EXHIBIT 2.3
ESCROW AGREEMENT
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THIS ESCROW AGREEMENT (the "Agreement") is made this 13th day of
October, 2005 between and among eGAMES, INC., a Pennsylvania corporation
("eGames"), CINEMAWARE, INC., a California corporation ("Cinemaware") and HUDSON
UNITED BANK (the "Escrow Agent").
RECITALS
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WHEREAS, eGames and Cinemaware are parties to an Asset Purchase
Agreement dated as of October 6, 2005 (the "Asset Purchase Agreement"), pursuant
to which eGames will acquire substantially all of the assets of Cinemaware in
exchange for restricted common stock, no par value per share, of eGames (the
"Shares"). Pursuant to the provisions of Article VII of the Asset Purchase
Agreement, Cinemaware has agreed to indemnify and reimburse eGames for certain
liabilities, damages, losses, claims, demands, costs and expenses arising after
the Closing Date (as defined in the Asset Purchase Agreement); and
WHEREAS, the Asset Purchase Agreement provides for one-third of the
Shares to be set aside to settle claims of eGames which may arise pursuant to
Section 7.2 of the Asset Purchase Agreement; and
WHEREAS, capitalized terms used and not defined herein shall have the
meanings set forth in the Asset Purchase Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
Section 1. Acknowledgement of Receipt of the Asset Purchase Agreement.
The Escrow Agent hereby acknowledges receipt of a copy of the Asset Purchase
Agreement, solely for reference purposes to determine the meanings of certain
terms not defined herein. Escrow Agent is not charged with any duties or
responsibilities under the Asset Purchase Agreement.
Section 2. Escrow. The Escrow Stock shall be held by the Escrow Agent
in escrow subject to the terms and conditions hereinafter set forth.
Section 3. Escrow Stock.
(a) Upon effectiveness of this Agreement, eGames hereby agrees
to provide directly to the Escrow Agent on behalf of eGames and Cinemaware the
Escrow Stock, all of which will be held in escrow by the Escrow Agent (the
Escrow Stock, together with the Additional Escrow Stock [as defined herein],
collectively referred to as the "Escrow Stock").
(b) Except for tax-free dividends payable in securities
declared with respect to the Escrow Stock pursuant to Section 305(a) of the Code
("Additional Escrow Stock"), any cash dividends, dividends payable in securities
or other distributions of any kind made in respect of the Escrow Stock shall be
distributed currently to Cinemaware. Cinemaware shall have voting rights with
respect to the Escrow Stock so long as such Escrow Stock is held in escrow.
While the Escrow Stock remains subject to this Agreement, Cinemaware shall
retain and shall be able to exercise all other incidents of ownership of said
Escrow Stock which are not inconsistent with the terms and conditions hereof.
(c) Cinemaware shall be responsible for any tax liability
attributable to the placement of the Escrow Stock in the Escrow and the payment
of any dividends or other amounts payable to Cinemaware with respect to the
Escrow Stock.
(d) Except as contemplated hereunder, no Escrow Stock or any
beneficial interest therein may be pledged, sold, assigned or transferred,
including by operation of law, by Cinemaware or be taken or reached by any legal
or equitable process in satisfaction of any debt or other liability of
Cinemaware, prior to the delivery to Cinemaware of the Escrow Stock by the
Escrow Agent.
Section 4. Indemnity. The terms, conditions, covenants and provisions
of Article VII of the Asset Purchase Agreement regarding the indemnification
obligations of Cinemaware are hereby incorporated in full by reference herein.
