1
EXHIBIT 10.9
ESCROW AGREEMENT
This Escrow Agreement (the "Escrow Agreement") is made and entered into
as of May __, 1995, by and between SI Holding Corporation, a Delaware
corporation (the "Purchaser"), Simonds Industries Inc., a Delaware corporation
(the "Company"), Charles W. Doulton (the "Representative"), Massachusetts
Capital Resource Company ("MCRC"), all the shareholders of Simonds Industries
Inc. (the "Shareholders"), Charles W. Doulton and Paul D. Petricca (the "Option
Holders"), and Fleet Bank of Massachusetts, N.A. (the "Escrow Agent").
RECITALS
A. Pursuant to a certain Stock Purchase Agreement dated May _, 1995
(the "Stock Purchase Agreement"), by and among Purchaser, MCRC, the Option
Holders and the Shareholders and the Company, Purchaser shall acquire one
hundred percent (100%) of the common stock of the Company (the "Acquisition").
The Shareholders, MCRC and the Option Holders are referred to as the
"Indemnifying Parties."
B. The Escrow Agreement is entered into pursuant to, and as a condition
precedent to the closing of the transactions contemplated by, the Stock Purchase
Agreement (the "Closing").
C. Capitalized terms used herein, unless otherwise defined herein,
shall have the meanings assigned to them in the Stock Purchase Agreement.
AGREEMENTS
Accordingly, in consideration of the recitals, and of the respective
agreements and covenants contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
1.1 INDEMNITY ESCROW FUNDS. At the Closing, and only if the Closing
occurs, Purchaser shall deliver the Indemnity Escrow Funds, totalling Three
Million Two Hundred Fifty Thousand Dollars ($3,250,000) to the Escrow Agent
pursuant to Sections 2.01(i), 3.03(i) and 3.08(i) of the Stock Purchase
Agreement in immediately available funds into an account designated by the
Escrow Agent.
1.1.1 The Indemnity Escrow Funds shall be held by the Escrow
Agent in a separate account (the "Escrow Account") for the benefit of the
Company, the Shareholders, MCRC and the Option Holders, as provided in this
Escrow Agreement.
1.1.2 The Escrow Agent shall maintain for each contributing
Shareholder, MCRC and Option Holder (each, an "Indemnifying Party") an account
(each, an "Indemnifying Party's Account") reflecting (i) such Indemnifying
Party's allocable portion of the Indemnity Escrow Funds hereunder, plus (ii) all
amounts earned on such Indemnifying Party's Account, less
2
(iii) the portion of all amounts distributed pursuant hereto as allocated to
such Indemnifying Party's Account, and less (iv) the portion of the Escrow Agent
Fees and Expenses (as hereinafter defined) allocable to such Indemnifying
Party's Account.
1.2 ACCEPTANCE OF APPOINTMENT AS ESCROW AGENT. The Escrow Agent, by
signing this Escrow Agreement, accepts the appointment as Escrow Agent and
agrees to hold and distribute all Indemnity Escrow Funds in accordance with the
terms of this Escrow Agreement.
1.3 DISTRIBUTIONS; INVESTMENTS.
1.3.1 Pending disbursement of the Indemnity Escrow Funds, the
Escrow Agent shall invest such funds in Permitted Investments (as defined
hereinafter). All interest and other income earned on the Indemnity Escrow Funds
shall, until disbursed, constitute part of the Indemnity Escrow Funds and shall,
pending disbursement, be invested in Permitted Investments. For purposes of this
Escrow Agreement, "Permitted Investments" shall mean (i) money market funds
consisting of short-term U.S. Treasury securities, (ii) obligations of or
guaranteed by the United States of America or any agency thereof, either
outright or in connection with repurchase agreements covering such obligations,
or obligations of or guaranteed by any state or political subdivision thereof
with a maturity not less than one (1) year from the date of investment, (iii)
certificates of deposit or bankers' acceptances issued by the Escrow Agent or by
any other national or state-chartered bank having total assets of at least
$500,000,000 with a maturity not later than one (1) year from the date of
investment, and (iv) such other investments as may be specified from time to
time to the Escrow Agent by written instructions from the Representative.
