EXHIBIT 2.1
AGREEMENT OF MERGER
AMONG
LION, INC.,
LION ACQ. LLC,
XXXXXX RISK MANAGEMENT SERVICES INC.,
XXXXXXX XXXXXX,
XXXX XXXXXXXXXX,
AND
XXXXXXX XXXXXX, AS STOCKHOLDERS' REPRESENTATIVE
DATED AS OF OCTOBER 12, 2004
CONTENTS
ARTICLE 1 - DEFINITIONS........................................................1
ARTICLE 2 - THE MERGER.........................................................7
2.1 THE MERGER.......................................................7
2.2 The Closing......................................................7
2.3 EFFECTIVE DATE AND TIME..........................................7
2.4 Governance of the Surviving LLC..................................8
2.5 MERGER CONSIDERATION.............................................8
2.5.1 Conversion.......................................................8
2.5.2 EXCHANGE OF CERTIFICATES; ISSUANCE OF MERGER SHARES AND NOTES....8
2.5.3 No Fractional Shares.............................................9
2.6 CLOSING WORKING CAPITAL..........................................9
2.7 Adjustment to Merger Consideration..............................10
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PRINCIPAL STOCKHOLDERS............................................11
3.1 Organization....................................................11
3.2 AUTHORIZATION; ENFORCEABILITY...................................11
3.3 Capitalization..................................................12
3.4 SUBSIDIARIES AND AFFILIATES.....................................12
3.5 No Approvals; No Conflicts......................................12
3.6 FINANCIAL STATEMENTS............................................13
3.7 Absence of Certain Changes or Events............................13
3.8 TAXES...........................................................14
3.9 Property........................................................15
3.10 CONTRACTS.......................................................16
3.10.1 Material Contracts..............................................16
3.10.2 REQUIRED CONSENTS...............................................17
3.11 Claims and Legal Proceedings....................................18
3.12 LABOR AND EMPLOYMENT MATTERS....................................18
3.13 Employee Benefit Plans..........................................18
3.14 INTELLECTUAL PROPERTY...........................................20
3.15 Corporate Books and Records.....................................22
3.16 LICENSES PERMITS, AUTHORIZATIONS, ETC...........................22
3.17 Compliance With Laws............................................23
3.18 INSURANCE.......................................................23
3.19 Brokers or Finders..............................................23
3.20 ABSENCE OF QUESTIONABLE PAYMENTS................................23
3.21 Bank Accounts...................................................24
3.22 CUSTOMERS.......................................................24
3.23 Accounts Receivable.............................................24
3.24 CREDITORS' LIST.................................................24
3.25 Insider Interests...............................................24
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3.26 COMPLIANCE WITH ENVIRONMENTAL LAWS..............................25
3.27 Full Disclosure.................................................25
ARTICLE 3A - ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE
PRINCIPAL STOCKHOLDERS...........................................25
3A.1 Sophistication; Accreditation........................................25
3A.2 OWNERSHIP............................................................25
3A.3 Information..........................................................26
3A.4 NO REGISTRATION......................................................26
3A.5 Brokers or Agents....................................................26
3A.6 INVESTMENT FOR OWN ACCOUNT...........................................26
3A.7 Residency............................................................26
3A.8 LEGENDS 27
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF LION AND MERGER LLC.............27
4.1 ORGANIZATION....................................................27
4.2 Enforceability..................................................27
4.3 SECURITIES......................................................28
4.4 No Approvals or Notices Required; No Conflicts With
Instruments.....................................................28
4.5 SEC DOCUMENTS...................................................28
4.6 Full Disclosure.................................................28
ARTICLE 5 - CONDITIONS PRECEDENT TO OBLIGATIONS OF LION AND MERGER LLC.......29
5.1 Accuracy of Representations and Warranties......................29
5.2 PERFORMANCE OF AGREEMENTS.......................................29
5.3 Opinion of Counsel for TRMS.....................................29
5.4 AUDIT...........................................................29
5.5 Material Adverse Change.........................................29
5.6 APPROVALS AND CONSENTS..........................................29
5.7 Proceedings and Documents; Officer's Certificate................30
5.8 COMPLIANCE WITH LAWS............................................30
5.9 Legal Proceedings...............................................30
5.10 EMPLOYMENT AGREEMENTS...........................................30
5.11 Investor Acknowledgment.........................................30
