ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated as of June 28, 1999 (the "Escrow
Agreement"), by and among DOLLAR TREE STORES, INC., a Virginia corporation
("Parent"); XXXXXXX X. XXXXX, XXXXXX X. XXXXX, XXXXX X. XXXXX, XXXXXX X. XXXXX,
and XXXXXXXXX X. XXXXX, (each a "Shareholder" and, collectively, the
"Shareholders"); XXXXXXX X. XXXXX, as representative of the Shareholders (the
"Shareholder Representative"); and STEATES, REMMELL, STEATES & XXXXXXX, a New
York partnership acting solely as escrow agent hereunder and not in its
individual capacity ("Escrow Agent"). The Parent and the Shareholders are
sometimes referred to herein as the "Interested Parties." Capitalized terms used
but not otherwise defined herein shall have the meanings ascribed to such terms
in the Merger Agreement (as hereinafter defined).
W I T N E S S E T H:
WHEREAS, pursuant to a certain Merger Agreement, dated as of June 15,
1999, as amended by Amendment dated June 22, 1999, (the "Merger Agreement") by
and among Parent, Dollar Tree New York, Inc., a New York corporation and
wholly-owned subsidiary of Parent ("Sub") and Xxxxx'x Merchandising, Inc., a New
York corporation (the "Company"), the capital stock of the Company owned by the
Shareholders has been (simultaneously with the execution hereof) converted into
the right to receive shares of Parent Common Stock;
WHEREAS, pursuant to Article 7 of the Merger Agreement, the
Shareholders have agreed to indemnify Parent and its subsidiaries and Affiliates
(including Dollar Tree New York, Inc., Xxxxx'x Merchandising, Inc., and the
surviving corporation in the Merger), each of their respective officers,
directors, employees, agents and representatives and each of the heirs,
executors, successors and assigns of any of the foregoing (collectively, the
"Parent Indemnified Parties") for Parent Losses;
WHEREAS, as security for the Shareholders' obligations under the Merger
Agreement but without limiting the other remedies of the Parent Indemnified
Parties thereunder, the Merger Agreement also contemplates a surrender of Escrow
Shares (as defined below) and related funds to the extent Parent Indemnified
Parties suffer Parent Losses, including without limitation any Deficit Amount
under Section 2.4 of the Merger Agreement;
Escrow Agreement -- Page 1
WHEREAS, pursuant to Section 6.9 of the Merger Agreement, the
Shareholders have appointed the Shareholder Representative to act on their
behalf with respect to the execution and delivery of this Escrow Agreement and
the performance on behalf of such Shareholder under the terms and provisions of
this Escrow Agreement; and
WHEREAS, Escrow Agent is willing to act as escrow agent hereunder.
NOW, THEREFORE, in consideration of the premises and the mutual
promises, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1 Delivery of Escrow Shares. Subject and pursuant to the Merger
Agreement, Escrow Shares are hereby delivered to the Escrow Agent by the
Shareholders, in the proportion specified on Schedule A hereto. The Escrow
Shares shall be represented by a stock certificate in the name of Steates
Xxxxxxx Xxxxxxx &Dziekan, as Escrow Agent under the Escrow Agreement, dated June
30, 1999. Notwithstanding the foregoing, during the term of this Escrow
Agreement, title to the Escrow Shares will be in the name of the Escrow Agent
for record holder purposes only. The parties acknowledge that the Shareholders
are the beneficial owners of the Escrow Shares, subject to the terms and
conditions of the Merger Agreement and this Escrow Agreement, and each
Shareholder shall retain all rights to vote the shares of Parent Common Stock
delivered on behalf of such Shareholder to the Escrow Agent that are not
transferred to Parent pursuant to Section 2 hereof.