1.3.2 As and when any amount is needed for a payment under
this Escrow Agreement, the Escrow Agent shall cause a sufficient amount of the
Permitted Investments to be converted into cash. Upon the advice and reasonable
consent of the Representative, the Escrow Agent shall select the investments or
types of investments to be so converted.
1.3.3 Notwithstanding any other provision hereof, the Escrow
Agent shall distribute to each of the Indemnifying Parties, on an annual basis
on or before the 15th day of March, an amount equal to forty percent (40%) of
such Indemnifying Party's pro rata gain from the income earned on the Indemnity
Escrow Funds held in the Indemnifying Party's Account for the preceding calendar
year.
1.3.4 For tax purposes, the Indemnity Escrow Funds shall be
property of the Company; however, all interest, dividends and other income
earned on the Indemnity Escrow Funds shall be income of the Indemnifying
Parties, and all parties hereto shall file all Tax Returns consistent with such
treatment.
1.4 DISTRIBUTION OF ESCROW FUNDS TO [INDEMNITEE] INDEMNIFIED PARTYS.
The Escrow Agent shall disburse to the applicable Indemnified Party such portion
of the Indemnity Escrow Funds as may be necessary to pay the Damages, as defined
in Section 2. 1, below, for which the Indemnified Party is entitled to
reimbursement pursuant to Article X of the Stock Purchase Agreement. Any amount
distributed pursuant to this Section 1.4.1 shall be allocated among, and
-2-
3
deducted from, the Indemnifying Parties' Accounts on a pro rata basis, based
upon a fraction (expressed as a percentage), the numerator of which is equal to
the original dollar amount of each such Indemnifying Party's Account and the
denominator of which is Three Million Two Hundred Fifty Thousand (the
"Indemnifying Party's Percentage"). Any payment to be made pursuant hereto shall
be made not more than thirty (30) days after the first to occur of (i) the
delivery to the Escrow Agent of written instructions signed by the
Representative specifying an amount to be paid from the Escrow Funds to the
Company or (ii) the delivery to the Escrow Agent and the Representative of a
copy of a Final Determination establishing the Indemnified Party's right to
reimbursement under this Escrow Agreement with respect to such Damages. A "Final
Determination" shall mean a final judgment of a court of competent jurisdiction
or an administrative agency having the authority to determine the amount of, and
liability with respect to, the item resulting in Damages for which reimbursement
is sought hereunder and the denial of, or expiration of all rights to, appeal
related thereto.
1.5 SEGREGATION OF THE ESCROW FUNDS.
1.5.1 Notwithstanding any other provision of this Escrow
Agreement to the contrary, the Escrow Agent shall restrict such portion of the
Indemnity Escrow Funds as may be necessary to satisfy in full all Pending Claims
(as hereinafter defined), and shall hold such portion in accordance with this
Section. "Pending Claims" shall mean unresolved Claims that are the subject of
Claim Notices, as hereinafter defined, properly delivered hereunder.
1.5.2 Any portion of the Indemnity Escrow Funds restricted
under Section 1.5.1 shall continue to be restricted by the Escrow Agent until
the Escrow Agent is directed to release such Indemnity Escrow Funds by written
instructions signed by Purchaser and the Representative.
1.6 DISTRIBUTION OF ESCROW FUNDS TO INDEMNIFYING PARTIES. Not
later than the fifth (5th) business day after the Expiration Date, the Escrow
Agent shall distribute to the Indemnifying Parties in accordance with the
Indemnifying Party's Accounts, the remaining Indemnity Escrow Funds minus the
sum of any Indemnity Escrow Funds that are then being restricted with respect to
Pending Claims under Section 1.5.
