EXHIBIT 10.5
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("AGREEMENT") is made as of August 23, 2002 by and
between FTS Apparel, Inc. (the "COMPANY"), Dutchess Private Equities Fund, L.P.
(the "INVESTOR") and Joseph B. LaRocco, Esq., with an office at 49 Locust
Avenue, Suite 107, New Canaan, CT 06840 (the "ESCROW AGENT"). Capitalized
terms used but not defined herein shall have the meanings set forth in the
Transaction Documents referred to in the first recital.
W I T N E S S E T H:
WHEREAS, the Company will from time to time sell shares of its common stock
(the "SHARES") to the Investor upon terms as set forth in the Investment
Agreement and related documents dated the date hereof (the "TRANSACTION
DOCUMENTS") entered into by the Company and Investor; and
WHEREAS, the Company and the Investor have requested that the Escrow Agent
hold the Shares and funds ("FUNDS") being used to purchase the Shares in escrow
pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW
1.1 The parties hereby agree to have Joseph B. LaRocco, Esq. act as Escrow
Agent whereby the Escrow Agent, subject to the right of the parties to remove
the Escrow Agent and the right of the Escrow Agent to resign, shall receive the
Shares and Funds in escrow and distribute the same as set forth in this
Agreement.
1.2 Concurrent with each Put Notice delivered by the Company to the
Investor, the Company shall deliver a copy of said Put Notice to the Escrow
Agent, and upon the conclusion of the Pricing Period, the Company shall deliver
a subsequent notice to the Investor and the Escrow Agent confirming the number
of Shares being purchased in accordance with the Transaction Documents and the
Purchase Price for said Shares.
1.3 (a) Prior to each Closing Date, (i) the Company shall deliver to the
Escrow Agent certificates representing the Shares to be issued to the Investor
in such denominations as may be requested by the Investor and (ii) the Investor
shall deliver to the Escrow Agent that amount necessary to purchase such Shares
as required by the Transaction Documents (the "Purchase Amount")by wire
transfer. All Funds received by the Escrow Agent shall be
maintained in a separate account solely in the name of the Escrow Agent, free
from the claims of any creditors of Escrow Agent.
(b) In the alternative to physical delivery of certificates for Common
Stock to the Escrow Agent, if delivery of the Shares may be effectuated by
electronic book-entry through The Depository Trust Company ("DTC"), then
delivery of the Shares pursuant to such purchase shall, unless requested
otherwise by such Investor, settle by book-entry transfer to an account in the
name of the Escrow Agent, free from the claims of any creditors of the Escrow
Agent, through DTC by the Closing Date. The parties agree to coordinate with
DTC to accomplish this objective.
(c) The Escrow Agent shall exercise reasonable care in safekeeping the
Shares and the Funds but shall not be under any obligations to invest, reinvest,
vote or otherwise deal with the escrowed Shares or the Funds except as otherwise
set forth in this Agreement or unless otherwise instructed in writing signed by
both Parties.
(d) In addition, each of the Company and the Investor shall deliver all
documents, instruments and writings required to be delivered by either of them
to the Escrow Agent pursuant to the Transaction Documents at or prior to each
Closing, which writings shall include instructions for delivery of the Shares to
the Investor and wire transfer instructions for the Company.
1.4 With regard to each Put Notice, the Escrow Period shall commence
upon the receipt of either or both the Shares to be purchased pursuant to a Put
Notice or all or some portion of the Funds, and shall continue until the
earliest to occur of the following events:
(a) distribution of the Shares to the Investor and the Funds to the
Company as otherwise provided by the Transaction Documents; or
receipt by Escrow Agent of a written agreement executed by
both Parties notifying Escrow Agent that the Escrow Period is terminated and
specifying the distribution of any remaining escrowed Shares or Funds.
1.5 (a) On each Closing Date, if the Escrow Agent has received both the
requisite number of Shares being purchased and the Purchase Amount, the Escrow
Agent shall forward the Shares being purchased to the Investor, and wire the
amount necessary to purchase the Shares, pursuant to the Transaction Documents,
to the Company, less any amounts which the Escrow Agent is authorized to deduct
pursuant to the provisions of Section 1.5(c) below..
(b)If the number of correct number of Shares or Funds representing the
Purchase Amount are not received by the Escrow Agent by the Closing Date, he
shall hold and retain such amount as he may have in his possession, notify the
parties and await further instructions. In no event shall the Escrow Agent
release any Shares to the Investor unless and
until the Escrow Agent shall have received all necessary Funds for the
corresponding Purchase Amount.
(c) The Escrow Agent shall deduct from the Funds he receives in escrow from
the Investor the following amounts:
(a) On each Closing Date, Escrow Agent shall deduct from the Purchase
Amount as an escrow fee the sum of $750 for each Put Notice; and
(b) 8% of the [gross] Purchase Amount on each Closing Date to be
wired per the written instructions of Dutchess Private Equities
Fund, L.P.
