EXHIBIT 2.1.11
FORM OF
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement") is made and entered into as
of May __, 2000 by and among Cobalt Networks, Inc., a Delaware corporation (the
"Parent"), Blue Tortilla Acquisition Corporation, a California corporation
("Merger Sub"), Chili!Soft, Inc., a California corporation (the "Company"), The
Bank of New York, a New York banking corporation, as escrow agent (the "Escrow
Agent"), Warren J. Packard and Scot E. Land (each such natural person a
"Securityholder Agent" and collectively, the "Securityholder Agents").
RECITALS
A. The Parent, the Merger Sub and the Company are parties to that certain
Agreement and Plan of Reorganization (the "Acquisition Agreement"), providing
for the purchase of the outstanding capital stock of the Company (the "Company
Shares") with the Company becoming a wholly owned subsidiary of Parent (the
"Acquisition"). To effect the Acquisition, Merger Sub shall merge with and into
the Company (the "Merger"), and the surviving corporation is referred to herein
upon occasion as the "Surviving Corporation." In consideration for the exchange
of the Company Shares, the shareholders of the Company will receive shares of
the common stock of Parent, $0.001 par value per share (the "Parent Common
Stock").
B. Certain representations, warranties, covenants, agreements and
indemnities of the Company are set forth in the Acquisition Agreement.
C. One of the conditions to the closing of the purchase of the Company
Shares, as set forth in the Acquisition Agreement, is the execution and delivery
of this Escrow Agreement.
D. Of the shares of Parent Common Stock to be issued upon the closing of
the Acquisition (the "Effective Time" and the date upon which the Effective Time
occurs, the "Closing Date") pursuant to Section 1.6(a) and (b) of the
Acquisition Agreement (none of which shares of Parent Common Stock shall be
unvested, subject to any right of repurchase, risk of forfeiture or other
condition in favor of the Surviving Corporation), 115,000 shares shall be held
in escrow (the "Escrow Amount") pursuant to this Escrow Agreement of the
Acquisition Agreement to secure and satisfy claims of indemnification by Parent
and its affiliates (including the Surviving Corporation) for any "Losses" (as
defined below) incurred under the provisions of the Acquisition Agreement and
the transactions contemplated thereby.
E. This Escrow Agreement sets forth the basis on which the Escrow Agent
will receive and hold, and make disbursements from, the Escrow Fund and the
duties for which the Escrow Agent will be responsible.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
1. Appointment. The Parent, Company and the Securityholder Agents hereby
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appoint The Bank of New York (the "Escrow Agent") to act as escrow agent to
serve in such capacity in accordance with the terms and conditions set forth in
this Escrow Agreement. Escrow Agent hereby accepts such appointment.
2. Acquisition Agreement. The Escrow Agent acknowledges receipt of a copy
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of the Acquisition Agreement, however, the Escrow Agent is not charged with any
duties or responsibilities with respect to the Acquisition Agreement,
notwithstanding any provision of the Acquisition Agreement to the contrary.
3. Escrow Amount. As soon as practicable after the Effective Time, the
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Escrow Amount, without any act of any Company shareholder, will be deposited by
Parent with Escrow Agent, such deposit to constitute an escrow fund (the "Escrow
Fund") to be governed by the terms set forth in the Acquisition Agreement and in
the Escrow Agreement. The portion of the Escrow Amount contributed on behalf of
each shareholder of the Company shall be in proportion to the aggregate Parent
Common Stock, which such holder would otherwise be entitled under Sections
1.6(a) and (b) of the Acquisition Agreement and shall be in the respective share
amounts and percentages listed on the schedule executed and delivered by the
Company (the "Closing Date Payment Schedule") attached hereto as Schedule A and
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reflecting, as of the Effective Time for each holder of Company Capital Stock,
the number of shares of Company Capital Stock held of record, the aggregate
number of shares of Parent Common Stock payable to such holder in the Merger,
the number of such shares payable promptly after the Effective Time and payable
into the Escrow Fund, the amount payable to such holder for any fractional
shares, the stock certificate numbers held by each such person and such person's
federal tax identification number to the extent such number is known. All shares
of Parent Common Stock contributed to the Escrow Fund shall not be unvested or
subject to any right of repurchase, risk of forfeiture or other condition in
favor of the Surviving Corporation.
