INDEMNITY AND FEE AGREEMENT
BETWEEN
HEAT, INC.
AND
THE PRINCIPAL SHAREHOLDERS OF THERMAL INDUSTRIES, INC.
January 6, 1997
TABLE OF CONTENTS
Page
Section 1. Representations and Warranties of Seller. . . . .1
Section 2. Representations and Warranties of Parent. . . . .1
Section 3. Indemnity and Escrow. . . . . . . . . . . . . . .2
(a) Escrow . . . . . . . . . . . . . . . . . . . . . . . .2
(b) Indemnification of Parent by Sellers . . . . . . . . .2
(c) Limitations. . . . . . . . . . . . . . . . . . . . . .2
(d) Indemnification Procedures . . . . . . . . . . . . . .3
(e) Treatment of Indemnification Payments. . . . . . . . .5
(f) Other Indemnification Provisions . . . . . . . . . . .5
(g) Arbitration Procedure. . . . . . . . . . . . . . . . .6
Section 4. Special Indemnity Fee.. . . . . . . . . . . . . .7
Section 5. Remedies. . . . . . . . . . . . . . . . . . . . .7
Section 6. Non-Competition; Non-Solicitation.. . . . . . . .8
Section 7. Definitions . . . . . . . . . . . . . . . . . . .9
Section 8. Miscellaneous . . . . . . . . . . . . . . . . . 10
INDEMNITY AND FEE AGREEMENT
INDEMNITY AND FEE AGREEMENT (this "Agreement"), dated as
of January 6, 1997 by and between Heat, Inc., a Delaware
corporation ("Parent"), and the undersigned shareholders
("Sellers") of Thermal Industries, Inc., a Pennsylvania corporation
(the "Company"). Cross-references to the defined terms used in
this Agreement are set forth in Section 7.
The Company, Parent and Heat Acquisition, Inc., a
Delaware corporation and a wholly-owned subsidiary of Parent
("Merger Sub"), propose to enter into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement") which
provides, among other things, upon the terms and subject to the
conditions thereof, for the merger of Merger Sub with and into the
Company (the "Merger").
As a condition to its willingness to enter into the
Merger Agreement, Parent has requested that each of the Sellers
agree, and each has agreed to grant Parent certain fee and
indemnification obligations.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the Merger
Agreement, the parties hereto agree as follows:
Section 1. Representations and Warranties of Seller.
Sellers hereby represent and warrant to Parent as follows:
(a) This Agreement is the legal, valid and binding
agreement of each Seller, enforceable against each Seller in
accordance with its terms, except to the extent such enforceability
is limited by bankruptcy, insolvency, moratorium or other similar
laws affecting or relating to the enforcement of creditor's rights
generally or general principles of equity.
(b) The execution of this Agreement by Sellers does not,
and the performance by Sellers of the obligations of Sellers
hereunder will not, constitute a violation of, conflict with or
result in a default under any contract, commitment, agreement,
understanding, arrangement or restriction of any kind to which
either Seller is a party or by which either Seller is bound or any
judgment, decree or order applicable to either Seller.
(c) Neither the execution and delivery of this
Agreement, nor the performance by Sellers of Sellers' obligations
hereunder will (i) assuming satisfaction of the requirements set
forth in clause (ii) below, violate any provision of law applicable
to either Seller; or (ii) except for the requirements of the
Federal and state securities laws, require any consent or approval
of, or filing with or notice to, any public body or authority under
any provision of law applicable to either Seller.
Section 2. Representations and Warranties of Parent.
Parent hereby represents and warrants to Sellers that this
Agreement is the legal, valid and binding agreement of Parent,
enforceable in accordance with its terms, except to the extent such
enforceability is limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to the enforcement of
creditor's rights generally or general principles of equity.
Section 3. Indemnity and Escrow.
(a) Escrow. Upon the effective date of the Merger (the
"Effective Date") and receipt of the consideration for the shares
of the Company's common stock, par value $.01 per share (the
"Shares"), owned by Sellers immediately prior to the Effective
Date, Sellers agree that they will deposit, and hereby direct the
Paying Agent (as defined in the Merger Agreement) to deposit,
$1,000,000 in cash into an escrow account (the "Escrow")
established pursuant to the terms of that certain Escrow Agreement
by and among Parent, Sellers and an escrow agent (the "Escrow
Agent") substantially in the form of Exhibit A attached hereto.
The Escrow will be available to satisfy any amounts owing to Parent
pursuant to Section 3(b), and, other than pursuant to this Section
3, Parent and its affiliates shall not assert, directly or
indirectly, any claim, proceeding or action against the Sellers
with respect to the Merger Agreement, this Agreement (other than to
enforce Sections 3, 4 and 6 hereof) or any action or inaction of
the Sellers acting in their capacity as officers, directors,
shareholders or employees of the Company occurring prior to the
Merger (except claims relating to or arising out of the fraudulent
acts or failure to act by any of ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ or ▇▇▇▇▇
▇▇▇▇▇▇). Except as otherwise permitted under the Escrow Agreement,
assuming consummation of the transactions contemplated herein and
in the Merger Agreement, after the Effective Date, Sellers shall
not assert, directly or indirectly, any claim, proceeding or action
against Parent, HIG or their affiliates with respect to this
Agreement (other than to enforce Section 3), the Merger Agreement
or any action or inaction of Parent, HIG or any of their affiliates
relating to or in connection with the Company, the Merger Agreement
or this Agreement (except claims relating to or arising out of the
fraudulent acts or failure to act by Parent, HIG or its
affiliates).