1.6 After Investor's receipt of a Put Notice, but prior to the related
Closing Date, the Investor may authorize the Escrow Agent to release a portion
of the Purchase Amount from escrow to the Company in exchange for a fixed number
of Shares, subject to the following conditions:
(a) The Investor shall fill out and sign a "Partial Release of
Purchase Amount and Shares from Escrow" (the "Partial Release
Form"). See Exhibit A attached hereto. The Partial Release Form
shall set forth the number of Shares to be released to Investor
and the dollar amount the Escrow Agent shall wire to the Company.
(b) The Partial Release Form shall be filled out and signed by the
Investor and faxed to the Company and the Escrow Agent prior to
12:00 p.m. New York City time.
The number of Shares stated in the Partial Release Form shall be equal to
the dollar amount to be released divided by 92% of the lowest closing bid price
during that number of Trading Days in the Purchase Period that have expired.
The Company and Investor agree that on the related Closing Date, an
adjustment shall be made so that the terms set forth in the Investment Agreement
shall be honored with the balance of the Purchase Amount being released to the
Company and the balance of Shares owed to Investor being released to Investor.
1.7 If the Escrow Agent does not have the exact number of Shares to send
Investor, because of the denominations of the various Share certificates, the
parties will mutually agree on how to resolve the matter.
1.8 This Escrow Agreement may be altered or amended only with the written
consent of all of the parties hereto. Should Company attempt to change this
Escrow Agreement in a manner which, in the Escrow Agent's discretion, shall be
undesirable, the Escrow Agent may resign as Escrow Agent by notifying Company
and Investor in writing upon not less than 30 days advance notice. Escrow Agent
may be removed at any time by an instrument or concurrent instruments in writing
delivered to Escrow Agent and signed by each of the Company and the Investor. In
the case of the Escrow Agent's resignation or removal
pursuant to the foregoing, his only duty, until receipt of notice from Company
and Investor that a successor escrow agent has been appointed, shall be to hold
and preserve the Shares and Funds that are in his possession. In the event of
the resignation of Escrow Agent, if a substitute Escrow Agent shall not have
been selected as aforesaid within the 30-day notice period referred to in this
Section 1.8, Escrow Agent shall be entitled to petition any court of competent
jurisdiction for the appointment of a substitute for it hereunder or, in the
alternative, it may transfer and deliver the Escrowed Shares then held by it to
or upon the order of such court. Upon receipt by the Escrow Agent of said notice
from Company and Investor of the appointment of a successor escrow agent, the
name of a successor escrow account and a direction to transfer the Shares and
Funds, the Escrow Agent shall promptly thereafter transfer all of the Shares and
Funds that he is still holding in escrow, to said successor escrow agent.
Immediately after said transfer of the Shares and Funds, the Escrow Agent shall
furnish Company and Investor with proof of such transfer.
1.9 The Escrow Agent shall be reimbursed by Company and Investor for any
reasonable expenses incurred in the event there is a conflict between the
parties and the Escrow Agent shall deem it necessary to retain counsel, upon
whose reasonable advice the Escrow Agent may rely. The Escrow Agent shall not be
liable for any action taken or omitted by him in good faith and in no event
shall the Escrow Agent be liable or responsible except for the Escrow Agent's
own gross negligence or willful misconduct. The Escrow Agent has made no
representations or warranties to the Company in connection with this
transaction. The Escrow Agent has no liability hereunder to either party other
than to hold the Shares and Funds received by the Investor and to deliver them
under the terms hereof. Each party hereto agrees to indemnify and hold harmless
the Escrow Agent from and with respect to any suits, claims, actions or
liabilities arising in any way out of this transaction including the obligation
to defend any legal action brought which in any way arises out of or is related
to this Agreement or the investment being made by Investor. The Company
acknowledges and represents that it is not being represented in a legal capacity
by Joseph B. LaRocco, and has had the opportunity to consult with its own legal
advisors prior to the signing of this Agreement. The Company acknowledges that
the Escrow Agent is not rendering securities advice to the Company with respect
to this proposed transaction. The Escrow Agent has acted as legal counsel for
the Investor and may continue to act as legal counsel for the Investor, from
time to time, notwithstanding its duties as the Escrow Agent hereunder. The
Company consents to the Escrow Agent acting in such capacity as legal counsel
for the Investor and waives any claim that such representation represents a
conflict of interest on the part of the Escrow Agent. The Company understands
that the Investor and Escrow Agent are relying explicitly on the foregoing
provisions contained in this Section 1.8 in entering into this Agreement.
1.10 The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be personally liable for any
act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while
acting in good faith, and any act done or omitted by the Escrow Agent in good
faith pursuant to the advice of the Escrow Agent's attorneys-at-law shall be
conclusive evidence of such good faith.
1.11 The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person or
corporation, excepting only final, nonappealable orders or process of courts of
law or written agreements of the parties and is hereby expressly authorized to
comply with and obey those orders, judgments or decrees of any court. In case
the Escrow Agent obeys or complies with any such order, judgment or decree, the
Escrow Agent shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such decree being subsequently
reversed, modified, annulled, set aside, vacated or found to have been entered
without jurisdiction.
