EXHIBIT 10.16
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE (this "AGREEMENT") is made
and entered into this 2nd day of June, 2005, by and among Patron Systems, Inc.
(the "COMPANY"), Xxxxxxx X. Xxxxx, an Individual ("ALLIN"), and The Allin
Dynastic Trust ("ALLIN TRUST" and together with Allin, the "ALLIN PARTIES" and
each an "ALLIN PARTY").
RECITALS
A. On October 2, 2002, Allin entered into an Employment Agreement
("EMPLOYMENT AGREEMENT") with the Company.
X. Xxxxx became the Company's Chief Executive Officer and a member of the
Company's Board of Directors ("BOARD") on October 10, 2002. Allin
subsequently received 6,250,000 shares of the common stock, par value
$0.01 per share, of the Company ("COMMON STOCK"). The Allin Trust also
subsequently received 1,250,000 shares of Common Stock. Subsequent to
the initial distribution of the Common Stock to Allin and the Allin
Trust, Allin transferred some of his holdings in the Company's Common
Stock to the Allin Trust, and the Allin Trust sold some of its holdings
in the Company's Common Stock. Currently, Allin holds 2,800,000 shares
of the Company's Common Stock, not including 1,000,000 shares held by
Allin which are committed to be tendered to Sherleigh Associates Inc.,
Profit Sharing Plan (the "SHERLEIGH SHARES") as further set forth
herein. The Allin Trust holds approximately 2,400,000 shares of the
Company's Common Stock. The Company acknowledges that all of the shares
held by Allin and the Allin Trust were validly issued, and that both
Allin and the Allin Trust have satisfied any and all
conditions/restrictions that would prevent the shares from being freely
tradable. The Company seeks to purchase some of the Allin Parties'
holdings in the Company's Common Stock.
C. On July 14, 2002, October 1, 2002 and October 11, 2002, the Company
issued Promissory Notes (collectively, the "ALLIN NOTES") to Allin in
the principal amounts of $75,000, $50,000 and $21,000, respectively, in
consideration of sums loaned to the Company by Allin.
D. On January 21, 2004, Allin resigned as the Company's Chief Executive
Officer and a member of the Board.
E. On July 19, 2004, Allin made demand for payment under the Allin Notes
(the "ALLIN NOTES CLAIMS"). The Company did not repay the Allin Notes
within 24 hours of demand for payment. On Xxxxx 0, 0000, Xxxxx filed a
complaint in the Circuit Court of Xxxx County, Illinois, Law Division,
entitled XXXXXXX X. XXXXX V. PATRON SYSTEMS, INC., 05 L 2379, that
seeks the payment of all principal, interest and legal fees due under
the Allin Notes.
X. Xxxxx has previously informed the Company of his claims for sums he
believes are due and owing to him pursuant to the terms of his
Employment Agreement,
as well as $34,136.00 which Allin claims is due and owing for
unreimbursed expenses incurred by Allin on behalf of Patron
(collectively the "EMPLOYMENT CLAIMS").
G. On December 17, 2004, Allin, through legal counsel, informed the
Company that Allin was seeking indemnification, pursuant to Article VI
of Patron's Amended and Restated By-laws, from the Company for the
value of the Sherleigh Shares which Allin has agreed to tender to
Sherleigh Associates Inc., Profit Sharing Plan in settlement of a
lawsuit entitled SHERLEIGH ASSOCIATES INC., PROFIT SHARING PLAN V.
PATRON SYSTEMS, INC, XXXXXXX X. XXXXX AND XXXXXX X. XXX, 04 CV 907
(S.D.N.Y.) (the "SHERLEIGH SETTLEMENT CLAIMS").
H. Pursuant to Article VI of Patron's Amended and Restated By-laws, Allin
has also sought indemnification from Patron for the reimbursement of
legal fees incurred in connection with a proceeding filed by Xxxxxxx
Xxxxxxx under the Illinois Wage Payment and Collection Act with the
Illinois Department of Labor entitled LINTING V. PATRON SYSTEMS, INC.,
IDOL WC. No. 03-006547 (the "LINTING PROCEEDING"), an investigation of
the Company by the United States Securities and Exchange Commission
(the "SEC INVESTIGATION") and the lawsuit entitled SHERLEIGH PROFIT
SHARING PLAN V. PATRON SYSTEMS, INC, XXXXXXX X. XXXXX AND XXXXXX X.
XXX, 04 CV 907 (S.D.N.Y.) (the "SHERLEIGH LITIGATION"), all of which
arise out of Allin's employment with the Company. By letter dated April
28, 2004, the Company acknowledged its indemnification obligations with
respect to the SEC Investigation and Sherleigh Litigation, and by this
Agreement also acknowledges its obligations to pay Allin for legal fees
incurred in connection with the Linting Proceeding. Allin has also
incurred additional legal fees in connection with his attempts to
receive indemnification from the Company with respect to the Linting
Proceeding, the SEC Investigation and the Sherleigh Litigation, amounts
incurred in connection with the Employment Claims and the Allin Notes,
and past attempts to settle all disputes between Allin and the Company
(all legal fees and costs that Allin claims are due and owing to Allin
by the Company are collectively referred to herein as the
"REIMBURSEMENT CLAIMS"). The current amount due for the Reimbursement
Claims is approximately $235,000.00. The Company acknowledges that
these amounts are reasonable. To date, the Company has paid $25,000.00
towards the Reimbursement Claims.
I. The parties desire to enter into a final and binding settlement with
respect to all claims.
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. PAYMENT TO ALLIN. The Company shall pay to Allin, in
settlement of the Allin Notes Claims, Employment Claims,
Sherleigh Settlement Claims and Reimbursement Claims, an
aggregate payment of One Million One Hundred Fifty Thousand
Dollars ($1,150,000) as follows:
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(a) Two Hundred Thousand Dollars ($200,000) payable by
check or wire transfer of immediately available funds
upon the execution of this Agreement (the "EXECUTION
SETTLEMENT AMOUNT").
(b) The lesser of (i) 14% of the proceeds of the Phase II
Transaction, as defined in that certain Non Exclusive
Engagement Agreement, dated as of January 19, 2005,
between the Company and Xxxxxxx & Company (UK) Ltd.,
or any other similar Company financing
("FOLLOW-ON-FINANCING") or (ii) Nine Hundred Fifty
Thousand Dollars ($950,000) (the "REMAINDER AMOUNT"),
payable by check or wire transfer of immediately
available funds upon the consummation of the
Follow-On-Financing (the payment of the amount the
Company is obligated to pay pursuant to this Section
1(b) is hereafter referred to as the "SECOND TRANCHE
PAYMENT"). Consummation of the Follow-On-Financing
for purposes of this Agreement shall be deemed to
have occurred at such time that funds are released
from escrow upon the first closing of the
Follow-On-Financing. The Company shall provide Allin
and the Allin Trust notice within 24 hours after
consummation of the Follow-On-Financing. The Company
further agrees to provide Allin and the Allin Trust
all information on the terms of the
Follow-On-Financing or any other information
requested by Allin and/or the Allin Trust that may
impact any provision in this Agreement. The direction
letter authorizing the release of funds from escrow
upon the first closing of the Follow-On-Financing
shall designate Allin as a recipient of the
applicable amount due under this Section 1(b) from
the funds released from escrow in the first closing
of the Follow-On-Financing, and all amounts due under
this Section 1(b) shall be paid, in any event, within
two (2) days of the consummation of the
Follow-On-Financing.