2 The Escrow Fund. All cash dividends on or proceeds from the permitted
sale of the Escrow Shares shall be deposited directly into an escrow account
created by the Escrow Agent specifically for the purpose of holding such cash
dividends and proceeds (the "Dividend Account"), without any tax or other
withholding or deduction. Shares resulting from stock dividends, stock splits
and other shares or securities issued in respect of the Escrow Shares shall be
issued in the name of the Escrow Agent, and shall be held by the Escrow Agent
subject to the provisions of this Agreement, and upon issuance shall become part
of the Escrow Shares. The Escrow Agent shall invest the Dividend Account at, and
pursuant to, the written direction of the Shareholder Representative in Eligible
Investments and shall not be responsible or liable for any loss accruing from
any investment made in accordance herewith except for losses due to the gross
negligence or wilful misconduct of the Escrow Agent. "Eligible Investments"
shall mean [(i) obligations issued or guaranteed by the United States of America
or any agency or instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support thereof); (ii) obligations
(including certificates of deposit and banker's acceptances) of any domestic
commercial bank having capital and surplus in excess of $500,000,000; (iii)
repurchase obligations for underlying securities of the type described in clause
(i); (iv) shares of money market funds at least 95% of the assets of which
constitute obligations of the type described in clause (i) above. No investment
shall have a term of more than ninety (90) days.] Absent its timely receipt of
such specific written investment instruction from the Shareholder
Representative, the Escrow Agent shall have no obligation or duty to invest (or
otherwise pay interest on) the Dividend Account. All earnings received from the
Escrow Agreement -- Page 2
investment of the Dividend Account shall be credited to, and shall become a part
of, the Dividend Account (and any losses on such investments shall be debited to
the Dividend Account). The Escrow Agent shall have no liability for any
investment losses, including any losses on any investment required to be
liquidated prior to maturity in order to make a payment required hereunder
except for losses due to the gross negligence or wilful misconduct of the Escrow
Agent.
3 Voting and Disposition of Escrow Shares.
(a) The Escrow Shares shall be voted on all matters submitted
to the shareholders of Parent as each Shareholder shall direct with respect to
the number of Escrow Shares allocated to such Shareholder. During the period the
Escrow Shares are held hereunder, Parent shall cause all proxy solicitation
materials, including forms of proxy, to be sent to the Shareholders and Escrow
Agent as and when sent to the shareholders of Parent. In the absence of
direction from any Shareholder, the Escrow Shares contributed into escrow by
such Shareholder shall be voted as the Escrow Agent shall direct.
(b) Following the Restricted Period (as defined below), and
subject to compliance with the requirements of applicable securities laws, the
Escrow Shares may be sold on behalf of the Shareholders pro rata for cash at the
time and in the manner the Shareholder Representative shall direct. No Escrow
Shares may be sold, transferred or otherwise disposed of, nor shall any person
in any other way reduce such person's risk with respect to, any Escrow Shares or
other shares of the capital stock of Parent until after such time as financial
results covering at least 30 days of post merger combined operations of Parent
and the Company have been published (within the meaning of Section 201.01 of the
SEC's Codification of Financial Reporting Policies) by Parent, in the form of a
post-effective amendment, issuance of a quarterly earnings report, a Form 10-K,
10-Q or 8-K filing, or any other public issuance which includes the combined
sales and net income (the "Restricted Period"). Proceeds from the permitted sale
of the Escrow Shares shall be deposited in the Dividend Account and allocated
pro rata to the Shareholders in accordance with Schedule A.
4 Application of Escrow Shares and the Dividend Account to
Claims of Parent Indemnified Parties and Deficit Amount.
4.1 In the event a Parent Indemnified Party claims that it is
entitled to indemnification pursuant to the Merger Agreement (including without
limitation a claim for a Deficit Amount pursuant to Section 7.1(vi)), such
Parent Indemnified Party shall give written notice of such claim to the
Shareholder Representative and the Escrow Agent. Subject to compliance by such
Parent Indemnified Party with the applicable indemnification provisions of the
Merger Agreement, the amount of such claim shall be paid to the Parent
Indemnified Party as provided in Section 4.3, unless the Shareholder
Representative shall contest the right of such Parent Indemnified Party to such
payment by delivering to such Parent Indemnified Party and the Escrow Agent
notice of such contest within 15 days after such Parent Indemnified Party shall
have delivered notice to the Shareholder Representative of the claim.
