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UNITED STATES
SECURITITES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
JANUARY 20, 2000
(DATE OF REPORT - DATE OF EARLIEST EVENT REPORTED)
APPLIEDTHEORY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 000-25759 16-1491253
(STATE OR OTHER JURISDICTION OF (COMMISSION (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) IDENTIFICATION NO.)
40 CUTTER MILL ROAD 11021
SUITE 405, GREAT NECK, NY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 466-8422
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT DATE)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
As previously reported, on December 3, 1999, AppliedTheory Corporation
("AppliedTheory") entered into an agreement and plan of merger (the "Merger
Agreement") with CRL Network Services, Inc. ("CRL"), AppliedTheory Reef
Acquisition Corp., ("Merger Sub") a Delaware corporation wholly owned by
AppliedTheory, and certain stockholders of CRL. Pursuant to the Merger
Agreement, AppliedTheory agreed to aquire, through Merger Sub, all of the
capital stock of CRL for up to $10 million in cash and up to $32.5 million in
AppliedTheory common stock. For additional information regarding this event,
please see our Current Report on Form 8-K, filed December 20, 1999.
On January 5, 2000, CRL and Merger Sub successfully completed the merger
(the "Merger") contemplated by the Merger Agreement and the surviving
corporation, Merger Sub, changed its name to AppliedTheory California
Corporation. All of the capital stock of AppliedTheory California Corporation
is owned by AppliedTheory.
The total consideration to be delivered by AppliedTheory in connection
with the closing of the merger was adjusted pursuant to the Merger Agreement.
Accordingly, in connection with the closing of the merger AppliedTheory will
deliver up to approximately $9,955,954 in cash and up to approximately
2,022,291 shares of common stock, par value $.01 per share, of AppliedTheory.
CRL provides high speed Internet access and data networking solutions to
businesses across the United States. CRL owns and operates a national, Tier 1
network backbone with services including connectivity, data networking, hosting,
high-bandwidth intranet and Internet connectivity services, email services and
domain name registration services.
The purchase price for AppliedTheory's acquisition of CRL was determined
through arm's-length negotiations between AppliedTheory, CRL and the other
parties to the Merger Agreement. During these negotiations, the parties
considered, among other things, the market for CRL's services, CRL's internet
access and data networking solutions businesses, the present stage of
development of CRL's business and operations, CRL's financial condition, CRL's
future business prospects, and the estimated value of the synergies to be
realized between AppliedTheory and CRL following the closing of the Merger.
In connection with the closing of the Merger, CRL's former President and
CEO, James G. Couch executed a non-disclosure and non-competition agreement in
favor of AppliedTheory and the Merger Sub. In connection with that closing,
AppliedTheory also entered into an escrow agreement (the "Escrow Agreement")
with James G. Couch, the Merger Sub and an escrow agent whereby 265,625 shares
of AppliedTheory Common Stock from the total merger consideration to which Mr.
Couch could be entitled in respect of his shares of CRL common stock will be
held in an escrow account (the "Escrow Account") for a period of one year
following the closing of the Merger. Following the closing of the Merger, the
shares of AppliedTheory common stock held in the Escrow Account will be
available as a fund against which AppliedTheory may seek indemnification from
Mr. Couch pursuant to the Merger Agreement. Also, upon the closing of the Merger
AppliedTheory entered into an escrow agreement (the "Tax Escrow Agreement") with
CRL, Merger Sub and an escrow agent whereby approximately $97,887 in cash and
approximately 19,882 shares of AppliedTheory common stock (collectively, the
"Tax Escrow Fund") will be held in escrow. The Tax Escrow Fund will be released
after AppliedTheory or Merger Sub shall have received any tax refund (the "Tax
Refund") to which either of them may be entitled as a result of CRL's prior
payment of taxes for the fiscal year ending December 31, 1997. Upon release of
the Tax Escrow Fund, the stockholders of CRL, on the one hand, and AppliedTheory
or Merger Sub, on the other hand, will receive a share of the Tax Escrow Fund
reflecting the size of the Tax Refund. In connection with the closing of the
Merger, AppliedTheory also entered into a put option agreement (the "Put Option
Agreement") with James G. Couch and other former CRL stockholders whereby those
parties will be able to require that AppliedTheory re-purchase up to Five
Million Dollars ($5,000,000) worth of AppliedTheory common stock on the first
anniversary of the closing of the Merger (the "First Put"), and up to another
Five Million Dollars ($5,000,000) worth of AppliedTheory
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common stock on the second anniversary of the closing of the Merger (the "Second
Put") of the Merger. The First Put will terminate in the event that the average
closing price for AppliedTheory common stock as reported on the Nasdaq National
Market for any period of at least 30 consecutive days beginning 180 days after
the closing of the Merger shall exceed $20.00. The Second Put will terminate in
the event that the average closing price for AppliedTheory common stock as
reported on the Nasdaq National Market for any period of at least 30 consecutive
days beginning 180 days after the closing of the days beginning 180 days after
the closing of the Merger shall exceed $24.00. Additional terms governing the
termination of the First and Second Put are described in the Put option
agreement. Finally, in connection with the Merger, AppliedTheory entered into a
registration rights agreement (the "Registration Rights Agreement") with James
G. Couch and other former CRL stockholders whereby those parties will have (1)
the right to "piggyback" the registration of any number of the shares of
AppliedTheory common stock delivered pursuant to the Merger, for the period
beginning on the closing of the Merger and ending on the first anniversary of
the closing of the Merger and (2) the right to demand the filing of one
registration statement for up to 50% of the AppliedTheory common stock delivered
pursuant to the Merger, for the period beginning six months from the closing of
the Merger and ending on the first anniversary of the closing of the Merger.
The Escrow Agreement, Put Option Agreement, Registration Rights Agreement
and Tax Escrow Agreement are included as Exhibits 2.2, 2.3, 2.4 and 2.5 to this
Current Report on Form 8-K. Please review these documents for additional
information regarding the terms of these agreements.
AppliedTheory applied a portion of the funds raised through its initial
public offering (SEC File No. 333-72133) for the cash portion of the purchase
price paid to the stockholders of CRL.
AppliedTheory intends to operate CRL as a wholly-owned subsidiary which
will be known as AppliedTheory California Corporation. CRL will continue to
operate its business in the same manner as before the acquisition.
ITEM 7. FINANCIAL STATEMENTS, PROFORMA FINANCIAL
INFORMATION AND EXHIBITS
(a.) Financial Statements of CRL.
AppliedTheory will file the required financial statements under cover of
Form 8-K/A no later than 60 days after this Report is filed.
(b.) Pro Forma Financial Information.
AppliedTheory will file the required pro forma financial statements under
cover of Form 8-K/A no later than 60 days after this Report is filed.
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(c.) Exhibits.
