RESCISSION FUND ESCROW AGREEMENT
THIS RESCISSION FUND ESCROW AGREEMENT (the "Agreement") is entered into
as of this 9th day of July, 1999, by and among CYNET, INC., a Texas
corporation (the "Company"), a number of individuals and or entities the
number of which shall not total more than twenty (hereinafter individually
referred to as "Underwriter" and collectively as "Underwriters") who are
funding the Company's rescission offer (as defined below), and First Bank
Texas, N.A., a national banking association (the "Escrow Agent").
WITNESSETH:
WHEREAS, Company and Underwriters are parties to a Rescission Funding
Agreement of even date herewith pursuant to which:
(i) Underwriters are to deposit no less than Five Hundred Thousand Dollars
($500,000) and up to Six Million Dollars ($6,000,000) with the Escrow Agent to
finance the Company's offer to repurchase ("Rescission Offer") certain shares of
Company's Class A and Class B Common Stock, no par value, and Series A and
Series B Preferred Stock, no par value (collectively, the "Rescission
Securities"), which is owned by certain shareholders ("Rescinding
Shareholders"); and,
(ii) Company has agreed to issue to Underwriters certain shares of the
Company's Class A Common Stock ("Class A Common Stock") which have been
registered for sale under the Securities Act of 1933, as amended (the
"Securities Act").
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound, Company,
Underwriters and Escrow Agent hereby agree as follows:
1. ESCROW ACCOUNT AND DEPOSIT. The Escrow Agent has established, or
simultaneously with the execution hereof will establish, an account (the "Escrow
Account") into which Underwriters have deposited or will deposit up to Six
Million Dollars ($6,000,000). Upon receipt thereof, the Escrow Agent shall
provide Underwriters and Company confirmation thereof, and shall hold and
disburse such deposit as set forth in this Agreement. Such deposit shall be
invested in a Money Market Account or one of the Money Market Account Funds
listed on Schedule A attached hereto, as directed by Company. Such deposit, as
increased or decreased based upon the investment results of the fund in which it
is invested, is referred to herein as the "Deposit."
2. RELEASE OF DEPOSIT BY ESCROW AGENT. The Escrow Agent shall promptly
release all or a portion of the Deposit to Underwriters, Company and/or
Rescinding Shareholders, as the
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case may be, upon the first to occur of the following circumstances:
(A) After the Company's registration statement on Form SB-2 (No.
333-60765) is reviewed by the Securities and Exchange Commission ("SEC") and
declared effective under the Securities Act, Company will deliver to the
Rescinding Shareholders a prospectus containing the Rescission Offer. The
prospectus, in such registration statement, requires the Rescinding
Shareholders to make their rescission elections within a thirty (30) day
period of time from the delivery of the prospectus ("Election Day"). On the
first (1st) business day following Election Day, Company shall deliver to the
Escrow Agent a report as to the identity of each Rescinding Shareholder
electing to rescind and the dollars required to pay that Rescinding Shareholder.