The Escrow Fund shall be available to compensate Parent and its affiliates
(including the Surviving Corporation) for any claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses, and expenses of investigation and defense (hereinafter
individually a "Loss" and collectively "Losses") incurred by Parent, its
officers, directors or affiliates (including the Surviving Corporation) directly
or indirectly as a result of (i) any inaccuracy or breach of a representation or
warranty of the Company contained in the Acquisition Agreement (or in any
certificate, instrument, schedule or document attached to the Acquisition
Agreement and delivered by the Company in connection with the Merger) determined
without regard to any materiality qualifiers, including without limitation
"Material Adverse Effect" (as defined in the Acquisition Agreement) or (ii) any
failure by the Company to perform or comply with any covenant contained in the
Acquisition Agreement (or in any certificate, instrument, schedule or document
attached to the Acquisition Agreement and delivered by the Company in connection
with the Merger); provided any such claims must be asserted on or before 5:00
p.m. (California Time) on the date which is one year following the date hereof
(the "Expiration Date").
Except as otherwise provided herein, the Escrow Agent shall not pay claims
for Losses received from the Parent from the Escrow Fund unless and until the
Parent has made claims for
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Losses pursuant to Section 5 hereof that exceed the Allowed Deductible (as
defined below). After the claims for Losses equal to the Allowed Deductible have
been made, the Allowed Deductible plus any additional Losses incurred by the
Parent shall be satisfied by the Escrow Fund in accordance with the procedures
set forth in Sections 5 and 6 of this Agreement. In addition, the Parent shall
be entitled to immediate reimbursement as Losses from the Escrow Fund for any
Third Party Expenses (as defined below) incurred by the Company that exceed
$1,500,000, without regard to whether the Allowed Deductible has been satisfied.
For purposes of this Escrow Agreement, the "Allowed Deductible" shall be the
first $500,000 of Losses that (i) are submitted by an officer of the Parent to
the Escrow Agent in accordance with Section 5 hereof, (ii) no objections to have
been made by the Securityholder Agents pursuant to Section 6 hereof or (iii) any
such objection has been resolved in accordance with the provisions of this
Escrow Agreement. For purposes of this Escrow Agreement, "Third Party Expenses"
are all fees and expenses incurred by the Company in connection with the Merger
including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties incurred by such
party in connection with the negotiation and effectuation of the terms and
conditions of the Acquisition Agreement and the transactions contemplated hereby
in connection with the Acquisition Agreement and the Merger. However, Third
Party expenses shall not be included in the $500,000 of Losses that comprise the
Allowed Deductible.
4. Escrow Period; Distribution upon Termination of Escrow Periods. Subject
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to the following requirements, the Escrow Fund shall be in existence immediately
following the Effective Time and shall terminate at 5:00 p.m., California time,
on the Expiration Date (the "Escrow Period"); provided, however, that the Escrow
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Period shall not terminate with respect to such amount (or some portion
thereof), that is necessary in the reasonable judgment of Parent, subject to the
objection of the Securityholder Agents and the subsequent arbitration of the
matter in the manner provided in Sections 6 and 8 hereof, to satisfy any
unsatisfied claims concerning facts and circumstances existing prior to the
termination of such Escrow Period specified in any Officer's Certificate
delivered to the Escrow Agent prior to termination of such Escrow Period. As
soon as all such claims have been resolved, as evidenced by written memorandum
of the Securityholder Agents and Parent, the Escrow Agent shall deliver to the
shareholders of the Company the remaining portion of the Escrow Fund not
required to satisfy such claims. Deliveries of Escrow Amounts to the
shareholders of the Company pursuant to this Section 4 shall be made in
proportion to their respective original contributions to the Escrow Fund (as set
forth on the Closing Date Payment Schedule). At all times during the Escrow
Period, the Company shareholders shall be deemed to be the record holders of
their respective amounts of the Parent Common Stock comprising the Escrow
Amount.