(b) Indemnification of Parent by Sellers. Subject to
the limitations set forth in Section 3(c), after the Effective
Date, Sellers, jointly and severally, will indemnify Parent, its
subsidiaries and its respective officers and directors (each, a
"Parent Indemnitee") and hold each Parent Indemnitee harmless from
and against any loss, liability, deficiency, damage or expense
(including reasonable legal expenses and costs and any cost or
expense arising from or incurred in connection with any action,
suit, proceeding, claim or judgement relating to any matter
described below, or in enforcing the indemnity provided by this
Section 3(b)) (any such amount being a "Loss"), which such Parent
Indemnitee may suffer, sustain or become subject to, as a result of
(i) any breach by the Company of any representation or warranty set
forth in this Agreement or in Article III of the Merger Agreement
(it being understood that the representations and warranties of the
Company contained in the Merger Agreement shall survive for
purposes of this Section 3) and (ii) any claim arising from or
related to Geneva National Condominium Master Association v.
Thermal Industries, Inc., et al., Case No. 96-CV-81, or any appeals
thereof (the "Geneva Litigation").
(c) Limitations. Sellers' indemnification obligation
set forth in Section 3(b) is subject to the following limitations:
(i) Notice. A Parent Indemnitee must give Sellers
written notice of any indemnification claim in
respect of such Losses within 18 months after the
Closing Date which notice specifies in reasonable
detail the basis for such claim.
(ii) Dollar Cap. Sellers shall not be obligated
to indemnify the Parent Indemnities for Losses
covered by Section 3(b) in excess of
$1,000,000 in the aggregate.
(iii) Per Claim Dollar Basket. Sellers shall not be
obligated to indemnify the Parent Indemnities
for any single Loss covered by clause (i) of
Section 3(b) (consolidating into any single
Loss any series of related events, factors or
circumstances giving rise to liability on the
same or a substantially related basis) unless
such Loss exceeds $100,000 in which case
Sellers shall be obligated to indemnify the
Parent Indemnities for the full amount of such
Loss (subject to the other limitations set
forth in clauses (i) and (ii) of this Section
3).
(iv) Special Dollar Threshold. Sellers shall not be
obligated to indemnify the Parent Indemnitees for
Losses covered by clause (ii) of Section 3(b)
unless the aggregate amount of such Losses (other
than attorney's fees, costs and expenses) exceed
$200,000 (without taking into account any such
Losses with respect to which the Parent Indemnities
receive insurance proceeds or which are paid
directly through insurance coverage) in which case
Sellers shall be obligated to indemnify the Parent
Indemnitees for all of such Losses (other than
attorney's fees, costs and expenses and any such
Losses with respect to which the Parent Indemnities
receive insurance proceeds or which are paid
directly through insurance coverage) in excess of
$200,000 (subject to the other limitations set
forth in clauses (i) and (ii) of this Section 3).
In addition, a Parent Indemnitee's remedy for any indemnification
claim pursuant to Section 3(b) shall be limited to and satisfied
solely from the Escrow.
(d) Indemnification Procedures.
(i) Notice of Claim. Any Party making a claim for
indemnification under Section 3(b) (the "Indemnified Party") will
notify the Party from whom indemnification is claimed (the
"Indemnifying Party") of the claim in writing promptly after
receiving written notice of any action, lawsuit, proceeding,
investigation or other claim (a "Proceeding") against it (if by a
third party) or discovering the liability, obligation or facts
giving rise to such claim for indemnification. Such notice will
describe the claim, the amount thereof (to the extent then known
and quantifiable), and the basis therefor, in each case to the
extent known to the Indemnified Party. Subject to the provisions
of Section 3(c)(i), the failure to so notify the Indemnifying Party
will not relieve the Indemnifying Party of its obligations under
Section 3(b) except to the extent that (and only to the extent
that) such failure shall have caused the damages for which the
Indemnifying Party is obligated to be greater than such damages
would have been had the Indemnified Party given the Indemnifying
Party prompt notice hereunder.
(ii) Assumption of Defense. Any Indemnifying Party shall
be entitled to participate in the defense of such action, lawsuit,
proceeding, investigation or other claim giving rise to an
Indemnified Party's claim for indemnification at such Indemnifying
Party's expense, and at its option (subject to the limitations set
forth below) and its expense shall be entitled to appoint a
nationally recognized and reputable counsel acceptable to the
Indemnified Party to be the lead counsel in connection with such
defense; provided that prior to the Indemnifying Party assuming
control of such defense it shall first verify to the Indemnified
Party in writing that such Indemnifying Party shall be fully
responsible (with no reservation of any rights) for all liabilities
and obligations relating to the entire matter which gives rise to
such claim for indemnification and that it will provide full
indemnification (whether or not otherwise required hereunder), to
the extent of the Escrow, to the Indemnified Party with respect to
such matter, action, lawsuit, proceeding, investigation, or other
claim giving rise to such claim for indemnification hereunder; and
provided, further, that:
(1) the Indemnified Party shall be entitled to
participate in the defense of such claim and to employ
counsel of its choice for such purpose; provided that the
fees and expenses of such separate counsel shall be borne
by the Indemnified Party (other than any fees and
expenses of such separate counsel that are incurred prior
to the date the Indemnifying Party effectively assumes
control of such defense which, notwithstanding the
foregoing, shall be borne by the Indemnifying Party);
(2) the Indemnifying Party shall not be entitled to
assume control of such defense and shall pay the fees and
expenses of counsel retained by the Indemnified Party if
(v) the claim for indemnification relates to or arises in
connection with any criminal proceeding, action, indict-
ment, allegation or investigation; (w) the Indemnified
Party reasonably believes that an adverse determination
with respect to the action, lawsuit, investigation,
proceeding or other claim giving rise to such claim for
indemnification would be detrimental to or injure the
Indemnified Party's reputation or future business
prospects; (x) the claim seeks an injunction or equitable
relief against the Indemnified Party; (y) the claim
involves intellectual property matters in which case the
Indemnified Party shall have sole control and management
authority over the resolution of such claim, including
hiring legal counsel and intellectual property -
consultants, negotiating with the U.S. Patent Office and
other governmental authorities and third parties and
