AMENDED AND RESTATED SECURITY ESCROW AGREEMENT
THIS AMENDED AND RESTATED ESCROW AGREEMENT (this "Agreement") made and
entered into as of May 15, 1998, among Xxxxxxx X. XxXxxxx and Xxxxxx X. Xxxxxx
(herein referred to individually as a "Security Holder" and collectively as the
"Security Holders"), Baron Capital Trust (the "Trust"), Baron Capital
Properties, L.P. (the "Partnership") and American Stock Transfer & Trust Company
(the "Escrow Agent").
WITNESSETH THAT:
A. Each Security Holder is owner of the number of units of limited
partnership interest ("Units") in the Partnership, an affiliate of the Trust,
listed opposite his name on Exhibit A attached hereto which he acquired in
exchange for his initial capital contribution to the Partnership and other
consideration.
B. The Trust has registered with the Securities and Exchange Commission
(the "Commission") 2,500,000 Common Shares of the Trust pursuant to a Form SB-2
Registration Statement in connection with the proposed public offering of such
Common Shares for cash (the "Cash Offering"), and the Partnership will apply for
registration of 2,500,000 Units in the Partnership (which Units may be exchanged
for an equivalent number of Common Shares as described in the Prospectus
contained in the Form SB-2 Registration Statement), pursuant to a Form S-4
Registration Statement in connection with the proposed public exchange offering
of Units (the "Exchange Offering"). As a condition of such registrations, the
Security Holders, the Escrow Agent, the Trust and the Partnership agree to be
bound by this Agreement.
C. Each Security Holder has deposited with the Escrow Agent a certificate
representing the number of Units listed opposite his name on Exhibit A, and the
Escrow Agent hereby acknowledges receipt thereof. Such Units, together with any
Common Shares of the Trust into which the Units may be converted in accordance
with this Agreement, are herein collectively referred to as "Escrowed Shares."
NOW THEREFORE, the parties hereto agree as follows:
1. Deposit of Certificates. Simultaneously with the execution of this
Agreement, each Security Holder has deposited with the Escrow Agent, and the
Escrow Agent hereby acknowledges receipt of, a certificate representing the
Escrowed Shares owned by the respective Security Holder. Escrowed Shares
comprised of Units are exchangeable into an equivalent number of Common Shares
of the Trust in accordance with the terms of the Declaration of Trust of the
Trust (the "Declaration of Trust") and the Agreement of Limited Partnership of
the Partnership (the "Partnership Agreement"), as they may be amended from time
to time. The number of Units comprising the Escrowed Shares deposited with the
Escrow Agent was determined based upon the assumption that the Cash Offering and
Exchange Offering would each be fully subscribed, and is intended to evidence
the ownership by each Security Holder of nine and one-half percent (9-1/2%) of
the Common Shares outstanding after completion of the
Cash Offering and exchange by the Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited partnerships
(including any exchange completed pursuant to the Exchange Offering), calculated
on a fully diluted basis assuming all then outstanding Units (other than those
to be acquired by the Trust) have been exchanged into an equivalent number of
Common Shares. Copies of certificates representing the Escrowed Shares are
attached hereto as Exhibit B.
2. Term. The term of this Agreement and of the escrow provided herein shall
commence on the date that the Cash Offering is declared effective by the
Commission. The certificates evidencing the securities are to be deposited with
the Escrow Agent and are to be held until their release pursuant to paragraph 3
of this Agreement.
3. Release of Escrowed Shares.
3.1 Return of Excess Units and Common Shares. On May 14, 1999, (the "Share
Determination Date"), the Chief Financial Officer of the Partnership shall
certify to the Escrow Agent the number of Units and/or Common Shares comprising
the Escrowed Shares, as the case may be, which are in excess of the number to
which the Security Holders are entitled under the Subscription Agreement dated
as of February 3, 1998 among the Security Holders, the Partnership and the
Trust, and shall simultaneously deliver to the Escrow Agent replacement
certificates evidencing ownership by the Security Holders of the proper number
of Units and/or Common Shares. Upon receipt of such certification and
replacement certificates, the Escrow Agent shall return the certificates
representing the original Escrowed Shares to the Partnership and the replacement
certificates shall thereupon be deemed to represent the Escrowed Shares for all
purposes hereunder.