(c) To the extent that the Second Tranche Payment is less
than the Remainder Amount, the Company shall
immediately issue a promissory note ("REMAINDER
AMOUNT NOTE") in favor of Allin in the principal
amount of the difference between the Remainder Amount
and the Second Tranche Payment, with a maturity date
of one year from the consummation of the
Follow-On-Financing and bearing interest at a rate of
8% per annum, with interest payments to be paid,
during the term of the Remainder Amount Note,
quarterly on the last day of the month in August,
November, February and May. A copy of the form of the
Remainder Amount Note that would be effective if the
Second Tranche Payment is less than the Remainder
Amount is attached hereto as Exhibit A.
2. REMOVAL OF RESTRICTIVE LEGEND AND SALE OF ALLIN PARTIES'
SHARES. Allin currently owns 3,800,000 shares of Common Stock
("ALLIN'S SHARES") and the Allin Trust currently owns
approximately 2,400,000 shares of Common Stock ("ALLIN TRUST
SHARES" and together with the Allin Shares, the "ALLIN
PARTIES' SHARES"). Allin and the Allin Trust agree to sell to
the Company, 4,000,000 shares of Common Stock as follows:
(A) REMOVAL OF RESTRICTIVE LEGEND. Upon execution of this
Agreement, the Company shall undertake all necessary
actions to remove the restrictive legend on any (or
all) of the Allin Trust Shares as requested by either
Allin Party so that any such shares can become freely
tradable, subject to the terms and conditions of this
Agreement.
(B) INITIAL PURCHASE OF COMMON SHARES. Upon execution of
this Agreement, the Company shall agree to purchase
one million of Allin's Shares and one million of
Allin Trust Shares (collectively the "INITIAL
SHARES") through the issuance to each of Allin and
the Allin Trust, as applicable, of a promissory note
(collectively the "SHARE NOTES") in the principal
amount of Eight Hundred Thousand Dollars ($800,000)
with a maturity date of June 30, 2006 and bearing
interest at a rate of 8% per annum. During the term
of the Share Notes, interest payments must be paid
quarterly by the Company on the last day of the month
in August, November, February and May. A copy of the
form of the Share Notes is attached hereto as Exhibit
B. The Initial Shares will be held in escrow
("ESCROW") by a mutually agreed to designee
("ESCROWEE") with the Company paying all fees for the
escrow services in advance. A copy of the form of the
Escrow Agreement agreed to by the parties hereto is
attached hereto as Exhibit C, and the parties hereto
agree to act in good faith to make modifications
reasonably requested by the Escrowee (the final
Escrow Agreement which shall be executed by the
parties hereto and the Escrowee shall hereinafter be
referred to as the "ESCROW AGREEMENT"). The Allin
Parties shall deposit the Initial Shares into Escrow
with the Escrowee by 5:00 p.m. Central Daylight Time
on June 3, 2005 or within 24 hours after the
execution of the Escrow Agreement. The Escrow
Agreement shall provide that the Escrowee shall
deliver the Initial Shares to the Company on July 20,
2006, or on any earlier date provided for in the
Escrow Agreement, provided that the Company has made
all payments due and owing under the terms of the
Share Notes. In the event the Follow-On-Financing
shall have occurred and, subsequent thereto, the
Company fails to fully satisfy any of its obligations
under the Share Notes, and such failure shall be
continuing for a period of 5 days after written
notice thereof is received by the Company from either
Allin and/or the Allin Trust, Allin and/or the Allin
Trust may either (1) demand that the Initial Shares
be immediately returned to Allin and the Allin Trust
in full satisfaction of any then remaining amounts
owed by the Company under the Share Notes, in which
instance the Company will lose all rights to purchase
the Initial Shares, or (2) commence litigation within
the applicable statute of limitations and/or repose
seeking payment of outstanding amounts and damages
from the Company for breach of this Agreement and the
Share Notes, in which case the Company shall retain
the Initial Shares, as applicable.
(C) ADDITIONAL PURCHASE OF COMMON SHARES. Subject to the
conditions as set forth herein in this Section 2(c),
the Company shall, from net proceeds raised in
connection with the Follow-On Financing, purchase one
million Allin's Shares and one million Allin Trust
Shares (collectively the "REMAINDER SHARES"), at a
price equal to the lesser of (a) $.50 per share or
(b) 90% of the issue price or conversion price, as
the case may be, of the security issued in the
Follow-On-Financing (the lesser of (a) or (b) shall
be hereinafter referred to as the "EXECUTION PRICE"),
provided however that in the event that the Execution
Price is less than $.50 per share, Allin and/or the
Allin Trust may, at their option, refuse to sell any
or all of the Remainder Shares to the Company. The
Company shall notify Allin and the Allin Trust, five
(5) days prior to the commencement of the Follow-On
Financing (the "EXECUTION PRICE NOTICE"), of the
applicable Execution Price. In the event that the
Execution Price is less than $.50 per
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share, Allin and/or the Allin Trust must advise the
Company, within two (2) days of receipt of the
Execution Price Notice, of the number of Remainder
Shares, if any, such party will sell to the Company
pursuant to the terms of this Section 2(c) (the "SALE
NOTICE"). The Company shall thereafter purchase the
Remainder Shares listed in the Sale Notice from net
proceeds raised in connection with the
Follow-On-Financing. The direction letter authorizing
the release of funds from escrow upon the first
closing of the Follow-On-Financing shall designate
Allin as a recipient of the applicable amounts due
under this Section 2(c), if any, from the proceeds
released in the first closing of the
Follow-On-Financing, and all amounts due under this
Section 2(c) shall be paid, in any event, within two
(2) days of the consummation of the
Follow-On-Financing.
3. LOCK-UP AGREEMENT. Each of Allin and the Allin Trust agrees
not to sell any shares of Common Stock prior to (i) the
consummation of the Follow-On-Financing and (ii) the shorter
of (a) the six-month period subsequent to the consummation of
the Follow-On-Financing, and (b) the date on which the next
registration statement filed by the Company becomes effective
with the Securities and Exchange Commission. The provisions of
Section 3(ii) shall be binding upon Allin and the Allin Trust
in the event that, notwithstanding anything to the contrary
herein, there shall have been a Follow-On Financing; PROVIDED,
however, in the event that Allin and/or the Allin Trust shall
have Remainder Shares designated for sale in the
Following-On-Financing and the Company shall fail to purchase
such shares as provided for in Section 2(c) hereof (or as
otherwise agreed by Allin and/or the Allin Trust as the case
may be), then, in addition to any other remedy to which the
Allin Parties may be entitled, this Lock-Up provision shall no
longer be applicable to any Allin Parties' Shares. The
Sherleigh Shares are not subject to the terms of this Section
3.
4. LATE PAYMENTS; TERMINATION.
(A) LATE PAYMENT. In the event that the
Follow-On-Financing is consummated and the Company
shall default on the payment of any amount due under
this Agreement (including amounts due under the
promissory notes issued in connection herewith),
including, without limitation, a default based on or
arising in connection with any statutory or
regulatory requirement, including, without
limitation, the requirements of Section 160 of the
Delaware General Corporation Law, if such default is
not cured within five (5) days of written notice from
the Allin Parties of such default, the Company will
be considered in breach of this Agreement and all
amounts due under this Agreement (including amounts
due under the promissory notes issued in connection
herewith) shall automatically be and become
immediately due and payable, without additional
notice or demand, and the Company will confess to a
judgment against the Company in a court of Allin's
choosing in Xxxx County, Illinois for all amounts due
and owing hereunder. The Company further agrees not
to assert such statutory or regulatory requirement as
a defense to any breach of this Agreement (including
the promissory notes issued in connection herewith).
