STOCK
ESCROW AGREEMENT
AGREEMENT, dated as of the 21st day of November, 1995, by and
among American Stock Transfer & Trust Company, a New York corporation
(hereinafter referred to as the "Escrow Agent"), Paradigm Music Entertainment
Co., a Delaware corporation (the "Company"), and the stockholders of the Company
who have executed this agreement and certain future stockholders of the Company
who will execute this agreement (hereinafter collectively called the
"Stockholders").
WHEREAS, the Company contemplates a private offering ("Private
Placement") of Units ("Units"), each Unit consisting of one share of its Class A
Common Stock, par value $.01 per share (the "Class A Common Stock") through X.X.
Xxxxx Investment Banking Corp. as Placement Agent ("Xxxxx") pursuant to a
Private Placement Memorandum dated October 6, 1995 (the "Memorandum"); and
WHEREAS, in connection with the Private Placement, the
Stockholders have agreed to deposit in escrow an aggregate of 1,700,000 shares
of Class B Common Stock, $.01 par value (the "Class B Common Stock") and 300,000
shares of Class A Common Stock, $.01 par value (the "Class A Common Stock," and,
together, the "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 First Closing (as hereinafter defined) of the Private
Placement deliver to the Escrow Agent to hold in accordance with the provisions
hereof, certificates representing an aggregate of 1,700,000 shares of Class B
Common Stock and 18,000 shares of Class A Common Stock owned of record by the
Stockholders in the respective amounts set forth on Exhibit A hereto and, from
time to time thereafter, an aggregate of 282,000 additional shares of Class A
Common Stock will be delivered to the Escrow Agent to be held in accordance with
the provisions hereof (all of which shall be referred to herein as 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 a minimum of Forty (40) Units are sold pursuant to the Term Sheet (the
"First Closing") 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 First Closing 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,
-2-
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 appropriate number of 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) Fifty Percent (50%) of the Escrow Shares and Escrow
Property related to such Escrow Shares will be released in the
event that:
(A) the Company's net income before provision for
income taxes and exclusive of any extraordinary
earnings, other than in connection with the sale of
entertainment projects and/or programs developed by
the Company, or charges which would result from the
release of Escrow Shares (all as audited by the
Company's independent public accountants) (the
"Minimum Pretax Income") equals or exceeds $1.7
million for the fiscal year ending December 31,
1997; or
(B) the Minimum Pretax Income equals or exceeds $2.3
million for the fiscal year ending December 31,
1998; or
(C) the Minimum Pretax Income equals or exceeds $2.9
million for the fiscal year ending December 31,
1999; or
(D) the Bid Price (as defined herein) of the Company's
Common Stock shall average in excess of $3.00 per
share for any 30 consecutive business days during
the period ending on or before December 31, 1997,
provided all
-3-
shares sold pursuant to the Memorandum are freely
salable (without volume limitation) by the holders
thereof during such 30 day period; or
(E) the Bid Price (as defined herein) of the Company's
Common Stock shall average in excess of $4.00 per
share for any 30 consecutive business days during
the period ending on or before December 31, 1998,
provided all shares sold pursuant to the Memorandum
are freely salable (without volume limitation) by
the holders thereof during such 30 day period; or
(F) if there is a merger of the Company with another
company, a sale of substantially all of the assets
of the Company or similar extraordinary transaction
(a "Sale of the Company") that results in
stockholders receiving at least $2.00 per share in
cash or marketable securities on or before December
31, 1996; or
(G) if there is a Sale of the Company that results in
stockholders receiving at least $3.00 per share in
cash or marketable securities on or before December
31, 1997; or
(H) if there is a Sale of the Company that results in
stockholders receiving at least $4.00 per share in
cash or marketable securities on or before December
31, 1998.
(ii) The remaining Escrow Shares and the Escrow Property
related to such Escrow Shares will be released in the event
that:
(A) the Minimum Pretax Income equals or exceeds $2.1
million for the fiscal year ending December 31,
1997; or
(B) the Minimum Pretax Income equals or exceeds $2.8
million for the fiscal year ending December 31,
1998; or
(C) the Minimum Pretax Income equals or exceeds $3.5
million for the fiscal year ending December 31,
1999; or
(D) the Bid Price of the Company's Common Stock shall
average in excess of $4.50 for any 30 consecutive
business days during the period ending on or before
December 31, 1997, provided that all shares sold
pursuant to the
-4-
Memorandum are freely salable (without volume
limitation) by the holders thereof during such 30
day period; or
(E) the Bid Price of the Company's Common Stock shall
average in excess of $6.50 for any 30 consecutive
business days during the period ending on or before
December 31, 1998, provided that all shares sold
pursuant to the Memorandum are freely salable
(without volume limitation) by the holders thereof
during such 30 day period;
(F) if there is a Sale of the Company that results in
stockholders receiving at least $3.00 per share in
cash or marketable securities on or before December
31, 1996; or
(G) if there is a Sale of the Company that results in
stockholders receiving at least $4.50 per share in
cash or marketable securities on or before December
31, 1997; or
(H) if there is a Sale of the Company that results in
stockholders receiving at least $6.50 per share in
cash or marketable securities on or before December
31, 1998.
(b) As used in this Section 4, the term "Bid Price" shall be
subject to adjustments in the event of any stock dividend, stock distribution,
stock split or other similar event and shall mean:
(1) 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
(2) 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
-5-
(3) 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 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
calculated exclusive of any charges to income 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, but
shall reflect the sale of any entertainment projects and/or programs developed
by the Company.
