EXHIBIT 10.5
POST-CLOSING ESCROW AGREEMENT
POST-CLOSING ESCROW AGREEMENT, dated as of the 27th day of March, 2006
by and between PATRON SYSTEMS, INC., a Delaware corporation (the "COMPANY"),
having an address at 0000 Xxxxxxxx Xxxxxxx, Xxxxx 000, Xxxxxxx, Xxxxxxxx 00000,
and XXXXXX XXXXXXXX & MARKILES, LLP having an address at 00000 Xxxxxxx
Xxxxxxxxx, 00xx Xxxxx, Xxxxxxx Xxxx, Xxxxxxxxxx 00000 (the "ESCROW AGENT"). All
capitalized terms not herein defined shall have the meaning ascribed to them in
the Company's Confidential Information Memorandum dated January 23, 2006, as
amended and supplemented by Supplement No. 1 thereto, dated March 3, 2006
(collectively, the "PPM"). All capitalized terms used herein but not otherwise
defined, shall have the meaning ascribed to them in the PPM.
W I T N E S S E T H:
WHEREAS, the Company intends to effect a Closing(s) under the PPM
relating to the offer and sale (the "OFFERING") of up to $5,400,000 aggregate
amount of Units in accordance with the terms and conditions of the PPM, of which
(i) $720,001 is the result of conversion of Notes, (ii) $1,250,000 previously
has been provided to the Company by Apex, and (iii) $2,850,500 will be
immediately available funds;
WHEREAS, as of the date hereof, the Company received executed exchange
agreements in the Exchange Offer from Claimants holding an aggregate of
$24,890,940 of Claims, representing 77.9% of all Claims outstanding;
WHEREAS, the Company desires to establish an escrow account with the
Escrow Agent into which the Company and the Placement Agent shall instruct
Signature Bank, as escrow agent for the Offering, to deliver $2,183,025.73 of
the Net Offering Proceeds with the Escrow Agent, and Escrow Agent is willing to
accept said funds and to disperse such funds in accordance with the terms
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises herein
contained and intending to be legally bound, the parties hereby agree as
follows:
1. APPOINTMENT OF ESCROW AGENT AND TERM.
(a) The Company hereby appoints Xxxxxx Xxxxxxxx & Markiles,
LLP, as the Escrow Agent in accordance with the terms and conditions
set forth herein, and the Escrow Agent accepts such appointment.
(b) This Post-Closing Escrow Agreement shall remain in effect
until such time as all Escrow Funds have been disbursed by the Escrow
Agent pursuant to this Post-Closing Escrow Agreement (the "FINAL
TERMINATION DATE").
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2. ESCROWED FUNDS. The Escrow Agent acknowledges receipt of one
or more wire transfers in the aggregate amount of $2,183,025.73 of the Net
Offering Proceeds (the "ESCROW FUNDS") and Escrow Agent agrees to hold the
Escrow Funds (together with all interest and/or income earned thereon) in escrow
in the following account, pending authorization to disburse such finds in
accordance with and pursuant to Section 3 of this Post-Closing Escrow Agreement:
Xxxxxx, Xxxxxxxx & Markiles LLP - Client Trust Account (the "ESCROW ACCOUNT").
3. ESCROW AGENT TO HOLD AND DISBURSE ESCROWED FUNDS. The Escrow
Agent will hold and disburse the Escrow Funds pursuant to the terms of this
Post-Closing Escrow Agreement, as follows:
(a) UPON COMPLETION OF THE EXCHANGE OFFER. Upon receipt by the
Escrow Agent of a Certification from the Company, with a copy to the
Placement Agent, that the Company has received executed exchange
agreements from Claimants holding not less than 99% in dollar amount of
Claims (a "NOTICE OF SUBSTANTIAL COMPLETION") in the form attached
hereto as EXHIBIT A, certified by the Company's Chief Executive
Officer, the Escrow Agent shall release all remaining Escrow Funds to
the Company.
