EXHIBIT C
ESCROW AGREEMENT
This ESCROW AGREEMENT (the "Agreement"), dated as of November 7,
2000, by and among California Investment Fund, LLC, a California limited
liability Company (the "Buyer"), Dynex Capital, Inc., a Virginia
corporation (the "Target") and U.S. Trust Company, National Association,
(the "Escrow Agent").
WHEREAS, concurrently with the execution of this Agreement, the
parties hereto are entering into that certain Agreement and Plan of Merger,
dated November 7, 2000 (the "Merger Agreement"), by and among the Buyer,
DCI Acquisition Corporation, a Virginia corporation (the "Transitory
Subsidiary"), and the Target;
WHEREAS pursuant to Section 2(g) of the Merger Agreement, the Buyer is
required to deposit 572,178 shares of common stock of the Target (the
"Escrow Shares") and, subject to certain conditions set forth in the Merger
Agreement, the Buyer may deposit $1,000,000 in immediately available funds
(the "Escrow Fund," and together with the Escrow Shares, the "Escrow
Deposit") in escrow, solely to satisfy obligations arising pursuant to
Section 7(c) of the Merger Agreement;
WHEREAS the Target, the Buyer and the Escrow Agent desire to evidence
their agreement with respect to the Escrow Fund, if any, and the Escrow
Shares.
NOW, THEREFORE, in consideration of the covenants hereinafter set
forth and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby
agree as follows:
Section 1. Appointment.
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The Buyer and the Target hereby appoint and designate U.S. Trust
Company, National Association, to act as Escrow Agent hereunder, on the
terms and subject to the conditions set forth in this Agreement, and the
Escrow Agent hereby accepts such appointment. The fees to be paid to the
Escrow Agent for its services hereunder are set forth in Exhibit A hereto.
Section 2. Establishment of Escrow.
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(a) Simultaneously with the execution and delivery of this Agreement,
or as promptly thereafter as is reasonably practicable, the Buyer shall
transfer the Escrow Shares, together with one or more stock powers executed
in blank, to the Escrow Agent as provided in Section 2(g) of the Merger
Agreement; provided, however, that the Buyer shall remain the record owner
of the Escrow Shares. Additionally, on or prior to the date which is thirty
days after the date of the Merger Agreement (or on the next succeeding
business day if such thirtieth day is not a business day), the Buyer may
elect, in accordance with, and subject to the restrictions of, Section 2(g)
of the Merger Agreement, to deposit the Escrow Fund with the Escrow Agent.
(b) Escrow Shares. (i) The parties hereto agree that dividends or
other distributions with respect to the Escrow Shares shall become part of
the Escrow Deposit.
(ii) As long as the Escrow Shares remain subject to this
Agreement, all voting rights with respect to the Escrow Shares shall be
exercised by the Buyer.
(c) Escrow Agent. The Escrow Agent hereby agrees to act as escrow
agent hereunder, accepts the Escrow Shares and agrees to accept the Escrow
Fund, if any, and to hold and disburse the Escrow Fund, if any, and the
Escrow Shares in accordance with the terms and conditions of this Agreement
for the uses and purposes stated therein and herein.
Section 3. (a) Investment of Escrow Fund. The Buyer and the Target
hereby authorize and direct the Escrow Agent to invest the Escrow Fund, if
any, if and when deposited with the Escrow Agent, in any of the following
investments (as so invested, hereinafter referred to as the "Escrow
Account") as instructed by the Buyer in writing (an "Investment
Instruction") to the Escrow Agent from time to time:
(i) marketable direct obligations issued or unconditionally guaranteed
by the government of the United States of America or issued by an agency
thereof and backed by the full faith and credit of the United States of
America;
(ii) marketable direct obligations issued by any State of the United
States of America or any political subdivision of any such State or any
public instrumentality thereof which, at the time of acquisition, have the
highest rating obtainable from either the Standard & Poor's division of the
XxXxxx-Xxxx Companies, Inc. ("S&P") or Xxxxx'x Investors Service, Inc.
("Moody's");
(iii) commercial paper which, at the time of acquisition, has the
highest rating obtainable from either S&P or Moody's;
(iv) certificates of deposit, repurchase agreements, or bankers'
acceptances issued by any bank organized under the laws of the United
States of America or any State thereof or the District of Columbia which
has combined capital and surplus of not less than One Hundred Million
Dollars ($100,000,000);
(v) money market funds organized under the laws of the United States
of America or any State thereof that invest not less than seventy-five
percent (75%) of their funds in any of the investments permitted under (i),
(ii), (iii) and (iv) above, including funds for which the Escrow Agent or
an affiliate of the Escrow Agent acts as an investment provider or provides
other services; and
(vi) such other investments as the Buyer, the Target and the Escrow
Agent may mutually agree upon.