5.12 CONSENTS TO MERGER..............................................30
5.13 Merger Consideration............................................31
5.14 COMPANY'S 401(K) PLAN AND BONUS PLANS...........................31
5.15 REITCO..........................................................31
5.16 COMPANY WORKING CAPITAL.........................................31
ARTICLE 6 - CONDITIONS PRECEDENT TO OBLIGATIONS OF TRMS AND THE
PRINCIPAL STOCKHOLDERS............................................31
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES......................31
6.2 Performance of Agreements.......................................31
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6.3 OPINION OF COUNSEL FOR LION AND MERGER LLC......................32
6.4 Officer's Certificate...........................................32
6.5 EMPLOYMENT AGREEMENTS...........................................32
6.6 Put Agreement...................................................32
6.7 LEGAL PROCEEDINGS...............................................32
6.8 Material Adverse Change.........................................32
6.9 APPROVALS AND CONSENTS..........................................32
6.10 REITCO..........................................................33
6.11 COMPLIANCE WITH LAWS............................................33
ARTICLE 7 - COVENANTS.........................................................33
7.1 CONDUCT OF BUSINESS BY TRMS PENDING THE MERGER..................33
7.2 Access to Information; Confidentiality..........................34
7.3 NO ALTERNATIVE TRANSACTIONS.....................................35
7.4 Notification of Certain Matters.................................35
7.5 FURTHER ACTION; REGULATORY MATTERS..............................35
7.6 Publicity.......................................................37
7.7 EXECUTION OF ALL OPERATIVE DOCUMENTS............................37
7.8 Limitation On Sales of Company Common Stock.....................37
7.9 REIT ADVISORY BUSINESS..........................................37
7.10 Tax Covenant....................................................37
ARTICLE 8 - TERMINATION, AMENDMENT AND WAIVER................................37
8.1 Termination.....................................................37
8.2 EFFECT OF TERMINATION...........................................38
8.3 Amendment; Waiver...............................................38
ARTICLE 9 - SURVIVAL AND INDEMNIFICATION......................................38
9.1 Survival........................................................38
9.2 INDEMNIFICATION BY THE PRINCIPAL STOCKHOLDERS...................39
9.3 Indemnification by Lion.........................................39
9.4 PROCEDURE FOR INDEMNIFICATION...................................39
9.5 Right of Offset.................................................41
9.6 THRESHOLDS AND LIMITATIONS......................................41
ARTICLE 10 - OTHER AGREEMENTS.................................................42
10.1 TAX MATTERS.....................................................42
10.2 Stockholders' Representative....................................42
10.3 POST-CLOSING OPERATIONS.........................................43
ARTICLE 11 - GENERAL..........................................................43
11.1 EXPENSES........................................................43
11.2 Notices.........................................................43
11.3 SEVERABILITY....................................................45
11.4 Assignment......................................................45
11.5 PARTIES IN INTEREST.............................................45
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11.6 Governing Law; Venue............................................45
11.7 OTHER REMEDIES; SPECIFIC PERFORMANCE............................45
11.8 Interpretation; Schedules.......................................46
11.9 KNOWLEDGE.......................................................46
11.10 Entire Agreement................................................46
11.11 COUNTERPARTS....................................................46
EXHIBITS
--------
2.3.1 - Form of Certificate of Merger (Delaware)
2.3.2 - Form of Articles of Merger (Washington)
2.5.1 - Form of 8% Note due October 2007
2.5.2 - Letter of Transmittal
5.3 - Opinion of Counsel for TRMS and the Principal Stockholders
5.10.1 - Xxxxxx Employment Agreement
5.10.2 - Xxxxxxxxxx Employment Agreement
5.10.3 - LION Confidentiality and Inventions Agreement
5.11 - Investor Questionnaire and Acknowledgement
6.3 - Opinion of Counsel for LION and Merger LLC
6.6 - Put Agreement
7.9.1 - REITCO Stock Purchase Agreement
7.9.2 - REITCO Right of First Refusal Agreement
SCHEDULES
---------
2.4 - Directors and Officers of Surviving LLC
3 - Disclosure Memorandum
5.10 - TRMS Employees
7.9 - REITCO Ownership
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AGREEMENT OF MERGER
Agreement of Merger ("AGREEMENT") dated as of October 12, 2004, by and
among LION, Inc., a Washington corporation ("LION"), LION Acq. LLC, a Washington
limited liability company wholly-owned by LION ("MERGER LLC"), Xxxxxx Risk
Management Services Inc., a Delaware corporation ( "TRMS"), Xxxxxxx Xxxxxx
("XXXXXX") and Xxxx Xxxxxxxxxx ("XXXXXXXXXX") (Xxxxxx and Xxxxxxxxxx being
collectively referred to as the "PRINCIPAL STOCKHOLDERS"), and Xxxxxx, as
Stockholders' Representative.
