SETTLEMENT AGREEMENT AND MUTUAL RELEASE
THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE ("Agreement") is
made and entered into on January 4, 2001 by and among PATH 1 NETWORK
TECHNOLOGIES INC., a Delaware corporation ("Path 1"), XXXXXXX X. XXXXXX,
XXXXXX X. XXXXXXX, JYRA RESEARCH INC., XXXXXXXX X. X. XXXXX (the "Path 1
Parties"), XXXXXX X. XXXXXXX and XXXXX XXXXXX, on the one hand, and XXXXXXXX
XXXXXX ("Xxxxxx") and Xxxxxx XXXXXX, on the other, who agree as follows:
1. Recitals. This Agreement is made with reference to the following
facts:
1.1 Whereas, on September 20, 1999, Path 1 filed, and there is now
pending, a lawsuit against Xxxxxxxx Xxxxxx in San Diego County Superior Court
(Case No. GIC 735665), for breach of oral contract, breach of fiduciary duty,
breach of the covenant of good faith and fair dealing and unfair business
practices, which among other things, seeks damages related to Xxxxxx'x receipt
of 511,280 shares of Path 1 Class A Common Stock issued to him (the "Lawsuit");
1.2 Whereas, on November 29, 1999, Xxxxxx filed a cross-complaint
against the Path 1 Parties asserting causes of action for breach of fiduciary
duty, fraud, breach of the covenant of good faith and fair dealing, and
misrepresentation, relating to an Option Agreement, dated January 25, 1999,
Xxxxxx had entered into with Jyra Research Inc. and Path 1 (the "Cross-
Complaint.");
1.3 Whereas, on November 9, 1999, Xxxxxx filed, and there is now
pending, a lawsuit against Path 1 in the Delaware Court of Chancery in and for
New Castle County (Civil Action No. 17562) for indemnification and advancement
of defense expenses with respect to the Lawsuit and the Cross-Complaint (the
"Delaware Action"); and
1.4 Whereas the parties desire to fully settle and compromise any and
all disputes presently existing between them in accordance with the provisions
of this Agreement.
2. Obligations of Path 1.
2.1 Deliveries by Path 1. Upon execution of this Agreement, Path 1
shall deliver or cause to be delivered to Xxxxxx:
2.1.1 A fully executed counterpart of a Dismissal With Prejudice
of all causes of action asserted against Xxxxxx in the Lawsuit, in the form
attached hereto as Ex. "1".
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SETTLEMENT AGREEMENT AND MUTUAL RELEASE (Con't)
2.1.2 An opinion from counsel for Path1 in the form attached as
Ex. "2".
2.2 Payment by Path 1. Upon execution of this Agreement, Path 1
shall deliver to Xxxxxx $300,000 by means of a check made payable to Duckor,
Xxxxxxxxx & Xxxxxxx Trust Account.
2.3 Escrow by Path 1. Upon execution of this Agreement, Path 1 and
Xxxxxx shall open an escrow at Union Bank of California, pursuant to the terms
of attached Exhibit "3", and Path 1 shall deposit into the escrow 1) $200,000
cash; 2) a certificate for 100,000 shares of class A stock in Path1
(certificate number 1); and 3) a certificate for 300,000 shares of class A
stock in Path1 (certificate number 2). As to certificate number 2, at Path1's
sole option it may deposit, at the opening of escrow only, cash in lieu of
shares on the ratio of 1 dollar to 1 share; to the extent that cash is
deposited in lieu of shares as to certificate number 2, the formulas below
shall be adjusted accordingly, with any such cash to be paid out ahead of
shares. The shares deposited in escrow are restricted, and will only become
freely tradeable upon the terms outlined below. Once Path 1 has substituted
cash for shares in certificate number 2, it may not re-substitute shares for
the cash. Xxxxxx agrees not to vote such shares while they are in escrow
unless Path 1 consents. From the opening of escrow until withdrawal from
escrow by Xxxxxx (as defined in Section 4), no changes whatsoever shall be
made to the contents of the escrow.
2.4 Provision of Opinion Letter by Path 1 Upon execution of the final
settlement agreement, counsel for Path 1 shall provide an opinion letter to
Path 1's transfer agent in the form attached hereto as Exhibit 4, which will
authorize the transfer, without legend, under Rule 144, beginning on the
Valuation Date, of the shares represented by certificate numbers 1 and 2 (the
Shares), subject to Xxxxxx providing to the transfer agent customary documents
evidencing the compliance of his sale with the Requirements of Rule 144. Path
1 agrees to cooperate promptly, reasonably and fully with Xxxxxx'x efforts to
sell the Shares at the maximum rate allowed by Rule 144. Counsel for Xxxxxx
has taken steps to obtain reasonable assurance from the transfer agent that it
will comply with the opinion and request described in this Section. Such
reasonable assurance was a condition to this Agreement.
3. Obligations of Xxxxxx
3.1 Deliveries of Xxxxxx Upon execution of this Agreement, Xxxxxx
shall deliver or cause to be delivered:
3.1.1 To Path 1, a fully executed counterpart of a Dismissal With
Prejudice of all of the causes of action asserted against the Path 1 Parties in
the Cross-Complaint, in the form attached hereto as Ex. "5";
3.1.2 To Path 1, a fully executed counterpart of a Dismissal With
Prejudice of all of the causes of action asserted against the Path 1 Parties in
the Delaware Action, in the form attached hereto as Ex. "6"; and
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SETTLEMENT AGREEMENT AND MUTUAL RELEASE (Con't)
3.1.3 To the escrow agent, signed in blank stock powers, which
will be used to transfer back to Path 1 after one year any remaining balance
following withdrawal from escrow by Xxxxxx pursuant to Section 4.
3.2 Withdrawal of Derivative Demand Xxxxxx withdraws his pre-suit
derivative demand contained in the letter of February 24, 2000 from Xxxxx
Xxxxxxx to Xxxxxxx X. Xxxxxxx and covenants not to, directly or indirectly, re-
submit such demand, and also covenants not to encourage others to do so.
