Escrow Agreement - GT Interactive Software Corp., WizardWorks Group inc. and Republic National Bank of New York
ESCROW AGREEMENT
This ESCROW AGREEMENT dated June 24, 1996 is among GT Interactive Software
Corp. ("GT"), a Delaware corporation, Paul D. Rinde, as the representative of
the stockholders (the "Stock- holder Representative") of WizardWorks Group, Inc.
("WizardWorks"), a Minnesota corporation, and Republic National Bank of New
York, as escrow agent (the "Escrow Agent").
PRELIMINARY STATEMENT
Pursuant to an Agreement and Plan of Reorganization dated as of June 24,
1996 (the "Merger Agreement"), by and among GT, WizardWorks, and the
stockholders of WizardWorks, GT is acquiring WizardWorks through the merger of
WizardWorks into a wholly owned subsidiary of GT. Capitalized terms used herein
and not otherwise defined have the meanings assigned to them in the Merger
Agreement.
The holders of the WizardWorks Stock outstanding immediately prior to the
Effective Time (the "Stockholders"), jointly and severally, have agreed to
indemnify GT as provided in the Merger Agreement through the deposit of 235,000
shares of GT Common Stock (the "Escrow Shares") pursuant to Section 2.7 of the
Merger Agreement. A list of all Stockholders and their pro rata interest in the
Escrow Shares is attached hereto as Schedule 1.
The Escrow Agent is not a party to any agreement between GT and WizardWorks
and shall not be required to interpret the terms of any such agreement, it being
agreed that all of Escrow Agent's duties and obligations are stated in this
Agreement.
The parties hereto agree as follows:
1. Establishment of Escrow. GT has delivered to the Escrow Agent and the
Escrow Agent acknowledges receipt of the Escrow Shares in the form of a single
stock certificate. The Escrow Shares shall be held in escrow in the name of the
Escrow Agent or its nominee, subject to the terms and conditions set forth
herein. Unless and until the Escrow Shares are returned to GT or delivered to
the Stockholders pursuant to the terms of this Agreement, the Stockholder
Representative shall vote the Escrow Shares.
2. Amounts Earned on Escrow Shares; Tax Matters. All amounts earned on the
Escrow Shares (dividends or other distributions) shall be distributed pro rata
to the Stockholders from time to time upon the written request of the
Stockholder Representative and GT. Notwithstanding the foregoing, any dividends
or other distributions shall be distributed or retained in accordance with the
distribution of the Escrow Shares to which such dividend or distribution relates
upon the termination of this Agreement. The parties agree that to the extent
permitted by
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applicable law, including Section 468B(g) of the Internal Revenue Code of 1986,
as amended (the "Code"), the Stockholders will include all amounts earned on the
Escrow Shares in their gross income for federal, state and local income tax
(collectively, "income tax") purposes and pay any income tax resulting
therefrom. The Escrow Agent has been previously furnished with all information
necessary to enable it to comply with the reporting and backup withholding
requirements of the Code and all reporting and withholding information,
including 1099s (which will be reported under GT's federal tax identification
number), will be delivered to GT.
3. Claims Against Escrow Shares.
(a) At any time or times prior to June 24, 1997, GT may make claims against
the Escrow Shares for amounts due for indemnification under Section 11 of the
Merger Agreement. GT shall notify the Stockholder Representative and the Escrow
Agent in writing of each such claim, including a brief description of the amount
and nature of such claim. Each such notice delivered to the Escrow Agent by GT
shall contain a representation from GT to the effect that GT has delivered a
copy of such notice to the Stockholder Representative prior to or simultaneously
with its delivery to the Escrow Agent. The Escrow Agent shall have no duty to
ascertain whether the Stockholder Representative received the notice. The Escrow
Agent shall advise GT and the Stockholder Representative of the date on which it
received notice from GT of such claim which date shall be conclusively deemed
correct. In the event that the amount subject to the claim is unliquidated, GT
shall make a good faith estimate as to the amount of the claim for purposes of
determining the number of Escrow Shares, if any, to be withheld by the Escrow
Agent if such claim is not resolved or otherwise adjudicated by the Expiration
Date (as defined in Section 5 below). If the Stockholder Representative shall
dispute such claim the Stockholder Representative shall give written notice
thereof to GT and to the Escrow Agent so that the written notice is received by
GT and the Escrow Agent within thirty (30) days after the date on which the
Escrow Agent received GT's notice (if the Escrow Agent receives the Stockholder
Representative's notice within the aforesaid time period, the Escrow Agent may
conclusively presume that the notice was received by GT within the aforesaid
time period), in which case the Escrow Agent shall continue to hold the Escrow
Shares in accordance with the terms of this Agreement; otherwise, such claim
shall be deemed to have been acknowledged to be payable in shares out of the
Escrow Shares in the full amount thereof as set forth in the claim and the
Escrow Agent shall use its best efforts to promptly pay such claim from the
Escrow Shares to GT after expiration of said thirty day period. The Escrow Agent
shall effect such payment of Escrow Shares to GT by surrendering such Escrow
Shares to GT's transfer agent (Fleet National Bank, 111 Westminster Street,
Providence, Rhode Island 02903) for cancellation upon receipt by the Escrow
