1
EXHIBIT 10.16
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made this 22nd day of
July, 1996 by and among YOUNG INNOVATIONS, INC., a Missouri corporation
("Young"), BIO DENTAL TECHNOLOGIES CORP., a California corporation ("Bio
Dental"), and THE UNION BANK OF CALIFORNIA (the "Escrow Agent").
WHEREAS, Young and Bio Dental are parties to that certain Asset
Purchase Agreement dated July 22, 1996 (the "Purchase Agreement"), pursuant to
which Young is purchasing substantially all of the assets of Denticator
International, Inc., a California corporation ("Denticator"), and pursuant to
which Bio Dental shall receive a portion of the consideration for selling and
conveying to Young, or a subsidiary of Young, all of Bio Dental's rights,
privileges, interests and claims under that certain Exclusive License Agreement
between Bio Dental and Denticator dated March 31, 1991, as amended.
WHEREAS, pursuant to the Purchase Agreement, Young is required to
deposit with the Escrow Agent a portion of the consideration payable to Bio
Dental; and
WHEREAS, the Escrow Agent has accepted such agency and agreed to hold
such funds in accordance with and subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Establishment of Escrow Account; Purpose.
(a) Establishment. The Escrow Agent shall establish at its
offices located at San Francisco, California an escrow account (the
"Escrow Account") and shall cause all funds deposited into the Escrow
Account to be held, invested and distributed in accordance with the
terms of this Agreement. The amount deposited into the Escrow
Account, together with any proceeds of investments thereof, that may
be held in the Escrow Account from time to time are hereinafter
referred to collectively as "Escrow Funds." The Escrow Agent shall
keep appropriate records to reflect the current value from time to
time of the Escrow Funds, including appropriate adjustments for
disbursements and income earned or losses in respect thereof.
(b) Purpose of Escrow Account. The sole purpose of the
Escrow Account is to provide a fund against which Young may assert
claims for indemnification under Article VIII of the Purchase Agreement
for (i) a breach by Seller of Seller's representations and warranties
regarding certain environmental matters contained in Section 3.22 of
the Purchase Agreement, and (ii) any Losses (as such term is defined
in the Purchase Agreement) which arise out of the matters discussed in
the letter from the Environmental Protection Agency to Denticator
dated January 11, 1996. Young shall not be permitted to make claims
against the Escrow Account for any other matters.
2. Delivery of Escrow Funds. At Closing (as defined in the
Purchase Agreement) Young shall deliver or cause to be delivered to the Escrow
Agent in accordance with the terms of the Purchase Agreement, cash in the
amount of One Hundred Thousand Dollars ($100,000) to be deposited into the
Escrow Account.
2
3. Investment of Escrow Funds. The Escrow Funds shall be
invested and reinvested by the Escrow Agent in such amounts and in such manner
as Bio Dental shall instruct the Escrow Agent from time to time in writing;
provided, however, that the Escrow Agent shall only invest the Escrow Funds in
those types of investments set forth on Exhibit A hereto. If the Escrow Agent
has not received instructions from Bio Dental prior to fifteen (15) days of the
expiration of the term of any instrument in which Escrow Funds are invested,
the Escrow Agent shall invest such Escrow Funds in instruments of the same or
of a substantially similar type as the instruments set forth on Exhibit A
hereto. Except as provided above, the Escrow Agent shall not be required to
invest any funds held hereunder unless requested by Bio Dental as provided
herein.
4. Release of Escrow Funds. The Escrow Agent shall release the
Escrow Funds as follows:
(a) Release Upon Mutual Written Instructions. Young and
Bio Dental may execute and deliver to the Escrow Agent written
instructions ("Mutual Written Instructions"), and the Escrow Agent
shall promptly upon receipt thereof disburse all or a portion of the
Escrow Funds in the Escrow Account as provided in such Mutual Written
Instructions.
