ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") has been made and entered into
as of the day of June, 1996, by and among Affinity Entertainment, Inc. (the
"Seller" or "Affinity"), Baron Banker, Limited (the "Buyer" or "Baron Banker"),
each a "Party" and together the "Parties," and (the "ESCROW
AGENT").
WITNESSETH:
WHEREAS, pursuant to a Offshore Securities Deferred Subscription
Agreement dated June , 1996 (the "Subscription Agreement"), Seller has agreed to
sell to the Buyer four million (4,000,000) shares of the Common Stock of Seller
and (the "Shares") at ten dollars ($10.00) per share discounted at four percent
(4.0%) upon completion of the offering, payable in United States dollars for a
total consideration of forty million dollars ($40,000,000) subject to a $1.6
million discount if fully paid. The consideration is to be paid as set forth in
section 1 of the Subscription Agreement; and
WHEREAS, the Parties herein desire the Escrow Agent to hold and the
Escrow Agent is willing to hold such Shares until the Shares disbursed in
accordance with the terms of this Agreement and the Parties herein desire the
Escrow Agent to hold limited power of attorney over and the Escrow Agent is
willing to hold limited power of attorney over the Bank Account and the Margin
Accounts in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties, intending to be legally bound, agree as follows:
1. Preliminary Duties of the Parties.
a. Duties of Buyer. Upon receipt of the Memorandum of
Agreement from Affinity, Baron Banker shall do the following:
1. Establish a bank account, specifically for
this transaction, at Citibank, FSB in the
name of Baron Banker Limited and with the
Escrow Agent's Limited Power of Attorney,
for the following purposes:
i. to receive proceeds from margining
Affinity stock;
ii. to deposit funds from Baron Banker
Limited;
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iii. to distribute monthly payments to
Affinity;
iv. to receive senior bank instruments;
letters of credits; and standby
letters of credits to be converted
to cash; and
v. to make payments against expenses
incurred by this transaction (i.e.,
legal, accounting, interest, etc.).
The Bank Account shall require the signature of both
the Escrow Agent and Baron Banker before any
withdrawal or other transaction involving the Bank
Account may be made subject to the Limited Power of
Attorney (Exhibit B).
Upon establishment of the Bank Account, Baron Banker
will execute and deliver to the Escrow Agent a
limited power of attorney (Exhibit B) over the Bank
Account and shall deliver an executed and notarized
copy of such limited power of attorney to the Escrow
Agent. The Limited Power of Attorney shall not be
enforceable until, in the opinion of the Escrow
Agent, Baron Banker has defaulted under the terms of
this Agreement as outlined in Section 6 herein.
2. Establish margin accounts, specifically for
this transaction, at an acceptable brokerage
firm or bank, (the "Margin Accounts"), in
the name of Baron Banker Limited for the
following purposes:
i. to receive Shares to be held in
escrow pending the outcome of the
transaction;
ii. to borrow against the market value
of the stock;
iii. to hold margined funds on account;
iv. to receive other securities; and
v. to disburse payments.
The Margin Accounts shall require the signature of
both the Escrow Agent and Baron Banker before any
transaction involving the Margin Accounts may be made
subject to the Limited Power of Attorney (Exhibit C).
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Upon establishment of the Margin Accounts, Baron
Banker will execute and deliver to the Escrow Agent a
limited power of attorney (Exhibit C) over the Margin
Accounts and shall deliver an executed and notarized
copy of such limited power of attorney to the Escrow
Agent and the brokerage firm or margin house, if
requested. The Limited Power of Attorney shall not be
enforceable until, after giving notice to Baron
Banker and an opportunity to cure, in the opinion of
the Escrow Agent, Baron Banker has defaulted under
the terms of this Agreement as outlined in paragraph
6.
b. Duties of Seller. Upon receipt of the documents
required by Section 2 from the Escrow Agent, Affinity shall do the
following:
1. cause the stock to be issued and deposited
to Baron Banker account at an acceptable
brokerage firm or bank in such number of
shares and certificates as requested by
Baron, provided that the stock shall at all
times remain in certificate form;
2. promptly advise Baron Banker and Escrow
Agent that the deposit has been made.
2. Receipt of Documents by Escrow Agent.
a. Before the Shares are deposited with the Escrow Agent as
provided below, the following documents (the "Documents") will be deposited with
the Escrow Agent:
1. Escrow Agreement executed and notarized by each Party;
2. Limited Power of Attorney over brokerage and bank accounts
related to this transaction executed by Baron Banker and duly
notarized;
3. Offshore Securities Deferred Subscription Agreement executed
and duly notarized by each Party;
4. Proxy, and, or assignment of voting rights to the senior
management of Affinity by Baron Banker; and,
5. an executed and notarized Promissory Note in favor of Affinity
by Baron Banker.