3.2 Release to the Security Holders. The Escrowed Shares owned by each
Security Holder shall be released to such Security Holder as set forth below,
and once released from escrow hereunder, Escrowed Shares shall no longer be
subject to the terms and conditions of this Agreement:
a. 25% of the Escrowed Shares shall be released from escrow on the sixth,
seventh, eighth, and ninth anniversary dates of the effectiveness of
the Cash Offering; or
b. 100% of the Escrowed Shares shall be released from escrow after the
Trust has had annual net earnings per share according to generally
accepted accounting principles ("GAAP") equal to at least 5% of the
public offering price (after taxes and excluding extraordinary items)
for any two consecutive fiscal years following the date of
effectiveness of the Cash Offering; or
2
c. 100% of the Escrowed Shares shall be released from escrow after the
Trust has had average annual net earnings per share according to GAAP
(after taxes and excluding extraordinary items) equal to at least 5%
of the public offering price, for any five consecutive fiscal years
following the date of effectiveness of the Cash Offering; or
d. 100% of the Escrowed Shares shall be released from escrow after the
Trust's Common Shares have traded on a national stock exchange at a
price equal to at least 175% of the initial public offering price for
at least 90 consecutive trading days following the first anniversary
of the date of effectiveness of the Cash Offering.
3.2.1 Documentation to Escrow Agent Regarding Release of Escrowed Shares to
Security Holders. A request for termination of the escrow, based on the
satisfaction of the conditions described in paragraphs 3.2.a, 3.2.b, 3.2.c or
3.2.d above, shall be forwarded by each Security Holder to the Escrow Agent. A
request for termination of the escrow based upon satisfaction of the conditions
described in paragraph 3.2.b or 3.2.c. shall be accompanied by an earnings per
share calculation audited and reported on by an independent certified public
accountant retained by the Trust. A request for termination of the escrow based
upon satisfaction of the conditions described in paragraph 3.2.d shall be
accompanied by evidence of the stock price conditions provided therein.
3.3. Terminated or Partial Offerings. The foregoing notwithstanding, the
Escrowed Shares will be released by the Escrow Agent:
a. If the Cash Offering and the Exchange Offering have been terminated
and no securities were sold or exchanged thereunder; or
b. If the Cash Offering is terminated without sale of the minimum
offering amount required to complete the offering and all proceeds
have been returned to investors in such offering.
4. Restriction on Transfer. The Escrowed Shares may be transferred by will,
or pursuant to the laws of descent and distribution, or through appropriate
legal proceedings, but in all cases the Escrowed Shares shall remain in escrow
and subject to the terms of this Agreement until released pursuant to paragraph
3 above. Upon the death of the holder of any Escrowed Shares, the Escrowed
Shares of the deceased holder may be hypothecated, subject to all of the terms
of this Agreement, to the extent necessary to pay the expenses (including,
without limitation, tax liabilities) of the estate. The Escrowed Shares may be
transferred by gift to family members, provided that the Escrowed Shares shall
remain subject to the terms of this Agreement. The Escrowed Shares may not be
pledged to secure a debt except as noted above.
3
5. Voting Rights. The Security Holders shall be entitled to exercise all
voting rights in respect of the Escrowed Shares owned by him to which the owners
of non-escrowed Units or Common Shares, as the case may be, are entitled;
provided however that until the Share Determination Date, a Security Holder
shall only be entitled to vote those Units and/or Common Shares owned by him and
held in escrow hereunder which, when added to all non-escrowed Units and Common
Shares owned by him, represent nine and one-half percent (9-1/2%) of the Common
Shares then issued and outstanding, calculated on a fully diluted basis assuming
all then outstanding Units (other than those to be acquired by the Trust) have
been exchanged into an equivalent number of Common Shares.
