ESCROW AGREEMENT
This ESCROW AGREEMENT is made and entered into as of January
31, 1997 ("Escrow Agreement") by and among Security Title Insurance Agency
of Utah, Inc. (the "Escrow Agent"), Celtic Investment, Inc., a Delaware
corporation ("Celtic"), Xxxxx Xxxxxx Xx. ("Xxxxxx") and Xxxxx Xxxxx ("Xxxxx",
and, together with Xxxxxx, the "Shareholders").
WHEREAS, Celtic, Celtic Merger Sub, Inc., a Utah corporation, Salt
Lake Mortgage Corp., a Utah corporation ("SLM"), and the Shareholders are
parties to an Agreement and Plan of Merger of even date herewith (the "Merger
Agreement") pursuant to which Celtic has agreed to acquire SLM, upon the
terms and subject to the conditions in the Merger Agreement;
WHEREAS, the parties have agreed in the Merger Agreement that the
value of SLM is dependent upon, among other things, the financial performance
of SLM on a near term basis;
WHEREAS, the financial performance of SLM, and therefore its value,
is dependent upon additional capital made available for use by SLM in its
operations;
WHEREAS, Celtic has agreed to use its best efforts to obtain such
additional capital for use in SLM's operations;
WHEREAS, the parties have agreed that in the event such additional
capital is made available to SLM and, if thereafter, SLM does not achieve
certain financial performance criteria then the value of SLM was not as great as
originally agreed to by the parties and in such event some of the Escrow Shares
(as hereafter defined) issued to the Shareholders should be returned to Celtic;
WHEREAS, if the financial performance criteria are achieved by SLM
or if Celtic does not make additional capital available to SLM, then all of the
Celtic Common Stock issued to the Shareholders pursuant to the Merger
Agreement shall be retained by Shareholders;
WHEREAS, Section 2.8 of the Merger Agreement provides for the
Shareholders to deposit into escrow 500,000 shares (the "Escrow Shares" or
"Escrowed Shares") of the common stock, par value $.001 per share, of Celtic
("Celtic Common Stock");
WHEREAS, each of the Shareholders shall, simultaneously with the
execution and delivery of this Agreement, deliver 250,000 shares of Celtic
Common Stock to the Escrow Agent; and
WHEREAS, Celtic and the Shareholders wish to enter into this Escrow
Agreement providing for the terms and conditions upon which the Escrow
Shares will be held and released by the Escrow Agent and the Escrow Agent
wishes to act as Escrow Agent pursuant to the terms and conditions of this
Escrow Agreement.
NOW, THEREFORE, in consideration of the premises and intending to
be legally bound hereby, the parties hereto agree as follows:
Section 1. Appointment of Escrow Agent; Deposits into Escrow Account.
The parties hereto designate Security Title Insurance Agency of Utah, Inc.
to act as Escrow Agent hereunder, and Security Title Insurance Agency of Utah,
Inc. hereby accepts such appointment and agrees to act as Escrow Agent hereunder
upon the terms and subject to the conditions hereinafter set forth. On the date
of this Escrow Agreement each Shareholder is transferring 250,000 shares of
Celtic Common Stock to the Escrow Agent, together with stock powers endorsed
in blank by such Shareholder.
Section 2. Rights as Shareholders. Until an Escrow Share is delivered
to Celtic in accordance with the terms hereof, each Shareholder shall have all
rights of ownership of such Escrow Share, except as otherwise specifically
provided herein and subject to the lien created hereby, including the right to
receive dividends thereon and the right to vote such shares. The Escrow Agent
shall have no responsibility for either the payment of dividends with respect to
the Escrow Shares or the voting of such shares.
Section 3. Release of Escrow Shares and Delivery.
a. Definitions.
"ACI" For any measuring period shall be
equal to the quotient obtained by
dividing (i) the sum of the amount of
the "Capital Infusion" at the close of
business on each day of the relevant
measuring period by (ii) the number
of calendar days in the relevant
measuring period.