Section 5. Conditions of Indemnification. The obligations of Cinemaware
under Article VII of the Asset Purchase Agreement and this Agreement shall be
subject to the following terms and conditions:
(a) If eGames shall in good faith have any claim for Damages
for which Cinemaware is obligated to indemnify eGames under the Asset Purchase
Agreement, it shall give notice thereof to Cinemaware and the Escrow Agent,
within a reasonable time after discovery of the facts, in each case including
the basis of the Claim. Within thirty (30) days after its receipt of the notice
of the Claim, Cinemaware shall give notice to eGames and the Escrow Agent
advising whether it acknowledges its obligation to indemnify eGames or disputes
its obligation. If Cinemaware acknowledges its indemnification obligation with
respect to a Claim, and the Claim is based upon an asserted liability or
obligation that is not a Third Party Claim, the Escrow Agent shall, within three
business days after receipt of the acknowledgement from Cinemaware, distribute
to eGames the number of shares of Escrow Stock using the value determined on the
Closing Date under Section 2.3 of the Asset Purchase Agreement having an
aggregate value equal to the amount of the Damages. If Cinemaware disputes its
indemnification obligation, or the Claim is a Third Party Claim, the Escrow
Agent shall, within three business days after a final judgment or order of a
court of equity of competent jurisdiction or one or more arbitrators selected in
accordance with the Asset Purchase Agreement determining the amount of Damages,
or after a final settlement or agreement as to the amount of the Damages,
distribute to eGames the number of shares of Escrow Stock using the value
determined on the Closing Date under Section 2.3 of the Asset Purchase Agreement
having an aggregate value equal to the amount of such Damages. To the extent
that the value of the shares of Escrow Stock represented by the certificate so
delivered exceeds the cash value of the Damages, eGames shall promptly deliver
to the Escrow Agent a certificate for the excess balance of the Escrow Stock
which shall be held pursuant to this Agreement.
(b) No claim for indemnification hereunder shall be made
unless asserted by a written notice pursuant to Section 5(a) hereof, given to
Cinemaware on or prior to October 13, 2006 (the "Termination Date").
(c) For purposes of establishing the number of shares of
Escrow Stock to be delivered to eGames with respect to a claim for Damages
pursuant to this Section 5, the Escrow Stock shall be valued by using the value
determined on the Closing Date under Section 2.3 of the Asset Purchase
Agreement.
Section 6. Third Party Claims.
(a) If eGames receives notice of the assertion by a Third
Party Claim with respect to which Cinemaware is or may be obligated to provide
indemnification, eGames shall promptly notify Cinemaware in writing (the "Claim
Notice") of the Claim; provided that the failure to provide such notice, so long
as notice is provided before the Termination Date, shall not relieve or
otherwise affect the obligation of Cinemaware to provide indemnification
hereunder, except to the extent that any Damages directly resulted from or were
caused by such failure.
(b) Cinemaware shall have thirty days after receipt of the
Claim Notice to undertake, conduct and control, through counsel satisfactory to
eGames, and at Cinemaware's expense, the settlement or defense thereof, and
eGames shall cooperate with Cinemaware in connection therewith; provided, that
(i) Cinemaware shall permit eGames to participate in such settlement or defense
through counsel chosen by eGames, provided that the fees and expenses of such
counsel shall not be borne by Cinemaware and shall not be included in any
Damages claimed hereunder, and (ii) Cinemaware shall not settle any Third Party
Claim, except a Claim solely for monetary Damages, without eGames' consent. So
long as Cinemaware is vigorously contesting any such Third Party Claim in good
faith, eGames shall not pay or settle such Claim without Cinemaware's consent,
which consent shall not be unreasonably withheld, conditioned or delayed.
(c) If Cinemaware does not notify eGames within thirty days
after receipt of the Claim Notice that it elects to undertake the defense of the
Third Party Claim described therein, eGames shall have the right to contest,
settle or compromise the Third Party Claim in the exercise of its reasonable
discretion, on behalf of and for the account and risk of eGames; provided that
eGames promptly shall notify Cinemaware of any compromise or settlement of any
such Third Party Claim.
(d) Cinemaware shall not be entitled to assume the defense for
any Third Party Claim (and shall be liable for the reasonable fees and expenses
incurred by eGames in defending such claim) if the Third Party Claim seeks an
order, injunction or other equitable relief or relief for other than money
Damages against eGames which eGames determines, after conferring with its
counsel, cannot be separated from any related claim for money Damages and which,
if successful, would adversely affect the Assets or the business, properties or
prospects of the Business.
Section 7. Termination.
(a) On the fifteenth day after the Termination Date, the
Escrow Agent shall distribute to Cinemaware a certificate issued in the name of
Cinemaware representing the portion of the Escrow Stock which remains after
payment of all amounts required to be paid from the Escrow Stock pursuant to
Sections 5 and 6 hereof, except for an amount equal to the full amount of all
pending claims made by eGames hereunder (including estimated Damages arising
from such claims if the exact amount of such Damages has not been determined).
