Exhibit 99.1
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") is made and entered into as of this
14th day of November, 2002 (the "Effective Date"), by and among 1st Atlantic
Guaranty Corporation, a Maryland corporation ("1st Atlantic"), Xxxx X. Xxxxxxxx,
an individual residing in the State of Maryland ("Xxxxxxxx"), and Xxxxx & Xxxxx,
a Texas partnership, as escrow agent ("Agent") (individually hereinafter, a
"Party" and collectively hereinafter, the "Parties").
WHEREAS, Xxxxxxxx owns 7,500,000 shares (the "Shares"), constituting his
entire ownership of 1st Atlantic's outstanding capital stock, all of which is
designated as common stock, par value $0.01 per share, and accordingly, has the
ability to control and direct the actions of 1st Atlantic; and
WHEREAS, 1st Atlantic owns one hundred percent (100%) of the outstanding
membership interests in State Bond & Mortgage Company, L.L.C., a Maryland
limited liability company ("State Bond"), and accordingly, has the ability to
control and direct the actions of State Bond; and
WHEREAS, State Bond owns one hundred percent (100%) of the outstanding
capital stock, all of which is designated as common stock, par value $1.00 per
share, of SBM Certificate Company, a Maryland corporation ("Company") and
accordingly, has the ability to control and direct the actions of the Company,
and
WHEREAS, 1st Atlantic, State Bond, and the Company have asserted claims
against Xxxxxxxx based on his direct or indirect participation in certain
transactions in which he involved one or more of the aforesaid Parties; and
WHEREAS, the amount of the aforesaid claims, including estimated expenses,
and the transactions from which they arise have been communicated to Xxxxxxxx
through his counsel; and
WHEREAS, Xxxxxxxx disputes the aforesaid claims and has asserted certain
claims for reimbursement against 1st Atlantic, State Bond and the Company; and
WHEREAS, the Parties have agreed that to achieve satisfactory resolution
of the aforesaid claims Xxxxxxxx initially will relinquish control over 1st
Atlantic, State Bond, and the Company by placing his Shares in an escrow account
("Escrow") and relinquish his voting rights associated with the Shares; and
WHEREAS, the Parties agree that Xxxxxxxx shall place his Shares in Escrow
and relinquish his aforesaid voting rights, subject to the terms of this
Agreement.
Now, therefore, it is hereby agreed as follows:
5
1. TERMS OF THE ESCROW
1.1 Transfer of Shares to Agent. Pursuant to this Agreement, Xxxxxxxx
shall transfer and deliver to the Agent as soon as practicable all certificates
which represent the Shares and shall do all things necessary and appropriate for
the transfer of the Shares to the Agent. The Escrow created hereby shall be
irrevocable and shall terminate or be amended only as provided for herein.
1.2 1st Atlantic Board To Vote Stock. During the term of this Agreement,
the Board of Directors of 1st Atlantic (the "Board") shall have the full power
and authority to vote the Shares as in its judgment may be in the best interest
of 1st Atlantic, as well as in the best interests of State Bond and the Company,
in the circumstances of this Agreement. The Board shall have no obligation to
follow any instruction of Xxxxxxxx if such instruction is contrary to the terms
of this Agreement, except that the Board shall not vote the Shares on any matter
that would prejudice the financial interest of Xxxxxxxx represented by the
Shares unless the Board in the exercise of its fiduciary obligations to holders
of face-amount certificates issued by 1st Atlantic or the Company is required
to, or determines that it must, first act in the best interest of such holders.
1.3 Board Liability. The Board shall use its best judgment in voting the
Shares, but shall not be liable for any vote cast, or consent given by them, in
good faith, and in the absence of gross negligence. The Board may delegate any
administrative duties, but may not delegate voting or other responsibilities
requiring substantive decisions.
1.4 Vote Required. The approval of any matter upon which the Shares are
voted on by the Board shall require the favorable vote of a majority of the
directors serving on the Board, including a majority of the directors who are
not "interested persons" under the Investment Company Act of 1940, as amended
("1940 Act")
1.5 Dividends. During the term of this Agreement, Xxxxxxxx shall not be
entitled to receive payments of cash dividends or other distributions, if any,
collected or received by the Agent upon the Shares held in Escrow. Any such cash
dividends or other distributions shall be delivered to the Agent in its capacity
as such, and deposited in a bank account and/or bank lock box in the name of the
Agent, for ultimate disposition in settlement of any claims as to which Xxxxxxxx
may remain liable as contemplated in Section 2.3(d) hereof.
