EXHIBIT E
ESCROW AGREEMENT
This Escrow Agreement is made as of this 3rd day of July 2000, by
and among State Street Bank and Trust Company of California, N.A.
("Escrow Agent"), Com21, Inc., a Delaware corporation
("Purchaser"), and Ofir Zemer as representative ("Sellers'
Representative") of the former shareholders of GADline, Ltd. a
company organized under the laws of Israel (the "Company").
RECITALS
A. This Agreement is entered into in connection with the Share
Purchase Agreement (the "Share Purchase Agreement"), dated as of
April 18, 2000, as amended, by and among Purchaser, the Company,
each of the Persons set forth on Schedule A to the Share Purchase
Agreement (each, a "Seller", and collectively, the "Sellers"), and
the Sellers' Representative, pursuant to which Purchaser will
acquire all of the Sellers' Shares from the Sellers. Capitalized
terms used in this Agreement and not otherwise defined herein shall
have the meanings ascribed to them in the Share Purchase Agreement,
a copy of which is attached hereto as Annex A.
B. Sections 1.1, 1.2 and 8.3 of the Share Purchase Agreement
provide that a portion of the shares of Purchaser Common Stock
issuable in connection with the Share Purchase will be held in
escrow to compensate Purchaser for certain indemnification
obligations of the Sellers.
C. The Sellers' Representative has been constituted as
representative for and on behalf of the Sellers to undertake
certain obligations specified in Article VIII of the Share Purchase
Agreement ("Article VIII").
D. The parties hereto desire to set forth further terms and
conditions in addition to those set forth in Article VIII relating
to the operation of the Escrow Fund.
Now, Therefore, the parties hereto, in consideration of the mutual
covenants contained herein, and intending to be legally bound,
hereby agree as follows:
1. Escrow and Escrow Shares.
(a) Pursuant to Article VIII, Purchaser shall deposit in escrow
with the Escrow Agent, as escrow agent, as soon as reasonably
practicable after the Closing of the Share Purchase, a stock
certificate or certificates representing 228,178 shares of
Purchaser Common Stock registered in the name of Embassy & Co., as
nominee of the Escrow Agent (such shares, together with any
additional shares of Purchaser Common Stock deposited with the
Escrow Agent pursuant to paragraph (b) below and the Founders'
Escrow Shares deposited with the Escrow Agent pursuant to the next
clause of this sentence, being referred to herein as the "Escrow
Shares"), and 10,000 shares of Purchaser Common Stock in respect of
the Founders' Escrow Shares, which shall be registered in the name
of the Escrow Agent as nominee for the beneficial owners of such
shares.
(b) Pursuant to Article VIII, Purchaser shall deposit in escrow
with the Escrow Agent, as escrow agent, as soon as reasonably
practicable after the date of issuance of the First Milestone
Shares and the Second Milestone Shares, as applicable, a stock
certificate or certificates representing the Escrow Shares
applicable to the First Milestone Shares or the Second Milestone
Shares, as applicable, determined in the manner set forth in
Section 1.2 of the Share Purchase Agreement, which shall be
registered in the name of the Escrow Agent as nominee for the
beneficial owners of such shares. Unless and until the Escrow
Agent receives such additional shares, the Escrow Agent may assume
without inquiry that none have been, or are required to be, issued.
The Escrow Agent need not inquire into or verify that the number of
such additional shares delivered to the Escrow Agent has been
determined in the manner set forth in Section 1.2 of the Share
Purchase Agreement.
(c) The Escrow Shares shall be held and distributed by the Escrow
Agent in accordance with the terms and conditions of Article VIII
and Section 6.3 of the Share Purchase Agreement and this Agreement.
The number of Escrow Shares beneficially owned by each Seller as of
the Closing and upon issuance of the First Milestone Shares and
Second Milestone Shares, as applicable, the percentage interest of
each Seller in the Escrow Fund, the address of each Seller and the
taxpayer identification of each shareholder are set forth in Annex
B attached hereto.