6. Dividends and Distributions.
6.1 Payment to Escrow Agent. Any dividends paid on Common Shares and/or
distributions paid with respect to Units while they are held in escrow hereunder
shall be paid to the Escrow Agent by check or wire transfer by the Trust or the
Partnership, respectively. Until the Share Determination Date, dividends and
distributions shall only be paid with respect to those Escrowed Shares which a
Security Holder would be entitled to vote under paragraph 5 hereof. The Escrow
Agent shall invest such dividends and distributions and interest earned thereon
in an interest-bearing account. Until the Escrowed Shares are released to the
Security Holders pursuant to paragraph 3 of this Agreement, the Escrow Agent
shall treat dividends and distributions paid on the Escrowed Shares and interest
earned thereon (less amounts thereof required under paragraph 6.3 hereof to pay
tax obligations of the Security Holders in respect of Escrowed Shares owned by
them and held in escrow hereunder) as assets of the Trust or the Partnership, as
the case may be, available for distribution under the terms and conditions set
forth in paragraph 10 below.
6.2 Release to the Security Holders with Escrowed Shares. Dividends and
distributions paid on the Escrowed Shares and interest earned thereon while the
Escrowed Shares are held in escrow thereunder (less amounts thereof required
under paragraph 6.3 hereof to pay tax obligations of the Security Holders in
respect of Escrowed Shares owned by them and held in escrow hereunder) shall be
disbursed to the Security Holders together with Escrowed Shares released from
the escrow pursuant to paragraph 3, in an amount proportionate to the number of
Escrowed Shares so released in relation to the number of Escrowed Shares held in
escrow hereunder immediately prior to such disbursement.
6.3 Payment of Tax Obligations on Dividends. At the written request of the
Independent Trustees (identified on Exhibit D hereto, as it may be amended from
time to time), the Escrow Agent shall deliver a check or wire transfer to each
Security Holders each year out of the dividends and distributions paid on the
Escrowed Shares and interest earned thereon held in escrow hereunder, in an
amount equal to the tax due from such Security Holder on such dividends,
distributions and interest.
4
7. Stock Dividends or Splits. Stock dividends on, and shares resulting from
stock splits of, the Escrowed Shares shall be delivered to the Escrow Agent and
held pursuant to this Agreement. In the event of any stock dividend, stock split
or recapitalization of the Partnership or the Trust, any rights or duties
described in terms of a per share requirement in this Agreement shall be
adjusted appropriately.
8. Additional Shares. Upon the exercise by a Security Holder of any
conversion rights, warrants or options to acquire additional Units or Common
Shares earned by reason of his ownership of Escrowed Shares under any agreement
now effective or coming into effect during the term of the escrow hereunder,
such additional Units or Common Shares received by the Security Holder shall
forthwith be deposited in escrow with the Escrow Agent and shall be subject to
the terms and conditions of this Agreement.
9. Right to Convert Units into Common Shares. Each Security Holder shall
have the right to convert Units which are subject to the escrow hereunder into
Common Shares at any time conversion is permitted under the Declaration of Trust
and the Partnership Agreement; provided, however, that until the Share
Determination Date occurs, only Units which a Security Holder would be entitled
to vote pursuant to paragraph 5 above may be so converted. Security Holders may
exercise their conversion rights by notifying the Escrow Agent of such
conversions and such conversion shall be effected immediately upon the Escrow
Agent's receipt of such notice. Upon each conversion and any partial release of
Escrowed Shares under this Agreement, the Escrow Agent shall immediately revise
Exhibit A to reflect the number of Common Shares and Units which remain subject
to this Agreement.