Any investment in which the Escrow Fund, if any, is invested must have
a maturity of less than ninety (90) days. The Buyer will promptly deliver
to the Target a copy of each Investment Instruction delivered by the Buyer
to the Escrow Agent hereunder. All interest or other return earned by the
investment of the Escrow Fund, if any, and received by the Escrow Agent
(the "Interest") shall become part of the Escrow Fund. Monies held
hereunder which are uninvested pending disbursement or receipt of proper
Investment Instructions may be invested in investments described in clause
(v) above.
Section 4. Use of Escrow Deposit.
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(a) In the event, and only in the event, that:
(i) the Buyer terminates the Merger Agreement pursuant to,
solely, Section 7(a)(v) of the Merger Agreement as a result of the
failure to satisfy the closing condition set forth in Section 6(a)(x)
of the Merger Agreement (the "Financing Condition"), the Target shall
deliver to the Escrow Agent and the Buyer a request (an "Escrow
Deposit Request") executed by the Target which represents and warrants
that the Target is asserting a claim (a "Claim") for the Escrow Shares
and the full amount of the Escrow Fund, if any, pursuant to this
Section 4(a)(i) as a result of the failure of the Buyer to satisfy the
Financing Condition;
(ii) the Target terminates the Merger Agreement pursuant to
Section 7(a)(vii) of the Merger Agreement as a result of the failure
to satisfy the closing condition set forth in Sections 6(b)(ii) or
6(b)(iii) of the Merger Agreement (a "Material Breach"), the Target
shall deliver to the Escrow Agent and the Buyer an Escrow Deposit
Request executed by the Target which (A) describes the Material Breach
and the basis for asserting the Claim for the Escrow Shares and the
Escrow Fund, if any, pursuant to this Section 4(a)(ii) in reasonable
detail and (B) represents and warrants that the Target is asserting a
Claim pursuant to this Section 4(a)(ii) for the Escrow Shares and the
full amount of the Escrow Fund, if any, as a result of the Material
Breach; or
(iii) the Buyer terminates the Merger Agreement pursuant to
Section 7(a)(vi) of the Merger Agreement as a result of the failure to
satisfy the closing condition set forth in Section 6(a)(xii) of the
Merger Agreement (the "Bondholder Condition"), and provided that the
Buyer has not elected to purchase the Target loans or participations
put to the Buyer pursuant to Section 7(c)(ii)(A) of the Merger
Agreement, the Target shall deliver to the Escrow Agent and the Buyer
an Escrow Deposit Request executed by the Target which represents and
warrants that the Target is asserting a Claim for the Escrow Shares
(but not, in any event, the Escrow Fund), pursuant to this Section
4(a)(iii) as a result of the failure to satisfy the Bondholder
Condition.
(b) The Target acknowledges and agrees that if the Buyer has a right
to terminate the Merger Agreement both as a result of a failure to satisfy
the Financing Condition and as a result of a failure to obtain Bondholder
Consent, the Buyer shall be deemed to have terminated the Merger Agreement
as a result of failure to obtain Bondholder Consent. In such case, the
Target may assert a claim for the Escrow Shares but the Buyer may not
assert a claim for the Escrow Fund, if any.
(c) If the Buyer objects to any such Claim, the Buyer shall provide
the Escrow Agent and the Target with a written objection thereto setting
forth in reasonable detail the reasons for such objection within (i)
fifteen (15) calendar days following receipt by the Buyer of said Escrow
Deposit Request in the case of Sections 4(a)(i) or 4(a)(iii) hereof or (ii)
thirty (30) calendar days following receipt by the Buyer of said Escrow
Deposit Request in the case of Section 4(a)(ii) hereof. If the Buyer shall
object to any such Claim, the provisions of Section 6(e) shall apply and no
disbursements shall be made except in accordance with Section 6(e). If the
Buyer shall not object to any such Claim asserted pursuant to clauses (i)
or (ii) of Section 4(a) above, the Escrow Agent shall disburse the Escrow
Fund (including any Interest thereon), if any, and the Escrow Shares
(including any dividends or distributions with respect thereto) to the
Target. If the Buyer shall not object to any such Claim asserted pursuant
to clause (iii) of Section 4(a) above, the Escrow Agent shall (1) disburse
the Escrow Shares (including any dividends or distributions with respect
thereto) to the Target and (2) disburse the Escrow Fund (including any
Interest thereon), if any, to the Buyer.
