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EXHIBIT 2.2
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement") dated as of
January 5, 2000, is made by and among AppliedTheory Corporation, a Delaware
corporation ("Parent"), AppliedTheory Reef Acquisition Corp., a Delaware
Corporation (the "Company"), United States Trust Company of New York (the
"Escrow Agent"), and ▇▇▇▇▇ ▇. ▇▇▇▇▇ (the "Company Stockholder") as contemplated
by that certain Agreement and Plan of Merger, dated as of December 3, 1999, by
and among Parent, AppliedTheory Reef Acquisition Corp., a Delaware Corporation
(the "Merger Sub"), the Company, and the Company Stockholder (the "Agreement and
Plan of Merger"). Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Agreement and Plan of Merger.
WHEREAS, Parent, the Company, and the Company Stockholder have
entered into the Agreement and Plan of Merger to provide for the merger of the
Company and the Merger Sub and the corresponding transfer to the Parent of all
the ownership interests of the Company (the "Merger");
WHEREAS, the Company Stockholder has agreed to indemnify Parent in
certain circumstances pursuant to Article 7 of the Agreement and Plan of Merger;
WHEREAS, the closing of the transactions contemplated by the
Agreement and Plan of Merger is taking place as of the date hereof and the
execution of this Escrow Agreement by the parties is an express condition
thereto; and
WHEREAS, Parent has relied upon the representations, warranties
and covenants of the Company and the Company Stockholder provided in the
Agreement and Plan of Merger and in the Schedules, Exhibits and other
instruments or agreements delivered to and in favor of Parent pursuant to the
Agreement and Plan of Merger.
NOW, THEREFORE, to induce Parent to proceed with the Closing and
the Merger, and in further consideration of the mutual covenants and agreements
contained herein and in the Agreement and Plan of Merger, and intending to be
legally bound, the parties hereto do hereby agree as follows:
ARTICLE I
CREATION OF ESCROW FUND
SECTION 1.1. Contemporaneous with the execution of this Escrow
Agreement, Parent shall deposit at Closing a portion of the Parent Common Stock
equal in value to Four Million Two Hundred and Fifty Thousand Dollars
($4,250,000), with the Escrow Agent, such deposit to constitute an escrow fund
(the "Escrow Fund") to be governed by the terms set forth herein. Upon
compliance with the terms hereof, Parent shall be entitled to receive payment
from the Escrow Fund in the form of shares of Parent Common Stock for all Losses
for which Parent is entitled to indemnification under the Agreement and Plan of
Merger.
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SECTION 1.2. The Escrow Agent shall hold, safeguard and dispose of
the Escrow Fund in accordance with the terms hereof and shall treat such Escrow
Fund as an escrow fund in accordance with the terms hereof.
ARTICLE II
ESCROW PERIOD
The funds forming the Escrow Fund shall remain in existence for a
period of twelve months commencing on the Closing of the Agreement and Plan of
Merger (the "Escrow Period") and no claim may be asserted thereafter; provided,
however, that any Parent Common Stock which shall continue to be maintained in
the Escrow Fund beyond the Escrow Period pursuant to Article V shall be held
subject to the terms hereof.
ARTICLE III
CLAIMS AGAINST ESCROW FUND
SECTION 3.1. Claims against the Escrow Fund. Upon receipt by the
Escrow Agent on or before the last day the Escrow Fund remains in existence of a
certificate signed by the Chief Executive Officer, Chief Operating Officer, or
Chief Financial Officer of Parent ("Officer's Certificate"), a copy of which, at
that time, will also be provided to the Company Stockholder pursuant to the
procedure for notice set forth in Article XIII:
(a) stating that Parent has a Loss and that Parent is entitled to
indemnification out of the Escrow Fund pursuant to this Escrow Agreement
and the Agreement and Plan of Merger; and
(b) specifying in reasonable detail (i) the amount of the Loss;
(ii) the individual items of Losses included in the amount so stated; (iii)
the basis for the Loss and (iv) the section of the Agreement and Plan of
Merger (or such other applicable instrument contemplated thereby) to which
such claim relates;
the Escrow Agent shall, upon receipt of written evidence signed by the Company
Stockholder of his consent to the removal of that portion of the Escrow Fund
equal to the amount of Losses in respect of any claim made in the Officer's
Certificate (the "Stockholder Acknowledgment"), deliver to Parent, as promptly
as practicable, out of the Escrow Fund, such number of shares of Parent Common
Stock having a value equal to the amount of such Losses. Upon delivery of such
an amount from the Escrow Fund, Parent will become the lawful owner of such
Parent Common Stock. The Escrow Agent shall remove no amount out of the Escrow
Fund pursuant to this Article III unless the Escrow Agent shall have received
the Officer's Certificate specified in this Section 3.1 to make such delivery
and the Stockholder Acknowledgment. The parties hereto acknowledge and agree
that in the event that the Escrow Agent requires clarification or confirmation
regarding the number of shares of Parent Common Stock to be delivered hereunder
or regarding any other aspect relating to or arising from an Officer's
Certificate, the Escrow Agent may contact the Company Stockholder and the party
who executed the Officer's Certificate on behalf of Parent.