defending or settling claims and actions; or (z) upon
petition by the Indemnified Party, an appropriate court
rules that the Indemnifying Party failed or is failing to
vigorously prosecute or defend such claim;
(3) if the Indemnifying Party does not assume
control of the defense of any such claim within ten
business days after the Indemnified Party provides notice
of such claim pursuant to Section 3(d)(i), then the
Indemnified Party may enter into any settlement of such
claims and such settlement will be binding upon the
Indemnifying Party for purposes of determining whether
any amount of indemnification is payable pursuant to
Section 3(b); provided that so long as the Indemnifying
Party is not prohibited under clause (2) of this Section
3(d)(ii) from assuming control of the defense of such
claim (except in the event that such prohibition is
solely the result of clause (2)(w) of this Section or
solely the result of clause (2)(x) of this Section), the
Indemnified Party will obtain the prior consent (which
consent shall not be unreasonably withheld) of the
Indemnifying Party prior to entering into any such
settlement; and
(4) if the Indemnifying Party assumes control of
the defense of any such claim, then the Indemnifying
Party will obtain the prior written consent of the
Indemnified Party before entering into any settlement of
such claim or ceasing to defend such claim if, pursuant
to or as a result of such settlement or cessation,
injunctive or other equitable relief will be imposed
against the Indemnified Party or if such settlement does
not expressly and unconditionally release the Indemnified
Party from all liabilities and obligations with respect
to such claim, without prejudice. Notwithstanding the
foregoing, if the Indemnified Party is controlling the
defense of such claim, the Indemnifying Party shall not
be liable for any settlement effected without its prior
written consent (which shall not be unreasonably
withheld).
As used in this Section 3, the term "settlement" refers to any
settlement, compromise, consent or similar decree, or election to
permit default judgment to be entered in respect of any claim.
(e) Treatment of Indemnification Payments. Each Party
will treat all payments made pursuant to Section 3(b) as
adjustments to the purchase price paid for the Sellers' Shares in
connection with consummation of the Merger for all purposes. Each
Party agrees to use reasonable efforts to seek recovery under any
insurance coverage which such Party may have in respect of any
Loss; provided that, to the extent not already taken into account,
a Party's Loss will include any increased premium which results
from seeking such recovery or the occurrence or existence of any
fact or circumstance giving rise to such Loss.
(f) Other Indemnification Provisions. Each Seller
hereby agrees that he will not make any claim for indemnification
hereunder against the Company by reason of the fact that he was a
stockholder, director, officer, employee, or agent of the Company
or was serving at the request of the Company as a partner, trustee,
director, officer, employee, or other agent of another entity
(whether such claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses or expenses) with respect
to any action, suit, proceeding, complaint, claim, or demand
brought by the Company against such Seller if such action, suit,
proceeding, complaint, claim or demand is pursuant to this
Agreement; it being understood that the foregoing limitation is not
intended to apply to any indemnification obligations owed to
Sellers with respect to any action, suit, proceeding, complaint,
claim or demand unrelated to this Agreement and the transactions
contemplated hereby. Each Seller hereby acknowledges that he will
have no claims or right to contribution or indemnity from the
Company with respect to amounts paid by such Seller pursuant to
Section 3(b).
(g) Arbitration Procedure.
(i) Parent and Sellers agree that the arbitration
procedure set forth below shall be the sole and exclusive method
for resolving and remedying claims for money damages arising out of
the provisions of Section 3(b) (the "Disputes"). Nothing in this
Section 3(g) shall prohibit a party hereto from instituting
litigation to enforce any Final Determination. The parties hereby
agree and acknowledge that, except as otherwise provided in this
Section 3(g) and in the Commercial Arbitration Rules of the
American Arbitration Association as in effect from time to time,
the arbitration procedures and any Final Determination hereunder
shall be governed by, and shall be enforced pursuant to the Uniform
Arbitration Act and applicable provisions of Pennsylvania law.
(ii) In the event that any party asserts that there
exists a Dispute, such party shall deliver a written notice to each
other party involved therein specifying the nature of the asserted
Dispute and requesting a meeting to attempt to resolve the same.
If no such resolution is reached within ten business days after
such delivery of such notice, the party delivering such notice of
Dispute (the "Disputing Person") may, within 45 business days after
delivery of such notice, commence arbitration hereunder by
delivering to each other party involved therein a written notice of
arbitration (a "Notice of Arbitration") and by filing a copy of
such Notice of Arbitration with the City of Pittsburgh office of
the American Arbitration Association. Such Notice of Arbitration
shall specify the matters as to which arbitration is sought, the
nature of any Dispute, the claims of each party to the arbitration
and shall specify the amount and nature of any damages, if any,
sought to be recovered as a result of any alleged claim, and any
other matters required by the Commercial Arbitration Rules of the
American Arbitration Association as in effect from time to time to
be included herein, if any.
(iii) Sellers and Parent each shall select an
independent arbitrator expert in the subject matter of the Dispute
(the arbitrators so selected shall be referred to herein as
"Sellers' Arbitrator" and "Parent's Arbitrator", respectively). In
the event that either party fails to select an independent
arbitrator as set forth herein within 20 days from delivery of a
Notice of Arbitration, then the matter shall be resolved by the
arbitrator selected by the other party. Sellers' Arbitrator and
Parent's Arbitrator shall select a third independent arbitrator
expert in the subject matter of the dispute, and the three
arbitrators so selected shall resolve the matter according to the
procedures set forth in this Section 3(g). If Sellers' Arbitrator
and Parent's Arbitrator are unable to agree on a third arbitrator
within 20 days after their selection, Sellers' Arbitrator and
Parent's Arbitrator shall each prepare a list of three independent
arbitrators. Sellers' Arbitrator and Parent's Arbitrator shall
each have the opportunity to designate as objectionable and
eliminate one arbitrator from the other arbitrator's list within 7
days after submission thereof, and the third arbitrator shall then
be selected by lot from the arbitrators remaining on the lists
submitted by Sellers' Arbitrator and Parent's Arbitrator.
