Exhibit 3(e)
Escrow Agreement
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated as of December 9,
1998, by and among Alottafun, Inc., a Delaware corporation (the "Company"),
Xxxxxx Xxxxxxxxxx & Xxxxxxxx, LLP (the "Escrow Agent") and the parties who have
executed this Agreement as the Purchasers (individually the "Purchaser" and
collectively, the "Purchasers).
Recitals
A. Simultaneously with the execution of this Agreement, the
Purchasers have entered into a Convertible Debenture Purchase Agreement, dated
as of the date hereof (the "Purchase Agreement"), pursuant to which the
Purchasers have agreed to purchase certain debentures (the "Debentures") of the
Company.
B. The Escrow Agent is willing to act as escrow agent pursuant
to the terms of this Agreement with respect to the Purchase Price (as defined in
the Purchase Agreement) to be paid for the Debentures and the delivery of one or
more debentures representing the Debentures registered in the names of the
Purchasers as set forth in the Purchase Agreement (the "Debentures" and,
together with the Ancillary Closing Documents (as defined below), of one or more
warrants representing the Warrants registered in the name of GEM Management Ltd.
or its assigns as set forth in the Purchase Agreement, the "Warrants") and with
respect to shares to be issued by the Company in respect of conversion of the
Debentures or the exercise of the Warrants, (collectively, the "Consideration").
C. Upon the closing of the transaction contemplated by the
Purchase Agreement (the "Closing") and the occurrence of an event described in
Section 2 below, the Escrow Agent shall cause the distribution of the Purchase
Price, Ancillary Closing Documents, the Debentures and the Warrants in
accordance with the terms of this Agreement.
D. All capitalized terms used but not defined herein shall
have the meanings ascribed thereto in the Purchase Agreement.
NOW, THEREFORE, IT IS AGREED:
1. Deposit of Consideration. (a) The Purchasers shall deposit with the Escrow
Agent a copy of the Purchase Agreement, and this Escrow Agreement or a
counterpart thereof, each executed by the Purchasers, and the Purchase Price.
The Company shall deliver to the Escrow Agent (i) the Purchase Agreement or a
counterpart thereof signed by the Company, (ii) this Escrow Agreement or a
counterpart thereof signed by the Company, (iii) certificates (in denominations
of no more than 50,000 and free of any restrictive legends) registered in the
names of the Purchasers representing a number of common shares of the Company
equal to 4,400,000, held for the purpose of honoring conversions by the
Purchasers of the Debentures (the "Debenture Escrow Shares"), rounded up to the
nearest 10,000 shares, (iv) the Debentures, registered in the names of the
Purchasers, (v) Common Stock Purchase Warrants for the purchase of 411,000
shares, registered in the name of GEM Management, Ltd., (vi) certificates (in
denominations of no more than 10,000 free of any restrictive legends) registered
in the name of Gem Management, Ltd. representing a number of common shares of
the Company equal to 411,000, held for the purpose of honoring the exercise of
the Common Stock Purchase Warrants, upon the completion of the purchase of
$400,000 of Debentures (the "Warrant Escrow Shares") (the Debenture Escrow
Shares and the Warrant Escrow Shares, collectively, the "Escrow Shares"),
rounded up to the nearest 10,000 shares and (vii) wiring instructions for
transfer of the Purchase Price by the Escrow Agent into an account specified by
the Company for such purpose. In addition, the Company shall deposit or cause to
be deposited with the Escrow Agent an opinion of the Company's counsel addressed
to the Purchasers in the form of Exhibit D attached to the Purchase Agreement
and the schedules to the Purchase Agreement (such opinion and schedules being
hereinafter referred to as the "Ancillary Closing Documents").
(i) The Purchase Price shall be delivered by the Purchasers to the
Escrow Agent by wire transfer to the following account:
Bank of New York 000 Xxxx 00xx Xxxxxx Xxx Xxxx, XX 00000 ABA#
000000000 Xxxxxx Gottbetter & Xxxxxxxx, LLP Acct# 0000000000
Reference: Alottafun, Inc.
(ii) The Debentures, Warrants, Escrow Shares and Ancillary Closing
Documents shall be delivered by the Company to the Escrow Agent at its address
for notice indicated in Section 5(a).
(b) Until termination of this Agreement as set forth in Section 2, all
additional Consideration paid by or which becomes payable between the Company
and the Purchasers shall be deposited with the Escrow Agent.
