ESCROW AGREEMENT
THIS dated for reference 18th day of August, 2000
AMONG:
MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC., a corporation incorporated
under the laws of the State of Nevada
(the "Pledgor")
AND:
NARRAGANSETT I, L.P., a limited partnership formed under the laws of the State
of Delaware
("Narragansett")
AND:
NARRAGANSETT OFFSHORE LTD., a corporation incorporated under the laws of the
Cayman Islands
("Narragansett Offshore")
AND:
PEQUOT SCOUT FUND, L.P., a limited partnership formed under the laws of the
State of Delaware
("Pequot")
AND:
SDS MERCHANT FUND, L.P., a limited partnership formed under the laws of the
State of Delaware
("SDS")
(together with Narragansett, Narragansett Offshore, Pequot and SDS, the
"Holders")
AND:
XXXX XXXXXXX, P.C., Attorneys-at-Law, a professional corporation incorporated
under the laws of the State of New York, with an address at 0000 Xxxxxx xx xxx
Xxxxxxxx, Xxx Xxxx, X.X. 00000
(herein "Escrow Agent")
WITNESSES THAT WHEREAS:
A. Pursuant to a Note and Warrant Purchase Agreement, dated as of
August 18, 2000 (the "Purchase Agreement"), among the Pledgor, Merlin Software
Technologies Inc. (the "Subsidiary") and each of the Holders, the Holders have
agreed to purchase from the Pledgor up to an aggregate of Two Million One
Hundred Thousand Dollars ($2,100,000) principal amount of Series A 10% Senior
Secured Convertible Notes (the "Notes");
B. Pursuant to the Purchase Agreement, the Pledgor has entered into a
Pledge Agreement of even date therewith providing for the pledge of all of the
Pledged Stock (as hereinafter defined), to secure, among things, the prompt
payment of all obligations of the Pledgor under the Notes; and
C. The Pledgor and each of the Holders desire to appoint the Escrow
Agent, and the Escrow Agent has agreed to act as escrow agent, to hold the
Pledged Stock in accordance with the terms hereof;
THEREFORE, in consideration of the mutual covenants and agreements herein
contained and other good and valuable consideration (the receipt and sufficiency
of which are hereby acknowledged), the parties covenant and agree as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 Wherever used in this Agreement, unless the context otherwise requires,
the following words and terms will have the meanings shown:
(a) "Agreement" means this Escrow Agreement;
(b) "Event of Default" has the meaning assigned in the Pledge Agreement;
(c) "First Tranche Closing" has the meaning assigned in the Purchase
Agreement;
(d) "Pledged Stock" means 7,986,665 fully paid and non-assessable shares of
common stock in the capital of the Subsidiary;
(e) "Secured Obligations" has the meaning assigned in the Pledge Agreement;
(f) "Securities" means the Pledged Stock and the Transfer Documents, and, if
the Securities are sold upon the occurrence of and Event of Default pursuant to
and in compliance with section 4 of the Pledge Agreement, the proceeds of the
sale of the Securities as the context requires; and
(g) "Transfer Documents" means stock transfer power of attorney forms with
respect to the Pledged Stock, duly executed by the Pledgor in blank to permit
transfer of the Pledged Stock to the Holders or their respective nominee(s).
1.2 Any capitalized term not defined herein shall have the meaning ascribed
thereto in the Pledge Agreement.
1.3 In this Agreement:
(a) the headings have been inserted for convenience of reference only and in
no way define, limit, or enlarge the scope or meaning of the provisions of this
Agreement;
(b) all references to any party, whether a party to this Agreement or not,
will be read with such changes in number and gender as the context or reference
requires; and
(c) when the context hereof makes it possible, the word "person" includes in
its meaning any firm and any body corporate or politic.
2. DEPOSIT OF SECURITIES
2.1 The Pledgor will cause the Securities to be delivered to the Escrow
Agent for deposit in escrow with the Escrow Agent on the terms of this Agreement
on the First Tranche Closing.
3. ESCROW PROVISIONS
3.1 The Pledgor hereby directs the Escrow Agent to retain the Securities,
and not to do or cause anything to be done to release the same from escrow
except in accordance with this Agreement. The Escrow Agent accepts its
responsibilities hereunder and agrees to perform them in accordance with the
terms hereof.