"Expiration Date" shall mean the date which is THREE (3) YEARS
following the Closing. Any amounts segregated with respect to Pending Claims on
the Expiration Date shall be released as provided in Section 1.5.2 and promptly
thereafter distributed as provided in this Section 1.6.
ARTICLE II
2.1 CLAIMS AGAINST THE ESCROW FUNDS.
2.1.1 From and after the Closing, but subject to the
conditions and limitations set forth in this Escrow Agreement and the Stock
Purchase Agreement, Purchaser and/or Company, and their respective successors
and assigns (collectively, the "Indemnified Parties")
-3-
4
shall be entitled to reimbursement out of the Indemnity Escrow Funds for any and
all losses, damages, costs, expenses, fines, penalties, settlement payments and
expenses, liabilities, obligations and claims of any kind, including, without
limitation, reasonable attorneys' fees and other legal and professional costs
and expenses (collectively, "Damages") actually incurred or suffered, and paid
to a third party, by an Indemnified Party to the extent resulting from either or
both of the Indemnified Liabilities described in section 10.01(a)(iii) and (iv)
of the Stock Purchase Agreement [collectively, the "Claims"]; provided, however,
Indemnified Parties shall not be entitled to reimbursement out of Indemnity
Escrow Funds unless and until Indemnified Parties' Damages exceed $100,000, as
more fully provided in Section 10.01(b) of the Stock Purchase Agreement, in
which event the Indemnified Parties will be entitled to make a Claim to the
extent of such excess. The aggregate of all Claims paid hereunder shall not
exceed Three Million Two Hundred Fifty Thousand Dollars ($3,250,000).
2.1.2 In calculating any Damage payable pursuant to Section
2.1.1, any amount payable shall be reduced by the amount of any insurance or
third party recoveries of any Indemnified Party less any costs, expenses
allocable portions of premiums or taxes incurred in connection therewith.
2.2 NOTICE OF CLAIMS; OTHER PROCEDURES.
2.2.1 In the event that any action, claim or demand is
asserted against or sought to be collected from any Indemnified Party for which
the Indemnified Party intends to assert a right of reimbursement from the
Indemnity Escrow Funds, such Indemnified Party shall notify the Representative
and the Escrow Agent with reasonable promptness of such Claim, prior to the
Expiration Date, specifying, to the extent known, the nature, circumstances and
the amount of such Claim (a "Claim Notice"). The Representative shall have
thirty (30) days from his receipt of a Claim Notice (the "Claim Notice Period")
to notify Indemnified Parties and the Escrow Agent (i) that the Representative
disputes the Indemnified Party's right of reimbursement from the Escrow Funds
with respect to such Claim, or (ii) that the Representative does not dispute
such right of reimbursement. No timely response from the Representative shall be
deemed to be a dispute of a Claim.
2.2.2 If the Representative notifies the Indemnified Party and
the Escrow Agent within the Claim Notice Period that the Representative does not
dispute the Indemnified Party's right of reimbursement, the Indemnified Party
may proceed to pay, defend or settle the Claim, in its reasonable discretion,
and the Representative shall promptly reimburse such Damages. The Representative
may participate in, but not control, any defense or settlement, at his sole cost
and expense.
2.2.3 If the Representative disputes the Indemnified Party's
right of reimbursement with respect to a Claim, the parties shall attempt in
good faith to resolve the issue amicably and fairly. Failing amicable private
resolution, the matter shall be resolved by way of binding arbitration in
Boston, Massachusetts, pursuant to the Commercial Rules of Arbitration of the
American Arbitration Association. Unless the Representative has timely disputed
the Indemnified Party's right to reimbursement for a Claim, Indemnified Party
shall be entitled to
-4-
5
reimbursement out of Indemnity Escrow Funds for such defense. If the
Representative disputes a Claim, he may still participate in, but not control,
the defense or settlement of such Claim at the Representative's sole cost and
expense.
2.3 SURVIVAL OF CLAIMS. Any claim for reimbursement from the
Indemnity Escrow Funds that is not asserted in accordance herewith prior to
5:00 p.m. (E.S.T.) on the Expiration Date may not be pursued and shall be
irrevocably waived.