Agent of a copy of a letter from GT to GT's transfer agent, instructing such
transfer agent to
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issue a new certificate to the Escrow Agent for the remaining Escrow Shares
after giving effect to such payment. If the amount of the claim exceeds the
aggregate value of the Escrow Shares, the Escrow Agent shall have no liability
or responsibility for any deficiency. The value per share of the Escrow Shares
for purposes of this Agreement shall be $19.89 (the "Closing Market Value"). The
Escrow Agent shall rely on the written instructions of GT with respect to the
amount of shares and the pro rata allocation required to pay a claim. The Escrow
Agent shall have no liability or responsibility for the performance of any
calculations pursuant to this Section 3, including any determination with
respect to the number of Escrow Shares required to pay a claim pursuant to this
Section 3. All claims paid out of the Escrow Shares shall be rounded to the
nearest whole share. Other than pursuant to Section 11 hereof, under no
circumstances shall the Stockholders or the Stockholder Representative have any
right to substitute other property for the Escrow Shares or to change the per
share value stated herein.
4. Disputed Claims.
(a) If the Stockholder Representative shall dispute an indemnification
claim of GT as above provided and subject to Section 3 above, the Escrow Agent
shall set aside a portion of the Escrow Shares equal to the amount of the claim
as set forth in the notice of the claim (the "Set Aside Amount"). In the event
GT notifies the Escrow Agent in writing that it has made out-of-pocket
expenditures or anticipates that it will incur legal expenses in connection with
any such disputed claim with respect to which it is entitled to be indemnified
under the Merger Agreement, a portion of the Escrow Shares equal to such
incurred or anticipated expenditures shall also be set aside and added to and
become a part of the Set Aside Amount which aggregate Set Aside Amount shall be
set forth in a written notice to the Escrow Agent executed by GT and the
Stockholder Representative; provided, that in the event that it shall be agreed
(as evidenced by a written notice executed by GT and the Stockholder
Representative as described in Section 3 above) or determined through a
proceeding described in Section 4(b) below that GT is not entitled to
indemnification with respect to such claim, GT shall not be entitled to such
shares.
(b) If the Escrow Agent has not received written notice executed by GT and
the Stockholder Representative within thirty (30) days after the Stockholder
Representative sends notice of such dispute to the effect that the disputed
indemnification claim has been resolved, the Escrow Agent shall continue to hold
the Set Aside Amount until directed to dispose of it pursuant to (i) a final
non-appealable order of a court of competent jurisdiction or (ii) instructions
or directions furnished in writing signed by both the Stockholder Representative
and GT. In no event shall the Escrow Agent be responsible for any fees or
expenses of any party to any litigation proceeding.
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5. Termination. This Agreement shall terminate on June 25, 1997 (the
"Expiration Date") provided that there are no outstanding indemnification claims
as to which the Escrow Agent has received notice pursuant to Section 3 hereof on
or prior to the Expiration Date; otherwise this Agreement shall continue in
effect until the resolution of all such indemnification claims. GT shall provide
the Escrow Agent with reasonable advance notice of the expected Expiration Date
and shall confirm the occurrence of such as soon as practicable thereafter. On
the Expiration Date or as soon thereafter as is practicable, the Escrow Agent
shall distribute the Escrow Shares less (i) the amount of any then existing Set
Aside Amount and (ii) the amount specified in any notice of a claim delivered to
the Escrow Agent on or within 30 days prior to the Expiration Date with respect
to which no Set Aside Amount has yet been established and the Escrow Agent has
not otherwise been instructed by GT and the Stockholder Representative, pursuant
to and in accordance with written instructions of both GT and the Stockholder
Representative. At such time thereafter as any remaining indemnification claim
hereunder has been resolved and the Escrow Agent has received a written notice
executed by GT and the Stockholder Representative to that effect (or a copy of
an arbitration award pursuant to Section 4(b) to that effect) and any amounts to
be distributed to GT in connection therewith have been so distributed, the
Escrow Agent shall distribute any portion of the remaining Escrow Shares pro
rata to the Stockholders. Upon the resolution of all outstanding indemnification
claims hereunder, the Escrow Agent shall distribute the remaining amount, if
any, of the Escrow Shares pro rata to the Stockholders and this Agreement shall
terminate. GT shall not be required to issue certificates for fractional shares
in any distribution of Escrow Shares pursuant to this Agreement; but rather
shall pay to the Escrow Agent for distribution to the Stockholders an amount in
cash (without interest) determined by multiplying each Stockholder's fractional
interest by the Closing Market Value. The Escrow Agent shall effect such
distributions of Escrow Shares as it is required to make to the Stockholders
under this Agreement by surrendering such Escrow Shares to GT's stock transfer
agent for cancellation upon receipt by the Escrow Agent of a copy of a letter
from GT to GT's transfer agent, instructing such transfer agent to issue such
share pro rata to the Stockholders.