3.2 The Escrow Agent will hold the Securities in escrow and:
(a) will deliver the Securities to the Pledgor when satisfactory evidence,
as determined by the Escrow Agent in its sole discretion, has been presented to
the Escrow Agent that the Notes have been paid in full, and all obligations
among the Pledgor and each of the Holders and of the Escrow Agent will thereupon
cease; or
(b) upon the receipt of notice from all of the Holders that an Event of
Default has occurred, will deliver the Securities to the Holders.
4. THE ESCROW AGENT
4.1 The obligations of the Escrow Agent are limited to those specifically
provided in this Agreement and no other, and the Escrow Agent shall have no
liability under, and no duty to inquire into the terms and provisions of, any
agreement between the parties hereto. The Escrow Agent is acting hereunder as
an accommodation to the parties hereto. The duties of the Escrow Agent are
purely ministerial in nature, and it shall not incur any liability whatsoever,
except for
its willful misconduct or gross negligence. The Escrow Agent may consult with
counsel of its choice (which may be a member of its own firm), and shall not be
liable for following the advice of such counsel. The Escrow Agent may act on
the advice of counsel but will not be responsible for acting or failing to act
on the advice of counsel.
4.2 The Holders and the Pledgor jointly and severally covenant and agree
from time to time and at all times hereafter well and truly to save, defend and
hold harmless and fully indemnify the Escrow Agent, its successors, and assigns,
from and against all loss, costs, charges, suits, demands, claims, damages, fees
and expenses (including reasonable attorney's fees and expenses either paid to
retained attorneys or amounts representing the fair value of legal services,
based on its customary billing rates, rendered to itself) which the Escrow
Agent, its successors or assigns may at any time or times hereafter bear,
sustain, suffer or be put unto for or by reason arising out of or in connection
with the performance of its obligations in accordance with the provisions of
this Agreement or anything in any manner relating thereto or by reason of the
Escrow Agent's compliance with the terms hereof. The foregoing indemnities in
this Section 4.2 shall survive the resignation or substitution of the Escrow
Agent and the termination of this Escrow Agreement.
4.3 In case proceedings should hereafter be taken in any court respecting
the Securities, the Escrow Agent will not be obliged to defend any such action
or submit its rights to the court until it has been indemnified by other good
and sufficient security in addition to the indemnity given in Section 4.2
against its costs of such proceedings.
4.4 The Escrow Agent will have no responsibility in respect of the physical
loss of the Securities.
4.5 The Escrow Agent will not be bound in any way by any contract between
the parties hereto whether or not it has notice thereof or of its terms and
conditions and the only duty, liability and responsibility of the Escrow Agent
will be to hold the Securities as herein directed and to deliver the same to
such persons and other such conditions as are herein set forth. The Escrow
Agent will not be required to pass upon the sufficiency of any of the Securities
or to ascertain whether or not the person or persons who have executed, signed
or otherwise issued or authenticated the said documents have authority to so
execute, sign or authorize, issue or authenticate the said documents or any of
them, or that they are the same persons named therein or otherwise to pass upon
any requirement of such instruments that may be essential of their validity, but
it shall be sufficient for all purposes under this Agreement insofar as the
Escrow Agent is concerned that the said documents are deposited with it as
herein specified by the parties executing this Agreement with the Escrow Agent.
4.6 The Escrow Agent shall not have any responsibility for the genuineness
or validity of any document or other item deposited with it or of any signature
thereon or for the identity, authority or right of any person executing or
depositing the same and shall not have any liability for acting in accordance
with any written instructions or certificates given to it hereunder signed by
the proper parties.
4.7 In no event will the Escrow Agent be deemed to have assumed any
liability or responsibility for the sufficiency, form and manner of making any
notice or demand provided for
under this Agreement or of the identity of the persons executing the same, but
it shall be sufficient if any writing purporting to be such a notice, demand or
protest is served upon the Escrow Agent in any manner sufficient to bring it to
its attention.
4.8 In the event that the Securities are attached, garnished or levied upon
under any court order, or if the delivery of such property is stayed or enjoined
by any court order or if any court order, judgment or decree is made or entered
affecting such property or affecting any act by the Escrow Agent, the Escrow
Agent may, in its sole discretion, obey and comply with all writs, orders,
judgments or decrees so entered or issued, whether with or without jurisdiction,
notwithstanding any provision of this Agreement to the contrary. If the Escrow
Agent obeys and complies with any such writs, order, judgment or decrees it will
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding that such writs,
orders, judgments or decrees may be subsequently reversed, modified, annulled,
set aside or vacated.
