Exhibit 2.2
EXECUTION COPY
SUPPLEMENTAL AGREEMENT
DATED AS OF NOVEMBER 23, 2002
by and among
PATRON SYSTEMS, INC.,
TWC ACQUISITION, INC.,
TRUSTWAVE CORP.
and
CERTAIN SHAREHOLDERS OF TRUSTWAVE CORP.
TABLE OF CONTENTS
Page
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ARTICLE I
THE MERGER
Section 1.1 The Merger.......................................... 1
Section 1.2 Filing of Articles of Merger........................ 2
Section 1.3 Closing............................................. 2
Section 1.4 Merger Consideration................................ 2
Section 1.5 Company Stock Options............................... 3
Section 1.6 Dissenting Shares................................... 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT
Section 2.1 Organization of Parent.............................. 4
Section 2.2 Subsidiaries and Investments of Parent.............. 4
Section 2.3 Parent Operations................................... 4
Section 2.4 Capital Stock of Parent............................. 4
Section 2.5 Mergerco............................................ 5
Section 2.6 Authorization....................................... 5
Section 2.7 Non-Contravention................................... 6
Section 2.8 Valid Shares........................................ 6
Section 2.9 No Violation, Litigation or Regulatory Action....... 6
Section 2.10 Parent Employees................................... 7
Section 2.11 Agreements; Action................................. 7
Section 2.12 Tax Returns and Payments........................... 7
Section 2.13 Intellectual Property.............................. 7
Section 2.14 Anti-Dilution and Other Shares..................... 7
Section 2.15 Real Property...................................... 7
Section 2.16 Share Exchange..................................... 8
Section 2.17 No Finder.......................................... 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization........................................ 8
Section 3.2 Subsidiaries and Investments........................ 8
Section 3.3 Capital Stock of the Company........................ 8
Section 3.4 Authorization....................................... 9
Section 3.5 Non-Contravention................................... 9
Section 3.6 Financial Statements................................ 10
Section 3.7 Operations Since Balance Sheet Date................. 10
Section 3.8 No Undisclosed Liabilities.......................... 12
Section 3.9 Taxes............................................... 12
Section 3.10 Availability of Assets and Legality of Use......... 13
Section 3.11 Governmental Permits............................... 13
Section 3.12 Real Property...................................... 14
Section 3.13 Real Property Leases............................... 14
Section 3.14 Condemnation....................................... 14
Section 3.15 Personal Property.................................. 14
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Section 3.16 Personal Property Leases.......................................... 14
Section 3.17 Intellectual Property............................................. 14
Section 3.18 Accounts Receivable............................................... 15
Section 3.19 Title to Assets................................................... 15
Section 3.20 Employees......................................................... 16
Section 3.21 Employee Matters.................................................. 16
Section 3.22 Employee Benefit Plans............................................ 16
Section 3.23 Contracts......................................................... 17
Section 3.24 Status of Contracts............................................... 18
Section 3.25 No Violation, Litigation or Regulatory Action..................... 19
Section 3.26 Insurance......................................................... 19
Section 3.27 Environmental Protection.......................................... 19
Section 3.28 Customers and Suppliers........................................... 20
Section 3.29 Shareholders' Assets.............................................. 20
Section 3.30 No Finder......................................................... 20
Section 3.31 Transactions with Affiliates...................................... 20
Section 3.32 Budget and Financial Projections.................................. 21
Section 3.33 Bank Accounts; Powers of Attorney; Minute Books................... 21
Section 3.34 Shareholder Meeting Notice........................................ 21
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SIGNIFICANT SHAREHOLDERS
Section 4.1 Authority.......................................................... 21
Section 4.2 Non-Contravention; Required Consents............................... 22
Section 4.3 Compliance with Law................................................ 22
Section 4.4 Legal Counsel...................................................... 22
ARTICLE V
ADDITIONAL AGREEMENTS OF THE PARTIES
Section 5.1 Ordinary Course.................................................... 22
Section 5.2 Access Prior to Closing; Certain Notices........................... 23
Section 5.3 Regulatory and Other Authorizations................................ 23
Section 5.4 Further Assurances................................................. 23
Section 5.5 Financial Statements............................................... 23
Section 5.6 Delivery of Documents.............................................. 24
Section 5.7 Employees and Continued Operations................................. 24
Section 5.8 Use of Trade Names................................................. 24
Section 5.9 Transfer of Company Common Stock; Agreement to Vote for Merger..... 24
Section 5.10 Preserve Accuracy of Representations and Warranties............... 25
Section 5.11 Notification by the Parties of Certain Matters.................... 25
Section 5.12 Necessary Actions................................................. 25
Section 5.13 No Assurance of IPO............................................... 25
Section 5.14 Reorganization.................................................... 26
Section 5.15 Taxes............................................................. 26
Section 5.16 Promissory Note................................................... 27
Section 5.17 Indebtedness...................................................... 27
Section 5.18 Update of the Parent Disclosure Schedules......................... 27
Section 5.19 Patron Holdings Merger............................................ 27
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Section 5.20 Governance Matters...................................................... 27
Section 5.21 Employee Bonuses........................................................ 27
Section 5.22 Section 341 Election.................................................... 27
ARTICLE VI
CONDITIONS TO CLOSING
Section 6.1 The Company's and the Significant Shareholders' Conditions to Close...... 28
Section 6.2 Parent's Conditions to Close............................................. 29
ARTICLE VII
THE CLOSING
Section 7.1 Deliveries by the Company and the Significant Shareholders............... 31
Section 7.2 Parent's Deliveries...................................................... 32
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnification by Significant Shareholders.............................. 32
Section 8.2 Indemnification by Parent................................................ 34
Section 8.3 Notice of Claims......................................................... 34
Section 8.4 Third Party Claims....................................................... 35
ARTICLE IX
TERMINATION
Section 9.1 Termination.............................................................. 36
Section 9.2 Effect of Termination.................................................... 37
ARTICLE X
MISCELLANEOUS
Section 10.1 Expenses................................................................ 37
Section 10.2 Notices................................................................. 37
Section 10.3 Assignment.............................................................. 38
Section 10.4 Interpretation; Schedules............................................... 38
Section 10.5 Counterparts............................................................ 39
Section 10.6 Amendment............................................................... 39
Section 10.7 Entire Agreement........................................................ 39
Section 10.8 Binding Effect.......................................................... 39
Section 10.9 Survival................................................................ 39
Section 10.10 Severability........................................................... 39
Section 10.11 Third Parties.......................................................... 39
Section 10.12 Waivers................................................................ 40
Section 10.13 Restrictive Legend..................................................... 40
Section 10.14 Governing Law; Arbitration............................................. 40
Section 10.15 Definitions............................................................ 41
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ANNEX
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A Merger Consideration and Contingent Consideration Calculation
Illustration
B Share Exchange Agreement
EXHIBITS
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A Form of Agreement and Plan of Merger
B Trust Agreement
C FDC Contract
D Working Capital Advances Agreement
E Form of Registration Rights Agreement
F Form of Xxxxxxxxx Employment Agreement
G Form of Schetina Employment Agreement
H Form of Xxxxxxx Employment Agreement
I Form of Xxxxx Employment Agreement
J Parent Business Plan
K Form of Allin Stock Escrow Agreement
L Form of Xxxxxxx Stock Escrow Agreement
M Form of Linting Stock Escrow Agreement
N Form of Xxxxxxxxx Stock Escrow Agreement
O Form of Schetina Stock Escrow Agreement
P Parent Employment Agreements
Q Form of Parent Counsel Opinion
SCHEDULES
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2.1 Organization of Parent
2.2 Subsidiaries
2.3 Parent Operations
2.4 Capital Stock of Parent
2.7 Parent Non-Contravention
2.9 No Violation, Litigation or Regulatory Action
2.10 Parent Employees
2.11 Agreements; Action
2.13 Intellectual Property
2.14 Anti-Dilution or Other Shares
2.15 Real Property
2.16 Share Exchange
3.1 Organization of the Company
3.3 Capital Stock of the Company; Shareholders
3.5 Company Non-Contravention
3.6 Financial Statements
3.7 Operations Since Balance Sheet Date
3.8 No Undisclosed Liabilities
3.9 Taxes
3.10 Availability of Assets and Legality of Use
3.11 Governmental Permits
3.13 Real Property Leases
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3.15 Personal Property
3.16 Personal Property Leases
3.17 Intellectual Property
3.18 Accounts Receivable
3.19 Title to Assets
3.20 Employees
3.21 Employee Matters
3.22(a) Plans
3.22(b) ERISA Plans
3.23 Contracts
3.24 Status of Contracts
3.25 No Violation, Litigation or Regulatory Action
3.26 Insurance
3.27(b) Compliance with Environmental Laws
3.27(e) Facilities
3.28 Customers and Suppliers
3.31 Transactions with Affiliates
3.32 Budget and Financial Projections
3.33 Bank Accounts
4.2 Shareholder Non-Contravention; Required Consents
5.7(a) Parent Form Agreements for Employees
5.7(b) Post-Closing Working Capital Schedule
5.7(c) Working Capital Advances
5.20 Board of Directors
5.21 Employee Bonuses
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SUPPLEMENTAL AGREEMENT
SUPPLEMENTAL AGREEMENT dated as of November 23, 2002 (this
"Agreement") by and among Patron Systems, Inc., a Delaware corporation
("Parent"), TWC Acquisition, Inc., a Maryland corporation ("Mergerco"),
TrustWave Corp., a Maryland corporation (the "Company"), and the undersigned
shareholders of the Company (individually, a "Significant Shareholder" and
collectively, the "Significant Shareholders").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent, Mergerco and the Company are entering into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), in the form of
Exhibit A attached hereto, which provides, among other things, for the merger of
Mergerco with and into the Company (the "Merger") pursuant to the applicable
laws of the State of Maryland;
WHEREAS, Parent and each of its stockholders (the "Parent
Stockholders") entered into that certain Share Exchange Agreement dated as of
September 27, 2002, as amended and restated on October 10, 2002 (the "Share
Exchange Agreement"), with Patron Holdings, Inc., a Nevada corporation, f/k/a
Combined Professional Services, Inc. ("Patron Holdings"), pursuant to the terms
of which all outstanding shares of Parent Common Stock (as defined below) were
exchanged for shares of common stock, par value $0.001, of Patron Holdings (the
"Patron Holdings Common Stock"), such that the Parent Stockholders, upon the
consummation of the transactions contemplated by the Share Exchange Agreement,
acquired approximately 85% of the outstanding capital stock of Patron Holdings
(the "Share Exchange") with Parent surviving as a wholly owned subsidiary of
Patron Holdings;
WHEREAS, subsequent to the date hereof, but prior to the Closing Date
(as defined below), Parent and Patron Holdings intend to effect a merger whereby
Patron Holdings will be merged with and into Parent, with Parent continuing as
the surviving corporation incorporated under the laws of the State of Delaware
(the "Patron Holdings Merger");
WHEREAS, the parties hereto believe it is desirable to enter into this
Agreement in order to set forth the representations and warranties made by
Parent, the Company and the Significant Shareholders in connection with the
Merger, to set forth certain covenants and agreements of the parties and to set
forth various other provisions relating to the Merger and the relative rights
and obligations of the parties with respect thereto;
WHEREAS, the parties hereto desire that the Merger qualify as a
reorganization in accordance with Section 368(a) of the Code; and
WHEREAS, certain capitalized terms are defined in the Merger Agreement
and shall have the same meaning when used in this Agreement unless otherwise
defined herein or in Section 10.15, the definitions of such terms being
incorporated herein as if set forth in full herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement and as more particularly described in the Merger Agreement, Mergerco
shall be merged with and into the Company
at the Effective Time. Notwithstanding anything herein to the contrary, upon the
mutual written agreement of the parties, the Company may be merged with and into
Mergerco, with the Company as the corporation surviving the Merger. In such
event, the parties agree to execute an appropriate amendment to this Agreement,
in form and substance reasonably satisfactory to Parent and the Company, in
order to reflect such change, including, among other things, appropriate
provisions requiring the Company to procure any material required consents.
Section 1.2 Filing of Articles of Merger. The Company, Parent and Mergerco
shall cause Articles of Merger ("Articles of Merger"), duly executed in
accordance with Sections 3-107 and 3-109 of the Maryland General Corporation Law
(the "MGCL"), to be filed on the Closing Date (or on such other date as Parent
and the Company may agree) with the Secretary of State of the State of Maryland
in accordance with the MGCL.
Section 1.3 Closing. The closing of the Merger (the "Closing") shall take
place on January 23, 2003 or on such other date as Parent and the Company may
agree in writing; provided, that, in either case, each of the conditions set
forth in Article VI has been satisfied or waived prior to such date. The time
and date on which the Closing is actually held is sometimes referred to herein
as the "Closing Date."
Section 1.4 Merger Consideration. (a) Subject to the provisions of Article
I of the Merger Agreement, as of the Effective Time, by virtue of the Merger,
each share of Company Common Stock issued and outstanding immediately prior to
the Effective Time (other than shares to be canceled in accordance with Section
1.5(b) of the Merger Agreement and other than Dissenting Shares) shall be
converted into:
(i) the right to receive an amount equal to the Per Common Share
Closing Stock Consideration;
(ii) the right to receive an amount equal to the Per Common Share
Closing Cash Consideration;
(iii) the right to receive, on the six month anniversary of the
Closing Date, the Per Common Share Post-Closing Cash Consideration, to be
evidenced by a Post-Closing Note; and
(iv) the right to receive, on the twelve month anniversary of the
Closing Date, the Per Common Share Contingent Stock Consideration, if, and
only if, (A) the Twelve Month Price of Parent Common Stock is less than
$12.00 per share and (B) such share of Company Common Stock has not been
sold, assigned, transferred, pledged or otherwise conveyed subsequent to
the Effective Time; provided, that, in no event shall Parent issue an
amount of Aggregate Contingent Consideration which exceeds the Maximum
Aggregate Contingent Consideration; and provided, further, that, if a
holder of an Assumed Option exercises such option subsequent to the
Effective Time but prior to such twelve month anniversary, the resulting
shares of Parent Common Stock shall have the right to receive the Per
Common Share Contingent Stock Consideration.
Attached hereto as Annex A is a sample calculation of the Merger Consideration
and the Contingent Merger Consideration based on certain assumptions.
(b) On or prior to the date hereof, the Company, Parent, Cmax
Corporate Finance, and Massouras & Associates, as trustee (the "Trustee"),
entered into the Trust Agreement, an executed copy
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of which is attached hereto as Exhibit B, pursuant to the terms of which Cmax
Corporate Finance deposited with the Trustee securities and cash of a value
exceeding $2,000,000 which will be available to Parent at the Effective Time to
enable Parent to make the payment of Per Common Share Cash Consideration
required by Section 1.4(a).
Section 1.5 Company Stock Options. (a) Each of the stock options to
purchase Company Common Stock issued by the Company pursuant to the Company
Stock Plan or otherwise and set forth on Schedule 3.3 hereto (the "Company Stock
Options"), which are outstanding as of the Effective Time shall, whether or not
then exercisable and vested, become fully exercisable and vested immediately
prior to the Effective Time.
(b)(i) Concurrent with the Effective Time, each Company Stock Option
which is outstanding immediately prior to the Effective Time shall by virtue of
the Merger, and without any further action on the part of any holder thereof, be
assumed by Parent and shall thereby be converted into an option (an "Assumed
Option") to purchase the number of shares of Parent Common Stock determined by
multiplying (A) the number of shares of Company Common Stock subject to such
Company Stock Option immediately prior to the Effective Time by (B) the Option
Exchange Ratio, at an exercise price per share of Parent Common Stock equal to
the exercise price per share of such Company Stock Option immediately prior to
the Effective Time divided by the Option Exchange Ratio, rounded down to the
nearest whole cent.
(ii) In the event that the Per Common Share Contingent Stock
Consideration is due pursuant to the requirements of Section 1.4(a)(iv), the
conversion of each Assumed Option (which remains outstanding and has not been
exercised prior to the twelve month anniversary hereof) shall, without any
further action on the part of any holder thereof, be re-calculated as follows:
the original Company Stock Option (prior to the conversion thereof pursuant to
Section 1.5(b)(i)) shall be converted to purchase the number of shares of Parent
Common Stock determined by multiplying (A) the number of shares of Company
Common Stock subject to such Company Stock Option immediately prior to the
Effective Time by (B) the Contingent Option Exchange Ratio, at an exercise price
per share of Parent Common Stock equal to the exercise price per share of such
Company Stock Option immediately prior to the Effective Time divided by the
Contingent Option Exchange Ratio, rounded down to the nearest whole cent.
(iii) Except for the foregoing adjustments and the acceleration of
vesting of the Company Stock Options as described in Section 1.5(a), all the
terms and conditions in effect for each Assumed Option immediately prior to the
Effective Time shall continue in effect following the assumption of such option
in accordance with this Agreement. If either of the foregoing calculations set
forth in Sections 1.5(b)(i) or 1.5(b)(ii) results in an Assumed Option being
exercisable for a fraction of a share of Parent Common Stock, then the number of
shares of Parent Common Stock subject to such Assumed Option shall be rounded up
to the nearest whole number of shares.
(c) The adjustment provided herein with respect to any Company Stock
Options which are "incentive stock options" (as defined in Section 422 of the
Code), if any, shall be and is intended to be effected in a manner which is
consistent with Section 424(a) of the Code and shall be effected in a manner
that will entitle the Assumed Option to continue to be treated as an "incentive
stock option".