Section 3.2. Claims. Any claim by Parent against the Escrow Fund
made in an Officer's Certificate pursuant to this Article III shall be referred
to herein as a "Claim" or, if multiple, "Claims."
Section 3.3. Valuation of Parent Common Stock. Parent and the
Company Stockholder hereby agree that for the purposes of this Escrow Agreement,
the
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Parent Common Stock shall be valued at $16.00 per share.
ARTICLE IV
RESOLUTION OF DISPUTES
SECTION 4.1. If the Company Stockholder shall not have consented
in writing through the Stockholder Acknowledgment within five days of receipt of
a copy of the Officer's Certificate, the Company Stockholder and Parent shall
attempt in good faith to agree upon the rights of the respective parties with
respect to each such Claim. If the Company Stockholder and Parent so agree, a
memorandum setting forth such agreement shall be prepared and signed by Parent
and the Company Stockholder and will be presented to the Escrow Agent along with
an Officer's Certificate.
SECTION 4.2. If no such agreement can be reached after good faith
negotiation and, in any event, 30 days after the Company Stockholder refuses to
consent to the removal of a portion of the Escrow Fund for the amount of a Loss
in respect of any Claim made by Parent (a "Dispute"), such Dispute shall be
submitted to mandatory and binding arbitration. The arbitration shall be
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA"). The arbitration hearing shall be held in such location
as the parties may mutually agree or, in the absence of mutual agreement, in
Denver, CO. The arbitration panel will have no power or authority, under the
Commercial Arbitration Rules of the AAA or otherwise, to relieve the parties
from their agreement hereunder to arbitrate or otherwise to amend or disregard
any provision of this Agreement, including without limitation, the provisions of
this Section 4.2. Any award rendered by the arbitration panel will be final,
conclusive and binding upon the parties and any judgment hereon may be entered
and enforced in any court of competent jurisdiction.
ARTICLE V
EXPIRATION OF ESCROW PERIOD
If, upon expiration of the Escrow Period, Parent shall have
asserted a Claim and such Claim is pending or unresolved at the time of such
expiration, the Escrow Agent shall retain in the Escrow Fund that portion of the
Escrow Fund, net of any distributions made or to be made with respect to other
Claims, equal in value to the Loss asserted in such Claim until such matter is
resolved. If it is determined that Parent is entitled to recovery on account of
such Claim, the Escrow Agent shall deliver or cause to be delivered the amount
of Parent Common Stock having a value equal to the amount due and payable with
respect to such Claim, determined as provided in Section 3.3 hereof. Upon such
delivery Parent will be the lawful owner of that amount of Parent Common Stock.
In the event that no Claims are made or are pending by or at the end of the
Escrow Period, the remaining portion of the Escrow Fund, shall be disbursed to
the Company Stockholder subject to the prior payment by the Company Stockholder
to the Escrow Agent of any amounts owing by the Company Stockholder under
Article XVI.
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ARTICLE VI
SCHEDULE FOR RELEASE OF ESCROW FUND
If any amount is paid by the Escrow Agent pursuant to a Claim and
the actual Losses with respect to such Claim are at the time determined to be
less than such payment, the Parent shall promptly deposit such excess back into
the Escrow Fund, if this Escrow Agreement is then in effect, or transfer such
excess to the Company Stockholder, if this Escrow Agreement is no longer in
effect.
ARTICLE VII
ESCROW AGENT'S RIGHTS AND RESPONSIBILITIES
To induce the Escrow Agent to act hereunder, it is further agreed
that:
(a) Any recitals contained in this Escrow Agreement shall be
deemed to be those of the principals and not those of the Escrow Agent.
(b) The Escrow Agent shall not be under any duty to give the
property held hereunder any greater degree of care than it gives its own
similar property.
(c) The Escrow Agent may engage legal counsel who may not be
counsel for any party to the Escrow Agreement and may act upon advice of
counsel in reference to any matter connected herewith and shall not be
liable for any acts or omissions taken or suffered pursuant to the opinion
of such counsel. The fees and expenses of such counsel shall be deemed to
be a proper expense for which the Escrow Agent will have a lien against the
Escrow Fund.