ARTICLE III
3.1 APPOINTMENT OF REPRESENTATIVE.
3.1.1 The Representative, Charles W. Doulton, is hereby
appointed, pursuant to the Stock Purchase Agreement, as agent and representative
of the Indemnifying Partys as of the Closing Date. The Representative is hereby
authorized and empowered by the Indemnifying Parties to perform the obligations
and exercise the rights of the Representative as set forth in this Escrow
Agreement and the Stock Purchase Agreement and agrees to abide by the terms and
provisions of this Escrow Agreement and the Stock Purchase Agreement. Upon the
resignation of Charles W. Doulton, whether by death, disability or otherwise, he
shall be replaced by Robert P. Henderson. Upon the resignation of Robert P.
Henderson, he shall be replaced by the affirmative vote of seventy-five percent
(75 %) or more of the total number of Indemnifying Parties. Any person who
becomes a replacement Representative shall execute a counterpart of this Escrow
Agreement to evidence his/her agreement with the terms and conditions of this
Escrow Agreement.
3.1.2 The Representative shall, after the Closing, (i) receive
all information and notices required under the Stock Purchase Agreement and this
Escrow Agreement on behalf of the Indemnifying Parties and copy each
Indemnifying Party on all notices or correspondence from or to any Indemnified
Party; (ii) take, on behalf of the Indemnifying Parties, any action he may deem
appropriate with respect to any dispute arising out of or relating to the Stock
Purchase Agreement or this Escrow Agreement; and (iii) execute and deliver all
instruments and documents of every kind incident to the foregoing.
3.1.3 The Representative may confer with counsel with respect
to any question relating to his duties or responsibilities under the Stock
Purchase Agreement or this Escrow Agreement. The Representative shall not be
liable or responsible for anything done or omitted to be done by him in good
faith or on the advice of counsel.
3.1.4 The Representative shall be paid no fee for his services
under this Escrow Agreement, but he shall be entitled to reimbursement for
reasonable expenses (including the reasonable fees and disbursements of his
counsel) actually incurred by the Representative in connection with his duties
under this Escrow Agreement (collectively, the "Representative Fees and
Expenses"). All Representative Fees and Expenses shall be paid first out of
interest, dividends, and other income earned on the Escrow Funds and then, to
the extent of any shortfall, pro rata, by the Indemnifying Parties.
-5-
6
ARTICLE IV
4.1 RIGHTS AND RESPONSIBILITIES OF THE ESCROW AGENT.
4.1.1 The duties and responsibilities of the Escrow Agent
shall be limited to those expressly set forth in this Escrow Agreement, and it
shall not be subject to, nor obligated to recognize, any other agreement
between, or direction or instruction of, any or all of the parties to this
Escrow Agreement.
4.1.2 If any Indemnity Escrow Funds are at any time attached,
garnished or levied upon under any court order or in case the payment of any
such Indemnity Escrow Funds shall be stayed or enjoined by any court order, or
in case any order, judgment or decree shall be made or entered by any court
affecting such Indemnity Escrow Funds or any part thereof, then and in any of
such events, the Escrow Agent is authorized, in its sole discretion, to rely
upon and comply with any such order, writ, judgment or decree which it is
advised by legal counsel is binding upon it. If the Escrow Agent complies with
any such order, writ, judgment or decree, it shall not be liable to any of the
parties to this Escrow Agreement or to any other person by reason of such
compliance even though such order, writ, judgment or decree may be subsequently
reversed, modified, annulled, set aside or vacated.
4.1.3 The Escrow Agent shall not be liable for any act taken
or omitted under this Escrow Agreement if taken, or omitted by it in good faith
and in the exercise of reasonable care under the circumstances. The Escrow Agent
shall also be fully protected in relying upon any written notice, demand,
certificate or document which it in good faith believes to be genuine.