Section 1.6 Dissenting Shares. Any issued and outstanding shares of Company
Common Stock held by a Person (a "Dissenting Shareholder") who properly
exercises such Person's dissenters' rights under the MGCL ("Dissenting Shares")
shall not be converted as described in Section 1.4(a), but rather shall be
converted into the right to receive such consideration as may be determined to
be due to
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such Dissenting Shareholder pursuant to the MGCL. Subject to the foregoing, if,
after the Effective Time, such Dissenting Shareholder withdraws his demand for
payment or fails to perfect or otherwise loses his right of payment, in any case
pursuant to the MGCL, the Dissenting Shares of such Dissenting Shareholder shall
be deemed to be converted as of the Effective Time into the right to receive the
amount to which such Dissenting Shareholder would otherwise have been entitled
to pursuant to Section 1.4(a). The Company shall give Parent prompt notice of
any demands for payment received by the Company. The Company shall not, without
the prior written consent of Parent, make any payment with respect to, or settle
or offer to settle, any such demands, and, prior to the Effective Time, Parent
shall have the right to participate in all negotiations and proceedings with
respect to such demands.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company and the Significant
Shareholders as follows:
Section 2.1 Organization of Parent. Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Parent is duly qualified to transact business as a foreign corporation and is in
good standing in each of the jurisdictions listed in Schedule 2.1, and is
further qualified to transact business as a foreign corporation and Parent is in
good standing in each other foreign jurisdiction that requires the same, except
where failure to be so qualified and in good standing would not result in a
Material Adverse Effect on Parent. No jurisdiction has demanded, requested or
otherwise indicated that Parent is required to qualify as a foreign corporation
for which Parent has not complied with such demand, request or indication.
Parent has full corporate power and authority to own or lease and to operate and
use its properties and assets and to carry on its business as now conducted.
Parent has delivered or otherwise made available to the Company true and
complete copies of Parent's Certificate of Incorporation, as in effect on the
date hereof, By-laws, as in effect on the date hereof, minute books and stock
transfer records.
Section 2.2 Subsidiaries and Investments of Parent. Except as set forth on
Schedule 2.2, Parent does not, directly or indirectly, (a) own, of record or
beneficially, or own or hold the right to acquire, any outstanding voting or
equity securities or other voting or equity interests in any corporation,
partnership, joint venture or other entity or (b) otherwise control any such
corporation, partnership, joint venture or other entity.
Section 2.3 Parent Operations. Parent was incorporated for the sole purpose
of consummating potential business acquisitions and combinations. Other than the
negotiation and execution of this Agreement and the Merger Agreement, the Share
Exchange, the Patron Holdings Merger and the negotiation of other transactions
for the purchase by Parent of other business entities, each as described in
Schedule 2.3, prior to the date hereof Parent has not conducted any material
business activities or operations and has not completed any other acquisitions
or combinations.
Section 2.4 Capital Stock of Parent. The authorized capital of Parent
consists of (i) 150,000,000 shares of Parent Common Stock, par value $.01 per
share (the "Parent Common Stock"), of which, as of the date hereof, 25,400,000
shares are issued and outstanding; and (ii) 75,000,000 shares of preferred
stock, par value $.01 per share (the "Parent Preferred Stock," together with the
Parent Common Stock, the "Parent Capital Stock"), none of which is issued and
outstanding or reserved for any purpose. None of the issued and outstanding
shares of Parent Common Stock has been issued in violation of the preemptive
rights of any person or in violation of applicable federal or state securities
laws and all such issued and outstanding shares of Parent Common Stock are fully
paid and nonassessable. Schedule 2.4 sets forth a true and complete list of the
names and addresses of (i) each of
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the holders of record of the Parent Common Stock and the respective number of
outstanding shares held of record by each such holder and (ii) each of the
holders of record of options to purchase Parent Common Stock (the "Parent Stock
Options"), the respective number of shares of Parent Common Stock subject to
such Parent Stock Option, the exercise price applicable to such Parent Stock
Option and the expiration date of such Parent Stock Option. Except for this
Agreement, the Merger Agreement and except as set forth on Schedule 2.4 hereof,
there are no agreements, arrangements, warrants, options, puts, calls, rights or
other commitments, preemptive rights, plans or understandings of any character
relating to the issuance, sale, purchase, redemption, conversion, exchange,
registration, voting, or transfer of any shares of Parent Common Stock or any
other securities of Parent. Except as set forth on Schedule 2.4 and except
pursuant to applicable laws, there are no restrictions, including but not
limited to self-imposed restrictions, on the retained earnings of Parent or on
the ability of Parent to declare and pay dividends. Except as described on
Schedule 2.4, Parent has not granted or agreed to grant any Person any rights
(including piggyback registration rights) to have any shares of Parent Capital
Stock registered with the Securities and Exchange Commission or any other
Governmental Body.
All outstanding shares of Parent Common Stock are held free and clear
of all Encumbrances created by Parent and, to the Knowledge of Parent, such
shares are beneficially owned by the holders listed on Schedule 2.4 free and
clear of all Encumbrances (other than restrictions under the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
thereunder, and state securities laws).
Section 2.5 Mergerco. Mergerco is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland. Mergerco
has not conducted any business activities prior to the date of this Agreement,
other than the negotiation and execution of this Agreement and the Merger
Agreement. All outstanding shares of capital stock of Mergerco are owned,
beneficially and of record, by Parent.
Section 2.6 Authorization. (a) Parent has full corporate power and
authority to enter into this Agreement, the Merger Agreement, the Registration
Rights Agreement, the Post-Closing Notes, the Employment Agreements and the
Stock Escrow Agreements (collectively, the "Transaction Documents"), to
consummate the transactions contemplated hereby and thereby and to comply with
the terms, conditions and provisions hereof and thereof. The execution, delivery
and performance by Parent of each of the Transaction Documents, and the actions
to be taken by Parent contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of Parent and no other corporate
proceedings on the part of Parent are necessary with respect hereto or thereto.
Each of the Transaction Documents constitutes the valid and binding obligations
of Parent, in each case enforceable in accordance with its terms, subject to (i)
general principles of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law, and (ii) bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium, receivership or other similar laws relating
to or affecting creditors' rights generally.
(b) Mergerco has full corporate power and authority to enter into this
Agreement and the Merger Agreement, to consummate the transactions contemplated
hereby and thereby and to comply with the terms, conditions and provisions
hereof and thereof. The execution, delivery and performance by Mergerco of this
Agreement and the Merger Agreement and the actions contemplated hereby and
thereby have been duly and validly authorized by the Board of Directors of
Mergerco and no other corporate proceedings on the part of Mergerco are
necessary with respect hereto or thereto. This Agreement and the Merger
Agreement constitute the valid and binding obligations of Mergerco, in each case
enforceable in accordance with its terms, subject to (i) general principles of
equity, regardless of whether enforcement is sought in a proceeding in equity or
at law, and (ii) bankruptcy, reorganization,
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insolvency, fraudulent conveyance, moratorium, receivership or other similar
laws relating to or affecting creditors' rights generally.
Section 2.7 Non-Contravention. Except as set forth in Schedule 2.7 attached
hereto, neither the execution or delivery of the Transaction Documents by Parent
or this Agreement and the Merger Agreement by Mergerco, nor the consummation of
the transactions contemplated hereby or thereby by Parent and Mergerco, will (a)
conflict with or result in the breach of any term or provision of, or constitute
(with due notice or lapse of time or both) a default under, the respective
charters or By-laws of Parent or Mergerco or any material agreement, instrument
or indenture to which Parent or Mergerco is a party or by which either is bound
or to which any of Parent's or Mergerco's assets are subject; (b) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Parent or Mergerco; (c) result in the creation of any Encumbrance (other than a
Permitted Encumbrance) upon any of the properties or assets of Parent or
Mergerco; or (d) require, as of the date hereof, the approval, consent, waiver,
authorization or act of, or the making by Parent or Mergerco of any declaration,
filing or registration with, any third party or any Governmental Body, except
for the filing of a copy of the Articles of Merger with the Secretary of State
of the State of Maryland and such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, have a Material Adverse Effect
on Parent, materially impair the ability of Parent to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
Section 2.8 Valid Shares. The issuance of the Parent Common Stock in
connection with the Merger has been duly authorized on behalf of Parent and such
shares, when issued pursuant to this Agreement and the Merger Agreement, will be
duly and validly issued and outstanding, fully paid and nonassessable. Parent is
issuing the Parent Common Stock and the Post-Closing Notes in reliance on an
exemption from the Securities Act and applicable state securities laws.
Section 2.9 No Violation, Litigation or Regulatory Action. Except as set
forth on Schedule 2.9:
(a) Parent has complied in all material respects with all laws,
regulations or rules of any Governmental Body which are applicable to Parent and
there are no writs, injunctions, ordinances, franchises, decrees, stipulations,
judgments or awards to which Parent or any of its properties are subject or
bound;
(b) No notice has been served upon Parent by any Governmental Body or
other person of any violation of any Requirements of Law or calling attention to
the necessity of any work, repairs, new construction, installation or alteration
of any real or personal property owned, leased or used by Parent;
(c) There are no lawsuits, claims, suits, proceedings pending or, to
the Knowledge of Parent, threatened against Parent or any of its officers,
directors or any holder of an excess of five percent (5%) of Parent Capital
Stock (a "Parent 5% Stockholder") or investigations pending regarding Parent (or
any of its officers, directors or Parent 5% Stockholders) nor, to the Knowledge
of Parent, is there any basis for any of the same, and there are no lawsuits,
suits or proceedings pending or contemplated in which Parent is the plaintiff or
claimant in which an adverse judgment against such party would result in a
Material Adverse Effect on Parent; and
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(d) There is no action, suit or proceeding pending or, to the
Knowledge of Parent, threatened which questions the legality or propriety of the
transactions contemplated by this Agreement or the Merger Agreement.
Section 2.10 Parent Employees. Except as disclosed in Schedule 2.10, Parent
has no employment contracts with any of its employees. Except as disclosed in
Schedule 2.10, Parent has no employee benefit plans, including any deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement or other employee compensation agreement, now in force.
Section 2.11 Agreements; Action.
(a) Except for agreements explicitly contemplated by this Agreement,
or as set forth in Schedule 2.11, there are no agreements, understandings,
instruments, contracts, judgments, orders, writs, decrees or proposed
transactions to which Parent is a party or by which it is bound that involve:
(i) obligations (contingent or otherwise) of, or payments to, Parent in excess
of $50,000 or (ii) any contract, agreement, commitment, arrangement or
understanding relating to any joint venture, partnership or sharing of profits
or losses with any Person.
(b) Parent has not (i) declared or paid any dividends, or authorized
or made any distribution upon or with respect to any class or series of its
capital stock or (ii) incurred any indebtedness for money borrowed or incurred
any other liabilities individually in excess of $25,000 or in excess of $50,000
in the aggregate.
(c) Copies of all contracts, agreements or instruments appearing on
Schedule 2.11 (hereinafter collectively referred to as the "Parent Contracts")
have been made available to the Company. Parent has fulfilled and performed in
all material respects its obligations under each of the Parent Contracts
required to be performed prior to the date hereof, and Parent is not in, or to
the Knowledge of Parent, alleged to be in, material breach or default under, nor
is there to the Knowledge of Parent, alleged to be any basis for termination of
any of the Parent Contracts or any loss of right thereunder and, to the
Knowledge of Parent, no other party to any of the Parent Contracts has
materially breached or defaulted thereunder. To the Knowledge of Parent, no
event has occurred and no condition or state of facts exists which, with the
passage of time or the giving of notice or both, would constitute such a loss of
right, material default or breach by Parent or by any such other party.
Section 2.12 Tax Returns and Payments. Parent has not yet been required by
law to file any material tax return with any federal, state or local authority.
Section 2.13 Intellectual Property. Except as set forth on Schedule 2.13,
Parent owns no intellectual property.
Section 2.14 Anti-Dilution and Other Shares. Except as described on
Schedule 2.14, no stockholder of Parent or other person or entity has any
preemptive right of subscription or purchase or contractual right of first
refusal or similar right with respect to any issuance of securities by Parent.
Except as set forth on Schedule 2.14, neither the consummation of the Patron
Holdings Merger nor the consummation of any of the transactions described in
Schedule 2.3 will result in the triggering of other anti-dilution or similar
rights contained in any options, warrants, debentures or other securities or
agreements of Parent.
Section 2.15 Real Property. Except as described in Schedule 2.15, Parent
does not own, lease, sublease, or otherwise have an interest in real property.
7
Section 2.16 Share Exchange. Except as set forth on Schedule 2.16, as of
the date hereof (other than Sections 5.18 and 5.19 of the Share Exchange
Agreement as to which such date limitation shall not apply), all of the
representations and warranties contained in Article V of the Share Exchange
Agreement, a true, correct and complete copy of which is attached hereto as
Annex B, that are qualified as to materiality are true and correct in all
respects and such representations and warranties that are not so qualified are
true and correct in all material respects.
Section 2.17 No Finder. Parent has not paid or become obligated to pay any
fee or commission to any broker, finder or intermediary for or on account of the
transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Mergerco as follows:
Section 3.1 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland.
Except as set forth on Schedule 3.1, the Company is duly qualified to transact
business as a foreign corporation and is in good standing in each of the
jurisdictions listed in Schedule 3.1, and is further qualified to transact
business as a foreign corporation and is in good standing in each other foreign
jurisdiction that requires the same, except where failure to be so qualified and
in good standing would not result in a Material Adverse Effect on the Company.
No jurisdiction has demanded, requested or otherwise indicated that the Company
is required to qualify as a foreign corporation for which the Company has not
complied with such demand, request or indication. The Company has full corporate
power and authority to own or lease and to operate and use its properties and
assets and to carry on its business as now conducted. The Company has delivered
or otherwise made available to Parent true and complete copies of the Company's
Articles of Incorporation, as in effect on the date hereof, By-laws, as in
effect on the date hereof, minute books and stock transfer records.
Section 3.2 Subsidiaries and Investments. The Company does not, directly or
indirectly, (a) own, of record or beneficially, or own or hold the right to
acquire, any outstanding voting or equity securities or other voting or equity
interests in any corporation, partnership, joint venture or other entity or (b)
otherwise control any such corporation, partnership, joint venture or other
entity.
Section 3.3 Capital Stock of the Company. The authorized capital stock of
the Company consists of 25,000,000 shares of Common Stock, $.01 par value
("Company Common Stock"), 19,394,865 of which are duly and validly issued and
outstanding, fully paid and nonassessable, none of which are held by the Company
as treasury shares and 5,000,000 of which are reserved for issuance under the
Company Stock Plan. All issued and outstanding shares of Company Common Stock
have been issued in reliance on an exemption from the Securities Act and
applicable state securities laws and not in violation of the preemptive rights
of any person. Schedule 3.3 sets forth a true and complete list of the names and
addresses of (i) each of the holders of record of the Company Common Stock and
the respective number of outstanding shares held of record by each such holder
and (ii) each of the holders of record of Company Stock Options, the respective
number of shares of Company Common Stock subject to such Company Stock Option,
the exercise price applicable to such Company Stock Option and the expiration
date of such Company Stock Option. Except for this Agreement, the Merger
Agreement and except as set forth on Schedule 3.3 hereof, there are no
agreements, arrangements, warrants, options, puts, calls, rights or other
commitments, preemptive rights, plans or understandings of any character to
which the Company or, to the Knowledge of the Company, any Shareholders are a
8
party relating to the issuance, sale, purchase, redemption, conversion,
exchange, registration, voting, or transfer of any shares of Company Common
Stock or any other securities of the Company. Except as set forth on Schedule
3.3 and except pursuant to applicable laws, there are no restrictions, including
but not limited to self-imposed restrictions, on the retained earnings of the
Company or on the ability of the Company to declare and pay dividends.
Except as provided in the Company's Articles of Incorporation or Bylaws or
by applicable law and as set forth on Schedule 3.3, all outstanding shares of
Company Common Stock are held free and clear of all Encumbrances created by the
Company and, to the Knowledge of the Company, such shares are beneficially owned
by the holders listed on Schedule 3.3 free and clear of all Encumbrances (other
than restrictions under the Securities Act and the rules and regulations
thereunder, and state securities laws).
Section 3.4 Authorization. The Board of Directors of the Company has
declared the Merger advisable and has duly resolved to recommend that the Merger
and the Merger Agreement be approved by the Shareholders. The Company has full
corporate power and authority to enter into the Transaction Documents and to
consummate the transactions contemplated hereby and thereby and to comply with
the terms, conditions and provisions hereof and thereof. The execution, delivery
and performance by the Company of the Transaction Documents and the actions to
be taken by the Company contemplated hereby and thereby have been duly and
validly authorized by all necessary corporate action on the part of the Company,
subject to approval of the Merger and the Merger Agreement by the Shareholders.
The affirmative vote of two-thirds of the votes that holders of the outstanding
shares of Company Common Stock are entitled to cast is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve the Merger Agreement and the transactions contemplated thereby. Each of
this Agreement and the Merger Agreement constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms, subject to
(a) general principles of equity, regardless of whether enforcement is sought in
a proceeding in equity or at law, and (b) bankruptcy, reorganization,
insolvency, fraudulent conveyance, moratorium, receivership or other similar
laws relating to or affecting creditors' rights generally.
Section 3.5 Non-Contravention. Except as set forth on Schedule 3.5 attached
hereto or as contemplated in the Transaction Documents, neither the execution or
delivery of the Transaction Documents by the Company nor the consummation of the
transactions contemplated hereby or thereby by the Company will (a) conflict
with or result in the breach of any term or provision of, or constitute (with
due notice or lapse of time or both) a default under, the Articles of
Incorporation or By-laws of the Company; (b) result in a default, or give rise
to any right of termination, cancellation or acceleration, under any provisions
of any material agreement (including, without limitation, any loan agreements or
promissory note), indenture or instrument to which the Company is a party or by
which the Company is bound or to which any of the Company's assets are subject;
(c) result in the creation or imposition of any Encumbrance on any of the
property or assets of the Company other than a Permitted Encumbrance; (d)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company; or (e) require on the part of the Company or the
Shareholders, as of the date hereof, the approval, consent, waiver,
authorization or act of, or the making by the Company of any declaration, filing
or registration with, any third party or any Governmental Body, except for the
filing of a copy of the Articles of Merger with the Secretary of State of the
State of Maryland and except, in each case set forth above, where failure
thereof would not, individually or in the aggregate, result in a Material
Adverse Effect on the Company, materially impair the ability of the Company to
perform its obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby.
9
Section 3.6 Financial Statements. Schedule 3.6 contains the audited balance
sheets of the Company as of December 31, 2000 and December 31, 2001 and the
related statements of income, stockholder's equity and cash flows for the years
then ended, and the notes to such financial statements (collectively, the
"Company's Financial Statements").
