ESCROW AGREEMENT
----------------
AGREEMENT, dated as of the ____ day of November, 1996, by and among
American Stock Transfer & Trust Company, a New York corporation (hereinafter
referred to as the "Escrow Agent"), Heuristic Development Group, Inc., a
Delaware corporation (the "Company"), and the stockholders of the Company who
have executed this Agreement (hereinafter collectively called the
"Stockholders") and the holders of options issued by the Company who have
executed this Agreement (hereinafter collectively called the "Optionholders").
WHEREAS, the Company contemplates a public offering ("Public Offering") of
Units ("Units"), each Unit consisting of one share of its Common Stock, par
value $.01 per share (the "Common Stock"), one redeemable Class A Warrant (the
"Class A Warrant"), and one redeemable Class B Warrant ("Class B Warrant"),
through D.H. Blair Investment Banking Corp. as underwriter (the "Underwriter")
pursuant to a Registration Statement on Form SB-2 to be filed with the
Securities and Exchange Commission (the "Registration Statement"); and
WHEREAS, the Stockholders have agreed to deposit in escrow an aggregate of
349,370 shares of Common Stock and the Optionholders have agreed to deposit in
escrow options to purchase an aggregate of 50,630 shares of 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, the Optionholders and the Company hereby appoint
American Stock Transfer & Trust Company as Escrow Agent and agree that the
Stockholders,
the Optionholders will, prior to the Effective Date (as hereinafter defined) of
the Public Offering, deliver to the Escrow Agent to hold in accordance with the
provisions hereof certificates representing an aggregate of 349,370 shares of
Common Stock owned of record by the Stockholders in the respective amounts set
forth on Exhibit A hereto (the "Escrow Shares"), together with stock powers
executed in blank, and agreements representing options to purchase an aggregate
of 50,630 shares of Common Stock held by the Optionholders in the respective
amounts set forth on Exhibit B hereto (the "Escrow Options"). The Escrow Agent,
by its execution and delivery of this Agreement hereby acknowledges receipt of
the Escrow Shares and Escrow Options and accepts its appointment as Escrow Agent
to hold the Escrow Shares and Escrow Options in escrow, upon the terms,
provisions and conditions hereof.
2. This Agreement shall become effective upon the date on which the
Securities and Exchange Commission declares effective the Registration Statement
("Effective Date") and shall continue in effect until the earlier of (i) the
date specified in paragraph 4(e) hereof or (ii) the distribution by the Escrow
Agent of all of the Escrow Shares and Escrow Options in accordance with the
terms hereof (the "Termination Date"). The period of time from the Effective
Date until the Termination Date is referred to herein as the "Escrow Period."
3. During the Escrow Period, the Escrow Agent shall receive all of the
money, securities, rights or property distributed in respect of the Escrow
Shares and Escrow Options then held in escrow, including any such property
distributed as dividends or pursuant to any stock split, merger,
recapitalization, dissolution, or total or partial liquidation of the Company,
such property to be held and distributed as herein provided and hereinafter
referred to collectively as the "Escrow Property."
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4. (a) The Escrow Shares and Escrow Options are subject to release to the
Stockholders and Optionholders, as applicable, only in the event the conditions
set forth herein are met. The Escrow Agent, upon notice to such effect from the
Company as provided in paragraph 5 hereof, shall deliver the Escrow Shares,
together with stock powers executed in blank, and Escrow Options, and the Escrow
Property deposited in escrow with respect to such Escrow Shares and Escrow
Options, to the respective Stockholders, if, and only if, one of the following
conditions is met:
(i) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings (all as audited by the
Company's independent public accountants) (the "Minimum Pretax
Income") amounts to at least $3.3 million for the fiscal year ending
December 31, 1998;
(ii) the Minimum Pretax Income amounts to at least $4.5 million for the
fiscal year ending December 31, 1999;
(iii) the Minimum Pretax Income amounts to at least $5.7 million during the
fiscal year ending December 31, 2000;
(iv) the Bid Price (as hereafter defined) of the Common Stock averages in
excess of $12.50 per share for 30 consecutive business days during
the 18-month period commencing on the Effective Date; or
(v) the Bid Price of the Common Stock averages in excess of $16.75 per
share for 30 consecutive business days during the 18-month period
commencing with the nineteenth month from the Effective Date.
