CASH COLLATERAL ESCROW AGREEMENT
CASH COLLATERAL ESCROW AGREEMENT (this "AGREEMENT"), dated as of July
__, 2005, by and among UTIX Group, Inc., a Delaware corporation (the "COMPANY"),
Xxxxxxx Xxxx LLP (the "ESCROW AGENT"), and the parties who have executed this
Agreement as the Purchasers set forth on the signature pages hereto
(individually, a "PURCHASER," and collectively, the "PURCHASERS").
WHEREAS:
A. Concurrently herewith, and at certain times hereafter, the Company
and Purchasers are entering into those certain Securities Purchase Agreements
(the "PURCHASE AGREEMENTS"), a form of which is annexed hereto as EXHIBIT A,
pursuant to which the Company is to issue to the Purchasers its twelve percent
(12%) Convertible Promissory Notes in the original aggregate principal amount of
$1,350,000 (collectively, the "PROMISSORY NOTES"); and
B. Subsequent to the execution and delivery of this Agreement and the
Purchase Agreements, the Company expects to complete a best efforts offering of
certain of the Company's Series A Convertible Preferred Stock (the "PREFERRED
STOCK"), or any other of the Company's securities offered in lieu thereof,
resulting in gross proceeds of up to $9 million (a "QUALIFIED OFFERING"); and
C. It is a condition precedent to the Purchasers purchasing the
Promissory Notes that the Company shall have executed this Agreement to
establish an escrow account into which the initial $1,552,500 received by the
Company from the Qualified Offering will be deposited and made available to the
Purchasers for payment of the Promissory Notes.
D. The Escrow Agent agrees to serve as escrow agent in accordance with
the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. ESTABLISHMENT OF ESCROW ACCOUNT. Concurrently with the execution of
this Agreement, the Company shall establish a non-interest bearing escrow
account with the Escrow Agent, which escrow account shall be entitled "UTIX
Group, Inc. Cash Collateral Account" (the "ESCROW ACCOUNT").
2. IRREVOCABLE INSTRUCTIONS. Prior to the completion of the Qualified
Offering the Company shall execute irrevocable instructions to the underwriter,
if applicable, directing the underwriter to deliver, from the proceeds of the
Qualified Offering, the Cash Collateral (as that term is defined herein) to the
Escrow Agent.
3. DEPOSIT OF FUNDS. Each time the Company receives proceeds from the
Qualified Offering, the Company shall deliver to the Purchaser and the Escrow
Agent a certificate setting forth the date when it received such proceeds, which
certificate shall be attached as EXHIBIT B (each date it receives proceeds a
"SALE DATE"). The Company agrees that they shall, by noon of the next business
day after each Sale Date, deliver to the Escrow Agent for deposit in the Escrow
Account $1.15 for each $1.00 of then outstanding principal amount of the
Promissory Notes, to the extent such Promissory Notes have not been converted by
the holders thereof, upon funding of the Escrow Account (the "CASH COLLATERAL")
from the proceeds received from the Qualified Offering.
4. ESCROW PERIOD. This Escrow Agreement shall begin upon the date
hereof and shall terminate (the "TERMINATION DATE") on the earlier of: (i)
receipt by the Escrow Agent of a notice, executed by the Company and each of the
Purchasers that the Purchase Agreement has been terminated; (ii) payment in full
of the Promissory Notes by the Company; (iii) disbursement to the Purchasers of
all of the Cash Collateral as set forth in Section 5 below; or (iv) the
conversion of the full amount of the Promissory Notes by the Purchasers into
shares of Common Stock (as defined in the Promissory Note) of the Company. In
the event of termination under clauses (ii), (iii) or (iv) the Company and
Purchasers shall provide written notice of termination to the Escrow Agent.
5. DISBURSEMENT FROM THE ESCROW ACCOUNT.
(a) At any time, and from time to time prior to the Termination Date, a
Purchaser may deliver to the Escrow Agent written notice (a "NOTICE OF PAYMENT,"
to be in the form annexed as EXHIBIT C) that it has elected to have, all or any
portion of, its Promissory Note repaid from the Cash Collateral in lieu of
converting the Promissory Note into shares of the Company's Common Stock (such
Purchaser, a "NOTIFYING PURCHASER"). If the Purchaser shall elect to have the
entire unpaid amount of the Promissory Note repaid, the original Promissory Note
shall accompany such Notice of Payment. The Notice of Payment shall be delivered
by the Notifying Purchaser to the Escrow Agent by 5:00 p.m. New York time. The
Escrow Agent shall send the Notice of Payment to the Company by the end of the
next business day accompanied by the original Promissory Note, if applicable.