3.3 Sale of Jyra Stock Upon execution of this Agreement, Xxxxxx shall
sell all his shares of Jyra Research Inc. stock and shall not thereafter become
a shareholder of Jyra.
4. Withdrawal from Escrow by Xxxxxx: On January 10, 2002, which will be
the 371st day following execution of the Agreement (the "Valuation Date"),
Xxxxxx shall have the right to withdraw from escrow as follows:
4.1 If on the Valuation Date, the Valuation (as defined in Section
4.6) is between $6.00 and $10.99 per share, then Xxxxxx shall be entitled to
receive certificate number 1 and the remaining balance in the escrow will
revert to Path 1 without payment by Path1.
4.2 If on the Valuation Date, the Valuation (as defined in Section
4.6) is between $5.99 and $4.00 per share, then Xxxxxx shall be entitled to
receive certificate number 1 and an amount of cash sufficient to make the value
of the withdrawal $600,000 as of the Valuation Date. All remaining balances in
the escrow will revert to Path1 without payment by Path1.
4.3 If on the Valuation Date, the Valuation (as defined in Section
4.6) is between $3.99 and $1.00 per share, then Xxxxxx shall be entitled to
receive certificate number 1, $200,000 cash, and a number of shares needed to
make the value of the withdrawal $600,000 based on the valuation. All
remaining balances in the escrow will revert to Path1 without payment by Path1.
4.4 If on the Valuation Date, the Valuation (as defined in Section
4.6) is less than $1.00 per share, then Xxxxxx shall receive everything in the
escrow.
4.5 If on the Valuation Date, the Valuation (as defined in Section
4.6) is greater than $11.00 per share, then Xxxxxx shall receive that number of
shares, which when multiplied by the Valuation, have a total value of
$1,100,000. All remaining balances in the escrow will revert to Path 1 without
payment by Path 1.
4.6 The "Valuation" shall be the average closing price of Path1 stock
in the 30 trading days immediately preceding the Valuation Date, provided that
if all of the outstanding shares of Path1 are acquired prior to the Valuation
Date, then the amount paid per share by the acquirer shall be the Valuation.
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SETTLEMENT AGREEMENT AND MUTUAL RELEASE (Con't)
4.7 Xxxxxx is not entitled to interest on any of the monies
contemplated to be paid under this Agreement. Interest on the money deposited
in escrow shall accrue for the benefit of Path 1.
5. Mutual General Release.
5.1 Effective as of the date of this Agreement, and except for the
rights and obligations of the parties under this Agreement or any of the
documents delivered in connection with this Agreement, the Path 1 Parties and
Xxxxxx X. Xxxxxxx and Xxxxx Xxxxxx, on the one hand, and Xxxxxxxx Xxxxxx and
Xxxxxx Xxxxxx, on the other hand, each on behalf of themselves and all persons
who may claim by, through or under them, hereby fully and forever releases and
discharges the other, and the other's past or present shareholders, directors,
officers, employees, agents, attorneys, insurers, successors, assigns, heirs
and executors, from any and all rights, claims, debts, contracts, liabilities,
demands, obligations, costs, charges, accounts, attorneys' fees, costs,
expenses, damages, actions and causes of action, of any kind or nature
whatsoever, which the releasor either had or now has or may hereafter claim to
have against the releasee by reason of any matter or thing whatsoever occurring
prior to the date hereof. The claims hereby released include, by way of example
and not by limitation, all claims directly or indirectly arising out of,
resulting from or relating in any way to the subject matter of the Lawsuit, the
Delaware Action, or the Cross-Complaint including but not limited to the
filing, maintenance or prosecution of the Lawsuit, the Delaware Action, or the
Cross-Complaint.
5.2 The foregoing mutual release constitutes a general release and
shall extend to all claims of every nature and kind whatsoever, known or
unknown, suspected or unsuspected, including, but not limited to, any claims
based on contract, tort, statute, breach of duty, bad faith, negligence, or any
other theory of liability.
5.3 The Path 1 Parties and Xxxxxx X. Xxxxxxx and Xxxxx Xxxxxx, on the
one hand, and Xxxxxx and Xxxxxx Xxxxxx, on the other hand, have been fully
advised by their counsel of the content of, and each explicitly waive any and
all rights which each may have under the provisions of California Civil Code
section 1542, which section reads as follows:
A general release does not extend to claims which
the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if
known by him must have materially affected his
settlement with the debtor.
6. Covenant Not to Xxx. Effective as of the date of this Agreement, the
Path 1 Parties and Xxxxxx X. Xxxxxxx and Xxxxx Xxxxxx, on the one hand, and
Xxxxxx and Xxxxxx Xxxxxx, on the other hand, each agrees to forever refrain and
forebear from commencing, voluntarily assisting, instituting or prosecuting
any litigation, action, arbitration, administrative or other proceeding of any
kind against the other directly or indirectly arising out of, resulting from or
relating in any way to the subject matter of the release contained in Section
5.
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SETTLEMENT AGREEMENT AND MUTUAL RELEASE (Con't)
7. No Liability Admitted. Each of the parties explicitly acknowledges and
agrees that this Agreement represents a settlement of disputed claims and that
by entering into this Agreement, no party admits or acknowledges the existence
of any liability or wrongdoing. The provisions of this Agreement shall not be
construed as an admission of liability or wrongdoing by any party.
8. Advice of Counsel. In executing this Agreement, each party represents
and warrants to the other that he, she or it has relied upon the legal advice
of his, her or its own attorney, that the provisions of this Agreement have
been completely read and explained by his, her or its attorney, and that the
provisions of this Agreement are fully understood and voluntarily accepted by
him, her or it.
9. Representations, Warranties and Agreements. In addition to the
representations, warranties and Agreements contained elsewhere in this
Agreement, the Path 1 Parties, on the one hand, and Xxxxxx on the other hand,
each hereby represents and warrants to and agrees with the others as follows:
9.1 This Agreement and the execution, delivery and performance hereof
by them (a) have been duly authorized and approved by all necessary action on
their part and (b) do not require the consent or approval of any other person.