(b) The Escrow Stock applicable to each pending claim not so
distributed pursuant to Section 7(a) shall be retained by the Escrow Agent until
such pending claim is resolved and all of the Escrow Stock deliverable to eGames
as a result thereof, if any, shall have been delivered to eGames, whereupon the
entire remaining Escrow Stock applicable to such claim, if any, shall be
distributed to Cinemaware.
Section 8. Fees. Except as provided in Sections 9, 10, 11 and 12, the
fees of the Escrow Agent shall be paid by eGames in accordance with Escrow
Agent's standard fee agreement and such fees shall not be considered Damages for
any purpose whatsoever.
Section 9. Escrow Agent's Responsibilities and Protection.
(a) The Escrow Agent has agreed to act hereunder as a
depository only, according to the terms, provisions and conditions set forth
herein, and has executed this Agreement solely for the purpose of signifying the
Escrow Agent's acceptance of its appointment as an escrow agent pursuant to such
terms, provisions and conditions. The duties of the Escrow Agent shall be
limited to the safekeeping of the Escrow Stock hereunder and disbursement of
same according to the provisions hereof. The Escrow Agent undertakes to perform
only such duties as are expressly set forth herein, and no duties or obligations
shall be read into or implied from this Agreement with respect to the Escrow
Agent. Upon the Escrow Agent's disbursement of the Escrow Stock in accordance
with the provisions hereof, the Escrow Agent's duties and responsibilities with
respect to the Escrow Agent shall cease and the Escrow Agent shall thereafter be
released of all liability hereunder in connection therewith.
(b) In taking any action whatsoever hereunder, the Escrow
Agent shall be protected in relying upon any notice, or other document
reasonably believed by the Escrow Agent to be genuine, or upon any evidence
reasonably deemed by it to be sufficient. The Escrow Agent shall not be liable
to eGames or Cinemaware for any act performed or omitted to be performed by it
in good faith and shall be liable only in case of its own bad faith or willful
misconduct or gross negligence. The Escrow Agent may consult with counsel in
connection with its duties hereunder and shall be fully protected in any act
taken, suffered hereunder or permitted by it in good faith in accordance with
the advice of counsel. The Escrow Agent shall not be responsible for determining
or verifying the authority of any person acting or purporting to act on behalf
of any party to this Agreement.
Section 10. Controversies. If any controversy arises among the parties
to this Agreement, or with any other party concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and funds, and may wait for settlement of any such
controversy by binding arbitration pursuant to Section 8.11 of the Asset
Purchase Agreement or other means. In such event, the Escrow Agent will not be
liable for interest or damages. Furthermore, the Escrow Agent shall have the
right to file an action for interpleader or for declaratory relief in any court
of competent jurisdiction to determine the rights of the parties.
Section 11. Resignation of Escrow Agent. The Escrow Agent may resign at
any time upon giving at least thirty (30) days written notice to eGames and
Cinemaware; provided, however, that no such resignation shall become effective
until the appointment of a successor escrow agent shall be accomplished. eGames
and Cinemaware shall use their best efforts to agree on a successor or escrow
agent within thirty (30) days after receiving such notice. If eGames and
Cinemaware fail to agree on a successor escrow agent within such time, the
Escrow Agent shall have the right to appoint a successor escrow agent authorized
to do business as a trust company in the Commonwealth of Pennsylvania or request
a court of valid jurisdiction to appoint such an agent. The successor escrow
agent shall execute and deliver to the Escrow Agent an instrument accepting such
appointment and it shall, without further acts, be vested with all the rights,
powers and duties of the predecessor escrow agent as if originally named as the
escrow agent. Then, the Escrow Agent shall be discharged from any further duties
and liability under this Agreement. Notwithstanding the above, the Escrow Agent
may resign at any time upon immediate notice to eGames and Cinemaware if the
Escrow Agent has a good faith basis to believe that its continued performance
under this Agreement violates any applicable laws, rules or regulations. Upon an
immediate resignation, eGames and Cinemaware shall have fifteen (15) days to
appoint a successor agent pursuant to the terms stated above.
