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EXHIBIT 2.4
ESCROW AGREEMENT
This Escrow Agreement (this or the "Agreement") is made and entered
into as of March 2, 1998 by and among SRS Labs, Inc., a Delaware corporation
("SRS"), Thomrose Holdings (BVI) Limited ("Thomrose"), Cape Spencer
International Limited ("Cape") and Rayfa (BVI) Limited ("Rayfa"), the former
shareholders of Valence Technology Inc., a British Virgin Islands company
("Valence"), Thomas Wah Tong Wan, as the Shareholders' Representative, and
Harris Trust Company of California (the "Escrow Holder"). For purposes of this
Agreement, unless otherwise specified, Thomrose, Cape and Rayfa shall be
referred to as the "Shareholders."
RECITAL
Pursuant to a certain Stock Purchase Agreement (the "Stock Purchase
Agreement") dated February 24, 1998 by and among SRS, Valence, the Shareholders
and Anki (BVI) Limited, SRS is acquiring all of the capital stock of Valence
held by the Shareholders in exchange for U.S. $13,500,000, payable U.S.
$1,394,222.40 cash and the remainder in shares of the voting common stock, $.001
par value, of SRS (the "SRS Stock"). This Agreement is being entered into
pursuant to Section 1.2(c) of the Stock Purchase Agreement for the purpose of
securing for SRS certain obligations of the Shareholders under the Stock
Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and adequacy of which is acknowledged by
each party, it is agreed as follows:
1. ESCROW DEPOSIT
1.1 Simultaneously with the execution and delivery of this Agreement,
each of the Shareholders is delivering to the Escrow Holder a stock certificate,
or certificates, registered in the name of the Shareholder representing its
beneficial ownership of the number of shares of SRS Stock set forth after the
name of such Shareholder on Schedule A attached hereto and incorporated herein,
together with a stock power duly executed in blank. The Escrow Holder hereby
acknowledges receipt of such certificates and stock powers.
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1.2 As used herein, the term "Escrow Deposit" means (a) the aggregate
shares being delivered to the Escrow Holder as described in Section 1.1 hereof
and (b) all distributions received by the Escrow Holder pursuant to Section 1.3
hereof.
1.3 The Shareholders hereby authorize delivery directly to the Escrow
Holder (and agree that they will deliver to the Escrow Holder if they shall
first receive the same) to be held as part of the Escrow Deposit hereunder, all
dividends in the form of cash, stock or other securities and other distributions
on or with respect to the SRS Stock held in the Escrow Deposit. All cash
distributions shall be held by the Escrow Holder in an interest bearing account.
1.4 While the Escrow Deposit is held in escrow hereunder, the
Shareholders will have all rights, including voting rights, with respect thereto
except (a) the right to receive dividends and cash distributions, if any, as set
forth in Section 1.3, and (b) the right of possession.
1.5 All transfers by the Escrow Holder of any portion of the Escrow
Deposit to SRS in accordance with the provisions of this Agreement shall be
drawn (a) from the respective interests of the Shareholders in the Escrow
Deposit set forth on Schedule A for Claims relating to a breach of a
representation and warranty under Article 2 of the Stock Purchase Agreements
(several not joint liability) and (b) from the respective interests of the
Shareholders in the Escrow Deposit as set forth in Schedule A hereto in the
manner specified by SRS (joint and several liability) for Claims relating to all
other actions brought against SRS arising out of or related to the Stock
Purchase Agreement. The Escrow Holder shall have no duty or obligation to
calculate or verify any instruction made by SRS pursuant to this Section 1.5
2. DELIVERY OF ESCROW DEPOSIT BY THE ESCROW HOLDER
The Escrow Holder shall hold the Escrow Deposit in escrow until authorized
hereunder to deliver the same or any portion thereof, as follows:
2.1 Promptly after the expiration of a period of one year from the date
hereof, the Escrow Holder shall deliver to the Shareholders, free and clear of
any interest of SRS therein, all of the Escrow Deposit then held by the Escrow
Holder, other than any portion of the Escrow Deposit asserted by SRS as then
being held in respect of any claim or claims against the Shareholders arising
out of or related to the Stock Purchase Agreement ("Claim(s)"), pursuant to
Section 2.2 hereof or then deliverable to SRS pursuant to Section 2.3 hereof.