If the aggregate amount payable to such Rescinding Shareholders is equal to
or less than the total amount in the Escrow, excluding interest, ("Rescission
Fully Funded"), Company's report shall include the name, address and rescission
amount for each rescinding shareholder along with an addressed and postage (or
package delivery fee) prepaid envelope for each rescinding shareholder;
(B) If the Rescission Is Fully Funded, the Escrow Agent shall prepare
a separate check drawn on the Escrow Account and payable to the respective
Rescinding Shareholder, place the same in the individually addressed envelopes
provided by Company, and place the envelopes in overnight mail (or delivery
service box, i.e. Federal Express or other) no later than the third (3rd)
business day following Election Day;
(C) If the Rescission Is Fully Funded and any funds remain in the
Escrow after paying all rescission claims, including postage and fees incurred
by the Escrow Agent and Rescinding Shareholder checks as provided in Paragraphs
2(A) and 2(B) above, no later than the fourth (4th) business day following
Election Day the Escrow Agent shall notify Company as to the amount paid from
the Escrow Account and the remaining balance in the Escrow Account. Company
will promptly notify Underwriters as to the balance in the Escrow Account, the
aggregate amount paid to Rescinding Shareholders, and all other expenses and
fees deducted from the Escrow Account. Each Underwriter shall elect whether to
release the balance of the escrow funds to Company or to have a pro rata (the
ratio of Total Deposits made by the Underwriter divided by Total Deposits by all
Underwriters which ratio shall be multiplied by the remaining balance in the
Escrow Account) amount of the Escrow Account balance remitted to the
Underwriter. Each Underwriter shall make his election on or before the close of
the tenth (10th) business day following Election Day;
(D) If the amount payable to Rescinding Shareholders exceeds the
total amount in the Escrow Account, excluding accrued interest, Rescission Is
Not Fully Funded, on or before the close of the first (1st) day following
Election Day Company and/or Underwriters may deposit additional amounts in
Escrow to Fully Fund the Rescission election and sub-paragraphs B, C and D would
fully apply;
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(E) If the Rescission Is Not Fully Funded and the funding shortfall
is not cured on the first (1st) business day following Election Day, on or
before the tenth (10th) business day following Election Day all funds deposited
by Underwriters along with any accrued interest, if any, are to be returned to
the individual Underwriter along with accrued interest, if any, which interest
shall be calculated on a pro rata basis and the Escrow is to be closed;
(F) The Release of Deposit instructions as described in
sub-paragraphs (A) through (E) above may be modified only by joint written
instructions of Company and Underwriters with such instructions being
delivered to Escrow Agent; or
(G) The Escrow Agent receives a final order of a court of competent
jurisdiction authorizing the Escrow Agent to make such release.
3. RELIANCE BY ESCROW AGENT. The Escrow Agent shall be entitled to rely
upon and act in accordance with any of the following:
(A) The joint written instructions of Company and Underwriters as
contained in Paragraph 2 above;
(B) The joint written instructions of Company and Underwriters in
modification of Paragraph 2 above directing the Escrow Agent to make such
release; or
(C) The Escrow Agent receives a final order of a court of competent
jurisdiction authorizing the Escrow Agent to make such release.
4. CONFLICTING DEMANDS. If conflicting demands are made upon the Escrow
Agent, the Escrow Agent shall not be required to resolve such controversy or
take any action, but may await resolution of the controversy by joint
instructions from Company and Underwriters or by appropriate legal proceedings.
5. INDEMNIFICATION: FEES OF ESCROW ACCOUNT.
(A) SCOPE OF ITS AUTHORITY. The Escrow Agent shall act as escrow
agent for the Escrow Fund under this Agreement until the termination
of this Agreement in accordance with its terms, shall take such
actions as are specifically provided for herein, and may exercise such
additional powers as are reasonably incidental thereto.
(B) LIMITATION OF LIABILITY. The Escrow Agent shall not be liable in
any respect on account of the identity, authority, or rights of the
parties executing or delivering or purporting to execute or deliver
this Agreement, or any documents or papers the delivery of which is
contemplated hereunder. The Escrow Agent
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may act in reliance upon any instrument or signature which it
believes to be genuine and may assume that any person purporting to
give notice, advice, or instruction in connection with the
provision hereof has been duly authorized to do so. Notwithstanding
anything to the contrary contained herein, the Escrow Agent shall
remain liable for gross negligence and willful misconduct in
performing its duties and responsibilities under this Agreement.
(C) ADDITIONAL RIGHTS OF ESCROW AGENT. The Escrow Agent shall have
the following rights in addition to those granted above and those
granted below:
(i) The Escrow Agent may rely, and shall be protected in
acting or refraining from acting in reliance, upon any
disbursement request under this Agreement, requisition,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, judgment, decree, or other
document or instrument believed by it to be genuine and to have
been signed or otherwise authenticated by any person believed by
the Escrow Agent to be the proper person to sign or otherwise
authenticate any such document or instrument.