The Notice of Payment shall specify the dollar amount to be released by the
Escrow Agent. The Company shall have two (2) business days from the transmission
of the Notice of Payment by the Escrow Agent to object in writing to the dollar
amount to be released (a "NOTICE OF OBJECTION"). A Notice of Objection shall be
delivered to the Escrow Agent and the Notifying Purchaser. Any undisputed
amounts shall be released by the Escrow Agent to the Notifying Purchaser. If the
Company fails to provide the Escrow Agent and Notifying Purchaser with a Notice
of Objection within such time, then the Company shall be deemed to have waived
any objections and directed Escrow Agent to release the amount requested in the
Notice of Payment to the Notifying Purchaser. The Company's sole basis for any
objection hereunder shall be prior payment to the Notifying Purchaser by the
Company of the full amount due under the Promissory Note or prior conversion in
full by the Notifying Purchaser of its Promissory Note. In the event of a Notice
of Objection, the Company and the Notifying Purchaser shall have two (2)
business days to agree on a dollar amount to be released to the Notifying
Purchaser and provide written notice of such agreement to the Escrow Agent. In
the event that the Company and the Notifying Purchaser cannot agree on a dollar
amount to be released within such time, then the Company shall commence a legal
action in the appropriate state or federal court in the State and County of New
York, within five (5) business days of the transmittal of the Notice of Payment
by the Escrow Agent to the Company. If the Company does not commence such legal
action within five (5) business days (a "COMPANY ACTION"), the Escrow Agent
shall release the dollar amount stated in the Notice of Payment to the Notifying
Purchaser and the Company's objection shall be deemed withdrawn and waived with
prejudice. If the Escrow Agent
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does not receive a Notice of Objection within the time period set forth above,
the Escrow Agent shall deliver payment of the amount requested in the Notice of
Payment to the Notifying Purchaser no later than the third Business Day
following the transmittal to the Company of the Notice of Payment.
(b) If a timely Company Action is commenced pursuant to paragraph 5(a)
of this Section, then and only then, the Escrow Agent shall continue to hold the
amount requested in a Notice of Payment to which the Company Action relates (the
"DISPUTED AMOUNT") until such time as the Escrow Agent shall receive (i) written
instructions jointly executed by the Notifying Purchaser and the Company
directing the release of all or any portion of the Disputed Amount, or (ii) a
certified copy of a judgment, order or decree of a court of competent
jurisdiction directing the Escrow Agent to release all or any portion of the
Disputed Amount requested in the Notice of Payment to any party hereto or as
such judgment, order or decree shall otherwise specify (including any such order
directing the Escrow Agent to deposit all or any portion of the Disputed Amount
into the court rendering such order, pending determination of any dispute
between any of the parties). In addition, the Escrow Agent shall have the right
to deposit the Disputed Amount with a court of competent jurisdiction without
liability to any party if said dispute is not resolved within thirty (30) days
of receipt of any such notice of a Company Action.
