Indemnity And Escrow Agreement

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portions marked with asterisks. The confidential
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and Exchange Commission.


INDEMNITY AND ESCROW AGREEMENT


This Indemnity and Escrow Agreement (the "Agreement") is entered into as of February , 1994 by and among 3Com Corporation, a California corporation ("3Com"), Centrum Communications, Inc., a California corporation ("Centrum"), the Representative named in Section 2 (Representative) hereof and the Escrow Agent named herein.


RECITALS


A. 3Com, 3Sub Acquisition Corporation, a California corporation and a wholly-owned subsidiary of 3Com ("Sub"), and Centrum have entered into an Agreement and Plan of Reorganization dated as of January 18, 1994 (the "Plan") pursuant to which Sub will merge with and into Centrum, with Centrum surviving the Merger. Capitalized terms used in this Agreement and not otherwise defined herein will have the meanings given them in the Plan.


B. The Plan provides for [** ] of the amount of the First Payment and, if and to the extent any Claims (as defined below) have been made and remain unresolved at the time the Second Payment becomes payable, for up to [** ] of the amount of the Second Payment (together with the amount withheld from the First Payment, the "Escrow Amount") to be placed in an escrow account (the "Escrow Account") to secure certain obligations to 3Com under the Plan on the terms and conditions set forth herein.


C. The parties hereto desire to establish the terms and conditions pursuant to which the Escrow Amount will be withheld by 3Com and subsequently deposited, held in, and disbursed from the Escrow Account.


NOW, THEREFORE, the parties hereto agree as follows:


1. Indemnification.


1.1 Indemnification by Centrum Securityholders from Escrow Amount. If the Merger occurs, all the representations, warranties, covenants and agreements of Centrum in the Plan shall survive the Effective Time, but Centrum shall have no further liability with respect thereto, and all such liability will become the obligation and collective responsibility of the shareholders of Centrum immediately after the Closing (collectively "the Centrum Shareholders") and the holders of Options (collectively, the "Centrum Optionholders"), in accordance with this Agreement, subject to the limitations set forth herein. The Centrum Shareholders and the Centrum Optionholders are collectively referred to herein as the "Centrum Securityholders." Centrum having originally made such representations, warranties, covenants and agreements shall in no way limit the obligations of the Centrum Securityholders pursuant to this Agreement, which obligations shall remain in full force and effect, subject to the limitations set forth herein. All the representations, warranties, covenants and agreements of Centrum in the Plan shall survive the Effective Time as to the Centrum Securityholders, subject to the limitations set forth herein. Pursuant to and subject to the provisions of this Agreement, the Centrum Securityholders shall indemnify and hold harmless 3Com and Centrum in respect of any and all claims, losses, damages, liabilities, demands, assessments, judgments, costs and expenses (including, without limitation, settlement costs and any legal or other expenses for investigating, bringing or defending any actions or threatened actions) (collectively the "Costs") incurred or suffered by 3Com or Centrum resulting from (i) any breach of any representation, warranty, covenant, agreement or obligation made by Centrum in the Plan or in any of the other Transaction Documents and (ii) any matter set forth on Schedule A hereto. Nothing in this Agreement or in the Plan shall limit 3Com rights or claims with respect to any Centrum Shareholder immediately prior to the Effective Time arising out of such Centrum Shareholder's failure to own all right, title and interest in and to the shares of Centrum listed of record as owned by such Centrum Shareholder.


1.2 Payment for Indemnification Claims; Threshold. The Centrum Securityholders agree to pay 3Com for Costs claimed by 3Com in the manner and to the extent provided in this Agreement. The parties agree that the Escrow Amount will be security for this obligation. Promptly after the receipt by 3Com of notice or discovery of any claim, damage or legal action or proceeding giving rise to rights under Section 1.1 (Indemnification by Centrum Securityholders from Escrow Amount), 3Com will give the Representative and the Escrow Agent written notice of such claim, damage, legal action or proceeding (a "Claim") in accordance with Section 4 (Notice of Claim) hereof. 3Com shall notify the Representative of the status or progress of any such Claim.


Notwithstanding anything to the contrary set forth in this Agreement or in any of the other Transaction Documents, in the absence of fraud, if the Merger is consummated: (a) the Escrow Amount shall be the sole and exclusive remedy and source of compensation to 3Com for any Costs incurred by 3Com or Sub arising out of the breach or alleged breach by Centrum of any of its representations, warranties, covenants or agreements in the Plan or in any of the other Transaction Documents and for any matter set forth on Schedule A, and (b) except as specifically provided in the following paragraph or in Schedule A, Centrum and the Centrum Securityholders shall be liable only as to any individual claim if it involves [**
] provided that, once such [** ] then 3Com will be entitled to make Claim for indemnification of all such Costs [**
]


1.3 Allocation of Costs between Shareholders and Optionholders. With respect to any Costs for which 3Com may be entitled to indemnification under this Agreement, 3Com will be entitled to be paid in cash out of the Escrow Amount that percentage of such Costs equal to the percentage of all fully diluted Common Stock equivalents of Centrum (assuming conversion of all outstanding Preferred Stock and exercise of all outstanding Options whether vested or not) represented by the outstanding Centrum Common Stock and Preferred Stock immediately prior to the Closing. All such fully diluted Common Stock equivalents are referred to herein as the "Centrum Shares." All such fully diluted Common Stock equivalents are referred to herein as the "Centrum Shares." The remainder of such Costs will be subject to indemnification by means of corresponding provisions in the assumption agreements pursuant to which 3Com assumes the Options, with the Optionholders' indemnification for such Costs effected through the loss of the right to exercise a portion of their Options, not to exceed [** ] of the number of shares of 3Com Common Stock subject to such options immediately after the Closing, in the absence of fraud.