2.2 At any time during the one year period commencing from the date
hereof, SRS may give written notice to the Escrow Holder that SRS is asserting a
Claim against
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the Shareholders, and such notice shall constitute the assertion of such Claim
by SRS against the Escrow Deposit held in escrow hereunder. Notice of a Claim
given to the Escrow Holder pursuant to this Section 2.2 shall briefly set forth
the basis of the Claim and, if then determinable by SRS, a reasonable estimate
of the amount thereof and the number of shares of SRS Stock, valued in
accordance with Section 3.2, to be retained in the Escrow Deposit to secure such
Claim. If the estimated amount of a Claim is not set forth in the notice of the
Claim given to the Escrow Holder, SRS will give a further notice to the Escrow
Holder setting forth SRS' estimate of the amount of such Claim promptly after it
is reasonably able to make such estimate. Promptly after receipt thereof, the
Escrow Holder shall send to the Shareholders' Representative (referred to in
Section 6.8 below) in the same manner as is provided for notices by Section 6.3
hereof, a copy of any notice received by the Escrow Holder pursuant to this
Section 2.2. Upon receipt by the Escrow Holder of any such notice of a Claim,
the Escrow Holder shall hold in escrow hereunder that portion of the Escrow
Deposit which, as set forth in SRS' notice, will be sufficient to pay such Claim
and all other pending Claims hereunder (or shall hold in escrow hereunder the
entire Escrow Deposit then in its possession if (a) notice from SRS of the
estimated amount of any Claim has not been received by the Escrow Holder or (b)
such notice has been so received for all pending Claims but in SRS' opinion the
Escrow Deposit then in the Escrow Holder's possession will not be sufficient to
pay the full amount, as estimated by SRS, of all of such Claims) until there has
been a determination of all pending Claims in accordance with the provisions of
Section 3.1 hereof (a "Determination of a Claim"). If SRS does not give the
Escrow Holder notice of the estimated amount of a Claim within 60 days following
giving notice of a Claim, then the Escrow Holder shall not thereafter reserve
any Escrow Deposit for such Claim and may distribute any Escrow Deposit that
would otherwise be held for such claim upon the expiration of one year from the
date hereof if no longer required to secure a Claim as to which it shall have
received notice of the estimated amount.
2.3 Promptly after the delivery to the Escrow Holder of notice of a
Determination of a Claim in accordance with the provisions of Section 3.1(a) or
4.1 hereof (which notice shall be accompanied by a copy of any agreement, final
arbitration award, or final court order, judgment, or decree evidencing such
Determination), the Escrow Holder shall deliver to SRS, free and clear of any
interest of the Shareholders therein, that portion of the Escrow Deposit having
a value (determined in accordance with Section 3.2 hereof) equal to the amount,
if any, of such Claim payable to SRS pursuant to such Determination together
with any dividends received in cash or property with respect to such Escrow
Deposit and any interest received thereon. If the value of the Escrow Deposit
then held by the Escrow Holder is less than the amount, if any, of such Claim so
payable, the Escrow Holder shall deliver to SRS all of the Escrow Deposit then
held by it, free and clear of any interest of the Shareholders therein.
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2.4 If any Claim is asserted hereunder pursuant to Section 2.2 hereof
that does not result in a Determination of a Claim during the one year period
commencing from the date hereof, promptly after the Determination of such Claim
and the delivery to SRS of the Escrow Deposit in respect thereof in accordance
with Section 2.3 hereof, the Escrow Holder shall deliver to the Shareholders all
of the Escrow Deposit remaining in escrow hereunder, free and clear of any
interest of SRS therein.