Escrow Agreement -- Page 3
4.2 If within the 15 day period specified in Section 4.1
above, the Shareholder Representative shall deliver to the Parent Indemnified
Party and the Escrow Agent the notice of contest referred to in Section 4.1
above, no payment shall be made hereunder with respect to the claim involved
until the dispute has been finally settled by agreement of such Parent
Indemnified Party and the Shareholder Representative or, in the absence of such
an agreement, by a binding and final arbitration award if such Parent
Indemnified Party and the Shareholder Representative have agreed to such
arbitration, or otherwise by a binding and final judgment, order or decree of a
court of competent jurisdiction.
4.3 Payments to a Parent Indemnified Party shall be made
(i) first, by cancellation of the number of whole
shares of the Escrow Shares, allocated pro rata among the Shareholders
in accordance with Schedule A hereto, having an aggregate value nearest
to the amount payable to the Parent Indemnified Party, such value per
share to be the [Average Closing Price], subject to appropriate
adjustment to take into account any stock split, stock dividend or
recapitalization subsequent to the Effective Time and not reflected in
such [Average Closing Price] (the "Share Value"); and
(ii) second, if the amount payable to the Parent
Indemnified Party cannot be fully satisfied pursuant to Section 4.3(i),
by payment of a distribution of amounts contained in the Dividend
Account (the "Dividend Amount") shall be made to such Parent
Indemnified Party in an amount equal to any amount remaining payable to
the Parent Indemnified Party.
5 Final Distribution. On the first anniversary of the date hereof (the
"Anniversary"), except as otherwise provided in this Section, the Escrow Shares
and the Dividend Account then remaining in escrow shall be distributed to the
Shareholders pro rata in accordance with Schedule A hereto. If any claim
theretofore asserted by a Parent Indemnified Party shall not have been paid or
finally determined to be without merit or the amount of such claim shall not
have been finally determined, the number of whole shares of the Escrow Shares
having an aggregate value (determined as provided in Section 4.3 above) nearest
to the amount of such claim on the Anniversary (the "Retained Escrow Shares"),
plus, if the Retained Escrow Shares are insufficient to cover the amount of such
claim, an amount from the Dividend Account equal to any amount remaining subject
to such claim, shall be retained in escrow until such claim(s) shall have been
paid or finally determined to be without merit, whereupon such Retained Escrow
Shares and Dividend Account amount shall be distributed to the Shareholders pro
rata in accordance with Schedule A hereto, subject to the remaining provisions
of this Section. Any distribution pursuant hereto shall be net of any required
tax or other withholding or deduction. The parties will make all reasonable
efforts to resolve any claims hereunder as quickly as possible.
Escrow Agreement -- Page 4
6 Fractional Shares; Distributions. In the event any calculations
required under this Escrow Agreement result in the allocation of a fractional
share amount to a Shareholder, the fraction shall be rounded to the next lower
whole number, and any remainder shares shall be canceled. All deliveries under
this Escrow Agreement shall be made by and to the parties hereto (or their
lawfully appointed attorneys-in-fact) in the United States.
7 Shareholder Representative; Notices and Written Directions. Each
Shareholder represents that he has appointed the Shareholder Representative to
be his, her or its true and lawful attorney for all matters in connection with
this Escrow Agreement, the Escrow Shares and the Dividend Account, including
without limitation the acceptance of any claim by a Parent Indemnified Party,
and the compromise of any disputes relating to the Escrow Shares, Dividend
Amount or other matter under this Escrow Agreement. Notwithstanding the
foregoing, the Shareholder Representative will not act on behalf of the
Shareholders with respect to distributions, voting or tax withholdings.
The Shareholder Representative hereby accepts such appointment.
8 Escrow Agent.
8.1 Duties. Escrow Agent's obligations and duties in
connection herewith are confined to those specifically enumerated in this Escrow
Agreement. Escrow Agent shall not be in any manner liable or responsible for the
sufficiency, correctness, genuineness or validity of any instruments deposited
with it or with reference to the form of execution thereof, or the identity,
authority or rights of any person executing or depositing same, and Escrow Agent
shall not be liable for any loss that may occur by reason of forgery, false
representation or the exercise of its discretion in any particular manner or for
any other reason, except for its own gross negligence or willful misconduct.