(c) At any time, and from time to time prior to the Termination Date,
the Company may deliver to the Escrow Agent written notice (a "NOTICE OF
CONVERSION," to be in the form annexed as EXHIBIT D) that the Purchaser has
elected to convert all or any portion of its Promissory Note into shares of the
Company's Common Stock in lieu of having the Promissory Note repaid from the
Cash Collateral (such Purchaser, a "CONVERTING PURCHASER"). A copy of the
conversion notice delivered to the Company by the Purchaser shall be included
with the Notice of Conversion. The Escrow Agent shall send the Notice of
Conversion to the Converting Purchaser by the end of the next business day. The
Notice of Conversion shall specify the dollar amount to be released by the
Escrow Agent. The Converting Purchaser shall have two (2) business days from the
transmission of the Notice of Conversion by the Escrow Agent to object in
writing to the dollar amount to be released (a "NOTICE OF OBJECTION"). A Notice
of Objection shall be delivered to the Escrow Agent and the Company. If the
Converting Purchaser fails to provide the Escrow Agent and the Company with a
Notice of Objection within such time, then the Converting Purchaser shall be
deemed to have waived any objections and directed Escrow Agent to release the
amount requested in the Notice of Conversion to the Company. In the event of a
Notice of Conversion, the Company and the Converting Purchaser shall have two
(2) business days to agree on a dollar amount to be released to the Company and
provide written notice of such agreement to the Escrow Agent. In the event that
the Company and the Converting Purchaser cannot agree on a dollar amount to be
released within such time, then the Converting Purchaser shall commence a legal
action in the appropriate state or federal court in the State and County of New
York, within five (5) business days of the transmittal of the Notice of
Conversion by the Escrow Agent to the Converting Purchaser. If the Converting
Purchaser does not commence such legal action within five (5) business days (a
"PURCHASER ACTION"), the Escrow Agent shall release the dollar amount stated in
the Notice of Conversion to the Company and the Converting Purchaser's objection
shall be deemed withdrawn and waived with prejudice. In the event that the
Escrow Agent receives a Notice of Conversion (and does not receive any Notice of
Objection from the Converting Purchaser), by no later than the third Business
Day, the Escrow Agent shall reduce the Cash Collateral by the amount obtained by
multiplying the principal amount of the
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Promissory Note being converted by the Converting Purchaser by $1.15. By way of
example, should a Converting Purchaser elect to convert $100,000 of the
principal amount of the Promissory Note, upon delivery of the Notice of
Conversion to the Escrow Agent, the Cash Collateral shall be reduced by $115,000
and such amount shall be delivered to the Company by the Escrow Agent.
6. DUTIES AND OBLIGATIONS OF THE ESCROW AGENT.
(a) The parties hereto agree that the duties and obligations of the
Escrow Agent are only such as are herein specifically provided and no other. The
Escrow Agent's duties are as a depositary only, and the Escrow Agent shall incur
no liability whatsoever, except as a direct result of its willful misconduct or
gross negligence.
(b) The Escrow Agent may consult with counsel of its choice, and shall
not be liable for any action taken, suffered or omitted by it in accordance with
the advice of such counsel.
(c) The Escrow Agent shall not be bound in any way by the terms of any
other agreement to which the Purchasers, the Company or the underwriter (if
applicable) are parties, whether or not it has knowledge thereof, and the Escrow
Agent shall not in any way be required to determine whether or not any other
agreement has been complied with by the Purchasers, the Company, any underwriter
or any other party thereto. The Escrow Agent shall not be bound by any
modification, amendment, termination, cancellation, rescission or supersession
of this Agreement unless the same shall be in writing and signed jointly by the
Purchaser, the Company and any underwriter, and agreed to in writing by the
Escrow Agent.
(d) If the Escrow Agent shall be uncertain as to its duties or rights
hereunder or shall receive instructions, claims or demands which, in its
opinion, are in conflict with any of the provisions of this Agreement, it shall
be entitled to refrain from taking any action, other than to keep safely all
property held in escrow or to take certain action, until it shall jointly be
directed otherwise in writing by the Purchasers, the Company and any underwriter
or by a final judgment of a court of competent jurisdiction.
(e) The Escrow Agent shall be fully protected in relying upon any
written notice, demand, certificate or document which it, in good faith,
believes to be genuine. The Escrow Agent shall not be responsible for the
sufficiency or accuracy of the form, execution, validity or genuineness of
documents now or hereafter deposited hereunder, or of any endorsement thereon,
or for any lack of endorsement thereon, or for any description therein; nor
shall the 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.
(f) The Escrow Agent shall not be required to institute legal
proceedings of any kind and shall not be required to defend any legal
proceedings which may be instituted against it or in respect of the Cash
Collateral.