9.2 Except for the assignment of claims by Xxxxxxx X. Xxxxxx and
Xxxxxx X. Xxxxxxx to Path 1 (all of whom are parties to this Agreement), none
of the parties have heretofore assigned, transferred or pledged, or purported
to assign, transfer or pledge, voluntarily, involuntarily or by operation of
law, to any person, any interest in any of the claims released by them under
Section 5.
9.3 To protect, defend, indemnify and hold harmless the other parties
from and against any and all claims, losses, damages, liabilities and expenses,
including attorneys' fees, arising from or on account of any or failure to
perform any of their covenants or Agreements contained in this Agreement
10. General Provisions.
10.1 Attorneys' Fees. In any action or proceeding (including, but not
limited to, arbitration, appellate and bankruptcy proceedings) arising out of
or relating to this Agreement or to the subject matter, enforcement or breach
hereof, the prevailing party shall be entitled to reasonable attorneys' fees,
costs and expenses (including, but not limited to, litigation expenses such as
expert witness fees, copying costs and postage, delivery, telephone and
telecopying charges). This provision applies to this entire Agreement and
shall survive any resulting judgement, which the parties agree shall contain an
explicit provision that attorneys' fees incurred in enforcing the judgement
shall be included as costs collectible by the prevailing party judgement
creditor.
87
SETTLEMENT AGREEMENT AND MUTUAL RELEASE (Con't)
10.2 Integration. This Agreement is intended to be and constitutes
the final, complete and exclusive Agreement between the parties regarding the
subject matter of this Agreement and all prior or contemporaneous agreements
(including the Binding Agreement of Principal Terms), understandings,
representations and statements, oral or written, are merged into and superseded
by this Agreement. No parol or extrinsic evidence of any kind and no course of
dealing or usage of trade or course of performance shall be used to vary,
contradict, supplement or add to the terms of this Agreement.
10.3 Amendment. No amendment, modification, termination or waiver of
this Agreement or any of its provisions shall be valid unless the same is in
writing and signed by the party against which such amendment, modification,
termination or waiver is sought to be enforced.
10.4 Waiver. No waiver of any breach of any provision or condition
of this Agreement shall be deemed a waiver of a breach of a similar or
dissimilar provision or condition at the same time or any prior or subsequent
time or of the provision or condition itself.
10.5 Time of Essence. Time is of the essence of this Agreement and
each of its provisions in which a time for performance is specified.
10.6 Binding Effect. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors, assigns and
legal representatives. Except as otherwise stated in this Agreement, no other
party shall have any rights under or be deemed a beneficiary of this Agreement.
10.7 Cooperation. Each party shall execute and deliver or cause to be
executed and delivered such further instruments and documents and shall take
such further action as may be reasonably required to effectuate the provisions
of this Agreement.
10.8 Survival. All representations, warranties, covenants and
Agreements contained in this Agreement shall survive the execution and delivery
hereof, the Closing and any and all performances in accordance with this
Agreement.
10.9 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California.
10.10 Jurisdiction and Venue. The parties hereby irrevocably consent
and submit to the exclusive jurisdiction of the state and federal courts
located in San Diego County, California in connection with any action or
proceeding arising out of or relating to this Agreement.
10.11 Warranty of Authority. The persons signing this Agreement
represent and warrant that they have the requisite authority to bind the
parties on whose behalf they are signing.
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SETTLEMENT AGREEMENT AND MUTUAL RELEASE (Con't)
10.12 Rules of Construction. The section headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement. References to a section without further
attribution shall refer to the sections of this Agreement. When indicated by
the context, each number, both singular and plural, includes all numbers, and
each gender includes all genders. As used herein, the terms "include,"
"including" and similar terms shall be construed as if followed by the words
"without limitation"; the term "person" includes natural person, firm,
partnership, corporation, limited liability company, association and any other
private or public entity; and the term "provisions" shall be construed as if
followed by the words "covenants, Agreements, representations, warranties,
indemnities, terms and/or conditions."
10.13 Severability. If any one or more of the provisions of this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not
affect any other provisions of this Agreement and any such unaffected
provisions shall be enforceable to the fullest extent possible, and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been contained herein.
10.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same instrument.
10.15 Interpretation of Agreement. This Agreement has been negotiated
at arm's length and each party has been represented by independent legal
counsel of his own choice and representing his own interests. Accordingly, any
rule of law (including, but not limited to, California Civil Code Section 1654)
or legal decision that would require interpretation of any ambiguities in this
Agreement against the party that has drafted it is not applicable and is
waived.
10.16 Equitable Remedies. The parties agree that they would be
irreparably damaged if the provisions of this Agreement were not capable of
being specifically enforced. Accordingly, the parties agree that the
provisions of this Agreement shall be specifically enforceable, that any
violation of any provision of this Agreement may be enjoined or restrained and
that such equitable relief shall not in any way limit or deny any other remedy
which the parties may have under this Agreement or at law.
10.17 Effectiveness of Agreement. This Agreement shall become
effective when it has been executed and delivered by all of the parties hereto.
Facsimile signatures and delivery by facsimile transmission shall be valid and
effective.
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SETTLEMENT AGREEMENT AND MUTUAL RELEASE (Con't)
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
Signatures to Follow:
PATH 1 NETWORK TECHNOLOGIES INC.,
a Delaware corporation
By: /s/ Xxxxxxx Xxxxxxx
---------------------
Xxxxxxx Xxxxxxx, CEO
JYRA RESEARCH INC.