(B) TERMINATION. Unless otherwise agreed to in writing by
the parties to this Agreement, in the event that the
Follow-On-Financing is not consummated on or before
August 15, 2005 (the "TERMINATION DATE"), this
Agreement and all
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promissory notes issued hereunder shall be null and
void, and no party hereto shall be able to rely on
any recitals, assertions or acknowledgements made
herein; provided, however, that:
(i) Sections 4(b), 10, 11(i) and 11(d) shall
survive such termination;
(ii) Allin shall have no obligation to return the
Execution Settlement Amount to the Company;
(iii) The Company shall immediately pay all
interest due under the Share Notes through
and including the Termination Date; and
(iv) Neither the retention of the Execution
Settlement Amount pursuant to Section
4(b)(ii), nor any other sums received by the
Allin Parties pursuant to Section 4(b)(iii),
shall be interpreted as liquidated damages
or as satisfying any portion of the amounts
due with respect to the Allin Notes Claims,
the Employment Claims, the Reimbursement
Claims and/or the Sherleigh Settlement
Claims.
5. RELEASES.
(A) RELEASES BY THE COMPANY. The Company, on behalf of
itself and its shareholders, directors, officers,
employees, representatives, successors and assigns
(the "COMPANY RELEASING PARTIES"), hereby
unconditionally releases the Allin Parties and their
respective shareholders, members, directors,
officers, employees, representatives, heirs,
executors, administrators, successors, assigns,
trustees, beneficiaries and attorneys, as applicable
(the "ALLIN RELEASEES"), from any and all claims,
demands, rights and causes of action of whatever kind
or nature ("CLAIMS"), whether known or unknown,
suspected or unsuspected, that the Company Releasing
Parties now own or hold, or have at any time
previously owned or held, or ever in the future may
own or hold against the Allin Releasees, or any of
them, resulting from, arising out of or in any manner
relating to any act or omission occurring on or prior
to the date of this Agreement.
(B) RELEASES BY THE ALLIN PARTIES. Each of the Allin
Parties, on behalf of himself, herself or itself and
his, her or its respective shareholders, members,
directors, officers, employees, representatives,
heirs, executors, administrators, successors,
assigns, trustees, beneficiaries and attorneys, as
applicable (the "ALLIN RELEASING PARTIES"), hereby
unconditionally releases the Company and its
shareholders, directors, officers, employees,
representatives, successors and assigns (the "COMPANY
RELEASEES") from any and all Claims, whether known or
unknown, suspected or unsuspected, including, without
limitation, the Allin Notes Claims, the Sherleigh
Settlement Claims, the Employment Claims and the
Reimbursement Claims, that the Allin Releasing
Parties now own or hold, or have at any time
previously owned or held, or ever in the future may
own or hold against the Company Releasees, or any of
them, resulting from, arising out of or in any manner
relating to any act or omission occurring on or prior
to the date of this Agreement.
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6. DISMISSAL OF ACTIONS OR COMPLAINTS. Each of the parties to
this Agreement will dismiss any action or complaint now or
hereafter brought by such party against any other party to
this Agreement arising out of, resulting from or in any manner
relating to any matter released herein.
7. NO ADMISSION OF LIABILITY. The parties acknowledge that this
Agreement is a compromise settlement of potential and existing
Claims, and that the execution of this Agreement will not be
deemed or construed to be an admission of any liability of any
party to this Agreement.
8. REPRESENTATIONS AND WARRANTIES.
(A) BY ALL PARTIES. Each of the parties represents and
warrants to the other parties that such party has
made no assignment of any Claim being released under
this Agreement.
(B) BY THE COMPANY. The Company represents and warrants
to the Allin Parties that (i) the Company is a
corporation duly organized, validly existing and in
good standing under the laws of the State of
Delaware, and has the requisite power and authority
to execute, deliver and perform its obligations under
this Agreement; (ii) the execution, delivery and
performance of this Agreement by the Company have
been duly authorized by all requisite corporate
action and will not (A) result in a violation of the
Company's Articles of Incorporation or Bylaws, (B)
result in a violation of any applicable law, rule or
regulation, or any material order, injunction,
judgment or decree of any court or other agency of
government, (C) conflict with, result in a breach of
or constitute a default under any agreement or other
obligation to which the Company is bound, or (D)
require any consent, approval, notification, waiver
or similar action from any third party; (iii) the
individuals executing this Agreement on its behalf
have the requisite power and authority to do so and
(iv) this Agreement has been duly and validly
executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the
Company, enforceable against the Company in
accordance with its terms, except to the extent
limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws of general
application related to the enforcement of creditors
rights generally, and general principles of equity.
(C) BY THE ALLIN PARTIES. Each of the Allin Parties,
jointly and severally, represents and warrants to the
Company that (i) such party has the requisite power
and authority to execute, deliver and perform its
obligations under this Agreement; (ii) such party
owns such party's Allin Parties' Shares free and
clear of all liens, security interests, pledges or
other similar interest or right ("LIENS") and upon
delivery to the Company of such party's Allin
Parties' Shares, accompanied by duly executed
instruments of transfer by such party to the Company,
title to all of such party's Allin Parties' Shares
shall pass to the Company, free and clear of all
Liens; (iii) the Allin Parties' Shares are not
subject to any purchase option, call, right of first
refusal, subscription or similar right under any
provision of any contract to which such party is a
party or by or to which such party or any of its
assets or properties may be bound or
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subject; (iv) the execution, delivery and performance
of this Agreement by such party (or the individuals
executing this Agreement on behalf of any Allin Party
that is an entity) has been duly authorized by all
requisite action and will not (A) if such Allin Party
is an entity, result in a violation of such entity's
charter documents, (B) result in a violation of any
applicable law, rule or regulation, or any material
order, injunction, judgment or decree of any court or
other agency of government, (C) conflict with, result
in a breach of or constitute a default under any
agreement or other obligation to which such Allin
Party is bound, or (D) require any consent, approval,
notification, waiver or similar action from any third
party; and (v) this Agreement has been duly and
executed and delivered by each Allin Party and
constitutes the legal, valid and binding obligation
of each Allin Party, enforceable against such Allin
Party in accordance with its terms, except to the
extent limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws or general
application related to the enforcement of creditors
rights generally, and general principles of equity.
Notwithstanding anything contained in this Section
8(c), all parties agree that the Sherleigh Shares are
committed to be tendered to Sherleigh Associates
Inc., Profit Sharing Plan pursuant to the terms of
the settlement of the Company's litigation with
Sherleigh Associates Inc., Profit Sharing Plan.
9. CONFIDENTIALITY. With the exceptions provided for below, the
parties hereto agree not to disseminate to any person or
entity, directly or indirectly, copies of, or information
pertaining to the terms of, this Agreement. Any party not in
breach of this provision shall be entitled to immediate
injunctive relief against the breaching party to enjoin any
disclosure in breach of the provisions of this Section 9.
Nothing contained herein shall prohibit the parties hereto
from disclosing information pertaining to this Agreement (a)
in the Company's filings with the Securities and Exchange
Commission as required by the Securities Exchange Act of 1934,
as amended, (b) in the confidential information memoranda to
be provided to investors in a bridge financing to be
consummated by the Company in May and June, 2005 and to
investors in the Follow-On-Financing, (c) to any governmental
entity when requested, (d) pursuant to a lawfully issued
subpoena, (e) to a court upon issuance of an appropriate
protective order in the event of litigation involving the
parties hereto, (f) to the Company's provider of any executive
and/or organization liability insurance policy (or similar
type of policy) and (g) to any professional advisor who agrees
to be bound by the terms and provisions of this Section 9. In
the event that any party hereto is adjudged to have breached
the provisions of this Section 9, such party will reimburse
the non-breaching parties for any and all reasonable
attorneys' fees and costs incurred in connection with
obtaining the relief provided for in this Section 9.