(iv) The arbitrator(s) selected pursuant to paragraph
(iii) will determine the allocation of the costs and expenses of
arbitration based upon the percentage which the portion of the
contested amount not awarded to each party bears to the amount
actually contested by such party. For example, if Parent submits
a claim for $1,000 and if Sellers contest only $500 of the amount
claimed by Parent, and if the arbitrator(s) ultimately resolves the
dispute by awarding $300 of the $500 contested, then the costs and
expenses of arbitration will be allocated 60% (i.e. 300 divided by 500) to
Sellers and 40% (i.e. 200 divided by 500) to Parent.
(v) The arbitration shall be conducted under the
Commercial Arbitration Rules of the American Arbitration
Association as in effect from time to time, except as otherwise set
forth herein or as modified by the agreement of all of the parties
to this Agreement. The arbitrator(s) shall so conduct the
arbitration that a final result, determination, finding, judgment
and/or award (the "Final Determination") is made or rendered as
soon as practicable, but in no event later than 90 business days
after the delivery of the Notice of Arbitration nor later than 10
days following completion of the arbitration. The Final
Determination must be agreed upon and signed by the sole arbitrator
or by at least two of the three arbitrators (as the case may be).
The Final Determination shall be final and binding on all parties
and there shall be no appeal from or examination of the Final
Determination, except for fraud, perjury, evident partiality or
misconduct by an arbitrator prejudicing the rights of any party and
to correct manifest clerical errors.
(vi) Parent and Sellers may enforce any Final
Determination in any state or federal court having jurisdiction
over the dispute; provided that any amounts owed to Parent pursuant
to Section 3(b) in accordance with Final Determination shall be
satisfied solely from the Escrow. For the purpose of any action or
proceeding instituted with respect to any Final Determination, each
party hereto hereby irrevocably submits to the jurisdiction of such
courts, irrevocably consents to the service of process by
registered mail or personal service and hereby irrevocably waives,
to the fullest extent permitted by law, any objection which it may
have or hereafter have as to personal jurisdiction, the laying of
the venue of any such action or proceeding brought in any such
court and any claim that any such action or proceeding brought in
such court has been brought in an inconvenient forum.
Section 4. Special Indemnity Fee. If during the
nine-month period following a termination of the Merger Agreement
the result of which is that the Company is obligated to pay to
Parent the Break-Up Fee described in Section 5.10 of the Merger
Agreement, the Company's Board of Directors authorizes or
recommends, or the Company enters into an agreement to consummate
or closes, an Acquisition Transaction (other than the Merger), then
the Sellers shall pay to Parent a fee equal to (i) the difference
between the price per Share paid in connection with the closing of
such Acquisition Transaction and $15.00, multiplied by (ii) the
number of Shares owned by Sellers immediately prior to such closing
(the "Special Indemnity Fee"). Sellers acknowledge that the
payment of the Special Indemnity Fee in accordance with this
Section 4 is a material inducement to Parent and the Merger Sub to
enter into the Merger Agreement and is intended to compensate
Parent and the Merger Sub for the opportunity costs and risks of
entering into the Merger Agreement.
Section 5. Remedies. The parties hereto agree that
if for any reason Parent or either Seller shall have failed to
perform its obligations under this Agreement, then any party hereto
seeking to enforce this Agreement against such nonperforming party
shall be entitled to apply for specific performance and injunctive
and other equitable relief, and the parties hereto further agree to
waive any requirement for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other
equitable relief and also agree to stipulate that there has been
irreparable harm. This provision is without prejudice to any other
rights that any party hereto may have against any other party
hereto for any failure to perform its obligations under this
Agreement.
Section 6. Non-Competition; Non-Solicitation. As a
condition precedent to Parent's obligation to enter into and
perform its obligations under the Merger Agreement, each Seller
agrees that:
(a) For a period of five (5) years after the Closing
Date (the "Non-Competition Period"), such Seller shall not,
directly or indirectly, either for himself or for any other person,
"participate" anywhere in the world in the business as currently
conducted by or as proposed to be conducted by the Company and its
Subsidiaries (the "Business"); provided that Sellers shall not be
prohibited by the provisions of this Section 6 from engaging in the
business of selling in the retail market in the State of Florida
products manufactured and sold by Parent or the Company to Sellers.
For purposes of this Agreement, the term "participate" includes any
direct or indirect interest in any enterprise, whether as an
officer, director, employee, partner, sole proprietor, agent,
representative, independent contractor, consultant, franchisor,
franchisee, creditor, owner or otherwise; provided, that the term
"participate" shall not include ownership of less than 2% of the
stock of a publicly-held corporation whose stock is traded on a
national securities exchange or in the over-the-counter market.
(b) During the Non-Competition Period, such Seller will
not divulge or appropriate for his own use, or for the use of any
third party, any secret or confidential information or knowledge
obtained by such Seller concerning the Business. This obligation
of secrecy shall not apply to information which (i) is or becomes
part of the public domain other than through breach of this
Agreement or through the fault of such Seller from an unaffiliated
source, which source has no obligation of secrecy to Parent, (ii)
is required to be disclosed by law or government order (but only to
the extent so required), or (iii) is used by such Seller in any
other lines of business (but only to the extent so used).