(b) PERIODIC DISBURSEMENTS. Until the Final Termination Date,
and prior to the receipt of a Notice of Substantial Completion, the
Escrow Agent shall hold the Escrow Funds and shall make periodic
disbursements (each a "PERIODIC DISBURSEMENT") to the Company. Periodic
Disbursements shall be made on or after the 15th of each calendar
month, including March 2006 (each a "MID-MONTH DISBURSEMENT"), and on
or after the last day of each calendar month, including March 2006,
after the date hereof (each a "MONTH-END DISBURSEMENT"). The Mid-Month
Disbursement for each calendar month after the date hereof shall not
exceed the amount specified on EXHIBIT B attached hereto, as such
exhibit may be amended or supplemented from time to time. The Escrow
Agent shall only make Periodic Disbursements after the receipt of a
notice from the Company (each a "PERIODIC DISBURSEMENT NOTICE") in the
form attached hereto as EXHIBIT C. Each Periodic Disbursement Notice
shall state the applicable period as defined on EXHIBIT B, whether the
disbursement is a Mid-Month or a Month-End Disbursement and the amount
of Escrow Funds to be released, as determined pursuant to EXHIBIT B.
The amount of each Month-End Disbursement shall be determined by taking
the Maximum Disbursement Amount for the applicable period (as specified
on EXHIBIT B), and subtracting from such amount the collections of the
Company for that monthly period, as certified by the Chief Executive or
Chief Financial Officer of the Company. Each Periodic Disbursement
Notice shall also state the proposed use of the funds to be released,
PROVIDED, HOWEVER, that the Mid-Month Disbursement for the March Period
may be used to pay aged payables. The total amount of disbursements for
any given monthly period shall not exceed the Maximum Disbursement
Amount for the applicable period as provided on EXHIBIT B. Any Escrow
Funds allocated for a given monthly period that are not disbursed shall
be available for disbursement in the next subsequent period. The Escrow
Agent shall not be responsible for calculating or otherwise determining
the
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amount of any Periodic Disbursement and shall be entitled to rely
conclusively upon the amounts set forth in the applicable Periodic
Disbursement Notice.
(c) A copy of each notice delivered to the Escrow Agent
pursuant to this Post-Closing Escrow Agreement shall also be provided
to the Placement Agent prior to any disbursement of Escrow Funds by the
Escrow Agent.
(d) Under no circumstances shall the Escrow Agent release any
Escrow Funds unless done so solely in accordance with this Post-Closing
Escrow Agreement.
4. ESCROW AGENT PROVISIONS
(a) The Escrow Agent shall have no duties or responsibilities
other than those expressly set forth herein. The Escrow Agent shall
have no duty to enforce any obligation of any person to make any
payment or delivery, or to direct or cause any payment or delivery to
be made, or to enforce any obligation of any person to perform any
other act. The Escrow Agent shall be under no liability to the other
parties hereto or to anyone else by reason of any failure on the part
of any party hereto other than the Escrow Agent or any maker,
guarantor, endorser or other signatory of any document or any other
person to perform such person's obligations under any such document.
Except for amendments to this Post-Closing Escrow Agreement referred to
below, and except for instructions given to the Escrow Agent in
accordance with the terms and conditions of this Post-Closing Escrow
Agreement relating to the Escrow Funds under this Post-Closing Escrow
Agreement, the Escrow Agent shall not be obligated to recognize any
agreement between any and all of the persons referred to herein,
notwithstanding that references thereto may be made herein and whether
or not it has knowledge thereof.
(b) The Escrow Agent shall not be liable to the Company or to
anyone else for any action taken or omitted by it, or any action
suffered by it to be taken or omitted, in good faith and in the
exercise of its own best judgment, provided nothing herein shall excuse
acts or omissions which constitute willful misconduct or gross
negligence. The Escrow Agent may rely conclusively and shall be
protected in acting upon any order, notice, demand, certificate,
opinion or advice of counsel (including counsel chosen by the Escrow
Agent), statement, instrument, report or other paper or document (not
only as to its due execution and the validity and effectiveness of its
provisions, but also as to the truth and acceptability of any
information therein contained), which is believed by the Escrow Agent
to be genuine and to be signed or presented by the proper person or
persons. The Escrow Agent shall not be bound by any notice or demand,
or any waiver, modification, termination or rescission of this
Post-Closing Escrow Agreement or any of the terms thereof, unless
evidenced by a writing delivered to the Escrow Agent signed by the
proper party or parties and, if the duties or rights of the Escrow
Agent are affected, unless it shall give its prior written consent
thereto.