RECITALS
A. TRMS, the Principal Stockholders, LION and Merger LLC believe it
advisable and in their respective best interests to effect a merger of TRMS and
Merger LLC pursuant to this Agreement (the "MERGER").
B. The board of directors and the stockholders of TRMS (the
"STOCKHOLDERS") have adopted and approved this Agreement and the Merger as
required by applicable law.
C. The boards of directors of LION and Merger LLC and the sole member
of Merger LLC have adopted and approved this Agreement and the Merger as
required by applicable law.
D. It is intended that the Merger will qualify as a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"CODE").
AGREEMENT
In consideration of the foregoing and the respective covenants,
agreements, representations, and warranties set forth herein, the parties hereto
agree as follows:
ARTICLE 1 - DEFINITIONS
As used herein, the following terms shall have the meanings herein
specified:
"ACCOUNTING REFEREE" means a firm of independent accountants of
nationally recognized standing reasonably satisfactory to LION and the
Stockholders' Representative (which firm shall not have any material
relationship with LION, TRMS or the Principal Stockholders).
"ADVISERS ACT" means the Investment Advisers Act of 1940, as amended,
and the rules and regulations of the SEC thereunder.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or
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otherwise, and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"AGREEMENT" means this Agreement of Merger as described in the
Preamble.
"AVERAGE SHARE PRICE" shall be the lesser of (a) the closing price of
LION common stock for the 20 Trading Days ending on the Trading Day immediately
prior to the Closing Date and (b) $0.65.
"XXXXXX" is defined in the Preamble hereof.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or other
day on which banks in the State of California are authorized or required to
close.
"CERTIFICATES OF MERGER" is defined in Section 2.3.
"CLAIM" means any claim for indemnification under Article 9.
"CLAIM NOTICE" means a written notice of any claim for indemnification
under Article 9.
"XXXXXXXXXX" is defined in the Preamble.
"CLOSING" is defined in Section 2.2.
"CLOSING DATE" is defined in Section 2.2.
"CLOSING WORKING CAPITAL" means the excess of current assets of TRMS
over current liabilities of TRMS on the Business Day immediately preceding the
Closing Date, such current liabilities to include all legal, accounting and
other out-of-pocket expenses incurred (and projected to be incurred) in
connection with the transactions provided for in this Agreement and the other
Operative Documents.
"CLOSING WORKING CAPITAL STATEMENT" is defined in Section 2.6(b).
"COBRA" is defined in Section 3.13(f).
"CODE" is defined in Recital D.
"DELAWARE LAW" means the Delaware General Corporation Law.
"DISCLOSURE MEMORANDUM" means the disclosure memorandum attached as
SCHEDULE 3 to this Agreement.
"DISTRIBUTION NOTES" means the promissory notes that TRMS will issue to
the Stockholders prior to the Closing.
"EFFECTIVE DATE" is defined in Section 2.3.
"EFFECTIVE TIME" is defined in Section 2.3.
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"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" (as such term
is defined in ERISA ss. 3(3)) and any other material employee compensation or
benefit plan, program or arrangement of any kind, including without limitation
deferred compensation, severance pay, retirement, employment agreements, change
in control agreements, insurance, stock purchase, stock option, and other
benefit plans, programs or arrangements) that TRMS maintains or to which TRMS
contributes, has any obligation to contribute or any material liability.
"ENCUMBRANCE" means any liens, mortgages, pledges, deeds of trust,
security interests, charges, or other encumbrances.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA AFFILIATE" is defined in Section 3.13.
"ERISA AFFILIATE PLAN" is defined in Section 3.13.
"ESTIMATED CLOSING WORKING CAPITAL" is defined in Section 2.6.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FINAL WORKING CAPITAL" is defined in Section 2.7.
"FULLY DILUTED COMMON STOCK NUMBER" means the total number of shares of
TRMS Common Stock outstanding immediately prior to the Effective Time.
"GAAP" means generally accepted accounting principles in the United
States.
"GOVERNMENTAL AUTHORITY" means any government, any state or other
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
including the SEC or any other government authority, agency, department, board,
commission or instrumentality of the United States, any state of the United
States or any political subdivision thereof, and any court, tribunal or
arbitrator of competent jurisdiction, and any governmental or non-governmental
self-regulatory organization, agency or authority, including the NASD.
"INDEMNIFICATION CAP" is defined in Section 9.6(c).
"INDEMNIFIED PARTIES" means the TRMS Indemnified Parties and the LION
Indemnified Parties, as the case may be.
"INTELLECTUAL PROPERTY" means all trade names, inventions, processes,
designs, formulae, trade secrets, know-how, and other proprietary rights.