Following is the Index of Exhibits furnished in accordance with Item 601 of
Regulation S-K, filed as part of this Current Report on Form 8-K or
incorporated by reference herewith:
2.1 Agreement and Plan of Merger, dated December 3, 1999, by and among
AppliedTheory Corporation, AppliedTheory Reef Acquisition Corp., CRL
Network Services, Inc., a Delaware Corporation, and James G. Couch.*
2.2 Escrow Agreement, dated January 5, 2000, by and among, AppliedTheory
Corporation, AppliedTheory Reef Acquisition Corp., United States Trust
Company of New York, and James G. Couch.
2.3 Put Option Agreement dated January 5, 2000, by and between, AppliedTheory
Corporation, James G. Couch and other holders of capital stock of CRL
Network Services, Inc.
2.4 Registration Rights Agreement dated January 5, 2000, by and between
AppliedTheory Corporation, James G. Couch and any other holders of
registerable stock of CRL Network Services, Inc. who may join the
agreement.
2.5 Tax Escrow Agreement dated January 5, 2000, by and among AppliedTheory
Corporation, AppliedTheory Reef Acquisition Corp., CRL Network Services,
Inc. and United States Trust Company of New York.
99.1 Press release issued by AppliedTheory Corporation on December 6, 1999.*
99.2 Press release issued by AppliedTheory Corporation on January 6, 2000.
* Incorporated by reference from the Current Report on Form 8-K, filed by
AppliedTheory Corporation on December 20, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AppliedTheory Corporation
Date: January 20, 2000 by: /s/ Richard Mandelbaum
-------------------------
Richard Mandelbaum
Chairman of the Board,
Chief Executive Officer, and
Director (Principal Executive Officer)
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EXHIBIT INDEX
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Exhibit No. Description
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2.1 Agreement and Plan of Merger, dated December 3, 1999, by and
among AppliedTheory Corporation, AppliedTheory Reef Acquisition
Corp., CRL Network Services, Inc., a Delaware Corporation, and
James G. Couch.*
2.2 Escrow Agreement, dated January 5, 2000, by and among, Applied
Theory Corporation, AppliedTheory Reef Acquisition Corp., United
States Trust Company of New York, and James G. Couch.
2.3 Put Option Agreement dated January 5, 2000, by and between,
AppliedTheory Corporation, James G. Couch and other holders of
capital stock of CRL Network Services, Inc.
2.4 Registration Rights Agreement dated January 5, 2000, by and
between AppliedTheory Corporation, James G. Couch and any other
holders of registerable stock of CRL Network Services, Inc. who
may join the agreement.
2.5 Tax Escrow Agreement dated January 5, 2000, by and among Applied
Theory Corporation, AppliedTheory Reef Acquisition Corp., CRL
Network Services, Inc. and United States Trust Company of New
York.
99.1 Press release issued by AppliedTheory Corporation on December 6,
1999.*
99.2 Press release issued by AppliedTheory Corporation on January 6,
2000.
* Incorporated by reference from the Current Report on Form 8-K,
filed by AppliedTheory Corporation on December 20, 1999.
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389146.7
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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 James G. Couch (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.
40 Cutter Mill Road, Suite 405
Great Neck, NY 11021
with a copy to: Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019-6092
Attention: Frank E. Morgan, II, Esq.
To the Company Stockholder: James G. Couch
Box 8343
Incline Village, NV 89452
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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<PAGE> 9
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: Danny E. Stroud
Title: Vice President - Corporate
Development and Western
Operations
UNITED STATES TRUST COMPANY OF NEW YORK
By:_____________________________
Name:________________________
Title:_________________________
JAMES G. COUCH:
By:_____________________________
Name:________________________
APPLIEDTHEORY REEF
ACQUISITION CORP.:
By:___________________________
Name: Danny E. Stroud
Title: Vice President - Corporate
Development and Western
Operations
<PAGE> 1
EXHIBIT 2.3
================================================================================
PUT OPTION AGREEMENT
among
APPLIEDTHEORY CORPORATION
and
James G. Couch
and
OTHER STOCKHOLDERS
================================================================================
<PAGE> 2
THIS PUT OPTION AGREEMENT, dated as of January 5, 2000 (this
"Agreement"), by and between AppliedTheory Corporation, a Delaware corporation
(together with its subsidiaries "Parent"), James G. Couch and other holders of
capital stock of CRL Network Services, Inc. (each a "Stockholder" and
collectively the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Stockholders will acquire shares of Parent common
stock, par value $.01 per share (the "Parent Common Stock"), in connection with
that certain Agreement and Plan of Merger dated as of the date hereof between,
among others, the parties hereto (the "Merger Agreement"); and
WHEREAS, as a condition to the Merger Agreement, the Parent has
agreed to enter into this Agreement whereby, inter alia, the Parent is granting
an option to the Stockholders such that they can require the Parent to purchase
the Parent Common Stock from the Stockholders at specified times and in
specified circumstances, all as set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises, the
representations, warranties and agreements contained herein and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND RULES OF INTERPRETATION
Section 1.1. Definitions.
All capitalized terms used herein shall, unless defined herein,
have the respective meanings set forth herein or, in the absence of such a
definition, in the Merger Agreement.
Section 1.2. Rules of Interpretation.
In this Agreement, unless the context shall otherwise require:
(a) the headings are inserted for convenience only and shall not
define or limit the provisions nor affect the interpretation hereof;
(b) words denoting the singular only shall include the plural and
vice versa;
(c) "include" and "including" are not limiting;
<PAGE> 3
(d) "Proportionate Share" shall mean that proportion of the total
Parent Common Stock delivered at the Closing of the Merger Agreement which the
respective Stockholder shall have received from Parent in connection with such
Closing; and
(e) all references to documents are to those documents as amended,
modified and supplemented from time to time.
ARTICLE II
FIRST PUT OPTION
Section 2.1. Granting of First Put Option.
For good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Parent grants to each Stockholder an option
which shall be exercisable only on the one year anniversary of the date hereof
(the "First Put Exercisability Date") and under which such Stockholder may
require Parent to purchase Parent Common Stock from such Stockholder for the
Exercise Price (as hereinafter defined) in accordance with the terms of this
Agreement (the "First Put Option"). Subject to the limitation set forth in the
last sentence of this Section 2.1, the First Put Option may be exercised by each
such Stockholder in accordance with the provisions of this Agreement with
respect to any number of shares of Parent Common Stock up to such Stockholder's
Proportionate Share of $5,000,000 in value (based on the Exercise Price as
hereinafter defined) of Parent Common Stock. For purposes of this Section 2.1,
the purchase price payable by Parent for such Parent Common Stock shall be
$16.00 per share (the "Exercise Price"). The amount of shares available under
the First Put Option shall be reduced on a one-for-one basis in respect of any
shares of Parent Common Stock which are sold by such Stockholder prior to the
First Put Exercisability Date over and above an aggregate of 10% of the Parent
Common Stock received by such Stockholder as Stock Consideration under the
Merger Agreement.