8.2 Indemnification. Except in instances of Escrow Agent's own
gross negligence or willful misconduct and except for matters relating to the
prudent investment or protection of the Escrow Fund or the sale of Escrow
Shares, Shareholders and the Company shall each indemnify, defend, and hold
harmless Escrow Agent against fifty percent (50%) of any and all costs, losses,
claims, damages, liabilities, expenses, including reasonable costs of
investigation, court costs, and attorneys' fees, and disbursements, which may be
imposed upon Escrow Agent solely in connection with its actions prudently taken
within the scope of duties specified hereunder as Escrow Agent (and not in its
capacity as counsel for Shareholders), including any litigation arising from
this Escrow Agreement involving the subject matter hereof. The foregoing
indemnification and agreement to hold harmless shall survive the termination of
the Escrow Agreement.
8.3 Disputes. In the event of a dispute between the parties,
in the discretion of Escrow Agent, Escrow Agent shall be entitled to tender into
the registry or custody of any court of competent jurisdiction all money or
property in its hands under this Escrow Agreement, together with such legal
pleadings as it deems appropriate, and thereupon shall be discharged from all
further duties and liabilities under this Escrow Agreement. Any such legal
action may be brought in such
Escrow Agreement -- Page 5
court as Escrow Agent shall determine to have jurisdiction thereof including
Supreme Court, County of Oneida, State of New York. The filing of any such legal
proceedings shall not deprive Escrow Agent of its compensation earned prior to
such filing.
8.4 Receipt. Escrow Agent shall provide written acknowledgment
to the Parent of receipt of the Escrow Shares.
8.5 Fees. Escrow Agent's fees hereunder shall be as set forth
on the fee schedule attached hereto as Schedule B and incorporated herein by
reference. All fees, expenses and reimbursements shall be paid by the
Shareholders.
9 Transfer of Interests. The interests of the Shareholders in the
Escrow Shares and the rights and obligations of the Shareholders hereunder may
not be transferred except by will, the laws of descent and distribution or by
other operation of law.
10 Miscellaneous.
10.1 Benefits and Burdens; Assignment. This Escrow Agreement
shall inure to the benefit of and shall be binding upon Parent and the
Shareholders and Escrow Agent and their respective heirs, representatives,
successors and assigns. No party to this Escrow Agreement may assign its rights
or obligations hereunder without the prior written consent of each of the other
parties hereto, provided however, that this Escrow Agreement may only be
assigned by Parent to a corporation, all of whose issued and outstanding capital
stock is owned directly or indirectly by Parent, and in such event Parent shall
not be released from its obligations hereunder.
10.2 Governing Law. This Escrow Agreement shall be governed by
the internal laws (ignoring principles of conflicts of laws) of the State of New
York. All deliveries under this Escrow Agreement shall be made by and to the
parties hereto (or their lawfully appointed attorneys-in-fact) in the United
States.
10.3 Headings. The section and paragraph headings contained in
this Escrow Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Escrow Agreement.
10.4 Notices; Wiring Instructions.
(a) Any transmittals, notice or other communications
required or permitted hereunder shall be sufficiently given if sent by
registered or certified mail, postage prepaid, by national overnight courier
service or, in the case of any communication not involving a transmittal of
original documents, by telecopy, addressed as follows:
Escrow Agreement -- Page 6
If to Parent or, after the Closing, the Company:
Dollar Tree Stores, Inc.
000 Xxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Mr. H. Xxx Xxxxxxx
Telecopier: (000) 000-0000
With a copy to:
Xxxxxxxxx Xxxxxxx, P.C.