10. TOLLING OF CLAIMS. In the event that this Agreement is
terminated pursuant to Section 4(b), the period of time from
July 1, 2004 to and including the Termination Date shall not
be asserted, plead or relied upon by the Company (including
any of its agents, assignees, successors, trustees, officers,
agents, insurers or employees), in computing the running of
time under any applicable statute of limitations, statute of
repose, laches, or any other time limitation (whether
equitable, statutory, contractual or otherwise) in defense of
any claim, lawsuit, action, administrative proceeding,
arbitration or other proceeding relating to, or arising from,
the Allin Notes
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Claims, the Employment Claims, the Reimbursement Claims and
the Sherleigh Settlement Claims.
11. MISCELLANEOUS.
(A) CONSULTATION WITH COUNSEL. This Agreement has been
voluntarily and knowingly executed by each party
hereto, after having had an opportunity to consult
with legal counsel.
(B) SEVERABILITY. The provisions of this Agreement will
be deemed severable and the invalidity or
unenforceability of any provision hereof will not
affect the validity or enforceability of the other
provisions hereof; PROVIDED that if any provision of
this Agreement, as applied to any party or to any
circumstance, is adjudged by a court, governmental
body, arbitrator or mediator not to be enforceable in
accordance with its terms, the parties agree that the
court , governmental body, arbitrator or mediator
making such determination will have the power to
modify the provision in a manner consistent with its
objectives such that it is enforceable, and/or to
delete specific words or phrases, and in its reduced
form, such provision will then be enforceable and
will be enforced.
(C) TITLES AND SUBTITLES. The section headings contained
in this Agreement are inserted for convenience only,
and will not affect in any way the meaning or
interpretation of this Agreement.
(D) GOVERNING LAW. This Agreement and the performance of
the transactions and obligations of the parties
hereunder shall be governed by and construed solely
in accordance with the internal laws of the State of
Illinois with respect to contracts made and to be
fully performed therein, without regard to the
conflicts of laws principles thereof. By their
execution of this Agreement, the parties hereby
expressly and irrevocably (i) agree that any suit or
proceeding arising directly and/or indirectly
pursuant to or under this Agreement, shall be brought
solely in a federal or state court located in the
County of Xxxx, State of Illinois, (ii) submit to the
in PERSONAM jurisdiction of the federal and state
courts located in the County of Xxxx, State of
Illinois and agree that any process in any such
action may be served upon any of them personally, or
by certified mail or registered mail upon them or
their registered agent, return receipt requested,
with the same full force and effect as if personally
served upon them in the County of Xxxx, State of
Illinois, and (iii) waive any claim that any such
jurisdiction is not a convenient forum for any such
suit or proceeding and any defense or lack of IN
PERSONAM jurisdiction with respect thereto.
(E) ENTIRE AGREEMENT; NON-RELIANCE. This Agreement
constitutes the entire agreement and understanding of
the parties in respect of its subject matter and
supersedes all prior understandings, agreements or
representations by or among the parties, written or
oral, to the extent they relate in any way to the
subject matter hereof or the transactions
contemplated hereby. The parties agree that any
representations made that could be considered an
inducement to enter into this agreement
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are contained within it. The parties are not relying
on representations not contained herein.
(F) AMENDMENTS AND WAIVERS. This Agreement may not be
amended or modified, and no provision hereof may be
waived, without the written consent of the parties to
be bound thereby. The waiver by any party of a breach
of any provision of this Agreement will not operate
or be construed as a further or continuing waiver of
such breach or as a waiver of any other or subsequent
breach. No failure on the part of any party to
exercise, and no delay in exercising, any right,
power or remedy hereunder will operate as a waiver
thereof, nor will any single or partial exercise of
such right, power or remedy by such party preclude
any other or further exercise thereof or the exercise
of any other right, power or remedy. All remedies
hereunder are cumulative and are not exclusive of any
other remedies provided by law.
(G) COUNTERPARTS; FACSIMILE; PDF. This Agreement may be
executed in any number of counterparts, each of which
shall constitute an original, but all of which, taken
together, shall constitute one and the same
instrument. Facsimile or pdf format signatures shall
have the same binding effect as original signatures.
(H) SUCCESSORS AND ASSIGNS. This Agreement and the rights
and obligations of the parties hereunder will inure
to the benefit of, and be binding upon, their
respective representatives, heirs, executors,
administrators, successors and assigns. Neither the
Allin Parties nor the Company shall assign its rights
and/or obligations under this Agreement without the
prior written consent of all parties to this
Agreement.
(I) ATTORNEYS' FEES. If any action at law or in equity is
necessary to enforce or interpret the terms of this
Agreement or any other agreement or document to be
executed or delivered pursuant hereto, or in the
event that portions of this Agreement are terminated
pursuant to Section 4(b), and Allin subsequently
brings claims in connection with the Allin Notes
Claims, the Employment Claims, the Reimbursement
Claims and/or the Sherleigh Settlement Claims, the
prevailing party will be entitled to receive from the
non-prevailing party reasonable attorneys' fees,
costs and disbursements in addition to any other
relief to which the prevailing party may be entitled.
If a dispute arises and a mutual settlement is
reached, no party will be considered a prevailing
party.
(J) NOTICES. All notices required under this Agreement
shall be made by fax, messenger or next day air
service and sent to the identified individuals below:
TO THE COMPANY:
Xxxxx Xxxxxxx, Esq.
Xxxxx X. Xxxxxxx, P.C.
000 X. Xxxxx Xxxxxx - Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
000-000-0000 (fax)
TO ALLIN AND/OR THE ALLIN TRUST:
Xxxxxxx X. Xxxxx, Esq.
DLA Xxxxx Xxxxxxx Xxxx Xxxx LLP
000 X. XxXxxxx Xxxxxx - Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
000-000-0000 (fax)
[SIGNATURE PAGE FOLLOWS]
9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
PATRON SYSTEMS, INC.
By: /S/ XXXXXX XXXXX
-----------------------------------
Name: XXXXXX XXXXX
Title: CEO
XXXXXXX X. XXXXX
/S/ XXXXXXX X. XXXXX
-----------------------------------
THE ALLIN DYNASTIC TRUST
By: /S/ XXXXXXX XXXXX
-----------------------------------
Name: XXXXXXX XXXXX
Title: TRUSTEE
10
EXHIBIT A
FORM OF REMAINDER AMOUNT NOTE
PATRON SYSTEMS, INC.
PROMISSORY NOTE
$ August __, 2005
-----------------
FOR VALUE RECEIVED, PATRON SYSTEMS, INC., a Delaware corporation (the
"COMPANY") with its principal executive office at 000 Xxxxx Xxxxxxxx Xxxxxx,
Xxxxx 000, Xxxxxxx, Xxxxxxxx 00000, promises to pay to the order of
___________________ (the "HOLDER" or "PAYEE") or registered assigns the
principal amount of ____________________ ($________) (the "PRINCIPAL AMOUNT") on
August __, 2006 (the "MATURITY DATE"). The Principal Amount is payable in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts, without any
interest accruable or payable thereon.
This Note ("NOTE") is being issued to the Payee pursuant to the terms
and conditions of that certain Settlement Agreement and Mutual Release, dated as
of June 2, 2005, between the Company, the Holder and_______________________.