3. DETERMINATION OF CLAIMS; VALUATION OF ESCROW DEPOSIT
3.1 The Determination of a Claim asserted hereunder pursuant to Section
2.2 hereof shall be made as follows:
(a) The Claim shall be deemed to have resulted in a Determination
in favor of SRS, and to have resulted in a liability of the Shareholders
to SRS in an amount equal to the amount of such Claim estimated by SRS
pursuant to Section 2.2 hereof, on the 60th calendar day after the Escrow
Holder receives from SRS notice of the estimated amount of such Claim
pursuant to Section 2.2 hereof, unless prior thereto the Escrow Holder has
received written notice from the Shareholders' Representative that the
Shareholders dispute the Claim. Such notice shall list all of the parties
to the dispute. Promptly after receipt of any written notice from the
Shareholders' Representative disputing any Claim, the Escrow Holder shall
send SRS a copy of such notice.
(b) If a Claim asserted hereunder is disputed by the Shareholders
in the manner provided in Section 3.1(a) hereof, the Determination of such
Claim shall be made in accordance with the provisions for the settlement
of disputes contained in Section 4.1 hereof and shall be evidenced by the
documentation referred to in such Section.
3.2 To the extent that the Escrow Deposit consists of SRS Stock, the per
share value of such shares for purposes of this Agreement shall be as follows:
(i) if such shares are then publicly traded on a national securities exchange or
the Nasdaq National Market, the average of the high and low sales prices of such
shares for each of the ten trading days prior to the date of delivery of all or
a portion of the Escrow Deposit to SRS hereunder (the "Determination Date");
(ii) if such shares are then publicly traded in the over-the-counter market, the
average of the mean between the bid and asked prices for such shares for the ten
trading days prior to the determination, or (iii) if there is no public market
for such shares, the value shall be deemed to be $7.2032 per share, unless
otherwise agreed between the parties hereto. Any determination as to the value
of the SRS Stock in the Escrow Deposit shall be calculated by SRS consistent
with this Section 3.2 and acknowledged by the Shareholders' Representative and
provided to the Escrow Holder in
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writing. The Escrow Holder shall have no duty or obligation to calculate or
verify any such valuation provided to it.
4. SETTLEMENT OF DISPUTES
4.1 Any dispute that may arise under this Agreement solely between SRS
and the Shareholders, and to which the Escrow Holder is not a party, with
respect to (a) any Claim asserted by SRS pursuant to Section 2.2 hereof; (b) the
delivery, ownership, or right to possession of the Escrow Deposit or any portion
thereof; (c) the duties of the Escrow Holder hereunder; and (d) any other
questions arising under this Agreement shall be settled by mutual agreement of
the parties to such dispute (evidenced by appropriate instructions in writing to
the Escrow Holder signed by all of the parties to such dispute) or by a binding
and final arbitration award or by a final judgment, order, or decree of a court
of competent jurisdiction in the United States of America (the time for appeal
therefrom having expired and no appeal having been perfected). The Escrow Holder
shall be under no duty to institute or defend any such proceedings and none of
the costs and expenses of any such proceedings shall be borne by the Escrow
Holder. Prior to the Determination of any dispute as provided in this Section
4.1, the Escrow Holder is authorized and directed to retain in its possession,
without liability to anyone, the portion of the Escrow Deposit that is the
subject of or involved in the dispute. Any final arbitration award or final
judgment referred to above shall be accompanied by a legal opinion of counsel
for the presenting party satisfactory to the Escrow Holder to the effect that
said arbitration award or judgment is final and enforceable and is not subject
to further appeal. The Escrow Holder shall act on such award or judgment and
opinion without further question.