Section 12. Indemnification of Escrow Agent. eGames and Cinemaware
shall jointly and on an equal basis (except as provided in Section 8 above)
reimburse, indemnify and hold harmless the Escrow Agent, its employees and
agents (referred to in this Section 12 collectively and individually as the
"Escrow Agent"), from and against any loss, damage, liability or claim suffered,
incurred by, or asserted against the Escrow Agent (including any amounts paid in
settlement of any action, suit, proceeding, or claim brought or threatened to be
brought and including expenses of legal counsel; provided, however, that the
Escrow Agent shall not settle any such action, suit, proceeding or claim without
first obtaining the written consent of eGames and Cinemaware (which consents
will not be unreasonably withheld, conditioned or delayed), arising out of, in
connection with or based upon any act or omission by the Escrow Agent relating
in any way to this Agreement or its services hereunder, so long as the Escrow
Agent has acted in good faith and without gross negligence. If the Escrow Agent
incurs any such loss, damage, liability or claim in connection with the Escrow
Agent's performance of its duties and obligations under this Agreement, except
resulting from its failure to comply with its duties and obligations under this
Agreement, the Escrow Agent shall be entitled to reimburse itself for 50% of any
such loss, damage, liability or claim out of the Escrow Stock, valued in
accordance with Section 5(c) hereof, and eGames shall reimburse the Escrow Agent
for the remaining 50%.
eGames and Cinemaware may participate at their own expense in the
defense of any claim or action which may be asserted against the Escrow Agent,
and if eGames so elects, eGames may assume the defense of such claim or action;
provided, however, that if there exists a conflict of interest which would make
it inappropriate for the same counsel to represent both eGames and the Escrow
Agent, retention of separate counsel by Escrow Agent shall be reimbursable as
hereinabove provided; and provided, further, that eGames shall not settle or
compromise any such claim or action without the consent of Cinemaware, which
consent shall not be unreasonably withheld, conditioned or delayed. The right of
the Escrow Agent to indemnification hereunder shall survive its resignation or
removal as Escrow Agent and shall survive the termination of this Agreement by
lapse of time or otherwise.
Section 13. Address for Notices. All notices and other communications
under or in connection with this Agreement shall be in writing and shall be
deemed given (a) if delivered personally (including overnight express or
messenger), upon delivery, (b) if delivered by registered or certified mail
(return receipt requested), upon the earlier of actual delivery or three days
after being mailed, or (c) if given by telecopy, upon confirmation of
transmission by telecopy, in each case to the parties at the following
addresses:
(a) If to eGames:
eGames, Inc.
2000 Cabot Boulevard W., Suite 110
Langhorne, Pennsylvania 19047
Attention: Ellen Pulver Flatt, Esq.
Telecopy: (215) 750-3722
with a copy to:
McCausland, Keen & Buckman
Radnor Court, Suite 160
259 N. Radnor-Chester Road
Radnor, Pennsylvania 19087-5240
Attention: James G. Logue, Esquire
Telecopy: (610) 341-1099
(b) If to Cinemaware:
Paulo Gouvea
c/o W. Patrick Kelley, Esquire
The City Hotel
145 South Washington Street, Suite F
Sonora, California 95370
Telecopy: (209) 588-0620
with a copy to:
W. Patrick Kelley, Esquire
The City Hotel
145 South Washington Street, Suite F
Sonora, California 95370
Telecopy: (209) 588-0620
(c) If to the Escrow Agent:
Hudson United Bank
General Counsel
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
Any of the addresses set forth above may be changed from time to time
by written notice from the party requesting the change.
Section 14. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective parties hereto and their
respective heirs, executors, administrators, successors and assigns; provided,
however, that any heirs, executors, administrators, successors and assigns shall
only be liable for any liabilities hereunder to the extent of the value of the
property or assets received from their respective predecessors in interest.
Section 15. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws (and not the law of
conflicts) of the Commonwealth of Pennsylvania.
Section 16. Non-Exclusive Rights. The rights of the parties hereunder
are cumulative and are not exclusive of any other rights a party may have under
the Asset Purchase Agreement or otherwise.
Section 17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of such
counterparts together shall constitute but one and the same agreement.
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IN WITNESS WHEREOF, eGames, Cinemaware, and the Escrow Agent have
caused this Agreement to be duly executed on the day and year first set forth
above.
eGAMES, INC. CINEMAWARE, INC.
By:/s/Gerald W. Klein By:/s/Lars Fuhrken-Batista
Name: Gerald W. Klein Name: Lars Fuhrken-Batista
Title:President and CEO Title:President
ESCROW AGENT:
HUDSON UNITED BANK
By:/s/Robert J. Desch
Name: Robert J. Desch
Title:Vice President and Trust Officer