The Company (i) waives presentment, demand, protest or notice of any
kind in connection with this Note and (ii) agrees, in the event of an Event of
Default (as defined hereafter), to pay to the Payee, on demand, all costs and
expenses (including reasonable legal fees) incurred in connection with the
enforcement and collection of this Note.
1. INTEREST. Interest on this Note shall accrue on the Principal
Amount outstanding at a rate per annum of 8% and shall be
payable quarterly, during the term of this Note, on the last
day of August, November, February and May. All interest
accrued between the last quarterly interest payment date and
the Maturity Date shall be due and payable on the Maturity
Date.
2. PREPAYMENT. The Company may prepay the aggregate outstanding
principal amount of this Note, with all accrued interest
thereon, and such prepayment shall be without any premium or
penalty.
3. EVENTS OF DEFAULT.
(a) The term "EVENT OF DEFAULT" shall mean any of the
events set forth in this Section 3(a):
11
(i) NON-PAYMENT OF OBLIGATIONS. The Company
shall default in the payment of the
Principal Amount and/or any accrued interest
on this Note as and when the same shall
become due and payable, whether by
acceleration or otherwise;
(ii) BREACH. The Company shall breach any of its
material obligations under this Note,
including, without limitation, any breach
based on or arising in connection with any
statutory or regulatory requirement,
including, without limitation, the
requirements of Section 160 of the Delaware
General Corporation Law;
(iii) BANKRUPTCY, INSOLVENCY, ETC. The Company
shall:
(i) admit in writing its inability to
pay its debts as they become due;
(ii) apply for, consent to, or acquiesce
in, the appointment of a trustee,
receiver, sequestrator or other
custodian for the Company or any of
its property, or make a general
assignment for the benefit of
creditors;
(iii) in the absence of such application,
consent or acquiesce in, permit or
suffer to exist the appointment of
a trustee, receiver, sequestrator
or other custodian for the Company
or for any part of its property;
(iv) permit or suffer to exist the
commencement of any bankruptcy,
reorganization, debt arrangement or
other case or proceeding under any
bankruptcy or insolvency law, or
any dissolution, winding up or
liquidation proceeding, in respect
of the Company, and, if such case
or proceeding is not commenced by
the Company or converted to a
voluntary case, such case or
proceeding shall be consented to or
acquiesced in by the Company or
shall result in the entry of an
order for relief; or
(v) take any corporate or other action
authorizing, or in furtherance of,
any of the foregoing.
(iv) TERMINATION OF BUSINESS; DISSOLUTION. The
termination of the Company's business and/or
the dissolution of the Company.
(b) ACTION IF BANKRUPTCY; TERMINATION OF BUSINESS OR
DISSOLUTION. If any Event of Default described in
clauses (iii)(A) through (E) or (iv) of SECTION 3(A)
shall occur, the outstanding Principal Amount and all
other obligations under this Note shall automatically
be and become immediately due and payable, without
notice or demand.
(c) ACTION IF OTHER EVENT OF DEFAULT. If any Event of
Default (other than any Event of Default described in
clause (b) immediately preceding) shall occur for any
reason, whether voluntary or involuntary, and be
continuing for a period of five (5) days after
written notice is received by the Company from the
Payee, all amounts due under this Note shall
automatically be and become immediately due and
payable, without additional notice or demand, and the
Company will confess to a judgment against the
Company in a court of Payee's choosing in Xxxx
County, Illinois for all amounts due and owing
hereunder. If any Event of Default described in
clause (ii) of SECTION 3(A) shall
12
occur, based on or arising in connection with any
statutory or regulatory requirement, the Company
agrees not to assert such statutory or regulatory
requirement as a defense to such breach.
4. AMENDMENTS AND WAIVERS.
(a) Unless otherwise provided herein, the provisions of
this Note may from time to time be amended, modified
or waived, if such amendment, modification or waiver
is in writing and consented to in writing by the
Company and the Payee.
(b) No failure or delay on the part of the Payee in
exercising any power or right under this Note shall
operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude
any other or further exercise thereof or the exercise
of any other power or right. No notice to or demand
on the Company in any case shall entitle it to any
notice or demand in similar or other circumstances.
No waiver or approval by the Payee shall, except as
may be otherwise stated in such waiver or approval,
be applicable to subsequent transactions. No waiver
or approval hereunder shall require any similar or
dissimilar waiver or approval thereafter to be
granted hereunder.
(c) To the extent that the Company makes a payment or
payments to the Payee, and such payment or payments
or any part thereof are subsequently for any reason
invalidated, set aside and/or required to be repaid
to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such recovery,
the obligation or part thereof originally intended to
be satisfied, and all rights and remedies therefor,
shall be revived and continued in full force and
effect as if such payment had not been made or such
enforcement or setoff had not occurred.
(d) After any waiver, amendment or supplement under this
SECTION 4 becomes effective, the Company shall mail
to the Holder a copy thereof.
5. MISCELLANEOUS.
(a) PARTIES IN INTEREST. All covenants, agreements and
undertakings in this Note binding upon the Company or
the Payee shall bind and inure to the benefit of the
successors of the Company and the Payee,
respectively, whether so expressed or not. Neither
the Payee nor the Company shall assign its rights
and/or obligations under this Note without the prior
written consent of the other party hereto.
(b) GOVERNING LAW, ETC. This Note shall be governed by
and construed solely in accordance with the internal
laws of the State of Illinois with respect to
contracts made and to be fully performed therein,
without regard to the conflicts of laws principles
thereof. By the Company's execution hereof and the
Holder acceptance of this Note, the parties hereby
expressly and irrevocably (i) agree that any suit or
proceeding arising directly and/or indirectly
pursuant to or under this Note, shall be brought
solely in a federal or state court located in the
County of Xxxx, State of Illinois, (ii) submit to the
IN PERSONAM jurisdiction of the federal and state
courts located in the County of Xxxx,
13
State of Illinois and agree that any process in any
such action may be served upon any of them
personally, or by certified mail or registered mail
upon them or their registered agent, return receipt
requested, with the same full force and effect as if
personally served upon them in the County of Xxxx,
State of Illinois, and (iii) waive any claim that any
such jurisdiction is not a convenient forum for any
such suit or proceeding and any defense or lack of IN
PERSONAM jurisdiction with respect thereto. In the
event of any such action or proceeding, the party
prevailing therein shall be entitled to payment from
the other party hereto of its reasonable attorneys'
fees, costs and disbursements.
(c) WAIVER OF JURY TRIAL. THE PAYEE AND THE COMPANY
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING
OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTE OR
ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED AND
DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN), OR ACTIONS OF THE PAYEE OR THE
COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE PAYEE'S PURCHASING THIS NOTE.
(d) NOTICES. All notices required under this Agreement
shall be made by fax, messenger or next day air
service and sent to the identified individuals below:
TO THE COMPANY:
Xxxxx Xxxxxxx, Esq.
Xxxxx X. Xxxxxxx, P.C.
000 X. Xxxxx Xxxxxx - Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
000-000-0000 (fax)
TO THE HOLDER:
Xxxxxxx X. Xxxxx, Esq.
DLA Xxxxx Xxxxxxx Xxxx Xxxx LLP
000 X. XxXxxxx Xxxxxx - Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
000-000-0000 (fax)
[SIGNATURE PAGE FOLLOWS]
14
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date specified above by the duly authorized representative of the Company.
PATRON SYSTEMS, INC.
By: __________________________________
Name:
Title:
15
EXHIBIT B
FORM OF SHARE NOTES
PATRON SYSTEMS, INC.