(ii) The Escrow Agent may, but is not required to, consult
with independent legal counsel, and the written advice of such
counsel shall be sufficient authorization and protection in
respect of any action taken, suffered, or omitted by the Escrow
Agent in reliance thereon.
(iii) The Escrow Agent shall not be bound to make any
investigation into the facts or other matters stated in any
disbursement request under this Agreement, requisition,
certificate, statement, instrument, evidentiary material,
opinion, report, notice, request, directive, or consent, or any
judgment, order, or decree of any court of competent
jurisdiction.
(iv) The Escrow Agent shall not be required to institute legal
proceedings of any kind or to defend any legal proceedings which
may be instituted in respect of the subject matter of this
Agreement.
(D) EXCEPT FOR ANY CLAIM CAUSED SOLELY BY ESCROW AGENT'S FRAUD, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, THE COMPANY AND UNDERWRITERS SHALL
INDEMNIFY THE ESCROW AGENT AND HOLD IT HARMLESS FROM ANY AND ALL CLAIMS,
LIABILITIES, LOSSES, ACTIONS, SUITS OR PROCEEDINGS AT LAW OR IN EQUITY, OR
ANY OTHER EXPENSE, FEES OR CHARGES OF ANY CHARACTER OR NATURE, WHICH IT MAY
INCUR OR WITH WHICH IT MAY BE THREATENED BY REASON OF ITS ACTING AS ESCROW
AGENT,
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AND IN CONNECTION THEREWITH, TO INDEMNIFY THE ESCROW AGENT AGAINST ANY
AND ALL EXPENSES, INCLUDING REASONABLE ATTORNEY'S FEES AND THE COSTS OF
DEFENDING OR APPEARING IN ANY ACTION OR RESISTING ANY CLAIM.
6. FEES OF ESCROW AGENT. The Escrow Agent shall be entitled to a fee for
services it renders hereunder in the amount of One Thousand Dollars ($1,000)
plus an additional fee in the amount of Ten Dollars ($10.00) for each check
issued pursuant to Paragraph 2(B) above.
7. RIGHTS AND DUTIES OF ESCROW AGENT. The rights and duties of Escrow
Agent shall
be as follows:
(A) No assignment of the interest of any of the parties hereto shall
be binding upon the Escrow Agent unless and until written evidence of such
assignment in a form satisfactory to the Escrow Agent shall be filed with and
accepted by the Escrow Agent.
(B) The Escrow Agent may rely or act upon orders or directions signed
by the proper parties, or bearing the signature or signatures reasonably
believed by the Escrow Agent to be genuine.
(C) The Escrow Agent shall have no duties other than those expressly
imposed on it herein and shall not be liable for any act or omission except for
its own gross negligence or willful misconduct. Escrow Agent understands that
time is of the essence and particularly that Company has a strict duty to pay
the rescinding shareholders (as described in sub-paragraph (2)(B) within five
(5) days of Election Day.
(D) In the event that the Deposit or any proceeds thereof shall be
attached, garnished, or levied upon by an order of any court, or the delivery
thereof shall be stayed or enjoined by an order of court, or any order, judgment
or decree shall be made or entered by any court affecting the property deposited
under this Agreement, or any part thereof, the Escrow Agent is hereby expressly
authorized in its sole discretion to obey and comply with all writs, orders or
decrees so entered or issued, which it is advised by legal counsel of its own
choosing is binding upon it.
(E) The Escrow Agent may resign by giving sixty (60) days written
notice of resignation, specifying the effective date thereof. Within thirty
(30) days after receiving the aforesaid notice, Company and Underwriters agree
to appoint a successor escrow agent to which the Escrow Agent shall transfer the
Deposit or any proceeds thereof then held in escrow under this Agreement. If a
successor escrow agent has not been appointed and/or has not accepted such
appointment by the end of the 30-day period, the Escrow Agent may at its sole
option: (i) apply to a court of competent jurisdiction for the appointment of a
successor escrow agent, and the costs, expenses and reasonable attorneys' fees
which are incurred in connection with such a proceeding shall be paid by
Company, or (ii) continue to hold the Deposit until it receives an
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order from a court of competent jurisdiction or joint written instructions of
Company and Underwriters directing Escrow Agent to release the Deposit.