Section 5. Escrow Date. Subject to the terms and provisions of this
Section 5 and upon written notice to the Escrow Agent of the occurrence of
the Escrow Deposit Release Date (as defined below), the Escrow Agent shall
disburse the Escrow Fund (together with any Interest thereon), if any, and
the Escrow Shares (together with any dividends or other distributions with
respect thereto) to the Buyer on the date which is the earlier to occur of
(i) the Closing Date (as defined in the Merger Agreement) or (ii) the date
upon which the Merger Agreement is terminated (unless such termination
results from the failure to satisfy the Financing Condition, the failure to
satisfy the Bondholder Condition or a Material Breach) (the "Escrow Deposit
Release Date"). In the event, however, that the Escrow Agent has received,
on or before such Escrow Deposit Release Date, an Escrow Deposit Request
for which the Escrow Agent may be required to disburse the Escrow Deposit
or the Escrow Shares, as applicable, to the Target pursuant to Section 4
above or Section 6(e) below, the Escrow Agent shall disburse the Escrow
Deposit or the Escrow Shares, as applicable, in accordance with such
sections.
Section 6. Escrow Agent. In order to induce the Escrow Agent to hold,
invest, and disburse the Escrow Deposit as required by this Agreement, the
Buyer and the Target do hereby agree that:
(a) The functions and duties of the Escrow Agent with respect to
disbursements hereunder are those of an independent contractor and include
only those set forth in this Agreement. The Escrow Agent is not entitled to
act in any manner whatsoever except in accordance with the terms and
conditions of this Agreement or pursuant to written instructions or demands
given in accordance with such terms and conditions.
(b) Any checks or drafts deposited in the Escrow Fund, if any, with
the Escrow Agent under this Agreement will be processed in the normal
course of business. The Escrow Agent shall not be liable for any loss
caused by the failure, suspension, bankruptcy or dissolution of any Escrow
Account in which the Escrow Fund, if any, is deposited.
(c) The Escrow Agent, in the absence of gross negligence, willful
misconduct or a breach of this Agreement, shall not be liable for any loss
or damage resulting from the following:
(i) Any default, error, action or omission of any other party.
(ii) The expiration of any time limit or other delay.
(iii) Lack of authenticity, sufficiency and effectiveness of any
documents delivered to it and lack of genuineness of any signature or
authority of any person to sign any such document.
(iv) Any loss or impairment of funds deposited in the course of
collection or while on deposit in a federally or state insured account with
a trust company (other than the Escrow Agent), bank, savings bank, or
savings association resulting from the failure, insolvency or suspension of
such institution.
(v) Compliance by the Escrow Agent with any and all legal
process, writs, orders, judgments and decrees of any court whether issued
with or without jurisdiction and whether or not subsequently vacated,
modified, set aside or reversed.
(vi) The Escrow Agent's assertion or failure to assert any cause
of action or defense in any judicial, administrative or other proceeding
either in its own interest or in the interest of any other party or
parties, provided the Escrow Agent shall have furnished timely written
notice of such proceeding to the parties hereto.
(d) The Escrow Agent shall not be liable, absent gross negligence or
willful misconduct, for its failure to inquire into the authenticity of any
written instructions or other documents delivered to it as required by this
Agreement or its failure to inquire as to the genuineness of any signature
or authority of any person to issue such instructions or execute such other
documents.
(e) If there is any dispute regarding the disbursement of all or any
portion of the Escrow Shares or the Escrow Fund, if any, that has not been
finally resolved, the parties shall promptly commence binding arbitration
in New York, New York in accordance with the commercial arbitration rules
of the American Arbitration Association. Judgment upon the decision of the
arbitrator may be entered in any court having jurisdiction. The Escrow
Agent shall continue to hold all of the Escrow Shares or Escrow Fund, if
any, as to which such dispute relates, in its possession until directed to
disburse the same in accordance with (i) the joint instructions of the
Target and the Buyer or (ii) a final unappealable judgment of a court of
competent jurisdiction. In lieu of the foregoing, the Escrow Agent may
deposit the disputed amount of Escrow Deposit with a court of competent
jurisdiction and commence an action of interpleader between the parties in
dispute. The Buyer and the Target agree to indemnify the Escrow Agent
against all court costs and reasonable attorney's fees in connection with
any litigation regarding this Agreement other than any such litigation
arising from the gross negligence, willful misconduct or breach of this
Agreement by the Escrow Agent. The Escrow Agent agrees to: (i) first,
collect such indemnity amount from the Escrow Deposit and (ii) thereafter,
to use reasonable efforts to collect the balance of such indemnity amount,
if any, 50% from the Buyer and 50% from the Target.
(f) The Escrow Agent may resign for any reason, upon not less than
thirty (30) days prior written notice to the parties to this Agreement,
which notice shall specify the date and time as of which such resignation
shall become effective. Upon the effectiveness of such resignation, the
Escrow Agent shall deliver all cash, if any, or property in its possession
under this Agreement to any successor escrow agent appointed in writing by
the Buyer (subject to the reasonable approval of the Target), as directed
in written directions signed by the Buyer, or if no successor escrow agent
has been appointed, to any court of competent jurisdiction in New York, New
York. Upon such delivery, the Escrow Agent shall be released from any and
all further liability under this Agreement.