(a) Stock. In the event that the Agent shall receive, as a dividend
or other distribution upon the Shares held by the Agent under this Agreement,
any shares of stock or securities convertible into stock, the Agent shall hold
the same, as set forth above in this Section 1.5, and said shares or securities
convertible to stock shall be subject to all the terms and conditions of this
Agreement to the same extent as if originally transferred hereunder.
(b) Other Distributions. In the event that, at any time during the
term of this Agreement, the Agent shall receive or collect any monies or
property (other than shares of common stock or securities convertible into
common stock) that are not payments of cash dividends, the Agent shall hold any
such distributions as though they were cash dividends or stock distributions
subject to the terms set forth above in this Section 1.5.
6
1.6 Agent's Indemnity. The Agent shall be entitled to be indemnified fully
out of the monies and properties coming to its hands against all costs, charges,
expenses, not to exceed $5,000 without prior approval by the Parties, and other
liabilities properly incurred by it in the exercise of any power conferred upon
it by this Agreement. In the event that the monies and property collected by the
Agent are insufficient, Xxxxxxxx shall hold harmless and keep indemnified the
Agent of and from all loss and damage which it may sustain or be put to by
reason of anything the Agent may lawfully do in the execution of this Agreement.
1.7 Termination.
(a) Unless otherwise provided by written agreement of the Parties
this Agreement shall terminate, without any action or notice by 1st Atlantic,
Xxxxxxxx or the Agent, with respect to the Shares upon the earlier of (A) the
sale of all of the Shares for cash and/or marketable securities that are
"qualified investments" under the 1940 Act, as determined by the Board; (B) the
acquisition of 1st Atlantic by another corporation or entity by consolidation,
merger, share exchange, or other reorganization, in a transaction that would
result in the payment of the type of consideration described in (A); or (C) any
transfer of Shares by Xxxxxxxx (including without limitation a transfer
resulting from a merger, consolidation, share exchange, or other reorganization
involving 1st Atlantic, or a sale of all or substantially all of 1st Atlantic's
assets) in a transaction that would result in the payment of the type of
consideration described in (A), such that Xxxxxxxx will no longer have any
ownership interest in 1st Atlantic, State Bond or the Company; provided,
however, that any transaction contemplated by (A), (B) or (C) shall be on terms
acceptable to 1st Atlantic's Board of Directors consistent with its duties under
the 1940 Act and the best interests of the holders of 1st Atlantic's and the
Company's face-amount certificates. Further, any such sale or disposition shall
be to an independent third party that has no affiliation with Xxxxxxxx.
(b) Xxxxxxxx shall have the option of terminating the Agreement in
the case of a violation of Sections 1.2, 1.5, 2.1, 2.2, and 2.5 by 1st Atlantic
and/or its Board, but only after providing 1st Atlantic with notice and five (5)
business days to cure such a violation;.
(c) The Agent's resignation or inability to serve as Agent shall not
terminate this Agreement and any successor-in-interest Agent shall be deemed to
have immediately succeeded an incumbent Agent following its resignation, or
inability to serve.
(d) Upon termination of this Agreement with respect to any Shares
upon the events described in subsection (a) above, the Agent shall deliver the
Shares in accordance with the terms of any event described in subsection (a)
above, together with any transfer, exchange, sale, or similar documents to be
executed by Xxxxxxxx.
(e) After the termination of this Agreement as herein provided, all
further obligations or duties of the Agent under this Agreement thereof shall
cease.
2. TERMS AND CONDITIONS
2.1 1st Atlantic.
(a) During the term of this Agreement, 1st Atlantic shall use its
best efforts to:
7
(i) deliver or cause to be delivered, to Xxxxxxxx:
(A) promptly after the filing by the Company of its Form 10-Q
quarterly reports with the Securities and Exchange Commission ("SEC"), a copy of
the Form 10-Q quarterly reports so filed, together with comparable financial
statements reflecting 1st Atlantic's financial results for such quarterly
period;
(B) promptly after the filing by the Company with the SEC of
its Form 10-K annual report, a copy of the Form 10-K annual report so filed,
together with comparable unaudited financial statements for 1st Atlantic for the
period covered in the Company's Form 10-K annual report;
(C )any and all reports, information, data or other materials
distributed by the Company or 1st Atlantic to their respective Boards, except
for information relating to Xx. Xxxxxxxx or the potential resolution of any
disputes with Xx. Xxxxxxxx, simultaneously with any distribution of such
materials to their respective Boards or as soon as practicable thereafter;
(D) within a reasonable time (for purposes of this Agreement,
two (2) business days shall be deemed a reasonable time, unless otherwise agreed
to by the Parties), such other information and data, including financial
information, as Xxxxxxxx may from time to time reasonably request.
