ESCROW AGREEMENT
AGREEMENT, dated as of the th day of August, 1997 and effective as
of the Effective Date, as defined herein, by and among American Stock Transfer &
Trust Company, a New York corporation (hereinafter referred to as the "Escrow
Agent"), Tekgraf, Inc., a Delaware corporation (the "Company"), and the
stockholders of the Company who have executed this agreement (hereinafter
collectively called the "Stockholders").
WHEREAS, the Company contemplates a public offering ("Public
Offering") of units ("Units"), each Unit consisting of one share of its Class A
Common Stock, par value $.001 per share (the "Class A Common Stock"), and one
redeemable Class A Warrant (the "Class A Warrant") through X. X. Xxxxx
Investment Banking Corp., as managing underwriter (the "Underwriter") pursuant
to a Registration Statement (the "Registration Statement") on Form S-1 filed
with the Securities and Exchange Commission ("SEC"); and
WHEREAS, the Stockholders have agreed to deposit in escrow an
aggregate of 200,000 shares of Class B Common Stock (hereinafter referred to
collectively with the Class A Common Stock, as "Common Stock), upon the terms
and conditions set forth herein.
In consideration of the mutual covenants and promises herein
contained, the parties hereto agree as follows:
1. The Stockholders and the Company hereby appoint American Stock
Transfer & Trust Company as Escrow Agent and agree that the Stockholders will,
prior to the filing of the Registration Statement relating to the Public
Offering, deliver to the Escrow Agent to hold in accordance with the provisions
hereof, certificates representing an aggregate of 200,000 shares of Common Stock
owned of record by the Stockholders in the respective amounts set forth on
Exhibit A hereto (the "Escrow Shares"), together with stock powers executed in
blank. The Escrow Agent, by its execution and delivery of this Agreement, hereby
acknowledges receipt of the Escrow Shares and accepts its appointment as Escrow
Agent to hold the Escrow Shares in escrow, upon the terms, provisions and
conditions hereof.
2. This Agreement shall become effective upon the date on which the
Securities and Exchange Commission declares effective the Registration Statement
("Effective Date") and shall continue in effect until the earlier of (i) the
date specified in paragraph 4(e) hereof or (ii) the distribution by the Escrow
Agent of all of the Escrow Shares in accordance with the terms hereof (the
"Termination Date"). The period of time from the Effective Date until the
Termination Date is referred to herein as the "Escrow Period."
3. During the Escrow Period, the Escrow Agent shall receive all of
the money, securities, rights or property distributed in respect of the Escrow
Shares then held in escrow, including any such property distributed as dividends
or pursuant to any stock split,
merger, recapitalization, dissolution, or total or partial liquidation of the
Company, such property to be held and distributed as herein provided and
hereinafter referred to collectively as the "Escrow Property."
4. (a) The Escrow Shares are subject to release to the Stockholders
only in the event the conditions set forth herein are met. The Escrow Agent,
upon notice to such effect from the Company as provided in paragraph 5 hereof,
shall deliver the Escrow Shares, together with stock powers executed in blank,
and the Escrow Property deposited in escrow with respect to such Escrow Shares,
to the respective Stockholders, if, and only if, one of the following conditions
is met:
(i) the Company's net income before provision for Federal, state
and local income taxes (the "Minimum Pretax Income") equals or
exceeds $8,700,000 for the fiscal year ending December
31,1998; or
(ii) the Minimum Pretax Income equals or exceeds $17,900,000 for
the fiscal year ending December 31,1999; or
(iii) The Closing Price (as defined herein) of the Company's Common
Stock shall average in excess of $13.50 per share for any 30
consecutive business days during the period commencing on the
Effective Date and ending 18 months from the Effective Date;
or
(iv) The Closing Price (as defined herein) of the Company's Common
Stock shall average in excess of $16.75 per share for any 30
consecutive business days during the period commencing on the
19 month after the Effective Date and ending 36 months from
the Effective Date.