6. Written confirmation from the Bank and Margin House(s) that
Baron Banker has established the Margin Accounts and Bank
Account as provided below, and that the signature of
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the Escrow Agent will be required to make transactions in
such accounts.
Upon receipt by the Escrow Agent of the Documents, the Escrow Agent will deliver
copies of the Documents to the Parties as set forth in Section 1(a)(2) of this
Agreement. Upon receipt of the Documents, Affinity will cause the Shares to be
issued and deposited in accordance with Section 1(b) above.
3. Administration of the Margin and Bank Accounts. Baron shall
administer the Bank Account and Margin Accounts established pursuant to this
Agreement in the following manner:
a. Upon receipt of notification that the Shares have been deposited in
the appropriate Margin Accounts in accordance with Section 1(b) above, Baron
shall direct the margin houses to margin the Shares. Baron shall disburse the
proceeds as follows:
1. $2,000,000 to Affinity as downpayment on the Stock
Purchase;
2. $120,000.00 to an acceptable brokerage firm or bank
for prepaid interest on margin accounts, except that
such amounts will not be paid if such payment will
place Baron in default as defined by Section 6(e) of
this Agreement;
3. $10,000.00 to Escrow Agent for legal and
auditing/accounting costs, except that such amounts
will not be paid if such payment will place Baron in
default as defined by Section 6(e) of this Agreement;
and,
4. $10,205,000.00 (the "Funds") deposited to the
transaction account at Citibank, FBA (the "Bank
Account");
x. Xxxxx Banker shall ensure that the Bank
Account maintain a balance of at least
$10,205,000 at all times. Accordingly, the
Funds deposited to the transaction account
may be disbursed only upon deposit into the
Bank Account of a one year senior bank
instrument(s), maturing at $10,205,000 or
more, from a "blue-chip" bank acceptable to
the bank purchasing such instrument for cash
(the "Purchasing Bank").
b. Upon deposit of the bank debenture
instrument(s), and provided that the balance
of Funds in the Bank Account shall equal or
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exceed $10,205,000, Baron Banker may
disburse operating expenses capital , but in
no event shall the amount of such operating
expenses capital exceed $205,000.; and
5. the remaining balance of the Margin Accounts (the
"Reserve Funds") will remain on reserve at the
brokerage account(s) and/or on deposit in the Bank
Account and can only be disbursed in exchange for a
bank instrument of equal or greater value in
subsequent months. The Escrow Agent shall have the
right to seize the Reserve Funds upon default by
Baron Banker.
x. Xxxxx Banker will make monthly disbursements from the
transaction account(s) on every monthly anniversary date as
follows:
1. $1,000,000 to Affinity on August 1, 1996 seventeen
consecutive monthly payments of $2,000,000 each
beginning on September 1, 1996, with a final payment
of Three Million Dollars ($3,000,000) subject to a
One Million Six Hundred Dollar ($1,600,000) discount
for complete satisfaction.
2. $10,000.00 to Escrow Agent for legal and
auditing/accounting costs, except that such amounts
will not be paid if such payment will place Baron in
default as defined by Section 6(e) of this Agreement;
and
3. $120,000.00 to the acceptable brokerage firm or bank
for prepaid interest on margin accounts, except that
such amounts will not be paid if such payment will
place Baron in default as defined by Section 6(e) of
this Agreement.
c. Upon deposit of an acceptable "bank instrument" into the Bank
Account, the Escrow Agent is authorized to disburse cash in
the amount of such bank to Baron Banker (the "Cash
Disbursement") provided that the Escrow Agent will ensure
that, at any time, there will be an instrument valued at
$10,205,000.00 or a minimum cash amount of $10,000,000.00
maintained on deposit at the Bank Account. The determination
of the acceptability of the instrument described above shall
be made by the Purchasing Bank.
4. Restrictions on Transfer.
a. The Parties agree that the Shares may not be
transferred by Baron Banker for a period of twenty-
three months from the date of this Agreement
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without the express written consent of Affinity.
b. In accordance with the above restriction, Baron
Banker shall not be permitted to transfer the Shares
into street name in order to facilitate the margining
of the Shares.
5. Termination of the Agreement.
The stock shall be returned to Affinity and the transaction
and agreement terminated in the event that the stock cannot be
margined for whatever reason.
6. Default. Baron Banker shall be deemed to have defaulted
in the event of any of the following:
a. Failure to meet its monthly obligation in this transaction after:
(i) being given proper notice by the Escrow Agent to
remedy the situation in 10 banking days; and
(ii) failing to do so;
b. Failure of Baron Banker to meet a margin call within three
business days notice of such margin call;
c. Failure to meet the margin requirements of Regulation T of the
Securities Exchange Act of 1934, as amended; or
d. Breach of the terms of the Offshore Securities Deferred
Subscription Agreement between the Baron and Affinity.
e. At any time when the sum of the cash paid to Affinity plus the
balance of cash or Bank Instrument in the Bank Account plus the
cash balance of the margin account is equal to or less than the
amount for which the Shares were margined.
f. Bankruptcy, insolvency, voluntary or otherwise by the Buyer or on
behalf of the Buyer (Baron Banker, Ltd.)