(d) Upon receipt by the Escrow Agent of an Officer's Certificate
of Purchaser (i) stating that such certificate is being delivered
pursuant to Section 6.3 of the Share Purchase Agreement
(ii) setting forth Third Party Expenses in excess of $2,350,000 and
(iii) stating that a copy of such certificate has been delivered to
Sellers' Representative, the Escrow Agent (and the other parties
hereto) shall treat such Officer's Certificate as if it were a
claim for indemnification made pursuant to Section 8.3(d) of the
Share Purchase Agreement. The Sellers' Representative may object
to such Officer's Certificate pursuant to Section 8.3(e) of the
Share Purchase Agreement.
2. Rights and Obligations of the Parties. The Escrow Agent shall
be entitled to such rights and shall perform such duties of the
Escrow Agent as set forth herein and in Article VIII and Section
6.3 of the Share Purchase Agreement (collectively, the "Duties"),
in accordance with the terms and conditions of this Agreement and
Article VIII. Purchaser, the Company and the Sellers'
Representative shall be entitled to their respective rights and
shall perform their respective duties and obligations as set forth
herein and in Article VIII, in accordance with the terms hereof and
thereof. In the event that the terms of this Agreement conflict in
any way with the provisions of Article VIII, Article VIII shall
control.
3. Escrow Period. The Escrow Fund shall be in existence
immediately following the Closing and shall terminate at 5:00 p.m.,
local time at the office of the Escrow Agent, on the first
anniversary of the Closing Date (the "Escrow Period"); provided,
however, that the Escrow Period shall not terminate with respect to
any amount which, subject to the provisions of Article VIII, is
necessary to satisfy any then pending and unsatisfied claims
specified in any Officer's Certificate delivered to the Escrow
Agent prior to the termination of the Escrow Period with respect to
facts and circumstances existing prior to the termination of such
Escrow Period. Purchaser shall deliver to the Escrow Agent a
certificate specifying the Closing Date.
4. Duties of Escrow Agent. In addition to the Duties set forth
in Article VIII and Section 6.3 of the Share Purchase Agreement,
the Duties of the Escrow Agent shall include the following:
(a) The Escrow Agent shall hold and safeguard the Escrow Shares
during the Escrow Period, shall treat such Escrow Fund as a trust
fund in accordance with the terms of this Agreement and Article
VIII and not as the property of Purchaser, and shall hold and
dispose of the Escrow Shares only in accordance with the terms
hereof.
(b) The Escrow Shares shall be voted by the Escrow Agent in
accordance with the instructions received by the Escrow Agent from
the Sellers' Representative. In the absence of such instructions,
the Escrow Agent shall be under no obligation to vote such shares.
The Escrow Agent need not forward proxy information, annual or
other reports or other information received from Purchaser with
respect to the Escrow Shares.
(c) Promptly following termination of the Escrow Period as set
forth in Section 3 hereof, the Escrow Agent (i) shall deposit with
the Purchaser's stock transfer agent the number of Escrow Shares
and other property in the Escrow Fund in excess of the amount of
such Escrow Shares or other property (as set forth in a certificate
of the Purchaser) as being sufficient to satisfy any unsatisfied
claims specified in any Officer's Certificate theretofore delivered
to the Escrow Agent prior to termination of the Escrow Period with
respect to facts and circumstances existing prior to expiration of
the Escrow Period and (ii) shall cause such transfer agent to
transfer such Escrow Shares and other property to the Sellers'
Representative for distribution to the Sellers. As soon as all
such claims have been resolved, the Escrow Agent shall cause such
transfer agent to deliver to such Sellers' Representative for
distribution to the Sellers all of the Escrow Shares and other
property remaining in the Escrow Fund and not required to satisfy
such claims and expenses. Each Seller shall receive that number of
Escrow Shares equivalent to such Seller's percentage interest in
the Escrow Fund as set forth in Annex B hereto, subject, in the
case of the Escrow Shares applicable to the First Milestone Shares
and the Second Milestone Shares, to the issuance of the First
Milestone Shares or the Second Milestone Shares, as the case may
be, and receipt by the Escrow Agent thereof.
(d) Pursuant to Section 8.3(d) of the Share Purchase Agreement,
for the purpose of compensating Purchaser for its Losses pursuant
to the Share Purchase Agreement, the Purchaser Common Stock in the
Escrow Fund shall be valued at the Purchaser Stock Price.
