EXHIBIT 10.2
INDEMNIFICATION ESCROW AGREEMENT
AGREEMENT, dated as of February 1, 2001, by and among Thelen Reid & Priest
LLP, as Escrow Agent (the "Escrow Agent"); PALADYNE CORP., a Delaware
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corporation ("Paladyne"); TERRENCE J. LEIFHEIT (the "Principal Stockholder");
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and CLIFFORD A. CLARK (the "Executive").
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RECITALS
A. Pursuant to an Agreement and Plan of Merger, dated as of December 21,
2000 (the "Merger Agreement"), as amended, among Paladyne, E-com Acquisition
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Corp, a North Carolina corporation, and e-commerce support centers, inc., a
North Carolina corporation ("e-com"), E-Com Acquisition Corp., a wholly-owned
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subsidiary of Paladyne, merged with and into e-com, with e-com becoming the
surviving corporation and a wholly-owned subsidiary of Paladyne (the "Merger")
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(capitalized terms not otherwise defined herein shall have the respective
meanings ascribed to them in the Merger Agreement).
B. Upon the Merger, the stockholders of e-com are to receive the Merger
Consideration, including 4,100,000 shares of Series B Preferred Stock, $.001 par
value, of Paladyne (the "Series B Preferred Stock"), which shall automatically
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convert, on a two-for-one basis, into Paladyne common stock, .001 par value (the
"Common Stock"), upon Paladyne stockholders approving an increase in the
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authorized shares of Common Stock.
C. In order to induce Paladyne to enter into the Merger Agreement and to
close the Merger, the Principal Stockholder and the Executive have agreed that
upon consummation of the Merger, pursuant to the Merger Agreement, they will
personally indemnify and hold harmless Paladyne (and its directors, officers,
employees, Affiliates, successors, assigns and Representatives) against any
losses suffered by any of them as a result of any breach by e-com of its
representations, warranties and covenants in the Merger Agreement or the
schedules and certificates thereto to the extent set forth in Article IX of the
Merger Agreement.
D. To secure a portion of his indemnification obligation, the Principal
Stockholder has authorized Paladyne to deposit with the Escrow Agent twenty-five
(25%) percent of the Aggregate Merger Consideration paid upon the Merger, all of
which such escrowed securities shall be escrowed from the portion of the
Aggregate Merger Consideration that the Principal Stockholder shall be entitled
to receive; and to secure his indemnification obligation, the Executive has
authorized Paladyne to deposit with the Escrow Agent (100%) percent of that
portion of the shares of Series B Preferred Stock payable upon the Merger that
the Executive shall be entitled to receive.
E. Paladyne, the Principal Stockholder, and the Executive desire that the
foregoing escrow be maintained subject to the terms and conditions of this
Escrow Agreement and that Thelen Reid & Priest LLP serve as Escrow Agent
hereunder, and the Escrow Agent has agreed to hold the Escrow Property, as
defined herein, and to act as the escrow agent, pursuant to the terms and
conditions herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
1. Appointment of Escrow Agent. Subject to the terms and conditions
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herein, Paladyne, the Principal Stockholder and the Executive hereby appoint and
designate Thelen Reid & Priest LLP as Escrow Agent in accordance with the terms
and conditions set forth herein, and the Escrow Agent hereby accepts such
appointment.
2. Escrow Property.
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2.1 Deposit. At the Closing of the Merger Agreement, (a) Paladyne
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shall deliver to the Escrow Agent the following documents registered in the name
of the Principal Stockholder or the Executive, as the case may be: (i) one or
more certificates for an aggregate of One Million Ninety-Five Thousand
(1,095,000) shares of the Paladyne Series B Preferred Stock (the "Series B
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Shares"), (ii) Anti-dilution Warrants for the purchase of One Million
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(1,000,000) shares of Common Stock, and (iii) Performance Warrants for the
purchase of One Hundred Twenty-Five Thousand (125,000) shares of Common Stock,
and (b) the Principal Stockholder and the Executive shall deliver to the Escrow
Agent stock powers duly endorsed in blank by the Principal Stockholder and the
Executive for the Series B Shares and the Principal Stockholder shall deliver to
the Escrow Agent assignments duly endorsed in blank by the Principal Stockholder
for the Antidilution Warrants and the Performance Warrants (collectively, the
"Warrants"). The Series B Shares, the Warrants, the stock powers, the
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assignments, any Antidilution Shares, any other stock certificates, and any
monies or any other property to be held hereunder taken together are referred to
collectively herein as the "Escrow Property." The Escrow Agent agrees to hold,
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deal with and dispose of the Escrow Property in accordance with the terms and
provisions of this Agreement. The Escrow Property shall be listed in Schedule A
annexed hereto. Upon any change in the Escrow Property, the Escrow Agent shall
update Schedule A and send a copy of the updated Schedule A to Paladyne and the
Principal Stockholder and the Executive, and the latest updated Schedule A shall
become part of this Agreement.