(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:
(i) If the principal market for the Common Stock is a national securities
exchange or the Nasdaq National Market, the closing sales price of
the Common Stock as reported by such exchange or market, or on a
consolidated tape reflecting transactions on such exchange or market;
or
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(ii) if the principal market for the Common Stock is not a national
securities exchange or the Nasdaq National Market and if the Common
Stock is quoted on the Nasdaq SmallCap Market, the closing bid price
of the Common Stock as quoted on the Nasdaq SmallCap Market; or
(iii) if the principal market for the Common Stock is not a national
securities exchange or the Nasdaq National Market and if 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 (i) any extraordinary earnings or charges (including any charges
incurred by the Company in connection with the release from escrow of the Escrow
Shares and Escrow Options and any Escrow Property in respect thereof pursuant to
the provisions of this paragraph 4) and (ii) any shares of Common Stock issued
upon conversion of securities outstanding immediately prior to the Effective
Date which are convertible into Common Stock without the payment of additional
consideration.
(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 Effective Date, including
any shares of Common Stock that may be issued upon the exercise of the Class A
Warrants, the Class B Warrants or any other options or warrants presently
outstanding or hereafter granted by the Company (excluding options granted under
the Company's 1996 Stock Option Plan (the "Plan") which, in the aggregate, do
not exceed 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
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Pretax 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 Escrow
Options and any shares of Common Stock issuable upon conversion of any
outstanding securities but excluding shares of Common Stock issuable upon
exercise of (i) outstanding Class A and Class B Warrants sold pursuant to the
Prospectus included in the Registration Statement; (ii) outstanding Unit
Purchase Options (and the Class A and Class B Warrants included therein) issued
to the Underwriter and (iii) options outstanding under the Plan), and the
denominator of which shall be the sum of (x) the number of shares of Common
Stock outstanding on the Effective Date (including the Escrow Shares, Escrow
Options and any shares of Common Stock issuable upon conversion of securities
outstanding immediately prior to the Effective Date which are convertible into
Common Stock without the payment of additional consideration), plus (y) the
number of shares of Common Stock sold pursuant to the Prospectus included in the
Registration Statement.
(e) If the Escrow Agent has not received the notice provided for in
Paragraph 5 hereof and delivered all of the Escrow Shares, Escrow Options and
related Escrow Property in accordance with the provisions of this Paragraph 4 on
or prior to March 31, 2001, the Escrow Agent shall deliver the certificates
representing all of the 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 and the Optionholders
shall have no further rights with respect to any of the cancelled Escrow
Options.
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5. Upon the occurrence or satisfaction of any of the events or conditions
specified in Paragraph 4 hereof, the Company shall promptly give appropriate
notice to the Escrow Agent, the Underwriter (and if the transfer agent of the
Company's Common Stock is different from the Escrow Agent, such transfer agent)
and present such documentation as is reasonably required by the Escrow Agent to
evidence the satisfaction of such conditions.
6. It is understood and agreed by the parties to this Agreement as follows:
(a) The Escrow Agent is not and shall not be deemed to be a trustee
for any party for any purpose and is merely acting as a depository and in a
ministerial capacity hereunder with the limited duties herein prescribed.
(b) The Escrow Agent does not have and shall not be deemed to have any
responsibility in respect of any instruction, certificate or notice
delivered to it or of the Escrow Shares, Escrow Options 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 believed by it to be genuine and to have been
signed by the proper party or parties.
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(e) The Company agrees (i) to pay the Escrow Agent's reasonable fees
and to reimburse it for its reasonable expenses including attorney's fees
incurred in connection with duties hereunder and (ii) to save harmless,
indemnify and defend the Escrow Agent for, from and against any loss,
damage, liability, judgment, cost and expense whatsoever, including counsel
fees, suffered or incurred by it by reason of, or on account of, any
misrepresentation made to it or its status or activities as Escrow Agent
under this Agreement except for any loss, damage, liability, judgment, cost
or expense resulting from gross negligence, willful misconduct or bad faith
on the part of the Escrow Agent. The obligation of the Escrow Agent to
deliver the Escrow Shares to either the Stockholders or the Company or the
Escrow Options to either the Optionholders 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 or
the Optionholders 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, the Optionholders 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
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generally, unless such waiver be in writing, and no waiver shall be valid
unless it is in writing, signed by the Escrow Agent, and only to the extent
expressly therein set forth. A waiver by the Escrow Agent under the term of
this Agreement shall not be construed as a bar to, or waiver of, the same
or any other such right or remedy which it would otherwise have on any
other occasion.