Section 2.2. Expiration of First Put Option.
(a) In the event that the average of the closing prices for the
Parent Common Stock as reported on the Nasdaq-NMS for any period of at least 30
consecutive days commencing 180 days after the date hereof shall exceed 125% of
the per share Exercise Price (the "First Put Option Target"), the First Put
Option shall terminate and shall no longer be exercisable; provided, however
that on such date when the foregoing condition shall have been satisfied, if (i)
a Required Registration Notice (as defined in the Registration Rights Agreement)
shall have been delivered to the Company pursuant to the Registration Rights
Agreement at least 30 days before such date, and (ii) a registration statement
filed pursuant to such Required Registration Notice shall not have been
effective for at least eighteen (18) days within the 30-day period referred to
above, then the First Put Option shall not terminate and shall remain
outstanding and exercisable until such time as the First Put Option Target is
met and a registration statement shall have been in effect for at least eighteen
(18) days.
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<PAGE> 4
(b) If the First Put Option shall not have otherwise expired,
terminated or been exercised, such First Put Option shall expire and terminate
on the day following the one year anniversary of the date hereof.
Section 2.3. Exercise of First Put Option.
The First Put Option may be exercised by the applicable
Stockholder serving a notice upon Parent (a "First Put Option Notice") at any
time up to and including the First Put Exercisability Date; provided, that the
First Put Option may not be exercised until the First Put Exercisability Date.
Section 2.4. Completion of Sale of Parent Common Stock.
(a) If there is to be a sale and purchase of Parent Common Stock
pursuant to the exercise of the First Put Option under Section 2.3, the
completion of the sale and purchase shall take place on the First Put
Exercisability Date (or, if such date is not a Business Day, on the next
Business Day) at 10:00 a.m. New York time (or at such other time to be mutually
agreed upon by the parties hereto) at such place to be mutually agreed upon by
the parties hereto.
(b) At the completion of any sale and purchase of the Parent
Common Stock pursuant to the exercise of the First Put Option on the First Put
Exercisability Date:
(i) the respective Stockholder shall deliver to
Parent or its nominee a duly executed stock certificate (the
"Certificate"), completed in the name of such Stockholder, in respect
of the Parent Common Stock against payment of the Exercise Price by
Parent; and
(ii) Parent shall accept (or cause its nominee to
accept) delivery of such Certificate and effect payment of the
applicable consideration to an account identified by such Stockholder
in writing to Parent. For the avoidance of doubt, it is hereby
understood and agreed that receipt of the Exercise Price shall be
confirmed by such Stockholder prior to the delivery by such
Stockholder to Parent of the Certificate.
(c) The parties hereto agree to do such further things and to
execute such further documents as may be necessary so that Parent or its nominee
may obtain on payment of the Exercise Price title to the applicable Parent
Common Stock free of any liens, encumbrances or other security interests.
ARTICLE III
SECOND PUT OPTION
Section 3.1. Granting of Second Put Option.
For good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Parent grants to each Stockholder an option
which shall be
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<PAGE> 5
exercisable only on the two year anniversary of the date hereof (the "Second Put
Exercisability Date") and under which such Stockholder may require Parent to
purchase Parent Common Stock from such Stockholder for the Exercise Price in
accordance with the terms of this Agreement (the "Second Put Option"). Subject
to the limitation set forth in the last sentence of this Section 3.1, the Second
Put Option may be exercised by each such Stockholder in accordance with the
provisions of this Agreement with respect to any number of shares of Parent
Common Stock up to such Stockholder's Proportionate Share of $5,000,000 in value
(based on the Exercise Price) of Parent Common Stock. The amount of shares
available under the Second Put Option shall be reduced on a one-for-one basis in
respect of any shares of Parent Common Stock which are sold by such Stockholder
prior to the Second Put Exercisability Date over and above an aggregate of 50%
of the Parent Common Stock received by such Stockholder as Stock Consideration
under the Merger Agreement.
Section 3.2. Expiration of Second Put Option.
(a) In the event that the average of the closing prices for the
Parent Common Stock as reported on the Nasdaq-NMS for any period of at least 30
consecutive days commencing 180 days after the date hereof shall exceed 150% of
the per share Exercise Price, the Second Put Option shall terminate and shall no
longer be exercisable; provided, that at that time a registration statement
filed pursuant to a Required Registration Notice shall have been effective for
at least eighteen (18) days within the 30-day period referred to above beginning
on the 180th day after the date hereof.
(b) If the Second Put Option shall not have otherwise expired,
terminated or been exercised, such Second Put Option shall expire and terminate
on the day following the two year anniversary of the date hereof.
Section 3.3. Exercise of Second Put Option.
The Put Option may be exercised by the applicable Stockholder
serving a notice upon Parent (a "Second Put Option Notice") at any time up to
and including the Second Put Exercisability Date; provided, that the Second Put
Option may not be exercised until the Second Put Exercisability Date.
Section 3.4. Completion of Sale of Parent Common Stock.
(a) If there is to be a sale and purchase of Parent Common Stock
pursuant to the exercise of the Second Put Option under Section 3.3, the
completion of the sale and purchase shall take place on the Second Put
Exercisability Date (or, if such date is not a Business Day, on the next
Business Day) at 10:00 a.m. New York time (or at such other time to be mutually
agreed upon by the parties hereto) at such place to be mutually agreed upon by
the parties hereto.
(b) At the completion of any sale and purchase of the Parent
Common Stock pursuant to the exercise of the Second Put Option on the Second Put
Exercisability Date:
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<PAGE> 6
(i) the respective Stockholder shall deliver to Parent
or its nominee a duly executed stock certificate, completed in the
name of such Stockholder, in respect of the Parent Common Stock
against payment of the Exercise Price by Parent; and
(ii) Parent shall accept (or cause its nominee to
accept) delivery of such Certificate and effect payment of the
applicable consideration to an account identified by such Stockholder
in writing to Parent. For the avoidance of doubt, it is hereby
understood and agreed that receipt of the Exercise Price shall be
confirmed by such Stockholder prior to the delivery by such
Stockholder to Parent of the Certificate.
(c) The parties hereto agree to do such further things and to
execute such further documents as may be necessary so that Parent or its nominee
may obtain on payment of the Exercise Price title to the applicable Parent
Common Stock.
ARTICLE IV
MISCELLANEOUS
Section 4.1. Counterparts.
This Agreement may be executed in one or more counterparts, each
of which shall be an original but all of which together shall constitute but one
and the same agreement.
Section 4.2. Further Assurances.
Each of the parties hereto agrees to cooperate and take such
further action and to execute and deliver such additional instruments and
documents as any other party hereto may from time to time reasonably request for
the purposes of giving effect to the terms of this Agreement or any other
document or agreement arising under the Merger Agreement.