(b) As used in this Section 4, the term "Closing Price" shall be subject
to adjustments in the event of any stock dividend, stock distribution, stock
split or other similar event and shall mean:
(i) If the principal market for the Common Stock is a national
securities exchange or the Nasdaq National Market, the closing
sales price of the Common Stock as reported by such exchange
or market, or on a consolidated tape reflecting transactions
on such exchange or market; or
(ii) if the principal market for the Common Stock is not a national
securities exchange or the Nasdaq National Market and the
Common Stock is quoted on the Nasdaq SmallCap Market, the
closing bid price of the Common Stock as quoted on the Nasdaq
SmallCap Market; or
(iii) if the principal market for the Common Stock is not a national
securities exchange or the Nasdaq National Market and the
Common Stock is not
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quoted on the Nasdaq SmallCap Market, the closing bid for the
Common Stock as reported by the National Quotation Bureau,
Inc. ("NQB") or at least two market makers in the Common Stock
if quotations are not available from NQB but are available
from market makers.
(c) The determination of Minimum Pretax Income shall be determined by the
Company's independent public accountants in accordance with U.S. generally
accepted accounting principles provided that such determination is calculated
exclusive of any extraordinary earnings or charges (including any charges
incurred by the Company in connection with the release from escrow of the Escrow
Shares and any Escrow Property in respect thereof pursuant to the provisions of
this paragraph 4).
(d) In the event of any issuance (such issuance being herein called a
"Change of Shares") of additional shares of Common Stock (or securities
convertible into or exchangeable for Common Stock without the payment of
additional consideration, referred to as "Convertible Securities") after the
Effective Date, then each of the Minimum Pretax Income amounts set forth in
subparagraph (a) above shall be increased to an amount (the "Adjusted Minimum
Pretax Income") calculated in accordance with the formula set forth in
subparagraph (ii) below.
(i) For purposes of the foregoing paragraph, a Change of Shares
shall exclude shares of Common Stock sold in the Public
Offering or Common Stock or Convertible Securities issued in
connection with a stock split or stock dividend or
distribution but shall include any shares of Common Stock or
Convertible Securities that are issued upon the exercise of
the Class A Warrants, the Class B Warrants or any other
options or warrants outstanding as of the Effective Date or
granted after the Effective Date by the Company (excluding
options granted under the Company's 1997 Stock Option Plan
which, in the aggregate, do not exceed 10% of the then
outstanding shares of Common Stock and Convertible Securities,
including Escrow Shares).
(ii) Each Adjusted Minimum Pretax Income amount shall be calculated
by multiplying the applicable Minimum Pretax Income amount
prior to the Change of Shares by a fraction, the numerator of
which shall be the weighted average number of shares of Common
Stock outstanding during the fiscal year for which the
determination is being made (including the Escrow Shares and
any shares of Common Stock issuable upon conversion of any
Convertible Securities, but excluding treasury stock), and the
denominator of which shall be the sum of (x) the number of
shares of Common Stock outstanding on the Effective Date
(including the Escrow Shares and any shares of Common Stock
issuable upon conversion of Convertible Securities outstanding
immediately prior to the Effective Date) plus (y) the number
of shares of Common Stock sold by the Company pursuant to the
Prospectus included in the Registration
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Statement, after adjustment for any stock dividends, stock
splits or similar events. The Adjusted Minimum Pretax Income
amounts shall be calculated successively whenever such a
Change of Shares occurs.