Except as set forth on Schedule 3.6, the Company's Financial
Statements have been prepared in accordance with GAAP applied on a consistent
basis except as may be noted therein, are true and correct and present fairly,
in all material respects, the financial condition and the results of operations
and cash flows of the Company as of the dates and for the periods indicated.
Section 3.7 Operations Since Balance Sheet Date. (a) Except as set forth on
Schedule 3.7, during the period from the Balance Sheet Date to the date hereof,
inclusive, there has been:
(i) no Material Adverse Effect on the Company and, to the Knowledge of
the Company, no fact or condition exists or is contemplated or threatened
which might reasonably be expected to cause a Material Adverse Effect on
the Company; and
(ii) no damage, destruction, loss or claim made or filed against the
Company (whether or not covered by insurance) or condemnation or other
taking which will result in a Material Adverse Effect on the Company.
(b) Except as set forth on Schedule 3.7, since the Balance Sheet Date,
the Company has conducted the Business only in the ordinary course and in
conformity with past practice. Without limiting the generality of the foregoing,
since the Balance Sheet Date, except (i) as set forth on Schedule 3.7, (ii) for
actions described below that would not result in a Material Adverse Effect on
the Company (other than subsections (i) and (xiv) which shall not be qualified
by this subclause (ii)) and (iii) for any actions described below that would not
cause any of the representations and warranties contained in this Article III
(other than this Section 3.7) to be untrue in any material respect, the Company
has not:
(i) issued, delivered or agreed (conditionally or unconditionally) to
issue or deliver, or granted any option, warrant or other right to
purchase, any of its capital stock or other equity interest or any security
convertible into its capital stock or other equity interest;
(ii) paid any obligation or liability (absolute or contingent) other
than current liabilities reflected on the Balance Sheet and current
liabilities incurred since the Balance Sheet Date in the ordinary course of
business consistent with past practice;
(iii) undertaken or committed to undertake capital expenditures
exceeding $10,000 for any single project or related series of projects;
(iv) sold, leased, transferred or otherwise disposed of (including any
transfers from the Company to any of its Affiliates), or mortgaged or
pledged, or imposed or suffered to be imposed any Encumbrance (other than
Permitted Encumbrances) on, any of the assets reflected on the Balance
Sheet or any assets acquired after the Balance Sheet Date, except for sales
of inventory in the ordinary course of business consistent with past
practice;
(v) canceled any debts owed to or claims held by the Company
(including the settlement of any claims or litigation) or waived any rights
of material value;
10
(vi) created, incurred, guaranteed or assumed any indebtedness
for borrowed money or entered into any capitalized leases;
(vii) accelerated collection of any note or account receivable
to a date prior to the date such collection would have occurred in the
ordinary course of business consistent with past practice;
(viii) delayed payment of any account payable or other
liability of the Company beyond its due date or the date when such
liability would have been paid in the ordinary course of business
consistent with past practice;
(ix) allowed the levels of raw materials, supplies,
work-in-process, finished goods or other materials included in its
inventory to vary in any material respect from levels customarily
maintained;
(x) except as contemplated by the Transaction Documents,
granted any bonus or other special compensation or increased the
compensation or benefits payable or to become payable to any directors,
officers or employees, or instituted any increase in or otherwise
amended any profit sharing, bonus, incentive, deferred compensation,
insurance, pension, retirement, medical, hospital, disability, welfare
or other employee benefit plan except for increases required by law;
(xi) sold, assigned or transferred any patents, trademarks,
service marks, trade names, copyrights, Software (as defined in Section
3.17) (except in the ordinary course of business consistent with past
practice), trade secrets or other similar intangible assets, or
disclosed any proprietary or confidential information to any person or
entity (other than Parent, its Affiliates and agents);
(xii) extended credit other than in the ordinary course of
business or permitted any change in credit practices or in the method
of maintaining books, accounts or business records;
(xiii) declared, set aside or paid any dividend or made any
other distribution (whether in cash, stock or other property) to any of
the Shareholders in respect of any Company Common Stock or other
securities of the Company;
(xiv) purchased, redeemed, called for purchase or redemption
or otherwise acquired any shares of Company Common Stock or any other
securities of the Company;
(xv) made any write-down of the value of any inventory or
write-offs as uncollectible of any notes or accounts receivable;
(xvi) except as otherwise contemplated herein, entered into
any transaction other than in the ordinary course of business or any
transaction (not involving purchases and sales of inventory) including
commitments for expenditures in excess of $10,000;
(xvii) made any changes in the accounting methods or practices
followed by the Company;
(xviii) agreed or committed to do or authorized any of the
foregoing; or
11
(xix) prepared or filed any Tax Return inconsistent with past
practice or, on any such Tax Return taken any position, made any
election, or adopted any method that is inconsistent with positions
taken, elections made or methods used in preparing or filing similar
Tax Returns in prior periods (including, without limitation, positions,
elections or methods which would have the effect of deferring income to
periods ending after the Closing Date or accelerating deductions to
periods ending on or prior to the Closing Date).
Section 3.8 No Undisclosed Liabilities. Except as set forth on Schedule
3.8, the Company is not subject to any obligation or liability of a kind
required to be included as a liability on the Balance Sheet under the method of
accounting described in Section 3.6 hereof (including, without limitation,
unasserted claims), whether absolute, contingent, accrued or otherwise, which is
not shown or which is in excess of amounts shown or reserved for on the Balance
Sheet, other than liabilities reasonably incurred in the ordinary course of
business after the Balance Sheet Date, none of which, individually or in the
aggregate, would have a Material Adverse Effect on the Company and none of which
is a liability for breach of contract, breach of warranty, tort, infringement or
other lawsuit.
Section 3.9 Taxes. (a) Except as set forth on Schedule 3.9, (i) all Tax
Returns, required to be filed by or on behalf of the Company prior to the
Closing Date have been or will be timely filed and such Tax Returns as so filed
are or will be complete and accurate in all material respects and disclose all
Taxes required to be paid for the periods covered thereby and all Taxes shown to
be due on such Tax Returns have been timely paid; (ii) no extension of time in
which to file any such Tax Returns is in effect or has been requested; (iii) all
material Taxes for which the Company is liable relating to any period ending on
or prior to the Closing Date (or the portion of any Tax period beginning before
and ending after the Closing Date) shall have been paid or, if not yet due and
payable, properly accrued for as of the Closing Date; (iv) all Taxes which the
Company is required by law to withhold or to collect for payment have been duly
withheld and collected, and have been paid or will be paid to the proper
Governmental Body; (v) there are no Tax liens (except for liens relating to
current Taxes not yet due) on any property of the Company and no basis exists
for any such liens; (vi) the Tax Returns referred to in clause (i) have been
examined by the appropriate taxing authority or the period for assessment of the
Taxes in respect of which such Tax Returns were required to be filed has
expired; (vii) no audit of any kind has been conducted with respect to any Tax
Return by an appropriate Taxing authority; (viii) all deficiencies which have
been asserted as a result of such examinations have been fully paid or finally
settled, and no issue has been raised in any such examination which, by
application of similar principles, reasonably would be expected to result in
assertion of a deficiency for any other year not so examined; (ix) the Company
has neither executed nor entered into a closing agreement pursuant to Section
7121 of the Code, or any predecessor provision or any similar provision of
state, local or foreign law; (x) there are no outstanding agreements or waivers
extending the statutes of limitations with respect to the assessment of any Tax
and no such agreements or waivers have been requested; (xi) the Company has not
incurred any material liability with respect to Taxes based upon income,
operations, purchases, sales, payroll, licenses, compensation, business, capital
stock or surplus, properties or assets except in the ordinary course of
business, or any liabilities for interest or penalties with respect to the
foregoing; (xii) there is no action, suit, investigation, audit, claim or
assessment pending or proposed or threatened with respect to Taxes of the
Company and no basis exists therefor; (xiii) the accruals for Taxes reflected on
the Balance Sheet are adequate to cover any Tax liability of the Company; (xiv)
since the Balance Sheet Date, none of the Significant Shareholders or the
Company has taken any action not in accordance with past practice that would
have the effect of deferring any Tax liability for the Company from any taxable
period ending on or before the Closing Date to any taxable period ending after
the Closing Date; and (xv) no claim has ever been made by a Taxing Authority in
a jurisdiction where the Company has never paid Taxes or filed Tax Returns
asserting that the Company is or may be subject to Taxes assessed by such
jurisdiction.
12
(b) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no stock transfer Taxes, sales
Taxes, use Taxes, real estate transfer or gains Taxes, or other similar Taxes
will be imposed on the transactions contemplated by this Agreement.
(c) As a result of the Merger, none of the Company, the Surviving
Corporation or Parent will be obligated to make a payment to an individual
employed by the Company that would be a "parachute payment" to a "disqualified
individual" as those terms are defined in Section 280G of the Code, without
regard to whether such payment is reasonable compensation for personal services
performed or to be performed in the future.
(d) For any Taxable period as to which the relevant statute of
limitations will not have expired as of the Closing Date, the Company has not
been a member of an affiliated group (as defined in Section 1504(a) of the Code
without regard to the limitations contained in Section 1504(b) of the Code) or
has filed Tax Returns with a group of corporations filing a combined,
consolidated or unitary income Tax Return.
(e) Neither the Company nor the Significant Shareholders have
taken or failed to take any action which action or failure would cause the
Merger to fail to qualify as a reorganization within the meaning of Section
368(a) of the Code.
Section 3.10 Availability of Assets and Legality of Use. Except as set
forth on Schedule 3.10, the assets owned or leased by the Company, or which the
Company is entitled to use under license or other agreements, constitute all the
material assets used by the Company in the conduct of the Business (including,
but not limited to, all books, records, computers and computer programs and data
processing systems), and the tangible assets owned or leased by the Company are
suitable for the uses for which they are intended. Except as set forth on
Schedule 3.10, to the Knowledge of the Company, (a) all such assets and their
uses conform to all applicable laws, regulations, rules, ordinances, codes,
licenses, franchises and permits (including, without limitation, all electrical,
building, zoning, environmental and occupational safety and health Requirements
of Law) except where such non-conformity would not result in a Material Adverse
Effect on the Company, and (b) no written notice of any existing violation of
any of such matters relating to such assets or their use has been received by
the Company or any of the Significant Shareholders.
Section 3.11 Governmental Permits. The Company owns, holds or possesses
all governmental licenses, franchises, permits, privileges, variances,
immunities, approvals and other authorizations which are necessary to entitle it
to own, lease, operate and use its assets and properties and to carry on and
conduct the Business substantially as currently conducted (herein collectively
called "Governmental Permits"), except for such Governmental Permits as to which
the failure to so own, hold or possess would not have a Material Adverse Effect
on the Company. Schedule 3.11 sets forth a list and brief description of each
such Governmental Permit.
The Company has fulfilled and performed its respective obligations
under each of such Governmental Permits, except where failure thereof would not
result in a Material Adverse Effect on the Company, and no event has occurred or
condition or state of facts exists which constitutes or, after notice or lapse
of time or both, would constitute a breach or default under any such
Governmental Permit, or permits or, after notice or lapse of time or both, would
permit revocation or termination of any such Governmental Permit, in each case,
which would result in a Material Adverse Effect on the Company. No notice of
cancellation, of default or of any dispute concerning any Governmental Permit,
or of any event, condition or state of facts described in the preceding
sentence, has been received by the
13
Company or any of the Significant Shareholders or, to the Knowledge of the
Company, is threatened. Except as set forth on Schedule 3.11, each of the
Governmental Permits is valid, subsisting and in full force and effect and will
continue in full force and effect after the Closing, in each case without (a)
the occurrence of any breach, default or forfeiture of rights thereunder or (b)
the consent, approval, or act of, or the making of any filing with, any
Governmental Body or other party, except in each case where failure thereof
would not result in a Material Adverse Effect on the Company.
Section 3.12 Real Property. The Company does not own, and has never
owned, any real property or any option to acquire any real property.
Section 3.13 Real Property Leases. Schedule 3.13 sets forth a list and
brief description of each lease or similar agreement under which the Company is
lessee of, or holds or operates, any real property owned by any third party and
has provided Parent with a true and correct copy of each such agreement. Except
as set forth in the agreements listed on Schedule 3.13, (i) there are no
subleases, tenancies or other rights of occupancy affecting all or any part of
such leases, (ii) the Company has the right to quiet enjoyment of the premises
described in any lease identified on such Schedule for the full term of each
such lease or similar agreement (and any renewal option related thereto)
relating thereto, and (iii) to the Knowledge of the Company, the leasehold or
other interest of the Company therein is not subject or subordinate to any
Encumbrance held by persons claiming by, through or under the Company, except
for Permitted Encumbrances.
Section 3.14 Condemnation. To the Knowledge of the Company, neither the
whole nor any part of any real property listed on Schedule 3.13 is subject to
any pending suit for condemnation or other taking by any public authority and no
such condemnation or other taking is threatened.
Section 3.15 Personal Property. Schedule 3.15 contains a detailed list
as of the date hereof of all individual items of machinery, equipment, vehicles,
furniture and other tangible personal property owned by the Company having an
original cost of $5,000 or more.
Section 3.16 Personal Property Leases. Schedule 3.16 contains a brief
description of each lease or other agreement or right, whether written or oral,
under which the Company is lessee of, or holds or operates, any machinery,
equipment, computer hardware and related peripheral equipment, vehicle or other
tangible personal property owned by a third party which, by its terms, (i)
obligates or has obligated the Company to make payments to any Person (which is
not party hereto) in excess of $5,000 during any calendar year period or (ii)
obligates or has obligated any Person (which is not party hereto) to make
payments to the Company in excess of $5,000 during any calendar year period
Section 3.17 Intellectual Property. (a) Schedule 3.17 contains a list
and description of:
(i) all United States and foreign patents and patent applications
owned or controlled by the Company;
(ii) all registered United States and foreign copyrights and
copyright registration applications owned or controlled by the Company;
(iii) all computer software programs and software systems
(including, without limitation, all data, databases, compilations, tool
sets, related documentation and materials, whether in source code,
object code or human readable form and regardless of media), developed
by or for the Company or otherwise used in the Business other than
14
those which are commercially available or are not material to the
operation of the Business ("Software");
(iv) all United States, state and foreign trademarks, service
marks and trade names for which registrations have been issued or
applied for by the Company, and all other United States, state and
foreign trademarks, service marks and trade names owned or used by the
Company or in which the Company holds any right, license, sublicense or
interest;
(v) all agreements, commitments, contracts, understandings,
licenses, sublicenses, assignments and indemnities which relate or
pertain to any asset, property or right of the character described in
Section 3.17(a)(iv) to which the Company is a party;
(vi) all licenses, sublicenses or agreements which are material
to the Business and which relate or pertain to mailing lists, know-how,
trade secrets, disclosures or uses of ideas to which the Company is a
party; and
(vii) all registered and unregistered assumed or fictitious names
under which the Company is conducting the Business or has within the
previous three years conducted the Business.
(b) Except as set forth in Schedule 3.17, the Company is not
aware of any information and has not received any notice from any Person that
would affect the validity and enforceability of the patents listed on Schedule
3.17 and all patent applications of the Company listed therein are still
pending, all without challenge of any kind, and, except as otherwise set forth
on Schedule 3.17, the Company owns the entire right, title and interest in and
to such patents and patent applications, free and clear of all Encumbrances,
except Permitted Encumbrances. The Company is not aware of any information and
has not received any notice from any Person that would affect the validity and
enforceability of the registrations for trademarks, service marks, trade names
and copyrights listed on Schedule 3.17 and all applications for such
registrations are still pending, all without challenge of any kind, and, except
as otherwise set forth on Schedule 3.17, the Company owns the entire right,
title and interest in and to all such trademarks, service marks, trade names and
copyrights so listed as well as the registrations and applications for
registration therefor, free and clear of all Encumbrances, except Permitted
Encumbrances. Correct and complete copies of all the patents and patent
applications and of all of the trademarks, service marks, trade names and
copyrights and registrations, applications or deposits therefor and all the
agreements, commitments, contracts, understandings, licenses, sublicenses,
assignments, and indemnities listed on Schedule 3.17 have heretofore been
delivered or otherwise made available by the Company to Parent.
Section 3.18 Accounts Receivable. All accounts receivable of the
Company have arisen from bona fide transactions by the Company and, to the
Knowledge of the Company, are not subject to counterclaims or setoffs. Except as
set forth on Schedule 3.18, no such receivable has been outstanding for more
than 90 days beyond its due date. All of the accounts receivable reflected on
the Balance Sheet have been accounted for in accordance with GAAP.
Section 3.19 Title to Assets. The Company has good title to all of the
assets reflected on the Balance Sheet as being owned by it and all of the assets
thereafter acquired by it (except to the extent that such assets have been
disposed of after the Balance Sheet Date in the ordinary course of business
15
consistent with past practice), free and clear of all Encumbrances, except for
Permitted Encumbrances and except as set forth in Schedule 3.19.
Section 3.20 Employees. Schedule 3.20 contains a list of the employees
of the Company as of the date hereof and the annual compensation and a brief
description of the fringe benefits provided to each such employee as of such
date. Except as set forth on Schedule 3.20, as of the date hereof, all bonuses
payable to employees of the Company for services performed on or prior to the
date hereof have been paid in full and, except as contemplated in the
Transaction Documents, there are no outstanding agreements, understandings or
commitments of the Company with respect to any bonuses or increases in
compensation.
Section 3.21 Employee Matters. The Company has complied in all material
respects with all applicable laws, rules and regulations which relate to wages,
hours, discrimination in employment, independent contractor relationships and
collective bargaining and to the operation of its business and is not liable for
any arrears of wages or any taxes or penalties for failure to comply with any of
the foregoing. To the Knowledge of the Company, the Company's relations with its
employees are satisfactory. Except as set forth in Schedule 3.21, the Company is
not a party to any collective bargaining agreement, the Company has complied in
all material respects with all collective bargaining agreements listed in such
Schedule and the Company is not a party to, and it is not affected by or, to the
Knowledge of the Company, threatened with, any dispute or controversy with a
union or with respect to unionization or collective bargaining involving its
employees. To the Knowledge of the Company, the Company is not materially
affected by any dispute or controversy with a union or with respect to
unionization or collective bargaining involving any supplier or customer of the
Company. To the Knowledge of the Company, the Company is not affected by any
union organizing or election activities involving any employee of the Company
and no such activities are threatened as of the date hereof.