Section 4.3. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS.
Section 4.4. Notices.
Any notice, request, demand or other communication under this
Agreement shall be in writing or by facsimile transmission (provided that in the
case of facsimile transmission it shall be confirmed in writing simultaneously
dispatched) addressed to the relevant party for the attention of the appropriate
person and once given or made shall (except as otherwise specified herein) be
irrevocable. Without prejudice to
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<PAGE> 7
any other effective mode of service, the same shall be deemed to have been
sufficiently served:
in the case of notice to each Stockholder if sent to the applicable
Stockholder at:
James G. Couch
Box 8343
Incline Village, NV
89452
Tel.:
--------------
Fax:
--------------
and to such other address, marked for the attention of the
applicable Stockholder, as each Stockholder may from time to time
notify in writing to Parent;
in the case of a notice to Parent if sent to it at:
AppliedTheory Corporation
40 Cutter Mill Road, Suite 405
Great Neck, NY 11021
Attn: Danny E. Stroud, VP Corporate
Development & Western Operations
Tel.: (516) 466-8422
Fax: (516) 466-8650
or to such other address and/or marked for the attention of such
other person as Parent may from time to time notify in writing
the Stockholders; and
Any facsimile transmission (in respect of which receipt has been
acknowledged by telephone or facsimile transmission) shall be deemed to have
been received at the time of dispatch provided that dispatch occurred between
9.00 a.m. and 5.00 p.m. on a Business Day in the place of receipt of the
relevant notice, failing which it shall be deemed to have been received if
dispatched prior to 9.00 a.m. on a Business Day at the commencement of business
on that Business Day, and if dispatched after 5.00 p.m. on a Business Day or at
any time on a day that is not a Business Day, at the commencement of business on
the next Business Day in the place of receipt of the relevant notice. A written
notice shall be treated as received when actually received (without reference to
time of receipt of any copies, provided such copies have been sent).
Section 4.5. Amendments.
This Agreement may be amended only by a written instrument
executed by the parties hereto or their respective successors or permitted
assigns.
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<PAGE> 8
Section 4.6. Assignment.
The Stockholders agree and confirm that they may not assign, sell,
transfer or otherwise dispose of any or all of the Parent Common Stock held by
them (or any beneficial interest therein) or all or any part of their rights and
obligations under any of the documents or agreements arising under the Merger
Agreement, except to the extent not prohibited by such documents or agreements,
including the Lock-Up.
Section 4.7. Severability.
Each of the provisions in this Agreement shall be severable and
distinct from the others and the illegality, invalidity or unenforceability of
any provision under the law of any jurisdiction shall not affect or impair the
legality, validity or enforceability of any other provision in that jurisdiction
nor the legality, validity or enforceability of any provision under the law of
any other jurisdiction.
Section 4.8. Waiver.
The failure of any party hereto to enforce at any time any of the
provisions of this Agreement shall in no way be construed to be a waiver of any
such provision, nor in an way to affect the validity of this Agreement or any
part hereof or the right of such party thereafter to enforce each and every such
provisions. No waiver of any breach hereof or non-compliance herewith shall be
held to be a waiver of any other or subsequent breach hereof or non-compliance
herewith.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective duly authorized officers as of the date
first above written.
APPLIEDTHEORY CORPORATION
By:
--------------------------
Name: Danny E. Stroud
Title: Vice President - Corporate Development
Development and Western Operations
--------------------------
James G. Couch
--------------------------
Name:
--------------------------
Name:
--------------------------
Name:
--------------------------
Name:
--------------------------
Name:
--------------------------
Name:
<PAGE> 1
EXHIBIT 2.4
REGISTRATION RIGHTS AGREEMENT
January 5, 2000
To James G. Couch and any other
holders of Registerable Stock as of
the date of this Agreement who are
party to this Agreement and any
transferee of Registerable Stock who
satisfies the conditions provided in
Section 10(a) hereof ("Stockholders")
RECITALS
WHEREAS: The Stockholders will receive from the Company shares of the
Company's Common Stock pursuant to the Merger Agreement; and
WHEREAS: As a condition to the Closing of the merger contemplated by the
Merger Agreement, the Company has agreed to grant to the
Stockholders registration rights in accordance with this
Registration Rights Agreement (the "Agreement") with respect to
certain securities of the Company held by the Stockholders.
AGREEMENT
NOW, THEREFORE, it is agreed as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission,
or any other federal agency at the time administering the Securities Act.
"Common Stock" shall mean all shares of Common Stock, par
value $.01 per share of the Company.
"Company" shall mean AppliedTheory Corporation.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the
time.
"Merger Agreement" shall mean the Agreement and Plan of Merger
dated as of December 3, 1999 by and among the Company, James G. Couch and
certain other parties.
"Registration Expenses" shall mean the expenses so described in
Section 5.
<PAGE> 2
"Registerable Stock" shall mean those shares of Common Stock
which are not held in the Escrow Fund, but only so long as such shares
continue to be Restricted Stock.
"Restricted Stock" shall mean any Registerable Stock until such
time as such Registerable Stock (i) has been effectively registered under
the Securities Act or (ii) has been publicly sold pursuant to Rule 144 (or
any similar provision then in force) under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses described in Section
5.
"Unregistered Common Stock" shall mean all shares of Common
Stock which are beneficially owned by the Stockholders as of the date
hereof and have not been registered under the Securities Act.
All other capitalized terms used herein shall, unless defined, have
the respective meanings set forth herein or, in the absence of such a
definition, in the Merger Agreement.
2. Restrictive Legend. Each certificate representing Common Stock
shall, except as otherwise provided in this Section 2, be stamped or otherwise
imprinted with a legend substantially in the following form:
"THIS SECURITY IS SUBJECT TO RESTRICTIONS
REGARDING THE SALE THEREOF UNDER AN AGREEMENT
AND PLAN OF MERGER DATED DECEMBER 3, 1999
BETWEEN THE HOLDER THEREOF AND PARENT
CORPORATION, HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT
HAS BEEN REGISTERED UNDER THAT ACT OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company the securities being sold thereby may be publicly
sold without registration under the Securities Act.