PROMISSORY NOTE
$ June __, 2005
-----------------
FOR VALUE RECEIVED, PATRON SYSTEMS, INC., a Delaware corporation (the
"COMPANY") with its principal executive office at 000 Xxxxx Xxxxxxxx Xxxxxx,
Xxxxx 000, Xxxxxxx, Xxxxxxxx 00000, promises to pay to the order of
___________________ (the "HOLDER" or "PAYEE") or registered assigns the
principal amount of Eight Hundred Thousand Dollars ($800,000) (the "PRINCIPAL
AMOUNT") on June 30, 2006 (the "MATURITY DATE"). The Principal Amount is payable
in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private debts,
without any interest accruable or payable thereon.
This Note ("NOTE") is being issued to the Payee pursuant to the terms
and conditions of that certain Settlement Agreement and Mutual Release
("SETTLEMENT AGREEMENT"), dated as of June 2, 2005, between the Company, the
Holder and ___________________.
The Company (i) waives presentment, demand, protest or notice of any
kind in connection with this Note and (ii) agrees, in the event of an Event of
Default (as defined hereafter), to pay to the Payee, on demand, all costs and
expenses (including reasonable legal fees) incurred in connection with the
enforcement and collection of this Note.
1. INTEREST. Interest on this Note shall accrue on the Principal
Amount outstanding at a rate per annum of 8% and shall be
payable quarterly, during the term of this Note, on the last
day of August, November, February and May. All interest
accrued between the last quarterly interest payment date and
the Maturity Date shall be due and payable on the Maturity
Date.
2. PREPAYMENT. The Company may prepay the aggregate outstanding
principal amount of this Note, with all accrued interest
thereon, and such prepayment shall be without any premium or
penalty.
3. EVENTS OF DEFAULT.
(a) The term "EVENT OF DEFAULT" shall mean any of the
events set forth in this Section 3(a):
16
(i) NON-PAYMENT OF OBLIGATIONS. The Company
shall default in the payment of the
Principal Amount and/or any accrued interest
on this Note as and when the same shall
become due and payable, whether by
acceleration or otherwise;
(ii) BREACH. The Company shall breach any of its
material obligations under this Note,
including, without limitation, any breach
based on or arising in connection with any
statutory or regulatory requirement,
including, without limitation, the
requirements of Section 160 of the Delaware
General Corporation Law;
(iii) BANKRUPTCY, INSOLVENCY, ETC. The Company
shall:
(vi) admit in writing its inability to
pay its debts as they become due;
(vii) apply for, consent to, or acquiesce
in, the appointment of a trustee,
receiver, sequestrator or other
custodian for the Company or any of
its property, or make a general
assignment for the benefit of
creditors;
(viii) in the absence of such application,
consent or acquiesce in, permit or
suffer to exist the appointment of
a trustee, receiver, sequestrator
or other custodian for the Company
or for any part of its property;
(ix) permit or suffer to exist the
commencement of any bankruptcy,
reorganization, debt arrangement or
other case or proceeding under any
bankruptcy or insolvency law, or
any dissolution, winding up or
liquidation proceeding, in respect
of the Company, and, if such case
or proceeding is not commenced by
the Company or converted to a
voluntary case, such case or
proceeding shall be consented to or
acquiesced in by the Company or
shall result in the entry of an
order for relief; or
(x) take any corporate or other action
authorizing, or in furtherance of,
any of the foregoing.
(iv) TERMINATION OF BUSINESS; DISSOLUTION. The
termination of the Company's business and/or
the dissolution of the Company.
(b) ACTION IF BANKRUPTCY; TERMINATION OF BUSINESS OR
DISSOLUTION. If any Event of Default described in
clauses (iii)(A) through (E) or (iv) of SECTION 3(A)
shall occur, the outstanding Principal Amount and all
other obligations under this Note shall automatically
be and become immediately due and payable, without
notice or demand.
(c) ACTION IF OTHER EVENT OF DEFAULT. If any Event of
Default (other than any Event of Default described in
clause (b) immediately preceding) shall occur for any
reason, whether voluntary or involuntary, and be
continuing for a period of five (5) days after
written notice thereof is received by the Company
from the Payee, all amounts due under this Note shall
automatically be and become immediately due and
payable, without additional notice or demand, and the
Company will confess to a judgment against the
Company in a court of Payee's choosing in Xxxx
County, Illinois for all amounts due and owing
hereunder. If any Event of Default described in
clause (ii) of SECTION 3(A) shall
17
occur, based on or arising in connection with any
statutory or regulatory requirement, the Company
agrees not to assert such statutory or regulatory
requirement as a defense to such breach.
(d) DEMAND TO RETURN SHARES. If any Event of Default
(other than any Event of Default described in clause
(b) immediately preceding) shall occur for any
reason, whether voluntary or involuntary, and be
continuing for a period of five (5) days after
written notice thereof is received by the Company
from the Payee, the Payee may, in lieu of exercising
its rights under Section 3(c) hereof, demand that the
1,000,000 Allin Shares purchased by this Note, as
further described in Section 2(b) of the Settlement
Agreement, be immediately returned to the Payee in
full satisfaction of any then remaining amounts owed
by the Company under this Note. For purposes of
clarity, to the extent that the Payee elects to
exercise the Payee's rights under this Section 3(d),
the Payee shall not be entitled to exercise any
rights under Section 3(c) hereof, and this Note shall
be deemed satisfied and terminated.
4. AMENDMENTS AND WAIVERS.
(a) Unless otherwise provided herein, the provisions of
this Note may from time to time be amended, modified
or waived, if such amendment, modification or waiver
is in writing and consented to in writing by the
Company and the Payee.
(b) No failure or delay on the part of the Payee in
exercising any power or right under this Note shall
operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude
any other or further exercise thereof or the exercise
of any other power or right. No notice to or demand
on the Company in any case shall entitle it to any
notice or demand in similar or other circumstances.
No waiver or approval by the Payee shall, except as
may be otherwise stated in such waiver or approval,
be applicable to subsequent transactions. No waiver
or approval hereunder shall require any similar or
dissimilar waiver or approval thereafter to be
granted hereunder.
(c) To the extent that the Company makes a payment or
payments to the Payee, and such payment or payments
or any part thereof are subsequently for any reason
invalidated, set aside and/or required to be repaid
to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such recovery,
the obligation or part thereof originally intended to
be satisfied, and all rights and remedies therefor,
shall be revived and continued in full force and
effect as if such payment had not been made or such
enforcement or setoff had not occurred.
(d) After any waiver, amendment or supplement
under this SECTION 4 becomes effective, the
Company shall mail to the Holder a copy
thereof.
5. MISCELLANEOUS.
(a) PARTIES IN INTEREST. All covenants, agreements and
undertakings in this Note binding upon the Company or
the Payee shall bind and inure to the benefit of the
18
successors of the Company and the Payee,
respectively, whether so expressed or not. Neither
the Payee nor the Company shall assign its rights
and/or obligations under this Note without the prior
written consent of the other party hereto.