In the event of a default on the part of Baron Banker the Escrow Agent
shall, at the direction of Affinity, take the following action:
a. seize the Bank Account and all funds or instrument
contained therein related to this transaction and
disburse such amounts to Affinity; the obligator
shall pay to payee ("AFTY") all bank accounts, margin
accounts and fees and return the stock of
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Affinity as provided in the "Escrow Agreement" and
the "Unsecured Promissory Note."
b. seize the Margin Accounts and:
i. call or sell any guarantees, instruments or
securities (except Affinity Stock) in the
Margin Accounts and disburse the proceeds
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thereof to Affinity;
ii. use any funds remaining in the transaction
bank account, and/or brokerage account(s) and
proceeds from the sale of the above mentioned
instruments to:
a. settle the margin account(s);
b. redeem the Affinity Share
Certificates from the "margin
house;" and,
iii. return the shares, unencumbered to Affinity.
7. Final Payment and Cancellation. Upon disbursement of the
final payment to Affinity from the Bank Account, the Escrow Agent will request
delivery of the following:
copy of a letter addressed to the Escrow Agent canceling the escrow
agreement and all powers of attorney delivered in accordance therewith.
Upon receipt of notice of cancellation, the Escrow Agreement will be
cancelled and the Escrow Agent relieved of his duties herein.
8. Concerning the Escrow Agent.
a. Fees and Expenses. The Escrow Agent shall be entitled to
charge the agreed upon fees for its services hereunder. Escrow fees shall be
paid by the Buyer as provided herein.
b. Performance. The duties and responsibilities of the Escrow
Agent are limited to those specifically set forth herein. The Escrow Agent shall
not be liable for any mistake of fact or error of judgment made in good faith or
for any acts or omissions by it of any kind resulting from other than willful
misconduct or gross negligence. The Escrow Agent shall be entitled to rely, and
shall be protected in doing so, upon (i) any written notice, instrument or
signature believed by the Escrow Agent to be genuine and to have been signed or
presented by the proper Party or Parties duly authorized to do so, and (ii) the
advice of counsel (which may be of the Escrow Agent's own choosing). The Escrow
agent shall have no responsibility for the contents of any writing submitted to
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them hereunder and shall be entitled in good faith to rely without any liability
upon the contents thereof.
c. Indemnification of Escrow Agent Seller and Buyer jointly
and severally will indemnify and hold harmless the Escrow Agent against any
losses, claims, damages, liabilities and expenses, including reasonable costs of
investigation and counsel fees and disbursements that may be imposed on Escrow
Agent or incurred by Escrow Agent in connection with its acceptance of
appointment of the performance of its duties under this Agreement, including any
litigation arising from this Agreement or involving the subject matter hereof,
unless any such loss, claim, damage, liability or expense shall be the result of
Escrow Agent's gross negligence, willful default or breach of trust subject to
the bonding of the Escrow Agent in the amount of .
d. Change in the Escrow Agent. If, at any time for any reason
whatsoever, the Escrow Agent becomes unable or unavailable to perform his duties
under the Agreement, the Parties may agree to appoint a mutually acceptable
Escrow Agent to replace the original Escrow Agent.
8. MISCELLANEOUS.
a. Assignment. No party to this Escrow Agreement may assign
its rights and obligations hereunder without the prior written consent of the
other parties hereto.
b. Entire Agreement, Amendments. This Escrow Agreement
contains the entire understanding of the parties with respect to the subject
matter hereof, and may be amended only by a written instrument duly executed by
all the Parties hereto.
c. Notices. All notices, requests, demands and other
communication required or permitted under this Escrow Agreement shall be in
writing and shall be deemed to have been duly given when delivered (which shall
include delivery by Federal Express or facsimile) to the party from whom such
communication is intended, or ten (10) business days after the date mailed by
certified mail, return receipt requested, postage prepaid, addressed to the
party to whom such communication is intended.
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d. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, this Escrow Agreement has been duly executed and
delivered by the parties hereto as of the date first above written.
AFFINITY ENTERTAINMENT, INC. BARON BANKER LIMITED
(SELLER) (BUYER)
By: _________________________________ By: __________________________
Title: _______________________________ Title: _________________________
Date: ________________________________ Date: _________________________
(ESCROW AGENT)
By: _________________________________
Title: ______________________________
Date: _______________________________