3. Incidental Registration.
(a) Beginning on the Closing and until the one year anniversary of the
Closing, if the Company proposes to register any of its securities under
the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Forms S-4, S-8 or
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<PAGE> 3
another form not available for registering the Registerable Stock for sale
to the public), each such time it will give written notice of its intention
to do so to all holders of outstanding Registerable Stock who are party to
this Agreement. Upon the written request of any such holder, received by
the Company within 30 days after the giving of any such notice by the
Company, to register any of its Registerable Stock (which request shall
state the intended method of disposition thereof), the Company shall,
subject to the following sentence, cause the Registerable Stock as to which
registration shall have been so requested to be included in the securities
to be covered by the registration statement proposed to be filed by the
Company, all to the extent requisite to permit the sale or other
disposition by the holder (in accordance with its written request) of such
Registerable Stock so registered. In the event that any registration
pursuant to this Section 3 shall be, in whole or in part, an underwritten
public offering of Common Stock, the number of shares of Registerable Stock
to be included in such an underwriting may be reduced (pro rata among the
requesting holders based upon the number of shares of Registerable Stock
owned by such holders) if and to the extent that the managing underwriter
shall be of the opinion that such inclusion would adversely affect the
marketing of the securities to be sold by the Company therein; provided,
however, that such number of shares of Registerable Stock shall not be
reduced if any shares are to be included in such underwriting for the
account of any person other than the Company or requesting holders of
Registerable Stock.
(b) Notwithstanding the foregoing provisions, the Company may withdraw
any registration statement referred to in this Section 3 without thereby
incurring any liability to the holders of Registerable Stock except for the
Company's obligation to pay any registration expenses incurred in relation
to such a withdrawn registration.
4. Required Registration.
(a) At any time during the period beginning 150 days following the
Closing and ending 365 days following the Closing, Stockholders who are
holders of a majority of the Registerable Stock may deliver a written
request (a "Required Registration Notice") to the Company demanding
registration under the Securities Act of up to 50% of the shares of
Registerable Stock delivered by the Company as Merger Consideration under
the Merger Agreement and held by such requesting holder or holders for sale
in the manner specified in such notice, such registration to take effect no
earlier than 180 days following the Closing and no later than 365 days
following the Closing and to remain in effect until the later of 365 days
following the Closing or 90 days following its effectiveness.
(b) Following receipt of any notice under this Section 4, the Company
shall immediately give written notice of the request for registration to
all Stockholders who hold Registerable Stock and who were not included in
the Required Registration Notice. The Company shall then use its best
efforts to include in a registration statement under the Securities Act for
public sale in accordance with the method of disposition specified in the
Required Registration Notice, the number of shares of Registerable Stock
specified in such notice from each such requesting Stockholder and in all
responses from other Stockholders which are received within 30 days of the
Company's notifying such
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<PAGE> 4
Stockholders of the Required Registration Notice; provided, that the
maximum number of shares of Registerable Stock of any Stockholder which the
Company shall be required to register hereunder (the "Registration
Maximum") shall be 50% of the shares of Common Stock that were delivered to
such Stockholder as Merger Consideration in connection with the closing of
the Merger Agreement; provided, further that the Registration Maximum shall
be reduced on a one-for-one basis in respect of any shares of Common Stock
sold by such Stockholder pursuant to Section 3 hereof. Upon its receipt of
a Required Registration Notice, the Company shall take all reasonable
efforts to ensure that a registration statement relating to such notice is
filed with the Commission by the later to occur of (i) 30 days following
the Company's receipt of such notice or (ii) May 1, 2000. The Company shall
be obligated to register Registerable Stock pursuant to this Section 4 on
one occasion only.
(c) Prior to the effective date of any registration made by the
Company under this Section 4, any such registration will be withdrawn if
the Company receives a written notice to that effect, signed by all holders
of Registerable Stock who made a request for registration under paragraphs
(a) and (b) of this Section 4. If such a notice is delivered, the withdrawn
registration will not qualify as the occasion where the Company is
obligated to make a registration under paragraph (b) of this Section 4.
(d) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the
method of disposition specified in the Required Registration Notice, shares
of Common Stock to be sold by the Company for its own account or for sale
by others, except as and to the extent that, in the opinion of the managing
underwriter (if such method of disposition shall be an underwritten public
offering), such inclusion would adversely affect the marketing of the
Registerable Stock to be sold.
5. Registration Procedures. If and whenever the Company is required by
the provisions of Sections 3 and 4 to use its best efforts to effect the
registration of any shares of Registerable Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the period specified in paragraph (a) above and
comply with the provisions of the Securities Act with respect to the
disposition of all Registerable Stock covered by such registration
statement in accordance with the sellers' intended method of disposition
set forth in such registration statement for such period;
(c) furnish to each seller of Registerable Stock and to each
underwriter such number of copies of the registration statement and the
prospectus included therein
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<PAGE> 5
(including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or other disposition of the
Registerable Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Registerable Stock
covered by such registration statement under the securities or "blue sky"
laws of such jurisdictions as the sellers of Registerable Stock or, in the
case of an underwritten public offering, the managing underwriter
reasonably shall request; provided, however, that the Company shall not for
any such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) use its best efforts to list the Registerable Stock covered by
such registration statement with any securities exchange on which the
Common Stock of the Company is then listed;
(f) immediately notify each seller of Registerable Stock and each
underwriter under such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which the Company has
knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances then existing;
(g) if the offering is underwritten and at the request of any seller
of Registerable Stock, use its best efforts to furnish on the date that
Registerable Stock is delivered to the underwriters for sale pursuant to
such registration: (i) an opinion dated as of such date of counsel
representing the Company for the purposes of such registration, addressed
to the underwriters and to such seller, stating that such registration
statement has become effective under the Securities Act and that (A) to the
best knowledge of such counsel, no stop order suspending the effectiveness
thereof has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Securities Act, (B) the
registration statement, the related prospectus and each amendment or
supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not
express any opinion as to financial statements or other financial data
contained therein) and (C) to such other effects as reasonably may be
requested by counsel for the underwriters or by such seller or its counsel
and (ii) a letter dated such date from the independent public accountants
retained by the Company, addressed to the underwriters and to such seller,
stating that they are independent public accountants within the meaning of
the Securities Act and that, in the opinion of such accountants, the
financial statements of the Company included in the registration statement
or the prospectus, or any amendment or supplement thereof, comply as to
form in all material respects with the applicable accounting requirements
of the Securities Act, and such letter shall additionally cover such other
financial matters (including information as to the period ending no more
than five business days prior to the date of such letter) with respect to
such registration as such underwriters reasonably may request;
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<PAGE> 6
(h) immediately after the Company determines that any of the matters
discussed in Section 5(g) are not true, provide the holders of Registerable
Stock with notice to that effect; and
(i) make available for inspection by each seller of Registerable
Stock, any underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant
or agent in connection with such registration statement.
For purposes of Sections 4(c) and 5(a), the period of distribution of
Registerable Stock shall be deemed to extend until the earlier of the sale of
all Registerable Stock covered thereby and 120 days after the effective date
thereof.