"API" Means for any period all amounts
which, in conformity with GAAP,
would be included in the pre-tax net
income on a consolidated income
statement of the SLM Group for such
period plus an amount equal to the
sum of:
(i) adjustments required
pursuant to Accounting
Procedures Bulletin 16
and 17 (including
without limitation,
goodwill amortization
and transactional
expense amortization);
(ii) adjustments resulting
from the costs
(including attorneys'
fees and other out-of-
pocket costs) of
obtaining a debt based
Capital Infusion or any
other debt financing of
the SLM Group to the
extent they exceed in
connection with any
such financing a one
time origination fee of
3% and a commitment
fee on the unused
portion of the facility of
up to 1/4%;
(iii) any interest included in
determining Net
Income to the extent
that such interest
resulted from an
applicable interest rate
in excess of either the
prime interest rate of
Citibank N.A. as in
effect from time to
time, or, if the relevant
credit facility is priced
off the London
Interbank Offering
Rate, then such rate
plus 1-1/2%;
(iv) adjustments resulting
from the costs
(including attorneys'
fees and other out-of-
pocket costs) of
obtaining any equity
based Capital Infusion
or any other equity
financing of the SLM
Group to the extent
they exceed in the
connection with any
such financing a one
time cost, including
underwriting fees, of
8%;
(v) any salary or other
compensation which the
Shareholders voluntarily
elect to forego (prior to
paying any bonus to the
Shareholders, Celtic and
SLM shall consult with
them and allow one or
both of them to defer
receipt of (prior to a
final decision to forgo)
all or part of any such
bonus in order to
facilitate the use of this
Section by them); and
(vi) with respect to the
Second Measuring
Period only, API shall
also include all revenue
with respect to any
business which has been
booked or committed to
by the SLM Group as
of the last day of such
period to the extent
that such booked or
committed business is
actually completed.
"Capital Infusion"The cash proceeds of any new
debt financing provided by
Celtic or a third party to SLM
or any preferred or common
equity financing provided to
SLM by Celtic Parent, or any
combination thereof.
"Cause" Shall have the meaning
assigned to it in the
Employment Agreement (the
"Xxxxxx Employment
Agreement") dated as of the
date of this Agreement
between Xxxxxx, Celtic and
SLM.
"Celtic Parent"Means Celtic and any
Subsidiary of Celtic other than
a member of the SLM Group.
"First Measuring
Period" The period of 13 consecutive
calendar months commencing
on the date that Celtic delivers
the Initial Capital Notice.
"Initial Capital
Notice" Means a notice to the
Shareholders delivered by
Celtic to the effect that the
SLM Group received a Capital
Infusion in an amount greater
than or equal to $1.0 million.
Such funds may be used,
subject to the approval of the
Board of Directors of SLM, by
the SLM Group without
restriction in connection with
the origination, funding,
purchase and sale of real
estate mortgages.
"Second Capital
Notice" Means a notice to the
Shareholders delivered by
Celtic to the effect that SLM
has received a Capital Infusion
in an amount greater than or
equal to $1.0 million. Such
funds may be used, subject to
the approval of the Board of
Directors of SLM, by the SLM
Group without restriction in
connection with the
origination, funding, purchase
and sale of real estate
mortgages.
"Second Measuring
Period" The period of 12 consecutive
calendar months commencing
on the first day after the last
day of the First Measuring
Period, or if Escrow Shares
have been released pursuant to
Section 3(c)(i) or 3(c)(ii), the
period of 12 consecutive
calendar months commencing
on the date that Celtic delivers
the Second Capital Notice.
"SLM Group" Means SLM, any Subsidiary of
SLM, and Advantage and,
solely for the purposes of the
definition of API, any such
person and any entity which is
a part of Celtic Parent but only
to the extent such entity is
engaged in the business of
mortgage brokerage, real
estate brokerage, real estate
development and sales and
construction financing.