(d) The Minimum Pretax Income amounts set forth in
subparagraph (a) above shall be increased during each fiscal year during the
Escrow Period to reflect the issuance of any additional securities after the
final closing of the Private Placement, excluding (i) up to 1,000,000 shares of
Class A Common Stock reserved for issuance to certain directors, consultants and
employees of the Company (the "Additional Class A Shares"), 300,000 of which
shares shall be deposited in escrow pursuant to this Agreement (all as described
in the Memorandum) and (ii) any shares of Class A Common Stock issued to Xxxxx
or its designees pursuant to the Placement Agent's Warrants (as defined in the
Memorandum), but including any shares of Common Stock that may be issued upon
the exercise of any other options or warrants hereafter granted by the Company
which, in the aggregate, do not exceed five percent (5%) of the then outstanding
shares of Common Stock, including Escrow Shares in accordance with the following
formula: The Minimum Pretax Income shall be increased during each fiscal year to
an Adjusted Minimum Pretax Income calculated by multiplying the applicable
Minimum Pretax
-6-
Income amount 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 outstanding securities but
excluding shares of Common Stock issuable upon exercise of the Share Purchase
Options (as defined in the Memorandum) issued to Xxxxx and the denominator of
which shall be the sum of (x) the number of shares of Common Stock outstanding
prior to the First Closing and the Additional Class A Shares (including the
Escrow Shares), plus (y) the number of shares of Class A Common Stock sold
pursuant to the Memorandum.
(e) 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, 2000, the Escrow Agent shall deliver the certificates
representing all or the remaining 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, Xxxxx (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.
-7-
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 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 delivered on behalf of the Company
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
-8-
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.
-9-
(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 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.
-10-
This restriction shall not be applicable to transfers upon death, by operation
of law, 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 X.X. Xxxxx
Investment Banking Corp., Paradigm Music Entertainment Co.
and its Stockholders, dated as of November __, 1995, a
copy of which may be obtained from the Secretary of
Paradigm Music Entertainment Co. No transfer, sale or
other disposition of these shares may be made unless
specific conditions of such agreement are satisfied.
(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."
-11-
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
Xxxxx 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:
Paradigm Music Entertainment Co.
(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 Xxxxx, 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 shall be effective
upon receipt by the receiving party.
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,
-12-
000 Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000, Attention: Xxxxxxx X. Xxxxxx, Esq. A
copy of all communications sent to Xxxxx shall be sent by ordinary mail to
Singer, Beinenstock, Zamansky, Ogele & Selengut LLP, 00 Xxxxxxxx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000, Attention: Xxxxx Xxxxxxxx, Esq. A copy of all
communications sent to Xxxxxx X. Xxxxxxxxx shall be sent by ordinary mail to
Simon, Meyrowitz, Xxxxxxxxx and Schlussell, 000 Xxxx Xxxxxx Xxxxx, Xxx Xxxx, Xxx
Xxxx 00000, Attention: Xxxxx X. Xxxxxxxxx, Esq.
11. This Agreement may not be modified, altered or amended in
any material respect or cancelled or terminated except with the prior written
consent of Xxxxx and with the prior consent of the holders of a majority of the
outstanding shares of Common Stock of the Company, other than shares held by the
Stockholders.
12. 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.
13. This Agreement may be executed in several counterparts,
which taken together shall constitute a single instrument.
-13-
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.
PARADIGM MUSIC ENTERTAINMENT CO.
By: /s/ Xxxxxx XxXxxxxxxx
---------------------------------------
Xxxxxx XxXxxxxxxx, Chairman
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By: /s/
----------------------------------------
Authorized Officer
STOCKHOLDERS
/s/ Xxxxxx XxXxxxxxxx
------------------------------------ ------------------------------------
Xxxxxx XxXxxxxxxx
/s/ Xxxxx Xxxxxxxx
------------------------------------ ------------------------------------
Xxxxx Xxxxxxxx
/s/ Xxxxxx Xxxxxxxxx
------------------------------------ ------------------------------------
Xxxxxx Xxxxxxxxx
------------------------------------ ------------------------------------
Xxxx Xxxxxxx
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
-14-
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.
PARADIGM MUSIC ENTERTAINMENT CO.
By:
---------------------------------------
Xxxxxx XxXxxxxxxx, Chairman
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By:
----------------------------------------
Authorized Officer
STOCKHOLDERS
------------------------------------ ------------------------------------
Xxxxxx XxXxxxxxxx
------------------------------------ ------------------------------------
Xxxxx Xxxxxxxx
------------------------------------ ------------------------------------
Xxxxxx Xxxxxxxxx
/s/ Xxxx Xxxxxxx
------------------------------------ ------------------------------------
Xxxx Xxxxxxx
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
-14-
EXHIBIT A
STOCKHOLDERS' LIST
Name and Address Stock
of Stockholder (1) Certificate Nos. Number of Escrow Shares
-------------------- ---------------- -----------------------
Xxxxxx XxXxxxxxxx B2 & B3 425,000 425,000
000 Xxxxxxxx Xxxxxx Class B Class B
Sea Cliff, New York 11579
Xxxxx X. Xxxxxxxx B5 & B6 212,500 212,500
000 Xxxxxx Xxxxxx Class B Class B
Xxx Xxxx, Xxx Xxxx 00000
Xxxxxx Xxxxxxxxx B8 & B9 212,500 212,500
00 Xxxx 00xx Xxxxxx Class B Class B
Xxx Xxxx, Xxx Xxxx 00000
Xxxx Xxxxxxx A63 & A64 9,000 9,000
00 Xxxxxxx Xxxxxx Class A Class A
Xxxx Xxxxxx, Xxx Xxxxxx 00000
-15-