By: /s/ Xxxxx Xxxxx
--------------------
Xxxxx Xxxxx
/s/ Xxxxxx X. Xxxxxxx /s/ Xxxxxxxx Xxxxxx
--------------------- ---------------------
Xxxxxx X. Xxxxxxx, an individual Xxxxxxxx Xxxxxx, an individual
/s/ Xxxxxxx X. Xxxxxx /s/ Xxxxxx Xxxxxx
--------------------- ---------------------
Xxxxxxx X. Xxxxxx, an individual Xxxxxx Xxxxxx, an individual
/s/ X X Xxxxx
---------------------
Xxxxxxxx X. X. Xxxxx, an individual
/s/ Xxxxxx X. Xxxxxxx
---------------------
Xxxxxx X. Xxxxxxx, an individual
/s/ Xxxxx Xxxxxx
---------------------
Xxxxx Xxxxxx, an individual
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SETTLEMENT AGREEMENT AND MUTUAL RELEASE (Con't)
APPROVED AS TO FORM:
DUCKOR, XXXXXXXXX & XXXXXXX
By: /s/ Xxxxx X. Xxxxxxx
------------------------
Xxxxx X. Xxxxxxx
Attorneys for Xxxxxxxx Xxxxxx and Xxxxxx Xxxxxx
XXXXXXXXX XXXXXXXX XXXXX & XXXXX LLP
By: /s/ Xxxxxxx X. Xxxxxxx
-------------------------
Xxxxxxx X. Xxxxxxx
Attorneys for Path 1 Network Technologies, Inc.,
Xxxxxx X. Xxxxxxx, Xxxxxxx X. Xxxxxx, Xxxxxx X.
Xxxxxxx and Xxxxx Xxxxxx
XXXXXX XXXXXXXX LLP
By: /s/ M Xxxxxx Xxxxx
-------------------------
M. Xxxxxx Xxxxx
Attorneys for the Jyra Research Inc. and
Xxxxxxxx X. X. Xxxxx
91
EXHIBIT 1
_______________________________________________________________________________
ATTORNEY OR PARTY WITHOUT ATTORNEY (Name and Address): Telephone No.:
(000) 000-0000
Xxxxxxx Xxxxxxx, Xxxxxxxx Xxxxx (#094783, #167266)
Xxxxxxxxx Xxxxxxxx Xxxxx & Xxxxx
0000 Xxxxxxx Xxxx Xxxx
Xxxxxx-Xxxxx Xxxxx
Xxx Xxxxxxx, XX 00000-0000
BAR# 094783
ATTORNEY FOR (Name): Plaintiff
_______________________________________________________________________________
SUPERIOR COURT OF CALIFORNIA, COUNTY OF SAN DIEGO
_______________________________________________________________________________
PLAINTIFF/PETITIONER: PATH 1 NETWORK TECHNOLOGIES INC.
DEFENDANT/RESPONDENT: XXXXXXX XXXXX, et al.
_______________________________________________________________________________
REQUEST FOR DISMISSAL ) Case Number:
) GIC 735665
___ Personal injury, Property Damage, or Wrongful Death )
___ Motor Vehicle ___ Other )
___ Family Law )
___ Eminent Death )
_X_ Other (specify): Breach of contract; breach of fiduciary duty
_______________________________________________________________________________
A conformed copy will not be returned by the clerk unless a method of return is
provided with the document.
_______________________________________________________________________________
1. TO THE CLERK: Please dismiss this action as follows:
a. (1) _X_ With prejudice (2) ___ Without prejudice
b. (1) _X_ Complaint (2) ___ Petition
(3) _X_ Cross-complaint filed by (name): Xxxxxxxx Xxxxxx on (date):
11/29/99
(4) ___ Cross-complaint filed by (name): on (date):
(5) _X_ Entire action of all parties and all causes of action
(6) ___ Other (specify):
Date: January 16, 2001
Xxxxxxxx Xxxxx
- -------------------
(Type or print name of _X_ Attorney ___ Party without Attorney
- -------------------
(Signature)
Attorney or party without attorney for:
Path 1 Network Tech., Inc.
_X_ Plaintiff/Petitioner ___ Defendant/Respondent
___ Cross-complaint
_______________________________________________________________________________
92
EXHIBIT 1 (Con't)
2. TO THE CLERK: Consent to the above dismissal is hereby given.
Date: January 16, 2001
R. Xxxxxxx Xxxxxxxx
- ---------------------
(Type or print name of _X_ Attorney ___ Party without Attorney
- ---------------------
(Signature)
Attorney or party without attorney for:
Xxxxxxxx Xxxxxx
_X_ Plaintiff/Petitioner ___ Defendant/Respondent
___ Cross-complaint
_______________________________________________________________________________
(To be completed by clerk)
3. _X_ Dismissal entered as requested on (date): 1-16-01
4. ___ Dismissal entered on (date): as to only (name):
5. ___ Dismissal not entered as requested for the following reasons (specify):
6. _X_ a. Attorney or party without attorney notified on (date): 1-16-01
b. Attorney or party without attorney not notified. Filing party failed
to provide
___ a copy to conform ___ means to return conformed copy
XXXXXXX XXXXXXXX
CLERK OF THE SUPERIOR
COURT
Date: 1-16-01 Clerk by , Deputy
----------------
_______________________________________________________________________________
REQUEST FOR DISMISSAL
93
EXHIBIT 0
XXXXXXX XXXXXXX & XXXXXXXX XXX, Xxxxxxxxx at Law
00000 Xx Xxxxxx Xxxx
Xxx Xxxxx, XX 00000-0000
Telephone: (000) 000-0000
Facsimile: (858) 720-2555
January 10, 2001
Xxxxxxxx Xxxxxx
00000 Xxxxx Xxxxxx
Xxxxx, XX 00000
Re: Path 1 Network Technologies Inc.
Dear Xx. Xxxxxx:
We are general outside counsel to Path 1 Network Technologies Inc., a
Delaware corporation (the "Company"). This letter is delivered to you pursuant
to Section 2.1.2 of the Settlement Agreement and Mutual Release dated January
4, 2001 among you, the Company and others (the "Agreement").