(c) During the two-year period following the Closing
Date, such Seller shall not solicit the employment (in any
capacity) of or hire directly or through another entity any
employee of the Business or any person who was an employee of the
Business during the six-month period immediately preceding the
date of such solicitation or hire without the prior written consent
of Parent.
(d) If, at the time of enforcement of this Section 6, a
court holds that the duration, scope, geographic area or other
restrictions stated herein are unreasonable under circumstances
then existing, the parties agree that the maximum duration, scope,
geographic area or other restrictions deemed reasonable under such
circumstances by such court shall be substituted for the stated
duration, scope, geographic area or other restrictions.
(e) Such Seller recognizes and affirms that in the event
of breach of any of the provisions of this Section 6, money damages
would be inadequate and Parent and its affiliates would have no
adequate remedy at law. Accordingly, such Seller agrees that
Parent and its affiliates shall have the right, in addition to any
other rights and remedies existing in their favor, to enforce their
rights and such Seller's obligations under this Section 6 not only
by an action or actions for damages, but also by an action or
actions for specific performance, injunctive and/or other equitable
relief in order to enforce or prevent any violations (whether
anticipatory, continuing or future) of the provisions of Section 6
(including, without limitation, the extension of the
Non-Competition Period by a period equal to (i) the length of the
violation of this Section 6 plus (ii) the length of any court
proceedings necessary to stop such violation). In the event of a
breach or violation by such Seller of any of the provisions of this
Section 6 the running of the Non-Competition Period (but not of
such Seller's obligations under this Section 6) shall be tolled
with respect to such Seller during the continuance of any actual
breach or violation.
Section 7. Definitions.
"Acquisition Transaction" has the meaning set forth in
the Merger Agreement.
"Agreement" has the meaning set forth in the preamble.
"Business" has the meaning set forth in Section 6(a).
"Company" has the meaning set forth in the preamble.
"Disputes" has the meaning set forth in Section 3(g)(i).
"Disputing Person" has the meaning set forth in Section 3(g)(ii).
"Effective Date" has the meaning set forth in Section 3(a).
"Escrow" has the meaning set forth in Section 3(a).
"Escrow Agent" has the meaning set forth in Section 3(a).
"Final Determination" has the meaning set forth in Section 3(g)(v).
"Geneva Litigation" has the meaning set forth in Section 3(b).
"Indemnified Party" has the meaning set forth in Section 3(d)(i).
"Indemnifying Party" has the meaning set forth in Section 3(d)(i).
"Loss" has the meaning set forth in Section 3(b).
"Merger" has the meaning set forth in the preamble.
"Merger Agreement" has the meaning set forth in the preamble.
"Merger Sub" has the meaning set forth in the preamble.
"Non-Competition Period" has the meaning set forth in Section 6(a).
"Notice of Arbitration" has the meaning set forth in Section 3(g)(ii).
"Parent" has the meaning set forth in the preamble.
"Parent Indemnitee" has the meaning set forth in Section 3(b).
"Parent's Arbitrator" has the meaning set forth in Section 3(g)(iii).
"Participate" has the meaning set forth in Section 6(a).
"Proceeding" has the meaning set forth in Section 3(d)(i).
"Seller's Arbitrator" has the meaning set forth in Section 3(g)(iii).
"Sellers" has the meaning set forth in the preamble.
"settlement" has the meaning set forth in Section 3(d)(ii).
"Shares" has the meaning set forth in Section 3(a).
"Special Indemnity Fee" has the meaning set forth in Section 4.
Section 8. Miscellaneous.
(a) Assignment. This Agreement shall not be assignable
by the parties hereto, except that Parent may assign this Agreement
to a wholly owned subsidiary of Parent. This Agreement shall be
binding upon Sellers and Sellers' heirs, successors and assigns by
will or by the laws of descent.
(b) Amendments. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
(c) Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if
delivered personally or mailed by registered or certified mail
(return receipt requested) to Sellers and to Parent as follows (or
at such other address for a party as shall be specified by like
notice):
If to Parent:
HIG Capital Management, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. Learner
If to Sellers:
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Professional Corporation
One Oxford Center
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
(d) Governing Law. This Agreement shall be governed in
all respects, including validity, interpretation and effects, by
the laws of the Commonwealth of Pennsylvania, without regard to the
principles of conflicts of laws thereof.
(e) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court or a governmental
agency of competent jurisdiction to be invalid, void or
unenforceable, or cause any party hereto to be in violation of any
applicable provision of law, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected
impaired or invalidated.
(f) Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original but all of
which together shall constitute one and the same agreement.
(g) Effect of Headings. The headings contained herein
are for convenience of reference only and shall not affect the
meaning or interpretation hereof.
* * * * *
IN WITNESS WHEREOF, Parent and Sellers have caused this
Agreement to be signed as of the date first above written.
HEAT, INC.
By: __/s/ ▇▇▇▇▇▇▇ Tamer______________________
▇▇▇▇▇▇▇ ▇▇▇▇▇
SELLERS:
By: __/s/ ▇▇▇▇▇ ▇. Weis______________________
▇▇▇▇▇ ▇. ▇▇▇▇
By: __/s/ ric Rascoe_________________________
▇▇▇▇ ▇▇▇▇▇▇
EXHIBIT A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Escrow Agreement") is made
as of ______________ __, 1997 by and among Heat Inc., a Delaware
corporation ("Parent"), ▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ (each, a
"Seller", and together referred to as the "Sellers"), and
__________________, as escrow agent (the "Escrow Agent"). Parent
and the Sellers sometimes are referred to herein individually as
a "Party" and collectively as the "Parties."
The Parties have entered into an Indemnity and Fee
Agreement dated as of January 6, 1997 (the "Indemnity Agreement"),
to which the Escrow Agent is not a party, pursuant to which the
Sellers have certain fee and indemnification obligations to Parent.