(e) After each adjustment of the Minimum Pretax Income amounts pursuant to
this Section 4, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Minimum Pretax Income amounts as so adjusted, and (ii) a statement showing in
detail the calculation of the adjustment in the Minimum Pretax Income amounts
and the facts upon which such adjustment is based. The Company will promptly
file such certificate with the Escrow Agent and furnish a copy thereof to be
sent no later than thirty (30) days after the adjustment by ordinary first class
mail to the Underwriter and to the Stockholders at their respective addresses
set forth on Exhibit A hereto. The Company will, upon the written request at any
time of the Underwriter, furnish to the Underwriter a report by Coopers &
Xxxxxxx LLP, or other independent public accountants of recognized national
standing (which may be the regular auditors of the Company) selected by the
Company to verify such computation and setting forth such adjustment and showing
in detail the method of calculation and the facts upon which such adjustment is
based. The Company will also keep copies of all such certificates and reports at
its principal office.
(f) If the Escrow Agent has not received the notice provided for in
Paragraph 5 hereof and delivered all of the Escrow Shares and related Escrow
Property in accordance with the provisions of this Paragraph 4 on or prior to
March 31, 2001, the Escrow Agent shall deliver the certificates representing all
Escrow Shares, together with stock powers executed in blank, and any related
Escrow Property to the Company to be placed in the Company's treasury for
cancellation thereof as a contribution to capital. After such date, the
Stockholders shall have no further rights as a stockholder of the Company with
respect to any of the cancelled Escrow Shares.
5. Upon the occurrence or satisfaction of any of the events or
conditions specified in Paragraph 4 hereof, the Company shall promptly give
appropriate notice to the Escrow Agent, the Underwriter (and if the transfer
agent of the Company's Common Stock is different from the Escrow Agent, such
transfer agent) and present such documentation as is reasonably required by the
Escrow Agent to evidence the satisfaction of such conditions.
6. It is understood and agreed by the parties to this Agreement as
follows:
(a) The Escrow Agent is not and shall not be deemed to be a
trustee for any party for any purpose and is merely acting as a depository and
in a ministerial capacity hereunder with the limited duties herein prescribed.
(b) The Escrow Agent does not have and shall not be deemed to
have any responsibility in respect of any instruction, certificate or notice
delivered to it or of the Escrow Shares or any related Escrow Property other
than faithfully to carry out the obligations
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undertaken in this Agreement and to follow the directions in such instruction or
notice provided in accordance with the terms hereof.
(c) The Escrow Agent is not and shall not be deemed to be
liable for any action taken or omitted by it in good faith and may rely upon,
and act in accordance with, the advice of its counsel without liability on its
part for any action taken or omitted in accordance with such advice. In any
event, its liability hereunder shall be limited to liability for gross
negligence, willful misconduct or bad faith on its part.
(d) The Escrow Agent may conclusively rely upon and act in
accordance with any certificate, instruction, notice, letter, telegram,
cablegram or other written instrument believed by it to be genuine and to have
been signed by the proper party or parties.
(e) The Company agrees (i) to pay the Escrow Agent's
reasonable fees and to reimburse it for its reasonable expenses including
attorney's fees incurred in connection with duties hereunder and (ii) to save
harmless, indemnify and defend the Escrow Agent for, from and against any loss,
damage, liability, judgment, cost and expense whatsoever, including counsel
fees, suffered or incurred by it by reason of, or on account of, any
misrepresentation made to it or its status or activities as Escrow Agent under
this Agreement except for any loss, damage, liability, judgment, cost or expense
resulting from gross negligence, willful misconduct or bad faith on the part of
the Escrow Agent. The obligation of the Escrow Agent to deliver the Escrow
Shares to either the Stockholders or the Company shall be subject to the prior
satisfaction upon demand from the Escrow Agent, of the Company's obligations to
so save harmless, indemnify and defend the Escrow Agent and to reimburse the
Escrow Agent or otherwise pay its fees and expenses hereunder.
(f) The Escrow Agent shall not be required to defend any legal
proceeding which may be instituted against it in respect of the subject matter
of this Agreement unless requested to do so by the Stockholders and indemnified
to the Escrow Agent's satisfaction against the cost and expense of such defense
by the party requesting such defense. If any such legal proceeding is instituted
against it, the Escrow Agent agrees promptly to given notice of such proceeding
to the Stockholders and the Company. The Escrow Agent shall not be required to
institute legal proceedings of any kind.