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(c) The Escrow Agent shall not be responsible for the
sufficiency or accuracy of the form of, or the execution, validity,
value or genuineness of, any document or property received, held or
delivered by it hereunder, or of any signature or endorsement thereon,
or for any lack of endorsement thereon, or for any description therein;
nor shall the Escrow Agent be responsible or liable to the other
parties hereto or to anyone else in any respect on account of the
identity, authority or rights of the persons executing or delivering or
purporting to execute or deliver any document or property or this
Post-Closing Escrow Agreement. The Escrow Agent shall have no
responsibility with respect to the use or application of any funds or
other property paid or delivered by the Escrow Agent pursuant to the
provisions hereof. The Escrow Agent shall not be liable to the Company
or to anyone else for any loss which may be incurred by reason of any
investment of any monies which it holds hereunder.
(d) The Escrow Agent shall have the right to assume in the
absence of written notice to the contrary from the proper person or
persons that a fact or an event by reason of which an action would or
might be taken by the Escrow Agent does not exist or has not occurred,
without incurring liability to the other parties hereto or to anyone
else for any action taken or omitted, or any action suffered by it to
be taken or omitted, in good faith and in the exercise of its own best
judgment, in reliance upon such assumption.
(e) To the extent that the Escrow Agent becomes liable for the
payment of taxes, including withholding taxes, in respect of income
derived from the investment of funds held hereunder or any payment made
hereunder, the Escrow Agent may pay such taxes from the Escrow Funds.
The Escrow Agent may withhold from any payment of monies held by it
hereunder such amount as the Escrow Agent estimates to be sufficient to
provide for the payment of such taxes not yet paid, and may use the sum
withheld for that purpose. The Escrow Agent shall be indemnified and
held harmless against any liability for taxes and for any penalties or
interest in respect of taxes, on such investment income or payments in
the manner provided in SECTION 4(F) hereafter.
(f) The Escrow Agent will be indemnified and held harmless by
the Company from and against any and all expenses, including reasonable
counsel fees and disbursements, or loss suffered by the Escrow Agent in
connection with any action, suit or other proceeding involving any
claim, or in connection with any claim or demand, which in any way,
directly or indirectly, arises out of or relates to this Post-Closing
Escrow Agreement, the services of the Escrow Agent hereunder, the
monies or other property held by it hereunder or any income earned from
investment of such monies. The Escrow Agent shall have a lien for the
amount of any such expenses or loss on the monies and other property
held by it hereunder and shall be entitled to reimburse itself from
such monies or property for the amount of any such expense or loss.
Promptly after the receipt by the Escrow Agent of notice of any demand
or claim to the commencement of any action, suit or proceeding, the
Escrow Agent shall, if a claim in respect thereof is to be made against
the Company, notify the Company, with a copy to the Placement Agent,
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thereof in writing, but the failure by the Escrow Agent to give such
notice shall not relieve the Company from any liability which the
Company may have to the Escrow Agent hereunder. Notwithstanding any
obligation to make payments hereunder in accordance with SECTION 3, the
Escrow Agent may retain and hold for such time as it deems necessary
such amount of monies or property as it shall, from time to time, in
its sole discretion, deem sufficient to indemnify itself for any such
loss or expense.
(g) For the purposes hereof, the term "expense or loss" shall
include all amounts paid or payable to satisfy any claim, demand or
liability, or in settlement of any claim, demand, action, suit or
proceeding settled with the express written consent of the Escrow
Agent, and all costs and expenses, including, but not limited to,
reasonable counsel fees and disbursements, paid or incurred in
investigating or defending against any such claim, demand, action, suit
or proceeding.
(h) The Company shall pay or reimburse the Escrow Agent for
all out-of-pocket cost and expenses incurred by the Escrow Agent under
this Agreement, including without limitation, bank fees, wire transfer
fees and other administrative expenses. The Escrow Agent shall be
entitled to reimbursement of such costs and expenses out of the Escrow
Funds.
(i) The Escrow Agent shall be entitled to employ such legal
counsel and other experts as the Escrow Agent may deem necessary
properly to advise the Escrow Agent in connection with the Escrow
Agent's duties hereunder, may rely upon the advice of such counsel, and
may pay such counsel reasonable compensation; provided that the costs
of such compensation shall be borne by the Escrow Agent. THE ESCROW
AGENT HAS ACTED AS LEGAL COUNSEL FOR THE COMPANY, AND MAY CONTINUE TO
ACT AS LEGAL COUNSEL FOR THE COMPANY FROM TIME TO TIME, NOTWITHSTANDING
ITS DUTIES AS THE ESCROW AGENT HEREUNDER.