(ii) promptly notify Xxxxxxxx if 1st Atlantic or the Company
receives or becomes aware of any inquiry from a prospective purchaser regarding
the purchase of the Shares or any acquisition of 1st Atlantic's or the Company's
assets or capital stock or any other offer to acquire all or substantially all
of 1st Atlantic's or the Company's assets or capital stock (including via
merger, consolidation, share exchange or other reorganization) (a "Purchase
Offer");
(iii) have the Board of Directors of either 1st Atlantic or
the Company, as the case may be, evaluate any bona fide Purchase Offer to assure
that such Purchase Offer is on terms that are fair to 1st Atlantic, the Company,
and Xxxxxxxx. Fairness of the terms may be determined by a recognized investment
banking firm designated by the Boards of Directors of 1st Atlantic and the
Company, and acceptable to Xxxxxxxx. In the event that a fairness opinion is
requested by any Party, the cost of such opinion is to be borne by the
requesting Party. Furthermore, the consummation of any Purchase Offer shall be
subject to, among other usual and customary conditions to such transactions, the
receipt of an opinion of counsel that the transaction will not violate
applicable federal and state securities laws, or other applicable provisions of
laws and regulations; and
(iv) cooperate fully with the request of any bona fide
prospective purchaser of any of 1st Atlantic's or the Company's assets or
capital stock, including, without limitation, providing such prospective
purchaser with reasonable access to 1st Atlantic's and the Company's business,
financial and other records and making complete due diligence disclosures as
requested.
8
(b) Notwithstanding anything to the contrary herein, during the term
of this Agreement, 1st Atlantic shall not, without the prior consent of
Xxxxxxxx, not to be unreasonably withheld or delayed:
(i) issue any additional shares of its capital stock or
securities convertible into its capital stock or any other debt or equity
securities; or
(ii) transfer, sell, convey, assign or otherwise dispose of
any assets of 1st Atlantic or the Company, other than in the ordinary course of
business.
2.2 Board:
(a) During the term of this Agreement, the Board shall:
(i) vote the Shares (or consent to any act of 1st Atlantic) in
the same manner and to the same extent as if it was the absolute owner of the
Shares in its own right as first established in, and consistent with, Section
1.2; and
(ii) promptly notify Xxxxxxxx of any shareholder matter or
proposal that is submitted by 1st Atlantic for a vote or written consent in
respect to the Shares.
(b) During the term of this Agreement, the Board shall not, without
the prior written consent of Xxxxxxxx, not to be unreasonably withheld or
delayed, vote the Shares so as to approve:
(i) the issuance of any additional shares of capital stock or
other equity securities of 1st Atlantic or its subsidiaries; or
(ii) the transfer, sale or conveyance, assignment or other
disposition of any assets of 1st Atlantic or its subsidiaries, other than in the
ordinary course of business.
2.3 Xxxxxxxx
(a) Upon the execution of this Agreement by the Parties, Xxxxxxxx
will immediately tender his resignations from the Boards of Directors of 1st
Atlantic and the Company, respectively, effective the Effective Date of this
Agreement.
(b) Xxxxxxxx shall undertake diligently and actively efforts to sell
the Shares for cash or dispose of the Shares in a transaction contemplated by
(A), (B) or (C) of subsection (a) of Section 1.7.
(c) Xxxxxxxx shall have 60 days from the Effective Date of this
Agreement to sell or dispose of the Shares. If Xxxxxxxx is engaged in good faith
efforts to sell his Shares, at the end of the initial 60 day period, the Board
will extend the period for another 30 days with any further extensions granted
at the discretion of the Board. In the event Xxxxxxxx has received a bona fide
offer from an independent third-party purchaser within the aforesaid period, but
the transaction has not yet been completed, the Board will allow a reasonable
additional period of time of not less than 30 days for the transaction to close.
9
(d) The proceeds of any sale or other disposition of the Shares in a
transaction contemplated by (A), (B) or (C) of subsection (a) of Section 1.7, or
in any other sale or disposition of the Shares that the Board may otherwise
approve, shall, immediately upon the closing of any such transaction, be
delivered to the Agent and paid over to 1st Atlantic to satisfy the claims of
1st Atlantic, State Bond and the Company against Xx. Xxxxxxxx as described in
Section 2.5. Any excess of such proceeds over the amount of such claims shall be
paid to Xxxxxxxx upon closing. Xxxxxxxx, however, shall remain liable to 1st
Atlantic, State Bond and/or the Company for the amount of their respective
claims, and for the total of such claims, if the proceeds of any sale or
disposition of the Shares, as aforesaid, are not sufficient to satisfy all of
such claims. Claims that arise after the initial time period described in
Section 2.5 will be subject to the same resolution procedures should there by
any disputes as to the amount of those later claims.