"INVESTOR ACKNOWLEDGMENT" means the Investor Questionnaire and
Acknowledgment in the form set forth in EXHIBIT 5.12.
"LETTER OF TRANSMITTAL" means a letter of transmittal substantially in
the form set forth in EXHIBIT 2.5.2.
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"LION" is defined in the Preamble.
"LION COMMON STOCK" means the common stock, $0.001 par value per share,
of LION.
"LION INDEMNIFIED PARTIES" is defined in Section 9.2.
"LOSS THRESHOLD" is defined in Section 9.6(a).
"LOSSES" shall mean any and all loss, obligation, deficiency, damage,
claim liability, cost and expense including, without limitation, the amount of
any settlement entered into pursuant to this Agreement, and all reasonable legal
fees and other expenses.
"MATERIAL CONTRACTS" is defined in Section 3.10.
"MERGER" is defined in Recital A.
"MERGER CONSIDERATION" means the aggregate of (i) the Distribution
Notes and (ii) the Notes and Merger Shares issued to the Stockholders as a
result of the Merger, as described in Section 2.5.1.
"MERGER LLC" is defined in the Preamble.
"MERGER SHARES" means the number of shares of LION Common Stock to be
issued to the Stockholders in the Merger as part of the Merger Consideration,
such that the Share Value is not less than 50% of the Merger Consideration.
"NASD" means the National Association of Securities Dealers, Inc.
"NOTE" means the 8% promissory note due October 2007, the form of which
is attached as EXHIBIT 2.5.1 hereto, to be issued to the Stockholders in the
Merger as part of the Merger Consideration.
"OPERATIVE DOCUMENTS" means this Agreement and the other agreements and
certificates that are required to be completed and executed pursuant to this
Agreement, including the Xxxxxx Employment Agreement and the Xxxxxxxxxx
Employment Agreement.
"OUTSTANDING SHARES" is defined in Section 3.3(b).
"PERMITS" means all currently required governmental approvals,
authorizations, consents, licenses, orders, registrations and permits of all
agencies, whether federal, state, local or foreign.
"PERMITTED ENCUMBRANCES" means:
(a) Encumbrances for taxes, fees, assessments or other government
charges or levies, either not delinquent or being contested in good faith and
for which TRMS maintains adequate reserves in accordance with GAAP;
(b) Licenses or sublicenses granted by TRMS in the ordinary course
of business and any interest or title of a licensor or under any such license or
sublicense;
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(c) Leases or subleases granted by TRMS in the ordinary course of
business, including in connection with TRMS's leased premises or leased
property;
(d) Liens in favor of financial institutions arising in connection
with TRMS's deposit accounts or securities accounts held at such institutions;
(e) Banker's liens, rights of setoff and similar liens incurred on
deposits made in the ordinary course of business;
(f) Materialmen's, mechanic's, repairmen's, employees' or other
like liens arising in the ordinary course of business and which are not
delinquent;
(g) Encumbrances to secure payment of worker's compensation,
employment insurance, old age pensions or other social security obligations of
TRMS in the ordinary course of business; and
(h) Easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and similar charges or encumbrances affecting
real property not constituting a TRMS Material Adverse Effect.
"PERSON" means any person, corporation, partnership, joint venture,
association, organization, other entity or Governmental Authority.
"PERSONAL PROPERTY" is defined in Section 3.9.
"PRE-CLOSING DISTRIBUTION" means the distribution to the Stockholders
of cash and Distribution Notes prior to the Closing Date which will result in
Closing Working Capital of not less than $300,000.
"PRINCIPAL STOCKHOLDERS" is defined in the Preamble.
"PRO RATA SHARE" means the quotient derived by dividing the number of
shares of Company Common Stock held by a Stockholder by the Fully Diluted Common
Stock Number.
"PURCHASE PRICE" means $3,500,000 less the amount of the Pre-Closing
Distribution.
"REAL PROPERTY" is defined in Section 3.9.
"REGISTERED INTELLECTUAL PROPERTY" means all registered patents, patent
applications, registered trademarks, trademark applications, registered
copyrights, copyright applications and domain name registrations used by TRMS in
its business.
"REGULATORY DOCUMENTS" means, with respect to a Person, all forms,
reports, registration statements, schedules and other documents filed, or
required to be filed, by such Person with any Governmental Authority.
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"REITCO" means the newly-formed corporation to which TRMS shall have
transferred and assigned the assets and liabilities of TRMS used in and
necessary for its REIT advisory business, as described in Section 7.9.
"REITCO RIGHT OF FIRST REFUSAL AGREEMENT" is defined in Section 7.9.