(b) Release Upon Young Claim Notice. If Young shall have
delivered to the Escrow Agent one or more written notices (each a
"Young Claim Notice") stating that all or a portion of the Escrow
Funds in the Escrow Account specified in such notice or notices should
be released to Young because Young has made a claim against Bio Dental
under the Purchase Agreement for such amount or amounts, the Escrow
Agent shall retain such amount or amounts until the same are released
pursuant to subsections (c) or (e) hereof. Young shall deliver to Bio
Dental a copy of each Young Claim Notice on or prior to the date of
the delivery thereof to the Escrow Agent, and the Escrow Agent shall
also deliver a copy thereof to Bio Dental promptly after receipt from
Young.
(c) Release to Young. Unless the Escrow Agent shall have
received a Bio Dental Hold Notice as defined in Section 4(d) below
within thirty (30) days following receipt by the Escrow Agent of a
Young Claim Notice, the Escrow Agent shall promptly thereafter release
to Young such portion of the Escrow Account as is claimed by Young in
such Young Claim Notice.
(d) Bio Dental Hold Notice; Disputed Amounts. If, within
thirty (30) days of the Escrow Agent's receipt of a Young Claim Notice
pursuant to Section 4(b) above, Bio Dental shall have delivered
to the Escrow Agent written notice (a "Bio Dental Hold Notice")
stating that all or a portion of the Escrow Account specified in such
Young Claim Notice should not be released to Young, then the Escrow
Agent shall not release such disputed amounts until the occurrence of
one of the two events contemplated in Section 4(e) hereof. Bio Dental
shall deliver to Young a copy of such Bio Dental Hold Notice on or
prior to the date of the delivery thereof to the Escrow Agent and
the Escrow Agent shall also deliver a copy of such Bio Dental Hold
Notice to Young promptly after receipt thereof from Bio Dental.
(e) Release After a Bio Dental Hold Notice. In the event
that the Escrow Agent receives a Bio Dental Hold Notice as
contemplated by Section 4(d) hereof, that portion of the Escrow Account
that is in dispute as reflected in such Bio Dental Hold Notice shall
be held by the Escrow Agent until the occurrence of one of the
following events:
-2-
3
(1) receipt by the Escrow Agent of Mutual Written
Instructions signed by Young and Bio Dental instructing the
Escrow Agent to release the disputed portion of the Escrow
Funds to such party or parties and in such amount or amounts
as is specified in such Mutual Written Instructions; or
(2) receipt by the Escrow Agent of a written notice
(a "Certified Judgment Notice") from Young or Bio Dental
certifying that a final court judgment with respect to the
claim covered by Young Claim Notice is attached to such
Certified Judgment Notice, in which case the Escrow Agent
shall distribute the disputed portion of the Escrow Funds in
accordance with such judgment, unless within fifteen (15) days
of the Escrow Agent's receipt of a Certified Judgment Notice,
the Escrow Agent receives a written notice (an "Appeal
Notice") from the party not submitting such Certified Judgment
Notice stating that the judgment has or can and will be
appealed. A party delivering a Certified Judgment Notice or
an Appeal Notice shall deliver to the other party hereto a
copy thereof on or prior to the date of delivery thereof to
the Escrow Agent, and the Escrow Agent shall also deliver a
copy of each Certified Judgment Notice or Appeal Notice to the
party which did not deliver the same promptly after the Escrow
Agent's receipt thereof.
(f) Release Upon Termination of Agreement. On July 22,
1999 (the "Termination Date"), the Escrow Agent shall disburse to Bio
Dental from the Escrow Account the amount, if any, by which the
balance of the Escrow Account exceeds the aggregate amount of all
Unresolved Claims (as defined below). The Escrow Funds retained by
the Escrow Agent shall be held solely for the purpose of satisfying
the Unresolved Claims outstanding as of the Termination Date. For
purposes of this Agreement, the term "Unresolved Claims" shall mean
all claims evidenced by a Young Claim Notice as to which the Escrow
Agent has not received Mutual Written Instructions or a Certified
Judgment Notice which is not the subject of an Appeal Notice, in
either case directing release of Escrow Funds. After the Termination
Date, each time an Unresolved Claim is resolved as provided for
herein, the amount of such Unresolved Claim shall be disbursed in
accordance with the Mutual Written Instructions or the Certified
Judgment Notice reflecting such resolution.