4.2 Any arbitration proceedings hereunder shall be commenced by the
delivery by any party to a dispute to the other(s) of written notice requesting
arbitration. The matter shall be submitted to such disinterested arbitrator as
shall be agreed upon by the parties to the dispute, which arbitrator shall
determine the rules to govern the arbitration proceedings. Each party shall bear
its own costs and expenses incurred by it in connection with the arbitration;
all other costs, including arbitrators' fees and expenses, shall be borne
equally by the parties. Notwithstanding the foregoing, if the arbitrator
determines that one party acted unreasonably and not in good faith, the
arbitrator shall have authority to assess the costs and expenses of the
arbitration, including the arbitrator's fee and reasonable attorneys' fees,
against that party. In the event the parties are unable to agree upon an
arbitrator within ten (10) business days of the date a notice requesting
arbitration is delivered, the arbitration shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association
("AAA"). If arbitration is conducted pursuant to the rules of the AAA, then the
controversy or claim shall be decided by a board of three (3) arbitrators. Each
of SRS and the Shareholders
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shall select one (1) arbitrator within ten (10) business days of a demand for
arbitration being made or, in the event of a party's failure to so select, an
arbitrator shall be named for that party by the AAA. Within ten (10) business
days of their selection, the two (2) arbitrators so selected shall select a
third arbitrator from the National Panel of Arbitrators maintained by the AAA or
as they otherwise shall agree. All arbitrators, however selected, shall possess
such experience in, and knowledge of, the subject area of the controversy or
claim so as to qualify as an "expert" with respect to such subject matter. (For
example, any claim or controversy involving financial or accounting issues shall
be decided by certified public accountants.) Any arbitration hearing shall be
held in Orange County, California, unless the parties to the dispute agree
otherwise. The governing law for the purposes of any arbitration arising
hereunder shall be as set forth in Section 7.4 hereof. Any award rendered by
arbitration shall be final and binding on the parties, and judgment thereon may
be entered in any court of competent jurisdiction. Notwithstanding any
arbitration rules to the contrary, the award of the arbitrator must be made no
later than three (3) months following the date on which the arbitrator or
arbitrators are appointed, unless the issue is the subject of litigation brought
by a third party and the arbitrator deems it appropriate to defer his award
until the litigation is resolved.
4.3 The parties hereby irrevocably and unconditionally consent to submit
to the exclusive jurisdiction of the courts of the State of California, County
of Orange, and/or the United States District Court for the Central District of
California (Southern Division) for any actions, suits, controversies or
proceedings arising out of or relating to this Agreement and the transactions
contemplated hereby (and the parties agree not to commence any action, suit or
proceeding relating thereto except in such courts), and further agree that
service of any process, summons, notice or document by U.S. registered mail to
the respective addresses set forth above shall be effective service of process
for any action, suit or proceeding brought against the parties in any such
court. The parties hereby irrevocably and unconditionally waive any objection to
the laying of venue of any action, suit, controversies or proceeding arising out
of this agreement or the transactions contemplated hereby, in the courts of the
State of California, County of Orange and/or the United States District Court
for the Central District of California (Southern Division), and hereby further
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient or improper forum.
4.4 It is the intent of the parties to this Agreement that all disputes
referenced in Section 4.1 hereof shall be resolved, to the extent possible, in
connection with a single arbitration or judicial proceeding.
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5. CONCERNING THE ESCROW HOLDER
5.1 SRS shall pay the Escrow Holder its fees for its services hereunder
and all out-of-pocket costs and expenses of the escrow, including postage,
telephone, courier charges, share certificate transfer fees, wire transfer fees,
and all similar expenses relating to all aspects of the escrow.
5.2 The Escrow Holder may resign and be discharged from its duties
hereunder at any time by giving notice of such resignation to SRS and the
Shareholders specifying a date (not less than 30 days after the giving of such
notice) when such resignation shall take effect. Promptly after such notice, a
successor escrow agent shall be appointed by mutual agreement of SRS and the
Shareholders, such successor escrow agent to become the Escrow Holder hereunder
upon the resignation date specified in such notice. If SRS and the Shareholders
are unable to agree upon a successor escrow agent within 30 days after such
notice, the Escrow Holder may, at the expense of SRS and the Shareholders,
petition a court of competent jurisdiction for the appointment of a successor.
The Escrow Holder shall continue to serve until its successor accepts the escrow
and receives the Escrow Deposit or until the Escrow Deposit is deposited with a
court. SRS and the Shareholders may agree at any time to substitute a new escrow
agent by giving notice thereof to the Escrow Holder then acting.