4.1.4 The Escrow Agent, and any successor Escrow Agent, may
resign at any time as Escrow Agent hereunder by giving at least thirty (30) days
written notice to the Company, the Representative and each Indemnified Party.
Upon such resignation and the appointment of a successor Escrow Agent, the
resigning Escrow Agent shall be absolved from any and all liability in
connection with the exercise of its powers and duties as Escrow Agent hereunder
except for liability arising in connection with its negligence or willful
misconduct. Upon their receipt of notice of resignation from the Escrow Agent,
the Company, the Representative and each Indemnified Party shall use reasonable
efforts jointly to designate a successor Escrow Agent. In the event such parties
do not agree upon a successor Escrow Agent within thirty (30) days after the
receipt of such notice, the Escrow Agent so resigning may petition any court of
competent jurisdiction for the appointment of a successor Escrow Agent or other
appropriate relief and any such resulting appointment shall be binding upon all
parties hereto. By mutual agreement, the Company, the Representative and each
Indemnified Party shall have the right at any time upon not less than ten (10)
days' prior written notice to the Escrow Agent to terminate their appointment of
the Escrow Agent, or successor Escrow Agent, as Escrow Agent. The Escrow Agent
or successor Escrow Agent shall continue to act as Escrow Agent until a
successor is appointed and qualified to act as Escrow Agent.
-6-
7
4.2 FEES AND EXPENSES OF ESCROW AGENT.
4.2.1 The Escrow Agent shall (a) be paid a fee for its
services under this Escrow Agreement as provided by Exhibit A and (b) be
entitled to reimbursement for reasonable expenses (including the reasonable fees
and disbursements of its counsel) actually incurred by the Escrow Agent in
connection with its duties under this Escrow Agreement (collectively, the
"Escrow Agent Fees and Expenses"). All Escrow Agent Fees and Expenses shall be
paid first out of interest, dividends, and other income earned on the Escrow
Funds and then, to the extent of any shortfall, pro rata, by the Indemnifying
Parties.
ARTICLE V
5.1 NOTICES. All notices, requests, consents or other communications
required or permitted under this Escrow Agreement shall be in writing and shall
be deemed to have been duly given or delivered by any party (a) when received by
such party if delivered by hand, (b) upon confirmation when delivered by
telecopy, (c) within one day after being sent by recognized overnight delivery
service, or (d) within three business days after being mailed by first-class
mail, postage prepaid, and in each case addressed as follows:
(i) if to Buyers or to any Indemnified Party:
SI Holding Corporation
c/o Fleet Venture Resources, Inc.
111 Westminster Street
Providence, RI 02903
Attention: Mr. Habib Y. Gorgi, Executive Vice President
with a copy to:
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, RI 02903
Attention: Mr. Richard G. Small, Esq.
(ii) if to the Indemnifying Parties or the Representative, to:
Charles W. Doulton
Players' Club, Unit 106D
1425 Gulf of Mexico Drive
Longboat Key, FL 34228
-7-
8
with a copy to:
Chmielinski, Wilchins & Witman, P.A.
36 Washington Street, Suite 70-90
Wellesley Hills, MA 02181-1904
Attention: David P. Witman, Esq.
(iii) if to the Escrow Agent, to:
Fleet Bank of Massachusetts, N.A.
Trust Department
28 State Street
Boston, MA 02110
Attention: Timothy Donmoyer
Any party by written notice to the other parties pursuant to this
Section may change the address or the persons to whom notices or copies thereof
shall be directed.
5.2 ASSIGNMENT. This Escrow Agreement and the rights and duties
hereunder shall be binding upon and inure to the benefit of the parties hereto
and the successors and assigns of each of the parties to this Escrow Agreement.