(g) Release of Accrued Interest. The Escrow Agent shall
distribute to Bio Dental, within five (5) days after the end of each
calendar quarter, an amount equal to 100% of all amounts earned on the
Escrow Funds in the Escrow Account. All earnings on the Escrow Funds
prior to the time they are disbursed will, for all purposes of this
Escrow Agreement, be treated as Escrow Funds, and will be released
according to the terms of this Section 4.
(h) Security Interests in Escrow Fund.
(1) Except as expressly provided herein, neither
Young nor Bio Dental shall have any right, title or interest
in or possession of the Escrow Account. Therefore, neither
Young nor Bio Dental shall have the ability to pledge, convey,
hypothecate or grant a security interest in the Escrow Account
or any portion thereof unless and until such assets have been
disbursed or are required to be disbursed to such party in
accordance with this Section 4, provided, however, that Young
may pledge or grant a security interest in any of its rights
under this Agreement to any federal or state chartered lending
institution.
-3-
4
(2) Each of Young and Bio Dental acknowledges that
its interest in the Escrow Account is merely a contingent
right to payment from such Escrow Account. Each of Young and
Bio Dental further acknowledges that neither a voluntary or
involuntary case under any applicable bankruptcy, insolvency
or similar law nor the appointment of a receiver, trustee,
custodian or similar official in respect of Young or Bio
Dental (any of which is referred to herein as a "Bankruptcy
Event") shall increase its respective interest in the Escrow
Account or affect, modify, convert or otherwise change the
contingent nature of its respective right to payment from the
Escrow Account in accordance with the terms of this Agreement.
Nonetheless:
(i) if a court of competent jurisdiction
determines that Young, upon the occurrence of a
Bankruptcy Event with respect to Young, has an
interest in the Escrow Account that is greater than a
contingent right to payment from the Escrow Account
payable only in accordance with the provisions of
this Section 4, then Young shall be deemed to have
granted on the date hereof to Bio Dental a first
priority security interest in, and pledged to Bio
Dental all of its right, title and interest in
the Escrow Account. In such event, the
Escrow Agent shall be deemed to act as bailee on
behalf of Bio Dental in respect of Bio Dental's
security interest in Young's rights to the Escrow
Account. The Escrow Agent shall, upon receipt of
indemnification satisfactory to it from Bio Dental
for its fees and expenses incurred in connection with
taking such actions, take all actions as may be
reasonably requested in writing of it by Bio Dental
to further perfect the security interest granted by
Young hereunder in the Escrow Account. Such security
interest shall automatically be released with respect
to any funds properly distributed from the Escrow
Account pursuant to the terms of this Agreement; and
(ii) if a court of competent jurisdiction
determines that Bio Dental, upon the occurrence of a
Bankruptcy Event with respect to Bio Dental, has an
interest in the Escrow Account that is greater than a
contingent right to payment from the Escrow Account
payable only in accordance with the provisions of
this Section 4, then Bio Dental shall be deemed to
have granted on the date hereof to Young a first
priority security interest in, and pledged to
Young all of Bio Dental's right, title and interest
in the Escrow Account. In any such event, the
Escrow Agent shall be deemed to act as bailee on
behalf of Young in respect of Young's security
interest in Bio Dental's rights to the Escrow
Account. The Escrow Agent shall, upon receipt of
indemnification satisfactory to it from Young for its
fees and expenses incurred in connection with taking
such actions, take all actions as may be reasonably
requested in writing of it by Young to further
perfect the security interest granted by Bio Dental
hereunder in the Escrow Account. Such security
interest shall automatically be released with respect
to any funds properly distributed from the Escrow
Account pursuant to the terms of this Agreement.
(3) The parties hereto agree and acknowledge that
the establishment and maintenance of the Escrow Accounts
hereunder are intended to constitute possession of the Escrow
Accounts for the purposes of perfecting the security interests
therein created hereunder.
