ESCROW AGREEMENT IN ACCORDANCE WITH RULE 419
UNDER THE SECURITIES ACT OF 1933
ESCROW AGREEMENT dated as of ------- --, 1999 (the "Agreement") by and
between Kingsgate Acquisitions, Inc., a Delaware corporation (the "Company") and
Torrington Savings Bank (the "Escrow Agent") (collectively the "Parties" and,
individually, a "Party").
The Company, through its President, will sell in its public offering (the
"Offering") up to 1,000,000 units (the "Units") each Unit consisting of one
share of common stock, par value $.001 (the "Shares") and five redeemable common
stock purchase warrants (the "Warrants"), as more fully described in the
Company's definitive Prospectus dated ---------------- , 1999 comprising part of
the Company's Registration Statement on Form SB-2 (the "Registration Statement")
under the Securities Act of 1933, (the "Securities Act") (File No.-------)
declared effective on -------------, 1999 (the "Prospectus").
The Company desires that the Escrow Agent accept all offering proceeds,
with no deductions for amounts permitted to be released to the Company under
Rule 419 to the Securities Act ("Rule 419"), a copy of which rule is attached
hereto and made a part hereof, to be derived by the Company from the sale of the
Units (the "Offering Proceeds"), as well as the share and warrant certificates
representing the Shares and Warrants, which constitute the Units, issued in
connection with the Offering, in escrow, to be held and disbursed as hereinafter
provided.
NOW, THEREFORE, in consideration of the promises and mutual covenants
hereinafter set forth, the Parties agree as follows:
1. Appointment of Escrow Agent.
The Company hereby appoints the Escrow Agent to act in accordance with and
subject to the terms of this Agreement; and the Escrow Agent hereby accepts such
appointment and will act in accordance with and subject to such terms.
2. Deposit of Offering Proceeds and Share Certificates.
Subject to Rule 419, upon the Company's receipt and acceptance of
subscriptions and Offering Proceeds, the Company shall promptly deliver to the
Escrow Agent such checks in the aggregate amount of the Offering Proceeds drawn
to the order of the Escrow Agent or, alternatively, in the event that checks are
drawn to the order of the Company, they shall be endorsed by the Company for
collection by the Escrow Agent and credited to the Escrow Account.
All share and warrant certificates representing the Shares and Warrants,
respectively, issued in connection with the Offering shall also be deposited by
the Company directly into the Escrow Account promptly upon issuance. The
identity of the purchasers of the securities shall be included on the stock and
warrant certificates and other documents evidencing such securities. Securities
held in the Escrow Account are to remain as issued and deposited and shall be
held for the sole benefit of the purchasers, who shall have voting rights with
respect to securities held in their names. No transfer or other disposition of
securities held in the Escrow Account or any interest related to such securities
shall be permitted other than by will or the laws of descent and distribution,
or pursuant to a qualified domestic relations order as defined by the Internal
Revenue Code of 1986 as amended, or Title 1 of the Employee Retirement Income
Security Act and the rules thereunder.
Warrants, convertible securities or other derivative securities, if any,
relating to securities held in the Escrow Account may be exercised or converted
in accordance with their terms; provided however, that securities received upon
exercise or conversion, together with any cash or other consideration paid in
connection with the exercise or conversion, are promptly deposited into the
Escrow Account.
3. Disbursement of the Escrow Account.
Upon the earlier of (i) receipt by the Escrow Agent of a signed
representation from the Company to the Escrow Agent, that the requirements of
Rule 419 have been met, and consummation of an acquisition meeting the
requirements of Rule 419 or (ii) written notification from the Company to the
Escrow Agent to deliver the Offering Proceeds to another escrow agent in
accordance with Paragraph 4 then, in such event, the Escrow Agent shall disburse
the Offering Proceeds (inclusive of any interest thereon) to the Company and the
securities to the purchasers or registered holders identified on the deposited
securities or deliver the Offering Proceeds and securities to such other escrow
agent, as the case may be, whereupon the Escrow Agent shall be released from
further liability hereunder.
Notwithstanding the foregoing, if the Company has not informed the Escrow
Agent within 18 months after the date of the Prospects in writing that an
acquisition meeting the requirements of Rule 419 has occurred, funds held in the
Escrow Account shall be returned by first class mail or equally prompt means
pro rata to the purchasers and all securities held in the Escrow Account shall
be returned to the Company within five business days following that date.
4. Concerning the Escrow Agent.
The Escrow Agent shall not be liable for any actions taken or omitted by
it, or any action suffered by it to be taken or omitted by it, in good faith and
in the exercise of its own best judgment, and may rely conclusively and shall be
protected in acting upon any order, notice demand, certificate, opinion or
advice of counsel (including counsel chosen by the Escrow Agent), statement,
instrument, report or other paper or document (not only as to its due execution
and the validity and effectiveness of its provision, but also as to the truth
and acceptability of any information therein contained) which is believed by the
Escrow Agent to be genuine and to be signed or presented by the proper person or
person.
