Exhibit 10.3
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is made and entered into as of
August 24, 2007, by and among Air Industries Group, Inc. (formerly known as
Xxxxx Industries Incorporated), a Delaware corporation (the "Purchaser"), Xxxx
Xxxxx and Xxxxxxx Xxxxx (the "Sellers"), and Xxxxx & Xxx Xxxxxx LLP (the "Escrow
Agent").
WHEREAS, pursuant to that certain Stock Purchase Agreement, dated as of
March 9, 2007, as amended by Amendment No 1. to the Stock Purchase Agreement
dated as of August 2, 2007 (the "Purchase Agreement"), by and between the
Purchaser and the Sellers, the Purchaser has agreed to purchase, and the
Sellers, who own all of the outstanding capital stock of Welding Metallurgy,
Inc. (the "Company"), have agreed to sell and transfer to the Purchaser, all of
the outstanding shares of common stock of the Company in exchange for
consideration ("Consideration"), consisting of cash amounts and newly issued
shares of the Purchaser's common stock, $.001 par value per share (the
"Purchaser Common Stock") and otherwise on the terms and conditions set forth in
the Purchase Agreement (such transaction, the "Acquisition");
WHEREAS, as an inducement for the Purchaser to enter into the Purchase
Agreement, Purchaser has required that certificates for an aggregate of
1,017,764 of the shares of Purchaser Common Stock representing the Consideration
(the "Escrow Shares") be deposited with the Escrow Agent to provide the
Purchaser collateral security for the indemnity obligations of the Sellers to
the Purchaser under the Purchase Agreement, subject to the terms and conditions
set forth herein;
WHEREAS, the Purchaser, the Sellers and the Escrow Agent desire to set
forth the terms and conditions pursuant to which the Escrow Shares will be held
by the Escrow Agent and disbursed to Purchaser and/or the Sellers, as the case
may be.
NOW, THEREFORE, in consideration of the mutual premises, agreements and
covenants set forth herein and in the Purchase Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending legally to be bound, hereby agree as
follows. Any capitalized terms used herein and not otherwise defined shall have
the meanings given to such terms in the Purchase Agreement.
1. The Purchaser and each of the Sellers does hereby appoint and designate
the Escrow Agent as Escrow Agent for the purposes set forth herein, and Escrow
Agent does hereby accept such appointment under the terms and conditions set
forth herein.
2. (a) Simultaneously with the execution of this Agreement, Purchaser
is depositing with the Escrow Agent the Escrow Shares, together with a stock
power duly executed by each of the Sellers with respect thereto.
(b) The Escrow Agent shall hold, subject to the terms and conditions
hereof, the Escrow Shares. In the event of any stock split, corporate
reorganization, recapitalization, merger, consolidation or any other non-cash
dividend or distribution with respect to the Escrow Shares, the Sellers shall
promptly deposit such securities or other property received by them in
connection with such event with the Escrow Agent, together with any necessary
stock powers, and such property will be held pursuant to the terms of this
Agreement.
3. The Escrow Shares shall be held by Escrow Agent to satisfy any
potential amounts owed to Purchaser by the Sellers with respect to their
indemnification obligations pursuant to Article 10 of the Purchase Agreement.
The Escrow Shares shall be valued at a per share price equal to the average of
the last sales prices of the Purchaser Common Stock for the five (5) trading
days immediately preceding the date on which shares of Escrow Shares are applied
to satisfy the Sellers' indemnification obligation to the Purchaser.
4. (a) If at any time prior to the termination of this Agreement, the
Escrow Agent receives joint written instructions from Purchaser and the Sellers
to make a payment to Purchaser as required under the Purchase Agreement and
pursuant to Section 6 and 7 hereof, then Escrow Agent shall make payments out of
the Escrow Shares to Purchaser in accordance with such instructions.
(b) On the first business day after the three-year anniversary of
the date of this Agreement (the "Termination Date"), Escrow Agent shall return
to the Sellers any remaining portion of the Escrow Shares still held in escrow
pursuant to the terms of this Agreement, reduced by the amounts, if any, which
are the subject of Unresolved Claims (as hereinafter defined).
(c) Subsequent to the Termination Date, the Escrow Agent shall
retain the portion of the Escrow Shares which relate to all Unresolved Claims
until such time as such Unresolved Claims are resolved in accordance with the
terms hereof, at which time the portion of the Escrow Shares relating to the
settled Unresolved Claim, if any, shall be distributed to the appropriate party
in accordance with joint written instructions from Purchaser and the Sellers.
5. The term "Unresolved Claims" shall mean any claim or request for
indemnification by the Purchaser against the Sellers pursuant to the Purchase
Agreement made against the Escrow Shares in accordance with this Agreement prior
to the Termination Date, which claim or request shall be the subject of a Notice
of Request as referred to in Section 6 below. All Unresolved Claims shall remain
as such until such time as they have been paid in full or otherwise fully
settled or discharged in accordance with the provisions of Section 7 below.