5.3 The Escrow Holder undertakes to perform only such duties as are
specifically set forth herein. The Escrow Holder shall have no responsibility to
read, understand or comply with the Stock Purchase Agreement. The Escrow Holder,
acting or refraining from acting in good faith, shall not be liable for any
mistake of fact or error of judgment by it or for any acts or omissions by it of
any kind, unless caused by willful misconduct or gross negligence, and shall be
entitled to rely, and shall be protected in doing so, upon (a) any written
notice, instrument, or signature believed by it to be genuine and to have been
signed or presented by the proper party or parties duly authorized to do so, and
(b) the advice of counsel (which may be of the Escrow Holder's own choosing).
The Escrow Holder shall have no responsibility for the contents of any writing
submitted to it hereunder and shall be entitled in good faith to rely without
any liability upon the contents thereof.
5.4 SRS and the Shareholders and their respective heirs, assignees and
representatives hereby agree to indemnify and hold harmless the Escrow Holder
from any and all claims, demands, debts, duties, obligations, acts, costs,
expenses, sums of money, suits, dues, actions and/or causes of action of any
kind or nature whatsoever which shall for any reason whatsoever be made by any
person, entity or organization, as a result of or in any way connected with the
Escrow Holder's performance under the terms of this Agreement. This right of
indemnification shall survive the termination of this Agreement, and the
resignation or removal of the Escrow Holder. The costs and
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expenses of enforcing this right of indemnification shall also be paid by SRS
and the Shareholders.
5.5 If the Escrow Holder is named in any lawsuit or arbitration for any
reason in connection with this Agreement or the Escrow Deposit, then the Escrow
Holder is hereby authorized to deposit with the clerk of the court or
arbitration tribunal in which such proceeding is pending any or all of the
Escrow Deposit held by the Escrow Holder pursuant hereto, or to interplead all
interested parties in any court of competent jurisdiction and to deposit with
the clerk of such court or arbitration tribunal any or all of the Escrow Deposit
that is the subject of such proceeding. Upon its depositing such Escrow Deposit
as aforesaid, the Escrow Holder shall be fully released and discharged of any
duties or liabilities with respect to such Escrow Deposit so deposited.
6. APPOINTMENT AND POWERS OF SHAREHOLDERS' REPRESENTATIVE
6.1 Each of the undersigned Shareholders hereby irrevocably constitutes
and appoints Thomas Wah Tong Wan (the "Shareholders' Representative") as his
agent and attorney-in-fact, with full power of substitution, with respect to all
matters arising in connection with this Agreement, including, but not limited
to, the power and authority on behalf of the undersigned to do or cause to be
done any of the following things:
(i) instruct the Escrow Holder on all matters pertaining to the
Escrow Deposit and the SRS Stock;
(ii) otherwise take all actions and do all things necessary or
proper, required, contemplated or deemed advisable or desirable by the
Shareholders' Representative in his discretion, including the execution and
delivery of any documents, and generally act for and in the name of the
undersigned with respect to this Agreement and the Escrow Deposit as fully as
could the undersigned Shareholders if then personally present and acting.
6.2 The Shareholders' Representative is hereby empowered to determine,
in his sole and absolute discretion, the time or times when, the purposes for
which, and the manner in which, any power herein conferred upon the
Shareholders' Representative shall be exercised.
6.3 The Escrow Holder, SRS, any other party to this Agreement and all
other persons dealing with the Shareholders' Representative as such may rely and
act upon any writing believed in good faith to be signed by the Shareholders'
Representative.
6.4 The Shareholders' Representative shall not receive any compensation
for his services rendered hereunder, except that he shall be entitled to cause
the Escrow
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Holder to pay, from the proceeds payable to the undersigned Shareholders, the
undersigned Shareholder's proportionate share of any out-of-pocket expenses
incurred under this Agreement.
6.5 The Shareholders' Representative assumes no responsibility or
liability to the undersigned Shareholders or to any other person, other than to
deal with the Escrow Deposit or the SRS Stock and any other shares of SRS Stock
or other property deposited with the Escrow Holder pursuant to the terms of this
Agreement in accordance with the provisions hereof. Each of the undersigned
Shareholders hereby agrees to indemnify and hold harmless the Shareholders'
Representative and his respective agents, successors, assigns and
representatives with respect to any act or omission of or by any of them in
connection with any and all matters contemplated by this Agreement except for
acts or omissions by reason of willful misfeasance or gross negligence.