5. Claims Upon Escrow Fund.
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(a) Upon receipt by the Escrow Agent at any time on or before the
Expiration Date of a certificate signed by any officer of Parent (an "Officer's
Certificate") set forth on Schedule B hereof or such officers' successors, the
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identity of whom the Escrow Agent shall be informed of by a writing signed by
another Parent officer: (A) stating that Parent has paid or properly accrued or
reasonably anticipates that it will have to pay or accrue Losses, and (B)
specifying in reasonable detail the individual items of Losses included in the
amount so stated,
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the date each such item was paid or properly accrued, or the basis for such
anticipated liability, and the nature of the misrepresentation, breach of
warranty or covenant to which such item is related, the Escrow Agent shall,
subject to the provisions of Section 6 hereof, deliver to Parent out of the
Escrow Fund, as promptly as practicable, shares of Parent Common Stock held in
the Escrow Fund in an amount equal to such Losses.
(b) For the purposes of determining the number of shares of Parent
Common Stock to be delivered to Parent out of the Escrow Fund pursuant to
Section 5(a) hereof, the shares of Parent Common Stock shall be valued at the
Average Closing Price. Parent and the Securityholder Agents shall certify such
determined value in a certificate signed by both Parent and the Securityholder
Agents, and shall deliver such certificate to the Escrow Agent.
6. Objections to Claims. At the time of delivery of any Officer's
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Certificate to the Escrow Agent, Parent shall deliver a duplicate copy of such
certificate to the Securityholder Agents and for a period of thirty (30) days
after such delivery, the Escrow Agent shall not deliver to Parent any Escrow
Amounts pursuant to Section 5(b) hereof unless the Escrow Agent shall have
received written authorization from the Securityholder Agents to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make delivery of shares of Parent Common Stock from the Escrow Fund in
accordance with Section 5(b) hereof, provided that no such payment or delivery
may be made if the Securityholder Agents shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent prior to the expiration of such thirty (30) day
period.
7. Third Party Claims.
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(a) If any third party shall notify Parent or its affiliates hereto
with respect to any matter (hereinafter referred to as a "Third Party Claim"),
which may give rise to a claim by Parent against the Escrow Fund, then Parent
shall give notice to the Securityholder Agents within 30 days of Parent becoming
aware of any such Third Party Claim or of facts upon which any such Third Party
Claim will be based (but in all events, at least five business days prior to the
date that an answer to such Third Party Claim is due to be filed) setting forth
such material information with respect to the Third Party Claim as is reasonably
available to Parent; provided, however, that no delay or failure on the part of
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Parent in notifying the Securityholder Agents shall relieve the Securityholder
Agents and the Company shareholders from any obligation hereunder unless the
Securityholder Agents and the Company shareholders are thereby materially
prejudiced (and then solely to the extent of such prejudice). The Securityholder
Agents and the Company shareholders shall not be liable for any attorneys fees
and expenses incurred by Parent prior to Parent's giving notice to the
Securityholder Agents of a Third Party Claim. The notice from Parent to the
Securityholder Agents shall set forth such material information with respect to
the Third Party Claim as is then reasonably available to Parent.
(b) In case any Third Party Claim is asserted against Parent or its
affiliates, and Parent notifies the Securityholder Agents thereof pursuant to
Section 5(a) hereinabove, the Securityholder Agents and the Company shareholders
will be entitled, if the Securityholder Agents so elect by written notice
delivered to Parent within 30 days after receiving Parent's notice, to
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assume the defense thereof, at the expense of the Company shareholders
independent of the Escrow Fund, with counsel reasonably satisfactory to Parent,
so long as:
(i) Parent has reasonably determined that Losses which may be
incurred as a result of the Third Party Claim do not exceed either individually,
or when aggregated with all other Third Party Claims, the total dollar value of
the Escrow Fund determined in accordance with Section 5(b) hereof;
(ii) the Third Party Claim involves only money damages and does
not seek an injunction or other equitable relief; and
(iii) settlement of, or an adverse judgment with respect to, the
Third Party Claim is not, in the good faith judgment of Parent, likely to
establish a precedential custom or practice materially adverse to the continuing
business interests of Parent.