Capitalized terms used but not defined herein have the meanings
assigned such terms in the Indemnity Agreement.
Under Section 3 of the Indemnity Agreement, the Sellers
have agreed to indemnify Parent for certain Losses incurred by
Parent in connection with consummation of the Merger. To implement
the foregoing, Section 3(a) of the Indemnity Agreement provides
that the Sellers shall deliver to the Escrow Agent for deposit into
the Escrow $1,000,000 to be used for payment of such indemnity
claims.
The Parties and the Escrow Agent have agreed upon and
wish to set forth in this Escrow Agreement the terms and conditions
with respect to the amounts to be placed in the Escrow and held by
the Escrow Agent hereunder.
NOW THEREFORE, the Parties and the Escrow Agent agree as
follows:
(i) Escrow Agent. The Parties hereby designate and
appoint the Escrow Agent to serve in accordance with the terms,
conditions and provisions of this Escrow Agreement, and the Escrow
Agent hereby agrees to act as such, upon the terms, conditions and
provisions provided in this Escrow Agreement.
(ii) Establishment of the Escrow. Concurrently with the
execution of this Escrow Agreement, subject to the terms and
provisions herein contained, the Sellers have delivered $1,000,000
(the "Escrow Amount") by wire transfer of immediately available
funds to the Escrow Agent for deposit into the Escrow. Subject to
the right of the Escrow Agent to resign as provided in Section 10
hereof, the Escrow Agent shall hold the Escrow Amount and shall not
disburse the Escrow Amount except as provided in Sections 4, 5 and
6 hereof.
(iii) Investment of Escrow Amount. Until termination
of this Escrow Agreement, the Escrow Agent shall invest and
reinvest the Escrow Amount in U.S. treasury bills or treasury
notes, and upon and in accordance with the written instructions of
the Sellers, in any other direct obligation issued by or guaranteed
in full as to principal and interest by the United States of
America or in certificates of deposit issued by one or more
commercial banks having capital, surplus and undivided profits of
not less than $100,000,000 (including the Escrow Agent, if
applicable), in each case with a maturity of less than 180 days.
None of the Escrow Agent, the Sellers or Parent shall be liable or
responsible in any manner for any loss or depreciation resulting
from any such investment or liquidation, or for any costs in
connection therewith, and all of said losses and costs shall be
borne by the Escrow.
(iv) Indemnification Claims and Indemnification Escrow
Amount. If Parent requests a payment from the Escrow Amount in
connection with a claim for indemnification (an "Indemnification
Claim") pursuant to Section 3(b) of the Indemnity Agreement, then
Parent shall notify the Escrow Agent and the Sellers in writing of
such request, describing in such notice (an "Indemnification
Notice") the nature of the claim and the amount thereof if then
ascertainable or, if not ascertainable, the estimated maximum
amount thereof. On the 10th business day (the "Indemnification
Disbursement Date") following the Escrow Agent's receipt of the
Indemnification Notice, the Escrow Agent shall disburse to Parent
from the Escrow Amount the amount of funds requested by Parent in
such Indemnification Notice unless prior to the Indemnification
Disbursement Date the Sellers deliver to each of the Escrow Agent
and Parent a written notice disputing (a "Dispute Notice") Parent's
right to all or part of the amount of funds set forth in the
Indemnification Notice (a "Disputed Amount"). If prior to the
Indemnification Disbursement Date, the Escrow Agent receives a
Dispute Notice, then the disputed portion of such Indemnification
Claim shall be an "Open Indemnification Claim" and the Escrow Agent
shall reserve (an "Indemnification Claim Reserve") a portion of the
Escrow Amount equal to the Open Indemnification Claim. Thereafter,
the Indemnification Claim Reserve shall be disbursed by the Escrow
Agent from the Escrow Amount to Parent in accordance with either
(a) joint written instructions by each of Parent and the Sellers or
(b) a Final Determination with respect to such Indemnification
Claim signed by the sole arbitrator or by at least two of the three
arbitrators (as the case may be) in accordance with Section 3(g) of
the Indemnity Agreement. The Indemnification Claim Reserve shall
not be disbursed by the Escrow Agent except in the manner set forth
in the preceding sentence.
(v) Release and Application of Escrow Amount. The
Escrow Agent shall hold the Escrow Amount under the provisions of
this Escrow Agreement until authorized hereunder to deliver such
funds or any specified portion thereof as follows:
(1) Payments of the Escrow Amount shall be made to
Parent in satisfaction of Indemnification Claims made by Parent, in
the manner and to the extent authorized under Section 4 hereof.
(2) The entire balance of the Escrow Amount
remaining, minus the aggregate amount of the then existing
Indemnification Claim Reserves for Open Indemnification Claims,
minus amounts then payable (and not yet paid) by the Sellers to the
Escrow Agent under Section 11 hereof, shall be paid to the Sellers
on a date which is five (5) days after the end of the 18-month
period following the date of this Agreement (the "Escrow
Disbursement Date").
(3) After the Escrow Disbursement Date, at such
time when a final determination is made for each Open
Indemnification Claim, (i) the amount payable to Parent under the
Final Determination for such Open Indemnification Claim shall be
paid to Parent from the Indemnification Claim Reserve for such Open
Indemnification Claim and (ii) the balance of such Indemnification
Claim Reserve, minus amounts then payable (and not yet paid) by the
Sellers to the Escrow Agent pursuant to Section 11 hereof, shall
then be paid to the Sellers.
(4) Notwithstanding any provision herein to the
contrary, if at any time the Parties (other than the Escrow Agent)
jointly execute a written notice to the Escrow Agent providing the
Escrow Agent with disbursement instructions for all or part of the
Escrow Amount then remaining, the Escrow Agent shall disburse all
or a part of such Escrow Amount in accordance with the instructions
contained in such notice.