We are of the opinion as of the date hereof that shares of Class A Common
Stock of the Company issued to you pursuant to the Agreement and released to
you from escrow more than one year after such issuance may be sold thereafter
by you in the public market under Rule 144 assuming the following conditions
are met at the time of the sale:
1. You file a Form 144, covering the sale, with the SEC upon or before
placing your sell order, in compliance with Rule 144(h) and (i).
2. You sell in compliance with the manner-of-sale requirement of Rule
144(f) and (g).
3. The Company is in compliance at the time of the sale with the current
public information requirement of Rule 144(c).
4. Your sale, together with all Rule 144 sales by you in the preceding
three months, does not exceed the volume limitation of Rule 144(e).
Please note, the number of shares may be such that you cannot sell them
all at once (or in a single three-month period) under Rule 144(e).
5. You have not maintained any short or put position in the Company stock.
94
EXHIBIT 2 (Con't)
This opinion letter is rendered as of the date first written above solely
for your benefit in connection with the Agreement and may not be delivered to,
quoted or relied upon by any person other than you, or for any other purpose,
without our prior written consent. Our opinion is expressly limited to the
matters set forth above and we render no opinion, whether by implication or
otherwise, as to any other matters relating to the Agreement, the shares or the
Company. We assume no obligation to advise you of facts, circumstances, events
or developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein.
Very truly yours,
XXXXXXX, PHLEGER & XXXXXXXX LLP
HJT: clk
95
EXHIBIT 3
ESCROW AGREEMENT
January 4, 2001
Mr. Xxxx Xxxxxx
Union Bank of California, N.A.
000 Xxxxx Xxx Xxxxx Xx., Xxxxx #000
Xxx Xxxxxxx, XX 00000
RE: Deposit of Cash, Stock and Documents Pursuant to Settlement
Agreement in the Matter of Path 1 Network Technologies, Inc.
x. Xxxxx, et al. San Diego Superior Court Case No. GIC 735665
Dear Xx. Xxxxxx:
This letter shall constitute joint escrow instructions to you (the "Escrow
Agent") from Path 1 Network Technologies, Inc. ("Path 1") and Xxxxxxxx Xxxxxx
("Xxxxxx") in connection with the deposit by Path 1 and Xxxxxx in to escrow of
various documents, as contemplated by the settlement agreement ("Settlement
Agreement"), settling the matters of Path 1 Network Technologies, Inc. x.
Xxxxx, et al., San Diego Superior Court Case No. GIC 735665, and Xxxxxxx Xxxxx,
Xxxxx Xxxxx and Xxxxxxxx Xxxxxx v. Path 1 Network Technologies, Inc., in the
Court of Chancery of the State of Delaware in and for New Castle County, Civil
Action 17562-NC.
A. Deliveries into Escrow The following have been delivered to you:
1. Path 1 Deliveries
a. $200,000.00 cash, which shall be invested in Provident T-Fund Cash
Management Shares and earnings thereon shall accrue for the benefit of Path 1,
which will supply a completed IRS Form W9 to Escrow Agent.
b. A certificate for 100,000 shares of class A stock in Path 1
("Certificate 1").
c. A certificate for 300,000 shares of class A stock in Path 1
("Certificate 2").
2. Xxxxxx Deliveries
a. Two (2) signed in blank stock powers, which will be used to transfer
back to Path 1 after one year any remaining balance following withdrawal from
escrow by Xxxxxx pursuant to Section C below.
B. Deposits of Cash in Lieu of Shares
96
EXHIBIT 3 (Con't)
As to Certificate No. 2, at Path 1's sole option it may deposit, at the opening
of escrow only, cash in lieu of shares on the ratio of 1 dollar to 1 share; to
the extent that cash is deposited in lieu of shares as to Certificate No. 2,
the formulas below in paragraph C shall be adjusted accordingly, with any such
cash to be paid out ahead of shares.. (Any such cash shall be invested as set
forth in section A(1)(a) / or be held un invested). From the opening of escrow
until withdrawal from escrow by Xxxxxx (as defined in Section C), no changes
whatsoever shall be made to the contents of the escrow. Once Path 1 has
substituted cash for shares in Certificate No. 2, it may not re substitute
shares for the cash
C. Withdrawal from Escrow by Xxxxxx
On January 10, 2002 which will be the 371st day following execution of the
Settlement Agreement (the "Valuation Date"), Xxxxxx shall have the right to
withdraw from escrow as follows:
1. If on the Valuation Date, the Valuation (as defined in paragraph C6
below) is between $6.00 and $10.99 per share, then Xxxxxx shall be entitled to
receive certificate number 1 and the remaining balance in the escrow will
revert to Path 1 without payment by Path 1.
2. If on the Valuation Date, the Valuation (as defined in paragraph C6
below) is between $5.99 and $4.00 per share, then Xxxxxx shall be entitled to
receive certificate number 1 and an amount of cash sufficient to make the value
of the withdrawal $600,000.00 as of the Valuation Date. All remaining balances
in the escrow will revert to Path 1 without payment by Path 1.
3. If on the Valuation Date, the Valuation (as defined in paragraph C6
below) is between $3.99 and $1.00 per share, then Xxxxxx shall be entitled to
receive certificate number 1, $200,000.00 cash, and a number of shares needed
to make the value of the withdrawal $600,000.00 based on the valuation. All
remaining balances in the escrow will revert to Path 1 without payment by Path
1.
4. If on the Valuation Date, the Valuation (as defined in paragraph C6
below) is less than $1.00 per share, then Xxxxxx shall receive everything in
the escrow.
5. If on the valuation Date, the Valuation (as defined in paragraph C6
below) is greater that $11.00 per share, then Xxxxxx shall receive that number
of shares, which when multiplied by the Valuation, have a total value of
$1,100,000.00. All remaining balances in the escrow will revert to Path 1
without payment by Path 1.
6. Xxxxxx shall exercise his rights by providing written notice to the
Escrow Agent with a copy to Path 1. Such notice shall state that Xxxxxx is
entitled to withdraw from the escrow pursuant hereto, the basis for such
withdrawal (through reference to paragraph 1 - 5 above), and include payment
instructions.