6. The Escrow Agent.
(a) Notwithstanding anything herein to the contrary, the Escrow Agent shall
promptly dispose of all or any part of the Escrow Shares in accordance with this
Agreement. The reasonable fees and expenses of the Escrow Agent in connection
with its execution and performance of this Agreement as set forth on Schedule 2
hereto shall be borne by GT and the Stockholders equally which amount shall be
due and payable upon the signing of this Agreement and on the first day of each
subsequent year during which this Agreement remains in effect; provided,
however, GT shall be responsible for the delivery to the Escrow Agent of
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such fees and expenses. The Escrow Agent shall not be liable for any act or
omission to act under this Agreement, including any and all claims made against
the Escrow Agent as a result of its holding the Escrow Shares in its own name,
except for its own gross negligence or willful misconduct. GT and the
Stockholders, jointly and severally, agree to indemnify and hold harmless from
and against any and all claims, losses, costs, liabilities, damages, suits,
demands, judgments or expenses (including but not limited to reasonable
attorney's fees) claimed against or incurred by the Escrow Agent arising out of
or related, directly or indirectly, to this Agreement, except acts of gross
negligence or willful misconduct. The Escrow Agent may decline to act and shall
not be liable for failure to act if in doubt as to its duties under this
Agreement. The Escrow Agent may act upon any instrument or signature believed by
it to be genuine and may assume that any person purporting to give any notice or
instruction hereunder, reasonably believed by it to be authorized, has been duly
authorized to do so. The Escrow Agent's duties shall be determined only with
reference to this Agreement and applicable laws, and the Escrow Agent is not
charged with knowledge of or any duties or responsibilities in connection with
any other document or agreement, including, but not limited to, the Merger
Agreement. In the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder, the Escrow Agent shall be entitled to refrain from
taking any action other than to keep safely the Escrow Shares until it shall (i)
receive written instructions signed by GT and the Stockholder Representative; or
(ii) is directed otherwise by a court of competent jurisdiction.
(b) The Escrow Agent may act in reliance upon any instructions signed on
signature believed by it to be genuine, and may assume that any person who has
been designated by GT or the Stockholder Representative to give any written
instructions, notice or receipt, or make any statements in connection with the
provisions hereof has been duly authorized to do so. The Escrow Agent shall have
no duty to make inquiry as to the genuineness, accuracy or validity of any
statements or instructions or any signatures on statements or instructions. The
name and true signatures of each individual authorized to act on behalf of GT
and the Stockholder Representative are stated in Exhibit A which is attached
hereto and made a part hereof.
(c) The Escrow Agent shall have the right at any time to resign hereunder
by giving written notice of its resignation to the parties hereto, at the
addresses set forth herein or at such other address as the parties shall
provide, at least thirty (30) days prior to the date specified for such
resignation to take effect. In such event GT shall appoint a successor escrow
agent within said thirty (30) days; if GT does not designate a successor escrow
agent within such period, the Escrow Agent may appoint a successor escrow agent.
Upon the effective date of such resignation, the Escrow Shares together with all
cash and other property then held by the Escrow Agent hereunder shall be
delivered by it to such successor escrow agent. In the event the
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Escrow Agent does not appoint a successor escrow agent within thirty (30) days,
the Escrow Shares and all cash and other property held by the Escrow Agent shall
be delivered to and deposited with a court of competent jurisdiction to act as
successor escrow agent. Upon the delivery of the Escrow Shares pursuant to this
Section 6(c) to a successor escrow agent, the Escrow Agent shall be relieved of
all liability hereunder.
(d) In the event that the Escrow Agent should at any time be confronted
with inconsistent or conflicting claims or demands by the parties hereto, the
Escrow Agent shall have the right to interplead said parties in any court of
competent jurisdiction and request that such court determine the respective
rights of such parties with respect to this Agreement and, upon doing so, the
Escrow Agent shall be released from any obligations or liability to either party
as a consequence of any such claims or demands.
(e) The Escrow Agent may execute any of its powers or responsibilities
hereunder and exercise any rights hereunder, either directly or by or through
its agents or attorneys. The Escrow Agent shall not be responsible for and shall
not be under a duty to examine, inquire into or pass upon the validity, binding
effect, execution or sufficiency of this Agreement or of any amendment or
supplement hereto.