Purchaser shall set forth the Purchaser Stock Price in a
certificate delivered to the Escrow Agent. If the value to be
distributed to Purchaser (or to the Sellers' Representative for
distribution to the Sellers upon a termination of the escrow) is
not evenly divisible by the Purchaser Stock Price, the Escrow Agent
shall round down the number of shares to be distributed to the next
highest number of shares and shall cause the transfer agent of the
Escrow Shares to distribute that number. In lieu of the fractional
interest not distributed, Purchaser shall furnish to the Escrow
Agent, and the Escrow Agent (or such stock transfer agent) in turn
will distribute to Purchaser, cash equal to such fractional
interest times the Purchaser Stock Price. Purchaser shall be
deemed to have purchased such fractional interests with respect to
which it has furnished funds to the Escrow Agent. Accordingly, the
Escrow Agent, upon receipt of such funds, shall deliver the
corresponding number of shares to Purchaser . In all events,
Purchaser shall so purchase only a whole number of shares. Any
cash so received from Purchaser and not so immediately distributed
by the Escrow Agent shall be retained by the Escrow Agent as part
of the Escrow Fund, but need not be invested.
5. Distribution. Any cash dividends, dividends payable in
securities or other distributions of any kind (but excluding any
shares of Purchaser capital stock received upon a stock split or
stock dividend) shall be promptly distributed by the Escrow Agent
to the beneficial holder of the Escrow Shares to which such
distribution relates, by check mailed via first class mail, to the
Sellers at their addresses, and in the percentage interests, set
forth in Annex B. Any shares of Purchaser Common Stock received by
the Escrow Agent upon a stock split made in respect of any
securities in the Escrow Fund shall be added to the Escrow Fund and
become a part thereof. Any provision hereof or of Article VIII
shall be adjusted to appropriately reflect any stock split or
reverse stock split and, upon such adjustment, Purchaser shall
provide to the Escrow Agent a revised version of Annex B reflecting
such adjustment.
6. Exculpatory Provisions.
(a) The Escrow Agent shall be obligated only for the performance
of such Duties as are specifically set forth herein and in Article
VIII and Section 6.3 of the Share Purchase Agreement and may rely
and shall be protected in relying or refraining from acting on any
instrument reasonably believed to be genuine and to have been
signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for forgeries or false impersonations.
The Escrow Agent shall not be liable for any act done or omitted
hereunder as escrow agent except for gross negligence or willful
misconduct. The Escrow Agent shall, in no case or event be liable
for any representations or warranties of the Company or Purchaser
or for punitive, incidental or consequential damages. Any act done
or omitted pursuant to the advice or opinion of counsel shall be
conclusive evidence of the good faith of the Escrow Agent.
(b) 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 or
arbitrations as provided in Section 8.3(f) of the Share Purchase
Agreement, and is hereby expressly authorized to comply with and
obey orders, judgments or decrees of any court or rulings of any
arbitrators. In case the Escrow Agent obeys or complies with any
such order, judgment or decree of any court or such ruling of any
arbitrator, 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, decree or arbitrators'
ruling being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
(c) 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 the Agreement or any
documents or papers deposited or called for thereunder.
(d) The Escrow Agent shall not be liable for the outlawing of any
rights under any statute of limitations with respect to the
Agreement or any documents deposited with the Escrow Agent.
7. Alteration of Duties. The Duties may be altered, amended,
modified or revoked only by a writing signed by all of the parties
hereto.
8. Resignation and Removal of the Escrow Agent. The Escrow Agent
may resign as Escrow Agent at any time with or without cause by
giving at least thirty (30) days' prior written notice to each of
Purchaser and the Sellers' Representative, such resignation to be
effective thirty (30) days following the date such notice is given.
In addition, Purchaser and the Sellers' Representative may jointly
remove the Escrow Agent as escrow agent at any time with or without
cause, by an instrument (which may be executed in counterparts)
given to the Escrow Agent, which instrument shall designate the
effective date of such removal. In the event of any such
resignation or removal, a successor escrow agent which shall be a
bank or trust company organized under the laws of the United States
of America or of the State of California having (or if such bank or
trust company is a member of a bank company, its bank holding
company shall have) a combined capital and surplus of not less than
$50,000,000, shall be appointed by the Sellers' Representative with
the approval of Purchaser, which approval shall not be unreasonably
withheld. Any such successor escrow agent shall deliver to
Purchaser and the Sellers' Representative a written instrument
accepting such appointment, and thereupon it shall succeed to all
the rights and duties of the escrow agent hereunder and shall be
entitled to receive the Escrow Fund.