97
EXHIBIT 3 (Con't)
7. The "Valuation" shall be the average closing price of Path 1 stock in
the 30 trading days immediately preceding the Valuation Date. The Escrow Agent
may calculate the Valuation based on any computer pricing service it may use
and such calculation shall be conclusive and binding on the parties. The
valuation shall be determined by the Escrow Agent on the 366th day, and Escrow
Agent shall immediately notify Xxxxxx and Path 1 of the Valuation. If all of
the outstanding shares of Path 1 are acquired prior to the Valuation Date, then
the amount paid per share by the acquirer shall be the Valuation.
All notices and instructions provided for or permitted hereunder shall
be in writing and shall be deemed given if delivered personally (including
delivery by an express delivery service or facsimile transmission during the
recipient's regular business hours) or mailed, by certified or registered mail,
return receipt requested, with postage prepaid and addressed to the parties
hereto as follows:
If to Path 1 Path 1 Network Technologies, Inc.
Address:
Attn:
Telephone Number
Facsimile Number
If to Xxxxxx: Xxxxxxxx Xxxxxx
Address:
Telephone Number
Facsimile Number
If to Escrow Agent: Union Bank of California, N.A.
000 X. Xxx Xxxxx Xx., Xxxxx #000
Xxx Xxxxxxx, XX 00000
Attn: Xxxx Xxxxxx
Tel # 213 / 000-0000
Fax # 213 / 000-0000
98
EXHIBIT 3 (Con't)
Please acknowledge your receipt of the Documents listed in Paragraph A above,
as this escrow will not become effective until all items have been deposited
into escrow. In addition, please confirm your agreement to comply with the
foregoing instructions by signing below in the space provided and returning a
copy of the letter to each of the parties to the escrow. The Escrow Agent's
acceptance of the escrow is subject to and conditioned upon the parties
agreement to the attached Exhibit "A" which is incorporated by reference herein
and execution of this letter constitutes such agreement including without
limitation, agreement to the terms of Exhibit "B" hereto.
Very truly yours,
PATH 1 NETWORK TECHNOLOGIES, INC.
By:
---------------------
Xxxxxxx Xxxxxx, CEO
XX. XXXXXXXX XXXXXX
By:
---------------------
Xxxxxxxx Xxxxxx
Agreed:
UNION BANK OF CALIFORNIA, N.A.
By:
----------------------
Xxxx Xxxxxx, Trust Officer
99
EXHIBIT "A"
ESCROW AGENT PROVISIONS
1. Compensation
Escrow Agent shall receive compensation for its services in accordance with
Exhibit B attached hereto. Such compensation shall be paid by Path 1.
2. Resignation or removal of Escrow Agent.
Escrow Agent may resign on 30 days' notice to Path 1 and Xxxxxx. Path 1and
Xxxxxx may jointly agree to remove Escrow Agent on 30 days' notice to all
parties hereunder. Upon receipt of such notice, Xxxxxx and Path 1 shall appoint
a successor Escrow Agent in writing delivered to Escrow Agent. Thereupon,
Escrow Agent shall deliver all assets in its custody to such successor Escrow
Agent and all responsibility of Escrow Agent under this Agreement shall
terminate; provided, however, Escrow Agent's obligations under this Agreement
shall not terminate until delivery of the assets to the successor Escrow Agent.
If the parties fail to appoint a successor Escrow Agent, the Escrow Agent shall
deliver all assets in its custody as both Path 1 and Xxxxxx shall instruct in
writing or, in the absence of such joint instruction to a court of competent
jurisdiction.
3. Right to retain independent counsel and bring suit.
Escrow Agent may consult with independent legal counsel in the event of any
dispute or questions as to the construction of any of the provisions hereof or
its duties hereunder and it shall incur no liability and shall be fully
protected in acting in accordance with the opinion and instructions of such
counsel. Escrow Agent shall notify Path 1 and Xxxxxx when it intends to consult
with such independent legal counsel. Escrow Agent shall have the right to file
legal proceedings, including an interpleader, to determine the proper
disposition of assets hereunder, all costs thereof constituting an expense of
administration of this Agreement.
4. Indemnification of Escrow Agent by principal.
Path 1 and Xxxxxx jointly and severally agree to indemnify and hold nEscrow
Agent, its officers, directors, employees and agents (collectively "Indemnified
Parties") harmless from all loss, cost, damages, expenses, liabilities,
judgments and attorneys' fees (including without limitation, allocated costs
of in-house counsel) suffered or incurred by the Indemnified Parties or any of
them arising out of or in connection with this Agreement, except that this
indemnity obligation shall not apply in the event of the gross negligence or
willful misconduct of the Indemnified Parties or any of them. This indemnity
obligation shall survive termination of this Agreement and resignation or
removal of the Escrow Agent
100
EXHIBIT "A" (Con't)
5. Right to rely upon notices as genuine.
Escrow Agent shall not be responsible for the sufficiency of the form,
execution, validity or genuineness of documents or securities now or hereafter
deposited hereunder, or of any endorsement thereon, or for any lack of
endorsement thereon, or for any description therein, nor shall Escrow Agent be
responsible or liable in any respect on account of the identity, authority or
rights of the persons executing or delivering or purporting to execute or
deliver any such document, security or endorsement.
6. Duties limited to those expressly set forth.
The duties and responsibilities of Escrow Agent shall be limited to those
expressly set forth in this Escrow Agreement With the exception of this
Agreement, Escrow Agent is not responsible for, or chargeable with knowledge
of, any terms or provisions contained in either the underlying agreement
referred to in this Agreement or any other separate agreements and
understandings between the parties. The Escrow Agent shall not be liable for
the accuracy of any calculations or the sufficiency of any funds for any
purpose. The Escrow Agent shall not have any liability under this Escrow
Agreement except to the extent of its own gross negligence or wilful
misconduct. In no event shall the Escrow Agent be liable for any special,
indirect or consequential damages.