Section 3.22 Employee Benefit Plans. (a) Set forth on Schedule 3.22(a)
is a true and complete list of each "employee pension benefit plan" (as such
term is defined in Section 3(2) of ERISA) (the "Pension Plans") and each
"employee welfare benefit plan" (the "Welfare Plans") maintained by the Company
or which provides or will provide benefits to present or prior employees of the
Company (the Pension Plans and Welfare Plans being the "ERISA Benefit Plans").
In addition, set forth on Schedule 3.22(a) is a true and complete list of each
stock ownership, stock purchase, stock option, phantom stock, bonus, deferred
compensation, incentive compensation, severance or termination pay, change of
control and death benefit plan, agreement or arrangement maintained by the
Company (the "Non-ERISA Commitments"). Except as set forth on Schedule 3.22(a),
the Company has never maintained or been required to contribute to any "employee
pension benefit plan" subject to Section 302 or Title IV of ERISA or any
"multiemployer plan," as such term is defined in Section 3(37) of ERISA. The
Company does not have, and has not had at any time during the six years prior to
the date hereof, any ERISA Affiliate. Except as disclosed on Schedule 3.22(a),
true copies of each ERISA Benefit Plan and Non-ERISA Commitment, the annual
reports required to be filed under ERISA for the last two years with respect to
any ERISA Benefit Plans, and the financial statements and actuarial reports for
the most recent two years for which such statements and reports exist with
respect to any Pension Plan have been delivered or made available to Parent.
(b) Neither the Company nor any of the Shareholders, and to the
Knowledge of the Company, no other "disqualified person" (within the meaning of
Section 4975 of the Code) or "party in interest" (within the meaning of Section
3(14) of the Code), has engaged in any non-exempt prohibited transaction (within
the meaning of Section 4975 of the Code or Section 406 of ERISA), nor, to the
Knowledge of the Company, has any breach of fiduciary duty occurred, with
respect to any of the ERISA Benefit Plans. Except as disclosed on Schedule
3.22(b), each of the ERISA Benefit Plans (i) has
16
been administered in accordance with its terms and (ii) complies in form, and
has been maintained in accordance, in each case in all material respects, with
the requirements of ERISA and, where applicable, the Code. Except as disclosed
on Schedule 3.22(b), the Company has no obligations under any of the ERISA
Benefit Plans or otherwise to provide health benefits to its former employees,
except as specifically required by law. The Company has at all times complied
with the health care continuation requirements of Part 6 of Title I of ERISA.
Except as disclosed on Schedule 3.22(b), each Pension Plan intended to be
qualified under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service or the remedial amendment
period for obtaining such a determination letter will not have expired prior to
the Closing Date, and to the Knowledge of the Company nothing has occurred and
no condition exists that could cause the loss of such qualification. All
contributions or payments that are due from the Company with respect to the
ERISA Benefit Plans and Non-ERISA Commitments have been paid or are properly
accrued on the Company's Financial Statements and any related insurance and
third party administration contracts remain in full force and effect. There is
no pending or to the Knowledge of the Company threatened claim in respect of any
of the ERISA Benefit Plans or Non-ERISA Commitments other than routine claims
for benefits in the ordinary course of business. The Company has not taken any
action, nor has any event occurred, which has resulted or would likely result in
any liability under Title IV of ERISA, including any withdrawal liability with
respect to any "multiemployer plan" as defined in Section 4001(a) of ERISA,
which liability would be a liability of the Parent or the Company following the
Merger and would have a Material Adverse Effect on Parent or the Company.
Section 3.23 Contracts. Except as set forth on Schedule 3.23 or any
other Schedule hereto, the Company is not a party to or bound by:
(a) any contract for the purchase, sale or lease of real property
or any option to purchase or sell real property;
(b) any indebtedness, obligation or liability for borrowed money,
or liability for the deferred purchase price of property in excess of $10,000,
or any instrument guaranteeing any indebtedness, obligation or liability, or any
obligation to incur any of the foregoing;
(c) any joint venture, partnership or other arrangement involving
a sharing of profits involving the Company;
(d) any agreement which includes provisions regarding minimum
volumes or volume discounts, excluding outstanding price quotations which if
terminated or breached would result in a Material Adverse Effect on the Company;
(e) any agreement which is material to the Business and pursuant
to which a rebate, discount, bonus, commission or other payment in excess of
$10,000 with respect to the sale of any product of the Company will be payable
by the Company after the Closing;
(f) any guarantee of the obligations of the Company's customers,
suppliers, officers, directors, employees or Affiliates or others;
(g) any consignment, distributor, dealer, manufacturer's
representative, sales agency, advertising representative or advertising or
public relations contract which if terminated or breached would result in a
Material Adverse Effect on the Company;
17
(h) any agreement expressly or by implication limiting the
Company's ability to engage in any business anywhere in the world;
(i) any contract to which the Company is a party and which
provides for, or relates to, any non-competition or confidentiality arrangement
with any Person, including any current or former officer or employee of the
Company;
(j) any contract or group of related contracts for capital
expenditures in excess of $10,000 for any single project or related series of
projects; and
(k) any other contract which involves payments or receipts by the
Company of more than $10,000 during any calendar year period or more than
$25,000 in the aggregate.
Section 3.24 Status of Contracts.
(a) Each of the leases, contracts and other agreements listed on
Schedules 3.13, 3.16, 3.17, 3.22(a) and 3.23 (collectively, the "Material
Contracts"), constitutes a valid and binding obligation of the Company and, to
the Knowledge of the Company, the other parties thereto, and is in full force
and effect and each of the Material Contracts (except as set forth in Schedule
3.24 and except for those Material Contracts which by their terms will expire
prior to the Closing Date or will be otherwise terminated prior to the Closing
Date in accordance with the provisions hereof) will continue in full force and
effect after the Closing Date, in each case without breaching the terms thereof
or resulting in the forfeiture or impairment of any material rights thereunder
and without the consent, approval or act of, or the making of any filing with,
any other party. The Company has fulfilled and performed its obligations under
each of the Material Contracts in all material respects and the Company is not
in, or, to the Knowledge of the Company, alleged to be in, breach or default
under, nor is there or, to the Knowledge of the Company, is there alleged to be
any basis for termination of any of the Material Contracts the effect of which
would result in a Material Adverse Effect on the Company. To the Knowledge of
the Company, no other party to any of the Material Contracts has breached or
defaulted thereunder in any material respect. No event has occurred and no
condition or state of facts exists which, with the passage of time or the giving
of notice or both, would constitute such a default or breach by the Company or,
to the Knowledge of the Company, by any other party the effect of which would
result in a Material Adverse Effect on the Company. Except as set forth in
Schedule 3.24, the Company is not currently renegotiating any of the Material
Contracts other than in the ordinary course of business or paying liquidated
damages in lieu of performance thereunder.
(b) Notwithstanding the provisions of Section 3.24(a), the FDC
Contract constitutes a valid and binding obligation of the Company and is in
full force and effect and will continue in full force and effect after the
Closing Date, without breaching the terms thereof or resulting in the forfeiture
or impairment of any rights thereunder and without the consent, approval or act
of, or the making of any filing with, any other party. Schedule 3.24 sets forth
a description of the current status of and performance by the Company under the
FDC Contract. The Company has fulfilled and performed its obligations under the
FDC Contract and is not in or alleged to be in, breach or default under, nor is
there alleged to be any basis for termination of any of the FDC Contract. To the
Knowledge of the Company, no other party to the FDC Contract has breached or
defaulted thereunder. No event has occurred and no condition or state of facts
exists which, with the passage of time or the giving of notice or both, would
constitute such a default or breach by the Company or, to the Knowledge of the
Company, by any other party. The Company is not currently renegotiating the FDC
Contract or paying liquidated damages in lieu of performance thereunder. A true
and correct executed copy of the FDC Contract is attached hereto as Exhibit C.
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Section 3.25 No Violation, Litigation or Regulatory Action. Except as
set forth on Schedule 3.25:
(a) The Company has complied in all material respects with all
laws, regulations or rules of any Governmental Body which are applicable to the
Company and there are no writs, injunctions, ordinances, franchises, decrees,
stipulations, judgments or awards which are applicable to the Business or to
which the Company or any of its properties are subject or bound;
(b) No notice has been served upon the Company by any
Governmental Body or other person of any violation of any Requirements of Law or
calling attention to the necessity of any work, repairs, new construction,
installation or alteration of any real or personal property owned, leased or
used by the Company;
(c) There are no lawsuits, claims, suits, proceedings pending or,
to the Knowledge of the Company, threatened against the Company or any of its
officers, directors or any holder of an excess of five percent (5%) of Company
Common Stock (a "Company 5% Stockholder") or investigations pending regarding
the Company (or any of its officers, directors or Company 5% Stockholders) nor,
to the Knowledge of the Company, is there any basis for any of the same, and
there are no lawsuits, suits or proceedings pending or contemplated in which the
Company is the plaintiff or claimant in which an adverse judgment against such
party would result in a Material Adverse Effect on the Company; and
(d) There is no action, suit or proceeding pending or, to the
Knowledge of the Company, threatened which questions the legality or propriety
of the transactions contemplated by this Agreement or the Merger Agreement.
Section 3.26 Insurance. The Company maintains policies of fire and
casualty, liability (general, products and other liability), workers'
compensation, and other forms of insurance and bonds in such amounts and against
such risks and losses as the Company deems adequate. Schedule 3.26 sets forth a
list and brief description (including nature of coverage, limits, deductibles,
premiums and the loss experience for the most recent three years with respect to
each type of coverage) of all policies of insurance maintained, owned or held by
the Company during the period from September 30, 1999 up to and including the
date hereof. The Company shall keep or cause such insurance or comparable
insurance to be kept in full force and effect through the Effective Time. The
Company has complied with each of such insurance policies in all material
respects and has not failed to give any notice or present any claim thereunder
in a due and timely manner. Except as disclosed in Schedule 3.26, the full
policy limits (subject to deductibles provided in such policies and the terms of
such policies generally) are available and unimpaired under each such policy and
to the Knowledge of the Company, no insurer under any of such policies has a
basis to void such policy on grounds of non-disclosure on the part of the
policyholder or the insured thereunder. Each of such policies is in full force
and effect and will not in any material way be affected by or terminate or lapse
by reason of the transactions contemplated by this Agreement. The Company has
delivered or otherwise made available to Parent correct and complete copies of
the most recent inspection reports, if any, received from insurance underwriters
as to the condition of the Company's assets.
Section 3.27 Environmental Protection. (a) Except as set forth in
Schedule 3.27, to the Knowledge of the Company, all real property (including
underlying groundwater) whether currently or heretofore operated or leased by
the Company has been, during any period of operation or leasing by the Company,
and, to the extent currently operated or leased by the Company, continues to be
in compliance with all applicable federal, state or local statutes, laws,
ordinances, codes, rules, regulations, guidelines or any binding determinations
of any Governmental Body (including consent decrees and
19
administrative orders) relating to protection of the environment or public or
worker health and safety (collectively, "Environmental Laws"), except where
failure to be in such compliance would not result in a Material Adverse Effect
on the Company.
(b) Except as set forth in Schedule 3.27(b): (i) to the Knowledge
of the Company, the Company's past and present operations have complied and are
in compliance with all applicable Environmental Laws, except where failure to be
in such compliance would not result in a Material Adverse Effect on the Company;
(ii) the Company has obtained all environmental, health and safety Governmental
Permits necessary for the operation of its business, except where failure to
obtain the same would not result in a Material Adverse Effect on the Company,
and to the Knowledge of the Company all such Governmental Permits are in good
standing and the Company is in compliance with all material terms and conditions
of such permits, except where failure to be in such compliance would not result
in a Material Adverse Effect on the Company; (iii) none of the Company, nor any
of the Company's Facilities or its past or present operations, is subject to any
on-going investigation by, order from or agreement with any Person (including
without limitation any prior owner or operator of any Company property)
respecting (A) any Environmental Laws, (B) any Remedial Action or (C) any claim
of Losses and Expenses arising from the Release or threatened Release of a
Contaminant into the environment; and (iv) the Company is not subject to any
judicial or administrative proceeding, order, judgment, decree or settlement
alleging or addressing a violation of or liability under any Environmental Laws.
(c) To the Knowledge of the Company there has been no Release by
the Company of any Contaminant on, in, under or from any Facility now or
previously owned by the Company.
(d) To the Knowledge of the Company, the Company is not liable
for the environmental liabilities of any third party, whether by contractual
agreement or operation of law.
(e) Schedule 3.27(e) sets forth a true and complete list of each
Facility previously operated or leased by the Company.
Section 3.28 Customers and Suppliers. Except as set forth in Schedule
3.28, to the Knowledge of the Company, there exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship of the Company with any customer or group of customers
or supplier or group of suppliers which would result in a Material Adverse
Effect on the Company.
Section 3.29 Shareholders' Assets. None of the Shareholders owns,
directly or indirectly, any assets or properties relating to or used by the
Company in the Business.
Section 3.30 No Finder. The Company has not paid or become obligated to
pay any fee or commission to any broker, finder or intermediary for or on
account of the transactions contemplated by this Agreement.
Section 3.31 Transactions with Affiliates. Except as set forth on
Schedule 3.31, no officer, director or other Affiliate of the Company (including
spouses, children and other relatives of any of the foregoing) is a party to any
agreement, contract, arrangement or transaction with the Company or has any
interest in any property (real or personal or mixed, tangible or intangible)
owned or leased by the Company.
20
Section 3.32 Budget and Financial Projections. (a) Schedule 3.32 sets
forth (i) as of the date hereof the budgets of capital, payroll and other
expenditures of the Company prepared in the ordinary course of business for the
fiscal year ending December 31, 2002 (collectively, the "Budget") and (ii) the
total capital expenditures through December 31, 2002, if any, for each capital
expenditure project for which funds are proposed to be expended during such
fiscal year.
(b) The Company has made available to Parent certain financial
projections with respect to the Company, which projections were prepared for
internal use only. The Company makes no representation or warranty regarding the
accuracy of such projections or as to whether such projections will be achieved
or otherwise, except that the Company represents and warrants that such
projections were prepared in good faith and are based on assumptions believed by
them to be reasonable.
Section 3.33 Bank Accounts; Powers of Attorney; Minute Books. (a)
Schedule 3.33 sets forth a complete and correct list of all bank accounts and
safe deposit boxes of the Company and persons authorized to sign or otherwise
act with respect thereto as of the date hereof and a complete and correct list
of all persons holding a general or special power of attorney granted by the
Company and a complete and correct copy thereof.
(b) True and complete copies of the minute books of the Company
have been delivered to Parent. Such minute books contain true and complete
records of all meetings and other corporate action taken by the Board of
Directors and stockholders of the Company
Section 3.34 Shareholder Meeting Notice. The Shareholder Meeting Notice
to be prepared by the Company in accordance with Section 5.12 and used in
connection with the Shareholders Meeting will, when prepared by the Company and
distributed to the Shareholders, comply in all material respects with the
provisions of the MGCL.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SIGNIFICANT SHAREHOLDERS
Each Significant Shareholder, severally and not jointly,
represents and warrants to Parent as follows:
Section 4.1 Authority. Such Significant Shareholder has the capacity to
enter into this Agreement, the Registration Rights Agreement, the applicable
Employment Agreement and the applicable Stock Escrow Agreement, to consummate
the transactions contemplated hereby and thereby and to comply with the terms,
conditions and provisions hereof and thereof. This Agreement, the Registration
Rights Agreement, the applicable Employment Agreement and the applicable Stock
Escrow Agreement when executed and delivered by a Significant Stockholder will
constitute the valid and binding obligations of such Significant Shareholder,
enforceable in accordance with its terms, subject to (a) general principles of
equity, regardless of whether enforcement is sought in a proceeding in equity or
at law, and (b) bankruptcy, reorganization, insolvency, fraudulent conveyance,
moratorium, receivership or other similar laws relating to or affecting
creditors' rights generally. Each Significant Shareholder has executed and
delivered to the Company and Parent a written consent whereby such Significant
Shareholder has indicated such Significant Shareholder's consent to and approval
of the execution and delivery of this Agreement and the Merger Agreement and the
consummation of the transactions contemplated hereby and thereby and such
Significant Shareholder has waived such Significant Shareholder's rights of
appraisal under the MGCL with respect to the Merger and any rights such
Significant Shareholder may have to pursue a claim against the members of the
Company's Board of Directors for breach of fiduciary duty in approving the
Merger.
21
Section 4.2 Non-Contravention; Required Consents. Except as set forth on
Schedule 4.2 attached hereto, neither the execution of this Agreement, the
Registration Rights Agreement, the applicable Employment Agreement and the
applicable Stock Escrow Agreement by such Significant Shareholder nor the
consummation of the transactions contemplated hereby or thereby (a) will result
in the breach of any term or provision of, constitute a default under, or
accelerate or change the performance otherwise required under, or result in the
creation of any Encumbrance upon any Company Common Stock owned by such
Significant Shareholder pursuant to, any agreement (including without limitation
any loan agreement or promissory note), indenture, instrument, order, law or
regulation to which such Significant Shareholder is a party or by which such
Significant Shareholder is bound or (b) require the approval, consent, waiver,
authorization or act of, or the making by such Significant Shareholder of any
declaration, filing or registration with any third party or any Governmental
Body.
Section 4.3 Compliance with Law. Each Significant Shareholder
acknowledges that the shares of Parent Common Stock to be delivered to such
Significant Shareholder pursuant to this Agreement have not been and will not be
registered under the Securities Act or any state securities laws (except as
provided in the Registration Rights Agreement) and may not be resold without
compliance with the Securities Act, any applicable state securities laws. Each
Significant Shareholder further represents, warrants and covenants that (a) the
shares of Parent Common Stock to be acquired by such Significant Shareholder
pursuant to this Agreement are being acquired solely for his own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution, and (b) none of
the shares of Parent Common Stock issued to such Significant Shareholder will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act and the rules and regulations of the SEC and after full
compliance with any applicable state securities laws.