No rights, obligations or liabilities hereunder shall be assignable by any party
without the prior written consent of the other parties, except that any
Indemnified Party may assign its rights under this Escrow Agreement without
obtaining the prior written consent of the other parties hereto to any person
who acquires (whether in a single transaction or a series of related
transactions) (i) all or substantially all of the assets of any such Indemnified
Party or (ii) a majority of the outstanding capital stock of any such
Indemnified Party. Notwithstanding the foregoing, any Indemnified Party may make
a collateral assignment of its rights under this Agreement to any institutional
lender who provides funds to any such Indemnified Party for the consummation of
the Acquisition. Representative agrees to execute acknowledgments of such
assignment(s) and collateral assignments in such forms as such Indemnified
Party's institutional lender(s) may from time to time reasonably request.
5.3 AMENDMENT. This Escrow Agreement may be amended or modified only by
an instrument in writing duly executed by all the parties to this Escrow
Agreement.
5.4 WAIVERS. Any waiver by any party hereto of any breach of or failure
to comply with any provision of this Escrow Agreement by any other party hereto
shall be in writing and shall not be construed as, or constitute, a continuing
waiver of such provision, or a waiver of any other breach of, or failure to
comply with, any other provision of this Escrow Agreement.
5.5 CONSTRUCTION. This Escrow Agreement shall be construed and enforced
in accordance with and governed by the internal substantive laws of the
Commonwealth of Massachusetts. The headings in this Escrow Agreement are solely
for convenience of reference and shall not be given any effect in the
construction or interpretation of this Escrow Agreement.
-8-
9
Unless otherwise stated, references to Sections and Exhibits are references to
Sections and Exhibits of this Escrow Agreement.
5.6 THIRD PARTIES. Nothing expressed or implied in this Escrow
Agreement is intended, or shall be construed, to confer upon or give any person
or entity other than the Indemnified Parties, the Representative, the
Indemnifying Parties and the Escrow Agent any rights or remedies under, or by
reason of, this Escrow Agreement.
5.7 TERMINATION. This Escrow Agreement shall terminate at the time of
the final distribution by the Escrow Agent of all Escrow Funds in accordance
with the provisions of this Escrow Agreement.
5.8 COUNTERPARTS. This Escrow Agreement may be executed in one or more
counterparts, each of which shall be deemed any original and all of which
together shall constitute a single instrument.
5.9 WAIVER OF OFFSET RIGHTS. The Escrow Agent hereby waives any and all
rights to offset that it may have against the Escrow Funds including, without
limitation, claims arising as a result of any claims, amounts, liabilities,
costs, expenses, damages, or other losses that the Escrow Agent may be otherwise
entitled to collect from any party to this Agreement or any [Indemnitor]
Indemnifying Party.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
PURCHASER:
SI Holding Corporation
By:_______________________________
Habib Y. Gorgi
Executive Vice President
COMPANY:
Simonds Industries Inc.
By:_______________________________
Ross B. George
President
-9-
10
REPRESENTATIVE:
__________________________________
Charles W. Doulton
OPTION HOLDERS:
__________________________________
Charles W. Doulton
__________________________________
Paul D. Petricca
MASSACHUSETTS CAPITAL RESOURCE COMPANY, INC.
By:_______________________________
Richard Anderson
Vice President
ESCROW AGENT:
Fleet Bank of Massachusetts, N.A.
By:_______________________________
Name:
Title:
SHAREHOLDERS:
Greylock Capital Limited Partnership
By:_______________________________
Robert P. Henderson
Managing Partner
Greylock Investment Limited Partnership
By:_______________________________
Robert P. Henderson
General Partner
-10-
11
Doulton Children's Trust, FOB Kara
By:_______________________________
Priscilla A. Doulton
as Trustee
__________________________________
Charles W. Doulton
__________________________________
Priscilla A. Doulton
__________________________________
Bettina E. Doulton
__________________________________
Ross B. George
__________________________________
Mildred George
__________________________________
Joseph L. Sylvia
__________________________________
Robert W. Deedrick
__________________________________
Harry H. Rogers
__________________________________
Brian Loveridge
Norval Morey Family Trust,
By:_______________________________
Norval Morey,
as Trustee
__________________________________
John E. Halloran
__________________________________
Charles C. Lundstrom
-11-