(d) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Escrow Agreement or any
documents or papers deposited or called for hereunder. The Escrow Agent
shall be protected in acting upon any notice, request, consent,
certificate, order, affidavit, letter, telegram or other paper or document
believed by it to be genuine and correct and to have been signed or sent by
the proper person or persons.
(e) The Escrow Agent shall not be liable for the outlawing of any
rights under any statute of limitations with respect to this Escrow
Agreement or any documents deposited with the Escrow Agent.
(f) The Escrow Agent is hereby expressly authorized to disregard
any and all warnings given by any of the parties hereto or by any other
person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees
of any court. In case the Escrow Agent obeys or complies with any such
order, judgment or decree of any court, the Escrow Agent shall not be
liable to any of the parties hereto or to any other person by reason of
such compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.
(g) The Escrow Agent is authorized to rely on the written
instructions of the Company Stockholder as being the acts of the Company
Stockholder.
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(h) The duties of the Escrow Agent shall be as expressed under
this Escrow Agreement, and the Escrow Agent shall have no implied duties.
The permissive right or power to take any action shall not be construed as
a duty to take action under any circumstances, and the Escrow Agent shall
not be liable except in the event of its gross negligence or willful
misconduct.
(i) The Escrow Agent shall not be called upon to advise any party
as to its rights and obligations hereunder.
(j) In consideration of its acceptance of the appointment as the
Escrow Agent, and except with respect to the Escrow Agent's own gross
negligence or willful misconduct or acts or omissions by the Escrow Agent
not in good faith, the other parties hereto agree, jointly and severally,
to indemnify and hold the Escrow Agent harmless as to any loss or liability
incurred by it to any person, firm or corporation by reason of its having
accepted the same or in carrying out any of the terms hereof, and to
reimburse the Escrow Agent for all its expenses, including attorney's fees,
incurred by reason of its position hereunder or actions taken pursuant
hereto. The Escrow Agent shall have no liability under, or duty to inquire
into, the terms and provisions of this Escrow Agreement, and it is agreed
that its duties are purely ministerial in nature and that the Escrow Agent
shall incur no liability whatsoever except for willful misconduct or gross
negligence so long as it has acted in good faith. This paragraph (j) shall
survive the termination of the Escrow Agreement.
(k) The Escrow Agent may execute any of the duties under this
Escrow Agreement by or through agents or receivers.
(l) Unless specifically required by this Escrow Agreement, the
Escrow Agent shall not be required to give any bond or surety or report to
any court despite any statute, custom or rule to the contrary.
(m) In the event the Escrow Agent becomes involved in litigation
by reason hereof, it is hereby authorized to deposit with the clerk of the
court in which the litigation is pending any and all funds, securities or
other property held by it pursuant hereto, less its fees, expenses and
advances, and thereupon shall stand fully relieved and discharged of any
further duties hereunder. Also, in the event the Escrow Agent is threatened
with litigation by reason hereof, it is hereby authorized to implead all
interested parties in any court of competent jurisdiction and to deposit
with the clerk of such court any such funds, securities or other property
held by it pursuant hereto, less its fees, expenses and advances, and
thereupon shall stand fully relieved and discharged of any further duties
hereunder.
(n) The Escrow Agent shall not be obligated to risk its own funds
in the administration of the Escrow Fund and shall have a lien against any
funds, securities or other property in its possession or control for its
fees, expenses and advancements. The Escrow Agent need not take any action
under this Escrow Agreement which may involve it in any expense or
liability until indemnified to its satisfaction for any expense or
liability it reasonably believes may occur.
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ARTICLE VIII
RECORDS
The Escrow Agent shall maintain a record of all Claims against the
Escrow Fund filed with it pursuant to Article III, a record of all such Claims
which shall become payable as provided in Article III or IV and a record of all
payments from the Escrow Fund to Parent.