6. If at any time during the term of this Agreement, the Purchaser
believes that it is entitled to any portion of the Escrow Shares by way of
indemnification from the Seller pursuant to the Purchase Agreement, the
Purchaser shall furnish to the Escrow Agent (with a simultaneous copy to the
Sellers, with proof of such delivery provided to the Escrow Agent), a written
notice (the "Notice of Request") setting forth the dollar amount (and the
corresponding number of Escrow Shares) to which the Purchaser believes it is
entitled and the reasons for such belief. If the Escrow Agent and the Purchaser
do not receive, within twenty (20) business days after receipt of the Notice of
Request, a notice from the Sellers (the "Dispute Notice") stating that a dispute
(the "Dispute") exists relating to the Purchaser's claim to that portion of the
Escrow Shares claimed in the Notice of Request, the Escrow Agent shall,
immediately after such twenty business day period, deliver the certificates
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representing all of the Escrow Shares to the Purchaser, who shall simultaneously
deliver to the Escrow Agent new certificates for a number of shares of Purchaser
Common Stock representing the Escrow Shares equal to the difference between (a)
the number of Escrow Shares then being held in escrow less (b) the number of
Escrow Shares to which the Purchaser is entitled to as set forth in its Notice
of Request. The Dispute Notice shall set forth in reasonable detail the amount
disputed and the reasons for the Dispute. The Purchaser and the Sellers shall
attempt to resolve the Dispute in good faith for a period of thirty (30) days
following the receipt by the Escrow Agent and the Purchaser of the Dispute
Notice. If the Purchaser and the Sellers are unable to resolve the Dispute
within such thirty day period, the Dispute shall be submitted by the Purchaser
and the Sellers to arbitration as hereinafter provided and the Escrow Agent
shall be so notified. It is understood and agreed that (x) the arbitrator's
award in such arbitration shall relate solely to the Dispute, (y) shall
determine only whether or not the Purchaser is entitled to all or part of the
Escrow Shares claimed for in the Notice of Request and whether the Sellers are
entitled to offset any of their indemnification obligations under the Purchase
Agreement, and (z) shall in no way involve any other matter relating to the
Purchase Agreement or this Agreement including, without limitation, any claim
for indemnification by the Purchaser or the Sellers. Further, in the event that
the resolution of such Dispute shall depend on the final disposition of a claim
made by an unaffiliated third party against the Purchaser for which the
Purchaser is seeking indemnification from the Sellers, such arbitrator shall
defer final resolution of such Dispute until such third party claim has been
resolved or appropriate provision therefor has been made. The Purchaser and the
Sellers each agree that the arbitrator's award shall be final and binding upon
them with respect to the Dispute.
7. In the event Escrow Agent receives a Dispute Notice in accordance with
Section 6 above that a Dispute exists, the Escrow Agent shall retain custody of
that portion of the Escrow Shares which relates to the Unresolved Claim until
the first to occur of the following events:
(a) Receipt by Escrow Agent of a notice ("Settlement Notice") signed
by the Purchaser and the Sellers that the Dispute has been resolved, which
notice shall contain instructions to the Escrow Agent regarding delivery of that
portion of the Escrow Shares which relates to the Unresolved Claim; or
(b) Receipt by Escrow Agent of a copy of the Arbitrator's Award (as
hereinafter defined) issued by the American Arbitration Association acknowledged
by the Purchaser and the Sellers; or
(c) Receipt by Escrow Agent of official notice of the confirmation
by a court of competent jurisdiction of the arbitrator's award (the
"Arbitrator's Award") resolving the Dispute, which confirmation has become a
final order from which no appeal has been or can be had.
After the occurrence of any of the foregoing events, the Escrow Agent
shall promptly deliver that portion of the Escrow Shares which relates to the
Unresolved Claim in accordance with the Settlement Notice or the Arbitrator's
Award.
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8. Any controversy or claim arising out of the interpretation of the
provisions of this Agreement or the obligations of the parties hereto in
connection with this Agreement (an "Escrow Dispute") shall be settled either by
mutual written agreement of the parties to such Escrow Dispute or by a binding
and final arbitration award, as provided below. In the event the terms of a
settlement of an Escrow Dispute increase the duties or obligations of the Escrow
Agent hereunder and the Escrow Agent has not participated in such settlement so
as to be bound thereby, then the settlement of such Escrow Dispute shall be
effective as to the Escrow Agent in respect of such increase in duties or
liabilities only upon the Escrow Agent's written assent thereto.