(b) GOVERNING LAW, ETC. This Note shall be governed by
and construed solely in accordance with the internal
laws of the State of Illinois with respect to
contracts made and to be fully performed therein,
without regard to the conflicts of laws principles
thereof. By the Company's execution hereof and the
Holder acceptance of this Note, the parties hereby
expressly and irrevocably (i) agree that any suit or
proceeding arising directly and/or indirectly
pursuant to or under this Note, shall be brought
solely in a federal or state court located in the
County of Xxxx, State of Illinois, (ii) submit to the
IN PERSONAM jurisdiction of the federal and state
courts located in the County of Xxxx, State of
Illinois and agree that any process in any such
action may be served upon any of them personally, or
by certified mail or registered mail upon them or
their registered agent, return receipt requested,
with the same full force and effect as if personally
served upon them in the County of Xxxx, State of
Illinois, and (iii) waive any claim that any such
jurisdiction is not a convenient forum for any such
suit or proceeding and any defense or lack of IN
PERSONAM jurisdiction with respect thereto. In the
event of any such action or proceeding, the party
prevailing therein shall be entitled to payment from
the other party hereto of its reasonable attorneys'
fees, costs and disbursements.
(c) WAIVER OF JURY TRIAL. THE PAYEE AND THE COMPANY
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING
OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTE OR
ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED AND
DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN), OR ACTIONS OF THE PAYEE OR THE
COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE PAYEE'S PURCHASING THIS NOTE.
(d) NOTICES. All notices required under this Agreement
shall be made by fax, messenger or next day air
service and sent to the identified individuals below:
TO THE COMPANY:
Xxxxx Xxxxxxx, Esq.
Xxxxx X. Xxxxxxx, P.C.
000 X. Xxxxx Xxxxxx - Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
000-000-0000 (fax)
TO THE HOLDER:
Xxxxxxx X. Xxxxx, Esq.
DLA Xxxxx Xxxxxxx Xxxx Xxxx LLP
000 X. XxXxxxx Xxxxxx - Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
000-000-0000 (fax)
[SIGNATURE PAGE FOLLOWS]
19
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date specified above by the duly authorized representative of the Company.
PATRON SYSTEMS, INC.
By: __________________________________
Name:
Title:
20
EXHIBIT C
FORM OF ESCROW AGREEMENT
ESCROW AGREEMENT
ESCROW NO. ___________
THIS ESCROW AGREEMENT ("ESCROW AGREEMENT") is entered into this ____
day of June, 2005, by and among Patron Systems, Inc. (the "COMPANY"),
____________________ ("____________") and ______________, a _______ corporation
("ESCROWEE").
R E C I T A L S:
A. The Company and ________ are parties to a certain Settlement Agreement
and Mutual Release dated June 2, 2005, (the "SETTLEMENT AGREEMENT"),
pursuant to which _______ agreed to sell, and the Company agreed to
buy, 1,000,000 shares of ________ personal holdings in the Company's
common stock (the "ALLIN SHARES").
B. The Settlement Agreement provides, among other things, that in
consideration for the Allin Shares, the Company will issue to ______ a
promissory note in the principal amount of Eight Hundred Thousand
Dollars ($800,000) with a maturity date of June 30, 2006 and bearing
interest at a rate of 8% per annum (the "SHARE Note"). During the term
of the Share Note, interest payments must be paid quarterly by the
Company on the last day of the month in August, November, February and
May. The Settlement Agreement further provides that by June 3, 2005, or
within 24 hours after the execution of this Escrow Agreement, ______
will tender to the Escrowee the Allin Shares to be held by the Escrowee
(the "ESCROW"). The Allin Shares will be held in Escrow until July 18,
2006, or until such earlier date as provided for in this Escrow
Agreement, after which the Allin Shares are to be tendered to the
Company, provided that the Company has made all payments due and owing
under the terms of the Share Note.
C. The parties desire to hereby establish the Escrow, upon the terms and
conditions set forth in the Settlement Agreement and herein.
NOW, THEREFORE, in consideration of Ten and 00/100 Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
AGREEMENT
1. ESCROW. On or before June 3, 2005, or within 24 hours after the
execution of this Escrow Agreement, ______ agrees to deposit in the
Escrow the Allin Shares. The Escrowee shall administer the Escrow
pursuant to the terms set forth herein.
21
2. COMPLIANCE WITH SHARE NOTE.
(a) The amounts and due dates of all payments under the Share Note
are set forth on Exhibit A hereto (hereinafter referred to as
the "SCHEDULE OF PAYMENTS"). Within 3 business days of the
dates set forth in the Schedule of Payments, the Company shall
provide the Escrowee (with a copy also provided to ______)
documentation to support the Company's payment of the amounts
due, which shall include, at a minimum, either a copy of the
check delivered to ______ or confirmation of the transmission
of a wire transfer of funds (such documentation shall
hereinafter be referred to as a "PAYMENT NOTICE"). The final
payment of amounts due under the Schedule of Payments (the
"FINAL PAYMENT") shall be made by wire transfer of funds. The
Escrowee shall check each Payment Notice against the Schedule
of Payments as set forth in Exhibit A. If (i) no Payment
Notice was received within 3 business days of the respective
due dates as set forth in the Schedule of Payments or (ii) a
Payment Notice does not match the amount due as set forth in
the Schedule of Payments, the Escrowee shall provide written
notice to ______ and the Company within 5 business days of the
dates set forth in the Schedule of Payments that (a) the
Escrowee did not receive a Payment Notice when due or (b) the
Payment Notice does not match the amount due as set forth in
the Schedule of Payments (such written notice shall
hereinafter be referred to as a "DISCREPANCY NOTICE"). Receipt
of a Discrepancy Notice by the Company shall serve as notice
by ______ of a breach as set forth in Section 3(c) of the
Share Note and Section 2(b) of the Settlement Agreement.
(b) Within 7 business days of receipt of a Discrepancy Notice,
______ shall notify the Escrowee, with a copy to the Company,
that either (i) the Escrow Agreement shall remain in full
force and effect and the Company shall be deemed to have
complied with its obligations under the Share Note as of the
date of the Discrepancy Notice (a "COMPLIANCE NOTICE"), (ii)
______ has elected to demand the return of the Allin Shares to
______ in full satisfaction of any then remaining amounts owed
by the Company to ______ under the Share Note (a "DEMAND
NOTICE"), or (iii) ______ has elected to commence litigation
seeking amounts owed under the Share Note and damages based on
the Company's breach of the Share Note (a "LITIGATION
NOTICE"). If the Escrowee has not received a Compliance
Notice, Demand Notice or Litigation Notice within 7 business
days of ______'s receipt of a Discrepancy Notice, ______ shall
be deemed to have transmitted a Compliance Notice.
(c) ______ shall transmit a Compliance Notice to the Escrowee
within 7 business days of receipt of a Discrepancy Notice in
the event that (i) such discrepancy has been resolved to the
mutual satisfaction of ______ and the Company, or (ii) the
Company has prepaid the Share Note or any portion thereof. If
the Company prepays any portion of the Share Note, the Company
and ______ shall revise the Schedule of Payments to reflect
the remaining interest and principal payments under the Share
Note.
22
(d) In the event that the Escrowee receives a Demand Notice, the
Escrowee shall immediately tender the Allin Shares to ______
and close the Escrow.
(e) In the event that the Escrowee receives a Litigation Notice,
the Escrowee shall immediately tender the Allin Shares to the
Company and close the Escrow.
(f) If, on or before 5:00 p.m., Central Daylight Time, on July 11,
2006, the Escrowee has NOT received any Demand Notice or
Litigation Notice AND the Escrowee has not transmitted a
Discrepancy Notice with respect to the Final Payment, the
Escrowee shall immediately tender the Allin Shares to the
Company and close the Escrow.
(g) If the Escrowee has transmitted a Discrepancy Notice with
respect to the Final Payment, and the Escrowee has not
received any Demand Notice or Litigation Notice on or before
5:00 p.m. Central Daylight Time, on July 20, 2006, the
Escrowee shall immediately tender the Allin Shares to the
Company and close the Escrow.