9. Further Instruments. If the Escrow Agent reasonably requires
other or further instruments in connection with performance of the
Duties, the necessary parties hereto shall join in furnishing such
instruments.
10. Disputes. It is understood and agreed that should any dispute
arise with respect to the delivery and/or ownership or right of
possession of the securities held by the Escrow Agent hereunder,
the Escrow Agent is authorized and directed to act in accordance
with, and in reliance upon, the terms hereof and of Article VIII.
11. Escrow Fees and Expenses. Purchaser shall pay the Escrow
Agent such fees as are established by the Fee Schedule attached
hereto as Annex C.
12. Indemnification. In consideration of the Escrow Agent's
acceptance of this appointment, Purchaser and the Sellers'
Representative, on behalf of the Sellers and not individually,
jointly and severally, agree to indemnify and hold the Escrow Agent
harmless as to any liability incurred by it to any person, firm or
corporation by reason of its having accepted such appointment or in
carrying out the terms hereof and of Article VIII, and to reimburse
the Escrow Agent for all its costs and expenses, including, among
other things, counsel fees and expenses, reasonably incurred by
reason of any matter as to which an indemnity is paid; provided,
however, that no indemnity need be paid in case of the Escrow
Agent's gross negligence, willful misconduct or breach of this
Agreement.
13. General.
(a) Any notice given hereunder shall be in writing and shall be
deemed effective upon the earlier of personal delivery or the third
day after mailing by certified or registered mail, postage prepaid
as follows:
To Purchaser:
Com21, Inc.
750 Tasman Drive
Milpitas, CA 95053
Attn: David Robertson, Chief Financial Officer
Telephone: (408) 953-9110
Facsimile No.: (408) 953-9110
With a copy to:
Wilson Sonsini Goodrich & Rosati
One Market
Spear Street Tower
San Francisco, CA 94105
Attention: Michael S. Dorf, Esq.
Telephone: (415) 947-2000
Facsimile No.: (415) 947-2099
and
Yigal Arnon & Co.
22 Rivlin Street
Jerusalem 91000 Israel
Attention: Barry Levenfeld
Telephone: 972-2-623-9200
Facsimile No.: 972-2-623-9236
To Sellers' Representative:
Ofir Zemer
Shalom Tower, 26th Floor
9 Ahad Ha'am Street
P.O. Box 29161
Tel Aviv 61291
Israel
Telephone: 972-3-519-3437
Facsimile: 972-3-517-5336
With copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, MA 02108
Attention: Louis A. Goodman, Esq.
Telephone: (617) 573-4800
Facsimile No.: (617) 573-4822
and
Fischer, Behar, Chen & Co.
3 Daniel Frisch Street
Tel Aviv 64731 Israel
Attention: Elliot Dater, Adv.
Telephone: 972-3-694-4111
Facsimile No.: 972-3-609-1116
To the Escrow Agent:
State Street Bank and Trust Company of California, N.A.
633 West Fifth Street, 12th Floor
Los Angeles, CA 90071
Telephone: (213) 362-7338
Facsimile: (213) 362-7357
Attention: Corporate Trust Department
(Com21/GADline 2000 Escrow)
or to such other address as any party may have furnished in writing
to the other parties in the manner provided above. Any notice
addressed to the Escrow Agent shall be effective only upon receipt.
If any Officer's Certificate, objection thereto or other document
is required to be delivered to the Escrow Agent and any other
person, the Escrow Agent may assume without inquiry that such
document was received on the date on which the Escrow Agent
received it.
(b) The Officer's Certificate as defined in Article VIII may be
signed by the President, Vice President or Chief Financial Officer
of Purchaser.
(c) The captions in this Escrow Agreement are for convenience only
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Escrow Agreement.