(j) It is understood and agreed that should any dispute arise
with respect to the delivery and/or ownership or right of possession of
the Escrow Funds held by the Escrow Agent hereunder, the Escrow Agent
is authorized and directed in the Escrow Agent's sole discretion (1) to
retain in the Escrow Agent's possession without liability to anyone all
or any part of said documents or the escrow funds until such disputes
shall have been settled either by mutual written agreement of the
parties concerned by a final order, decree or judgment or a court of
competent jurisdiction after the time for appeal has expired and no
appeal has been perfected, but the Escrow Agent shall be under no duty
whatsoever to institute or defend any such proceedings or (2) to
deliver the Escrow Funds and any other property and documents held by
the Escrow Agent hereunder to a state or Federal court having competent
subject matter jurisdiction and located in Los Angeles County,
California in accordance with the applicable procedure therefor.
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5. TERMINATION OF POST-CLOSING ESCROW AGREEMENT AND RESIGNATION
OF ESCROW AGENT.
(a) This Post-Closing Escrow Agreement shall terminate on the
final disposition of the Escrowed Funds, provided that the rights of
the Escrow Agent and the obligations of the parties hereto under
Section 4 shall survive the termination hereof.
(b) The Escrow Agent may resign at any time and be discharged
from its duties as Escrow Agent hereunder by giving the Company at
least 30 days' written notice thereof. As soon as practicable after its
resignation, the Escrow Agent shall turn over to a successor escrow
agent appointed by the Company, all monies and property held hereunder
upon presentation of the document appointing the new escrow agent and
its acceptance thereof. If no new Escrow Agent is so appointed within
the sixty (60) day period following such notice of resignation, the
Escrow Agent may deposit the aforesaid monies and property with any
court it deems appropriate in the County of Los Angeles, State of
California.
6. FORM OF PAYMENTS BY ESCROW AGENT.
(a) Any payments by the Escrow Agent to the Company or any
other persons entitled to receipt of any of the Escrowed Funds,
pursuant to the terms of this Post-Closing Escrow Agreement, shall be
made, at the sole discretion of the Escrow Agent either (i) by check,
or (ii) by wire transfer to such persons, pursuant to the wire
instructions provided to the Escrow Agent.
(b) All amounts referred to herein are expressed in United
States Dollars and all payments by the Escrow Agent shall be made in
such dollars.
7. NOTICES. All notices and other communication required or
permitted hereunder shall be in writing addressed to each of the parties at
their respective addresses set forth on the first page hereof or such changed
address as shall be given by notice as herein provided. All such notices shall
be given by (a) personal delivery against receipt therefor or (b) mailing the
same certified mail, return receipt requested, or by nationally recognized
overnight courier service. All notices shall be deemed given when received if
given by personal delivery or mailed by certified mail or one (1) business day
after being sent by national recognized overnight courier service.
8. FURTHER ASSURANCES. From time to time on and after the date
hereof, the Company shall deliver or cause to be delivered to the Escrow Agent
such further documents and instruments and shall do and cause to be done such
further acts as the Escrow Agent shall reasonably request (it being understood
that the Escrow Agent shall have no obligation to make any such request) to
carry out more effectively the provisions and purposes of this Post-Closing
Escrow Agreement, to evidence compliance herewith or to assure itself that it is
protected in acting hereunder.
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9. APPLICABLE LAW; JURISDICTION. This Post-Closing Escrow
Agreement shall be governed by and construed exclusively in accordance with the
internal laws of the State of California without regard to the conflicts of laws
principles thereof. The parties hereto hereby expressly and irrevocably agree
that any suit or proceeding arising directly and/or indirectly pursuant to,
arising out of or under this Post-Closing Escrow Agreement, shall be brought
solely and exclusively in a federal or state court located in the County of Los
Angeles, State of California. By its execution hereof, the parties hereby
expressly covenant and irrevocably submit to the IN PERSONAM jurisdiction of the
federal and state courts located in the County of Los Angeles, State of
California and agree that any process in any such action may be served upon any
of them personally, or by certified mail or registered mail upon them or their
agent, return receipt requested, with the same full force and effect as if
personally served upon them in such jurisdiction. The parties hereto expressly
and irrevocably waive any claim that any such jurisdiction is not a convenient
forum for any such suit or proceeding and any defense or lack of IN PERSONAM
jurisdiction with respect thereto.
10. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. This Post-Closing Escrow Agreement
shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors
and assigns.