(h) The Escrowee shall tender the Allin Shares to the Company and
close the Escrow at such time that (i) the Company prepays all
outstanding interest and principal on the Share Note, (ii) the
Company provides the Escrowee with a Payment Notice regarding
such prepayment, and (iii) the Escrowee receives a Compliance
Notice or a Compliance Notice is deemed to have been
transmitted with respect to such prepayment.
3. COSTS AND FEES. The Company agrees to pay for all costs associated with
the Escrow except as otherwise provided herein. In the event that the
Company fails to pay any costs associated with the Escrow within 15
days of the date such amounts are due, the Allin Shares shall be
immediately returned to ______ and the Escrow shall be closed. The
Escrowee shall receive a $______ retainer from the Company upon
execution of this Escrow Agreement by all parties. The Company's
failure to pay amounts due to the Escrowee under this Escrow Agreement
shall not be deemed a material breach of the Settlement Agreement
and/or the Share Note, and all other obligations of ______ and the
Company pursuant to the Settlement Agreement and the Share Note will
remain in place.
4. TERMINATION. In the event that the Settlement Agreement is terminated
pursuant to the terms of Section 4(b) of the Settlement Agreement,
______ and the Company shall each provide written notice of such
termination to the Escrowee within 2 business days of such termination,
and this Escrow Agreement, upon receipt of such termination notice,
shall terminate and the Escrowee shall immediately tender the Allin
Shares to ______.
5. JOINT DIRECTION. ______, the Company and Escrowee hereby acknowledge
and agree that, except as otherwise expressly provided in this Escrow
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Agreement, Escrowee shall not disburse, remit or pay all or any portion
of the holdings in the Escrow to any party, except upon the joint
direction of both ______ and the Company.
6. MISCELLANEOUS.
(A) CONSULTATION WITH COUNSEL. This Escrow Agreement has been
voluntarily and knowingly executed by each party hereto, after
having had an opportunity to consult with legal counsel.
(B) ENTIRE AGREEMENT. This Escrow Agreement, together with the
Settlement Agreement and the Share Note, contains the entire
agreement and understanding of the parties in respect of the
subject matter hereof, and the same may not be amended or
modified except by an instrument in writing signed by the
party to be bound thereby.
(C) COUNTERPARTS; FACSIMILE; PDF. This Escrow Agreement may be
executed in any number of counterparts, each of which shall
constitute an original, but all of which, taken together,
shall constitute one and the same instrument. Facsimile or pdf
format signatures shall have the same binding effect as
original signatures.
(D) CONFLICT. To the extent of any conflict or inconsistency
between the terms of this Escrow Agreement and the terms set
forth in the Settlement Agreement and/or the Share Note, then,
as between ______ and the Company, the terms of the Settlement
Agreement and/or the Share Note shall govern and control;
however, Escrowee shall be governed solely by the terms of
this Escrow Agreement.
(E) SEVERABILITY. The provisions of this Escrow Agreement will be
deemed severable and the invalidity or unenforceability of any
provision hereof will not affect the validity or
enforceability of the other provisions hereof; PROVIDED that
if any provision of this Escrow Agreement, as applied to any
party or to any circumstance, is adjudged by a court,
governmental body, arbitrator or mediator not to be
enforceable in accordance with its terms, the parties agree
that the court, governmental body, arbitrator or mediator
making such determination will have the power to modify the
provision in a manner consistent with its objectives such that
it is enforceable, and/or to delete specific words or phrases,
and in its reduced form, such provision will then be
enforceable and will be enforced.
(F) ATTORNEYS' FEES. In the event that any party initiates a
lawsuit in connection with this Escrow Agreement, the
non-prevailing party shall pay all reasonable attorneys fees,
disbursements and costs of the prevailing party. Provided that
the Escrowee is not held liable in any lawsuit brought by any
party in connection with this Escrow Agreement, the
non-prevailing party shall also pay any reasonable fees (legal
or otherwise) incurred by the Escrowee as a result of the
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lawsuit. If a dispute arises and a mutual settlement is
reached, no party will be considered a prevailing party.
(G) TITLES AND SUBTITLES. The section headings contained in this
Escrow Agreement are inserted for convenience only, and will
not affect in any way the meaning or interpretation of this
Escrow Agreement.
(H) GOVERNING LAW. This Escrow Agreement and the performance of
the transactions and obligations of the parties hereunder
shall be governed by and construed solely in accordance with
the internal laws of the State of Illinois with respect to
contracts made and to be fully performed therein, without
regard to the conflicts of laws principles thereof. By their
execution of this Agreement, the parties hereby expressly and
irrevocably (i) agree that any suit or proceeding arising
directly and/or indirectly pursuant to or under this
Agreement, shall be brought solely in a federal or state court
located in the County of Xxxx, State of Illinois, (ii) submit
to the IN PERSONAM jurisdiction of the federal and state
courts located in the County of Xxxx, State of Illinois and
agree that any process in any such action may be served upon
any of them personally, or by certified mail or registered
mail upon them or their registered agent, return receipt
requested, with the same full force and effect as if
personally served upon them in the County of Xxxx, State of
Illinois, and (iii) waive any claim that any such jurisdiction
is not a convenient forum for any such suit or proceeding and
any defense or lack of IN PERSONAM jurisdiction with respect
thereto.
(I) AMENDMENTS AND WAIVERS. This Escrow Agreement may not be
amended or modified, and no provision hereof may be waived,
without the written consent of the parties to be bound
thereby. The waiver by any party of a breach of any provision
of this Escrow Agreement will not operate or be construed as a
further or continuing waiver of such breach or as a waiver of
any other or subsequent breach. No failure on the part of any
party to exercise, and no delay in exercising, any right,
power or remedy hereunder will operate as a waiver thereof,
nor will any single or partial exercise of such right, power
or remedy by such party preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
All remedies hereunder are cumulative and are not exclusive of
any other remedies provided by law.
(J) SUCCESSORS AND ASSIGNS. Neither the Company nor ______ may
assign any of such party's obligations in this Escrow
Agreement without the express written consent of the other
party. As to the Escrowee only, this Agreement and the rights
and obligations of the parties hereunder will inure to the
benefit of, and be binding upon any assignees. The Escrow
Agreement will otherwise inure to the benefit of, and be
binding upon, the parties' respective representatives, heirs,
executors, administrators and successors.
(j) NOTICES. Any notice, request, demand or instruction to be
given or served hereunder shall be in writing and shall be
delivered personally, or transmitted by facsimile (provided
that the original thereof together with the
26
facsimile confirmation sheet shall thereafter be promptly sent
by a nationally recognized overnight express courier), or sent
by a nationally recognized overnight express courier, and
shall be addressed to the parties at their respective
addresses set forth below, and the same shall be effective
upon receipt if delivered personally, or one (1) business day
after deposit with a nationally recognized overnight express
courier, or immediately upon being sent by facsimile
transmission in accordance with the procedures described
above. A party may change its address for receipt of notices
by service of a notice of such change in accordance herewith.
TO THE COMPANY
Xxxxx Xxxxxxx, Esq.
Xxxxx X. Xxxxxxx, P.C.
000 X. Xxxxx Xxxxxx - Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
000-000-0000 (fax)
TO ______
Xxxxxxx X. Xxxxx, Esq.
DLA Xxxxx Xxxxxxx Xxxx Xxxx LLP
000 X. XxXxxxx Xxxxxx - Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
000-000-0000 (fax)
TO THE ESCROWEE
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
PATRON SYSTEMS, INC.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
ESCROWEE
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
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