000 Xxxxxxxxx Xxxxx, Xxxxx 0000
P. O. Xxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Old, Jr., Esquire
Telecopier: (000) 000-0000
If to the Shareholder Representative:
Xx. Xxxxxxx X. Xxxxx
0000 Xxxxxxxxxx Xxxxx
Xxx Xxxxxxxx, Xxx Xxxx 00000
Telecopier: 000-000-0000
With a copy to:
Steates Xxxxxxx Xxxxxxx & Xxxxxxx
0 Xxxxxx Xxxxxxxx, Xxxxx 000
Xxx Xxxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esquire
Telecopier: (000) 000-0000
If to Shareholders:
To the addresses stated on Schedule A
If to Escrow Agent:
Steates, Remmell, Steates & Xxxxxxx
Attn: Xxxxxx X. Xxxxxxx
0 Xxxxxx Xxxxxxxx, Xxx. 000
Xxx Xxxxxxxx, XX 00000
Escrow Agreement -- Page 7
or such other addresses as shall be furnished in writing by any of the parties,
and any such notice or communication shall be deemed to have been given as of
the next business day, if delivered by overnight courier service or upon receipt
(as evidenced by proof of transmission), if telecopied when received and three
days after the date so mailed (if mailed).
(b) Any funds to be paid to or by the Escrow Agent
hereunder shall be sent by wire transfer or certified or cashier's check
pursuant to the following instructions (or by such method of payment and
pursuant to such instruction as may have been given in advance and in writing to
or by the Escrow Agent, as the case may be, in accordance with Section 10.4(a)
above):
If to Parent:
Bank: First Union National Bank, N.A.
ABA #: 0514 0054 9
A/C #: 2070000330892
Attn: Xxxxxxx Xxxxxxx (000) 000-0000
Ref: Dollar Tree/Xxxxx Escrow
If to Shareholders:
By certified or cashier's check sent via registered or
certified mail, postage prepaid, or by national overnight
courier service to the addresses stated on Schedule A.
If to the Escrow Agent:
By certified or cashier's check sent via registered or
certified mail, postage prepaid, or by national overnight
courier service to the addresses stated in Section 10.4(a).
10.5 Counterparts. This Escrow Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original but
all of which together shall constitute one and the same instrument.
10.6 Modification. This Escrow Agreement may be modified only
by a written instrument signed by each of the parties hereto, provided however
that Schedule A hereto may be modified to reflect valid transfers of the
Shareholders' interests in the Escrow Shares by a writing signed by Parent and
the Shareholder Representative, upon which Escrow Agent shall be entitled to
rely without further investigation.
Escrow Agreement -- Page 8
10.7 Cooperation. Shareholders, Parent and the Escrow Agent
shall deliver to each other such information and documents and shall execute and
deliver to each other such further information and documents and shall execute
and deliver such further instruments and agreements as the others may reasonably
request in order to accomplish the purpose of this Escrow Agreement or to assure
to the others the benefits of this Escrow Agreement.
10.8 Entire Understanding. This Escrow Agreement and the
exhibits referred to herein represent the entire understanding of the parties
with respect to the subject matter hereof and supersede all correspondence,
memoranda, conversations or other communications with respect thereto.
10.9 Severability. The invalidity or unenforceability of any
provision of this Escrow Agreement shall not affect the validity or
enforceability of any other provision of this Escrow Agreement.
10.10 Time. Time is of the essence under this Escrow
Agreement.
10.11 Statutes. Any reference herein to any federal, state or
local statute shall include all amendments to such statute through the date of
this Escrow Agreement.
10.12 Interpretation. It is the intention of the parties
hereto and the Shareholders and Company that the Merger qualify as a
"reorganization" under the provisions of Section 368 of the Code, and be
accounted for as a "pooling of interests," and this Escrow Agreement shall be
interpreted and applied in a manner consistent with, and shall be subject to
amendment to conform to, the requirements for such treatment.
10.13 Tax-Related Terms.
(a) Tax Reporting. The Interested Parties agree
that, for tax reporting purposes, all interest or other income earned from the
investment of the Dividend Account in any tax year shall (i) to the extent such
interest or other income is distributed by the Escrow Agent to any person or
entity pursuant to the terms of this Escrow Agreement during such tax year, be
allocated to such person or entity, and (ii) otherwise shall be allocated to the
Shareholders in proportion to their holdings as set forth on Schedule A.
(b) Certification of Tax Identification Number.