Section 4.4 Legal Counsel. Each Significant Shareholder understands that
it is his, her or its responsibility to obtain its own legal and financial
advisors (including tax advisors) with respect to this Agreement and the
transactions contemplated hereby, and that Xxxxxxxx Xxxxxx is representing only
the Company in connection with this Agreement and not any individual
Shareholder.
ARTICLE V
ADDITIONAL AGREEMENTS OF THE PARTIES
Section 5.1 Ordinary Course. The Company and the Significant
Shareholders, severally (and not jointly), covenant that prior to the Closing,
without Parent's written consent, the Company shall not:
(a) subject to the exceptions expressly set forth herein, take or
authorize any of the actions prohibited pursuant to Section 3.7(b);
(b) issue or sell any shares of its capital stock of any class
(other than pursuant to exercised options), or issue or sell any securities
convertible into, or options with respect to, or warrants to purchase or rights
to subscribe to, any shares of its capital stock of any class, or make any
commitment to issue or sell any such shares or securities; provided, however,
that upon written notice to Parent, the Company may issue up to 250,000 stock
options pursuant to the Company Stock Plan to employees eligible for such stock
options;
(c) directly or indirectly solicit or negotiate with respect to
any inquiries or proposals from any person relating to: (i) the merger or
consolidation of the Company with any person; (ii) the direct or indirect
acquisition by any person of any of the assets of the Company (other than the
sale of assets in the ordinary course of business consistent with past practice,
not otherwise prohibited by this
22
Section 5.1); or (iii) the acquisition of direct or indirect beneficial
ownership or control of the Company or any securities thereof by any person;
provided, however, that nothing contained herein shall prohibit the Board of
Directors of the Company from furnishing information to, or entering into
discussions or negotiations with (in each case pursuant to a confidentiality
agreement), any Person in response to any unsolicited offer or proposal by such
Person to acquire the Company pursuant to merger, consolidation, share exchange,
business combination or other similar transaction or to acquire all or
substantially all of the assets of the Company, if, and only to the extent that,
the Board of Directors of the Company, after consultation with outside legal
counsel (which may include regularly engaged outside legal counsel), determines
in good faith that such action is required to comply with its fiduciary duties
to the Shareholders pursuant to applicable law;
(d) except as required by law or as is consistent with GAAP,
prepare or file any Tax Return of the Company inconsistent with past practice
or, on any such Tax Return, take any position, make any election, or adopt any
method that is inconsistent with positions taken, elections made or methods used
in preparing or filing similar Tax Returns of the Company in prior periods
(including, without limitation, positions, elections or methods which would have
the effect of deferring income to periods ending after the Closing Date or
accelerating deductions to periods ending on or prior to the Closing Date); or
(e) agree or commit to do or authorize any of the foregoing.
Section 5.2 Access Prior to Closing; Certain Notices. (a) Upon reasonable
notice, the Significant Shareholders and the Company and each of its directors,
officers, legal and financial advisors and employees shall afford to Parent and
its representatives (including, without limitation, its independent public
accountants, banks or other lenders' representatives and attorneys) reasonable
access during regular business hours from the date hereof through the Closing to
any and all of the premises, properties, contracts, books, records, data and
personnel of the Company or relating to its operations. The Significant
Shareholders and the Company shall notify promptly Parent of any change or event
which would reasonably be expected to result in a Material Adverse Effect on the
Company.
(b) The Company covenants that prior to the Closing the Company
will promptly notify Parent of any notice or any pending, threatened or
contemplated lawsuit, claim, suit, proceeding or Governmental Body investigation
which, if existing on the date hereof, would have been disclosable pursuant to
Section 3.25(b) or (c).
Section 5.3 Regulatory and Other Authorizations. Parent, the Company and
the Significant Shareholders will act diligently and reasonably and cooperate in
good faith with each other, to secure before the Closing Date, each consent,
approval or waiver, in form and substance reasonably satisfactory to the Company
or Parent, required to be obtained to satisfy the conditions set forth in
Section 6.1 and Section 6.2 below; provided, that, none of the Company, any of
the Significant Shareholders, Parent or Mergerco shall have any obligation to
pay any consideration in order to obtain any such consents or approvals.
Section 5.4 Further Assurances. At any time and from time to time at or
after the Closing, the parties agree to cooperate with each other, to execute
and deliver such other documents, instruments of transfer or assignment, files,
books and records and do all such further acts and things as may be reasonably
required to carry out the transactions contemplated hereby.
Section 5.5 Financial Statements.
23
(a) The Company shall promptly provide to Parent copies of any
financial statements prepared with respect to the Company as of a date or for a
period subsequent to that reflected in the Company's Financial Statements.
(b) Parent shall promptly provide to the Company copies of any
financial statements prepared with respect to Parent as of a date or for a
period subsequent to the date of this Agreement.
Section 5.6 Delivery of Documents. Subject to the satisfaction of the
conditions to their respective obligations contained in Article VI, the parties
shall cause the delivery of the respective documents required to be delivered or
caused to be delivered by them pursuant to Article VII.
Section 5.7 Employees and Continued Operations.
(a) In addition to entering into the Xxxxxxxxx Employment
Agreement, the Schetina Employment Agreement, the Xxxxxxx Employment Agreement,
and the Xxxxx Employment Agreement, unless Parent obtains the consent of Xxx
Xxxxxxxxx (which consent shall not be unreasonably withheld), Parent shall hire,
offer employment or otherwise continue the work and employment of all employees
of the Company (only to the extent such employment is accepted by such
employees) on the same or substantially similar terms as they existed
immediately preceding the Closing Date, including with respect to terms of
employment, position, duties and responsibilities, work location, rate of pay or
salary, level and coverage of benefits, and other aspects of employment,
provided, however, such obligation shall continue only for a period of nine
months after the Closing, subject to Parent's right to terminate employees that
have violated Parent's internal policies or procedures, consistently applied. As
a condition to such employment with Parent, each of the Company's current
employees shall execute Parent's standard confidentiality and non-disclosure
agreement as set forth on Schedule 5.7(a) hereto.
(b) Parent shall not (without the consent of Xxx Xxxxxxxxx which
consent shall not be unreasonably withheld) permanently or temporarily shut down
or materially alter the Business and shall use its best efforts to assure the
continued operation and financial success of the Company and the Business for a
period of nine months after the Closing, including but not limited to preserving
intact the business of the Company and maintaining good relationships with
suppliers and customers and others having business relations with the Company.
Furthermore, without limiting the foregoing, following the Closing, Parent shall
provide the Company with adequate working capital to fund the Business for a
period of not less than nine months as set forth on Schedule 5.7(b).
(c) Upon execution of this Agreement and until the Closing or
termination hereof, Parent shall provide the Company working capital advances in
such amounts and at such increments as set forth in Schedule 5.7(c) (the
"Working Capital Advances"), pursuant to an agreement in the form attached
hereto as Exhibit D.
Section 5.8 Use of Trade Names. Parent and Surviving Corporation and
their Affiliates shall, after the Effective Time, have the exclusive and
royalty-free right to use the names "TrustWave" and "Trustkeeper" in connection
with the goods and services currently offered by the Company.
Section 5.9 Transfer of Company Common Stock; Agreement to Vote for
Merger.
(a) Each Significant Shareholder covenants that prior to the
Closing, without Parent's written consent, such Significant Shareholder shall
not (i) sell, transfer, mortgage, pledge, otherwise dispose of or suffer to be
imposed any Encumbrance on any share of Company Common Stock held by such
Significant Shareholder or (ii) grant to any person (other than Parent or
Mergerco) any proxy or
24
other right to vote any shares of Company Common Stock held by such Significant
Shareholder or over which such Significant Shareholder exercises voting power in
a manner that would be inconsistent with its covenants set forth in this
Agreement.
(b) Each Significant Shareholder hereby agrees to vote, or cause
there to be voted, at the Shareholders Meeting, or any adjournment thereof, any
and all shares of Company Common Stock held by such Significant Shareholder or
over which such Significant Shareholder exercises voting power to approve the
Merger Agreement and the Merger.
Section 5.10 Preserve Accuracy of Representations and Warranties. Between
the date hereof and the Closing Date, each of the parties hereto shall refrain
from taking any action which would render any of its, his or her respective
representations or warranties contained in Article II, III, or IV of this
Agreement inaccurate as of the Closing Date, after taking into effect any
amendments or supplements to the Parent Disclosure Schedules delivered by Parent
pursuant to Section 5.18. Each party shall promptly notify the other of any
action, suit or proceeding that has been instituted or threatened against such
party to restrain, prohibit or otherwise challenge the legality of any
transaction contemplated by this Agreement or the Merger Agreement.
Section 5.11 Notification by the Parties of Certain Matters. Each of the
parties hereto shall promptly advise the other parties hereto in writing of (i)
any change or event having a Material Adverse Effect on such party, (ii) any
notice or other communication from any third Person alleging that the consent of
such third Person is or may be required in connection with the transactions
contemplated by this Agreement, and (iii) any material default under any
Material Contract or event which, with notice or lapse of time or both, would
become such a default on or prior to the Effective Time and of which the Company
has Knowledge.
Section 5.12 Necessary Actions. Parent, Mergerco, the Company and the
Significant Shareholders shall use all reasonable efforts to effect the Merger
as promptly as possible after the date hereof including, but not limited to,
holding a special meeting of the Shareholders at which the Merger Agreement and
the Merger will be considered for approval (the "Shareholders Meeting"). The
Company shall prepare a notice of the Shareholders Meeting (the "Shareholder
Meeting Notice"), as promptly as possible after the date hereof and shall submit
the proposed Shareholder Meeting Notice to Parent and its counsel not less than
5 days prior to submitting the Shareholder Meeting Notice to the Shareholders.
The Company covenants and agrees that at the time of mailing of the Shareholder
Meeting Notice to the Shareholders, at the time of the Shareholders Meeting and
at the Effective Time the Shareholder Meeting Notice shall comply in all
material respects with the MGCL. The Company and the Significant Stockholders
shall use all reasonable efforts to hold the Shareholders Meeting before January
23, 2003. The Shareholder Meeting Notice and the submission thereof to the
Shareholders, the Board of Directors meeting approving this Agreement, the
Merger Agreement, the Merger and authorizing submission of the Merger for
approval of Shareholders and the Shareholders Meeting shall each comply in all
material respects with the requirements of the MGCL and the Company's Articles
of Incorporation and By-laws and all other applicable laws, including all common
laws and all applicable rules and regulations of Governmental Bodies.
Section 5.13 No Assurance of IPO. The Company and the Significant
Shareholders acknowledge and agree:
(a) that there exists no firm commitment, binding agreement, or
promise or other assurance of any kind, whether express or implied, oral
or written, that an IPO (or any other
25
public offering of the capital stock of Parent) will occur at a
particular price or within a particular range of prices or occur at all;
(b) that neither Parent, any of its subsidiaries, any of their
respective officers, directors, agents or representatives nor any
prospective underwriter shall have any liability to the Company, any
Shareholder or any other person or entity affiliated or associated with
the Company for any failure of an IPO (or any other public offering of
the capital stock of Parent) to occur at a particular price or within a
particular range of prices or to occur at all; and
(c) that the decision of each Significant Shareholder to enter
into this Agreement, or the decision of each Shareholder to vote in favor
of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or
other communications, or due diligence investigations which have been or
will be made or performed by any prospective underwriter or by Parent
personnel, relative to Parent or any possible IPO (or any other public
offering of the capital stock of Parent).
Section 5.14 Reorganization. Subject to Section 1.1, during the period
from the date of this Agreement through the Effective Time, unless the other
parties hereto shall otherwise agree in writing, none of Parent, Mergerco, the
Company, the Significant Shareholders or any of their respective subsidiaries
shall knowingly take or fail to take any action which action or failure would
cause the Merger to fail to qualify as a reorganization within the meaning of
Section 368(a) of the Code.
Section 5.15 Taxes. (a) Any stock transfer Taxes, sales Taxes, use Taxes,
real estate transfer or gains Taxes, or other similar Taxes applicable to the
Company, the Surviving Corporation or the Shareholders and attributable to the
Merger shall be paid by the Significant Shareholders. Parent agrees to timely
sign and deliver such certificates or forms as may be necessary or appropriate
to establish an exemption from (or otherwise reduce), or file Tax Returns with
respect to, such Taxes. The Significant Shareholders shall provide reimbursement
for any Tax paid by Parent all or a portion of which is the responsibility of
the Significant Shareholders in accordance with the terms of this Section 5.15.
Within a reasonable time prior to the payment of any said Tax, the party paying
such Tax shall give notice to the other party of the Tax payable.
(b) After the Closing Date, each of the Significant Shareholders
shall (and cause their respective Affiliates to):
(i) at Parent's request, assist Parent in preparing any Tax
Returns which Parent is responsible for preparing and filing;
(ii) cooperate fully in preparing for and participating in any
audits of, requests for information from, or disputes with taxing
authorities regarding, any Tax Returns or Taxes assessed in respect of
the Company; and
(iii) furnish the other with copies of all correspondence received
from any taxing authority in connection with any Tax audit or information
request with respect to any such taxable period.
(c) Notwithstanding anything to the contrary in this Agreement,
the obligations of the Significant Shareholders set forth in this Section 5.15
shall be unconditional and absolute and shall remain in effect without
limitation as to time.
26
Section 5.16 Promissory Note. Prior to the Effective Time, the Company
shall use commercially reasonable efforts to restructure the Promissory Note, to
Parent's reasonable satisfaction, in order to extend the term of the Promissory
Note and remove the provisions of the Promissory Note relating to the conversion
of the Promissory Note into Company Common Stock.
Section 5.17 Indebtedness. The Company shall use commercially reasonable
efforts to restructure all monies lent (other than the Promissory Note) or debts
owed by the Company to any of its employees or third parties, in each case, to
Parent's reasonable satisfaction.
Section 5.18 Update of the Parent Disclosure Schedules. Subsequent to the
Patron Holdings Merger, but not later than ten business days prior to the
Effective Date, Parent shall supplement or amend the Parent Disclosure Schedules
as necessary to reflect any and all facts, conditions, occurrences, changes and
other matters, in each case occurring solely and directly as a result of the
Patron Holdings Merger, which are necessary to correct any information in such
Parent Disclosure Schedules which has been rendered inaccurate thereby and/or
that has caused or may cause Parent's representations and warranties contained
herein not to be true and correct in all respects. Any such supplement or
amendment to the Parent Disclosure Schedules shall, as of the date of delivery
to the Company, be deemed to constitute a part of Parent's representations and
warranties set forth in this Agreement and, from and after any such supplement
or amendment, the accuracy or completeness of Parent's representations and
warranties and the Parent Disclosure Schedules shall be determined by reference
to the representations, warranties and Parent Disclosure Schedules, as so
supplemented or amended.
Section 5.19 Patron Holdings Merger. The parties hereto agree to
negotiate in good faith any amendments to this Agreement, the Exhibits and the
Merger Agreement deemed necessary by the parties hereto to effect the
transactions contemplated hereby following the completion of the Patron Holdings
Merger.
Section 5.20 Governance Matters. The Board of Directors of Parent shall
take all necessary action such that, as of the Effective Time, the Board of
Directors of Parent shall be increased by one directorship, consisting of one
additional directorship with respect to the class of directors to be elected in
2004. The Board of Directors of Parent shall take all necessary action such that
the individual named on Schedule 5.20 is elected to fill the newly created
directorship immediately after the effectiveness of such directorship.
Section 5.21 Employee Bonuses. Subsequent to the Closing Date, Parent
shall or shall cause the Surviving Corporation to, pay bonuses to certain
employees of the Company in the amounts specified on Schedule 5.21 (the "Company
Bonus Payments"); provided, that such amounts will be reduced by the Company to
the extent that prior to the Effective Time any such employee exercises any of
the Company Stock Options listed on Schedule 5.21.
Section 5.22 Section 341 Election. Prior to the Closing, the Company will
file a consent with the Internal Revenue Service pursuant to Section 341 of the
Code to have Section 341(f)(2) of the Code apply to any disposition by it of
subsection (f) assets as provided in that section.