1.4 Limitation on Liability. In the absence of fraud, if the Merger is consummated, the maximum liability of Centrum and the Centrum Shareholders for any matter set forth in this Agreement shall not exceed [**
] Payments for Costs shall be deducted from the Escrow Amount payable to each Centrum Shareholder in proportion to the ratio of the number of shares of Centrum Common Stock and Preferred Stock held by such Centrum Shareholder over the total number of outstanding shares of Centrum Common Stock and Preferred Stock immediately prior to the Effective Time, and shall be deducted from shares of 3Com Common Stock issuable upon exercise of Options held by each Centrum Optionholder in proportion to the number of shares of Centrum Common Stock issuable upon exercise of Options held by such Centrum Optionholder over the total number of shares of Centrum Common Stock issuable upon exercise of all Options immediately prior to the Effective Time.


2. Representative.


2.1 Appointment; Acceptance. Andrew W. Verhalen and his successors are hereby irrevocably constituted and appointed as attorney-in-fact and agent for each of the Centrum Securityholders, to act as herein provided, in his/her/its name, place and stead in connection with the transactions contemplated by this Agreement (the "Representative"), and such appointment is coupled with an interest. By executing and delivering this Agreement under the heading "Representative," Andrew W. Verhalen and his successors hereby accepts his appointment and authorization to act as the Representative as attorney-in-fact and agent on behalf of the Centrum Securityholders in accordance with the terms of this Agreement and agrees to perform his obligations hereunder, and otherwise comply with this Section 2 (Representative).


2.2 Authority.


(a) The Centrum Securityholders shall be bound by all notices received and agreements and determinations made by and documents executed and delivered by the Representative pursuant to this Agreement.


(b) The Representative is authorized to take any and all actions and the make any decisions required or permitted to be taken by him under this Agreement, including, without limitation, the exercise of the power to (i) authorize disposition by or delivery to 3Com of the Escrow Amount and the loss of rights to exercise Options, or any portion thereof, in satisfaction of Claims, (ii) 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, (iii) resolve any Claims, (iv) give instructions to 3Com and the Escrow Agent, (v) agree to extend the term of this Agreement and the duration of Escrow Account, and (vi) take all actions necessary in the judgment of the Representative for the accomplishment of the foregoing and all of the other terms, conditions and limitations of this Agreement or the Plan. Accordingly, the Representative has unlimited authority and power to act on behalf of Centrum and each Centrum Securityholder with respect to this Agreement or the Plan and the disposition, settlement or other handling of all Claims, rights or obligations arising under this Agreement or the Plan. The Centrum Securityholders will be bound by all actions taken by the Representative in connection with this Agreement or the Plan and 3Com shall be entitled to rely on any action or decision of the Representative.


(c) The Representative is authorized and directed to receive payments, if any, made to the Representative for the account of the Centrum Shareholders under this Agreement, to invest such funds pending their disbursement in such manner as the Representative in his sole discretion deems appropriate; and to disburse pro rata any payments due the Centrum Shareholders under this Agreement in accordance with their interest, after (i) payment of any attorneys' and accountants' and other fees and expenses incurred on behalf of the Centrum Securityholders in connection with the consummation of the transactions contemplated by this Agreement and (ii) withholding such amounts to pay costs and expenses relating to potential disputes arising with respect to indemnification or other obligations of the Centrum Securityholders under this Agreement.


2.3 Actions. The Representative is authorized to act on behalf of each of the Centrum Securityholders, notwithstanding any dispute or disagreement among the Centrum Securityholders, and 3Com and the Escrow Agent and any other person or entity shall be entitled to rely on any and all actions taken by the Representative under this Agreement without any liability to, or obligation to inquire of, any of the Centrum Securityholders. All notices, counternotices or other instruments or designations delivered by the Representative shall not be effective unless, but shall be effective if, signed by the Representative, and if not, such document shall have no force and effect whatsoever hereunder and 3Com and any other person or entity may proceed without regard to any such document. 3Com, the Escrow Agent and any other person or entity are hereby expressly authorized to rely on the genuineness of the signature of the Representative, and upon receipt of any writing which reasonably appears to have been signed by the Representative, 3Com, the Escrow Agent and any other person or entity may act upon the same without any further duty of inquiry as to the genuineness of the writing.


2.4 Effectiveness. The authorizations of the Representative shall be irrevocable and effective until his rights and obligations under this Agreement terminate by virtue of the termination of any and all of the obligations of the Centrum Shareholders, Centrum and 3Com under this Agreement.


2.5 Liability of Representative. In performing his functions hereunder and under the Plan, the Representative will not be liable in any manner whatsoever to the Centrum Securityholders.


2.6 Successors. At any time during the term of this Agreement, the Centrum Securityholders who together held a majority of the Centrum Shares immediately prior to the closing of the Merger can appoint a new Representative by written consent by sending notice and a copy of the written consent appointing such new Representative, duly signed by sufficient Centrum Securityholders, to 3Com and the Escrow Agent. Such appointment will be effective upon the later of the date indicated in the consent or the date such consent is received by 3Com and the Es ...