In connection with each registration hereunder, the sellers of
Registerable Stock will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Sections 3 and 4
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
6. Expenses. All expenses incurred by the Company in complying with
Sections 3 and 4, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred, in respect of the Company's obligations under this Agreement or of the
rights under this Agreement of the Stockholders, in connection with complying
with state securities or "blue sky" laws, fees of the National Association of
Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars, costs of insurance and reasonable fees and disbursements of one
counsel for the sellers of Registerable Stock, but excluding any Selling
Expenses, are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registerable Stock are called
"Selling Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 3 and 4. All Selling Expenses in
connection with each registration statement under Sections 3 and 4 shall be
borne by the participating sellers in proportion to the number of shares sold by
each, or by such participating sellers other than the Company (except to the
extent the Company shall be a seller) as they may agree.
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<PAGE> 7
7. Indemnification and Contribution.
(a) In the event of a registration of any of the Registerable Stock
under the Securities Act pursuant to Sections 3 and 4, the Company will
indemnify and hold harmless each seller of such Registerable Stock
thereunder, each underwriter of such Registerable Stock thereunder and each
other person, if any, who controls such seller or underwriter within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such seller, underwriter or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such Registerable Stock was registered
under the Securities Act pursuant to Sections 3 and 4, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse each such seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not
be liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such seller, any such
underwriter or any such controlling person in writing specifically for use
in such registration statement or prospectus.
(b) In the event of a registration of any of the Registerable Stock
under the Securities Act pursuant to Sections 3 and 4, each seller of such
Registerable Stock thereunder, severally and not jointly, will indemnify
and hold harmless the Company, each person, if any, who controls the
Company within the meaning of the Securities Act, each officer of the
Company who signs the registration statement, each director of the Company,
each underwriter and each person who controls any underwriter within the
meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer,
director, underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Registerable Stock
was registered under the Securities Act pursuant to Sections 3 and 4, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and each such officer, director,
underwriter and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
such seller will be liable hereunder in any such case if and only
to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in
7
<PAGE> 8
reliance upon and in conformity with information pertaining to such seller,
as such, furnished in writing to the Company by such seller specifically
for use in such registration statement or prospectus; provided, further,
that the liability of each seller hereunder shall be limited to the
proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the shares sold
by such seller under such registration statement bears to the total public
offering price of all securities sold thereunder, but not in any event to
exceed the net proceeds received by such seller from the sale of
Registerable Stock covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim
in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to
notify the indemnifying party shall not relieve it from any liability which
it may have to such indemnified party other than under this Section 6 and
shall only relieve it from any liability which it may have to such
indemnified party under this Section 6 if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in and, to the extent it shall wish, to
assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume
and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 6 for any legal
expenses subsequently incurred by such indemnified party in connection with
the defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected; provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party
or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified
party shall have the right to select a separate counsel and to assume such
legal defenses and otherwise to participate in the defense of such action,
with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party as
incurred. No indemnifying party, in defense of any such action, shall,
except with the consent of each indemnified party, consent to the entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving, by the claimant or plaintiff, to
such indemnified party of a release from all liability in respect to such
action.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any
holder of Registerable Stock exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 6 but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding
the fact that this Section 6 provides for indemnification in such case, or
(ii) contribution under the
8
<PAGE> 9
Securities Act may be required on the part of any such selling holder or
any such controlling person in circumstances for which indemnification is
provided under this Section 6; then, each indemnifying party shall in lieu
of indemnifying such indemnified party contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages, liabilities or actions in such proportion as appropriate to
reflect the relative fault of the Company, on the one hand, and the holders
of such Registerable Stock, as the case may be, on the other, in connection
with the statements and omissions which resulted in such losses, claims,
damages, liabilities or actions as well as any other relevant equitable
considerations, including, without limitation, the failure to give any
notice under the third paragraph of this Section 6. The relative fault
shall be determined by reference to, among other things, whether the untrue
and alleged untrue statement of a material fact relates to information
supplied by the Company, on the one hand, or the sellers of such
Registerable Stock, as the case may be, on the other and to the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the sellers
of Registerable Stock agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) of Section 6 were determined
by pro rata allocation (even if all of the sellers of such Registerable
Stock, as the case may be, were treated as one entity for such purpose) or
by any other method of allocation which did not take account of the
equitable considerations referred to above in this paragraph (d) of Section
6. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or action in respect thereof, referred
to above in this paragraph (d) of Section 6, shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim;
provided, however, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the public offering price of
all such Registerable Stock offered by it pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the Securities
Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
8. Changes in Common Stock. If, and as often as, there is any change
in the Common Stock by way of a stock split, stock dividend, combination or
reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof so that the rights and privileges granted hereby shall
continue with respect to the Common Stock as so changed.
9. Representations and Warranties of the Company. The Company
represents and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and
will not violate any provision of law, any order of any court or other
agency of government, the Certificate of Incorporation or By-laws of the
Company or any provision of any indenture, agreement or other instrument to
which it or any or its properties or assets is bound, conflict with, result
in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or other instrument or result
in the
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<PAGE> 10
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws
of general application affecting enforcement of creditors' rights generally
and (ii) the availability of equitable remedies as such remedies may be
limited by equitable principles of general applicability (regardless of
whether enforcement is sought in a proceeding in equity or at law).
10. Miscellaneous.
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto (including,
without limitation, transferees of any Registerable Stock), whether so
expressed or not; provided, however, that registration rights conferred
herein on the holders of Registerable Stock shall only inure to the benefit
of a transferee of Registerable Stock if (i) there is transferred to such
transferee at least 80% of the total shares of Registerable Stock
originally issued pursuant to the Merger Agreement applicable to such
holder, to the direct or indirect transferor of such transferee and (ii)
such transferee shall execute an agreement in favor of the Company to the
effect that such transferee agrees to be bound by, and to comply with, the
Lock-up under the Merger Agreement.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be mailed by certified or registered mail,
return receipt requested, postage pre-paid, or telexed, in the case of
non-U.S. residents, addressed as follows:
if to the Company or any other party hereto, at the address of
such party set forth in the Merger Agreement applicable to such party;
if to any subsequent holder of Registerable Shares, to it at such
address as may have been furnished to the Company in writing by such
holder;
or, in any case, at such other address or addresses as shall have
been furnished in writing to the Company (in the case of a holder of
Registerable Stock) or to the holders of Registerable Stock (in the case of
the Company) in accordance with the provisions of this paragraph.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
(d) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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<PAGE> 11
(e) The obligations of the Company to register shares of Registerable
Stock under Sections 3 and 4 shall terminate one year after the Closing,
unless such obligations terminate earlier in accordance with the terms of
this Agreement.
(f) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability
shall attach only to such provision and shall not in any manner affect or
render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
(g) Neither this Agreement nor any provision hereof can be modified,
changed, discharged or terminated except upon the agreement of all parties
hereto.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be effective as of this __ day of December, 1999.
