release or sale of Escrow Shares relating to the
reimbursement of the Indemnification Representative. If upon termination of
this Agreement the Indemnification Representative shall not have received the
reimbursements to which he is entitled hereunder, then the Indemnification
Representative shall be entitled to reimbursement from the Holders on a joint
and several basis.
(a) In connection with any sale of the Escrow Shares pursuant to Section
3.3, of this Agreement, the Escrow Agent shall be entitled to receive and rely
upon, prior to taking action in that regard, written direction from the
Indemnification Representative and 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 shares to be sold, (ii) identifying the
brokerage firm the Indemnification Representative and Parent request 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 the
Indemnification Representative 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 instruction (including any special instruction provided by the
Indemnification Representative and Parent, and to receive and deposit into the
escrow account (to be administered and distributed in accordance with this
Agreement) any net sale proceeds received therefrom. The Escrow Agent shall
have no duty or obligation to determine or accomplish compliance with any
applicable transfer restrictions; and it shall be the sole obligation of the
party directing such sale to take any remaining actions, and to provide or
deliver any necessary instruments or opinions (at its expense) necessary to
comply with applicable transfer restrictions or applicable securities laws. 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, the Indemnification
Representative and Parent expressly acknowledge 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 contain or 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
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change during any such delay) on the part of the Indemnification Representative
and 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 Escrow Agent shall be entitled to contract with any brokerage firm
(which may be selected by the Escrow Agent without liability on its part, taking
into consideration any brokerage firm requested by the Indemnification
Representative and Parent, as provided above), which may be affiliated with the
Escrow Agent, and may enter into any such contract on a basis which provides
that such brokerage firm shall use its "best efforts" to effect such sale. The
Escrow Agent shall be indemnified hereunder for any costs, expenses and risks
associated therewith or arising thereunder (other than resulting from its own
gross negligence or willful misconduct), and the proceeds of sale to which the
Indemnification Representative shall be entitled shall be net of all brokerage
commissions and charges.
(d) The net sale proceeds of any such sale of Escrow Shares received by
the Escrow Agent shall be distributed to the Indemnification Representative in
accordance with the joint written instructions of Indemnification Representative
and Parent less a $5.00 per Holder fee for the proration of the net sales price
and for the preparation of individual 1099-B (the "Sales Administration Fee").
The Sales Administration fee shall be assessed each day a sale is affected until
the total number of shares specified in such written direction from the
Indemnification Representative and Parent are sold; provided that the minimum
Sales Administration Fee per sale transaction shall be $500.00.
4. ESCROW AGENT
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4.1 Duties. The duties and responsibilities of the Escrow Agent
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hereunder shall be entirely administrative and not discretionary and shall be
determined solely by the express provisions of this Escrow Agreement and no
duties shall be implied. The Escrow Agent shall not be responsible for any of
the agreements referred to or described herein (including without limitation the
Exchange Agreement), or for determining or compelling compliance therewith, and
shall not otherwise be bound thereby. The Escrow Agent shall be obligated to
act only in accordance with written instructions received by it as provided in
this Escrow Agreement and is authorized hereby to comply with any orders,
judgments, or decrees of any court with or without jurisdiction and shall not be
liable as a result of its compliance with the same.
4.2 Legal Opinions. As to any questions arising in connection with
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the administration of this Escrow Agreement, the Escrow Agent may rely
absolutely upon the joint instruction of Parent and the Indemnification
Representative or the opinions given to the Escrow Agent by its outside counsel
or in-house counsel and shall be free of liability for acting or refraining from
acting in reliance on such opinions.
4.3 Signatures. The Escrow Agent may rely absolutely upon the
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genuineness and authorization of the signature and purported signature of any
party upon any instruction, notice, release, receipt or other document delivered
to it pursuant to this Escrow Agreement.
4.4 Receipts and Releases. The Escrow Agent may, as a condition to
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the disbursement of monies or disposition of securities as provided herein,
require from the payee or recipient a receipt therefor and, upon final payment
or disposition, a release of the Escrow Agent from
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any liability arising out of its execution or performance of this Escrow
Agreement, such release to be in a form reasonably satisfactory to the Escrow
Agent.
4.5 Refrain from Action. The Escrow Agent shall be entitled to
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refrain from taking any action contemplated by this Escrow Agreement in the
event it becomes aware of any dispute between Easics, the Holders and Parent as
to any material facts or as to the happening of any event precedent to such
action.