"SEC" means the Securities and Exchange Commission and any successor
thereto.
"SEC DOCUMENTS" means true and complete copies of the following reports
of LION filed or furnished to the SEC pursuant to the Exchange Act: Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 31, 2003;
Quarterly Report on Form 10-QSB, as amended, for the quarterly period ending
March 31, and Quarterly Report on Form 10-QSB for the quarterly period ending
June 30, 2004; definitive proxy statement, filed May 12, 2004, for LION's annual
meeting of stockholders; and Current Reports on Form 8-K, as filed on February
2, 23, 26, April 28, June 8, July 30, and August 20, 2004.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARE VALUE" means the product of the Merger Shares multiplied by the
Average Share Price; PROVIDED, that the Share Value shall not be less than 50%
of the value of the Merger Consideration.
"STOCKHOLDERS' REPRESENTATIVE" is defined in the Preamble.
"STOCKHOLDERS" is defined in Recital B.
"SURVIVAL PERIOD" is defined in Section 9.1.
"SURVIVING LLC" means Merger LLC, as the surviving entity after the
Effective Time.
"TAX" or "TAXES" means any or all foreign, federal, state, county or
local taxes, charges, fees, levies, imposts, duties and other assessments,
including, but not limited to, any income, alternative minimum or add-on,
estimated, gross income, gross receipts, sales, use, transfer, transactions,
intangibles, ad valorem, value-added, franchise, registration, title, license,
capital, paid-up capital, profits, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, real property, recording, personal
property, custom, duty or other tax, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest, penalties or
additions to tax.
"TAX RETURNS" shall mean any return, declaration, report, claim or
refund, information return, statement or other similar document relating to
Taxes, including any schedule or attachment thereto, and including any amendment
thereof.
"THIRD PARTY CLAIM" is defined in Section 9.4.
"TRADING DAY" means a day on which trades may be made in the
over-the-counter market for the LION Common Stock.
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"TRMS" is defined in the Preamble.
"TRMS BALANCE SHEET" mean the balance sheet of TRMS as of September 30,
2004.
"TRMS BUSINESS" means the business of providing interest rate and
mortgage pipeline risk management services as presently conducted by TRMS.
"TRMS COMMON STOCK" means the common stock, $0.001 par value per share,
of TRMS.
"TRMS FINANCIAL STATEMENTS" means (a) unaudited balance sheets,
statements of income and expense, statements of cash flow and statements of
stockholders' equity of TRMS as of and for the nine months ended September 30,
2004 and the fiscal years ended December 31, 2003, 2002 and 2001 and (b) the
TRMS Balance Sheet
"TRMS INDEMNIFIED PARTIES" is defined in Section 9.3.
"TRMS MATERIAL ADVERSE EFFECT" means a material adverse effect on
TRMS's business operations, assets, liabilities (absolute, accrued, contingent
or otherwise) or condition (financial or otherwise).
"WASHINGTON LAW" means the Washington Business Corporation Act, RCW
23B, and the Washington Limited Liability Company Act, RCW 25.15.
ARTICLE 2 - THE MERGER
2.1 THE MERGER
Upon the terms and subject to the conditions hereof, (a) at the
Effective Time TRMS shall be merged with and into Merger LLC in accordance with
Washington Law and Delaware Law, and (b) as of and from the Effective Time,
Merger LLC shall continue as the surviving corporation and the separate
corporate existence of TRMS shall cease.
2.2 THE CLOSING
Subject to the terms and conditions of this Agreement, the closing of
the Merger (the "CLOSING") shall take place on the earliest practicable Business
Day (the "CLOSING DATE") after the satisfaction or waiver of the conditions set
forth in Articles 5 and 6 at 10 a.m. local time at the offices of Stoel Rives
LLP, 000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxxxx, or such other date,
time or location as LION and TRMS shall agree.
2.3 EFFECTIVE DATE AND TIME
On the Closing Date and upon the terms and subject to conditions
hereof, certificates of merger (the "CERTIFICATES OF MERGER"), substantially in
the forms attached hereto as EXHIBITS 2.3.1 and 2.3.2 complying with the
applicable provisions of Delaware Law and Washington Law shall
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be delivered for filing with the Secretary of State of the state of Delaware and
the Secretary of State of the state of Washington. The Merger shall become
effective on the date (the "EFFECTIVE DATE") and at the time (the "EFFECTIVE
TIME") of filing of the Certificates of Merger or at such other time as may be
specified in the Certificates of Merger as filed.