(e) Xxxxxxxx acknowledges and agrees that 1st Atlantic, State Bond
and the Company may independently engage in efforts to locate a party, or
parties, who may be interested in acquiring the Shares on terms not inconsistent
with this Agreement.
2.4 Agent. The Agent's sole function under this Agreement is to act as the
escrow agent for the Shares, including any dividends or distributions thereon,
and to act in accordance with Section 1.7(c) and any other terms of this
Agreement applicable to the Agent.
2.5 The Claims Against Xxxxxxxx. In determining the amount of the claims
of 1st Atlantic, State Bond and the Company against Xxxxxxxx for purposes of
Section 2.3(d), the Parties will work in good faith and provide supporting
documentation in an effort to agree on the amount of such claims not later than
two weeks from the Effective Date. Should the Parties be unable to agree as to
the amount of such claims, a neutral third party agreeable to the Parties will
be appointed to determine such amount as soon as practicable. In the event that
the Parties cannot agree, each Party will choose its own person within 2
business days and those two persons will choose the neutral third party within
two business days. In any event, the cost of such a third party will be split
evenly by Xx. Xxxxxxxx and 1st Atlantic.
3. MISCELLANEOUS
3.1 Notices. Any notices to be given pursuant to this Agreement shall be
in writing and shall be given by certified or registered mail, return receipt
requested. Notices shall be deemed given (i) upon personal delivery, (ii) upon
deposit with the U.S. Post Office, by registered or certified mail, postage
prepaid, or (iii) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt, provided that any notice sent pursuant to clauses (ii) and (iii) hereof
shall be addressed to the addressees of the respective Party or Parties as set
forth on the signature pages hereto or on any counterpart signature page
executed by a transferee of the Shares, or to such changed address as any Party
may notify the others pursuant hereto, except that a notice of change of address
shall be deemed given when received.
3.2 Amendment. Any amendment to this Agreement shall be made in writing
and be executed by all the Parties.
10
3.3 Severability. The terms and provisions of this Agreement shall be
deemed severable, and if any term or provision of this Agreement, or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement shall nevertheless be
valid and enforced to the fullest extent permitted by law in a manner so as to
effectuate the intent of the Parties hereto.
3.4 Waiver. No failure or delay of any Party in exercising any right or
power given to it under this Agreement shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall constitute a
waiver of any prior, concurrent or subsequent breach. No waiver of any breach or
modification of this Agreement shall be effective unless contained in a writing
executed by the Parties.
3.5 Governing Law. This Agreement is executed and has been delivered in
Maryland, and shall be construed and enforced in accordance with the laws of the
State of Maryland. The Parties agree that any division of the United States
District Court of the State of Maryland and any court of competent jurisdiction
in Xxxxxxxxxx County, Maryland shall have jurisdiction and venue in any
proceeding instituted to enforce this Agreement.
3.6 Enforcement. The Parties acknowledge and agree that in the event of a
breach of this Agreement, remedies at law will be inadequate, and each of the
Parties hereto shall be entitled to specific performance of the obligations of
the other Parties hereto and to such appropriate injunctive relief as may be
granted by a court of competent jurisdiction.
3.7 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Parties hereto, their permitted successors and assigns,
respective heirs, and personal representatives.
3.8 Entire Agreement. The above, together with all the exhibits hereto,
represents this Agreement in its entirety, no changes or modifications may be
made unless agreed to in advance by the Parties in writing.
3.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first set forth above.
1ST ATLANTIC:
1ST ATLANTIC GUARANTY
CORPORATION,
a Maryland corporation
By: /s/ Xxxx X. Xxxxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxxxx
Title: President
Address:
0000 Xxxxx Xxxx, Xxxxx 000
Xxxxxxxx, Xx 00000
11
XXXXXXXX:
By: /s/ Xxxx X. Xxxxxxxx
-----------------------------------
Xxxx X. Xxxxxxxx
Address:
X.X. Xxx 000
Xxxxxxxxxxx, XX
00000
AGENT:
Xxxxx & Xxxxx
By: /s/ Xxxxxxx Xxxxx
-----------------------------------
Name Xxxxxxx Xxxxx
Address:
0000 Xxxxxxxxxxxx Xxx., XX,
00xx Xxxxx
Xxxxxxxxxx, X.X. 00000
12