4.6 Interpleader. If any controversy arises between the parties
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hereto or with any third person, the Escrow Agent shall not be required to
determine the same or to take any action, but the Escrow Agent in its discretion
may institute such interpleader or other proceedings in connection therewith as
the Escrow Agent may deem proper, and in following either course, the Escrow
Agent shall not be liable.
4.7 Other Provisions. The Escrow Agent may rely and shall be
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protected in acting or refraining from acting upon any written notice,
instruction 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 be under no duty to inquire into or investigate the
validity, accuracy or content of any such document. The Escrow Agent shall be
not be liable for any action taken or omitted by it unless a court of competent
jurisdiction determines that the primary cause of a loss to the Parent, the
Indemnification Representative, or the Holders was the Escrow Agent's gross
negligence, willful neglect, or bad faith. In the administration of this Escrow
Agreement, the Escrow Agent may execute any of its powers and perform its duties
hereunder directly or through agents or attorneys and may, consult with counsel,
including in-house counsel, accountants and other skilled persons to be selected
and retained by it. The Escrow Agent shall not be liable for anything done,
suffered or omitted in good faith by it in accordance with the advice or opinion
of any such counsel, accountants or other skilled persons. The Escrow Agent
shall not be obligated to take any legal or other action hereunder which might
in its judgment involve or cause it to incur any expense or liability unless it
shall have been furnished with acceptable indemnification.
5. INDEMNIFICATION
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5.1 Waiver and Indemnification. Parent, Easics, the Indemnification
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Representative and the Holders agree to and hereby do waive any suit, claim,
demand or cause of action of any kind which they may have or may assert against
the Escrow Agent arising out of or relating to the execution or performance by
the Escrow Agent of this Escrow Agreement, unless such suit, claim, demand or
cause of action is based upon the willful neglect or gross negligence or bad
faith of the Escrow Agent. Parent, Easics and the Holders further agree,
jointly and severally, to indemnify and hold Escrow Agent and its directors,
officers, agents and employees (collectively, the "Indemnitees") harmless from
-----------
and against any and all claims, liabilities, losses, damages, fines, penalties,
and expenses, including out-of-pocket, incidental expenses, reasonable legal
fees and expenses, and the allocated costs and expenses of in-house counsel and
legal staff ("Losses") that may be imposed on, incurred by, or asserted against,
------
the Indemnitees or any of them for following any instructions or other
directions upon which the Escrow Agent is authorized to rely pursuant to the
terms of this Escrow Agreement, provided the Escrow Agent has not acted with
gross negligence, willful neglect or bad faith. In addition to and not in
limitation of the immediately preceding sentence, Parent, Easics and the Holders
also agree, jointly
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and severally, to indemnify and hold the Indemnitees and each of them harmless
from and against any and all Losses that may be imposed on, incurred by, or
asserted against the Indemnitees or any of them in connection with or arising
out of the Escrow Agent's performance under this Escrow Agreement, provided the
Escrow Agent has not acted with gross negligence, willful neglect or bad faith.
The provisions of this Section 5.1 shall survive the termination of this Escrow
Agreement and the resignation or removal of the Escrow Agent for any reason.
Anything in this Escrow Agreement to the contrary notwithstanding, in no event
shall the Escrow Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if the Escrow Agent has been advised of such loss or damage and regardless of
the form of action.
5.2 Conditions to Indemnification. The Escrow Agent shall have no
-----------------------------
more or less responsibility or liability on account of any action or omission of
any book-entry depository, securities intermediary or other sub-escrow agent
employed by the Escrow Agent than any such book-entry depository, securities
intermediary or other sub-escrow agent has to the Escrow Agent, except to the
extent that such action or omission of any book-entry depository, securities
intermediary or other sub-escrow agent was caused by the Escrow Agent's own
gross negligence, bad faith or willful misconduct in breach of this Agreement.
6. ACKNOWLEDGMENT BY THE ESCROW AGENT
----------------------------------
By execution and delivery of this Escrow Agreement, the Escrow Agent
acknowledges that the terms and provisions of this Escrow Agreement are
acceptable and it agrees to carry out the provisions of this Escrow Agreement on
its part.
7. RESIGNATION OR REMOVAL OF ESCROW AGENT; SUCCESSOR
-------------------------------------------------
7.1 Resignation and Removal.
-----------------------
7.1.1 Notice. The Escrow Agent may resign as such following the
------
giving of thirty (30) days' prior written notice to the other parties hereto.