-4-
5
5. Responsibility of the Escrow Agent. The Escrow Agent accepts
the agency created by this Agreement upon the terms and conditions hereof and
undertakes to perform such duties and only such duties as are specifically set
forth herein. No provision of this Agreement shall be construed to relieve the
Escrow Agent from liability for its own gross negligence or willful misconduct,
except that:
(a) The duties and obligations of the Escrow Agent shall
be determined solely by the express provisions of this Agreement, and
no implied covenants, duties or obligations shall be read into this
Agreement against the Escrow Agent nor shall the Escrow Agent be bound
by the provisions of any other agreements between the other parties
hereto beyond the specific terms hereof; the Escrow Agent shall not be
liable for any action taken, suffered or omitted by it in good faith
and reasonably believed by it to be authorized or within the
discretion, rights, duties, privileges or powers conferred upon it by
this Agreement; the Escrow Agent shall not be liable for any error of
judgment made in good faith by a responsible officer or officers of
the Escrow Agent, unless the Escrow Agent was grossly negligent in
ascertaining the pertinent facts or in employing such officer or
officers; and the Escrow Agent shall not be liable to any person with
respect to any action taken, omitted or suffered to be taken by it in
accordance with the provisions of this Agreement or in accordance with
the written directions of Bio Dental or Young as provided herein or of
a court of competent jurisdiction except in the case of the Escrow
Agent's gross negligence or willful misconduct.
(b) The Escrow Agent may act in reliance upon and be
protected in acting or refraining from acting upon any instrument or
signature believed to be genuine and may assume that any person
purporting to give any writing, notice, advice or instruction in
connection with the provisions hereof has been duly authorized to do
so.
(c) The Escrow Agent may consult with counsel, auditors
and other experts and any opinion of counsel or written opinion of
such auditors or other experts shall be full and complete
authorization and protection with respect to any action taken or
suffered or omitted by the Escrow Agent thereunder in good faith and
in accordance with such opinion of counsel or opinion of such auditors
or other experts within the area of their respective expertise.
(d) 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. Nothing in this
Agreement shall be deemed to impose upon the Escrow Agent any
liability to any other person as a result of any failure of the Escrow
Agent to qualify to do business or to act as fiduciary or otherwise in
any jurisdiction other than the jurisdiction of its formation.
(e) No property held in escrow by the Escrow Agent
hereunder shall be subject to any setoff, counterclaim, recoupment,
lien or other right which the Escrow Agent may have against either of
the other parties hereto or against any other person for any reason
whatsoever.
(f) If any dispute arises between Young and Bio Dental as
to which of them is entitled to delivery of the disputed portion of
the Escrow Funds, or if the Escrow Agent is uncertain as to its
obligations hereunder, the Escrow Agent may, but shall not be
obligated to, either (i) commence an interpleader action against Young
and Bio Dental in a state or federal court located in Sacramento,
California, and deposit the disputed Escrow Funds with such court,
whereupon the Escrow Agent may apply to the court for an order
discharging it from
-5-
6
all further liability to any other party to this Agreement, or (ii)
refrain from any action and continue to hold the disputed portion of
the Escrow Funds pending a resolution of the dispute by either a court
of competent jurisdiction or by a written agreement signed by Young
and Bio Dental. For the purposes of any action or proceeding
contemplated by clause (i) above, each party hereby consents to the
jurisdiction of said courts and agrees that service of process in any
such action or proceeding may be made by certified or registered mail
at the address for notices to such party provided in this Agreement.
6. Expenses; Indemnification. Young and Bio Dental each agrees
to pay one-half of any fees or expenses charged by the Escrow Agent for its
services to be performed hereunder. The Escrow Agent shall xxxx Bio Dental for
all such fees and expenses, and Bio Dental shall remit payment to the Escrow
Agent on behalf of the parties hereto. Upon notice from Bio Dental, Young
shall immediately reimburse Bio Dental for Young's portion of such expenses and
fees. In addition, Young and Bio Dental hereby agree jointly to indemnify the
Escrow Agent for, and to hold it harmless against, any loss, liability or
expense incurred without gross negligence or willful misconduct on the part of
the Escrow Agent, arising out of or in connection with its entering into this
Agreement and carrying out its duties hereunder, including the costs and
expenses of defending itself against any claim of liability.
