TZIX » Topics » 2.2. Holdback.

This excerpt taken from the TZIX 10-Q filed Nov 6, 2006.

2.2. Holdback.

(a) Parent shall holdback and retain a total of Five Million Dollars ($5,000,000) in cash from the Closing Consideration (the “Holdback Amount”). Each Company Securityholder shall be entitled to receive his, her or its Pro Rata Portion of the Holdback Amount remaining only upon expiration of the Survival Periods, subject to any claims made by Parent under Article 8 prior to the expiration of the last Survival Period. The Holdback Amount shall be available to the Parent to provide the exclusive source of funding to (i) the Parent Indemnified Parties for any Claims and Liabilities for which they are entitled to be indemnified pursuant to Article 8 and (ii) Parent for any Working Capital Adjustment payable as an adjustment to the Merger Consideration pursuant to Section 2.7.

(b) If at any time and from time to time prior to December 31, 2007 a Parent Indemnified Party makes an indemnification claim (a “Claim”) pursuant to Article 8 of this Agreement, Parent shall deliver to the Representative notification in writing (a “Claim Notice”), setting forth in reasonable detail the facts giving rise to such Claim and including in such Claim Notice the reasonably estimated amount of such Claim, if known, and the provisions of this Agreement upon which such Claim is based. If and to the extent that Parent has not received a Dispute Statement (as defined below) relating to any Claim from the Representative within the period for delivery of the same in accordance with Section 2.2(c) below, then the Holdback Amount shall be reduced by an amount equal to the amount of the Admitted Liability (as defined below) with respect to such Claim. In the event the Representative does not dispute the Claim as set forth in the Claim Notice in a timely manner as set forth in this Section 2.2(b) or only disputes a portion thereof, then the amount of the Claim described in the Claim Notice or the portion thereof not disputed shall be deemed to be admitted (the “Admitted Liability”). Following the delivery of a Claim Notice and continuing during any period of dispute, the Representative and his agents and advisors shall have full access to the working papers and books and records of Parent, the Company, and their respective representatives relating to the Claim.

(c) In the event the Representative shall dispute the validity of all or any amount of a Claim as set forth in the Claim Notice, the Representative shall, within sixty (60) days of his receipt of the Claim Notice, execute and deliver to Parent a notice setting forth with reasonable

 

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particularity the grounds and the basis upon which the Claim or portion thereof is disputed (the “Dispute Statement”). If the Representative delivers to Parent a Dispute Statement applicable to all or any portion of a Claim within the period for delivery of the same set forth above, then the amount of the Holdback Amount disputed by the Representative in such Dispute Statement shall not be payable by Parent until either (i) Parent and the Representative agree in writing to the resolution of the amount of the Holdback Amount disputed by the Representative in such Dispute Statement or (ii) a court of competent jurisdiction enters a final unappealable order directing the payment to the Representative (on behalf of the Company Securityholders) of the amount of the Holdback Amount disputed by the Representative in such Dispute Statement. Upon such written agreement or final order (a “Resolved Claim”), as the case may be, Parent shall be entitled to reduce the Holdback Amount by, and retain, the amount of the Resolved Claim if and to the extent that matters covered thereby have been resolved in favor of Parent. To the extent that the Representative (on behalf of the Company Securityholders) is the prevailing party in whole or in part in connection with a Resolved Claim, Parent shall pay the Representative (on behalf of the Company Securityholders) the portion of the Holdback Amount that is the subject of such Resolved Claim and that is not resolved in favor of Parent as provided in the immediately preceding sentence.

(d) On January 31, 2008, Parent shall deliver to the Exchange Agent for payment to the Company Securityholders the Holdback Amount, less the sum of (i) all Unresolved Claims (as defined below) as of December 31, 2007 and (ii) all Claims that have resulted in an Admitted Liability or become a Resolved Claim in favor of Parent as of December 31, 2007. For purposes of this Agreement, the term “Unresolved Claims” shall mean the aggregate amount of all Claims that are the subject of a Claim Notice as of such date, including any Claims for which a Claim Notice has been delivered, but only if and to the extent that such Claims have not resulted in an Admitted Liability or have not become a Resolved Claim as of such date.

(e) At any time after January 31, 2008, when there is a Resolved Claim in favor of the Representative, Parent shall promptly (but in no event later than three (3) business days following the resolution of the Resolved Claim) deliver to the Exchange Agent for payment to the Company Securityholders an amount equal to such Resolved Claim, plus all interest on such amount calculated from January 31, 2008 at the rate of ten percent (10%) per annum. The date that a Resolved Claim is resolved shall be a “Subsequent Holdback Payment Date”.

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