(c) The Escrow Agent agrees to hold the Consideration received by it in
accordance with the terms and conditions set forth herein until it has received
all of the consideration;
(d) The Purchasers and the Company understand that all Consideration
delivered to the Escrow Agent pursuant to Section 1(a) shall be held in escrow
in a non-interest bearing XXXX account until the Closing. The Purchase Price
will be returned promptly to the Purchasers if all of the Consideration is not
received on or before December 9, 1998. After all of the Consideration has been
received by the Escrow Agent, the parties hereto hereby authorize and instruct
the Escrow Agent to promptly effect the Closing.
2. Terms of Escrow.
(a) The Escrow Agent shall hold the Consideration in escrow until the
earlier to occur of (i) the receipt by the Escrow Agent of all of the total
amount of the Purchase Price from the Purchasers or (ii) the receipt by the
Escrow Agent of a notice, executed by each of the Company and the Purchasers,
stating that the Purchase Agreement has been terminated or otherwise directing
the disposition of the Consideration.
(b) If the Escrow Agent receives the items referenced in clause (i) of
Section 2(a) prior to its receipt of the notice referenced in clause (ii) of
Section 2(a), then, the Escrow Agent shall deliver as soon as practicable, but
in no event later than three (3) business days, the Debentures, Warrants and the
Ancillary Closing Documents executed by the Company to the Purchasers or the
holders of the Warrants (the "Warrant Holders") and shall deliver immediately to
the Company the Purchase Price.
(c) If the Escrow Agent receives the notice referenced in clause (ii)
of Section 2(a) prior to its receipt of the items referenced in clause (i) of
Section 2(a), then the Escrow Agent shall promptly deliver the Purchase Price,
Debentures, Warrants, Escrow Shares and Ancillary Closing Documents as specified
in such notice. The parties agree that if such notice is silent as to the
delivery of such items, the Escrow Agent shall promptly upon receipt of such
notice return (i) the Purchase Price to the Purchasers, (ii) the Debentures,
Warrants and Escrow Shares to the Company and (iii) the Ancillary Closing
Documents to the party that delivered the same.
(d) If the Escrow Agent, prior to delivering or causing to be delivered
the Consideration in accordance herewith, receives notice of objection, dispute,
or other assertion in accordance with any of the provisions of this Agreement,
the Escrow Agent shall continue to hold the Consideration until such time as the
Escrow Agent shall receive (i) written instructions jointly executed by the
Purchasers and the Company, directing distribution of such Consideration, or
(ii) a certified copy of a judgment, order or decree of a court of competent
jurisdiction, final beyond the right of appeal, directing the Escrow Agent to
distribute said Consideration to any party hereto or as such judgment, order or
decree shall otherwise specify (including any such order directing the Escrow
Agent to deposit the Consideration 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 any of the Consideration with a
court of competent jurisdiction without liability to any party if said dispute
is not resolved within 30 days of receipt of any such notice of objection,
dispute or otherwise.
(e) At any time, and from time to time during the term of this
Agreement, the Purchasers and/or the Warrant Holders may deliver to the Escrow
Agent written notice (a "Conversion Notice" or a "Notice of Exercise") that it
has elected to convert the Debentures registered in the names of such
Purchasers, in whole or in part, in accordance with the terms of the Debentures
(including, without limitation; giving the required notice to the Company and
tendering to the Company the Debenture(s) to be converted) or that it has
elected to exercise the Warrants registered in the names of such Warrant Holder,
in whole or in part, in accordance with the terms of the Warrants (including
without limitation, giving the required notice to the Company and tendering to
the Company the Warrant(s) to be exercised), and the Conversion Notice to be in
the form annexed as Exhibit A hereto or the Notice of Exercise to be in the form
annexed as Exhibit B hereto. A fee of $350 shall accompany every Conversion
Notice or Notice of Exercise delivered to the Escrow Agent. A copy of the
Conversion Notice or Notice of Exercise shall be delivered by the Purchasers or
the Warrant Holders, as the case may be, to the Company simultaneously, and
evidence of such delivery to the Company shall be provided to the Escrow Agent.