(vi) Investment Income. Income, interest, increments and
realized gains paid upon the Escrow Amount held in the Escrow shall
be paid to Sellers upon their demand therefor and not become part
of the Escrow Amount.
(vii) Responsibilities of the Escrow Agent. The
Escrow Agent shall have no duties or responsibilities except those
expressly set forth herein. The Escrow Agent shall have no
responsibility for the validity of any agreements referred to in
this Escrow Agreement, or for the performance of any such
agreements by any party thereto or for interpretation of any of the
provisions of any of such agreements. The liability of the Escrow
Agent hereunder shall be limited solely to bad faith, willful
misconduct or negligence on its part. The Escrow Agent shall be
protected in acting upon any certificate, notice or other
instrument whatsoever received by the Escrow Agent under this
Escrow Agreement, not only as to its due execution and the validity
and effectiveness of its provisions, but also as to the truth and
accuracy of any information therein contained, which the Escrow
Agent in good faith believes to be genuine and to have been signed
or presented by a proper person or persons. The Escrow Agent shall
have no responsibility as to the validity, collectibility or value
of any property held by it in the Escrow pursuant to this Escrow
Agreement and the Escrow Agent may rely on any notice, instruction,
certificate, statement, request, consent, confirmation, agreement
or other instrument which it believes to be genuine and to have
been signed or presented by a proper person or persons. In the
event that the Escrow Agent shall be uncertain as to its duties or
rights hereunder or shall receive instructions from any of the
undersigned with respect to any property held by it in the Escrow
pursuant to this Escrow Agreement which, in the opinion of the
Escrow Agent, are in conflict with any of the provisions of this
Escrow Agreement, the Escrow Agent shall be entitled to refrain
from taking any action until it shall be directed otherwise in
writing by all of the other Parties or by an order of a court of
competent jurisdiction. The Escrow Agent shall be deemed to have
no notice of, or duties with respect to, any agreement or
agreements with respect to any property held by it in the Escrow
pursuant to this Escrow Agreement other than this Escrow Agreement
or except as otherwise provided herein. This Escrow Agreement sets
forth the entire agreement between the Parties and the Escrow Agent
as escrow agent. Notwithstanding any provision to the contrary
contained in any other agreement (excluding any amendment to this
Escrow Agreement) between any of the Parties, the Escrow Agent
shall have no interest in the property held by it in escrow
pursuant to this Escrow Agreement except as provided in this Escrow
Agreement. In the event that any of the terms and provisions of
any other agreement (excluding any amendment to this Escrow
Agreement) between any of the Parties conflict or are inconsistent
with any of the terms and provisions of this Escrow Agreement, the
terms and provisions of this Escrow Agreement shall govern and
control in all respects.
(viii) Amendment and Cancellation. The Escrow Agent
shall not be bound by any cancellation, waiver, modification or
amendment of this Escrow Agreement, including the transfer of any
interest hereunder, unless such modification is in writing and
signed by Parent and the Sellers and, if the duties of the Escrow
Agent hereunder are affected in any way, the Escrow Agent.
(ix) Legal Counsel. The Escrow Agent may consult with,
and obtain advice from, legal counsel in the event of any question
as to any of the provisions hereof or its duties hereunder, and it
shall incur no liability and shall be fully protected in acting in
good faith in accordance with the opinion and instructions of such
counsel. The reasonable cost of such services shall be added to
and be a part of the Escrow Agent's fee hereunder.
(x) Resignation. The Escrow Agent shall have the right,
in its discretion, to resign as agent at any time, by giving at
least thirty (30) days' prior written notice of such resignation to
Parent and the Sellers. In such event Parent will promptly select
a bank with capital, surplus and undivided profits of not less than
$100,000,000, which will be appointed as successor Escrow Agent,
and the Company, Parent and the Sellers will enter into an
agreement with such bank in substantially the form of this Escrow
Agreement. Resignation by the Escrow Agent shall relieve the
Escrow Agent of any responsibility or duty thereafter arising
hereunder, but shall not relieve the Escrow Agent of responsibility
to account to any other party hereto for funds received by the
Escrow Agent prior to the effective date of such resignation. If
a substitute for the Escrow Agent hereunder shall not have been
selected, as aforesaid, the Escrow Agent shall be entitled to
petition any court for the appointment of a substitute for it
hereunder or, in the alternative, it may (i) transfer and deliver
the funds deposited in the Escrow to or upon the order of such
court or (ii) keep safely all funds in the Escrow until it receives
joint notice from Parent and the Sellers of a substitute
appointment. The Escrow Agent shall be discharged from all further
duties hereunder upon acceptance by the substitute of its duties
hereunder or upon transfer and delivery of the said funds in said
Escrow to or upon the order of any court.
(xi) Fees. Parent, on the one hand, and the Sellers (on
the other hand) each are liable for one-half of the Escrow Agent's
fees and expenses for its services hereunder including inception
fees, which Parent and the Seller, respectively, will pay on the
Effective Date before the deposit of the Escrow Amount into the
Escrow pursuant to Section 3 of the Indemnity Agreement. The
Escrow Agent does not have and will not have any interest in the
funds deposited hereunder but is serving only as escrow holder and
having only possession thereof.