2.4 GOVERNANCE OF THE SURVIVING LLC
At and after the Effective Time, Surviving LLC shall continue to be
governed by its certificate of formation and operating agreement as in effect at
the Effective Time, as amended to provide for a change in name to Xxxxxx Risk
Management Services LLC. The directors and officers of Surviving LLC shall be at
and after the Effective Time as set forth SCHEDULE 2.4.
2.5 MERGER CONSIDERATION
2.5.1 CONVERSION
As of the Effective Time, by virtue of the Merger and without any
action on the part of the Stockholders, each issued and outstanding share of
TRMS Common Stock shall be converted into the right to receive:
(a) a Note in the principal amount calculated as follows:
A / B = C
where A = the dollar amount obtained by subtracting the Share
Value from the Purchase Price;
B = the Fully Diluted Common Stock Number; and
C = the principal amount of the Note; and
(b) the number of shares of LION common stock, determined by
dividing the Merger Shares by the Fully Diluted Common Stock Number.
2.5.2 EXCHANGE OF CERTIFICATES; ISSUANCE OF MERGER SHARES AND NOTES
As soon as practicable after the Effective Date, LION shall make
available and each Stockholder shall be entitled to receive, promptly after
surrender to LION of a Letter of Transmittal, together with documents delivered
as required therein, for the shares of TRMS Common Stock held by such
Stockholder:
(a) a certificate representing the number of shares of LION Common
Stock that such Stockholder is entitled to receive pursuant to Section 2.5.1
(unless the Final Working Capital has not yet been determined in accordance with
Section 2.7 and any adjustments in the Merger Shares required under Section 2.7
have not yet been made, in which case LION shall deliver such certificate to the
Stockholders' Representative to hold until such determinations are made); and
(b) a Note in the principal amount that such Stockholder is
entitled to receive pursuant to Section 2.5.1 (unless the Final Working Capital
has not yet been determined in
8
accordance with Section 2.7 and any adjustments in the Notes required under
Section 2.7 have not yet been made, in which case LION shall deliver such Note
to the Stockholders' Representative to hold until such determinations are made).
2.5.3 NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of LION Common
Stock shall be issued by virtue of the Merger. The aggregate number of shares of
LION Common Stock a Stockholder shall be entitled to receive pursuant to Section
2.5.1(b) shall be rounded to the nearest whole number of shares, with one-half
of a share being rounded up to the next greatest whole share.
2.6 CLOSING WORKING CAPITAL
(a) No later than five Business Days prior to the Closing Date,
TRMS shall provide LION with a good faith estimate of the Closing Working
Capital ("ESTIMATED CLOSING WORKING CAPITAL"), which shall be based on the
latest available financial information and shall be prepared in accordance with
GAAP, applied on a basis consistent with the preparation of the TRMS Balance
Sheet, and giving full consideration to TRMS's intention to distribute all 2004
taxable earnings to the Stockholders prior to the Closing and giving pro-forma
effect to the Pre-Closing Distribution.
(b) As promptly as practicable, but no later than 75 days after
the Closing Date, LION will cause to be prepared and delivered to the
Stockholders' Representative an unaudited Closing Working Capital Statement (the
"CLOSING WORKING CAPITAL STATEMENT"), setting forth LION's calculation of
Closing Working Capital. The Closing Working Capital Statement shall (i) be
prepared in accordance with GAAP, applied on a basis consistent with the
preparation of the TRMS Balance Sheet, (ii) fairly present in all material
respects the current assets and current liabilities of TRMS as at the close of
business on the Business Day immediately preceding the Closing Date, and (iii)
be prepared in accordance with accounting policies and practices consistent with
those used in the preparation of the TRMS Balance Sheet.
(c) If the Stockholders' Representative disagrees with LION's
calculation of Closing Working Capital, the Stockholders' Representative may,
within 10 days after delivery of the Closing Working Capital Statement, deliver
a notice to LION disagreeing with such calculation and setting forth his
calculation of such amount. Any such notice of disagreement shall specify those
items or amounts as to which the Stockholders' Representative disagrees. If the
Stockholders' Representative fails to deliver such a written notice within such
10-day period, LION's calculation of Closing Working Capital shall be binding
upon the parties.