(h) The Escrow Agent may resign as such hereunder by giving 30 days
written notice thereof to the Stockholders, the Optionholders and the
Company. Within 20 days after receipt of such notice, the Stockholders, the
Optionholders and the Company shall furnish to the Escrow Agent written
instructions for the release of the Escrow Shares, the Escrow Options and
any related Escrow Property (if such shares, options 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, the Optionholders 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, Escrow Options 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.
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7. The Stockholders shall have the sole power to vote the Escrow Shares and
any securities deposited in escrow under this Agreement while they are being
held pursuant to this Agreement.
8. (a) Each of the Stockholders agrees that during the term of this
Agreement he will not sell, transfer, hypothecate, negotiate, pledge, assign,
encumber or otherwise dispose of any or all of the Escrow Shares set forth
opposite his name on Exhibit A hereto, unless and until the Company shall have
given the notice as provided in Paragraph 5. This restriction shall not be
applicable to transfers upon death, by operation of law, to 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 and the Optionholders 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 and Escrow Options 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 American Stock Transfer & Trust Company, Heuristic Development
Group, Inc. (the "Company") and the Stockholders of the Company dated
as of _________, 1996, a copy of which may be obtained from the
Secretary of the Company. No transfer, sale or other disposition of
these shares may be made unless specific conditions of such agreement
are satisfied.
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(b) "The shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended. No transfer, sale or
other disposition of these shares may be made unless a registration
statement with respect to these shares has become effective under said
act, or the Company is furnished with an opinion of counsel
satisfactory in form and substance to it that such registration is not
required."
Upon execution of this Agreement, the Company shall direct the transfer
agent for the Company to place stop transfer orders with respect to the Escrow
Shares and to maintain such orders in effect until the transfer agent and the
Underwriter shall have received written notice from the Company as provided in
Paragraph 5.
10. At any time during the Escrow Period, an Optionholder may exercise all
or a portion of his Escrow Options in accordance with the terms of his option
agreement. The Company shall deliver a certificate for the purchased shares with
stock powers executed in blank attached to the Escrow Agent against delivery of
the Escrow Options which have been exercised, and the Escrow Agent shall hold
such shares as Escrow Shares in accordance with the provisions of this
Agreement.
11. 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:
Heuristic Development Group, Inc.
17575 Pacific Coast Highway
Pacific Palisades, California 92072
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(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
40 Wall Street
New York, New York 10005
(iv) If to the Underwriter, to:
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, New York 10005
Att: Martin A. Bell, Esq.
Fax: 212-514-7837
All notices, instructions or certificates given hereunder to the Escrow Agent
shall be effective upon receipt by the Escrow Agent. All notices given hereunder
by the Escrow Agent shall be effective and deemed received upon personal
delivery or transmission by fax or, if mailed, five (5) calendar days after
mailing by the Escrow Agent.
A copy of all communications sent to the Company, the Stockholders or the
Escrow Agent shall be sent by ordinary mail to Bachner, Tally, Polevoy & Misher
LLP, 380 Madison Avenue, New York, New York 10017, Attention: Sheldon E. Misher,
Esq. A copy of all communications sent to the Underwriter shall be sent by
ordinary mail to Singer, Blenenstock, Zamansky, Ogele & Selengut LLP, 40
Exchange Place, New York, New York 10005, Attention: C. David Selengut, Esq.
12. Except as set forth in paragraph 13 hereof, this Agreement may not be
modified, altered or amended in any material respect or cancelled or terminated
except with the prior consent of the holders of all of the outstanding shares of
Common Stock of the Company.
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13. In the event that the Public Offering is not consummated within
twenty-five (25) days of the Effective Date of the Registration Statement, this
Agreement shall terminate and be of no further force and effect and the Escrow
Agent, upon written notice from both the Company and the Underwriter in
accordance with paragraph 10 hereof of such termination, will return the Escrow
Shares, Escrow Options and any Escrow Property in respect thereof to the
Stockholders.