If the Securityholder Agents and the Company shareholders so assume any
such defense, the Securityholder Agents and the Company shareholders shall
conduct the defense of the Third Party Claim actively and diligently. The
Securityholder Agents and the Company shareholders shall not compromise or
settle such Third Party Claim or consent to entry of any judgment in respect
thereof without the prior written consent of Parent and/or its affiliates, as
applicable.
(c) In the event that the Securityholder Agents assume the defense of
the Third Party Claim in accordance with Section 7(b) above, Parent or its
affiliates may retain separate counsel and participate in the defense of the
Third Party Claim, but the fees and expenses of such counsel shall be at the
expense of Parent unless Parent or its affiliates shall reasonably determine
that there is a material conflict of interest between or among Parent or its
affiliates and the Securityholder Agents and the Company shareholders with
respect to such Third Party Claim, in which case the reasonable fees and
expenses of such counsel will be borne by the Securityholder Agents and the
Company shareholders out of the Escrow Fund. Parent or its affiliates will not
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the Securityholder
Agents. Parent will cooperate in the defense of the Third Party Claim and will
provide full access to documents, assets, properties, books and records
reasonably requested by Securityholder Agents and material to the claim and will
make available all officers, directors and employees reasonably requested by
Securityholder Agents for investigation, depositions and trial.
(d) In the event that the Securityholder Agents fail or elect not to
assume the defense of Parent or its affiliates against such Third Party Claim,
which Securityholder Agents had the right to assume under Section 7(b) above,
Parent or its affiliates shall have the right to undertake the defense and
Parent shall not compromise or settle such Third Party Claim or consent to entry
of any judgment in respect thereof without the prior written consent of the
Securityholder Agents. In the event that the Securityholder Agents are not
entitled to assume the defense of Parent or its affiliates against such Third
Party Claim pursuant to Section 7(b) above, Parent or its affiliates shall have
the right to undertake the defense, consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim in any manner it
may deem appropriate (and Parent or its affiliates need not consult with, or
obtain any consent from, the Securityholder Agents in
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connection therewith); provided, however, that except with the written consent
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of the Securityholder Agents, no settlement of any such claim or consent to the
entry of any judgment with respect to such Third Party Claim shall alone be
determinative of the validity of the claim against the Escrow Fund. In each
case, Parent or its affiliates shall conduct the defense of the Third Party
Claim actively and diligently, and the Securityholder Agents will cooperate with
Parent or its affiliates, and will use its best efforts to cause the Company's
shareholders, to cooperate in the defense of that claim and will provide full
access to documents, assets, properties, books and records reasonably requested
by Parent and material to the claim and will make available all individuals
reasonably requested by Parent for investigation, depositions and trial.
8. Resolution of Conflicts; Arbitration.
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(a) In case the Securityholder Agents shall object in writing to any
claim or claims made in any Officer's Certificate, the Securityholder Agents and
Parent shall attempt in good faith to agree upon the rights of the respective
parties with respect to each of such claims. If the Securityholder Agents and
Parent should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and distribute
shares of Parent Common Stock from the Escrow Fund in accordance with the terms
thereof.
(b) If no such agreement can be reached after good faith negotiation,
and in any event not later than sixty (60) days after receipt of the written
objection of the Securityholder Agents, either Parent or the Securityholder
Agents may demand arbitration of the matter unless the amount of the damage or
loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Any such arbitration
shall be held in Santa Clara County, California under the American Arbitration
Association Commercial Arbitration Rules then in effect. Parent and the
Securityholder Agents shall each select one arbitrator, and the two arbitrators
so selected shall select a third arbitrator, each of which arbitrators shall be
independent, meaning that they may not be current or former employees or
consultants or the Parent, Merger Sub, Company or Surviving Corporation. The
arbitrators must disclose any circumstances likely to affect their independence
pursuant to Rule 19 of the American Arbitration Association Commercial
Arbitration Rules. The period of discovery shall be limited to 60 days and
limited to relevant information from the opposing parties about the subject
matter of the dispute. The arbitrators shall rule upon motions to compel or
limit discovery and shall have the authority to impose sanctions, including
attorneys fees and costs, to the extent as a court of competent law or equity,
should the arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 6 hereof, the Escrow Agent shall be entitled to act in accordance
with such decision and make or withhold payments out of the Escrow Fund in
accordance therewith. Such decision shall be written and shall be supported by
written findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrators.