"Voluntary
Termination" Shall have the meaning
assigned to it in the Xxxxxx
Employment Agreement.
b. General ProvisionsAny investment in or loan or
advance by any member of the SLM Group to any member of Celtic
Parent and the purchase price of any assets purchased by any member of
the SLM Group from any member of Celtic Parent shall be deemed to
be a reduction of the amount of the Capital Infusion. If a Capital
Infusion or other debt or equity financing is provided by Celtic Parent to
the SLM Group and such funds were obtained by Celtic Parent from an
external financing source then Celtic shall not charge any incremental fee,
expense, charge or other xxxx-up to the SLM Group with respect to such
funds.
c. Release for Failure to Provide Capital Infusion
(i) If the Initial Capital Notice is not delivered
prior to the six-month anniversary of this
Agreement or a purported Initial Capital
Notice is delivered during such period but is
determined not to have been validly delivered
then 250,000 of the Escrow shares shall
immediately be released to the Shareholders
and there shall be no First Measuring Period.
(ii) If the ACI is less than $1.0 million during the
First Measuring Period then 250,000 of the
Escrow Shares shall immediately be released
to the Shareholders and there shall be no
First Measuring Period.
(iii)If shares are released pursuant to either
Section 3(c)(i) or 3(c)(ii) then a Second
Capital Notice may be delivered; and, if a
Second Capital Notice may be delivered but
no such notice is delivered prior to the
eighteen month anniversary of this
Agreement, or a purported Second Capital
Notice is delivered prior to such date but is
determined not to have been validly
delivered, then 250,000 of the Escrow Shares
shall immediately be released to the Share-
holders and there shall be no Second
Measuring Period.
(iv) If the ACI for the Second Measuring Period
is less than $1.0 million, then all of the then
escrowed Escrow Shares shall immediately be
released to the Shareholders and there shall
be no Second Measuring Period.
d. Release Based on Celtic Status.If the SLM Group shall
lose any qualification, license or franchise it then holds as a result
of (i) any actions or failures to act by Celtic Parent or any officer,
director, employee, agent or consultant of Celtic Parent or (ii) the status
background or any prior action or failure to act of or by Celtic Parent or
any officer, director, employee, agent or consultant of Celtic Parent, then
all then Escrowed Shares shall immediately be released to the
Shareholders.
e. Release Based on Celtic Activities. If any mortgage
brokerage, real estate brokerage, real estate development or sales or
construction financing activity is engaged in by any member of Celtic
Parent and such activities shall not be under the operational control and
authority of the Board of Directors of SLM then all then Escrowed
Shares shall immediately be released to the Shareholders. For the
avoidance of doubt the parties agree that the taking of, administration of
and exercise of rights under mortgages and deeds of trust as part of a
collateral package incidental to the factoring business engaged in by
Celtic Parent shall not constitute mortgage brokerage or real estate
brokerage for purposes of the preceding sentence.
f. Release Based on Celtic Interference.If Xxxxxx
shall cease for any reason to be Chairman, President and CEO of SLM
(other than as a result of (x) a Voluntary Termination by Xxxxxx of his
employment or (y) a termination by SLM of Xxxxxx'x employment for
Cause) or if the business plan of SLM as proposed by Xxxxxx is rejected
or thwarted by the Board of Directors of SLM or Celtic (other than with
the written consent of Xxxxxx) or either such board interferes with the
execution of such business plan to any extent then in any such case all
then Escrowed Shares shall immediately be released to the Shareholders.
g. Release Based on SLM Group Financial
Performance.
(i) A number of Escrowed Shares equal to
quotient obtained by dividing (i) API during
the First Measuring Period minus $600,000,
minus, but only if the ACI is greater than
$1.0 million, one tenth of the amount by
which ACI during the First Measuring Period
exceeds $1.0 million, and (ii) 2; shall be
released to the Shareholders pursuant to
Sections 3(g)(iv) and 3(i) hereof. If there is
no First Measuring Period then this
paragraph shall have no effect.