8. DURATION OF ESCROW. The Escrow Account shall remain open
until the earlier of October 14, 1999 or the Escrow Account funds have been paid
out according to Paragraph 2 above and all fees/costs have been paid.
9. DISPUTES. In the event of any disagreement between any of the parties
resulting in conflicting or adverse claims or demands being made to the Deposit,
the Escrow Agent shall be entitled, at its sole option, to refuse to comply with
or recognize any such claims or demands as long as the disagreement shall
continue, and in doing so, Escrow Agent shall not become liable in any way to
any person for failure or refusal to comply with such conflicting or adverse
claims or demands, and its duties hereunder with regard to such disputed
Deposit, shall be suspended until the rights of the claimants have been fully
adjudicated or the disputing parties' differences have been adjusted and the
Escrow Agent shall have been notified, in a writing signed by the disputing
parties, as to the adjustment. In the event that the differences between the
parties with regard to the disputed Deposit have not been adjusted, and the
Escrow Agent has been so notified, within ten (10) days following receipt of
notice by Escrow Agent of conflicting or adverse claims or demands, Escrow Agent
may, but shall not be obligated to, interplead the disputed Deposit in court,
and thereupon Escrow Agent shall be fully and completely discharged of its
duties as Escrow Agent with regard to the disputed Deposit. A dispute between
Company and any individual Underwriter shall not affect the rights or duties of
Escrow Agent or Company or any non-disputing Underwriter. The disputing
parties (and only the disputing parties) shall be jointly and severally liable
to Escrow Agent for all fees and expenses, including legal fees, incurred by
Escrow Agent in exercising its rights.
10. NOTICES. Any notice or other communication required or permitted
hereunder shall be deemed to have been sufficiently given when delivered
personally, by facsimile or by such other method (including recognized air
courier or registered or certified mail, return receipt requested), addressed as
follows:
(A) if to Company: Xx. Xxxxxx X. Xxxxx
CyNet, Inc.
00000 Xxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
(000) 000-0000
(000) 000-0000 (FAX)
with copies to: Xx. Xxxxx X. Spring
Chamberlain, Hrdlicka, White et al.
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000-0000
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(000) 000-0000
(000) 000-0000 (FAX)
(B) if to Underwriters: See Underwriters Addendum attached as
Schedule B
(C) if to Escrow Agent: Xx. Xxxx X. Cott
Vice President
First Bank Texas, N.A.
0000 Xxxxxxxxxx Xxxx
Xxxxxxx, Xxxxx 00000
(000) 000-0000
(000) 000-0000 Fax
or to such other address as may be specified by any party in a written notice to
the other parties.
11. GOVERNING LAW. This Agreement shall be construed under the laws of
the State of Texas.
12. WAIVER. This Agreement may be amended or modified, and any term may
be waived, only if such amendment, modification or waiver is in writing and
signed by all parties.
13. NO THIRD PARTY BENEFICIARIES. This Agreement is a personal one, the
duty of the Escrow Agent being only to the parties hereto, their successors or
assigns, and to no other person whatsoever. Under no circumstances are the
Rescinding Shareholders third party beneficiaries to this Agreement.
14. COUNTERPARTS. This Agreement may be executed in separate
counterparts. Specifically, the Underwriters shall individually execute a
separate counterpart acknowledging acceptance of the terms of this Agreement and
giving the Underwriter's individual notice information.
First Bank Texas, N.A. CyNet, Inc.
"ESCROW AGENT" "COMPANY"
By: /s/ Al Cott By: /s/ Xxxxxx X. Xxxxx
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Al Cott Xxxxxx X. Xxxxx
Vice President Vice President & General Counsel