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(c) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. For purposes of this Section 8, in any
arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, Parent shall be deemed to be the Non-
Prevailing Party in the event that the arbitrators award Parent the sum of one-
half ( 1/2) or less of the disputed amount plus any amounts not in dispute;
otherwise, the shareholders of the Company as represented by the Securityholder
Agents shall be deemed to be the Non-Prevailing Party. Each party to an
arbitration shall pay its own expenses and one half of (i) the fees of each
arbitrator and (ii) the administrative costs of the arbitration.
9. Protection of the Escrow Fund.
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(a) The Escrow Agent shall hold and safeguard the Escrow Fund during
the Escrow Period, shall treat such fund as a trust fund in accordance with the
terms of this Agreement and not as the property of Parent and shall hold and
dispose of the Escrow Fund only in accordance with the terms hereof.
(b) Any shares of Parent Common Stock or other equity securities
issued or distributed by Parent (including shares issued upon a stock split or
stock dividend) ("New Shares") in respect of Parent Common Stock in the Escrow
Fund which have not been released from the Escrow Fund shall be added to the
Escrow Fund and become a part thereof. New Shares issued in respect of shares of
Parent Common Stock which have been released from the Escrow Fund shall not be
added to the Escrow Fund but shall be distributed to the recordholders thereof.
Cash dividends on Parent Common Stock shall not be added to the Escrow Fund but
shall be distributed to the recordholders thereof.
(c) Each Company shareholder shall be deemed the record holder of, and
shall have voting, dividend, distribution and all other rights with respect to
the shares of Parent Common Stock contributed to the Escrow Fund by such
shareholder (and on any voting securities and other equity securities added to
the Escrow Fund in respect of such shares of Parent Common Stock).
10. Appointment of Securityholder Agent; Power of Attorney.
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(a) Without further act of any shareholder, Warren L. Packard and
Scot E. Land, the Securityholder Agents, have been appointed as agents and
attorneys-in-fact for each shareholder of the Company (except such shareholders,
if any, as shall have perfected their dissenters' rights under California Law
and a list of whom shall be provided to the Escrow Agent with evidence of the
exercise of such dissenters' rights), for and on behalf of shareholders of the
Company, to give and receive notices and communications, to authorize delivery
to Parent of shares of Parent Common Stock from the Escrow Fund in satisfaction
of claims by Parent, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of Securityholder
Agents for the accomplishment of the foregoing. The true and correct signatures
of the Securityholder Agents shall be set forth on Schedule C hereof. Such
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agency may be changed by the shareholders of the Company from time to time upon
not less than thirty (30) days prior written notice to Parent; provided that the
each of the persons acting as Securityholder Agents may not be removed unless
holders of a majority in interest of the Escrow Fund agree to such removal and
to the identity of the substituted agent. Any vacancy in either of the positions
of the Securityholder Agents may be filled by approval of the holders of a
majority in interest
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of the Escrow Fund. No bond shall be required of the Securityholder Agents, and
the Securityholder Agents shall not receive compensation for their services. The
reasonable legal fees and expenses and other professional fees incurred by the
Securityholder Agents in connection with the performance of such persons' duties
hereunder shall be reimbursed from the Escrow Fund upon written request pursuant
to Section 5 hereof; provided, however, that such expenses shall be paid from
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the Escrow Fund after all allowed claims shall have been paid or sufficient
amounts thereof have been set aside. Notices or communications to or from the
Securityholder Agents shall constitute notice to or from each of the
shareholders of the Company.