(ii) A number of Escrowed Shares equal to
quotient obtained by dividing (i) API during
the Second Measuring Period minus $600,000
minus, but only if the ACI is greater than
$1.0 million, one tenth of the amount by
which ACI during the Second Measuring
Period exceeds $1.0 million, and (ii) 2; shall
be released to the Shareholders pursuant to
Section 3(g)(iv) and 3(i) hereof. If there is
no Second Measuring Period then this
paragraph shall have no effect.
(iii)For clarification purposes the formula set out
in the foregoing Sections 3(g)(i) and 3(g)(ii)
may alternatively be expressed as follows:
(A) If ACI is equal to 1.0 million:
API-$600,000
------------ = Number of Shares Released
2
(B) If ACI is greater than $1.0 million:
API-$600,000-(.10*(ACI-$1,000,000))
----------------------------------- = Number of Shares Released
2
For further clarification an example of the
application of the second formula is set out
below:
API = $1.2 million
ACI = $3.0 million
$1,200,000-$600,000-(.10*(3,000,000-1,000,000)
---------------------------------------------- = 200,000 Shares Released
2
(iv) All Escrowed Shares required to be released
under this Section 3(g) shall be released
immediately following such time as the
Release Calculation has been determined to
be in effect. Any Escrow Shares not required
to be released following the Second
Measuring Period shall be delivered to
Celtic.
h. Determination of API and XXX.Xx later than 45
days after the last day of each of the First Measuring Period and the
Second Measuring Period SLM shall provide to the Shareholders a
statement (the "Preliminary Release Calculation") signed by its Chief
Executive Officer or another person designated by the Board of Directors
of Celtic setting out in detail the calculation of API, ACI and the number
of Escrow Shares to be released. The Preliminary Release Calculation
shall be based on financial information calculated in accordance with
GAAP consistently applied and shall, unless otherwise agreed by the
Shareholders and Celtic, be based on audited financial information.
Upon receipt of a Preliminary Release Calculation the
Shareholders and their accountants shall have the right during the
succeeding 30-day period to examine the Preliminary Release Calculation
and all books and records used to prepare such Preliminary Release
Calculation. In connection with the Shareholders' examination of the
Preliminary Release Calculation Celtic shall (and shall cause its
subsidiaries to) provide full cooperation to the Shareholders and their
accountants. Without limiting the generality of the foregoing, Celtic
shall permit, and shall cause each of its subsidiaries to permit, the
Shareholders and their accountants to have access during normal business
hours to the books and records of Celtic and its subsidiaries, including
without limitation work papers of its accountants.
The Shareholders shall notify Celtic in writing (the "Notice
of Objection"), on or before the last day of such 30-day period, of any
objections to the calculation of the Preliminary Release Calculation,
setting forth a reasonably specific and detailed description of the
Shareholders' objections and the dollar amount of each objection. If the
Shareholders do not deliver the Notice of Objection within such 30-day
period, the Preliminary Release Calculation shall be deemed to have been
accepted by the Shareholders.
If the Shareholders object to the Preliminary Release
Calculation, Celtic and the Shareholders shall attempt to resolve any such
objections within 15-days of the receipt of the Notice of Objection. Any
such resolution shall be conclusive and binding on Celtic and the
Shareholders. If Celtic and the Shareholders are unable to resolve the
matter within such 15-day period, they shall jointly appoint a mutually
acceptable firm of independent accountants of national reputation (or, if
they cannot agree on a mutually acceptable firm, they shall cause their
respective accounting firms to select such firm) within five days of the
end of such 15-day period. Celtic shall (and shall cause its subsidiaries
to) provide full cooperation to such firm. Such firm shall be instructed
to reach its conclusion regarding the dispute within 30-days. Such firms'
resolution of the dispute shall be conclusive and binding on Celtic and the
Shareholders. The Preliminary Release Calculation, after the acceptance
thereof by the Shareholders or the resolution of all disputes in connection
therewith, is referred to herein as the "Release Calculation."