7. Removal and Resignation. The Escrow Agent may at any time be
removed by the written direction of Bio Dental and Young. The Escrow Agent or
any successor escrow agent may at any time resign and be discharged of the
agency hereby created by giving written notice to each of Bio Dental and Young
specifying the date upon which it desires that such resignation shall take
effect. Such removal or resignation shall take effect on the date specified in
the notice of removal or resignation, which date shall not be earlier than 60
days after the giving of the notice of removal or resignation unless a
successor escrow agent shall have been appointed pursuant to Section 8 hereof
and shall have accepted such appointment, in which event such removal or
resignation shall take effect immediately upon the acceptance by such successor
escrow agent. Young and Bio Dental shall take prompt steps to have a successor
escrow agent appointed in the manner hereinafter provided.
8. Appointment of Successor Escrow Agent. If at any time the
Escrow Agent shall resign or be removed or if at any time a vacancy shall occur
in the office of the Escrow Agent for any other cause, a successor escrow agent
shall be appointed by a written instrument executed by Young and Bio Dental and
delivered to the Escrow Agent and the successor escrow agent. Upon acceptance
of said instrument by the successor escrow agent, the resignation or removal of
the Escrow Agent shall become effective and such successor escrow agent shall
become vested with all the rights, powers, duties and obligations of its
predecessor hereunder. If no successor escrow agent shall have been appointed
at the effective date of resignation of the Escrow Agent, the Escrow Agent or
either other party hereto shall petition a court of competent jurisdiction for
the appointment of a successor and the Escrow Agent's duties shall be purely
ministerial until such appointment is effective.
9. Termination. This Agreement shall terminate upon the release
of all Escrow Funds held in the Escrow Accounts hereunder pursuant to Section 4
hereof or upon written agreement of the parties hereto, which agreement, in the
case of the Escrow Agent, shall not be unreasonably withheld.
10. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by facsimile
transmission, or mailed by overnight delivery service or by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
-6-
7
the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):
To the Escrow Agent:
The Union Bank of California
000 Xxxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Telecopier No.: 000-000-0000
Attention: Xxxxxxx Xxxxx
To Young:
Young Innovations, Inc.
00000 Xxxxxxxxx Xxxxx Xxxx
Xxxxx Xxxx, Xxxxxxxx 00000
Telecopier No.: 000-000-0000
Attention: Chief Financial Officer
With a copy to:
Armstrong, Teasdale, Schlafly & Xxxxx
Xxx Xxxxxxxxxxxx Xxxxxx
Xx. Xxxxx, Xxxxxxxx 00000-0000
Telecopier No.: 000-000-0000
Attention: Xxxx X. Xxxxxx, Xx., Esq.
To Bio Dental:
Bio Dental Technologies Corp.
00000 Xxxxxxx Xxxx Xxxxx
Xxxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxx
Telecopier No.: 000-000-0000
With a copy to:
Xxxxxxx X. Xxxxx, Esq.
Tomlinson, Zisko, Morosoli & Maser, LLP
000 Xxxx Xxxx Xxxx, 0xx Xxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Telecopier No.: 000-000-0000
11. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Escrow Agent, Young and its affiliates and
Bio Dental and their respective successors and permitted assigns. Any
reference to a party contained in this Agreement shall be deemed to apply to
such party's successors and permitted assigns to the extent there shall be any.
Except as set forth in Section 4(h), no party hereto may assign its rights
(including, without limitation, its contingent right to payment) and
obligations hereunder without the written consent of the other parties hereto,
except
-7-
8
that Bio Dental shall be permitted to assign its rights and obligations
hereunder to Zila, Inc. without the consent of the other parties hereto;
provided, however, that such assignment shall not relieve Bio Dental of any of
its obligations or duties hereunder . Any purported assignment in violation of
the provisions of this Section 11 shall be null and void.