The Conversion Notice or Notice of Exercise shall specify the number of Escrow
Shares to be released by the Escrow Agent. The Company shall confirm or object
to the Escrow Agent the number of Escrow Shares to be released, within one
business day of the receipt of the Conversion Notice or Notice of Exercise. If
the Company fails to confirm or object to the number of Escrow Shares to be
released within the said time, then the Company shall be deemed to have
confirmed the number of Escrow Shares set forth in the Purchasers' or Warrant
Holders' Notice. In the event of a dispute, the Parties agree that the Escrow
Agent shall determine the number of Escrow Shares to be released. The Escrow
Agent shall be entitled but not obligated, at his sole discretion, to verify the
computation of the number of Escrow Shares to be released through information
provided by Bloomberg Information Service or similar stock price quotation
service. In the event that the Company decides to redeem the unconverted amount
of the Debenture pursuant to Section 3(c) of the Debenture, the Company shall
notify both the Holder and the Escrow Agent of such redemption within one
business day of receipt of the Notice of Conversion. Within two business days,
the Escrow Agent will release from escrow and deliver to the Purchasers or the
Warrant Holders unlegended certificates or instruments representing the number
of Escrow Shares issuable to the Purchasers or the Warrant Holders in accordance
with such conversion or exercise. In the event that the certificates evidencing
the Debenture Escrow Shares held by the Escrow Agent are not in denominations
appropriate for such delivery to the Purchasers, the Escrow Agent shall request
the Company to cause its transfer agent and registrar to reissue certificates in
smaller denominations. The Escrow Agent shall, however, immediately release to
the Purchasers or the Warrant Holders certificates representing such lesser
number of shares as the denominations in his possession will allow that is
closest to but no more than the actual number to be released to the Purchasers
or the Warrant Holders. Upon his receipt of the reissued shares in lesser
denominations from the Company's transfer agent, the Escrow Agent shall release
to the Purchasers the balance of the shares due to the Purchasers or the Warrant
Holders or the Warrant Holders.
(f) The Company agrees that, at any time the conversion price of the
Debentures is such that the number of Debenture Escrow Shares is less than 200%
of the number that would be needed to satisfy full conversion of all of the
Debentures given the then current conversion price (the "Full Conversion
Shares"), and upon five days written notice of such to the Company by the
Purchasers, it will issue additional share certificates, without legend and in
the names of the Purchasers, and deliver same to the Escrow Agent, such that the
new number of Debenture Escrow Shares is equal to 200% of the Full Conversion
Shares.
3. 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 and the Company 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 Subscriber and the Company, 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 each of the Subscriber and the Company, 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, until it shall jointly be directed otherwise in writing
by the Purchasers and the Company 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 or securities 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
Consideration.
(g) If the Escrow Agent at any time, in its sole discretion, deems it
necessary or advisable to relinquish custody of the Consideration, it may do so
by delivering the same to any other escrow agent mutually agreeable to the
Purchasers and the Company and, if no such escrow agent shall be selected within
three days of the Escrow Agent's notification to the Purchasers and the Company
of its desire to so relinquish custody of the Consideration, then the Escrow
Agent may do so by delivering the Consideration (a) to any bank or trust company
in the County of New York, State of New York, which is willing to act as escrow
agent thereunder in place and instead of the Escrow Agent, or (b) to the clerk
or other proper officer of a court of competent jurisdiction as may be permitted
by law. The fee of any such bank or trust company or 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 Consideration
and the Company and the Purchasers 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 paragraph
(i) below.
(h) This Agreement shall not create any fiduciary duty on the Escrow
Agent's part to the Purchasers or the Company, nor disqualify the Escrow Agent
from representing either party hereto in any dispute with the other, including
any dispute with respect to the Consideration. The parties understand that the
Escrow Agent has acted and will continue to act as counsel to the Company.
(i) The Escrow Agent represents that it is counsel to one of the
Purchasers. The parties agree that the Escrow Agent's engagement as provided for
herein is not and shall not be objectionable for any reason. The Escrow Agent
has delivered a letter disclosing its conflicts of interests to the Board of
Directors of Company, a copy of which is attached hereto as Exhibit B, and such
Board of Directors has consented to any actual or apparent conflict of interest
of the Escrow Agent in these transactions.
(j) Upon the performance of this Agreement, the Escrow Agent shall be
deemed released and discharged of any further obligations hereunder.