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ARTICLE VI
CONDITIONS TO CLOSING
Section 6.1 The Company's and the Significant Shareholders' Conditions to
Close. The obligations of the Company and the Significant Shareholders under
this Agreement are subject to the satisfaction at or prior to the Closing of
each of the following conditions, but compliance with any or all of such
conditions may be waived, in writing, by the Company or the Significant
Shareholders, as the case may be:
(a) The representations and warranties of Parent contained in this
Agreement shall be true and correct in all material respects on the date hereof
and on the Closing Date (except to the extent that they expressly relate to an
earlier date);
(b) Parent shall have performed and complied with all of the
covenants and agreements contained in this Agreement (other than in Section 5.6)
in all material respects and satisfied all of the conditions required by this
Agreement to be performed or complied with or satisfied by Parent at or prior to
the Closing;
(c) Parent and the Company shall have received all approvals and
actions of or by all Governmental Bodies, which are necessary to consummate the
transactions contemplated hereby;
(d) On the Closing Date, there shall be no injunction, restraining
order or decree of any nature of any court or Governmental Body in effect that
restrains or prohibits the consummation of the transactions contemplated by this
Agreement or the Merger Agreement;
(e) No action, suit or proceeding shall have been instituted by
any person or entity (other than the Company or any Significant Shareholder), or
threatened by any Governmental Body, before a court or Governmental Body, to
restrain or prevent the carrying out of the transactions contemplated by this
Agreement and the Merger Agreement;
(f) The Merger and the Merger Agreement shall have been duly
approved by the affirmative vote of the holders of not less than two-thirds of
the shares of Company Common Stock outstanding and entitled to vote with respect
thereto;
(g) Parent and Mergerco shall have executed and delivered to the
respective party thereto the Xxxxxxxxx Employment Agreement, the Schetina
Employment Agreement, the Xxxxxxx Employment Agreement and the Xxxxx Employment
Agreement;
(h) Parent shall have executed and delivered to the Shareholders
the Registration Rights Agreement, as amended, in the form attached hereto as
Exhibit E (the "Registration Rights Agreement");
(i) Parent shall have executed and delivered to the Shareholders
the Post-Closing Notes;
(j) Xxxxxxx Xxxxx shall have entered into a Stock Escrow
Agreement, in the form of Exhibit K hereto (the "Allin Escrow Agreement"), Xxxxx
Xxxxxxx shall have entered into a Stock Escrow Agreement, in the form of Exhibit
L hereto (the "Xxxxxxx Escrow Agreement"), and Xxxx Xxxxxxx shall have entered
into a Stock Escrow Agreement, in the form of Exhibit M hereto (the "Linting
Escrow Agreement") and Parent shall have executed and delivered to the
respective party thereto the Allin Stock Escrow Agreement, the Xxxxxxx Stock
Escrow Agreement, the Linting Stock Escrow Agreement, the Xxxxxxxxx Stock Escrow
Agreement and the Schetina Stock Escrow Agreement;
28
(k) Parent shall have settled any outstanding disputes with Lok
Technology, Inc., a Delaware corporation;
(l) A certificate, dated as of the Closing, signed by an officer
of Parent to the effect set forth in clauses (a) through (f), inclusive, of this
Section 6.1;
(m) The Trust Agreement shall have been terminated;
(n) Receipt by the Company and the Significant Shareholders of a
valuation opinion issued by a financial advisor reasonably acceptable to such
parties and their legal counsel and in a form reasonably acceptable to such
parties and their legal counsel opining as to the per share value of the shares
of Parent Common Stock issued on the Closing Date pursuant to Section 1.4(a)(i);
(o) There shall not have occurred any change which would or would
be reasonably likely to have a Material Adverse Effect on Parent and Parent
shall have operated in all material respects with the business plan attached
hereto as Exhibit J;
(p) The Employment Agreements executed by each of Xxxxxxx Xxxxx,
Chief Executive Officer of Parent, Xxxxxxx Xxxxxxx, President of Services of
Parent, and Xxxxx Xxxxxxx, President of Products of Parent, each attached hereto
as Exhibit P, shall be in full force and effect;
(q) The FDC Contract shall be in full force and effect and no
party thereto shall be in default thereunder and neither Bankcard Investigative
Group Inc., a Delaware corporation, nor any of its Affiliates, shall have
objected in writing to the transfer of the FDC Contract or otherwise indicated
in writing an intention to terminate or modify the FDC Contract in any manner;
(r) The Company shall have received an opinion, dated the Closing
Date, from Xxxxxxxx Xxxxxx, based upon such information as Xxxxxxxx Xxxxxx deems
necessary or appropriate dated the Closing Date (and which the parties agree to
provide as reasonably requested by counsel, including making reasonable
representations), to the effect that the Merger will qualify as a tax-free
reorganization under the provisions of Section 368(a)(1)(A) of the Code;
(s) The shareholders of Patron Holdings shall have approved the
Patron Holdings Merger and Parent and Patron Holdings shall have effected the
Patron Holdings Merger;
(t) Parent shall have consummated one or more additional rounds of
financing and shall have received at least $10,000,000 in connection therewith
in the form of equity or convertible debt; and
(u) The Company shall have received an opinion of counsel to
Parent, dated the Closing Date, substantially in the form attached hereto as
Exhibit Q.
Section 6.2 Parent's Conditions to Close. The obligations of Parent under
this Agreement are subject to the satisfaction at or prior to the Closing of
each of the following conditions, but compliance with any or all of any such
conditions may be waived, in writing, by Parent:
(a) The representations and warranties of the Company and the
Significant Shareholders contained in this Agreement shall be true and correct
on the date hereof in all material respects and on the Closing Date (except to
the extent that they expressly relate to an earlier date);
(b) The Company and the Significant Shareholders shall have
performed and complied with all the covenants and agreements contained in this
Agreement (other than Section 5.6), in all
29
material respects, and satisfied all the conditions required by this Agreement
to be performed or complied with or satisfied by it or them at or prior to the
Closing;
(c) Parent and the Company shall have received all approvals and
actions of or by all Governmental Bodies, which are necessary to consummate the
transactions contemplated hereby;
(d) On the Closing Date, there shall be no injunction, restraining
order or decree of any nature of any court or Governmental Body in effect that
restrains or prohibits the consummation of the transactions contemplated by this
Agreement or the Merger Agreement;
(e) No action, suit or proceeding shall have been instituted by
any person or entity (other than Parent), or threatened by any Governmental
Body, before a court or Governmental Body, to restrain or prevent the carrying
out of the transactions contemplated by this Agreement and the Merger Agreement;
(f) The Merger and the Merger Agreement shall have been duly
approved by the affirmative vote of the holders of not less than two-thirds of
the shares of Company Common Stock outstanding and entitled to vote with respect
thereto;
(g) The Company shall have received all necessary consents or
approvals, in form and substance reasonably satisfactory to Parent, to the
transactions contemplated by this Agreement as specified in Schedules 3.5 and
3.24 attached hereto, unless failure thereof would not result in a Material
Adverse Effect on the Company, including, but not limited to, all necessary
consents or approvals, if any, in form and substance reasonably satisfactory to
Parent, necessary for the assignment of the FDC Contract to the Surviving
Corporation;
(h) The shares of Company Common Stock representing Dissenting
Shares shall be no more than three percent (3%) of the issued and outstanding
shares of Company Common Stock immediately prior to the Effective Time;
(i) Since the Balance Sheet Date, there shall not have occurred
any change which would have or would be reasonably likely to have a Material
Adverse Effect with respect to the Company;
(j) Xxx Xxxxxxxxx shall have entered into an Employment Agreement,
in the form of Exhibit F hereto (the "Xxxxxxxxx Employment Agreement"), Xxxx
Xxxxxxxx shall have entered into an Employment Agreement, in the form of Exhibit
G hereto (the "Schetina Employment Agreement"), Xxxxx Xxxxxxx shall have entered
into an Employment Agreement, in the form of Exhibit H hereto (the "Xxxxxxx
Employment Agreement") and Xxxx Xxxxx shall have entered into an Employment
Agreement, in the form of Exhibit I hereto (the "Xxxxx Employment Agreement");
(k) The Shareholders shall have executed and delivered to Parent
the Registration Rights Agreement;
(l) Xxx Xxxxxxxxx shall have entered into a Stock Escrow
Agreement, in the form of Exhibit N hereto (the "Xxxxxxxxx Escrow Agreement")
and Xxxx Xxxxxxxx shall have entered into a Stock Escrow Agreement, in the form
of Exhibit O hereto (the "Schetina Escrow Agreement");
(m) Certificates, dated as of the Closing, signed by the
Significant Shareholders and by the President of the Company, respectively, to
the effect set forth in clauses (a), (b), and (i) of this Section 6.2, with the
Certificate signed by the President of the Company to be to the additional
effect set forth in clauses (c) through (i), inclusive, of this Section 6.2;
30
(n) The Company shall have used commercially reasonably efforts
to attempt to restructure the Promissory Note in accordance with Section 5.16;
(o) The Trust Agreement shall have been terminated; and
(p) The FDC Contract shall be in full force and effect and no
party thereto shall be in default thereunder and neither Bankcard Investigative
Group Inc., a Delaware corporation, nor any of its Affiliates, shall have
objected in writing to the transfer of the FDC Contract or otherwise indicated
in writing an intention to terminate or modify the FDC Contract in any manner.
ARTICLE VII
THE CLOSING
Section 7.1 Deliveries by the Company and the Significant Shareholders.
At the Closing, the Company and the Significant Shareholders shall deliver the
following to Parent, as the case may be:
(a) (i) A certificate of status as of a recent date from the Maryland
Secretary of State stating that the Company is a domestic corporation organized
and in good standing under the laws of Maryland and has not filed articles of
dissolution and (ii) a certificate of good standing as of a recent date from the
Delaware Secretary of State, the West Virginia Secretary of State and the
Washington Secretary of State, each stating that the Company is a foreign
corporation authorized to do business in that state, has filed the most recent
annual report required to be filed by it and has not filed articles of
dissolution;
(b) Copies of duly adopted resolutions of the Board of Directors of
the Company and the Shareholders approving the Merger and the execution,
delivery and performance of this Agreement and the Merger Agreement and the
other agreements and instruments contemplated hereby and thereby, certified by
the Secretary or Assistant Secretary of the Company;
(c) The duly executed Merger Agreement;
(d) The duly executed Employment Agreements;
(e) The duly executed Registration Rights Agreement;
(f) The duly executed Post-Closing Notes;
(g) The duly executed Stock Escrow Agreements;
(h) The certificate described in Section 6.2(m);
(i) A true and complete copy of the Articles of Incorporation, as in
effect on the Closing Date, of the Company, certified by the Secretary of State
of the State of Maryland, and a true and complete copy of the By-laws, as in
effect on the Closing Date, of the Company, certified by the Secretary of the
Company;
(j) Certificates representing all of the issued and outstanding shares
of Company Common Stock, together with duly executed stock powers;
(k) The Promissory Note, as restructured in accordance with Section
5.16;
31
(l) Documentation deemed adequate by Parent demonstrating the
satisfaction by the Company of the requirements of Section 5.17; and
(m) The Company Legal Expense Report (to be delivered two business
days prior to the Closing).
Section 7.2 Parent's Deliveries. At the Closing, Parent shall deliver the
following to the Company and the Significant Shareholders:
(a) Certificate of good standing from the Secretary of State of the
State of Delaware stating that Parent is a validly existing corporation in good
standing;
(b) Certificate of good standing from the Secretary of State of the
State of Maryland stating that Mergerco is a validly existing corporation in
good standing;
(c) Copies of duly adopted resolutions of Parent's and Mergerco's
Boards of Directors approving the execution, delivery and performance of this
Agreement and the Merger Agreement, certified by the Secretary or an Assistant
Secretary of Parent or Mergerco;
(d) The duly executed Merger Agreement;
(e) The duly executed Employment Agreements;
(f) The duly executed Registration Rights Agreement;
(g) The duly executed Post-Closing Notes;
(h) The duly executed Stock Escrow Agreements;
(i) The certificate described in Section 6.1(l);
(j) Documentation deemed adequate by the Company demonstrating
satisfaction by Parent of the requirements of Section 6.1(k);
(k) A true and complete copy of the Certificate of Incorporation as in
effect on the Closing Date, of Parent, certified by the Secretary of State of
the State of Delaware, and a true and complete copy of the By-laws, in effect on
the Closing Date, of Parent, certified by the Secretary of the Parent;
(l) The valuation opinion pursuant to Section 6.1(n); and
(m) Certificates representing all of the shares of Parent Common Stock
to be issued pursuant to Section 1.4(a)(i).
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnification by Significant Shareholders. As Parent's,
Mergerco's and the Surviving Corporation's sole and exclusive remedy for all
matters arising under and related to this Agreement, the Merger Agreement, the
other Transaction Documents and the transactions contemplated hereby and thereby
(other than equitable remedies related to fraud) and subject to the limitations
set
32
forth herein, each of the Significant Shareholders, severally (and not jointly),
agrees to indemnify and hold harmless Parent and the Surviving Corporation from
and against any and all Losses and Expenses incurred by Parent or the Surviving
Corporation in connection with or arising from:
(a) any breach by any Significant Shareholder or the Company of, or
other failure by any Significant Shareholder or the Company to perform, any of
the covenants of any Significant Shareholder or the Company contained in this
Agreement or in any other agreement (other than the Employment Agreements)
executed and delivered by or on behalf of any Significant Shareholder or the
Company pursuant to this Agreement or in any certificate or other document
delivered by any Significant Shareholder or the Company pursuant to this
Agreement;
(b) any breach of any warranty or the inaccuracy of any
representation of the Company or any Significant Shareholder contained in this
Agreement or any certificate or other document delivered by or on behalf of the
Company or any Significant Shareholder pursuant to this Agreement; and
(c) any and all stock transfer Taxes or gains Taxes, sales Taxes, or
other similar Taxes imposed by the State of Maryland or any other state, or any
political subdivision thereof, as a result of the transactions contemplated by
this Agreement or the Merger Agreement;
provided, however, that the Significant Shareholders shall not be required to
indemnify and hold harmless Parent or the Surviving Corporation under this
Section 8.1 with respect to any Loss and Expense incurred by Parent or the
Surviving Corporation as a result of any breach, inaccuracy, proceeding or other
situation described in paragraphs (a), (b) and (c) of this Section 8.1 (other
than any fraudulent breach or inaccuracy) until the aggregate amount of all Loss
and Expense incurred by Parent or the Surviving Corporation (or by them
collectively) with respect to paragraph (b) exceeds $100,000; provided, further,
that if such Loss and Expense incurred by Parent or the Surviving Corporation
(or by them collectively) exceeds $100,000, then Parent and the Surviving
Corporation shall be indemnified against any and all such Loss and Expense
incurred hereunder in excess of $100,000; provided, further, that the aggregate
amount to be paid by each Significant Shareholder pursuant this Section 8.1
shall not exceed the total aggregate amount of Merger Consideration received by
such Significant Shareholder. Parent and the Surviving Corporation acknowledge
and agree that the obligation to indemnify and hold harmless pursuant to this
Section 8.1 is a several (and not joint) obligation of each of the Significant
Shareholders. The Significant Shareholders acknowledge and agree that the
obligation to indemnify and hold harmless pursuant to this Section 8.1 is an
obligation solely of the Significant Shareholders and that, from and after the
Closing, none of the Significant Shareholders shall have any right of
contribution from the Company or the Surviving Corporation, its successors, or
any assigns of any of them in respect of the obligations of the Significant
Shareholders under this Section 8.1 and that the right to recover from the
Significant Shareholders shall not require Parent to seek any recovery from the
Company or the Surviving Corporation in respect of any Loss or Expense. In the
event that Parent or the Surviving Corporation is entitled to indemnification in
respect of any Loss or Expense pursuant to this Section 8.1, the Significant
Shareholders may satisfy any and all such claims, in each Significant
Shareholder's sole and absolute discretion, with cash and/or shares of Parent
Common Stock. Each share of the Parent Common Stock shall be deemed to have a
value equal to its Fair Market Value. "Fair Market Value" means as to each share
of Parent Common Stock, (i) the closing sales price if such security is listed
on a national securities exchange, or if not, reported on the NASDAQ National
Market System, or if there have been no sales on any such exchange or the NASDAQ
National Market System on any day, the average of the highest bid and lowest
asked prices at the end of such day, or if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, on such day, or if on any day such
security is not
33
quoted in the NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the day as of
which "Fair Market Value" is being determined and the 20 consecutive business
days prior to such day; provided, that, if such security is listed on any
national securities exchange, the term "business days" as used in this sentence
means business days on which such exchange is open for trading and (ii) as to
any security not listed on any national securities exchange or the NASDAQ
National Market System or quoted in the NASDAQ System or the domestic
over-the-counter market, the fair value thereof determined in good faith by the
mutual agreement of Parent and the Significant Shareholders or, if Parent and
the Significant Shareholders are unable to agree, by an investment banker or
valuation service selected by Parent (the fees and costs of which investment
banker or valuation service shall be shared equally by Parent and the
Significant Shareholders).
Section 8.2 Indemnification by Parent. Parent and the Surviving
Corporation jointly and severally agree to indemnify and hold harmless each
Significant Shareholder from and against any and all Losses and Expenses
incurred by such Significant Shareholder in connection with or arising from:
(a) any breach by Parent or Mergerco of, or other failure by Parent
or Mergerco to perform, any of the covenants of Parent or Mergerco contained in
this Agreement or in any other Agreement (other than the Employment Agreements)
executed on behalf of Parent or Mergerco pursuant to this Agreement or in any
certificate or other document delivered by Parent or Mergerco pursuant to this
Agreement; and
(b) any breach of any warranty or the inaccuracy of any
representation of Parent or Mergerco contained in this Agreement or any
certificate or other document delivered on behalf of Parent or Mergerco pursuant
to this Agreement;
provided, however, that Parent and the Surviving Corporation shall not be
required to indemnify and hold harmless under this Section 8.2 with respect to
any Loss or Expense incurred as a result of any breach, inaccuracy, proceeding
or other situation described in paragraphs (a) and (b) of this Section 8.2
(other than fraudulent breach or inaccuracy) until the aggregate amount of all
Loss and Expense incurred by the Significant Shareholders with respect to
paragraph (b) exceeds $20,000; provided further that if such Loss and Expense
incurred by the Significant Shareholder exceeds $20,000, then the Significant
Shareholders shall be indemnified against all such Loss and Expense incurred
hereunder in excess of $20,000; provided, further, that the aggregate amount to
be paid by Parent pursuant to this Section 8.2 shall not exceed the total amount
of Merger Consideration received by each Significant Shareholder, in the
aggregate.
Section 8.3 Notice of Claims.
(a) If Parent or any Significant Shareholder believes that it or,
with respect to Parent, the Surviving Corporation (along with Parent and the
Significant Shareholders, as applicable, the "Indemnified Party") has suffered
or incurred any Loss or incurred any Expense, the Indemnified Party shall so
notify the party obligated to provide indemnification to such Indemnified Party
(the "Indemnitor") promptly in writing describing such Loss or Expense, the
amount thereof, if known, and the method of computation of such Loss or Expense,
all with reasonable particularity and containing a reference to the provisions
of this Agreement or other agreement, instrument or certificate delivered
pursuant hereto in respect of which such Loss or Expense shall have occurred. If
any action at law or suit in equity is instituted by or against a third party
with respect to which the Indemnified Party intends
34
to claim any liability or expense as Loss or Expense under this Article VIII,
the Indemnified Party shall promptly notify the Indemnitor of such action or
suit.
(b) The amount to which an Indemnified Party shall be entitled under
this Article VIII shall be determined: (i) by written agreement between the
Indemnified Party and the Indemnitor; (ii) by arbitration in accordance with
Section 10.14 hereof; or (iii) by any other means to which the Indemnified Party
and the Indemnitor shall agree. The judgment or decree of a court, or binding
arbitration award, shall be deemed final when the time for appeal, if any, shall
have expired and no appeal shall have been taken or when all appeals taken have
been finally determined. The Indemnified Party shall have the burden of proof in
establishing the amount of the Loss and Expense suffered by it.