(d) If the Stockholders' Representative delivers a notice of
disagreement pursuant to Section 2.6(c), LION and the Stockholders'
Representative shall, during the 30 days following such delivery, use their
commercially reasonable efforts to reach agreement on the disputed items or
amounts in order to determine the amount of Closing Working Capital, which
amount shall not be less than the amount thereof shown in LION's calculations
delivered pursuant to Section 2.6(b) nor more than the amount thereof shown in
the Stockholders' Representative's calculation delivered pursuant to Section
2.6(c). If LION and the Stockholders'
9
Representative are unable to reach such agreement during the 30 days, they shall
promptly thereafter cause the Accounting Referee promptly to review the disputed
items or amounts for the purpose of calculating Closing Working Capital. In
making such calculation, the Accounting Referee shall consider only those items
or amounts in the Closing Working Capital Statement or LION's calculation of
Closing Working Capital as to which the Stockholders' Representative has
disagreed. The Accounting Referee shall deliver to LION and the Stockholders'
Representative, as promptly as practicable, but not later than 120 days after
the Closing Date, a report setting forth such calculation. Such report shall be
final and binding upon LION, TRMS and the Stockholders' Representative. The
costs, fees and expenses of the Accounting Referee shall be borne
proportionately by LION, on the one hand, and the Stockholders, on the other,
based on the extent to which LION's and the Stockholders' Representative's
respective determinations differ from the Accounting Referee's determination.
2.7 ADJUSTMENT TO MERGER CONSIDERATION
(a) If Final Working Capital is less than Estimated Closing
Working Capital, then the Merger Consideration shall be adjusted by reducing the
principal amounts of the Notes issuable to the Stockholders pursuant to Section
2.5.1(a) in an aggregate dollar amount equal to the difference between Estimated
Closing Working Capital and Final Working Capital.
(b) If Final Working Capital is greater than Estimated Closing
Working Capital, then the Merger Consideration shall be adjusted by increasing
the principal amounts of the Notes issuable to the Stockholders pursuant to
Section 2.5.1(a) in an aggregate dollar amount equal to the difference between
Final Working Capital and Estimated Closing Working Capital. The foregoing
notwithstanding, if increasing the aggregate principal amount of the Notes
pursuant to the preceding sentence would cause the Share Value to be less than
50% of the value of the Merger Consideration, then to the extent necessary to
maintain the Share Value at not less than 50% of the Merger Consideration:
(i) LION shall issue additional shares of LION Common Stock,
which shall be considered part of the Merger Shares, such that the
Share Value shall not be less than 50% of the value of the Merger
Consideration; and
(ii) the amount of the increase in the principal amount of the
Notes that otherwise would have been made but for the limits imposed by
this sentence shall be correspondingly reduced by the product of (x)
the Average Share Price and (y) the additional shares of LION Common
Stock issued pursuant to clause (i) of this sentence.
(c) Any adjustment in the Merger Consideration required by this
Section 2.7 shall be made based on each Stockholder's Pro Rata Share.
(d) For purposes of this Section 2.7, "FINAL WORKING CAPITAL"
means Closing Working Capital as shown in LION's calculation delivered pursuant
to Section 2.6(b), if no notice of disagreement with respect thereto is duly
delivered pursuant to Section 2.6(c); or if such a notice of disagreement is
delivered, as agreed by LION and the Stockholders' Representative pursuant to
Section 2.6(d) or, in the absence of such agreement, as shown in the Accounting
Referee's calculation delivered pursuant to Section 2.6(d); PROVIDED that in no
event
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shall Final Working Capital be less than LION's calculation of Closing Working
Capital delivered pursuant to Section 2.6(b) or more than the Stockholders'
Representative's calculation of Closing Working Capital delivered pursuant to
Section 2.6(c).
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE PRINCIPAL STOCKHOLDERS
Except as otherwise is set forth in the Disclosure Memorandum, and in
order to induce LION and Merger LLC to enter into and perform this Agreement and
the other agreements and the other Operative Documents, TRMS and the Principal
Stockholders severally represent and warrant to LION and Merger LLC as of the
Closing Date as follows.
3.1 ORGANIZATION
TRMS is a corporation duly organized and validly existing under the
laws of the state of Delaware. TRMS has all requisite corporate power and
authority to execute, deliver and perform its obligations each of the Operative
Documents, and to consummate the transactions contemplated thereby. Each
Principal Stockholder has the power, authority and capacity to execute, deliver
and perform his obligations under each of the Operative Documents to which he is
a party and to consummate the transactions contemplated thereby. TRMS is duly
qualified and licensed as a foreign corporation to do business and is in good
standing in each jurisdiction in which the character of TRMS's properties
occupied, owned or held under lease or the nature of the business conducted by
TRMS makes such qualification or licensing necessary, except that TRMS is not
qualified and licensed as a foreign corporation to do business in the State of
Pennsylvania, and except where the failure to be so qualified or licensed would
not have a TRMS Material Adverse Effect.