7. MISCELLANEOUS
7.1 This Agreement will be binding upon, inure to the benefit of, and be
enforceable by the respective heirs, beneficiaries, representatives, successors,
and assigns of the parties hereto.
7.2 This Agreement contains the entire understanding of the parties with
respect to its subject matter and may be amended only by a written instrument
duly exe cuted by all the parties hereto.
7.3 All notices, claims, requests, demands, and other communications
hereunder ("notices") shall be in writing and shall be deemed to have been given
if personally delivered or if sent by telecopy or facsimile or mailed by
overnight, commercial air courier service or by first class, registered or
certified mail, postage prepaid, and properly addressed as follows:
If to SRS:
SRS Labs, Inc.
2909 Daimler Street
Santa Ana, California 92705
Attention: John AuYeung, Director
Tel.: (714) 442-1070
Fax: (714) 852-1099
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with a copy to:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive, 17th Floor
Costa Mesa, California 92626
Attention: John F. Della Grotta, Esq.
Tel.: (714) 668-6210
Fax: (714) 979-1921
If to the Shareholders:
Thomas Wah Tong Wan, as Shareholders' Representative
c/o Valence Technology Inc.
Unit 413 4th Floor
Hong Kong Industrial Technology Centre
72 Tat Chee Avenue
Kowloon Tong, Hong Kong
Tel.: (852) 2784-2022
Fax: (852) 2776-7770
with a copy to:
Milbank, Tweed, Hadley & McCloy
3007 Alexandra House
16 Chater Road
Hong Kong
Tel.: (852) 2971-4803
Fax: (852) 2840-0792
Attention: Douglas Tanner, Esq.
If to The Escrow Holder:
Harris Trust Company of California
601 S. Figueroa Street, Suite 4900
Los Angeles, California 90017
Tel.: (213) 239-0675
Fax: (213) 239-0631
Attention: Escrow Division
Any party may change its address for purposes of this Article by
giving the other parties written notice of the new address in the manner set
forth above. Notice will conclusively be deemed to have been given when
personally delivered, or if given by
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mail, on the second day after being sent by an overnight, commercial air courier
service or on the fifth day after being sent by first class, registered or
certified mail, or if given by telecopy or facsimile machine, when confirmation
of transmission is indicated by the sender's telecopy or facsimile machine.
7.4 This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware without regard to its
conflict of laws principles.
7.5 This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.6 This Agreement shall remain in full force and effect until the
Escrow Holder has delivered all the Escrow Deposit in its possession in
accordance with the terms hereof.
7.7 Article headings contained herein are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of SRS and the Escrow Holder, and by
the Shareholders, as of the date first above written.
"SRS"
SRS LABS, INC.
By: /s/ THOMAS C.K. YUEN
------------------------------------
Thomas C.K. Yuen
Chairman of the Board and Chief
Executive Officer
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"SHAREHOLDERS"
THOMROSE HOLDINGS (BVI) LIMITED
By: /s/ THOMAS WAH TONG WAN
------------------------------------
Thomas Wah Tong Wan
Director
CAPE SPENCER INTERNATIONAL
LIMITED
By: /s/ WONG YIN BUN
------------------------------------
Wong Yin Bun
Director
RAYFA (BVI) LIMITED
By: /s/ CHOI YAT MING
------------------------------------
Choi Yat Ming
Director
"ESCROW HOLDER"
HARRIS TRUST COMPANY OF
CALIFORNIA
By: /s/ JOHN CASTELLANOS
------------------------------------
Title: ASSISTANT VICE PRESIDENT
---------------------------------
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"SHAREHOLDERS' REPRESENTATIVE"
/s/ THOMAS WAH TONG WAN
---------------------------------------
Thomas Wah Tong Wan
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No. of Shares
of SRS Stock
Name of Shareholder Being Deposited
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Thomrose Holdings (BVI) Limited 496,600
Case Spencer International Limited 209,245
Rayfa (BVI) Limited 470,582
SCHEDULE A