(g) The Escrow Agent shall not, by act, delay, omission or
otherwise, be deemed to have waived any right or remedy it may have either under
this Agreement or generally, unless such waiver be in writing, and no waiver
shall be valid unless it is in writing, signed by the Escrow Agent, and only to
the extent expressly therein set forth. A waiver by the Escrow Agent under the
term of this Agreement shall not be construed as a bar to, or waiver of, the
same or any other such right or remedy which it would otherwise have on any
other occasion.
(h) The Escrow Agent may resign as such hereunder by giving 30
days written notice thereof to the Stockholders and the Company. Within 20 days
after receipt of such notice, the Stockholders and the Company shall furnish to
the Escrow Agent written instructions
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for the release of the Escrow Shares and any related Escrow Property (if such
shares and property, if any, have not yet been released pursuant to Paragraph 4
hereof) to a substitute Escrow Agent which (whether designated by written
instructions from the Stockholders and the Company jointly or in the absence
thereof by instructions from a court of competent jurisdiction to the Escrow
Agent) shall be a bank or trust company organized and doing business under the
laws of the United States or any state thereof. Such substitute Escrow Agent
shall thereafter hold any Escrow Shares and any related Escrow Property received
by it pursuant to the terms of this Agreement and otherwise act hereunder as if
it were the Escrow Agent originally named herein. The Escrow Agent's duties and
responsibilities hereunder shall terminate upon the release of all shares then
held in escrow according to such written instruction or upon such delivery as
herein provided. This Agreement shall not otherwise be assignable by the Escrow
Agent without the prior written consent of the Company.
7. The Stockholders shall have the sole power to vote the Escrow
Shares and any securities deposited in escrow under this Agreement while they
are being held pursuant to this Agreement.
8. (a) Each of the Stockholders agrees that during the term of this
Agreement he will not sell, transfer, hypothecate, negotiate, pledge, assign,
encumber or otherwise dispose of any or all of the Escrow Shares set forth
opposite his name on Exhibit A hereto, unless and until the Company shall have
given the notice as provided in Paragraph 5. This restriction shall not be
applicable to transfers upon death, by operation of law, to the Company, to
family members of the Stockholders or to any trust for the benefit of the
Stockholders, provided that such transferees agree to be bound by the provisions
of this Agreement.
(b) The Stockholders will take any action necessary or
appropriate, including the execution of any further documents or agreements, in
order to effectuate the transfer of the Escrow Shares to the Company if required
pursuant to the provisions of this Agreement.
9. Each of the certificates representing the Escrow Shares will bear
legends to the following effect, as well as any other legends required by
applicable law:
(a) "The sale, transfer, hypothecation, negotiation, pledge,
assignment, encumbrance or other disposition of the shares
evidenced by this certificate are restricted by and are
subject to all of the terms, conditions and provisions of a
certain Escrow Agreement entered into among [UNDERWRITER],
[Company] and its Stockholders, dated as of _________, 199_, a
copy of which may be obtained from the [Company]. No transfer,
sale or other disposition of these shares may be made unless
specific conditions of such agreement are satisfied.
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(b) "The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended. No
transfer, sale or other disposition of these shares may be
made unless a registration statement with respect to these
shares has become effective under said act, or the Company is
furnished with an opinion of counsel satisfactory in form and
substance to it that such registration is not required."
Upon execution of this Agreement, the Company shall direct the
transfer agent for the Company to place stop transfer orders with respect to the
Escrow Shares and to maintain such orders in effect until the transfer agent and
the Underwriter shall have received written notice from the Company as provided
in Paragraph 5.