Each of Celtic and the Shareholders shall pay one-half of
all fees and expenses of any independent public accountants appointed
under this paragraph.
i. Allocation Among Shareholders. One-half of any Escrow
Shares released pursuant to this Escrow Agreement shall be delivered to
Xxxxxx and the other half shall be delivered to Xxxxx unless otherwise
agreed pursuant to Section 4(i) or 4(ii) hereof by Xxxxxx or Xxxxx or
resulting from an award pursuant to Section 4(iii) hereof.
Section 4. Timing of Xxxxxxx.Xx is understood and agreed that should
any dispute arise with respect to the payment and/or ownership or right of
possession of the Escrow Shares, the Escrow Agent is authorized and directed
to retain in its possession the Escrow Shares until either (i) the relevant
Shareholder delivers instructions directing the application of the Escrow Shares
(which refers to this Escrow Agreement) to each of the Escrow Agent, Celtic and
the other Shareholder; provided, however, that if Celtic shall deliver to the
Escrow Agent and the other Shareholder contrary instructions within ten (10)
calendar days, then such original instructions shall be void; (ii) the relevant
Shareholder and Celtic direct the application of such Shareholder's Escrow
Shares by delivering a joint writing referring to this Escrow Agreement to that
effect to the Escrow Agent; or (iii) the Escrow Agent shall receive a certified
copy of an arbitrators award with respect to a claim on the relevant Escrow
Shares. Upon receipt of such written direction from Celtic and the relevant
Shareholder or not later than five days after receipt of such certified copy of
an arbitrators award, the Escrow Agent shall take action with respect to the
Escrow Shares as required by such direction or such award, as the case may be.
Section 5. Interpleader Provision. Nothing contained in this Escrow
Agreement shall preclude the right of the Escrow Agent to seek an adjudication
in a court of competent jurisdiction as to the rights of the parties under this
agreement, and the Escrow Agent shall not be liable for any delay occasioned
because of such resort to court; provided, however, that any dispute concerning
the application, interpretation or any other matter concerning Section 3 shall,
in accordance with Section 16 hereof, be submitted to binding arbitration
pursuant to the procedures set out in Section 10.8 of the Merger Agreement.
Section 6. Termination. This Escrow Agreement shall terminate upon
the distribution of the last of the Escrow Shares held by the Escrow Agent
pursuant to this Escrow Agreement.
Section 7. Compensation of Escrow Agent. The Escrow Agent shall be
entitled to a fee for its escrow services in an amount calculated at a rate of
$100.00 per annum, to be paid annually in arrears by Celtic. The Escrow Agent
will be reimbursed for expenses, including counsel fees, in connection with the
performance of the Escrow Agent's duties under this Agreement.
Section 8. Escrow Agent.
a. The Escrow Agent is hereby authorized and directed
to hold the Escrow Shares as agent for Celtic and the Shareholders and
to deliver the same in accordance with the provisions of this Agreement.
b. The Escrow Agent may resign and be discharged
from its duties hereunder at any time by giving notice of such resignation
to Celtic and the Shareholders, which shall specify a date (not less than
30 days following the date of such notice) when such resignation shall
take effect. Upon such notice, a successor escrow agent shall be selected
by Celtic and the Shareholders, such successor escrow agent to become
the Escrow Agent hereunder upon the resignation date specified in such
notice. If Celtic and the Shareholders are unable to agree upon a
successor escrow agent within 30 days after the date of such notice, the
Escrow Agent shall be entitled to appoint its successor. The Escrow
Agent shall continue to serve hereunder until its successor accepts the
escrow and acknowledges receipt of the Escrow Shares. Celtic and the
Shareholders may at any time substitute a new Escrow Agent by jointly
giving notice thereof to the existing Escrow Agent, provided that any such
new Escrow Agent agrees to serve as Escrow Agent in accordance with
the terms and provisions of an escrow agreement substantially identical
to this Escrow Agreement (except as to the name of the Escrow Agent).
c. Celtic and the Shareholders agree to release and
hold the Escrow Agent harmless and indemnify it from any loss or claim
whatsoever in conjunction with the performance of the duties of the
Escrow Agent (including attorney's fees) as long as the Escrow Agent has
complied with the provisions of this Escrow Agreement. Said
indemnification shall be borne 50% by Celtic, 25% by Xxxxxx and 25%
by Xxxxx (unless otherwise determined pursuant to an arbitrator's award)
and survive the termination of this Escrow Agreement.