4. Fees, Expenses and Commissions
(a) The Escrow Agent fee of $5,000, and 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, shall be paid from the gross proceeds from the
sale of the Debentures held in escrow. The Escrow Agent shall retain the sum of
$350 from the gross proceeds from the sale of the Debentures for out-of-pocket
expenses, and the Company agrees to pay the Escrow Agent any out-of-pocket
expenses in excess of the $350, upon receipt of an invoice from the Escrow Agent
for such excess amount. The Escrow Agent is directed to pay itself such Escrow
Agent fee and out-of-pocket expenses in the amount of $350 from the escrow, at
Closing.
(b) A sales commission of an aggregate of seven percent (7%) of the
gross proceeds from the sale of the Debentures, will be paid to GEM Advisors,
Inc. ("GEM") from the funds held in escrow.
(c) The document production fee of $5,000 pursuant to the terms of the
retainer dated November 16, 1998 between Xxxxxx Xxxxxxxxxx & Xxxxxxxx, LLP
("KGL"), the Company and GEM, will be paid to KGL from the funds held in escrow.
5. Indemnification.
(a) The Purchasers hereby indemnify and hold free and harmless 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 Company against Escrow Agent with respect
to the performance of any of the provisions of this Agreement.
(b) The Company hereby indemnifies and holds free and harmless Escrow
Agent from any and all losses, expenses, liabilities and damages (including but
not limited to reasonable attorney's fees, and amount 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.
(c) The Purchasers and the Company, jointly and severally, hereby
indemnify and hold the Escrow Agent harmless from and against any and all
losses, damages, taxes, liabilities and expenses that may be incurred by the
Escrow Agent, arising out of or in connection with its acceptance of appointment
as the Escrow Agent hereunder and/or the performance of its duties pursuant to
this Agreement, the Purchase Agreement, the Debentures and the Warrants,
including, but not limited to, all legal costs and expenses of the Escrow Agent
incurred defending itself against any claim or liability in connection with its
performance hereunder, 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.
6. Miscellaneous.
(a) All notices, requests, demands and other communications hereunder
shall be in writing, with copies to all the other parties hereto, and shall be
deemed to have been duly given when (i) if delivered by hand, upon receipt, (ii)
if sent by telecopier, upon receipt of proof of sending thereof, (iii) if sent
by Express Mail, Federal Express or other express delivery service (receipt
requested), the next business day or (iv) if mailed by first-class registered or
certified mail, return receipt requested, postage prepaid, upon receipt, in each
case if delivered to the following addresses:
(i) If to the Company:
Mr. Xxxxxxx Xxxxxx
President
Alottafun, Inc.
000 Xxxx Xxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Tel: 000-000-000
Fax: 000-000-0000
(ii) If to the Purchasers:
At the address set forth in the Purchase Agreement
(iii) If to the Escrow Agent:
Xxxxxx Gottbetter & Xxxxxxxx, LLP
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, XX 00000
Tel: 000-000-0000
Fax: 000-000-0000
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 Escrow Agreement shall begin upon the date hereof and shall
terminate either pursuant to Section 2(a) (ii), (c) or (d) or upon the earlier
of (i) the conversion of the full amount of the Debentures and the exercise of
the total number of Warrants; or (ii) the Maturity Date of the Debentures and
the Expiration Date of the Warrants. Upon termination of the Escrow Agreement,
the Escrow Agent shall return any unconverted Escrow Shares to the Company.
[ SIGNATURE PAGE TO FOLLOW ]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed the day and year first above written.
Escrow Agent: Purchasers:
Xxxxxx Gottbetter & Xxxxxxxx, LLP Gem Management Limited
________________________________ By:__________________________
Name:
Title:
By:__________________________
Name:
Title:
The Company:
Alottafun, Inc.
By:__________________________
Name: Xxxxxxx Xxxxxx
Title: President
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture No.
into shares of Common Stock, par value $.01 per share (the "Common Stock"), of
Alottafun, Inc. (the "Company") according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. A fee of $350 will
be charged to the Holder for any conversion by the Escrow Agent. No other fees
will be charged to the Holder, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debentures to be Converted
Interest to be Converted
Applicable Conversion Price (to the nearest
hundredth
Signature
Name
Address
EXHIBIT B
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ______ shares of
the Common Stock $.01 per value, of Alottafun, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing
said shares in the name of the undersigned or in such other name as is specified
below:
3. The undersigned represents it is acquiring the shares
solely for its own account and not with a view toward the resale or distribution
thereof except in compliance with applicable securities laws.
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(Signature)
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(Date)
mydoc.10588