The Escrow Agent shall not be bound by any notice or demand, or any waiver,
modification, termination or rescission of this Agreement unless evidenced by a
writing delivered to the Escrow Agent signed by the proper Party or Parties and,
if the duties or rights of the Escrow Agent are affected, unless it shall have
given its prior written consent thereto.
The Escrow Agent shall not be responsible for the sufficiency or accuracy,
the form of, or the execution validity, value or genuineness of any document or
property received, held or delivered by it hereunder, or of any signature or
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein, nor shall the Escrow Agent be responsible or liable in any
respect on account of the identity, authority or rights of the person executing
or delivering or purporting to execute or deliver any document or property paid
or delivered by the Escrow Agent under the provisions hereof.
The Escrow Agent shall not be liable for any loss which may be incurred by
reason of any investment of any monies or properties which it holds hereunder.
The Escrow Agent shall have the right to assume, in the absence of written
notice to the contrary from the proper person or persons, that a fact or an
event by reason of which an action would or might be taken by the Escrow Agent
does not exist or has not occurred, without incurring liability for any action
taken or omitted, in good faith and in the exercise of its own best judgment, in
reliance upon such assumption.
The Escrow Agent shall be indemnified and held harmless by the Company from
and against any expenses, including counsel fees and disbursements, or loss
suffered by the Escrow Agent in connection with any action, suit or other
proceeding involving any claim, or in connection with any claim or demand, which
in any way directly or indirectly arises out of or relates to this Agreement,
the services of the Escrow Agent hereunder, the monies or other property held by
it hereunder or any such expense or loss. Promptly after the receipt by the
Escrow Agent of notice of any demand or claim or the commencement of any action,
suit or proceeding, the Escrow Agent shall, if a claim in respect thereof shall
be made against the other Parties, notify such Parties in writing; but the
failure by the Escrow Agent to give such notice shall not relieve any Party form
any liability which such Party may have to the Escrow Agent hereunder. Upon the
receipt of such notice, the Escrow Agent, in its sole discretion, may commence
an action in the nature of interpleader in an appropriate court to determine
ownership or disposition of the Escrow Account or it may deposit the Escrow
Account with the clerk of any appropriate court or it may retain the Escrow
Account pending receipt of a final, non-appealable order of a court having
jurisdiction over all of the Parties directing to whom and under what
circumstances the Escrow Account is to be disbursed and delivered.
The Escrow Agent shall be entitled to reasonable compensation from the
Company for all services rendered by it hereunder.
From time to time on and after the date hereof, the Company shall deliver
or cause to be delivered to the Escrow Agent such further documents and
instruments and shall do or cause to be done such further acts as the Escrow
Agent shall reasonably request (it being understood that the Escrow Agent shall
have no obligation to make such request) to carry out more effectively the
provisions and purposes of this Agreement, to evidence compliance herewith or to
assure itself that it is protected in acting hereunder.
The Escrow Agent may resign at any time and be discharged from its duties
as Escrow Agent hereunder by its giving the Company at least thirty (30) days'
prior written notice thereof. As soon as practicable after its resignation, the
Escrow Agent shall turn over to a successor escrow agent appointed by the
Company, all monies and property held hereunder upon presentation of the
document appointing the new escrow agent and its acceptance thereof. If no new
escrow agent is so appointed in the sixty (60) day period following the giving
of such notice of resignation, the Escrow Agent may deposit the Escrow Account
with any court it deems appropriate.
The Escrow Agent shall resign and be discharged form its duties as Escrow
Agent hereunder if so requested in writing at any time by the Company, provided,
however, that such resignation shall become effective only upon acceptance of
appointment by a successor escrow agent as provided above. Notwithstanding
anything herein to the contrary, the Escrow Agent shall not be relieved from
liability thereunder for its own gross negligence or its own willful misconduct.
5. Miscellaneous.
This Agreement shall for all purposes be deemed to be made under and shall
be construed in accordance with the internal laws of the State of Delaware.
This Agreement contains the entire agreement of the Parties with respect to
the subject matter hereof and, except as expressly provided herein, may not be
changed or modified except by an instrument in writing signed by the Party to be
charged.
The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation thereof.
This Agreement shall be binding upon and inure to the benefit of the
respective Parties and their legal representatives, successors and assigns.
Any notice or other communication required or which may be given hereunder
shall be in writing and either be delivered personally or be mailed, certified
or registered mail, return receipt requested, postage prepaid, and shall be
deemed given when so delivered personally or, if mailed, two (2) days after the
date of mailing. The Parties may change the persons and addresses to which the
notices or other communications are to be sent by giving written notice to any
such change in the manner provided herein for giving notice.
WITNESS the execution of this Agreement as of the date first above written.
KINGSGATE ACQUISITIONS, INC.
By: /s/
------------------------------
Barney Magnusson, President
This Escrow Agreement is accepted as of the ----- day of ----------, 1999.
TORRINGTON SAVINGS BANK
By: ------------------------------
Authorized Representative