Escrow Agent is authorized, in its sole discretion, to disregard any and
all notices or instructions given by Path 1 or Xxxxxx or by any other person,
firm or corporation, except such notices or instructions as are specifically
provided for herein.
7. Right to non-perform in case of dispute.
In the event of any disagreement between Path 1 and Xxxxxx, or between
them and any other person, resulting in adverse claims or demands being made in
connection with the assets hereunder, or in the event that Escrow Agent, in
good faith, be in doubt as to what action it should take hereunder, Escrow
Agent may, at its option, refuse to comply with any claims or demands or it may
refuse to take any other action hereunder, so long as such disagreement
continues or such doubt exists, and in any such event, Escrow Agent shall not
be or become liable in any way or to any person for its failure or refusal to
act, and Escrow Agent shall be entitled to continue so to refrain from acting
until (i) the rights of Path 1 and Xxxxxx shall have been fully and finally
adjudicated by a court of competent jurisdiction, or (ii) all differences shall
have been adjusted and all doubt resolved by agreement between Path 1 and
Xxxxxx and the Escrow Agent shall have been notified thereof in writing signed
by or on behalf of all such persons. The rights of Escrow Agent under this
paragraph are in addition to all other rights which it may have by law or
otherwise.
101
EXHIBIT "A" (Con't)
8. Authorization
The execution, delivery of and performance under this Agreement by Path
1 and Xxxxxx have been duly authorized by all necessary and appropriate action.
The names, titles and signatures of the persons authorized to deliver notices
To Escrow Agent on behalf of Path 1 are attached as Exhibit ACA hereto. Either
party may, by written notice to Escrow Agent, add or delete authorized
signatures.
9. Governing Law
This Escrow Agreement shall be governed by and construed in conformity
with California law.
10. Termination
If Escrow Agent has not received notice of termination of this Agreement
from Path 1 and Xxxxxx or received the instructions specified herein for
distribution of the escrow assets, within 15 months from the date hereof,
Escrow Agent shall deliver the assets jointly to Path 1 and Xxxxxx or as
instructed in writing jointly by Path 1 and Xxxxxx.
102
EXHIBIT "B"
UNION BANK OF CALIFORNIA, N.A.
Corporate Trust Department
SCHEDULE OF FEES FOR ESCROW AGENT SERVICES
Escrow Agreement among
Path 1 Network Technologies, Inc.,
Xxxxxxxx Xxxxxx
And
Union Bank of California, N.A.
Acceptance and Set-Up Fee: $1,000.00
(Due and payable on closing date)
Annual Escrow Administrative Fee: $3,000.00
(First year's fee is payable and due on closing date)
Legal Counsel Fee: Waived
(Use of Union Bank of California in-house counsel)
Transactions Charges:
Disbursement / wires $ 35.00
Investments (per sale/purchase/transfer) $ 60.00
Out-of-Pocket Expenses: As Invoiced
Termination Fee By Appraisal
Accepted By:
_____________________________________ __________________
Name & Title Date
_____________________________________ __________________
Name & Title Date
Fees subject to acceptance and review by Union Bank of California, N.A. of all
documents pertaining to this issue.
103
EXHIBIT 0
XXXXXXX XXXXXXX & XXXXXXXX XXX, Xxxxxxxxx at Law
00000 Xx Xxxxxx Xxxx
Xxx Xxxxx, XX 00000-0000
Telephone: (000) 000-0000
Facsimile: (858) 720-2555
January 16, 2001
Registrar & Transfer Company
00 Xxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxx
Re: Path 1 Network Technologies Inc.
Ladies and Gentlemen:
We are legal counsel to Path 1 Network Technologies Inc. (the "Company").
Share certificates in favor of Xxxxxxxx Xxxxxx, representing 100,000 and
300,000 unregistered shares of Class A Common Stock of the Company, have today
been placed in escrow and will be held in the escrow for approximately one
year. At the end of the year, depending on the stock price performance of the
Company, some of these shares may be repurchased by the Company; and if they
are, the remaining shares may be evidenced by a successor certificate or
certificates. In any event, all of such non-repurchased shares (the "Shares")
will be evidenced by stock certificates bearing customary Securities Act
restrictive legends and will be released from escrow to Xx. Xxxxxx in
approximately one year.
The purpose of this letter is to anticipate potential Rule 144 sales by Xx.
Xxxxxx after such release of the Shares from escrow, and his submission to you
of the Shares for Rule 144 transfer (free of restrictive legend) into street
name upon such sale. To settle litigation, Xx. Xxxxxx has required that his
Rule 144 transfers not be at risk of frustration through noncooperation by the
Company or its counsel. Accordingly, this letter is delivered to you in
advance and is irrevocable.
We have reviewed the relevant facts and law relevant to compliance of such
anticipated sale(s) of Shares with Rule 144. Based on this review, we have
concluded that subject to the conditions below the sales(s) of the Shares are
exempt from the registration requirement of the Securities Act by virtue of
Rule 144, and, accordingly, you are authorized to transfer the sold Shares into
street name (free of restrictive legend) as so requested:
Condition 1. You shall have found the instrument(s) of transfer to be in
order.
Condition 2. You shall have received from Xx. Xxxxxx'x stockbroker a
written representation that the sale(s) were actually made on or after January
5, 2002.
104
EXHIBIT 4 (Con't)
Condition 3. You shall have received from Xx. Xxxxxx'x stockholder a
(signed) customary Rule 144 broker's representation letter pertaining to the
sale(s) including a copy of Form 144 as filed, and the Form 144 shall
appear on its face to anticipate the sale(s) as actually made.
Condition 4. You shall have received from Xx. Xxxxxx a (signed) customary
Rule 144 seller's broker letter pertaining to the sale(s).