1.12 The Escrow Agent shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
1.13 If the Escrow Agent reasonably requires other or further documents in
connection with this Agreement, the necessary parties hereto shall join in
furnishing such documents.
1.13 It is understood and agreed that should any dispute arise with
respectto the delivery and/or ownership or right of possession of the documents
or the Funds held by the Escrow Agent hereunder, the Escrow Agent is authorized
and directed in the Escrow Agent's sole discretion (a) to retain in the Escrow
Agent's possession without liability to anyone all or any part of said documents
or the Funds until such disputes shall have been settled either by mutual
written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but the Escrow Agent shall be under no
duty whatsoever to institute or defend any such proceedings or (b) to interplead
the Funds and any other property and documents held by the Escrow Agent
hereunder to a state or federal court having competent subject matter
jurisdiction and located in the State of Connecticut in accordance with the
applicable procedure therefor.
ARTICLE 2
MISCELLANEOUS
2.1 No waiver of any breach of any covenant or provision herein contained
shall be deemed a waiver of any preceding or succeeding breach thereof, or of
any other covenant or provision herein contained. No extension of time for
performance of any obligation or act shall be deemed any extension of the time
for performance of any other obligation or act.
2.2 This Agreement shall not be assignable.
2.3 This Agreement is the final expression of, and contains the entire
agreement between, the parties with respect to the subject matter hereof and
supersedes all prior understandings with respect thereto. This Agreement may not
be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived, except
by written instrument signed by the parties to be charged or by its agent duly
authorized in writing or as otherwise expressly permitted herein.
2.4 Whenever required by the context of this Agreement, the singular shall
include the plural and masculine shall include the feminine. This Agreement may
be executed in two or more counterparts, all of which taken together shall
constitute one instrument. Execution and delivery of this Agreement by exchange
of facsimile copies bearing the facsimile signature of a party shall constitute
a valid and binding execution and delivery of this Agreement by such party.
Such facsimile copies shall constitute enforceable original documents.
2.5 The parties hereto expressly agree that this Agreement shall be
governed by, interpreted under, and construed and enforced in accordance of the
laws of the State of Connecticut. The parties agree that any dispute arising
under or with respect to or in connection with this Agreement, whether during
the term of this Agreement or at any subsequent time, shall be resolved fully
and exclusively by binding arbitration in accordance with the commercial rules
then in force of the American Arbitration Association with the proceedings
taking place in Stamford, Connecticut before a panel of three (3) arbitrators.
2.6 Any notice required or permitted hereunder shall be given in manner
provided in the Section headed "NOTICES" in the Investment Agreement , the terms
of which are incorporated herein by reference.
2.7 By signing this Agreement, the Escrow Agent becomes a party hereto only
for the purpose of this Agreement; the Escrow Agent does not become a party to
the Transaction Documents.
2.8 Each party acknowledges and agrees that this Agreement shall not be
deemed prepared or drafted by any one party. In the event of any dispute between
the parties concerning this Agreement, the parties agree that any rule of
construction, to the effect that any ambiguity in the language of the Agreement
is to be resolved against the drafting party, shall not apply.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 23 day of August 2002.
FTS APPAREL, INC.
/s/ Scott Gallagher
By: ____________________________________
Name: Scott Gallagher
Title: CEO
DUTCHESS PRIVATE EQUITIES FUND, L.P.
BY ITS GENERAL PARTNER DUTCHESS
CAPITAL MANAGEMENT, LLC
/s/ Douglas H. Leighton
By: ____________________________________
Name: Douglas H. Leighton
Title: A Managing Member
JOSEPH B. LAROCCO, ESCROW AGENT
/s/ Joseph B. Larocco
By: ____________________________________
Joseph B. LaRocco, Esq.
EXHIBIT A
PARTIAL RELEASE OF PURCHASE AMOUNT AND SHARES FROM ESCROW
If to the Company:
FTS Apparel, Inc.
1379 River Road
Yardley, Pennsylvania 19067
Attention: Scott Galagher, CEO
Telephone: (215) 369-9820
Facsimile: (215) 369-9821
With a copy to:
David Babiarz, Esq.
7720 E. Belleview, Suite 200
Greenwood Village, CO 80111
Telephone: 303-779-5900
Facsimile: 303-779-6006
With a copy to:
Joseph B. LaRocco, Esq.
49 Locust Avenue, Suite 107
New Canaan, CT 06840
Telephone No.: 203-966-0566
Telecopier No.: 203-966-0363
Each party shall provide five (5) business days prior notice to the other
party of any change in address, phone number or facsimile number.
Pursuant to the terms of the Escrow Agreement, the Investor and the Company
requests the release from escrow of __________ shares of the Company's Common
Stock by overnight delivery and authorizes the Escrow Agent to release from
escrow $___________ .
By:____________________________________________
Note: The number of Shares stated in this PARTIAL RELEASE OF PURCHASE AMOUNT AND
SHARES FROM ESCROW Form shall be equal to the dollar amount to be released
divided by 92% of the lowest closing bid price during that number of Trading
Days in the Purchase Period that have expired.