10. Dissolution Preference. Subject to the limitations set forth below,
each Security Holder agrees in the event of dissolution, liquidation, merger,
consolidation, sale of assets, exchange, or any transaction or proceeding ( a
"Capital Event") that results in the distribution or sale of all or
substantially all of the assets of the Partnership or the Trust, to defer
receipt of and subordinate the economic benefits to which he would otherwise be
entitled by reason of his ownership of the Units and Common Shares held in
escrow hereunder on the effective date of such an event, in favor of any
original purchasers in the Cash Offering or the Exchange Offering which have
remained the holders of Common Shares or Units, until such original purchasers
have received, or have had irrevocably set aside for them, cash, securities, or
assets of any other kind (including, without limitation, any dividends and/or
distributions of any of the foregoing paid to the original investors prior to
the capital event) with an aggregate value at least equal to 100% of their
initial public offering price per Common Share or Unit, adjusted for stock
splits and stock dividends. Thereafter, the Security Holders shall participate
on a pro rata basis. No transferee from an original purchaser other than by
reason of descent shall have benefit of this provision. No original purchaser of
Units or Common Shares in the Exchange Offering or the Cash Offering, as the
case may be, shall have benefit of this provision if such purchaser voted in
favor of the Capital Event at a meeting held for such purpose, unless the
Security Holders also voted in favor of such Capital Event. The Escrow Agent
shall act in accordance with the written direction of the Independent Trustees
(whose determination shall be conclusive) in respect of the
5
holders of Units and Common Shares which shall be entitled to the benefits of
this Section 10 and the amount of any such benefits.
11. Reliance by Escrow Agent. The Escrow Agent may conclusively rely on,
and shall be protected, when its acts in good faith upon, any statement,
certificate, notice, request, consent, order or other document which it believes
to be genuine and signed by the proper party. The Escrow Agent shall have no
duty or liability to verify any such statement, certificate, notice, request,
consent, order or other document and its sole responsibility shall be to act
only as expressly set forth in this Agreement. The Escrow Agent shall be under
no obligation to institute or defend any action, suit or proceeding in
connection with this Agreement unless it is indemnified to its reasonable
satisfaction. The Escrow Agent may consult counsel with respect to any question
arising under this Agreement and the Escrow Agent shall not be liable for any
action taken, or omitted, in good faith upon advice of counsel. In performing
any of its duties hereunder, the Escrow Agent shall not incur any liability to
anyone for any damages, losses or expenses except those which arise out of the
Escrow Agent's willful default or negligence, and it shall accordingly not incur
any such liability with respect to: (i) any action taken or omitted in good
faith upon advice of its counsel or counsel of the Trust given with respect to
any questions relating to the duties and responsibility of the Escrow Agent
under this Agreement, or (ii) any action taken or omitted in reliance upon any
instrument, including written advice provided for herein, not only as to its due
execution and the validity and effectiveness of its provisions, but also as to
the truth and accuracy of any information contained therein, which the Escrow
Agent shall in good faith believe to be genuine, to have been signed or
presented by a proper person or persons, and to conform with the provisions of
this Agreement. All Escrowed Shares and funds held pursuant to this Agreement
shall constitute trust property. The Escrow Agent shall not be liable for any
interest on the Escrowed Shares.
12. Compensation to Escrow Agent. The Escrow Agent shall be entitled to
receive from the Trust reasonable compensation for its services as set forth in
Exhibit B attached hereto. In the event that the Escrow Agent renders any
additional services not provided for herein, or if any controversy arises
hereunder, or if the Escrow Agent is made a party to, or intervenes in any
action, suit or proceeding pertaining to this Agreement, it shall be entitled to
receive from the Security Holders or at the option of the Escrow Agent, the
Trust, reasonable compensation for such additional services.
13. Qualification and Independence of Escrow Agent. The Trust and each of
the Security Holders hereby represent that a complete list of its respective
officers and members of the Board of the Board is attached hereto as Exhibit D.
Based thereon, the Escrow Agent hereby represents and warrants that it is not
affiliated with the Trust, the Security Holders or any of their respective
officers or directors.
14. Indemnification. The Trust and each Security Holder agrees to hold the
Escrow Agent harmless from, and indemnify the Escrow Agent for, any and all
costs of investigation or claims, costs, expenses, reasonable attorney fees or
other liabilities or disbursements arising out
6
of any administrative investigation or proceeding or any litigation, commenced
or threatened, relating to this Agreement, including without limitation, the
implementation of this Agreement, the distribution of stock or funds, the
investment of funds, the interpretation of this Agreement or similar matters,
provided that the Escrow Agent shall not be indemnified for any costs of
investigation or claims, costs, expenses, attorney fees or other liability
arising from its bad faith or negligence or that of any of its employees,
officers, directors or agents; and further provided that the Escrow Agent shall
look first to the Trust, its assets, and the assets subject to escrow, before
seeking recourse under this indemnity against the Security Holders.