4.9 The Escrow Agent is authorized and directed to disregard in its sole
discretion any and all notices and warnings which may be given to it by any of
the parties hereto or by any other person, firm, association or corporation. It
will, however, obey the order, judgment or decree of any court of competent
jurisdiction, and it is hereby authorized to comply with and obey such orders,
judgements or decrees and in case of such compliance, it shall not be liable by
reason thereof to any of the parties hereto or to any other person, firm,
association or corporation, even if thereafter any such order, judgment or
decree may be reversed, modified, annulled, set aside or vacated.
4.10 If protest is made to any action contemplated by the Escrow Agent under
this Agreement, the Escrow Agent may continue to hold the Securities until the
right to the documents is legally determined by a court of competent
jurisdiction or otherwise.
4.11 If written notice of protest is made by any of the Holders or the
Pledgor to the Escrow Agent to any action contemplated by the Escrow Agent under
this Agreement, and such notice sets out reasons for such protest, the Escrow
Agent will be entitled to continue to hold the Securities until the right to the
documents is legally determined by a court of competent jurisdiction or
otherwise.
4.12 This Escrow Agreement may be terminated at any time by and upon the
receipt by the Escrow Agent of ten (10) days' written notice of termination
executed by the Holders and the Pledgor, directing the distribution of all
property then held by the Escrow Agent under and pursuant to this Escrow
Agreement. In the event that a dispute arises in connection with the release of
the Securities, the Escrow Agent shall have the sole and absolute right to
resign in accordance with the provisions of this Section 4.12. The Escrow Agent
may resign and be discharged from its duties hereunder at any time by giving at
least ten (10) days' prior written notice of such resignation to the Holders and
Pledgor and specifying a date upon which such resignation shall take effect.
Upon receipt of such notice, a successor escrow agent shall jointly be appointed
by the Holders and Pledgor, such successor escrow agent to become the Escrow
Agent hereunder on the resignation date specified in such notice. If no
successor Escrow Agent is appointed prior to the date specified, the Escrow
Agent shall have the right at any time to deposit the Securities with a court of
competent jurisdiction, as specified in Section 6.5 hereof,
and the Escrow Agent shall have no further obligation with respect thereto. The
Holders and Pledgor, acting jointly, may at any time substitute a new escrow
agent by giving ten (10) days' notice thereof to the Escrow Agent then acting
and paying all fees and expenses of such Escrow Agent. In the alternative, in
the event of a dispute in relation to the release of the Securities, the Escrow
Agent may resign fifteen (15) days after giving written notice of such
resignation to the parties hereto and depositing the Securities with an
appropriate court, as specified in Section 6.5 hereof, and the Escrow Agent
shall have no further obligation with respect hereto or under this Agreement, in
any manner. This Escrow Agreement shall automatically terminate if and when all
of the Securities shall have been distributed by the Escrow Agent in accordance
with the terms of this Escrow Agreement.
4.13 Notwithstanding anything herein to the contrary, the Escrow Agent may
act upon any written instructions given by the Pledgor and all of the Holders
jointly.
4.14 If any dispute should arise with respect to the ownership or right of
possession of the Securities, or should the Escrow Agent, in its sole judgement,
receive conflicting instructions with respect to the instructions contained in
this Agreement or to any distribution of the Securities, the Escrow Agent is
authorized and directed to retain in its possession, without liability to
anyone, all or any portion of the Securities until such dispute shall have been
settled either by agreement of the parties concerned by filing of written
directions signed by the Holders and Pledgor to the Escrow Agent or by a final
decree, but the Escrow Agent shall be under no duty whatsoever to institute or
defend any such proceedings. Notwithstanding anything to the contrary contained
herein, in the event of any dispute arising between any of the Holders and the
Pledgor or between any other persons or between any of them with respect to the
Pledge Agreement, this Agreement or any matters arising thereto, or with respect
to the Pledged Stock, the Escrow Agent may in its sole discretion deliver and
interplead the Securities into court, as specified in Section 6.5 hereof, and
such delivery and interpleading will be an effective discharge to the Escrow
Agent.
4.15 The Escrow Agent shall be promptly reimbursed, jointly and severally by
the Holders and Pledgor, for reasonable expenses incurred by the Escrow Agent in
the performance of services pursuant to this Escrow Agreement including, but not
limited to, legal fees, including all fees and expenses incurred in connection
with its resignation pursuant to Section 4.12.