(c) Notwithstanding the foregoing, the failure of any person hereto
to give any notice described in this Section 8.3 shall not relieve any party
hereto of its obligations hereunder, except to the extent such failure shall
have prejudiced such party.
(d) In calculating any Loss or Expense, there shall be deducted any
insurance recovery in respect thereof (and no right of subrogation shall accrue
hereunder to any insurer).
(e) Any indemnification payment under this Article VIII shall be made
on an After-Tax Basis.
(f) Except with respect to any fraud claims as to which the
limitations set forth in this paragraph shall not apply, Parent and the
Significant Stockholders shall not be required to indemnify, exculpate and hold
the other harmless pursuant to this Article VIII, unless Parent, the Surviving
Corporation or the Significant Stockholders, as the case may be, have asserted a
claim(s) with respect to such matters in accordance with the procedures set
forth herein within twelve (12) months from the Effective Date.
Section 8.4 Third Party Claims. (a) Subject to Section 8.4(b), any
Indemnified Party under this Article VIII shall have the right to conduct and
control, through counsel of its choosing, any third party claim, action, suit,
proceeding, investigation or other claim giving rise to a claim for
indemnification hereunder (a "Third Party Claim") and the Indemnified Party may
compromise or settle the same, provided that the Indemnified Party shall give
the Indemnitor at least 10 days' advance notice of any proposed compromise or
settlement. The Indemnified Party shall permit the Indemnitor to participate in
the defense of any Third Party Claim through counsel chosen by it, provided that
the fees and expenses of such counsel shall be borne by the Indemnitor. Subject
to Section 8.4(b), any compromise or settlement with respect to a claim for
money damages effected after the Indemnitor by notice to the Indemnified Party
shall have disapproved such compromise or settlement shall discharge the
Indemnitor from liability with respect to the subject matter thereof, and no
amount in respect thereof shall be claimed as Loss or Expense under this Article
VIII.
(b) If the remedy sought in any Third Party Claim is solely money
damages and will have no continuing effect on the business, reputation or future
business prospects of any Indemnified Party, the Indemnitor shall have 15 days
after receipt of the notice referred to in the last sentence of Section 8.3(a)
to notify the Indemnified Party that it elects to conduct and control such Third
Party Claim. If the Indemnitor gives the foregoing notice, the Indemnitor shall
have the right to undertake, conduct and control, through counsel of its own
choosing and at the sole expense of the Indemnitor, the conduct and settlement
of such Third Party Claim, and the Indemnified Party shall cooperate with the
Indemnitor in connection therewith; provided that (x) the Indemnitor shall not
thereby permit to exist any lien, encumbrance or other adverse charge upon any
asset of any Indemnified Party; (y) the
35
Indemnitor shall permit the Indemnified Party to participate in such conduct or
settlement through counsel chosen by the Indemnified Party, but the fees and
expenses of such counsel shall be borne by the Indemnified Party except as
provided in clause (z) below; and (z) the Indemnitor shall agree promptly to
reimburse the Indemnified Party for the full amount of any Loss arising from or
relating to such Third Party Claim and all related Expense incurred by the
Indemnified Party, except fees and expenses of counsel for the Indemnified Party
incurred after the assumption of the conduct and control of such Third Party
Claim by the Indemnitor. So long as the Indemnitor is contesting any such Third
Party Claim in good faith, the Indemnified Party shall not pay or settle any
such Third Party Claim. Notwithstanding the foregoing, the Indemnified Party
shall have the right to pay or settle any such Third Party Claim without the
Indemnitor's approval, provided that in such event the Indemnified Party shall
waive any right to indemnity therefor by the Indemnitor, and no amount in
respect thereof shall be claimed as Loss or Expense under this Article VIII.
ARTICLE IX
TERMINATION
Section 9.1 Termination. This Agreement shall be terminated automatically
in the event the Merger Agreement is terminated in accordance with its terms.
Anything contained in this Agreement to the contrary notwithstanding, this
Agreement may also be terminated at any time prior to the Closing Date:
(a) By the mutual consent of the Company and Parent;
(b) By the Company or Parent if the Closing shall not have occurred
on or before February 28, 2003 (or such later date as shall be mutually agreed
to in writing by the Company, the Significant Shareholders and Parent); provided
that the party seeking termination is not in default or breach of this
Agreement;
(c) By the Company in the event of any material breach by Parent of
any of its representations, warranties or covenants contained in this Agreement,
which breach is not cured by Parent within 10 days after written notice of such
breach;
(d) By Parent in the event of any material breach by the Company or
the Significant Shareholders of any of their respective representations,
warranties and covenants contained in this Agreement, which breach would deprive
Parent of the economic benefits of the transactions contemplated hereby
(provided, that, Parent's right to indemnification by the Significant
Shareholders pursuant to Section 8.1 for any such breach which does not deprive
Parent of the economic benefits of the transactions contemplated hereby shall
survive the Closing) and which breach is not cured by the Company or the
Significant Shareholders within 10 days after written notice of such breach;
(e) By the Company if the updated or supplemented Parent Disclosure
Schedules delivered by Parent pursuant to Section 5.18 contain any facts,
conditions, occurrences, changes and other matters which (A) had not been
previously disclosed, (x) in the Parent Disclosure Schedules attached hereto as
of the date hereof or (y) in any registration statement, prospectus, form,
report or document required to be filed by Patron Holdings under the Securities
Act or the Securities Exchange Act of 1934 prior to the date hereof and (B) when
taken as a whole, would or would be reasonably likely to result in a Material
Adverse Effect on Parent (provided, that, the Company's right to indemnification
by Parent pursuant to Section 8.2 for any such facts, conditions, occurrences,
changes or other matters which do not or are not reasonably likely to, when
taken as a whole, result in a Material Adverse Effect on Parent shall survive
the Closing); or
36
(f) By the Company if Parent fails to comply with the requirements of
Section 6.1(n).
Section 9.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to the preceding Section of this Agreement, all further
obligations of the parties under this Agreement and the Merger Agreement shall
be terminated without further liability of any party or its shareholders,
directors or officers to the other parties, provided (a) that Section 10.1 shall
survive any such termination and (b) that nothing herein shall relieve any party
from liability for its willful breach of this Agreement or the Merger Agreement.
ARTICLE X
MISCELLANEOUS
Section 10.1 Expenses.
(a) No later than two business days prior to the Closing, the Company
shall provide to Parent a good faith written estimate of the expenses and fees
of counsel to the Company and the Significant Shareholders incurred by the
Company or the Significant Shareholders in connection with the preparation,
negotiation and execution of the Transaction Documents and consummation of the
transactions contemplated hereby and thereby (the "Company Legal Expense
Report"). At Closing, Parent shall pay $130,000 of the expenses and fees set
forth on the Company Legal Expense Report and the remaining expenses and fees,
if any, set forth on the Company Legal Expense Report shall be paid in
accordance with the Merger Agreement and Section 1.4(a) hereof; provided, that,
in the event that this Agreement is terminated by the Company pursuant to
Sections 9.1(c), 9.1(e) or 9.1(f), Parent shall pay, in the aggregate, $130,000
of the expenses and fees of counsel to the Company and the Significant
Shareholders incurred by the Company or the Significant Shareholders in
connection with the preparation, negotiation and execution of the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby.
(b) Except as otherwise provided herein, Parent shall bear its own
expenses and fees and commissions (including, but not limited to, all
compensation and expenses of counsel, consultants and accountants) incurred in
connection with its preparation, negotiation and execution of the Transaction
Documents and consummation of the transactions contemplated hereby or thereby;
provided, that, in the event that this Agreement is terminated by Parent
pursuant to Sections 9.1(d), the Company shall pay, in the aggregate, $130,000
of the expenses and fees of counsel to Parent incurred by Parent in connection
with the preparation, negotiation and execution of the Transaction Documents and
the consummation of the transactions contemplated hereby and thereby.
Section 10.2 Notices. Any notices or other communications required under
this Agreement shall be in writing, shall be deemed to have been given when
delivered in person, by telex or telecopier, when delivered to a recognized next
business day courier, or, if mailed, when deposited in the United States mail,
first class, registered or certified, return receipt requested, with proper
postage prepaid, addressed as follows or to such other address as notice shall
have been given pursuant hereto:
If to the Significant Shareholders or the Company prior to Closing, to:
TrustWave Corp.
000 Xxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: X.X. Xxxxxxxxx, Chief Executive Officer
Telecopy: (000) 000-0000
37
and if to the Significant Shareholders after the Closing, to:
Xxx Xxxxxxxxx
15B2 Spa Creek Landing
Xxxxxxxxx, XX 00000
and:
Xxxx Xxxxxxxx
00 Xxxx 00/xx/ Xxxxxx, Xxx. 000
Xxx Xxxx, XX 00000
with a copy to:
Xxxxxxxx Xxxxxx
0000 Xxxxxxxxxx Xxxxx, Xxxxx 000
XxXxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Telecopy: (000) 000-0000
If to Parent or Mergerco, to:
Patron Systems, Inc.
000 Xxxx Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxx Xxxxx, Chief Executive Officer
Telecopy: (000) 000-0000
with a copy to:
Sidley Xxxxxx Xxxxx & Xxxx
Bank Xxx Xxxxx
00 X. Xxxxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx
Telecopy: (000) 000-0000
Section 10.3 Assignment. Prior to the Effective Time, this Agreement may
not be assigned, by operation of law or otherwise and any such attempt shall be
null and void. Following the Effective Time, any party may assign any of its
rights hereunder, but no such assignment shall relieve it of its obligations
hereunder; provided, that, prior to the twelve month anniversary of the
Effective Time this Agreement may not be assigned other than in connection with
the merger, consolidation or sale of all or substantially all of the assets or
equity interests of such party.
Section 10.4 Interpretation; Schedules. The article and section headings
contained in this Agreement are for reference purposes only and shall not in any
way affect the meaning or interpretation of this Agreement. Whenever the context
may require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms. The parties understand and agree that any disclosure
made in any Schedule hereto shall be deemed to be disclosed in every other
Schedule hereto to the extent that a reasonable person would understand that
information disclosed in such Schedule
38
might reasonably apply to such other Schedule(s). The parties hereto acknowledge
and agree that this Agreement and the Merger Agreement are being executed prior
to and in contemplation of the Patron Holdings Merger and subsequent to the
consummation of the Patron Holdings Merger this Agreement and the Merger
Agreement shall be interpreted taking into account any supplements, amendments
or modifications pursuant to Sections 5.18 and 5.19.
Section 10.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument; and shall become binding
when two or more counterparts have been signed by each of the parties hereto and
delivered to each of Parent, Mergerco, the Significant Shareholders and the
Company.
Section 10.6 Amendment. This Agreement may not be amended, modified or
supplemented except by a writing signed by an authorized representative of each
of the parties hereto.
Section 10.7 Entire Agreement. This Agreement and the Merger Agreement
(including the Schedules and Exhibits attached hereto) constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof.
Section 10.8 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns.
Section 10.9 Survival. The covenants, agreements, representations and
warranties of the Company, the Significant Shareholders or Parent made in or
pursuant to this Agreement shall survive the Closing Date notwithstanding any
investigation made or information obtained by or on behalf of Parent; provided,
however, that the representations and warranties of the Company, the Significant
Shareholders or Parent contained herein or in any certificate delivered with
respect thereto (other than the representations and warranties contained in
Sections 2.4 and 3.3, which shall terminate eighteen months after the Closing
Date) shall terminate twelve months after the Closing Date. Except as otherwise
expressly provided in Article VIII, no claim shall be made for breach of any
representation or warranty contained herein or in any certificate delivered with
respect thereto under this Agreement after the date on which such
representations and warranties shall terminate as set forth in this Section;
provided, however, that nothing shall effect or otherwise limit the rights or
obligations of the parties hereto under Article VIII in respect of any breach of
any representation or warranty of the Significant Shareholders, the Company,
Parent or Mergerco as to which a party has notified another party in accordance
with Sections 8.1 or 8.2, as applicable or prior to the date such
representations or warranties would otherwise terminate in accordance with this
Section 10.9.
Section 10.10 Severability. Wherever possible, each provision hereof shall
be interpreted in such manner as to be effective and valid under applicable law,
but in case any one or more of the provisions contained herein shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
provision shall be ineffective in the jurisdiction involved to the extent, but
only to the extent, of such invalidity, illegality or unenforceability without
invalidating the remainder of such invalid, illegal or unenforceable provision
or provisions or any other provisions hereof, unless such a construction would
be unreasonable.
Section 10.11 Third Parties. Nothing contained in this Agreement or in any
instrument or document executed by any party in connection with the transactions
contemplated hereby shall create
39
any rights in, or be deemed to have been executed for the benefit of, any person
or entity that is not a party hereto or a successor or permitted assign of such
a party.
Section 10.12 Waivers. Any term or provision of this Agreement may be
waived, or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Agreement if, as to any party,
it is authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.
Section 10.13 Restrictive Legend. The stock certificates evidencing all
shares of Parent Common Stock issued pursuant to Section 1.4(a) shall bear a
legend substantially in the form set forth below and containing such other
information as Parent may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
PURPOSES, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SO
REGISTERED OR UNLESS SOLD OR TRANSFERRED PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
Section 10.14 Governing Law; Arbitration. This Agreement shall be governed
by and construed in accordance with the internal laws (as opposed to the
conflicts of law provisions) of the State of Delaware.
(i) Any dispute, controversy or claim arising out of or relating to
this Agreement or its breach, interpretation, termination or validity,
including any question whether a matter is subject to arbitration
hereunder, is referred to herein as a "Dispute."
(ii) If the parties fail to settle any Dispute within 30 days after
any party has given notice to the other parties hereto of the claimed
existence of a Dispute, the Dispute shall be resolved by a confidential,
binding arbitration. All such Disputes shall be arbitrated in Washington,
D.C. pursuant to the arbitration rules and procedures of J.A.M.S. Endispute
before an arbitrator or arbitrators selected in the manner provided in such
rules and procedures, except that the "Final Offer (or Baseball)"
Arbitration Option shall not be used unless otherwise agreed in writing.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction, and each party hereto consents
and submits to the jurisdiction of such court for purposes of such action.
The statute of limitations, estoppel, waiver, laches and similar doctrines,
which would otherwise be applicable in any action brought by a party, shall
be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed to the commencement of an action for
those purposes. The Federal Arbitration Act shall apply to the
construction, interpretation and enforcement of this arbitration provision.
Each party shall bear its own expenses (including without limitation the
fees and expenses of legal counsel and accountants) in connection with such
arbitration and Parent and the Significant Shareholders shall each bear
one-half of the arbitrators' fees and expenses, provided that the arbitral
award shall allocate such fees and expenses of counsel, accountants, other
advisors and arbitrators according to the relative success of the
contesting parties in the arbitration, as
40
determined by the arbitrators. The arbitrators shall award an amount equal
to the actual monetary damages suffered by each contesting party, which may
include interest costs incurred by such party, but the arbitrators shall
not have the authority to award punitive damages.
Section 10.15 Definitions. In this Agreement, the following terms have the
meanings specified or referred to in this Section 10.15 and shall be equally
applicable to both the singular and plural forms.
"Affiliate" shall mean: any person or entity (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, the person or entity involved, including, without
limitation, officers and directors, (b) that directly or beneficially owns or
holds 5% or more of any equity interest in the person or entity involved, or (c)
5% or more of whose voting securities (or in the case of a person which is not a
corporation, 5% or more of any equity interest) is owned directly or
beneficially by the person or entity involved. As used herein, the term
"control" shall mean possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a person or entity,
whether through ownership of securities, by contract or otherwise.
"After-Tax Basis" shall mean: with respect to any amount which is to be
paid hereunder on an "After-Tax Basis," an amount which, after subtraction of
the amount of all federal, state, local and foreign Taxes payable by the
recipient thereof as a result of the receipt or accrual of such payment and, to
the extent not taken into account in measuring the related Loss or Expense after
taking into account (i) the increase in federal, state, local and foreign Taxes
(including estimated Taxes) payable by such recipient for all affected taxable
years in connection with or arising from the event or occurrence giving rise to
such payment (the "Indemnified Event"), and (ii) the reduction in federal,
state, local and foreign Taxes (including estimated Taxes) payable by the
recipient for all applicable taxable years ending on or before the end of the
taxable year in which such payment is made in connection with or arising from
the Indemnified Event, shall be sufficient as of the date of payment to
compensate the recipient for such Indemnified Event.
"Aggregate Contingent Common Stock Consideration" means an amount equal to
the Aggregate Contingent Consideration less the Aggregate Contingent Stock
Option Consideration.
"Aggregate Contingent Consideration" means an amount equal to difference of
(A) the quotient of (x) $132,000,000 (y) divided by the Twelve Month Price less
(B) 11,000,000.
"Aggregate Contingent Stock Option Consideration" means an amount equal to
the Aggregate Contingent Consideration multiplied by the quotient of the Closing
Parent Stock Options divided by 11,000,000, rounded down to the nearest whole
number; provided, that, if any Assumed Option is exercised subsequent to the
Effective Time, for the purpose of calculating the Aggregate Contingent Stock
Option Consideration, the Aggregate Contingent Common Stock Consideration and
the right to receive the Per Common Share Contingent Consideration, such
exercised options shall be included within the definition of Closing Parent
Shares and excluded from the definition of Closing Parent Stock Options.
"Agreement" has the meaning specified in the first paragraph hereof.
"Allin Escrow Agreement" has the meaning specified in Section 6.1(j).
"Articles of Merger" has the meaning specified in Section 1.2.
41
"Assumed Option" has the meaning specified in Section 1.5(b).
"Balance Sheet" means the audited Balance Sheet of the Company dated as of
December 31, 2001.
"Balance Sheet Date" means December 31, 2001.
"Budget" has the meaning specified in Section 3.32(a).
"Business" means the businesses engaged in by the Company as of the date of
this Agreement.
"Xxxxxxx Employment Agreement" has the meaning specified in Section 6.2(j).
"Closing" has the meaning specified in Section 1.3.