Any Escrow Dispute not resolved by mutual agreement of the Sellers and the
Purchaser shall be settled by arbitration in New York, New York, or in such
other location as the parties may mutually agree, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"). In the event of an Escrow Dispute, any party hereto may demand
arbitration by written notice to the other parties and, within fifteen (15) days
after receipt of such demand, each party shall appoint an arbitrator (each, an
"Appointed Arbitrator") who shall together agree on a third Arbitrator, failing
which agreement they shall request the AAA to appoint a third and presiding
arbitrator ("Presiding Arbitrator", together with the Appointed Arbitrators, the
"Arbitrators"), in accordance with the then existing rules of the AAA or any
successor organization thereto. The parties acknowledge and agree that
individuals may be designated as Appointed Arbitrators by each respective party,
whether or not such Appointed Arbitrators are listed on the National Panel of
Arbitrators as such list is maintained by the AAA. The parties hereby
acknowledge that it is their intent to allow for a reasonable period of time in
which the parties may conduct discovery relating an Escrow Dispute. The decision
of 2 out of the 3 Arbitrators shall be final and binding on the parties and
judgment upon the award rendered by the Arbitrators may be entered in any court
having jurisdiction thereof. The costs of the arbitration (including, but not
limited to, fees and disbursements of counsel and the Arbitrators) shall be
borne by the non-prevailing party or as otherwise determined by the Arbitrators.
9. Upon the later to occur of (a) the Termination Date and (b) the date on
which all Unresolved Claims, if any, are settled after the Termination Date (x)
the portion of the Escrow Shares remaining on such date shall be distributed in
accordance with this Agreement, (y) this Agreement shall be deemed to be
terminated, and (z) the Escrow Agent shall be released and discharged from all
further obligations hereunder. Under such circumstances, the Purchaser agrees
that it shall divide and transfer the Escrow Shares to the distributees of the
Sellers in accordance with the Sellers' written instructions.
10. (a) The Escrow Agent undertakes to perform only such duties as are
expressly set forth herein. The Escrow Agent may rely and shall be protected in
acting or refraining from acting upon any written notice, instruction or request
furnished to it hereunder and believed by it to be genuine and to have been
signed or presented by the proper party or parties. The Escrow Agent shall be
under no duty to inquire into or investigate the validity, accuracy or content
of any such document. The Escrow Agent shall have no duty to solicit any
payments that may be due it hereunder.
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(b) The Escrow Agent shall not be liable for any action taken or
omitted by it in good faith unless a court of competent jurisdiction determines
that the Escrow Agent's willful misconduct was the primary cause of any loss to
the Purchaser or the Sellers. In the administration of the escrow account
hereunder, the Escrow Agent may execute any of its powers and perform its duties
hereunder directly or through agents or attorneys and may consult with counsel,
accountants and other skilled persons to be selected and retained by it. The
Escrow Agent shall not be liable for the performance of agents or for anything
done, suffered or omitted in good faith by it in accordance with the advice or
opinion of any such counsel, accountants or other skilled persons.
(c) The Escrow Agent may resign and be discharged from its duties or
obligations hereunder by giving notice in writing of such resignation specifying
a date when such resignation shall take effect. Such resignation shall not
relieve the Escrow Agent of any potential liability of the Escrow Agent
hereunder. Upon such resignation, the Purchaser and the Sellers shall mutually
select a successor escrow agent.
(d) The Purchaser hereby agrees to pay or reimburse the Escrow
Agent, upon request, for all expenses, disbursement and advances, including
reasonable attorney's fees, incurred or made by it in connection with the
preparation, execution, performance, delivery modification and termination of
this Agreement.
(e) The Purchaser and the Sellers jointly and severally shall
indemnify, defend and save harmless the Escrow Agent from all loss, liability or
expense (including the reasonable fees and expenses of outside counsel) arising
out of or in connection with (i) its execution and performance of this
Agreement, except to the extent that such loss, liability or expense is due to
the gross negligence or willful misconduct of the Escrow Agent, or (ii) its
following any instructions or other directions from the Purchaser or the
Sellers, except to the extent that its following any such instruction or
direction is expressly forbidden by the terms hereof. Notwithstanding anything
in this Agreement to the contrary, in no event shall the Escrow Agent be liable
for special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action. The parties hereto acknowledge that the foregoing indemnities shall
survive the resignation or removal of the Escrow Agent or the termination of
this Agreement.
(f) The duties and responsibilities of the Escrow Agent hereunder
shall be determined solely by the express provisions of this Agreement and no
other or further duties or responsibilities shall be implied. The Escrow Agent
shall not have any liability under, nor duty to inquire into the terms and
provisions of any agreement or instructions, other than outlined in this
Agreement.
(g) The Sellers acknowledge that the Escrow Agent is acting as
counsel to the Purchaser in the negotiation, preparation and execution of this
Agreement and the Purchase Agreement, and agrees that Xxxxx & Xxx Xxxxxx LLP may
represent the Purchaser in any dispute under this Agreement or the Purchase
Agreement.