2.2 Investment. Any monies deposited with the Escrow Agent in
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addition to or in lieu of the shares of Series B Preferred Stock, Common Stock,
or the Common Stock issuable upon conversion of the Series B Preferred Stock or
upon exercise of the Warrants (collectively, the "Escrow Shares") (whether by
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conversion, dividend or disposition of the Escrow Shares), shall, at the sole
discretion of the Escrow Agent be invested and reinvested in such United States
Treasury Bills or Certificates of Deposit of banks organized either under the
laws of the United States or of a state of the United States having capital and
surplus in excess of $50,000,000, in either case having a maturity date not
exceeding ninety (90) days, or placed in a money market account at a bank
meeting the foregoing criteria. The Escrow Agent shall notify Paladyne, the
Principal Stockholder, and the Executive as to any investment of any portion of
the Escrow Property.
2.3 Conversion Shares. Upon the action of the Paladyne stockholders
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approving an increase in the authorized shares of Common Stock, Paladyne shall
deliver to the Escrow Agent certificate(s) for the number of shares of Common
Stock issuable upon conversion of all of the Series B Preferred Stock then
included in the Escrow Property, and such shares of Common Stock shall
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thereafter be held as Escrow Shares. At the request of Paladyne, the Escrow
Agent shall deliver to Paladyne the certificates for the Series B Preferred
Stock then held hereunder as Escrow Property for simultaneous exchange with the
conversion Common Stock, and the Principal Stockholder and the Executive shall
deliver to the Escrow Agent stock powers for the conversion of the Common Stock.
2.4 Dilution. If between the date of this Agreement and the
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deliveries of the Escrow Property as provided herein, the outstanding capital
stock of Paladyne shall be changed into a different number of shares or a
different class by reason of a stock dividend, subdivision, reclassification,
recapitalization, split-up or combination, the capital stock constituting the
Escrow Shares shall be appropriately adjusted.
2.5 Additional Shares. In the event that during the term of this
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Agreement either Paladyne should effect a stock dividend, stock split, or other
recapitalization or reorganization of Series B Preferred Stock, or, after
conversion, its Common Stock, such that the Principal Stockholder or the
Executive can claim additional shares of either Series B Preferred Stock or
Common Stock, or the Principal Stockholder or Executive is to receive securities
from Paladyne as additional Merger Consideration, twenty-five (25%) percent of
the aggregate number of the additional shares and/or securities issued in the
case of the Principal Stockholder, and one hundred (100%) percent of the
aggregate number of the additional shares in the case of the Executive, shall be
deposited with the Escrow Agent and held pursuant to this Agreement as
additional Escrow Shares, all of which such escrowed additional shares and/or
securities shall be escrowed from the portion of the additional shares and/or
securities that the Principal Stockholder shall be entitled to receive. At the
request of Paladyne, the Escrow Agent shall deliver the Escrow Shares then held
hereunder for simultaneous exchange of the additional Escrowed Shares, and the
Principal Stockholder and Executive shall deliver stock powers for the
additional Escrow Shares.
2.6 Ownership Rights. During the term of this Agreement, the
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Principal Stockholder and the Executive shall be treated for any and all
purposes (including the right to vote) as the owners of the Escrow Property,
except and only to the extent of any Escrow Property released to Paladyne or to
which Paladyne has asserted a claim in accordance with the terms herein.
3. Indemnification Damages. The Escrow Property shall be held by the
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Escrow Agent for the purpose of securing the payment or satisfaction made by the
Principal Stockholder and the Executive of their indemnification obligations in
Article IX of the Merger Agreement in respect of the indemnifiable Losses (as
defined therein.) The indemnifiable Losses (if any) which Paladyne (and its
directors, officers, employees, Affiliates other than the Principal Stockholder
or the Executive to the extent they may be deemed Affiliates of Paladyne,
successors, assigns and Representatives) (collectively, the "Indemnitees") may
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suffer or incur shall be hereinafter referred to collectively as "Liabilities."