ARTICLE IX
RESIGNATION OF ESCROW AGENT
The Escrow Agent, or any successor, may resign as Escrow Agent
hereunder by giving 30 days' written notice thereof to the Company Stockholder
and Parent by registered or certified mail. Such resignation shall become
effective following such written notice upon the earlier of the appointment by
Parent and the Company Stockholder of a successor escrow agent that accepts the
appointment and agrees to be bound by the provisions of an agreement
substantially similar to this Escrow Agreement or the expiration of 30 days
thereafter. Upon the effectiveness of such resignation, all duties hereunder of
the Escrow Agent so resigning shall cease, other than the duty to account in
accordance with Article VIII. The Company Stockholder and Parent shall have the
right to terminate the appointment of the Escrow Agent hereunder by giving
written notice thereof to the Escrow Agent, specifying the date upon which such
termination shall take effect. A condition precedent to such termination shall
be the designation of a successor escrow agent, selected by Parent and the
Company Stockholder, that has accepted the appointment and agreed to be bound by
the provisions of an escrow agreement substantially similar to this Escrow
Agreement. In event of such termination, the Escrow Agent shall turn over and
deliver to such successor escrow agent the Escrow Fund, and any other sums and
the records and instruments held by it under this Escrow Agreement and render
the accounting required by Article VIII. Notwithstanding the appointment of a
successor escrow agent, the provisions of Article XVI shall govern with respect
to Parent's liability for any fees incurred with respect to the administration
of the Escrow Fund or charged by any escrow agent.
ARTICLE X
VOTING
During the term of this Escrow Agreement, the Company Stockholder
shall be deemed the owner of and shall have voting power over all Parent Common
Stock in the Escrow Fund.
ARTICLE XI
DIVIDENDS AND DISTRIBUTIONS
During the term of this Escrow Agreement any dividends or other
distributions on the Parent Common Stock that are made in the form of cash or
any other form of property, except for ownership rights in the Company or any
subsidiary thereof, shall be distributed to the Company Stockholder. During the
term of this Escrow Agreement any dividends or other distributions on the Parent
Commons Stock that are made in the form of capital stock or any other form of
ownership interest in the Company
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or any of its subsidiaries shall remain in the Escrow Fund until the end of the
term of this Escrow Agreement.
ARTICLE XII
PARENT RIGHTS
Parent's right to payment for Losses is, in all cases, in addition
to and not in substitution of any other rights or remedies available to Parent
under the Agreement and Plan of Merger, any other agreement in respect of the
transactions contemplated thereby, or by operation of law or in equity,
including the right to specific performance or injunctive relief.
ARTICLE XIII
NOTICES
All notices and other communications pursuant to this Escrow
Agreement shall be in writing and shall be deemed given if delivered personally,
sent by a nationally recognized overnight courier, or mailed by registered or
certified mail (return receipt requested), postage prepaid, or sent by facsimile
(followed with a copy sent by courier or registered or certified mail return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by notice hereunder):
To Parent: AppliedTheory Corp.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
with a copy to: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇, Esq.
To the Company Stockholder: ▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery, (b) in the
case of delivery by nationally recognized overnight courier, on the business day
following dispatch, (c) in the case of mailing, on the third business day
following such mailing, and (d) in the case of a facsimile, when the party
receiving such facsimile shall have confirmed receipt of the communication (or
when the copy sent by courier or registered or certified mail shall have been
deemed to have been received pursuant to clause (a), (b) or (c)).
ARTICLE XIV
SUCCESSORS AND ASSIGNS
This Escrow Agreement shall inure to the benefit of and be binding
upon the successors and assigns of the parties hereto.
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ARTICLE XV
GOVERNING LAW
This Escrow Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York without regard to the choice
of law principles thereof.
ARTICLE XVI
ESCROW FEES
The Company Stockholder and Parent will each be responsible for up
to one half of any administration and other fees charged by the Escrow Agent and
any successor escrow agent up to four thousand dollars ($4,000), or up to two
thousand dollars ($2,000) each; provided, that the Company Stockholder shall be
solely responsible for any administration and other fees charged by the Escrow
Agent in excess of four thousand dollars ($4,000).
ARTICLE XVII
EXPENSES
In the event of any dispute that results in a suit or other legal
proceeding to construe or enforce any provision of this Escrow Agreement or
because of an alleged breach, default or misrepresentation in connection with
any of the provisions of this Escrow Agreement, the parties agree that each
party shall be responsible for its own attorneys' fees and other costs incurred
in any action or proceeding.
ARTICLE XVIII
COUNTERPARTS
This Escrow Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original
hereof, but all of which together shall constitute one agreement.
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IN WITNESS WHEREOF, the undersigned have executed this Escrow
Agreement to be effective as of the day and year first above written.
APPLIEDTHEORY CORPORATION:
By:_____________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President - Corporate
Development and Western
Operations
UNITED STATES TRUST COMPANY OF NEW YORK
By:_____________________________
Name:________________________
Title:_________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇:
By:_____________________________
Name:________________________
APPLIEDTHEORY REEF
ACQUISITION CORP.:
By:___________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President - Corporate
Development and Western
Operations