(b) Neither of the Securityholder Agents shall be liable for any act
done or omitted hereunder as Securityholder Agents while acting in good faith
and in the exercise of reasonable judgment. The shareholders of the Company on
whose behalf the Escrow Amount was contributed to the Escrow Fund shall jointly
and severally indemnify each of the Securityholder Agents and hold each of the
Securityholder Agents harmless against any loss, liability or expense incurred
without negligence or bad faith on the part of such Securityholder Agent and
arising out of or in connection with the acceptance or administration of the
Securityholder Agents' duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Securityholder Agents.
(c) A decision, act, consent or instruction of both of the
Securityholder Agents shall constitute a decision of all the shareholders for
whom a portion of the Escrow Amount otherwise issuable to them are deposited in
the Escrow Fund and shall be final, binding and conclusive upon each of such
shareholders, and the Escrow Agent and Parent may rely upon any such written
decision, consent or instruction of the Securityholder Agents as being the
decision, consent or instruction of each every such shareholder of the Company.
The Escrow Agent and Parent are hereby relieved from any liability to any person
for any acts done by them in accordance with such decision, consent or
instruction of the Securityholder Agents.
11. Escrow Agent's Duties.
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(a) The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive after
the date of this Escrow Agreement which are signed by an officer of Parent and
the Securityholder Agents, and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed to be genuine and
to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any act done or omitted hereunder as Escrow Agent
while acting in good faith and in the exercise of reasonable judgment, and any
act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(b) The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or
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decrees of any court. In case the Escrow Agent obeys or complies with any such
order, judgment or decree of any court, the Escrow Agent shall not be liable to
any of the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(c) The Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Escrow Agreement or any documents or
papers deposited or called for hereunder.
(d) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Escrow Agreement or
any documents deposited with the Escrow Agent.
(e) In performing any duties under this Escrow Agreement, the Escrow
Agent shall not be liable to any party for damages, losses, or expenses, except
for gross negligence or willful misconduct on the part of the Escrow Agent. The
Escrow Agent shall not incur any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any written instrument, including any written statement or
affidavit provided for in this Escrow Agreement that the Escrow Agent shall in
good faith believe to be genuine, nor will the Escrow Agent be liable or
responsible for forgeries, fraud, impersonations, or determining the scope of
any representative authority. In addition, the Escrow Agent may consult with the
legal counsel in connection with Escrow Agent's duties under this Escrow
Agreement and shall be fully protected in any act taken, suffered, or permitted
by him/her in good faith in accordance with the advice of counsel. The Escrow
Agent is not responsible for determining and verifying the authority of any
person acting or purporting to act on behalf of any party to this Escrow
Agreement.
(f) If any controversy arises between the parties to this Escrow
Agreement, or with any other party, concerning the subject matter of this Escrow
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 shares of Parent Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Escrow Agreement. In
such event, the Escrow Agent will not be liable for damage. Furthermore, the
Escrow Agent may at its option, file an action of interpleader requiring the
parties to answer and litigate any claims and rights among themselves. The
Escrow Agent is authorized to deposit with the clerk of the court all documents
and shares of Parent Common Stock held in escrow, except all cost, expenses,
charges and reasonable attorney fees incurred by the Escrow Agent due to the
interpleader action and which the parties jointly and severally agree to pay.
Upon initiating such action, the Escrow Agent shall be fully released and
discharged of and from all obligations and liability imposed by the terms of
this Escrow Agreement.
(g) Parent and the Surviving Corporation agree jointly and severally
to indemnify and hold Escrow Agent harmless against any and all losses, claims,
damages, liabilities, and
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expenses, including reasonable costs of investigation, counsel fees, and
disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in
connection with the performance of his/her duties under this Escrow Agreement,
including, but not limited to, any litigation arising from this Escrow Agreement
or involving its subject matter; provided, however, that in the event the
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Securityholder Agents shall be the Non-Prevailing Party in connection with any
claim or action initiated by a Company shareholder or Company shareholders, then
Parent and the Surviving Corporation (1) shall jointly and severally indemnify
and hold Escrow Agent harmless and (2) shall have a right to reimbursement from
the Escrow Fund, or if the amounts available therein are insufficient, from such
Company shareholder or Company shareholders, in an amount equal to all amounts
paid by the Parent or the Surviving Corporation to the Escrow Agent for the
indemnification of the Escrow Agent to the full extent provided by this
paragraph.