4. Charges against Escrow Property. In the event that, and from time
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to time as, any Indemnitee shall determine that Liabilities are chargeable
against the Escrow Property, Paladyne, on behalf of itself and all other
affected Indemnitees, shall send a notice (the "Claims Notice") to the Escrow
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Agent, the Principal Stockholder, and the Executive of each claim against the
Escrow Property, and stating the actual or estimated amount thereof, and shall
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attach thereto a copy of the Claims Notice delivered to the Principal
Stockholder and the Executive pursuant to the Merger Agreement. If by the 90th
day after the Principal Stockholder and the Executive have received a Claims
Notice from the Escrow Agent, the Escrow Agent has not received a Notice of
Objection from the Principal Stockholder or the Executive pursuant to Section
5.1 hereof, the Escrow Agent shall deliver to Paladyne, out of that portion of
the Escrow Property, certificates representing a number of shares of Common
Stock (valued based upon the midpoint between the closing bid and ask prices of
such Common Stock as reported on the OTC Bulletin Board(R) on the date
immediately prior to the date of such delivery), equal in value to the amount of
the Liabilities covered by the Claims Notice; provided, however, when the amount
of Liabilities is estimated, the delivery shall be delayed until the Escrow
Agent receives written notice signed by Paladyne, the Principal Stockholder, and
the Executive of the actual amount of Liabilities incurred by Paladyne in order
that the number of shares of Common Stock may be calculated. Escrow Property
other than cash or Common Stock shall be valued at the greater of (i) its fair
market value at the time it is received by the Escrow Agent or (ii) its fair
market value on the date immediately prior to its release from escrow. If the
actual or estimated amount in the Claim Notice is less than the then value of
the Escrow Property, the parties will agree upon which type of Escrow Property
will be set aside in any Disputed Account. The Escrow Agent shall not inquire
into or consider whether a Claim or a Claims Notice complies with the
requirements of the Merger Agreement, but such noncompliance may be raised by
the Principal Stockholder or the Executive in his Notice of Objection. The
Principal Stockholder and the Executive shall instruct the Escrow Agent as to
whether the Escrow Property to be released from escrow shall be Escrow Property
belonging to the Principal Stockholder or Escrow Property belonging to the
Executive. Absent such instruction, any such release shall be in the sole
discretion of the Escrow Agent.
5. Objection to Claim.
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5.1 Notice of Objection. The Principal Stockholder and the Executive
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shall have the right to dispute the claimed Liabilities by delivering to the
Escrow Agent and to Paladyne written notice (the "Notice of Objection") within
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the 90-day period following his receipt of a Claims Notice. The Notice of
Objection shall set forth that the Principal Stockholder or the Executive
disputes the matters set forth in the Claims Notice either with respect to the
validity or the amount of the Liabilities in question, or, on the basis that the
deficiency, liability or obligation in question is not properly chargeable as a
Liability against the Escrow Property.
5.2 Acts by the Escrow Agent.
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(a) Upon receipt of the Notice of Objection from the Principal
Stockholder or the Executive, the Escrow Agent shall set aside in a separate
account (the "Disputed Account") the number of Escrow Shares or other Escrow
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Property which it would have delivered to Paladyne had such Notice of Objection
not been received. The Escrow Agent shall take no action with respect to the
amounts deposited in the Disputed Account and such amounts shall continue to be
held in accordance with the provisions of this Agreement except (i) upon the
joint written instructions of the Principal Stockholder, the Executive and
Paladyne, or (ii) upon a final non-appealable order (or an order from which the
time to appeal has expired) of a court of competent jurisdiction. The Escrow
Agent shall act on such order without further question.
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(b) Upon the receipt by the Escrow Agent of joint instructions or an
order in accordance with Section 5.2(a) directing any Escrow Shares or other
Escrow Property allocated to the Disputed Account with respect to a particular
claim to be released therefrom and not to be delivered to Paladyne, the Escrow
Agent shall cause such amount(s) to be returned to be held as Escrow Property
hereunder. Any shares in the Disputed Account which are not the subject of such
joint instructions or order shall remain in the Disputed Account until such
joint instruction or order has been received. If the termination date of this
Agreement shall have passed, and no notices of Claims are outstanding hereunder,
the Escrow Agent shall cause such amount or amounts to be delivered to the
Principal Stockholder and the Executive, free and discharged from this
Agreement.
(c) Upon the receipt by the Escrow Agent of joint instructions or an
order in accordance with Section 5.2(a) directing any Escrow Shares or other
Escrow Property in the Disputed Account to be delivered to Paladyne, the Escrow
Agent shall cause such Escrow Shares or other Escrow Property to be so delivered
to Paladyne.
(d) Any amount or amounts remaining in the Disputed Account after
resolution of all disputes with respect thereto in the manner set forth above
shall be transferred to and be Escrow Property under this Agreement or, if the
termination date of this Agreement (as determined in accordance with Sections 7
and 8) shall have passed and no Claims Notice is outstanding hereunder, such
amount or amounts shall be delivered to the Principal Stockholder and the
Executive, free and discharged from this Agreement.