7. Stockholder Representative.
(a) In the event the Stockholder Representative shall die or resign or
otherwise terminate his status as such, his successor shall be any Stockholder
appointed by the Stockholder Representative or, in the case of the death of the
Stockholder Representative or where the Stockholder Representative fails to
appoint a successor after a vacancy has been created, elected by the vote or
written consent of a majority in interest of the Stockholders. If the
Stockholders fail for any reason to elect a new Stockholder Representative and
during any period in which a vacancy exists, Paul D. Rinde shall serve as the
Stockholder Representative until a new Stockholder Representative is elected.
All decisions of the Stockholder Representative shall be binding upon the
Stockholders. The Stockholder Representative shall keep the Stockholders
reasonably informed of his or her decisions of a material nature.
(b) The Stockholder Representative is authorized to take any action deemed
by him appropriate or necessary to carry out the provisions of, and to determine
the rights of the Stockholders under this Agreement. The Stockholder
Representative shall serve as the agent of the Stockholders for all purposes
related to this Agreement, including without limitation service of process upon
the Stockholders. By his or her execution of this Agreement, the Stockholder
Representative accepts and agrees to diligently discharge the duties and
responsibilities of the Stockholder Representative set forth in this Agreement.
The
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authorization and designation of the Stockholder Representative under this
Section 7(b) shall be binding upon the successors and assigns of each
Stockholders. GT and the Escrow Agent shall be entitled to rely upon such
authorization and designation and shall be fully protected in dealing with the
Stockholder Representative, and shall have no duty to inquire into the authority
of any person reasonably believed by any of them to be the Stockholder
Representative.
(c) The Stockholder Representative shall not be entitled to any
compensation for services hereunder.
8. Governing Law. This Agreement is governed by the laws of New York
without regard to its conflict of law provisions, and shall inure to the benefit
of and be binding upon the successors, assigns, heirs and personal
representatives of the parties hereto.
9. Counterparts. This Agreement may be executed in one or more
counterparts, all of which documents shall be consid- ered one and the same
document.
10. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed given when so delivered in
person, by overnight courier, by facsimile transmission (with receipt confirmed
by telephone or by automatic transmission report) or two business days after
being sent by registered or certified mail (postage prepaid, return receipt
requested), as follows:
TO GT:
GT Interactive Software Corp.
16 East 40th Street
New York, New York 10016
Attention:
Fax: (212) 679-6850
In each case with a copy to:
Kramer, Levin, Naftalis & Kamin
919 Third Avenue
New York, New York 10022
Attention: David P. Levin
Fax: (212) 715-8000
TO THE STOCKHOLDER REPRESENTATIVE:
Paul D. Rinde
961C Longwood Road
Amery, Wisconsin 54001
With a copy to:
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W. Terry Olson
13238 Island View
Elk River, MN 55330
Robert J. Armstrong
7920 94th West
Bloomington, MN 55438
Doherty, Rumble & Butler
150 South Fifth Street
Minneapolis, Minnesota 55402
Attention: Frank V. Vargas, III
Fax: (612) 340-5584
TO ESCROW AGENT:
Republic National Bank of New York
452 Fifth Avenue
New York, New York 10018
Attention: Joseph Collins
Fax:(212) 525-6878
Addresses may be changed by written notice given pursuant to this section. Any
notice given hereunder may be given on behalf of any party by his counsel or
other authorized representative.
11. In any case where the date for payment of Escrow Shares or notice or
any other date hereunder shall be a Saturday, Sunday or legal holiday or a day
on which banking institutions in the City of New York are authorized by law to
close, then the date for payment of Escrow Shares or notice or any other date
may be made on the next succeeding business day.
12. This Agreement may be amended, modified, superseded or canceled, and
any of the terms or conditions hereof may be waived, only by a written
instrument executed by each party hereto or, in the case of a waiver, by the
party waiving compliance. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect its right
at a later time to enforce the same. No waiver of any party of any condition, or
of the breach of any term contained in this Agreement, whether by conduct or
otherwise, in any one or more instances shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement. No party
may assign any rights, duties or obligations hereunder unless all other parties
have given their prior written consent.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first stated above.
GT INTERACTIVE SOFTWARE CORP.
By: /s/ RONALD CHAIMOWITZ
----------------------
Name: Ronald Chaimowitz
Title:Chief Executive Officer
and President
STOCKHOLDER REPRESENTATIVE
By: /s/ PAUL D. RINDE
----------------------
Name: Paul D. Rinde
Title:Vice President and
Secretary
REPUBLIC NATIONAL BANK OF NEW YORK,
as Escrow Agent
By: /s/ MARK KARLIN
----------------------
Name: Mark Karlin
Title:Trust Officer
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