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(h) The Escrow Agent shall not be bound by any waiver, modification,
cancellation or rescission of this Agreement unless made in writing and signed
by the parties hereto, and a copy thereof is delivered to the Escrow Agent.
(i) In the event of any dispute over the disposition of the Escrow
Shares, the Escrow Agent may deposit it with a court of competent jurisdiction
in the State of New York and thereafter be relieved of any further liability or
obligation under this Agreement.
11. All notices and communications hereunder shall be in writing and shall
be deemed to be duly given if sent (i) by registered mail, return receipt
requested or (ii) by facsimile transmission, as follows:
If to the Escrow Agent, to:
Xxxxx & Xxx Xxxxxx LLP
0 Xxxx Xxxxxx, 00xx Xx.
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. XxXxxx
Facsimile No.: (000) 000-0000
If to Purchaser, to:
Air Industries Group, Inc.
0000 Xxxxx Xxxxxxx Xxxxxx
Xxx Xxxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxx & Xxx Xxxxxx LLP
0 Xxxx Xxxxxx, 00xx Xx.
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. XxXxxx
Facsimile No.: (000) 000-0000
If to Seller, to:
Xxxx Xxxxx and Xxxxxxx Xxxxx
000 Xxxxxxxxx Xxxxxxxx
Xxxxxxxx, Xxx Xxxx 00000
with a copy to:
Xxxx X. Xxxxxxx, Esq.
Ruskin Moscou Faltischek, P.C.
0000 Xxxxxxx Xxxxx
Xxxxxxxxx, Xxx Xxxx 00000
(000) 000-0000 direct
(000) 000-0000 fax
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or at such other address as any of the above may have furnished to the other
parties in writing by registered mail, return receipt requested, or facsimile,
and any such notice or communication given in the manner specified in this
Paragraph 11 shall be deemed to have been given as of the date so mailed except
with respect to the Escrow Agent as to which date shall be deemed to have been
given on the date received by the Escrow Agent. In the event that the Escrow
Agent, in its sole discretion, shall determine that an emergency exists, the
Escrow Agent may use such other means of communications as the Escrow Agent
deems advisable.
12. The provisions of this Agreement may be waived, altered, amended or
supplemented, in whole or in part, only by a writing signed by all of the
parties hereto.
13. Neither this Agreement nor any right or interest hereunder may be
assigned in whole or in part by any party without the prior consent of the other
parties.
14. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. All signatures of the parties to this Agreement may
be transmitted by facsimile, and such facsimile will, for all purposes, be
deemed to be the original signature of such party whose signature it reproduces
and will be binding upon such party.
15. In the event that the Escrow Agent shall be uncertain as to its duties
or rights hereunder or shall receive instructions, claims or demands from any
party hereto which, in its opinion, conflict with any of the provisions of this
Agreement, it shall be entitled to refrain from taking any action and its sole
obligation shall be to keep safely the Escrow Shares until it shall be directed
otherwise in writing by all of the other parties hereto or by a final order or
judgment of a court of competent jurisdiction.
16. Any corporation or other business entity into which the Escrow Agent
may be merged or converted or with which it may be consolidated, or any
corporation or other business entity resulting from any merger, conversion or
consolidation to which the Escrow Agent shall be a party, or any corporation or
other business entity to which substantially all the corporate trust business of
the Escrow Agent may be transferred, shall be the successor Escrow Agent under
this Agreement without any further action of the parties hereto.
17. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to its principles of conflicts
of laws and, except as provided in Section 8 hereof, any action brought
hereunder shall be brought in the courts of the State of New York, located in
the County of New York or the court of the United States of America for the
Southern District of New York. Each party hereto irrevocably waives any
objection on the grounds of venue, forum non-conveniens or any similar grounds
and irrevocably consents to service of process by mail or in any other manner
permitted by applicable law and consents to the jurisdiction of said courts.
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18. In the event that any party to this Agreement is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other cause reasonably beyond its control, such party shall not be liable for
damages to the other parties for any unforeseeable damages resulting from such
failure to perform or otherwise from such causes. Performance under this
Agreement shall resume when the affected party is able to perform substantially
that party's duties.
[Signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date and year first above written.
XXXXX & XXX XXXXXX LLP
By: /s/ Xxxxxxx XxXxxx
---------------------------
Name:Xxxxxxx XxXxxx
Title:Partner
AIR INDUSTRIES GROUP, INC.
By: /s/ Xxxxx X. Xxxxxxxxxx
---------------------------
Name:Xxxxx X. Xxxxxxxxxx
Title:President
SELLERS:
/s/ Xxxx Xxxxx
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XXXX XXXXX
/s/ Xxxxxxx Xxxxx
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XXXXXXX XXXXX