(e) Notwithstanding anything to the contrary contained herein, the
Escrow Agent shall disburse the Escrow Property, or any portion thereof,
pursuant to the terms of any joint written order of Paladyne (signed by an
executive officer other than the Principal Stockholder or the Executive), the
Principal Stockholder, and the Executive.
(f) Escrow Property held in Disputed Account shall be deemed to be
owned by the Principal Stockholder and the Executive (including the right to
vote) until delivered to Paladyne in accordance with Section 5.2(a) or (c).
6. Covenant of the Principal Stockholder and the Executive. Until the
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indemnification obligations of the Principal Stockholder and the Executive in
respect of the Escrow Property held hereunder are satisfied, and except as
specifically provided for herein, unless prior written permission is received
from Paladyne to the contrary, neither the Principal Stockholder nor the
Executive shall sell, transfer, set over, hypothecate or otherwise dispose of or
encumber any of his right, title or interest in the Escrow Property, or enter
into any agreement with respect to the foregoing acts, and any such action shall
not be recognized by the Escrow Agent.
7. Termination. The Escrow Agent shall release to the Principal
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Stockholder and to the Executive, in the manner directed in writing by the
Principal Stockholder and the Executive, the Escrow Property held under this
Agreement at the close of business on the date which is two (2) years from the
Closing Date, provided, in each case that (i) any and all amounts with respect
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to which Paladyne shall have given a Claims Notice on or prior to such date as
set forth above which is not then resolved pursuant to the provisions of Section
5.2(i) any and all amounts then allocated to the Disputed Account shall continue
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to be held hereunder, and this Agreement shall continue in force until the
existing dispute with respect thereto shall have been resolved in the manner set
forth in Section 5.2. This Agreement shall terminate upon the distribution of
the Escrow Agent of all of the Escrowed Shares and any other Escrow Property
hereunder in accordance with the terms hereof.
8. Escrow Agent.
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8.1 Duties. The Escrow Agent shall use due care in holding the
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Escrowed Property and in making deliveries thereof as provided for in this
Agreement. The Escrow Agent may consult with counsel of its choice at its own
cost and expense and shall be fully protected with respect to any action taken
or omitted by it in good faith on advice of counsel, and it shall have no
liability hereunder, except for willful misconduct or gross negligence. The
Escrow Agent shall have no responsibility as to the validity, marketability or
value of the Escrow Shares and may rely on any notice, instruction, agreement,
signature or other instrument which it believes to be genuine and may assume
that any person purporting to give any writing, notice, advice or instruction in
connection with the provisions hereof has been duly authorized to do so. The
Escrow Agent shall not be bound by any modification or amendment of this
Agreement, unless such modification or waiver is in writing and signed by the
other parties hereto, delivered to the Escrow Agent and the Escrow Agent shall
have given its prior written acknowledgement thereto. In the event that the
Escrow Agent shall be uncertain as to its duties or rights or shall receive
instructions from either Paladyne or the Principal Stockholder and the Executive
with respect to the Escrow Property which, in its opinion, are in conflict with
any of the provisions of this Agreement, the Escrow Agent shall be entitled to
refrain from taking any action until it shall be directed otherwise in writing
by Paladyne, the Principal Stockholder, and the Executive or by a court of
competent jurisdiction. Upon written notice to the Paladyne, the Principal
Stockholder, and the Executive, the Escrow Agent may apply to a court of
competent jurisdiction for instruction. Notwithstanding any provision to the
contrary contained in any other agreement (excluding any amendment to this
Agreement) among any of the parties hereto, the Escrow Agent shall have no
interest in the Escrow Property, except as provided herein. The Principal
Stockholder and the Executive acknowledge that Thelen Reid & Priest LLP
represented Paladyne in connection with the Merger and also performs other legal
services for Paladyne; and the Principal Stockholder and the Executive have no
objection to such firm acting as the Escrow Agent hereunder.
8.2 Fees, Indemnification. The Escrow Agent shall not receive any
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fees for the performance of its services under this Agreement. However, the
Escrow Agent shall be entitled to reimbursement for all actual out of pocket
disbursements incurred by it in the performance of its obligations hereunder.
Such reimbursement shall be paid by Paladyne. Paladyne agrees to indemnify and
hold the Escrow Agent harmless from and against any and all expenses (including
reasonable counsel fees), liabilities, claims, damages, actions, suits or other
charges incurred by or assessed against the Escrow Agent for anything done or
omitted by it in the performance of its duties hereunder, except as a result of
its own gross negligence or willful misconduct.