AppliedTheory Corporation
By:
------------------------------------
Name: Danny E. Stroud
Title: Vice President - Corporate Development and
Western Operations
STOCKHOLDERS:
- ------------------
James G. Couch
- ------------------
Name:
- ------------------
Name:
- ------------------
Name:
- ------------------
Name:
- ------------------
Name:
- ------------------
Name:
<PAGE> 1
Exhibit 2.5
THIS TAX 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
"Merger Sub"), United States Trust Company of New York (the "Escrow Agent"), and
CRL Network Services, Inc. ("CRL") for the benefit of those parties who are
holders of capital stock of CRL on the date hereof (collectively the
"Stockholders" and individually a "Stockholder"), as contemplated by that
certain Agreement and Plan of Merger, dated as of December 3, 1999, by and among
Parent, the Merger Sub, CRL and James G. Couch (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 Merger Sub, CRL and Mr. Couch 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 CRL (the "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 CRL and Mr. Couch 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
DEFINITION
For purposes of this Escrow Agreement, with respect to each
Stockholder or a group of Stockholders, "Ownership Share" shall mean that
proportion of the total Company Stock outstanding as of the date hereof which is
owned by such Stockholder or number of shares such group of Stockholders, as the
case may be. Attached hereto as Schedule A is a list identifying the Ownership
Share for each Stockholder and any group of Stockholders who hold their Company
Stock together, expressed as a percentage.
ARTICLE II
ESCROW FUND
SECTION 2.1. Contemporaneous with the execution of this Escrow
Agreement, Parent shall deposit at Closing 19,882.35 shares of Parent Common
Stock
<PAGE> 2
and $97,882.35 with the Escrow Agent, such deposit to constitute an escrow fund
(the "Escrow Fund") to be governed by the terms set forth herein.
SECTION 2.2. 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.
SECTION 2.3. For purposes of this Escrow Agreement, the per share
value of the Stock Consideration shall be $16.00, the same per share value as
such Stock Consideration has pursuant to the Agreement and Plan of Merger.
ARTICLE III
ESCROW PERIOD; NOTICE OF TERMINATION
The shares of Parent Common Stock and cash deposited in the Escrow
Fund shall remain in the Escrow Fund for the period beginning on the date hereof
and ending five days following the later to occur of (a) the day upon which
Parent or the Merger Sub (the "Receiving Party"), as the case may be, shall
receive from the United States Internal Revenue Service any tax refund (the
"1997 Refund") to which Parent or the Merger Sub shall be entitled in respect of
taxes previously paid by or for CRL for the fiscal year ending December 31,
1997, or (b) the day upon which it shall have been finally determined that
neither CRL, nor the Merger Sub, nor Parent are entitled to a 1997 Refund (such
period being the "Escrow Period"). Prior to the termination of the Escrow Period
pursuant to this Article III, either Parent or the Merger Sub shall notify CRL
and its counsel in writing of the facts giving rise to the termination of the
Escrow Period, of the amount of any 1997 Refund received and of the date upon
which the Escrow Period shall terminate pursuant to this Article III, such
notice to be provided as further described in Article XIV of this Escrow
Agreement.
ARTICLE IV
DISTRIBUTION IF 1997 REFUND IN EXCESS OF $416,000
In the event that the Receiving Party shall receive a 1997 Refund in
an amount equal to or less than $416,000, the Receiving Party shall be entitled
to payment from the Escrow Fund of a pro rata portion of the Stock Consideration
and Cash Consideration equal to the difference between $416,000 and the amount
of the 1997 Refund and the Stockholders shall collectively be entitled to
payment of the balance of the Escrow Fund. In the event that it shall have been
finally determined that neither CRL, nor the Merger Sub, nor Parent are entitled
to a 1997 Refund, at the termination of the Escrow Period the Parent or, at the
Parent's option, the Merger Sub, shall be entitled to payment of all Parent
Common Stock and cash in the Escrow Fund.
ARTICLE V
EXPIRATION OF ESCROW PERIOD
and
PAYMENT OF THE ESCROW FUND
Upon the expiration of the Escrow Period, if the Stockholders shall be
entitled to a payment pursuant to Article IV hereof, the Escrow Agent shall
deliver to
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<PAGE> 3
each Stockholder his Ownership Share of the Stock Consideration and the Cash
Consideration in the Escrow Fund; provided, that such Stockholder shall have
delivered his or her shares of Company Stock to Parent or the Merger Sub on or
before the expiration of the Escrow Period. In the event that upon the
expiration of the Escrow Period one or more Stockholders shall have failed to
deliver his or her certificates representing shares of Company Stock
(collectively the "Non-Delivering Stockholders" and individually a
"Non-Delivering Stockholder"), at that time the Escrow Agent shall deliver the
Non-Delivering Stockholders' Ownership Share of the Escrow Fund to Parent;
provided, that following the Expiration of the Escrow Period, Parent and the
Merger Sub hereby agree to deliver to any Non-Delivering Stockholder a payment
of Stock Consideration and Cash Consideration corresponding to his or her
Ownership Share of the Stock Consideration and the Cash Consideration in the
Escrow Fund, such payment to be made as described in that certain letter
agreement, dated as of the date hereof, between Parent and CRL.
ARTICLE VI
DISTRIBUTION OF ESCROW FUND
In the event that the 1997 Refund shall be any amount greater than
$416,000, upon the Expiration of the Escrow Period the Stockholders shall
collectively be entitled to receive Merger Consideration from Parent and the
Merger Sub having a value equal to the amount by which the 1997 Refund exceeds
$416,000; provided, that 23.52941% of such Merger Consideration shall take the
form of Cash Consideration and 76.47059% of such Merger Consideration shall take
the form of Stock Consideration; provided, further that the parties hereto
understand that each Stockholder shall receive his Ownership Share of the Stock
Consideration and the Cash Consideration to be paid pursuant to this Article VI;
and provided further that Parent and the Merger Sub shall not be required to pay
any Stockholder pursuant to this Article VI and upon the expiration of the
Escrow Period unless such Stockholder shall have delivered his or her shares of
Company Stock to Parent or the Merger Sub on or before the expiration of the
Escrow Period; and provided further that Parent and the Merger Sub hereby agree
to pay any Non-Delivering Stockholder his or her Ownership Share of the Stock
Consideration and the Cash Consideration due pursuant to this Article VI in
accordance with that certain letter agreement, dated as of the date hereof,
between Parent and CRL.
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
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<PAGE> 4
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 CRL as being the acts of CRL.
(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
4
<PAGE> 5
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.
ARTICLE VIII
UNDERTAKINGS OF PARENT AND THE MERGER SUB
The Parent and the Merger Sub hereby undertake and agree with CRL that
following the closing of the Merger, they will use their best reasonable efforts
to promptly prepare and file an application with the United States Internal
Revenue Service seeking any 1997 Refund to which they are entitled; provided,
that CRL hereby understands and acknowledges that the application for any 1997
Refund shall be made in conjunction with the filing by the Parent and the Merger
Sub of the tax returns for such entities for the fiscal year ending December 31,
1999 (the "1999 Returns") and that the Parent and the Merger Sub shall have no
obligation to file any separate forms, documents or applications seeking any
1997 Refund prior to the filing by the Parent and the Merger of the 1999
Returns.