Condition 5. The number of Shares sold in the sale do not, when combined
with all Rule 144 sales by Xx. Xxxxxx (of which you are aware) in the then
preceding three months, exceed the greater of (a) 1% of the then outstanding
Class A Common Stock of the Company as shown on your records, or (b) the
average weekly trading volume, as shown on the Form 144 and as verified by you
from readily available public sources, for the four calendar weeks immediately
before the filing of the Form 144. Please note, the number of Shares released
from escrow may exceed the number which is 1% of the Company's outstanding
Class A Common Stock as of today or as of the sale date.
Any stock certificates for Share not so transferred under Rule 144 should,
when issued to Xx. Xxxxxx or to his non-Rule 144 transferees, bear a Securities
Act restrictive legend.
Please give me a call if you have any questions or if I can be of further
assistance.
Very truly yours,
--------------------
Xxxxxx Xxxxxxx
HJT:clk
105
EXHIBIT 5
_______________________________________________________________________________
ATTORNEY OR PARTY WITHOUT ATTORNEY (Name and Address): Telephone No.:
(000) 000-0000
Xxxxxxx Xxxxxxx, Xxxxxxxx Xxxxx (#094783, #167266)
Xxxxxxxxx Xxxxxxxx Xxxxx & Xxxxx
0000 Xxxxxxx Xxxx Xxxx
Xxxxxx-Xxxxx Xxxxx
Xxx Xxxxxxx, XX 00000-0000
BAR# 094783
ATTORNEY FOR (Name): Plaintiff
_______________________________________________________________________________
SUPERIOR COURT OF CALIFORNIA, COUNTY OF SAN DIEGO
_______________________________________________________________________________
PLAINTIFF/PETITIONER: PATH 1 NETWORK TECHNOLOGIES INC.
DEFENDANT/RESPONDENT: XXXXXXX XXXXX, et al.
_______________________________________________________________________________
REQUEST FOR DISMISSAL ) Case Number:
) GIC 735665
___ Personal injury, Property Damage, or Wrongful Death )
___ Motor Vehicle ___ Other )
___ Family Law )
___ Eminent Death )
_X_ Other (specify): Breach of contract; breach of fiduciary duty
_______________________________________________________________________________
A conformed copy will not be returned by the clerk unless a method of return is
provided with the document.
_______________________________________________________________________________
1. TO THE CLERK: Please dismiss this action as follows:
a. (1) _X_ With prejudice (2) ___ Without prejudice
b. (1) _X_ Complaint (2) ___ Petition
(3) _X_ Cross-complaint filed by (name): Xxxxxxxx Xxxxxx on (date):
11/29/99
(4) ___ Cross-complaint filed by (name): on (date):
(5) _X_ Entire action of all parties and all causes of action
(6) ___ Other (specify):
Date: January 16, 2001
Xxxxxxxx Xxxxx
- -------------------
(Type or print name of _X_ Attorney ___ Party without Attorney
- -------------------
(Signature)
Attorney or party without attorney for:
Path 1 Network Tech., Inc.
_X_ Plaintiff/Petitioner ___ Defendant/Respondent
___ Cross-complaint
_______________________________________________________________________________
106
EXHIBIT 5 (Con't)
2. TO THE CLERK: Consent to the above dismissal is hereby given.
Date: January 16, 2001
R. Xxxxxxx Xxxxxxxx
- ---------------------
(Type or print name of _X_ Attorney ___ Party without Attorney
- ---------------------
(Signature)
Attorney or party without attorney for:
Xxxxxxxx Xxxxxx
_X_ Plaintiff/Petitioner ___ Defendant/Respondent
___ Cross-complaint
_______________________________________________________________________________
(To be completed by clerk)
3. _X_ Dismissal entered as requested on (date): 1-16-01
4. ___ Dismissal entered on (date): as to only (name):
5. ___ Dismissal not entered as requested for the following reasons (specify):
6. _X_ a. Attorney or party without attorney notified on (date): 1-16-01
b. Attorney or party without attorney not notified. Filing party failed
to provide
___ a copy to conform ___ means to return conformed copy
XXXXXXX XXXXXXXX
CLERK OF THE SUPERIOR
COURT
Date: 1-16-01 Clerk by , Deputy
----------------
_______________________________________________________________________________
REQUEST FOR DISMISSAL
107
EXHIBIT 6
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
XXXXXXX XXXXX, XXXXX XXXXX )
and XXXXXXXX XXXXXX, )
)
Plaintiffs, )
)
v. ) Civil Action 17562-NC
)
PATH 1 NETWORK )
TECHNOLOGIES INC., )
)
Defendant. )
STIPULATION OF DISMISSAL OF CLAIMS BY
XXXXXXXX XXXXXX WITH PREJUDICE
IT IS HEREBY STIPULATED AND AGREED by the parties to this action, acting
through their undersigned counsel on this 16th day of January, 2001, pursuant
to Rule 41(a)(1)(ii) of the Court of Chancery Rules, that the claims asserted
in this action by plaintiff Xxxxxxxx Xxxxxx shall be, and they are hereby,
DISMISSED WITH PREJUDICE. Because the claims asserted by plaintiffs Xxxxxxx
Xxxxx and Xxxxx Xxxxx were already dismissed with prejudice by stipulation
filed on April 13, 2000, the dismissal of plaintiff Xxxxxxxx Xxxxxx'x claims
through this stipulation means that this entire action has been concluded.
- ------------------------- ---------------------------
Xxxxx X. Xxxxxx M. Xxxxxx Xxxxx
Xxxxx X. Xxxxxxx Xxxxxx X. Xxxxxxxxxxx
Heiman, Aber, Goldlust & Xxxxx Xxxxxx Xxxxxxxx LLP
First Federal Plaza, Suite 600 Suite 1600, 0000 Xxxxxx
Xxxxxx
X.X. Xxx 0000 X.X. Xxx 0000
Xxxxxxxxxx, XX 00000-0000 Xxxxxxxxxx, XX 00000-0000
302.658.1800 302.777.6500
Attorneys for Plaintiffs Attorneys for Defendant
108