14. 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.
15. This Agreement may be executed in several counterparts, which taken
together shall constitute a single instrument.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers on the day and year first above
written.
HEURISTIC DEVELOPMENT GROUP, INC.
By: __________________________
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By: __________________________
STOCKHOLDERS:
BROOKS TRUST, 10/7/72
By:___________________________
Title:________________________
CLARK TRUST, u/t/d 6/30/69
By:___________________________
Title:________________________
CLARK MANAGEMENT CO. INC.
By:___________________________
Title:________________________
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NAUTILUS GROUP JAPAN LTD.
By:___________________________
Title:________________________
ARCADIAN & CO., L.P.
By:___________________________
Title:________________________
TRANSPAC SOFTWARE INC.
By:___________________________
Title:________________________
ACC TRUST
By:___________________________
Title:________________________
______________________________
Jerald N. Downen
______________________________
Michael A. Hertzberg
______________________________
Kimitane Sohma
______________________________
John Dobbs
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______________________________
R. Brett Lunger
______________________________
Jay Jay Shapiro
______________________________
Gregory L. Zink
______________________________
Deborah E. Griffin
______________________________
Steven R. Gumins
______________________________
Eric Rhodes
SEYBOLD FAMILY TRUST
By:____________________________
Title:_________________________
BLASE FAMILY TRUST
By:____________________________
Title:_________________________
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EXHIBIT A
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STOCKHOLDERS' LIST
Name of Stockholder Address Number of Escrow Shares
- ------------------- ------- -----------------------
Brooks Trust, 10/7/72 c/o Clark Management Co. Inc. 2,260.5
P.O. Box 3090
Boynton Beach, FL 33424
Clark Trust, u/t/d 6/30/69 c/o Clark Management Co. Inc. 31,728
P.O. Box 3090
Boynton Beach, FL 33424
Clark Management Co. Inc. P.O. Box 3090 1,507
Boynton Beach, FL 33424
Nautilus Group Japan Ltd. P.O. Box 3090 183,257.5
Boynton Beach, FL 33424
Arcadian & Co., L.P. c/o Patterson, Belknap, Webb & Tyler 1,507
1133 Avenue of the Americas
New York, New York 10036-6710
Attn: Mr. Robert Pennoyer
Transpac Software Inc. 467 Saratoga Avenue 10,554
Suite 550
San Jose, CA 95219
ACC Trust c/o Clark Management Co. Inc. 4,520.5
P.O. Box 3090
Boynton Beach, FL 33424
Jerald N. Downen 1390 South Clinton Road 9,376
Denver, CO 80231
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Michael A. Hertzberg c/o Howery & Simon 10,046
1299 Pennsylvania Avenue N.W.
Washington, D.C. 2004-2402
Kimitane Sohma c/o Nautilus Group Japan, Inc. 6,697
Landic Akasaka 2nd Bldg. 2F
10-9, Akasaka 2-Chome
Minato-ku, Tokyo
John Dobbs 8404 Winding Trail Place 669.5
Mason, OH 45040
R. Brett Lunger 301 Snuff Mill Road 669.5
Wilmington, DE 19807-1025
Jay Jay Shapiro 1149 East Alemeda 669.5
Santa Fe, NM 87501
Gregory L. Zink 54 River Drive 6,697
Ocean Ridge, FL 33435
Eric Rhodes 500 Lunalilo Home Road 1,339.5
Apartment 13-A
Honolulu, HI 96825
Seybold Family Trust P.O. Box 1315 70,732
Eastsound, WA 98245
Att: Jonathan W. Seybold
Blase Family Trust 448 Adelaide Drive 7,139.5
Santa Monica, CA 90402 -------
Att: Dr. William Blase
Total: 349,370
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EXHIBIT B
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OPTIONHOLDERS' LIST
Name of Optionholder Address Number of Escrow Options
- -------------------- ------- ------------------------
Deborah E. Griffin 3590 Las Flores Canyon Road 27,091
Malibu, CA 90265
Steven R. Gumins 2677 Rambla Pacifico 23,539
Malibu, CA 90265 ------
Total: 50,630
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