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(g) If the Escrow Agent at any time, in its sole discretion, deems it
necessary or advisable to relinquish custody of the Cash Collateral, it may do
so by delivering the same to any other escrow agent mutually agreeable to the
Purchasers, the Company and any underwriter, and if no such escrow agent shall
be selected within three days of the Escrow Agent's notification to the
Purchasers, the Company and any underwriter of its desire to so relinquish
custody of the Cash Collateral, then the Escrow Agent may do so by delivering
the Cash Collateral to the clerk or other proper officer of a court of competent
jurisdiction as may be permitted by law. The fee of any court officer shall be
borne by the Company. Upon such delivery, the Escrow Agent shall be discharged
from any and all responsibility or liability with respect to the Cash Collateral
and this Agreement and the Company shall promptly pay to the Escrow Agent all
monies which may be owed it for its services hereunder, including, but not
limited to, reimbursement of its out-of-pocket expenses pursuant to Section 7
below.
(h) Upon the performance of this Agreement, the Escrow Agent shall be
deemed released and discharged of any further obligations hereunder.
7. FEES AND EXPENSES. The Company shall pay all reasonable
out-of-pocket expenses paid or incurred by the Escrow Agent in the
administration of its duties hereunder, including, but not limited to, postage,
all outside counsel to the Escrow Agent and advisors' and agents' fees and all
taxes or other governmental charges, if any. The Company shall be responsible
for all of the fees or expenses due to the Escrow Agent pursuant to this Section
7 and the Company shall not pay these amounts from the funds contained in the
Escrow Account.
8. INDEMNIFICATION.
(a) The Company hereby indemnifies and holds free and harmless the
Escrow Agent from any and all losses, expenses, liabilities and damages
(including but not limited to reasonable attorney's fees, and amounts paid in
settlement) resulting from claims asserted by the Purchasers against Escrow
Agent with respect to the performance of any of the provisions of this
Agreement, provided that the Escrow Agent shall not be entitled to any indemnity
for any losses, damages, taxes, liabilities or expenses that directly result
from its willful misconduct or gross negligence.
(b) In the event of any legal action between the parties to this
Agreement to enforce any of its terms, the legal fees of the prevailing party
shall be paid by the party(ies) who did not prevail.
9. MISCELLANEOUS.
(a) All Notices of Payment, Notices of Objection, notices, requests,
demands and other communications hereunder shall be in writing, sent by
telecopier, upon proof of sending thereof to the following addresses:
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(i) If to the Company:
UTIX Group, Inc.
0 Xxx Xxxxxxx Xxxxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxxx, XX 00000
With copies to:
Xxxxxxx Xxxx LLP
00 Xxxx 00xx Xx., 00xx Xxxxx
Xxx Xxxx, XX 00000
(ii) If to the Purchasers:
At the addresses set forth on SCHEDULE A.
(iii) If to the Escrow Agent:
Xxxxxxx Xxxx LLP
00 Xxxx 00xx Xx., 00xx Xxxxx
Xxx Xxxx, XX 00000
or at such other address as any of the parties to this Agreement may hereafter
designate in the manner set forth above to the others.
(b) This Agreement shall be construed and enforced in accordance with
the law of the State of New York applicable to contracts entered into and
performed entirely within New York.
(c) This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
(d) This Agreement shall be binding upon and inure to the benefit of
the parties and their successors and permitted assigns. The assignment by a
party of this Agreement or any rights hereunder shall not affect the obligations
of such party under this Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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COUNTERPART SIGNATURE PAGE TO CASH COLLATERAL ESCROW AGREEMENT, DATED JULY __,
2005
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed the day and year first above written.
THE COMPANY:
UTIX GROUP, INC.
By:__________________________________
Name: Xxxxxxx X. Xxxx
Title: Chief Executive Officer and President
PURCHASER:
By:__________________________________
ESCROW AGENT:
XXXXXXX XXXX LLP
By:__________________________________
Name:
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EXHIBIT B
NOTICE OF RECEIPT OF
PROCEEDS FROM THE QUALIFIED OFFERING
To: __________________________________
__________________________________
__________________________________
UTIX Group, Inc., a Delaware corporation (the "Company") hereby
notifies ___________ (the "Purchaser") that the Company has received
$____________ from the sale of Preferred Stock in a Qualified Offering. Such
sale was completed on ___________, 200__ (the "Sale Date").