Similarly, the Escrow Agent may be removed and replaced following the giving of
thirty (30) days' prior written notice to be given to the Escrow Agent jointly
by the Indemnification Representative and Parent. In either event, the duties
of the Escrow Agent shall terminate thirty (30) days after the date of such
notice (or as of such earlier date as may be mutually agreeable), and the Escrow
Agent shall then deliver the balance of the Escrow Shares then in its possession
to a successor Escrow Agent as shall be appointed by the other parties hereto as
evidenced by a written notice filed with the Escrow Agent.
7.1.2 Court Appointment. If the parties hereto are unable to
-----------------
agree upon a successor or shall have failed to appoint a successor prior to the
expiration of thirty (30) days following the date of the notice of resignation
or removal, then the acting Escrow Agent, at the expense of the Holders and
Parent, may petition any court of competent jurisdiction for the appointment of
a successor Escrow Agent or other appropriate relief, and any such resulting
appointment shall be binding upon all of the parties hereto.
7.2 Successors. Every successor appointed hereunder shall execute,
----------
acknowledge and deliver to its predecessor, and also to the Indemnification
Representative and Parent, an instrument
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in writing accepting such appointment hereunder, and thereupon such successor,
without any further act, shall become fully vested with all the duties,
responsibilities and obligations of its predecessor; but such predecessor shall,
nevertheless, on the written request of its successor or any of the parties
hereto, execute and deliver an instrument or instruments transferring to such
successor all the rights of such predecessor hereunder, and shall duly assign,
transfer and deliver all property, securities and monies held by it pursuant to
this Escrow Agreement to its successor. Should any instrument be required by any
successor for more fully vesting in such successor the duties, responsibilities,
and obligations hereby vested or intended to be vested in the predecessor, any
and all such instruments in writing shall, on the request of any of the other
parties hereto, be executed, acknowledged, and delivered by the predecessor.
7.3 New Escrow Agent. In the event of an appointment of a successor,
----------------
the predecessor shall cease to be Escrow Agent of any funds, securities or other
assets and records it may hold pursuant to this Escrow Agreement, and the
successor shall become such Escrow Agent.
7.4 Release. Upon acknowledgment by any successor Escrow Agent of
-------
the receipt of the then remaining balance of the Escrow Shares, the then acting
Escrow Agent shall be fully released and relieved of all duties,
responsibilities and obligations under this Escrow Agreement that may arise and
accrue thereafter.
7.5 Successors. Any corporation or association into which the Escrow
----------
Agent in its individual capacity may be merged or converted or with which it may
be consolidated, or any corporation or association resulting from any merger,
conversion or consolidation to which the Escrow Agent in its individual capacity
shall be a party, or any corporation or association to which all or
substantially all the corporate trust business of the Escrow Agent in its
individual capacity may be sold or otherwise transferred, shall be the Escrow
Agent hereunder without further act.
8. FEE
---
(a) Parent agrees (i) to pay or reimburse the Escrow Agent for its
attorney's fees and expenses incurred in connection with the preparation of this
Agreement and (ii) to pay the Escrow Agent's compensation for its normal
services hereunder in accordance with the fee schedule attached as Exhibit 8,
which may be subject to change hereafter on an annual basis.
(b) Parent agrees to reimburse the Escrow Agent on demand for all costs
and expenses incurred in connection with the administration of this Agreement or
the escrow created hereby or the performance or observance of its duties
hereunder 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 resolution of any claim by any party
hereunder.
9. INDEMNIFICATION REPRESENTATIVE
------------------------------
9.1 Appointment and Authority. For purposes of this Escrow
-------------------------
Agreement, the Holders have, by the execution of this Escrow Agreement,
irrevocably consented to the appointment of the Indemnification Representative
as representative of the Holders and as the attorney-in-fact for and on behalf
of each Holder, and, subject to the express limitations set forth below, the
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taking by the Indemnification Representative of any and all actions and the
making of any decisions required or permitted to be taken by him under this
Escrow Agreement, including but not limited to the exercise of the power to:
(i) authorize delivery to Parent of the Escrow Shares, or any portion thereof,
in satisfaction of Claims otherwise in connection with an Escrow Adjustment,
(ii) agree to, negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to such Claims, (iii) resolve any Claims, and (iv) take all actions
necessary in the judgment of the Indemnification Representative for the
accomplishment of the foregoing and all of the other terms, conditions, and
limitations of this Escrow Agreement. Any notice given to the Indemnification
Representative will constitute notice to each and all of the Holders at the time
notice is given to the Indemnification Representative. Any action taken by, or
notice or instruction received from, the Indemnification Representative will be
deemed to be an action by, or notice or instruction from, each and all of the
Holders. Parent and the Escrow Agent will disregard any notice or instruction
received from any Holder other than the Indemnification Representative with
regard to this Escrow Agreement. The Indemnification Representative shall have
unlimited authority and power to act on behalf of each Holder with respect to
this Escrow Agreement and the disposition, settlement, or other handling of all
Claims, notices, rights, or obligations arising under this Escrow Agreement so
long as all Holders are treated in the same manner (in respect of their
proportional interests in the Escrow Shares).