12. Amendments and Modifications. This Agreement may not be
amended or modified in any respect without the express written consent of
Young, Bio Dental and the Escrow Agent.
13. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without
regard to the conflict of laws principles thereof.
14. Counterparts. This Agreement may be executed in any number of
counterparts, and by any party on a separate counterpart, each of which as so
executed and delivered shall be deemed an original but all of which together
shall constitute one and the same instrument, and it shall not be necessary in
making proof of this Agreement as to any party hereto to produce or account for
more than one such counterpart executed and delivered by such party.
15. No Waiver. The failure of any party to insist, in any one or
more instances, upon the timely performance of any of the terms, covenants or
conditions of this Agreement and to exercise any right hereunder, shall not be
construed as a waiver or relinquishment of the future performance of any such
term, covenant or condition or the future exercise of such right, but the
obligations of the other parties with respect to such future performance shall
continue in full force and effect.
16. Descriptive Headings. The descriptive headings of the sections
of this Agreement are inserted for convenience only and do not constitute a
part of this Agreement.
IN WITNESS WHEREOF, each of the Escrow Agent, Young and Bio Dental
have caused this Agreement to be duly executed and delivered, all as of the
date first above written.
THE UNION BANK OF CALIFORNIA
By: /s/ Xxxxxxx Xxxxx
-----------------------------------
Name: Xxxxxxx Xxxxx
---------------------------------
Its: Vice President
----------------------------------
YOUNG INNOVATIONS, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
-----------------------------------
Name: Xxxxxx X. Xxxxxxxx
---------------------------------
Its: President
----------------------------------
BIO DENTAL TECHNOLOGIES CORP.
By: /s/ Xxxxx X. Xxxx
-----------------------------------
Name: Xxxxx X. Xxxx
---------------------------------
Its: Chief Financial Officer
----------------------------------
-8-
9
EXHIBIT A
Pursuant to Section 3 of the Escrow Agreement, the Escrow Funds shall
at all times be invested and reinvested by the Escrow Agent in one or more of
the following short term investment products:
(i) obligations issued or guaranteed as to full and
timely payment by the United States of America or by any Person controlled by
or acting as an instrumentality of the United States of America pursuant to
authority granted by Congress;
(ii) Obligations issued or guaranteed by any state or
political subdivision thereof (including stripped obligations the principal of
and interest on which have been separated and offered for sale separate from
each other) if (A) such obligations are entitled to the full faith and credit
of such state or political subdivision of such state, respectively, and such
obligations provide that the state or political subdivision has the obligation
to repay, in full and on a timely basis, such obligations, and (B) such
obligations are rated not lower than the second highest category if rated as
short term obligations or not lower than the third highest category if rated as
long term obligations by Xxxxx'x Investors Service, Inc. ("Moody's") or by
Standard & Poor's Corporation ("Standard & Poor's"), each of New York, New
York, or their respective successors;
(iii) readily marketable commercial or finance paper of
corporations doing business in and incorporated under the laws of the United
States of America or any state thereof, which is rated in the highest rating
category by either Moody's or Standard & Poor's, or their respective
successors;
(iv) deposit accounts, bankers' acceptances, certificates
of deposit or bearer deposit notes in one or more banks, trust companies or
savings and loan associations (including without limitation, the Escrow Agent
or any bank affiliated with the Escrow Agent) organized under the laws of the
United States of America or any state thereof, each bank or trust company
having a reported capital and surplus of at least $500,000,000 in dollars of
the United States of America and each savings and loan association having a
reported unimpaired capital and surplus, or retained income, as the case may
be, of at least $500,000,000 in dollars of the United States of America;
(v) repurchase agreements secured fully by obligations of
the type specified in clause (i) or issued by a bank or savings and loan
association which is insured by the Federal Deposit Insurance Corporation or
the Federal Savings and Loan Insurance Corporation; and
(vi) any fund or other pooling arrangement which purchases
and holds only investments of the types described in paragraphs (i) through (v)
above.