If requested by the Escrow Agent, the Shareholder Representative agrees to
obtain the certified tax identification number for each Shareholder on a Form
W-9 (or Form W-8, in case of non-U.S. persons) and deliver the same to the
Escrow Agent prior to the date on which any income earned on the investment of
the Dividend Account is credited to the Dividend Account. In the event that any
tax identification number is not certified to the Escrow Agent, the Internal
Revenue Code, as amended from time to time, may
Escrow Agreement -- Page 9
require withholding of a portion of any interest or other income earned on the
investment of the Dividend Account.
10.14 Resignation. The Escrow Agent may at any time resign as
Escrow Agent hereunder by giving ten (10) business days' prior written notice of
resignation to the Parent and the Shareholder Representative. Prior to the
effective date of the resignation as specified in such notice, the Parent will
issue to the Escrow Agent a written instruction authorizing redelivery of the
Escrow Shares and Dividend Account to a bank or trust company that it selects as
successor to the Escrow Agent hereunder, subject to the consent of the
Shareholder Representative (which consent shall not be unreasonably withheld).
If, however, the Parent shall fail to name such a successor escrow agent within
five (5) business days after the notice of resignation from the Escrow Agent,
the Shareholder Representative shall be entitled to name such successor escrow
agent. If no successor escrow agent is named by the Parent or the Shareholder
Representative, the Escrow Agent may apply to a court of competent jurisdiction
for appointment of a successor escrow agent.
[The remainder of this page is left intentionally blank.]
Escrow Agreement -- Page 10
IN WITNESS WHEREOF, the parties hereto have executed this
Escrow Agreement as of the date first written above.
PARENT: DOLLAR TREE STORES, INC.
By /s/ H. Xxx Xxxxxxx
------------------
[Name] H. Xxx Xxxxxxx
[Title] Executive Vice President
SHAREHOLDER /s/ Xxxxxxx X. Xxxxx
REPRESENTATIVE: --------------------
Xxxxxxx X. Xxxxx, as Shareholder
Representative
SHAREHOLDERS: /s/ Xxxxxxx X. Xxxxx
--------------------
Xxxxxxx X. Xxxxx
/s/ Xxxxxx X. Xxxxx
-------------------
Xxxxxx X. Xxxxx
/s/ Xxxxx X. Xxxxx
------------------
Xxxxx X. Xxxxx
/s/ Xxxxxx X. Xxxxx
-------------------
Xxxxxx X. Xxxxx
/s/ Xxxxxxxxx X. Xxxxx
----------------------
Xxxxxxxxx X. Xxxxx
ESCROW AGENT: STEATES, REMMELL, STEATES & XXXXXXX
(Acting solely as Escrow Agent
herein and not in its individual
capacity)
By /s/ F. Xxxx Xxxxxxx, Esq.
-------------------------
Name: F. Xxxx Xxxxxxx, Esq.
Title: Partner
Escrow Agreement -- Page 11
SCHEDULE A
LIST OF SHAREHOLDERS
Name and Address Social Security Escrow Shares Pro Rata
of Shareholder Number Contributed Percentage of Total
Escrow Shares
Xxxxxxx X. Xxxxx ###-##-#### 5016 20%
0 Xxxxxxxxx Xxxx
Xxx Xxxxxxxx, XX
00000
Xxxxxx X. Xxxxx ###-##-#### 5016 20%
00 Xxxxxxxxxxx Xxxx
Xxx Xxxxxxxx, XX
00000
Xxxxx X. Xxxxx ###-##-#### 5016 20%
0000 Xxxxxxx Xxxxx
Xxxxx, XX 00000
Xxxxxx X. Xxxxx ###-##-#### 5016 20%
0 Xxxxxxxx Xxxxxx
Xxx Xxxxxxxx, XX
00000
Xxxxxxxxx X. Xxxxx ###-##-#### 5016 20%
0000 Xxxxxx Xxxx
Xxxxx, XX 00000
Total 25080 100%
Escrow Agreement -- Page 12
SCHEDULE B
FEE SCHEDULE
None.
Escrow Agreement -- Page 13