8.3 Resignation. The Escrow Agent may resign at any time and be
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discharged from its duties as escrow agent hereunder by giving the other parties
hereto at least 30 days' notice thereof. As soon as practicable after its
resignation, the Escrow Agent shall turn over to a successor escrow agent
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appointed by the other parties hereto all Escrow Property held hereunder upon
presentation of the document appointing the new escrow agent and its acceptance
thereof and after such appointment the Escrow Agent shall have no further duties
or responsibilities in connection therewith. If no new agent is so appointed
within the 30-day period following such notice of resignation, the Escrow Agent
may deposit the aforesaid Escrow Property with any court of competent
jurisdiction and shall have no further duties or responsibilities in connection
therewith. In the event a court order is issued with respect to the Escrow
Property, the Escrow Agent shall act in accordance therewith and shall be
indemnified for acting in accordance with such order.
8.4 No Financial Liability or Implied Duties. No provision of this
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Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder. This Agreement sets forth exclusively the duties of the Escrow Agent
with respect to any and all matters pertinent hereto and no implied duties or
obligations shall be read into this Agreement against the Escrow Agent.
9. Miscellaneous
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9.1 Further Assurances. From time to time on and after the date
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hereof the other parties hereto shall deliver or cause to be delivered to the
Escrow Agent such further documents and instruments and shall do and cause to be
done such further acts as the Escrow Agent shall reasonably request (it being
understood that the Escrow Agent shall have no obligation to make any such
request) to carry out more effectively the provisions and purposes of this
Agreement, to evidence compliance herewith or to assure itself that it is
protected in acting hereunder.
9.2 Entire Agreement. This Escrow Agreement sets forth the entire
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agreement among Paladyne, the Stockholders Representative and the Escrow Agent
with respect to the subject matter herein. In the event that any of the terms
and provisions of any other agreement (including the Merger Agreement) among any
of the parties hereto conflict or are inconsistent with any of the terms and
provisions of this Agreement, the terms and provisions of this Agreement shall
govern and control in all respects.
9.3 Notices. All notices, instructions, requests, demands and other
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communications provided for herein shall be in writing, shall be delivered by
hand or by express delivery service or by registered mail, return receipt
requested, addressed as follows:
(i) If to Paladyne, one copy to
Paladyne Corp.
610 Crescent Executive Court, Suite 124
Lake Mary, Florida 32746
Attention: John D. Foster, Chairman
Facsimile: (407) 333-9697
with a simultaneous copy to:
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Thelen Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Attention: Bruce A. Rich, Esq.
Facsimile: (212) 603-2001
(ii) If to the Principal Stockholder or the Executive, one copy
to
Terrence J. Leifheit
1650A Gum Branch Road
Jacksonville, North Carolina 28540
Facsimile: (509) 692-6949
with a simultaneous copy to:
Kilpatrick Stockton LLP
3737 Glenwood Avenue, Suite 400
Raleigh, North Carolina 27612
Attn: James F. Verdonik, Esq.
Facsimile: (919) 420-1800
(iii) If to the Escrow Agent to:
Thelen Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Attention: Bruce A. Rich, Esq.
Facsimile: (212) 603-2001
Any party may, by written notice to the other parties, substitute such other
address as it deems advisable. No notice, instruction, request, demand or other
communication hereunder shall be deemed to have been received prior to actual
receipt by the recipient.
9.4 Governing Law. This Agreement shall be governed by and construed
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and enforced in accordance with the internal laws of the State of New York
without giving effect to the principles of conflicts of law thereof.
9.5 Binding. This Agreement shall be binding upon and inure to the
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benefit of each party hereto and their respective successors, administrators
heirs and assigns.
9.6 Counterparts. This Agreement may be executed in one or more
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counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
The remainder of this page is intentionally left blank.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PALADYNE CORP.
By: /s/ John D. Foster
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John D. Foster, Chairman
PRINCIPAL STOCKHOLDER
/s/ Terrence J. Leifheit
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Terrence J. Leifheit
EXECUTIVE
/s/ Clifford A. Clark
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Clifford A. Clark
THELEN REID & PRIEST LLP, as Escrow Agent
By: /s/ Daniel Guetta
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Name: Daniel Guetta
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Title: Partner
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SCHEDULE A
ESCROW PROPERTY
1,095,000 Shares of Series B Preferred Stock
Anti-Dilution Warrant to Purchase 1,000,000 Shares of Common Stock of Paladyne
Corp.
Performance Warrant to Purchase 125,000 Shares of Common Stock of Paladyne Corp.
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