Section 7. Tax Identification Number. The Buyer's tax identification
number for reporting purposes under this Agreement is 00-0000000. All
Interest shall initially be chargeable to the Buyer for tax purposes. If
any Interest is released to the Target, such Interest shall be chargeable
to the Target for tax purposes. The Target's tax identification number for
reporting purposes under this Agreement is 00-0000000.
Section 8. Escrow Fee. All fees and charges of the Escrow Agent in
connection with the initiation and administration of this Agreement shall
be paid 50% by the Target and 50% by Buyer.
Section 9. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of New York.
Section 10. Successors and Assigns. Except as otherwise expressly
provided herein, the terms and provisions of this Agreement shall inure to
the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto. Nothing in this
Agreement, express or implied, is intended to, or shall, confer on any
person, other than any of the parties hereto, any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 11. Counterparts. This Agreement may be executed in
counterparts, each of which shall for all purposes be deemed to be an
original and all of which shall constitute the same instrument.
Section 12. Construction. The headings of the Articles, Sections and
paragraphs of this Agreement are inserted for convenience only and shall
not be deemed to constitute part of this Agreement or to affect the
construction hereof. All section and article references are to this
Agreement, unless otherwise expressly provided. As used in this Agreement,
(a) "hereof", "hereunder", "herein" and words of like import shall be
deemed to refer to this Agreement in its entirety and not just a particular
section of this Agreement, and (b) unless the context otherwise requires,
words in the singular number or in the plural number shall each include the
singular number or the plural number, words of the masculine gender shall
include the feminine and neuter, and, when the sense so indicates, words of
the neuter gender shall refer to any gender.
Section 13. Modification and Waiver. No amendment, modification or
alteration of the terms or provisions of this Agreement shall be binding
unless the same shall be in writing and duly executed by the parties
hereto. Any of the terms or provisions of this Agreement may be waived in
writing at any time by the party which is entitled to the benefits of such
waived terms or provisions. No waiver of any of the provisions of this
Agreement shall be deemed to or shall constitute a waiver of any other
provision hereof (whether or not similar). No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof.
Section 14. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction.
Section 15. Notices. Any notice, request, instruction or other
document to be given hereunder (a "Notice") by any party hereto to any
other party shall be in writing and delivered personally, sent by a
recognized worldwide or nationwide (whichever is applicable) overnight
delivery service with charges prepaid, sent by registered or certified mail
with postage prepaid, or sent by facsimile transmission:
if to the Buyer, to:
California Investment Fund, LLC
000 Xxxx X Xxxxxx, 00xx Xxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Confirmation: (000) 000-0000
Attention: Xxxxxxx Xxxxx
with a copy to:
Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx
Xxx Xxx Xxxx Xxxxx
Xxx Xxxx, XX 00000-0000
Facsimile: (000) 000-0000
Confirmation: (000) 000-0000
Attention: Xxxxxxx Xxxxxxx, Esq.
if to the Target, to:
Dynex Capital, Inc.
0000 Xxx Xxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
Confirmation: (000) 000-0000
Attention: Xxxxxx X. Xxxxx
with a copy to:
Xxxxxxx, Xxxxxxx and Xxxxxx, LLP
0000 Xxxxxxxxx Xxxxx, Xxxxx 000
XxXxxx, Xxxxxxxx 00000-0000
Facsimile: (000) 000-0000
Confirmation: (000) 000-0000
Attention: Xxxxxxxxx X. Xxxxxx, Esquire
if to the Escrow Agent, to:
U.S. Trust Company, National Association
000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
Confirmation: (000) 000-0000
Attention: Corporate Trust Division
or at such other address for a party as shall be specified by like Notice.
Any Notice which is sent in the manner provided herein shall be deemed to
have been duly given to and received by the party to whom it is directed
upon actual receipt by such party, except that any Notice sent by facsimile
transmission shall be deemed to have been given and received upon
confirmation of transmission; provided that Notice so sent is promptly
followed by duplicate Notice to that same party sent by registered or
certified mail, postage prepaid, or sent by recognized worldwide or
nationwide courier (whichever is applicable) delivery overnight service
with charges prepaid. All communications to be given or made herewith shall
be in the English language.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date and year first above written.
DYNEX CAPITAL, INC.
By: /s/ Xxxxxx X. Xxxxx
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Name: Xxxxxx X. Xxxxx
Title: President
CALIFORNIA INVESTMENT FUND, LLC.
By: /s/ Xxxxxxx Xxxxx
---------------------------------
Name: Xxxxxxx Xxxxx
Title: Managing Member
U.S. TRUST COMPANY, NATIONAL
ASSOCIATION
By: /s/ Xxxxxxxx X. Xxxxxxxx
---------------------------------
Name: Xxxxxxxx X. Xxxxxxxx
Title: Authorized Signatory