(b) HEADINGS. The headings of this Post-Closing Escrow
Agreement are for convenience of reference only and shall not
constitute a part hereof.
(c) ORAL TERMINATION OR MODIFICATION. This Post-Closing Escrow
Agreement may not be modified, changed, amended or terminated, except
in writing signed by the parties to this Post-Closing Escrow Agreement.
(d) EXECUTION IN COUNTERPARTS. This Post-Closing Escrow
Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original as against any party whose signature
appears thereon, and all of which shall together constitute one and the
same instrument. This Post-Closing Escrow Agreement shall become
binding when one or more counterparts hereof, individually or taken
together, shall bear the signature of all of the parties reflected
hereon as the signatures.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed and delivered this
Post-Closing Escrow Agreement on the day and year first above written.
PATRON SYSTEMS, INC.
By:_________________________________
ESCROW AGENT
XXXXXX XXXXXXXX & MARKILES, LLP
By: _______________________________
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EXHIBIT A
FORM OF COMPLETION NOTICE
________________, 2006
Xxxxxx Xxxxxxxx & Markiles, LLP
00000 Xxxxxxx Xxxxxxxxx
00xx Xxxxx
Xxxxxxx Xxxx, Xxxxxxxxxx 00000
Re: Notice of Substantial Completion Pursuant to Post-Closing Escrow
Agreement dated as of March __, 2006
Gentlemen:
Reference his hereby made to that certain Post-Closing Escrow Agreement
dated as of March ___, 2006 between Patron Systems, Inc. and Xxxxxx Xxxxxxxx &
Markiles, LLP (the "AGREEMENT"). Capitalized terms used herein and not otherwise
defined will have the meanings ascribed to them in the Agreement.
Pursuant to Section 3 of the Agreement, the undersigned Chief Executive
Officer of the Company hereby represents and warrants that in connection with
the Exchange Offer conducted by the Company, the Company has received executed
exchange agreements from Claimants holding not less than 99% in dollar amount of
Claims and has reserved an aggregate of [__________] Series A-1 Preferred Stock
for issuance in exchange for $[___________] principal amount of Claims.
Accordingly, the undersigned hereby certifies that the Exchange Offer has been
substantially completed and the Escrow Agent is hereby directed to disburse all
Escrow Funds remaining in the Escrow Account to the Company.
-----------------------
Chief Executive Officer
Patron Systems, Inc.
EXHIBIT B
SCHEDULE OF PERIODIC DISBURSEMENTS
Disbursement Period
-------------------------------------------------------------------------------------------
Period from Closing to March 31, Period from April 1 to April Period from May 1 to May
2006 30, 2006 31, 2006
(the "MARCH PERIOD") (the "APRIL PERIOD") (the "MAY PERIOD")
-------------------------------------------------------------------------------------------
Mid-Month Disbursement $650,000 $485,100 $470,600
Month -End Disbursement $530,200 less $370,200 less April Period $341,200 less May Period
(calculated as follows) March Period Collections Collections Collections
Maximum Disbursement Amount $1,130,200 $885,300 $811,800
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EXHIBIT C
FORM OF PERIODIC DISBURSEMENT NOTICE
________________, 2006
Xxxxxx Xxxxxxxx & Markiles, LLP
00000 Xxxxxxx Xxxxxxxxx
00xx Xxxxx
Xxxxxxx Xxxx, Xxxxxxxxxx 00000
Re: Notice of [Mid-Month] [Month-End] Disbursement Pursuant to Post-
Closing Escrow Agreement dated as of March __, 2006 for the [________] Period
Gentlemen:
Reference his hereby made to that certain Post-Closing Escrow Agreement
dated as of March ___, 2006 between Patron Systems, Inc. and Xxxxxx Xxxxxxxx &
Markiles, LLP (the "AGREEMENT"). Capitalized terms used herein and not otherwise
defined will have the meanings ascribed to them in the Agreement.
Pursuant to Section 3 of the Agreement, the undersigned hereby requests
that the Escrow Agent make a [Mid-Month] [Month-End] Disbursement to the
Company, for the [________] Period in the amount of $[_______]. The undersigned
hereby represents and warrants that the Periodic Disbursement is to be used to
[_________________].
[Insert the following for a Month-End Disbursement]
Attached hereto is a statement, certified by the Company's Chief
Executive or Chief Financial Officer, of the total collections of the Company
for the [_______] Period.
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Chief Executive Officer
Patron Systems, Inc.