15. Scope. This Agreement shall be binding upon, and inure to the benefit
of, the parties hereto and their respective heirs, successors and assigns.
16. Termination. Except for the indemnification provisions of paragraph 14
above, which shall survive in any event, this Agreement shall terminate in its
entirety when all the Escrowed Shares have been released as provided in
paragraph 3 above.
17. Substitute Escrow Agent. The Escrow Agent may, upon not less than 60
days prior written notice to the Trust and the Security Holders, resign as the
Escrow Agent. The Trust and the Security Holders shall, before the effective
date of the Escrow Agent's resignation, mutually agree upon and appoint a
successor Escrow Agent. If the Trust and the Security Holders fail to agree upon
a successor Escrow Agent at least 10 days prior to the date of resignation, an
impasse shall be deemed to exist, at which time the Independent Trustees shall
have the right to select the successor Escrow Agent. Pending resolution of the
impasse and selection of the successor Escrow Agent, the Escrow Agent then
serving under this Agreement shall continue to serve as the Escrow Agent, but
shall have no liability for its actions other than for gross negligence or acts
amounting to criminal misconduct.
18. Notice of Non-liability. Under the Delaware Business Trust Act and
Sections 3.3 and 3.4 of the Declaration of Trust, neither the Shareholders, the
Trustees nor any other members of the Board of the Trust shall be personally
liable hereunder, and the Escrow Agent expressly agrees to look solely to the
Trust's property for the satisfaction of any claims hereunder against the Trust
or the Security Holders.
[balance of page intentionally left blank]
7
IN WITNESS WHEREOF, the Security Holders, the Trust and the Escrow Agent
have entered into this Agreement as of the date first above written, in multiple
counterparts, each of which shall be considered an original.
SECURITY HOLDERS:
/s/ Xxxxxxx X. XxXxxxx
---------------------------------
Xxxxxxx X. XxXxxxx
/s/ Xxxxxx X. Xxxxxx
---------------------------------
Xxxxxx X. Xxxxxx
TRUST:
BARON CAPITAL TRUST
By: /s/ Xxxxxxx X. XxXxxxx
-----------------------------
Xxxxxxx X. XxXxxxx
Chief Executive Officer
PARTNERSHIP:
BARON CAPITAL PROPERTIES, L.P.
By: /s/ Xxxxxxx X. XxXxxxx
-----------------------------
Xxxxxxx X. XxXxxxx
Chief Executive Officer
ESCROW AGENT:
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------
Xxxxxxx X. Xxxxxx
Vice President
8
EXHIBIT A
Number of Units
Name of Security Holder Originally Placed in Escrow*
----------------------- ---------- -----------------
Xxxxxxx X. XxXxxxx 601,080
Xxxxxx X. Xxxxxx 601,080
* The number of Units originally placed in escrow is based upon the assumed full
subscription of the Cash Offering and exchange by the Partnership of 2,500,000
Units for units of limited partnership interest in real estate limited
partnerships completed by May 14, 1999. On that date, a calculation will be made
as to whether the Security Holders received excess Escrowed Shares, and if so,
such excess Escrowed Shares will be released from escrow and canceled. Pending
this determination, voting rights as well as distribution payments will be
limited as set forth in this Agreement.
EXHIBIT B
ESCROWED SHARE CERTIFICATES
EXHIBIT C
COMPENSATION OF ESCROW AGENT
One-time only fee of $1,000.00.
EXHIBIT D
LIST OF OFFICERS AND MEMBERS OF THE BOARD OF THE TRUST
Name of Officer and
Member of the Board Position
------------------- --------
Xxxxxxx X. XxXxxxx Chief Executive Officer
Xxxxxx X. Xxxxxx Chief Operating Officer
Baron Advisors, Inc. Member of the Board
Xxxxx X. Xxxxxx Member of the Board (Independent Trustee)
Xxxxx X. Xxxxxxx Member of the Board (Independent Trustee)