"Closing Cash Consideration" means $10,000,000 less (i) the Company Bonus
Payments and (ii) any fees and expenses in excess of $130,000 set forth in the
Company Legal Expense Report.
"Closing Date" has the meaning specified in Section 1.3.
"Closing Date Consideration" means consideration delivered on the Closing
Date pursuant to Section 1.4(a)(i) and Section 1.4(a)(ii).
"Closing Parent Shares" means an amount equal to 11,000,000 less the
Closing Parent Stock Options.
"Closing Parent Stock Options" means an amount equal to the product of the
total number of outstanding Company Stock Options immediately prior to the
Effective Time multiplied by the Option Exchange Ratio, rounded down to the
nearest whole number.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company 5% Stockholder" has the meaning specified in Section 3.25(c).
"Company Bonus Payments" has the meaning specified in Section 5.21.
"Company Common Stock" has the meaning specified in Section 3.3.
"Company Legal Expense Report" has the meaning specified in Section
10.1(a).
"Company's Financial Statements" has the meaning specified in Section 3.6.
"Company Stock Options" has the meaning specified in Section 1.5(a).
"Company Stock Plan" means the 2001 Stock Incentive Plan of the Company, as
approved by the Board of Directors of the Company.
"Contaminant" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, medical waste, special waste, asbestos, petroleum or
petroleum-derived substance, radioactive material or waste, or any constituent
of any such substance or waste and including, without limitation, any substance
which any Governmental Body or lawful representative thereof requires to be
controlled,
42
removed, monitored, encapsulated or remediated or otherwise addressed for the
purposes of protection of the environment or public or worker health and safety.
"Contingent Consideration" means consideration, if any, delivered pursuant
to Section 1.4(a)(iv).
"Contingent Option Exchange Ratio" means an amount equal to the quotient of
(i) the sum of 11,000,000 plus the Aggregate Contingent Consideration (which
shall not exceed the Maximum Aggregate Contingent Consideration) divided by (ii)
the sum of the total number of outstanding shares of Company Common Stock
immediately prior to the Effective Time and the total number of outstanding
Company Stock Options immediately prior to the Effective Time.
"Dissenting Shareholder" has the meaning specified in Section 1.6.
"Dissenting Shares" has the meaning specified in Section 1.6.
"Dispute" has the meaning specified in Section 10.14.
"Effective Time" has the meaning specified in Section 1.2 of the Agreement
and Plan of Merger.
"Employment Agreements" means the Xxxxxxxxx Employment Agreement, the
Schetina Employment Agreement, the Xxxxxxx Employment Agreement and the Xxxxx
Employment Agreement, collectively.
"Encumbrance" means any lien, claim, charge, security interest, mortgage,
pledge, easement, conditional sale or other title retention agreement, defect in
title, covenant or other restriction of any kind.
"Environmental Laws" has the meaning specified in Section 3.27(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means (a) any corporation which at, or at any time
before, the Closing Date is or was a member of the same controlled group of
corporations (within the meaning of Section 414(b) of the Code) as the Company
or any predecessor of the Company; (b) any partnership, trade or business
(whether or not incorporated) which at, or at any time before, the Closing Date
is or was under common control (within meaning of Section 414(c) of the Code)
with the Company; and (c) any entity, which at, or at any time before, the
Closing Date is or was a member of the same affiliated service group (within the
meaning of Section 414(m) of the Code) as either the Company or any predecessor
of the Company, any corporation described in clause (a) or any partnership,
trade or business described in clause (b).
"ERISA Benefit Plans" has the meaning specified in Section 3.22(a).
"Expenses" means any and all reasonable out of pocket expenses incurred in
connection with investigating, defending or asserting any claim, action, suit or
proceeding incident to any matter indemnified against hereunder (including,
without limitation, court filing fees, court costs, arbitration fees or costs,
witness fees, and reasonable fees and disbursements of legal counsel,
investigators, consultants, expert witnesses, accountants and other
professionals).
"Facility" means any real or personal property, plant, building, facility,
structure, underground storage tank, or equipment or unit, or other asset owned,
used, leased or operated by the Company.
43
"FDC Contract" means that certain Program Development and Management
Agreement dated as of December 31, 2001 between the Company and Bankcard
Investigative Group Inc., a Delaware corporation, dated December 31, 2001, as
amended from time to time.
"GAAP" means generally accepted accounting principles in the United States
of America.
"Governmental Body" means any court, government (federal, state, local or
foreign), department, commission, board, bureau, agency, official or other
regulatory, administrative or governmental authority.
"Governmental Permits" has the meaning specified in Section 3.11.
"Indemnified Party" has the meaning specified in Section 8.3(a).
"Indemnitor" has the meaning specified in Section 8.3(a).
"IPO" means Parent's (or its successor's) initial underwritten public
offering of its Common Stock, par value $.01, (or any class of capital stock
into which shares of its Common Stock shall be exchangeable or convertible)
pursuant to an effective registration statement under the Securities Act, for
the account of Parent at an aggregate offering price of not less than $30
million.
"Knowledge of the Company" means, as a particular matter, the actual
knowledge of the following persons: Xxx Xxxxxxxxx, Xxxx Xxxxxxxx and Xxxx Xxxxx.
"Knowledge of Parent" means, as a particular matter, the actual knowledge
of the following persons: Xxxxxxx Xxxxx, Xxxxxxx Xxxxxxx, Xxxxx Xxxxxxx, Xxxxxx
Xxx and Xxx Xxxxxxxxx.
"Linting Escrow Agreement" has the meaning specified in Section 6.1(j).
"Losses" means any and all losses, costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, excise taxes, damages,
expenses, deficiencies or other charges.
"Material Adverse Effect" means any change or effect (or any development
that, insofar as can be reasonably foreseen, would result in any change or
effect) that is materially adverse to the assets, business, financial condition,
results of operations or prospects of the applicable Person or Persons, taken as
a whole, but shall not include matters arising from effects of changes that are
generally applicable in (i) the subject industry, including the adoption or
implementation of regulatory changes, (ii) the economy or (iii) the case of a
material worsening of current conditions caused by acts of terrorism or war
(whether or not declared) occurring after the date of this Agreement which
materially impair the applicable Person's ability to conduct its operations.
"Material Contracts" has the meaning specified in Section 3.24.
"Maximum Aggregate Contingent Consideration" means an amount equal to the
quotient of (x) the Closing Parent Shares divided by the difference of (y) one
minus the quotient of (A) the Closing Parent Stock Options divided by (B)
11,000,000.
"Merger" has the meaning specified in the first recital to this Agreement.
"Merger Agreement" has the meaning specified in the first recital of this
Agreement.
44
"Mergerco" has the meaning specified in the first paragraph hereof.
"Merger Consideration" means, collectively, the Closing Date Consideration
and the Post-Closing Consideration.
"MGCL" has the meaning specified in Section 1.2.
"Xxxxxxx Escrow Agreement" has the meaning specified in Section 6.1(j).
"Non-ERISA Commitments" has the meaning specified in Section 3.22(a).
"Option Exchange Ratio" means an amount equal to the quotient of (i)
11,000,000 divided by (ii) the sum of the total number of outstanding shares of
Company Common Stock immediately prior to the Effective Time and the total
number of outstanding Company Stock Options immediately prior to the Effective
Time.
"Parent" has the meaning specified in the first paragraph hereof.
"Parent Capital Stock" has the meaning specified in Section 2.4.
"Parent Common Stock" has the meaning specified in Section 2.4.
"Parent 5% Stockholder" has the meaning specified in Section 2.9(c).
"Parent Preferred Stock" has the meaning specified in Section 2.4.
"Parent Stockholders" has the meaning specified in the second recital of
this Agreement.
"Parent Stock Options" has the meaning specified in Section 2.4.
"Xxxxxxxxx Employment Agreement" has the meaning specified in Section
6.2(j).
"Xxxxxxxxx Escrow Agreement" has the meaning specified in Section 6.2(l).
"Patron Holdings" has the meaning specified in the second recital of this
Agreement.
"Patron Holdings Common Stock" has the meaning specified in the second
recital of this Agreement.
"Patron Holdings Merger" has the meaning specified in the third recital of
this Agreement.
"Pension Plans" has the meaning specified in Section 3.22(a).
"Per Common Share Closing Cash Consideration" means an amount equal to the
quotient of (A) the Closing Cash Consideration, divided by (B) the total number
of outstanding shares of Company Common Stock immediately prior to the Effective
Time.
"Per Common Share Closing Stock Consideration" means an amount equal to the
quotient of the Closing Parent Shares divided by the total number of outstanding
shares of Company Common Stock immediately prior to the Effective Time.
45
"Per Common Share Contingent Stock Consideration" means an amount equal to
the Aggregate Contingent Common Stock Consideration divided by the Closing
Parent Shares.
"Per Common Share Post-Closing Cash Consideration" means an amount equal to
the quotient of (A) $10,000,000, divided by (B) the total number of outstanding
shares of Company Common Stock immediately prior to the Effective Time.
"Permitted Encumbrances" means: (a) encumbrances for taxes or assessments
or other governmental charges which are not yet due and payable; (b)
materialmen's, merchants', carriers', worker's, repairer's, or other similar
Encumbrances arising in the ordinary course of business which are not yet due or
payable; (c) purchase money security interests and (d) Encumbrances which are
not material in amount (monetary or otherwise) and (i) do not interfere with the
existing use, operation or maintenance of the Business and operations of the
Company, (ii) interfere in material any way with Parent's ability to realize the
economic benefits expected from the transactions contemplated by the Merger and
the Transaction Documents or (iii) adversely impair the marketability of the
Company Common Stock.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
Governmental Body.
"Post-Closing Consideration" means consideration delivered pursuant to
Section 1.4(a)(iii).
"Post-Closing Note" shall mean a non-interest bearing and non-transferable
promissory note issued on the Closing Date by Parent pursuant to Section
1.4(a)(iii) to each holder of Company Common Stock to evidence the Per Common
Share Post-Closing Cash Consideration owed to such holder. Each Post-Closing
Note shall provide that if Parent fails to pay in full the amount owed by Parent
pursuant to such note within 10 days after the six month anniversary of the
Closing Date, (i) the Post-Closing Note shall begin to accrue interest at a rate
of 8% per annum and (ii) such holder may elect to convert the entire aggregate
principal amount of such note (but not a portion thereof) into shares of Parent
Common Stock at a price per share, discounted by 15%, equal to the average of
the highest bid and lowest asked prices of Parent Common Stock in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, averaged over a period of
10 days consisting of the day such holder elects to convert such note (or if not
a business day, the first business day thereafter) and the 9 consecutive
business days prior to such day.
"Promissory Note" means that certain convertible promissory note of the
Company in favor of Cabletron in the principal amount of Five Hundred
Eighty-Three Thousand Five Hundred Twenty-Four Dollars ($583,524.00).
"Registration Rights Agreement" has the meaning specified in Section
6.1(h).
"Release" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment or into or out of any Facility of any Contaminant,
including the movement of Contaminants through or in the air, soil, surface
water, groundwater or Facility.
"Remedial Action" means actions required to (i) clean up, remove, treat or
in any other way address Contaminants in the indoor or outdoor environment; (ii)
prevent the Release or threatened Release or minimize the further Release of
Contaminants or (iii) investigate and determine if a remedial
46
response is needed and to design such a response and post-remedial
investigation, monitoring, operation and maintenance and care.
"Requirements of Law" means any federal, state or local law, rule or
regulation, Governmental Permit or other binding determination of any
Governmental Body.
"Schetina Employment Agreement" has the meaning specified in Section
6.2(j).
"Schetina Escrow Agreement" has the meaning specified in Section 6.2(l).
"Securities Act" has the meaning specified in Section 2.4.
"Share Exchange" has the meaning specified in the second recital of this
Agreement.
"Share Exchange Agreement" has the meaning specified in the second recital
of this Agreement.
"Shareholder Meeting" has the meaning specified in Section 5.12.
"Shareholder Meeting Notice" has the meaning specified in Section 5.12.
"Shareholders" has the meaning specified in the Merger Agreement.
"Significant Shareholder" means the following shareholders of the Company:
Xxx Xxxxxxxxx and Xxxx Xxxxxxxx.
"Xxxxx Employment Agreement" has the meaning specified in Section 6.2(j).
"Software" has the meaning specified in Section 3.17(a)(iii).
"Stock Escrow Agreements" shall mean the Allin Escrow Agreement, the
Xxxxxxx Escrow Agreement, the Linting Escrow Agreement, the Xxxxxxxxx Escrow
Agreement and the Schetina Escrow Agreement.
"Subsidiary" means any corporation, partnership, joint venture or other
entity in which the Company (a) owns or has owned, directly or indirectly, 50%
or more of the outstanding voting securities or equity interests or (b) is or
has been a general partner.
"Surviving Corporation" has the meaning specified in Section 1.1 of the
Merger Agreement.
"Tax" (and, with correlative meaning, "Taxes" and "Taxable") means (a) any
federal, state, local or foreign income, gross receipts, windfall profits,
severance, property, production, sales, use, license, excise, franchise,
employment, payroll, withholding, alternative or add-on minimum, ad valorem,
transfer, value-added stamp or environmental tax, or any other tax, custom,
duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, addition to tax or additional
amount imposed by any Governmental Body; and (b) liability of the Company or any
Subsidiary for the payment of amounts with respect to payments of a type
described in clause (a) as a result of being a member of an affiliated,
consolidated, combined or unitary group, or as a result of any obligation of the
Company or any Subsidiary under any Tax sharing arrangement or Tax indemnity
arrangement.
47
"Tax Returns" means any return, report or similar statement required to be
filed with respect to any Taxes (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
"Third Party Claim" has the meaning specified in Section 8.3(a).
"Transaction Documents" has the meaning specified in Section 2.6.
"Trustee" has the meaning specified in Section 1.4(b).
"Twelve Month Price" means the average of the highest bid and lowest asked
prices of Parent Common Stock in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, averaged over a period of 21 days consisting of the day
that is the first anniversary of the Closing Date (or if not a business day, the
first business day thereafter) and the 20 consecutive business days prior to
such day.
"Welfare Plans" has the meaning specified in Section 3.22(a).
"Working Capital Advances" has the meaning specified in Section 5.7(c).
*****
48
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be duly executed as of the date first above written.
PATRON SYSTEMS, INC.
By: /s/ Xxxxxxx X. Xxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxx
Title: CEO
TWC ACQUISITION, INC.
By: /s/ Xxxxxxx X. Xxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxx
Title: President
TRUSTWAVE CORP.
By: /s/ Xxxxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: President / CEO
SIGNIFICANT SHAREHOLDERS:
/s/ Xxxxxx X. Xxxxxxxxx
------------------------------------
Name: Xxxxxx Xxxxxxxxx
/s/ Xxxx Xxxxxxxx
------------------------------------
Name: Xxxx Xxxxxxxx
49
Annex A - Merger Consideration and Contingent
Consideration Calculation Illustration
If the Merger Consideration were calculated as of November 23, 2002, assuming
the Company Bonus Payments are equal to, in the aggregate, $3,300,000 and
assuming $200,000 in legal fees set forth on the Company Legal Expense Report,
the following would result:
I. Consideration Delivered at Effective Time
1) Closing Cash Consideration: $10,000,000 minus the Company Bonus Payments minus legal fees and
expenses in excess of $130,000 set forth on the Company Legal
Expense Report
$10,000,000 minus $3,300,000 minus $70,000
Closing Cash Consideration = $6,630,000
2) Option Exchange Ratio: 11,000,000
----------
Outstanding Company Common Stock + Company Stock Options
11,000,000
----------
(19,394,865 + 4,736,450)
Option Exchange Ratio = 0.455839228
3) Closing Parent Stock Options: Outstanding Company Stock Options * Option Exchange Ratio
4,736,450 * 0.455839228
Closing Parent Stock Options = 2,159,059
4) Closing Parent Shares: 11,000,000 minus the Closing Parent Stock Options
11,000,000 minus 2,159,059
Closing Parent Shares = 8,840,941
5) Per Common Share Closing
Stock Consideration: Closing Parent Shares
---------------------
Outstanding Company Common Stock
8,840,941
----------
19,394,865
Per Common Share Closing Stock Consideration = 0.455839265
50
6) Per Common Share Closing
Cash Consideration: Closing Cash Consideration
--------------------------
Outstanding Company Common Stock
$6,630,000
----------
19,394,865
Per Common Share Closing Cash Consideration = $0.34184306
II. Consideration Delivered Six Months Subsequent to the Closing Date
1) Per Common Share Post-Closing
Cash Consideration: $10,000,000
-----------
Outstanding Company Common Stock
$10,000,000
-----------
19,394,865
Per Common Share Post-Closing Cash Consideration = $0.51500392
51
III. Contingent Consideration - To be delivered 12 Months subsequent to the
Closing Date, if Twelve Month Price is less than $12.00 per share (assuming
no Assumed Options have been exercised subsequent to the Effective Time)
1) Assume Twelve Month Price = $8 per share
2) Aggregate Contingent Consideration: $132,000,000 minus 11,000,000
------------ -----
Twelve Month Price
$132,000,000 less 11,000,000
------------
$8
Aggregate Contingent Consideration = 5,500,000
3) Aggregate Contingent Stock
Option Consideration: Aggregate Contingent Consideration * Closing Parent Options
----------------------
$11,000,000
5,500,000 * 2,159,059
---------
11,000,000
Aggregate Contingent Stock Option Consideration = 1,079,529
4) Contingent Option Exchange Ratio: 11,000,000 + Aggregate Contingent Consideration
-----------------------------------------------
Outstanding Company Common Stock + Company Stock Options
11,000,000 + 5,500,000
----------------------
19,394,865 + 4,736,450
Contingent Option Exchange Ratio = 0.683758842
5) Aggregate Contingent Common
Stock Consideration: Aggregate Contingent Consideration minus
-----
Aggregate Contingent Stock Option Consideration
5,500,000 minus 1,079,529
-----
Aggregate Contingent Common Stock Consideration = 4,420,471
6) Per Common Share
Contingent Consideration: Aggregate Contingent Common Share Consideration
-----------------------------------------------
Closing Parent Shares
4,420,471
---------
8,840,941
Per Common Share Contingent Consideration = 0.5
52