10. Each notice, instruction or other certificate required or
permitted by the terms hereof shall be in writing and shall be communicated by
personal delivery, fax or registered or certified mail, return receipt
requested, to the parties hereto at the addresses set forth below, or at such
other address as any of them may designate by notice to each of the others:
(i) If to the Company, to:
Tekgraf, Inc.
0000 Xxxxxxx Xxxxx, Xxxxx X
Xxxxxxxx, Xxxxxxx 00000
(ii) If to the Stockholders to their respective addresses as set
forth on Exhibit A hereto.
(iii) If to the Escrow Agent, to:
American Stock Transfer & Trust Company
00 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(iv) If to the Underwriter, to:
X.X. Xxxxx Investment Banking Corp.
00 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Att: Xxxxxx X. Xxxx, Esq.
Fax: 000-000-0000
All notices, instructions or certificates given hereunder to the Escrow Agent
shall be effective upon receipt by the Escrow Agent. All notices given hereunder
by the Escrow Agent shall be effective and deemed received upon personal
delivery or transmission by fax or, if mailed, five (5) calendar days after
mailing by the Escrow Agent.
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A copy of all communications sent to the Company, the Stockholders
or the Escrow Agent shall be sent by ordinary mail to Bachner, Tally, Xxxxxxx &
Xxxxxx LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000, Attention: Xxxx Xxxxxxx,
Esq.
11. Except as set forth in paragraph 12 hereof, this Agreement may
not be modified, altered or amended in any material respect or cancelled or
terminated except with the prior consent of the holders of all of the
outstanding shares of Common Stock of the Company.
12. In the event that (i) the Registration Statement is not declared
effective by the SEC within one year from the date of the filing of the
Registration Statement with the SEC or (ii) the Public Offering is not
consummated within twenty-five (25) days of the Effective Date of the
Registration Statement, this Agreement shall terminate and be of no further
force and effect and the Escrow Agent, upon written notice from both the Company
and the Underwriter in accordance with paragraph 10 hereof of such termination,
will return the Escrow Shares and any Escrow Property in respect thereof to the
Stockholders.
13. This Agreement shall be governed by and construed in accordance
with the laws of New York and shall be binding upon and inure to the benefit of
all parties hereto and their respective successors in interest and assigns.
14. This Agreement may be executed in several counterparts, which
taken together shall constitute a single instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers on the day and year first above
written.
TEKGRAF, INC.
By:
-------------------------------
Xxxxxxx Xxxxxxx, President
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By:
-------------------------------
STOCKHOLDERS:
Xxxxx, Ltd.
By:
------------------------------- -----------------------------------
Xxxxxx X. Xxxxxx
----------------------------------- -----------------------------------
Xxx Xxxxxx A. Xxxxxx Xxxxxxxxx
----------------------------------- -----------------------------------
Xxxxx Xxxxxx Xxxxxxx Xxxxxxxxx
----------------------------------- -----------------------------------
Xxxxxxxx X. Xxxxxxxx Xxxx Xxxxxx
----------------------------------- -----------------------------------
Xxxxxxx X. Xxxxxxx Xxxxx X. Xxxxxxxx
----------------------------------- -----------------------------------
J. Xxxxxx Xxxxxxx Xxxx X. Xxxxxxxxx
----------------------------------- -----------------------------------
Xxxxxxx X. Xxxxxx Xxxxxxx X. Xxxxxxx
----------------------------------- -----------------------------------
Xxxxxx X. Xxxx Xxxxxx X.X. Xxxxx
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-----------------------------------
Xxxxxxxx Xxxxx
-----------------------------------
E. Xxxxxxx Xxxxx
-----------------------------------
Xxxxxxxxxxx X. Xxxxx
-----------------------------------
Xxxxxxx X. XxXxxxxxxx
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EXHIBIT A
STOCKHOLDERS' LIST
Name and Address
Stock
of Stockholder (1) Certificate
No. Number of Escrow Shares
[Tier 1] [Tier 2]
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