This Notice of Receipt of Proceeds shall further notify the Purchaser
that no later than noon of the business day following the Sale Date, the Company
delivered $__________ (the "Cash Collateral") from the proceeds of the Qualified
Offering to Xxxxxxx Xxxx LLP as the Cash Collateral Escrow Agent. The Cash
Collateral was delivered to the Cash Collateral Escrow Account in accordance
with the Cash Collateral Escrow Agreement dated July ____, 2005. The amount
delivered to the Cash Collateral Escrow Agent was determined by multiplying
$1.15 for each $1.00 in principal amount of the Promissory Notes (the
"Promissory Notes") executed in favor of the Purchaser.
As of the Sale Date, as set forth in the Cash Collateral Escrow
Agreement, the Purchaser may elect to have his Promissory Notes repaid from the
Cash Collateral in lieu of converting his Promissory Note into shares of common
stock, $0.001 par value of the Company.
___________________________
Xxxxxxx X. Xxxx
CEO and President
Burlington, Massachusetts
____________, 2005
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EXHIBIT C
NOTICE OF PAYMENT
(To be executed by the Registered Holder
in order to redeem the Promissory Notes)
The undersigned hereby irrevocably elects to receive $__________ of the
unpaid amount of the Promissory Note payable in cash from the Cash Collateral in
the Cash Collateral Escrow Account as set forth in the Cash Collateral Escrow
Agreement dated July ___, 2005. The undersigned is electing to have such portion
of the unpaid amount of the Promissory Note repaid from the Cash Collateral in
lieu of converting the Promissory Note into shares of the Company's common
stock, par value $0.001 per share, in accordance with the terms of the
Promissory Note. No fee will be charged to the Holder for any payments made
hereunder. A copy of the Promissory Note is attached hereto (or evidence of
loss, theft or destruction thereof). If the undersigned shall elect to have the
entire unpaid amount of the Promissory Note paid pursuant to this Notice of
Payment, the original Promissory Note shall accompany such Notice of Payment. If
the undersigned shall elect to only have a portion of the unpaid amount of the
Promissory Note paid pursuant to this Notice of Payment, the original Promissory
Note shall not accompany such Notice of Payment.
The undersigned hereby requests that the Escrow Agent release a dollar
amount equal to $_____________ to the undersigned either by check or wire
transfer as specified immediately below or, if additional space is necessary, on
an attachment hereto:
IF BY CHECK, TO THE FOLLOWING ADDRESS:
Name: _____________________________________________
_____________________________________________
Address:_____________________________________________
_____________________________________________
IF BY WIRE TRANSFER, IN ACCORDANCE WITH THE FOLLOWING WIRE TRANSFER
INSTRUCTIONS:
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
Date of Payment: _____________________________________________
Payment Amount: _____________________________________________
Signature: _____________________________________________
Name: _____________________________________________
Address: _____________________________________________
_____________________________________________
_____________________________________________
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EXHIBIT D
NOTICE OF CONVERSION
(To be executed by the Company
in order to reduce the Cash Collateral)
_____________________, a Purchaser of the Promissory Notes has hereby
elected to convert $__________ of the unpaid amount of the Promissory Note into
shares of the Company's common stock, par value $0.001 per share in lieu of
receiving payment in cash from the Cash Collateral. Therefore, in accordance
with the Cash Collateral Escrow Account as set forth in the Cash Collateral
Escrow Agreement dated July ___, 2005, the amount of the Cash Collateral in the
Cash Collateral Escrow Account shall be reduced by $_____________________.
The undersigned hereby requests that the Escrow Agent release a dollar
amount equal to $_____________ to the Company either by check or wire transfer
as specified immediately below or, if additional space is necessary, on an
attachment hereto:
IF BY CHECK, TO THE FOLLOWING ADDRESS:
Name: Utix Group, Inc.
---------------------------------------------
Address:_____________________________________________
_____________________________________________
_____________________________________________
IF BY WIRE TRANSFER, IN ACCORDANCE WITH THE FOLLOWING WIRE TRANSFER
INSTRUCTIONS:
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
Date of Payment: _____________________________________________
Payment Amount: _____________________________________________
Signature: _____________________________________________
Name: _____________________________________________
Address: _____________________________________________
_____________________________________________
_____________________________________________
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