ARTICLE IX
RECORDS
The Escrow Agent shall maintain a record of all its activities as
Escrow Agent and a record of all payments from the Escrow Fund to Parent,
the Merger Sub, the Stockholders or any other party.
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<PAGE> 6
ARTICLE X
RESIGNATION OF ESCROW AGENT
The Escrow Agent, or any successor, may resign as Escrow Agent
hereunder by giving 30 days' written notice thereof to CRL 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 CRL 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. CRL 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 CRL, 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 XI
VOTING
During the term of this Escrow Agreement, each Stockholder shall be
deemed the owner of and shall have voting power over that portion of the Parent
Common Stock that is held in the Escrow Fund and corresponds to that percentage
of all shares of Parent Common Stock outstanding as of the date hereof that is
held by such Stockholder on the date hereof.
ARTICLE XII
DIVIDENDS AND DISTRIBUTIONS ON
STOCK CONSIDERATION
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 Stockholders, pro rata in
accordance with that percentage of all shares of Parent Common Stock outstanding
as of the date hereof that is held by such Stockholder on the date hereof.
During the term of this Escrow Agreement, any dividends or other distributions
on the Parent Common Stock that are made in the form of capital stock or any
other form of ownership interest in the Company or any of its subsidiaries shall
remain in the Escrow Fund until the end of the term of this Escrow Agreement.
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<PAGE> 7
ARTICLE XIII
INCOME ON CASH CONSIDERATION
AND
FEES OF ESCROW AGENT
During the term of this Escrow Agreement, any interest or other income
earned on the Cash Consideration in the Escrow Fund shall remain in the Escrow
Fund until the expiration of the Escrow Period. Upon the expiration of the
Escrow Fund, any interest or other income so earned shall be added to the Cash
Consideration and distributed in accordance with Article V hereof.
ARTICLE XIV
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 Corporation
125 Elwood Davis Road
Syracuse, NY 13212
Fax: (315) 453-3052
with a copy to: Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019-6092
Attention: Frank E. Morgan, II, Esq.
Fax: (212) 259-6333
To CRL: James G. Couch
Box 8343
Incline Village, NV 89452
Fax: (775) 831-0501
with a copy to: Sheppard, Mullin, Richter & Hampton LLP
Four Embarcadero Center
17th Floor
San Francisco, CA 94111-4106
Attn: A. John Murphy
Fax: (415) 434-3947
7
<PAGE> 8
To the Escrow Agent: United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attn: Chris Collins
Fax: (212) 852-1626
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 XV
SUCCESSORS AND ASSIGNS
This Escrow Agreement shall inure to the benefit of and be binding
upon the successors and assigns of the parties hereto.
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
James G. Couch and the Merger Sub shall each be responsible for one
half of any administration or other fees charged by the Escrow Agent and any
successor escrow agent in connection with the performance of this Escrow
Agreement.
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.
8
<PAGE> 9
IN WITNESS WHEREOF, the undersigned have executed this Escrow
Agreement to be effective as of the day and year first above written.
APPLIEDTHEORY REEF ACQUISITION CORP.:
By:
--------------------------------------
Name: Danny E. Stroud
Title: Vice President - Corporate
Development and Western
Operations
APPLIEDTHEORY CORPORATION:
By:
--------------------------------------
Name: Danny E. Stroud
Title: Vice President - Corporate
Development and Western
Operations
CRL NETWORK SERVICES, INC.
By:
--------------------------------------
Name:
------------------------------
Title:
-----------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
By:
--------------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 1
Exhibit 99.2
PRESS RELEASES
For Immediate Release
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APPLIEDTHEORY COMPLETES ACQUISITION OF CRL NETWORK SERVICES, INC.
NEW YORK, NY JANUARY 06, 2000 - AppliedTheory Corporation (Nasdaq: ATHY), the
leading provider of integrated Internet business solutions, announced today that
it has acquired privately-held CRL Network Services, Inc., a San Francisco-based
ISP with a national Tier 1 Internet backbone.
"We enter 2000 with a stronger presence on the west coast, both in terms of
customer support and sales force presence and have enhanced our capabilities to
provide fast, reliable support nationwide," said Dr. Richard Mandelbaum,
AppliedTheory Chairman and CEO.
"CRL complements our hosting facility in Hayward, California, as well as the
relationship AppliedTheory enjoys with Broadwing, Inc., a new company formed
after the recent merger of Cincinnati Bell and IXC Communications, for the
Gemini2000 Next Generation Internet network. In addition, we see strong
opportunities to sell our company's full suite of services to CRL's client
base."
AppliedTheory is focused on building a national organization to provide an
integrated suite of Internet business solutions. The company plans to keep
growth in step with the greater demand for more sophisticated Internet services
and applications from its rapidly expanding client base, comprised mainly of
mid-sized companies, government agencies and universities. Presently,
AppliedTheory provides its customers with professional Internet consulting
services, custom application development, high-speed access, hosting and
security services, and a high level of customer support.
By acquiring CRL, AppliedTheory immediately enhances its network Infrastucture
by linking the company's data centers on the east and west coasts. This will
allow the company to compete aggressively across the entire range of its product
and service offerings. With regard to the Web hosting services, for instance,
AppliedTheory customers will see immediate benefit through improved peering
arrangements that will increase responsiveness and performance of content hosted
on AppliedTheory servers.
"AppliedTheory's acquisition of CRL has gone quickly and smoothly, with full
cooperation and no integration issues," added Dr. Mandelbaum. "This means we
will be able to launch a national sales efforts and expand our services into the
West coast ahead of schedule."
ABOUT APPLIEDTHEORY
With deep roots in the emerging Internet marketplace, AppliedTheory offers a
peerless strategic vision to companies and public sector organizations seeking
everything from simple Internet access to sophisticated large-scale,
Internet-based application development. AppliedTheory's integrated solutions are
tailored not only to the customer's immediate needs, but are engineered to
respond to future
<PAGE> 2
demand, with an emphasis on customer support and service. Together with its
strategic business partners, AppliedTheory implements a broad range of
best-of-breed services nationwide, including needs assessment and security
consulting, dedicated web hosting and access, Virtual Private Network (VPN)
implementation, enterprise portal development, database integration and
administration, and ongoing end-to-end support. More than a technology company,
AppliedTheory understands the Internet business-and how to do business on the
Internet. AppliedTheory is headquartered in Great Neck, New York. For more
information, access the company's Web site at www.appliedtheory.com.
Statements contained in this press release that are not historical facts may be
deemed to be forward-looking statements, which are subject to risks and
uncertainties, including those discussed in AppliedTheory's filings with the
Securities and Exchange Commission.
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