(h) The Escrow Agent may resign at any time upon giving at least
thirty (30) days written notice to the parties; provided, however, that no such
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resignation shall become effective until the appointment of a successor escrow
agent which shall be accomplished as follows: the parties shall use their best
efforts to mutually agree on a successor escrow agent within thirty (30) days
after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the state of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. The Escrow Agent shall be discharged
from any further duties and liability under this Escrow Agreement.
(i) All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent pursuant to the Schedule of Fees as set forth
on Schedule D hereof and amended from time to time by the mutual consent of
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Escrow Agent and Parent. It is understood that the fees and usual charges agreed
upon for services of the Escrow Agent shall be considered compensation for
ordinary services as contemplated by this Agreement. In the event that the
conditions of this Escrow Agreement are not promptly fulfilled, or if the Escrow
Agent renders any service not provided for in this Escrow Agreement, or if the
parties request a substantial modification of its terms, or if any controversy
arises, or if the Escrow Agent is made a party to, or intervenes in, any
litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorneys' fees, and expenses occasioned by such default, delay,
controversy or litigation. Parent promises to pay these sums upon demand.
12. Payment of Taxes. The Company shareholders shall be treated as the
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owner of the Escrow Fund for all tax purposes while and to the extent that the
Escrow Fund is held by the Escrow Agent. The Escrow Agent shall furnish such
information to the other parties hereto as shall be requested in writing for tax
preparation purposes by such parties.
13. Termination.
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(a) Unless extended in writing by the parties hereto, the escrow
provided for in this Escrow Agreement shall expire on the later of (i) the
Expiration Date and (ii) the final resolution
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of, and the final disbursement of funds to satisfy, any and all Pending Claims
(the "Termination Date"); provided that from and after the Expiration Date, such
indemnification obligations shall survive only to the extent of such Pending
Claims pursuant to Section 6.
(b) Promptly following the Escrow Release Date and upon receipt of
instructions from the Parent and the Securityholder Agents, the Escrow Agent
shall, to the extent funds are available therefor in the Escrow Fund and in the
following order of priority:
(i) withhold funds in the Escrow Fund in sufficient amount, or to
the extent funds are available therefor, to satisfy the maximum amount of Losses
estimated by the Parent in its written instructions relating to any and all
Pending Claims;
(ii) reimburse the fees and expenses incurred by the
Securityholder Agents pursuant to Section 10(a) hereof; and
(iii) distribute any funds remaining after the allocations and
distributions provided for in clause (i) above to the Company shareholders in
accordance with their Proportionate Interests in the Escrow Fund, as shown on
Schedule A hereto.
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(c) Promptly following the Termination Date and upon receipt of
instructions from the Parent and the Securityholder Agents, the Escrow Agent
shall distribute any funds remaining in the Escrow Fund to the Company
shareholders in accordance with their proportionate interests in the Escrow
Fund, as shown on Schedule A hereto.
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14. Notices. All notices and other communications hereunder shall be in
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writing and shall be deemed given or delivered (i) on the date thereof if
delivered personally (ii) the next business day if delivered by overnight
courier, (iii) three business days after being mailed by registered or certified
mail (return receipt requested) first class mail, postage prepaid or (iv) on the
date thereof if sent by telecopy (if confirmation of complete transmission is
received and a confirming copy is sent by mail), to the parties at the following
addresses and telecopy numbers (or at such other address or number for a party
as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Cobalt Networks, Inc.
555 Ellis Street
Mountain View, California 94043
Attention: Mr. Kenton D. Chow
Telephone: (650) 623-2500
Facsimile: (650) 623-2501
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with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Robert P. Latta, Esq.
and Julia Reigel, Esq.