4.16 The parties hereto hereby expressly agree, acknowledge and consent that
the Escrow Agent has served as legal counsel for the Holders and shall be
permitted to provide legal counsel to any and all parties to this Agreement, in
the future, notwithstanding the agreements set forth herein including, without
limitation, any controversy or dispute arising out of this Escrow Agreement and
waive any claims of conflict of interest relating thereto.
4.17 The Holders and Pledgor shall each bear all of their own fees and
expenses incurred by them in resolving any dispute arising under this Escrow
Agreement. The Holders and Pledgor shall jointly and severally reimburse the
Escrow Agent for any costs incurred by the Escrow Agent in connection with any
dispute arising under this Agreement. The Holders and Pledgor shall jointly and
severally reimburse the Escrow Agent for any costs incurred in the performance
of its duties hereunder.
5. COUNTERPARTS
5.1 This Agreement may be executed in several counterparts, each of which
will be deemed to be an original and all of which will together constitute one
and the same instrument.
6. GENERAL
6.1 Except as herein otherwise provided, no subsequent alteration,
amendment, change or addition to this Agreement will be binding upon the parties
hereto unless reduced to writing and signed by the parties.
6.2 This Agreement will enure to the benefit of and be binding upon the
parties and their respective heirs, executors, administrators, successors, and
assigns.
6.3 The parties will execute and deliver all such further documents, do or
cause to be done all such further acts and things, and give all such further
assurances as may be necessary to give full effect to the provisions and intent
of this Agreement.
6.4 This Agreement shall be governed by, and construed in accordance with,
the laws of the state of New York applicable to contracts executed, and to be
fully performed, in such state.
6.5 Each party hereby expressly and irrevocably agrees and consents that any
suit, action or proceeding arising out of or relating to this Agreement and the
transactions contemplated herein may be instituted in any state or federal court
sitting in the county of New York, state of New York, United States of America
and, by the execution and delivery of this Agreement, expressly waives any
objection that it may have now or hereafter to the laying of the venue or to the
jurisdiction of any such suit, action or proceeding, and irrevocably submits
generally and unconditionally to the jurisdiction of any such court in any such
suit, action or proceeding.
6.6 Any notice required or permitted to be given under this Agreement will
be in writing and may be given by delivering, sending by electronic facsimile
transmission or other means of electronic communication capable of producing a
printed copy, or sending by prepaid registered mail posted in Canada and the
United States, the notice to the addresses set forth in the Pledge Agreement (or
to such other address or facsimile number as any party may specify by notice in
writing to another party). Any notice delivered or sent by electronic facsimile
transmission or other means of electronic communication capable of producing a
printed copy on a business day will be deemed conclusively to have been
effectively given on the day the notice was delivered, or the transmission was
sent successfully, as the case may be. Any notice sent by prepaid registered
mail will be deemed conclusively to have been effectively given on the third
business day after posting; but if at the time of posting or between the time of
posting and the third business day thereafter there is a strike, lockout, or
other labour disturbance affecting postal service, then the notice will not be
effectively given until actually delivered.
6.7 Time is of the essence of this Agreement.
- 9 -
6.8 Delivery of an executed copy of this Agreement by electronic facsimile
transmission or other means of electronic communication capable of producing a
printed copy will be deemed to be execution and delivery of this Agreement on
the date of such communication by the party so delivering such copy, subject to
delivery of an originally executed copy of this Agreement to the other party
hereto within two weeks of the date of delivery of the copy sent via the
electronic communication.
6.9 It is understood and agreed by the parties to this Agreement that the
only duties and obligations of the Escrow Agent are those specifically stated
herein and no other.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed and
delivered as of the date first above written.
MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC.
By:/s/ signed
Authorised Signatory
NARRAGANSETT I, L.P.
By:/s/ signed
Xxxxxx X. Xxxxxxx
Managing Member
NARRAGANSETT OFFSHORE LTD.
BY XXX HOLDING, L.L.C., ITS INVESTMENT MANAGER
By:/s/ signed
Name: Xxxxxx X. Xxxxxxx
Title: Managing Member
PEQUOT SCOUT FUND, L.P.
BY PEQUOT CAPITAL MANAGEMENT, INC., ITS INVESTMENT ADVISOR
By:/s/ signed
Name:_________________________
Title: Chief Accounting Officer
SDS MERCHANT FUND, L.P.
BY SDS CAPITAL PARTNERS, L.L.C., ITS MANAGING MEMBER
By:/s/ signed
Name: Xxxxxx Xxxxx
Title: Managing Member
XXXX XXXXXXX, P.C.
By:/s/ signed
Authorized Signatory