9.2 Indemnification. As among the Parent, Easics, the Holders
---------------
and the Indemnification Representative, the Indemnification Representative shall
not suffer any liability or loss for any act performed or omitted to be
performed by him under this Escrow Agreement in the absence of adjudicated gross
negligence, willful neglect or bad faith. The Indemnification Representative may
consult with counsel and other experts as may be reasonably necessary to advise
him with respect to his rights and obligations hereunder and shall be fully
protected by any act taken, suffered, permitted, or omitted in good faith in
accordance with the advice of such counsel and experts. The Indemnification
Representative shall not be responsible for the sufficiency or accuracy of the
form, execution, validity, or genuineness of documents or securities now or
hereafter deposited hereunder, or of any endorsement thereof or for any lack of
endorsement thereon, or for any description therein, nor shall he be responsible
or liable in any respect on account of the identity, authority or rights of the
persons executing or delivering or purporting to execute or deliver any such
document, security or endorsement, and the Indemnification Representative shall
be fully protected in relying upon any written notice, demand, certificate or
document which he in good faith believes to be genuine.
9.3 Death or Disability; Successors. In the event of the death or
-------------------------------
permanent disability of the Indemnification Representative, or his resignation
as the Indemnification Representative, a successor Indemnification
Representative shall be elected by a majority vote of the Holders, with each
Holder to be given a vote equal to his proportionate share of the Escrow Shares.
The Holders shall cause to be delivered to Parent and the Escrow Agent prompt
written notice of such election of a successor Indemnification Representative.
Each successor Indemnification Representative shall have all of the power,
authority, rights, and privileges conferred by this Agreement upon the original
Indemnification Representative, and the term, "Indemnification Representative"
------------------------------
as used herein shall be deemed to include any successor Indemnification
Representative. Until notified in writing by the Indemnification Representative
that he has resigned, the Escrow Agent may act upon the directions, instructions
and notices of the Indemnification Representative named above and, thereafter,
upon the directions, instructions and notices of any successor named in a
writing executed by a majority-in-interest of the Holders filed with the Escrow
Agent.
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10. TERMINATION; DEFICIENCY CLAIMS
------------------------------
This Escrow Agreement and the escrow created hereby shall terminate
following Escrow Agent's delivery of all remaining Escrow Shares to the Holders
and/or Parent pursuant to Section 2 or 3.
11. TAX MATTERS
The parties hereto acknowledge that the Escrow Shares are held in the
escrow account on behalf of the Stockholders and that for tax reporting purposes
all interest or other income earned from the investment of the Escrow Shares
shall be allocable and taxed to the Holders in each taxable year in which earned
on a pro rata basis according to their respective interests in the Escrow
Shares.
12. MISCELLANEOUS PROVISIONS
------------------------
12.1 Parties in Interest. This Escrow Agreement is not intended, nor
-------------------
shall it be construed, to confer any enforceable rights on any person not a
party hereto. All of the terms and provisions of this Escrow Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto.
12.2 Attorneys' Fees. In the event of any action to enforce any
---------------
provision of this Escrow Agreement, or on account of any default under or breach
of this Escrow Agreement, the substantially prevailing party in such action
shall be entitled to recover, in addition to all other relief, from the other
party all attorneys' fees incurred by the substantially prevailing party in
connection with such action (including, but not limited to, any appeal thereof).
Notwithstanding the foregoing, the Parent shall reimburse the Escrow Agent for
any fees, including any legal fees and expenses, incurred by the Escrow Agent
pursuant to Section 8 of this Agreement. The Escrow Agent shall be under no duty
or obligation to monitor or enforce any action between the Parent and
Indemnification Representative pursuant to this Section 12.2; provided, however,
that the Escrow Agent shall pay any Prevailing Party Awards in accordance with
this Agreement.