(d) This Escrow Agreement may be executed in any number of
counterparts, by original or facsimile signature, each of which
when so executed shall constitute an original copy hereof, but all
of which together shall constitute one agreement.
(e) No party may, without the prior express written consent of
each other party, assign this Escrow Agreement in whole or in part.
This Escrow Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties
hereto.
(f) This Escrow Agreement shall be governed by and construed in
accordance with the laws of the State of California as applied to
contracts made and to be performed entirely within the State of
California. The parties to this Escrow Agreement hereby agree to
submit to personal jurisdiction in the State of California with
respect to any claim for indemnification under Section 12 hereof.
14. Tax Reporting Matters. The Purchaser and the Sellers'
Representative on behalf of the Sellers agree to provide the Escrow
Agent with certified tax identification numbers for each of them by
furnishing appropriate Forms W-9 (or Forms W-8, in the case of non-
U.S. persons) and other forms and documents that the Escrow Agent
may reasonably request (collectively, "Tax Reporting
Documentation") to the Escrow Agent within 30 days after the date
hereof. The parties hereto understand that, if such Tax Reporting
Documentation is not so certified to the Escrow Agent, the Escrow
Agent may be required by the Internal Revenue Code, as it may be
amended from time to time, to withhold a portion of the Escrow
Shares or any interest or other income earned on the investment of
monies or other property held by the Escrow Agent pursuant to this
Agreement.
IN WITNESS WHEREOF, each of the parties has executed this Agreement
as of the date first above written.
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A. as
Escrow Agent
By: _________________________
Name: Paula M. Oswald
Title: Vice President
COM21, INC.
By: _________________________
Name:
Title:
SELLERS' REPRESENTATIVE
_____________________________
Name: Ofir Zemer
SIGNATURE PAGE TO ESCROW AGREEMENT
ANNEXES TO ESCROW AGREEMENT
Annex A - Share Purchase Agreement
Annex B - Seller Information (Number of Escrow Shares,
Percentage Interest in Escrow Fund, Address,
Taxpayer ID)
Annex C- Escrow Agent Fee Schedule
ANNEX A
Share Purchase Agreement
ANNEX B
Seller Information
ANNEX C
Escrow Agent Fee Schedule
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.
Schedule of Fees for Escrow Services
Com21, Inc./Gadline
Acceptance Fee: $750.00
This one-time charge, payable at closing, includes
acceptance and assumption of responsibility and
duties as Escrow Agent; review and comment on the
form of agreement; and establishment of account(s)
in accordance with governing document.
Legal Counsel: at cost
Escrow Agent Fee: $3,500.00
Payable at funding and annually thereafter, if
applicable. Compensates State Street for
administrative services in accordance with the
Escrow Agreement.
Additional Fees, if applicable:
Pro-Rata Percentage: Should the Escrow Agreement
require pro-rata distribution of principal cash or
investment income to the beneficiaries, State
Street will assess an additional $100, for each
beneficiary pro-rata distribution, which may be
offset at State Street's discretion against each
distribution.
Directed Sale: State Street will charge $500.00,
plus broker commission, for each Directed Sale.
The fee will be paid from the proceeds of such
sale.
Claims (if applicable):
Uncontested $250.00
Contested Billed at Cost
Wire Transfer Fee (This fee will be deducted from wire
amount, if applicable)
International $40.00
Domestic $20.00
Investment Fee: $65.00
Per security purchased (i.e. Treasuries, Agencies, etc.)
Investment In State Street Investment Vehicles:
40 Basis Points (.0040)
(Calculated on the Average Daily Net Assets)
Investment Vehicles:
SSgA Prime Money Market Fund
SSgA US Treasury Money Market Fund
SSgA Tax Free Money Market Fund
Out-of-pocket Expense: At Cost
The transaction underlying this proposal, and all related
documentation, is subject to review and acceptance by State
Street in accordance with its policies and procedures. Should
the actual transaction materially differ from the assumptions
used herein, State Street reserves the right to modify this
proposal. In the event that the subject transaction fails to
close for reasons beyond the control of State Street, the party
requesting these services agrees to pay State Street's
acceptance fees, legal fees and out-of-pocket expenses. This
proposal is a confidential document and should not be
duplicated and/or distributed.
Dated: May 5, 2000 Page One of One