Section 9. Notices. Any notices or other communications required or
permitted hereunder shall be given in writing and shall be delivered by hand or
air courier or sent by certified or registered mail, postage prepaid, addressed
as follows:
If to Celtic, to:
Celtic Investment, Inc.
000 Xxx Xxxxxxx Xxxxx
Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx.
With a copy to:
X.X. Xxxxxxx, Xx.
Cohne, Xxxxxxxxx & Xxxxx
000 Xxxx 000 Xxxxx, Xxxxx Xxxxx
Xxxx Xxxx Xxxx, XX 00000
or:
If to the Escrow Agent, to:
Security Title Insurance Agency of Utah, Inc.
000 Xxxx 000 Xxxxx
Xxxxx 000
Xxxx Xxxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxx, Xx.
or:
If to the Shareholders, to:
Xxxxx Xxxxxx, Xx.
c/o Salt Lake Mortgage Corp.
000 Xxxx 000 Xxxxx
Xxxxx 000
Xxxx Xxxx Xxxx, XX 00000
with a copy to:
Xxxxxxx Xxxxx & Xxxxxxx
000 Xxxxx Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxx Xxxx, Xxxx 00000-0000
Attn: Xxxxxx X. Xxxxx III
and to:
Xxxxx Xxxxx
c/o Salt Lake Mortgage Corp.
000 Xxxx 000 Xxxxx
Xxxxx 000
Xxxx Xxxx Xxxx, XX 00000
or to such other address as shall be furnished in writing by such party, and any
such notice or communication shall be effective and be deemed to have been
given as of the date delivered if by hand, the day after delivery to the air
courier service if sent by overnight mail, and five days following the date of
mailing if mailed.
Section 10. Entire Agreement. This Escrow Agreement is the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
Section 11. Amendments; Waiver. This Escrow Agreement may be
amended, modified, superseded, cancelled, renewed or extended, and the terms
and conditions hereof may be waived only by written instrument signed by the
parties hereto or, in the case of a waiver, the party waiving compliance.
Section 12. Assignment. No assignment of any rights or delegations of
any obligations provided for herein may be made by any party without the
express written consent of all the other parties hereto.
Section 13. Counterparts. This Escrow Agreement may be executed in
two more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
Section 14. Governing Law. This Escrow Agreement shall be construed
in accordance with the governed by the internal laws of the State of Utah.
Section 15. Benefit. This Escrow Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns. Nothing contained in this Escrow
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective heirs, personal representative, and
successors and assigns as aforesaid, any rights or remedies under or by reason
of this Agreement.
Section 16. Arbitration. All disputes at law or equity arising under, or
as a result of, or in any way in connection with any provision of this Agreement
shall, except as provided in Section 3(h) hereof, be resolved only in accordance
with the provisions of Section 10.8 of the Merger Agreement.
Section 17. Certain Disclosures. Xxxxx and Celtic acknowledge that they
understand that a substantial shareholder of the Escrow Agent is Xxxxx Xxxxxx,
Xx., who is Xxxxxx'x father. The Escrow Agent acknowledges that it has relied
on its own separate counsel in connection with the preparation, negotiation, and
execution and delivery of this Agreement and not on counsel to Xxxxxx, Xxxxx
or Celtic.
IN WITNESS WHEREOF, the parties hereto have affixed their
signatures to this Escrow Agreement upon the date first set forth above.
CELTIC INVESTMENT, INC.
By: /s/ Xxxxxxx X. Xxxxxx
XXXXX XXXXXX XX.
/s/ Xxxxx Xxxxxx, Xx.
XXXXX XXXXX
/s/ Xxxxx Xxxxx
SECURITY TITLE INSURANCE
AGENCY
OF UTAH, INC.
as Escrow Agent
By: /s/ Xxxxx Xxxxxx