12.3 Entire Agreement. This Escrow Agreement constitutes the final
----------------
and entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior arrangements or understandings.
12.4 Notices. All notices, requests, demands or other communications
-------
which are required or may be given pursuant to the terms of this Agreement shall
be in writing and shall be deemed to have been duly given: (i) on the date of
delivery if personally delivered by hand, (ii) upon the date scheduled for
delivery after such notice is sent by a internationally recognized overnight or
second day express courier or (iii) by fax upon written confirmation (including
the automatic confirmation that is received from the recipient's fax machine) of
receipt by the recipient of such notice:
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If to Parent: TranSwitch Corporation
-------------
βββββ ββββββββββ βββββ
βββββββ, ββ βββββ
Attention: βββββββ ββββββ
Telephone No.: (βββ) βββ-ββββ βββββ
Fax No.: (βββ) βββ-ββββ
With copies to:
---------------
βββββ, βββββββ & βββββββββ, LLP
βββ ββββ ββββββ
ββββββ, ββ βββββ
Attention: βββββββ β. βββββββ, Esq.
Telephone No.: (βββ) βββ-ββββ βββββ
Fax No.: (βββ) βββ-ββββ
If to Parent's
--------------
Transfer Agent: Boston EquiServe, L.P.
--------------
βββ ββββββ ββββββ
ββββββ, ββ βββββ
Attention: βββββ ββββ
Telephone No.: (βββ) βββ-ββββ
Fax No.: (βββ) βββ-ββββ
If to the Indemnification
-------------------------
Representative: ββ. βββ ββββββββββ
---------------
βββββββββββββββ β,
ββββ βββββββ, βββββββ
Telephone No.: βββ-ββ-βββ-βββ
Fax No: βββ-ββ-βββ-βββ
With copies to:
---------------
ββββ ββββββββ
Dieux, Geens & Vennoten
ββββ ββββββββ
βββββββ
Telephone No.: βββ-β-βββ-β
Fax No.: βββ-β-βββ-βββ
βββββ β. ββββββββ
Brown, Rudnick, Freed & Gesmer
βββ βββββββββ ββββββ
ββββββ, ββ βββββ
Telephone No.: (βββ) βββ-ββββ βββββ
Fax No: (βββ) βββ-ββββ
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If to the Escrow Agent: If by mail:
----------------------- ----------
State Street Bank and Trust Company
Global Investor Service Group
Corporate Trust β.β. βββ βββ
ββββββ, ββ βββββ-ββββ
Telephone No.: (βββ) βββ-ββββ
Fax No.: (βββ) βββ-ββββ
If by courier:
--------------
State Street Bank and Trust Company
Global Investor Services Group
Corporate Trust Department
β ββββββ ββ βββββββββ, β/ββ/ βββββ
ββββββ, ββ βββββ-ββββ
Attention: ββββ ββββββββ
Telephone: (βββ) βββ-ββββ
Telecopy: (βββ) βββ-ββββ
Such addresses may be changed, from time to time, by means of a notice
given in the manner provided in this Section 12.4.
12.5 Changes. The terms of this Escrow Agreement may not be modified
-------
or amended, or any provisions hereof waived, temporarily or permanently, except
pursuant to the written agreement of Parent, the Indemnification Representative
and the Escrow Agent.
12.6 Severability. If any term or provision of this Escrow Agreement
------------
or the application thereof as to any person or circumstance shall to any extent
be invalid or unenforceable, the remaining terms and provisions of this Escrow
Agreement or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable
shall not be affected thereby and each term and provision of this Escrow
Agreement shall be valid and enforceable to the fullest extent permitted by law.
12.7 Counterparts. This Escrow Agreement may be executed in two or
------------
more partially or fully executed counterparts, each of which shall be deemed an
original and shall bind the signatory, but all of which together shall
constitute but one and the same instrument. The execution and delivery of a
Signature Page to Escrow Agreement in the form annexed to this Escrow Agreement
by any party hereto who shall have been furnished the final form of this Escrow
Agreement shall constitute the execution and delivery of this Escrow Agreement
by such party.
12.8 Headings. The headings of the various sections of this Escrow
--------
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Escrow Agreement.
12.9 Governing Law. This Escrow Agreement shall be construed and
-------------
controlled by
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the laws of the State of Massachusetts without regard to the principles of
conflicts of laws.