Telephone: (650) 493-9300
Facsimile: (650) 845-5000
(b) if to the Company, to:
Chili!Soft, Inc.
13920 SE Eastgate Way, Suite 120
Bellevue, Washington 98005
Attention: Mr. Bryan Grummon
Telephone: (425) 957-1122
Facsimile: (425) 562-9565
with a copy to:
Crosby, Heafey, Roach & May
Four Embarcadero Center, Suite 1900
San Francisco, California 94111-4106
Attention: Dale S. Freeman, Esq.
Telephone: (415) 543-8700
Facsimile: (415) 391-8269
(c) if to the Securityholder Agents:
Warren L. Packard
c/o Draper Fisher Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
Telephone: (650) 599-9000
Facsimile: (650) 599-9726
Scot E. Land
c/o Encompass Ventures
777 108th Avenue NE, Suite 2300
Bellevue, WA 98004
Telephone: (425) 468-3900
Facsimile: (425) 468-3901
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(d) if to the Escrow Agent:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Matt Louis, Escrow Unit
Telephone: (212) 815-7172
Facsimile: (212) 815-7181
15. Nonassignability. Notwithstanding anything to the contrary contained
----------------
herein, neither the Escrow Amount nor any beneficial interest therein may be
sold, assigned or otherwise transferred, including by operation of law, by any
Company shareholder or be taken or reached by any legal or equitable process in
satisfaction of any debt or other liability of such Company shareholder. Any
such attempted transfer in violation of this Section shall be null and void.
16. Successors and Assigns. This Escrow Agreement and all action taken
----------------------
hereunder in accordance with its terms shall be binding upon and inure to the
benefit of the Parent, and its respective successors and assigns, the Escrow
Agent and its successors, the Company shareholders and their respective
successors and assigns and the Securityholder Agents and such agents'
successors.
17. Entire Agreement. This Escrow Agreement constitutes the entire
----------------
agreement among the parties with the Escrow Agent, and among the other parties
with respect to this particular escrow except as set forth under the Acquisition
Agreement, and it supersedes all prior or concurrent arrangements or
understandings with respect thereto. The other parties hereby acknowledge and
agree that Escrow Agent's duties and obligations hereunder are limited, and that
Escrow Agent shall have no duties or obligations except as clearly specified
herein, and no implied duties or obligations shall be read into this Escrow
Agreement against the Escrow Agent, nor shall Escrow Agent have any
responsibility for the enforcement of the obligations of any parties hereto.
18. Waivers. No waiver by any party hereto of any condition or of any
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breach of any provision of this Escrow Agreement shall be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, shall be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
19. Counterparts. This Escrow Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute one and the same instrument.
20. Governing Law. This Escrow Agreement shall be governed in all
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respects, including validity, interpretation and effect, by the laws of the
State of New York (without giving effect to its choice of law provisions).
21. Consequential Damages. In no event shall the Escrow Agent be liable
---------------------
for special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost
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profits), even if the Escrow Agent has been advised of the likelihood of such
loss or damage and regardless of the form of action.
22. Jurisdiction. All parties hereto agree to submit to the jurisdiction of
------------
the federal and state courts of the State of New York.
[Remainder of Page Left Blank Intentionally]
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IN WITNESS WHEREOF, the parties have executed or caused this Escrow
Agreement to be duly executed as of the day and year first above written.
CHILI!SOFT, INC. COBALT NETWORKS, INC.
a California corporation a Delaware corporation
By:____________________________ By: ______________________________
Bryan Grummon Kenton D. Chow
Chief Executive Officer Chief Financial Officer and Vice
President, Finance
SECURITYHOLDER AGENTS: BLUE TORTILLA ACQUISITION CORP.
a California corporation
_______________________________ By:________________________________
Warren L. Packard Kenton D. Chow
Chief Financial Officer and Vice
President, Finance
_______________________________
Scot E. Land
THE BANK OF NEW YORK
a New York Banking Corporation
By: ___________________________
Title: ________________________
[Signature Page To Escrow Agreement]
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