(xii) Payments. At any time the Escrow Agent is
required to distribute or pay over any amounts held by or received
by it under any of the provisions of this Escrow Agreement Parent
or the Sellers, such distribution and payment shall be effected by
issuance of the Escrow Agent's check in the appropriate amount
payable to Parent or each of the Sellers, as the case may be, and
by mailing of such check to Parent or the Sellers, as the case may
be, at the address of the Company, Parent or the Sellers,
respectively, set forth in Section 14 hereof; provided that:
(1) any Party may, by written notice delivered to
the Escrow Agent, direct that payment of cash required to be
distributed to such Party be effected (i) by deposit or wire
transfer of such amounts to one or more accounts designated by such
Party, or (ii) by mailing the Escrow Agent's check for such amounts
to any other or changed address specified in such notice, and
payments after such notice is received shall be made in accordance
with such notice (until changed by subsequent notice delivered by
such Party to the Escrow Agent); and
(2) subject to compliance by any Party with the
provisions of this Escrow Agreement, in the event of any transfer
or assignment or otherwise by operation of law, or by sale,
assignment, contract, security agreement or otherwise, of any right
to receive payment of any part of any amounts held by the Escrow
Agent (notice of which sale, transfer or assignment shall be given
by the Company to the Escrow Agent prior thereto) by such Party,
the Escrow Agent shall nevertheless be entitled to withhold payment
of any amounts to such assignee, transferee or successor in
interest until written instructions from such assignee, transferee
or successor in interest are delivered to the Escrow Agent
specifying the mailing address or account of such assignee,
transferee or successor in interest pursuant to the foregoing
provisions of this Section 12.
(xiii) Taxation of Interest Earned on Investment of
Escrow Amount. The Sellers hereby acknowledge that, for federal
and state income tax reporting purposes, the interest earned on the
investment of the Escrow Amount shall be income of the Sellers.
The Escrow Agent shall be responsible for reporting any interest
earned to the Internal Revenue Service.
(xiv) Notices. All notices, requests, demands,
claims, and other communications hereunder will be in writing. Any
notice, request, demand, claim, or other communication hereunder
shall be deemed duly given (i) when delivered, if personally
delivered, (ii) when receipt is electronically confirmed, if faxed
(with hard copy to follow via first class mail, postage prepaid),
(iii) one day after deposit with a reputable overnight courier, or
(iv) three days after deposit into first class mail, in each case
addressed to the intended recipient as set forth below:
If to the Escrow Agent:
___________________________
___________________________
___________________________
___________________________
Attention: __________________
Telecopy #: _________________
If to Parent:
H.I.G. Capital Management
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopy #: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. Learner, Esq.
Telecopy #: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Sellers:
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with a copy (which shall not constitute notice) to:
_____________________________
_____________________________
_____________________________
_____________________________
Any Party may change the address and/or telecopier number to which
notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Party notice in
the manner herein set forth. Notwithstanding any of the foregoing,
no notice or instructions to the Escrow Agent shall be deemed to
have been received by the Escrow Agent prior to actual receipt by
the Escrow Agent, and any computation of a time period which is to
begin after receipt of a notice by the Escrow Agent shall run from
the date of such receipt by the Escrow Agent.
(xv) Captions. The section captions used herein are for
reference purposes only, and shall not in any way affect the
meaning or interpretation of this Escrow Agreement.
(xvi) Execution by Escrow Agent. The execution of
this Escrow Agreement by the Escrow Agent shall constitute a
receipt for the Escrow Amount.
(xvii) Indemnification of Escrow Agent. Parent and
the Sellers agree, jointly and severally, to hold the Escrow Agent
harmless and to indemnify the Escrow Agent against any loss,
liability, claim or demand arising out of or in connection with the
performance of its obligations in accordance with the provisions of
this Escrow Agreement, except for bad faith, negligence or willful
misconduct of the Escrow Agent. The foregoing indemnities in this
Section 17 shall survive termination of this Escrow Agreement.
(xviii) Escrow Agreement as Security Only. The escrow
arrangement under this Escrow Agreement serves only as security for
the Sellers' obligations pursuant to Section 3 of the Indemnity
Agreement to the extent and in the manner provided herein and in no
way shall limit the amount of liability which may be incurred by
Parent pursuant to such obligations.
(xix) Disagreements. If any disagreement or dispute
arises between the Parties concerning the meaning or validity of
any provision under this Escrow Agreement or concerning any other
matter relating to this Escrow Agreement, the Escrow Agent (a)
shall be under no obligation to act, except under process or order
of court, or until it has been adequately indemnified to its full
satisfaction, and shall sustain no liability for its failure to act
pending such process or court order or indemnification, and (b) may
deposit, in its sole and absolute discretion, the Escrow Amount or
that portion of the Escrow Amount it then holds with any court of
competent jurisdiction and interplead the Parties. Upon such
deposit and filing of interpleader, the Escrow Agent shall be
relieved of all liability as to the Escrow Amount and shall be
entitled to recover from the Parties its reasonable attorneys' fees
and other costs incurred in commencing and maintaining such action.
(xx) Governing Law. This Escrow Agreement shall be
governed by and construed in accordance with the domestic laws of
the Commonwealth of Pennsylvania without giving effect to any
choice of law or conflict of law provision or rule (whether of the
Commonwealth of Pennsylvania or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than
the Commonwealth of Pennsylvania.
(xxi) Counterparts. This Escrow Agreement may be
executed in two or more counterparts, all of which taken together
shall constitute one instrument.
* * * * *
IN WITNESS WHEREOF, the Parties hereunto have duly
caused this Escrow Agreement to be executed as of the first day
above written.
HEAT, INC.
By: __/s/ ▇▇▇▇▇▇▇ Tamer____________________
▇▇▇▇▇▇▇ ▇▇▇▇▇
By: ___/s/ ▇▇▇▇▇ ▇. Weis_________
▇▇▇▇▇ ▇. ▇▇▇▇
By: ___/s/ ▇▇▇▇ Rascoe_________
▇▇▇▇ ▇▇▇▇▇▇
ESCROW AGENT:
____________________________________________
By: ______________________________________
Its: _________________________________________