12.10 Binding Effect. This Escrow Agreement shall inure to the
--------------
benefit of and be binding upon the parties hereto and their respective heirs,
affiliates, successors and assigns.
12.11 Release of Escrow Shares. Under no circumstances should the
------------------------ --
terms of the escrow agreement require the Escrow Agent to release or distribute
Escrow Shares or property (or take similar action, such as making a draw on an
underlying letter of credit) sooner than two (2) business days after the Escrow
Agent has received the requisite notices or paperwork in good form, or passage
of the applicable claims period or release date, as the case may be.
12.12 Tax Indemnification. Parent and Indemnification Representative
-------------------
agree, jointly and severally, (i) to assume any and all obligations imposed now
or hereafter by any applicable tax law with respect to any payment or
distribution of the Escrow Funds or performance of other activities under this
Agreement, (ii) 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, and to instruct the Escrow Agent with respect to any
certifications and governmental reporting that may be required under any laws or
regulations that may be applicable in connection with its acting as Escrow Agent
under this Agreement, and (iii) to indemnify and hold the Escrow Agent harmless
from any liability or obligation on account of taxes, assessments, additions for
late payment, interest, penalties, expenses and other governmental charges that
may be assessed or asserted against the Escrow Agent in connection with or
relating to any payment made or other activities performed under the terms of
this Agreement, including without limitation any liability for the withholding
or deduction of (or the failure to withhold or deduct) the same, and any
liability for failure to obtain proper certifications or to report properly to
governmental authorities in connection with this Agreement, including costs and
expenses (including reasonable legal fees and expenses), interest and penalties.
The foregoing indemnification and agreement to hold harmless shall survive the
termination of this Agreement.
12.13 Dispute Resolution. It is understood and agreed that should any
------------------
dispute arise with respect to the delivery, ownership, right of possession,
and/or disposition of the Escrow Shares, or should any claim be made upon the
Escrow Agent or the Escrow Shares by a third party, the Escrow Agent upon
receipt of notice of such dispute or claim is authorized and shall be entitled
(at its sole option and election) to retain in its possession without liability
to anyone, all or any of said Shares until such dispute shall have been settled
either by the mutual written agreement of the parties involved or by a final
order, decree or judgment of a court in the United States of America, the time
for perfection of an appeal of such order, decree or judgment having expired.
The Escrow Agent may, but shall be under no duty whatsoever to, institute or
defend any legal proceedings which relate to the Escrow Shares.
12.14 Consent to Jurisdiction and Service. Each of the interested
-----------------------------------
parties hereby absolutely and irrevocably consents and submits to the
jurisdiction of the courts in the Commonwealth of Massachusetts and of any
Federal court located in said Commonwealth in connection with any actions or
proceedings brought against any of the interested parties (or each of them) by
the Escrow Agent arising out of or relating to this Escrow Agreement. In any
such action or proceeding, each of the Interested Parties hereby absolutely and
irrevocably (i) waives any objection to jurisdiction or venue, (ii) waives
personal service of any summons, complaint, declaration or other process, and
(iii) agrees that the service thereof may be made by an internationally
recognized second day courier service directed to such party, as the case may
be, at their respective addresses in accordance with Section 12.4
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hereof.
12.15 Force Majeure. The Escrow Agent shall not 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.
12.16 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.
12.17 Delivery of Escrow Shares. The Escrow Agent is not the
-------------------------
transfer agent of the Escrow Shares. When shares are required to be delivered
by the Escrow Agent to Parent or the Indemnification Representative pursuant to
this Agreement, delivery shall be made by the Escrow Agent's instructing such
stock transfer agent to deliver certificates to Parent or Indemnification
Representative at their addresses set forth in 12.4.
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Signature Page to Escrow Agreement
IN WITNESS WHEREOF, the parties have duly executed this Escrow Agreement as
of the day and year first above written.
TRANSWITCH CORPORATION EASICS N.V.
By: /s/ ββββββ ββββ By: /s/ βββ βββββββββββ
--------------------------------- ----------------------------------
Title: Vice President, Title: Business Development
Business Development Manager
INDEMNIFICATION REPRESENTATIVE:
/s/ βββ βββββββββββ
-------------------------------------
Name: βββ βββββββββββ
ESCROW AGENT
STATE STREET BANK AND TRUST COMPANY,
AS ESCROW AGENT
By: /s/ Chi C. Ma
---------------------------------
Authorized Signatory
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