3.2 AUTHORIZATION; ENFORCEABILITY
All corporate action on the part of TRMS necessary for the
authorization, execution, delivery and performance of the Operative Documents,
the consummation of the Merger, and the performance of all TRMS's obligations
under the Operative Documents has been taken or will be taken as of or prior to
the Effective Time. The Stockholders have unanimously approved this Agreement
and the Merger. Each of the Operative Documents has been duly executed and
delivered by TRMS and each Principal Stockholder, as applicable, and each of the
Operative Documents is a legal, valid and binding obligation of TRMS and each
Principal Stockholder, as applicable, enforceable against each of them in
accordance with its terms, except as enforceability may be limited or affected
by applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, or other laws of general application relating to or affecting the
enforcement of creditors' rights, and except as enforceability may be limited by
equitable principles, including those limiting the availability of specific
performance, injunctive relief and other equitable remedies providing for
defenses based on fairness and reasonableness, regardless of whether considered
in a proceeding in equity or at law
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3.3 CAPITALIZATION
(a) The authorized capital stock of TRMS consists of 1,250,000
shares of TRMS Common Stock.
(b) The issued and outstanding capital stock of TRMS consists
solely of 862,599 shares of TRMS Common Stock (collectively, the "OUTSTANDING
SHARES"), which are held of record and beneficially by the Stockholders in the
amounts described on SCHEDULE 3.3(B) to the Disclosure Memorandum. The
Outstanding Shares are, and immediately prior to the Closing will be, duly
authorized, validly issued, fully paid and nonassessable, and issued in
compliance with all applicable federal and state securities laws. To the
knowledge of TRMS and each Principal Stockholder, and subject to applicable
community property laws, no Person other than the Stockholders holds any
interest in any of the Outstanding Shares. True and correct copies of the stock
records of TRMS showing all issuances and transfers of shares of capital stock
of TRMS since inception have been delivered to LION or its counsel.
(c) There are no outstanding options, rights of first refusal or
offer, preemptive rights, stock purchase rights or other agreements, either
directly or indirectly, for the purchase or acquisition from TRMS or from any
Stockholder of any shares of capital stock of TRMS or any securities convertible
into or exchangeable for shares of capital stock of TRMS.
(d) TRMS is not a party or subject to any agreement or
understanding and, to the knowledge of TRMS and each Principal Stockholder,
there is no agreement or understanding between any Persons that affects or
relates to the voting or giving of written consents with respect to any
securities of TRMS or the voting by any director of TRMS. No Stockholder or any
Affiliate thereof is indebted to TRMS, and TRMS is not indebted to any
Stockholder or any Affiliate thereof. TRMS is not under any contractual or other
obligation to register any of its presently outstanding securities or any of its
securities that may hereafter be issued.
3.4 SUBSIDIARIES AND AFFILIATES
TRMS does not own, directly or indirectly, any ownership, equity, or
voting interest in any corporation, partnership, joint venture or other entity,
and has no agreement or commitment to purchase any such interest.
3.5 NO APPROVALS; NO CONFLICTS
The execution, delivery and performance of the Operative Documents by
TRMS and each of the Principal Stockholders, as applicable, and the consummation
by them of the transactions contemplated thereby will not:
(a) constitute a violation (with or without the giving of notice
or lapse of time, or both) of any provision of law or any judgment, decree,
order, regulation or rule of any court or other governmental authority
applicable to TRMS or the Principal Stockholders;
(b) except as contemplated by the Operative Documents, require any
consent, approval or authorization of, or declaration, filing or registration
with, any Person, except for approval by the Stockholders, which approval has
been heretofore unanimously given, and the
12
filing of all documents necessary to consummate the Merger under Delaware Law
and Washington Law;
(c) result in a default under (with or without the giving of
notice or lapse of time, or both), or acceleration or termination of, or the
creation in any party of the right to accelerate, terminate, modify or cancel,
any agreement, lease, note or other restriction, encumbrance, obligation or
liability to which TRMS or the Principal Stockholders are parties or by which
they are bound or to which TRMS's assets are subject;
(d) result in the creation of any Encumbrance upon any assets of
TRMS or the Outstanding Shares;
(e) conflict with or violate any provision of TRMS's certificate
of incorporation or bylaws; or
(f) invalidate or adversely affect any Permit used in or necessary
for the conduct of the TRMS Business.
3.6 FINANCIAL STATEMENTS
TRMS has delivered to LION the TRMS Financial Statements. The TRMS
Financial Statements have been prepared in conformity with GAAP on a basis
consistent with prior accounting periods and fairly present the financial
position, results of operations and changes in financial position of TRMS as of
the dates and for the periods indicated. TRMS has no liabilities or obligations
of any nature (absolute, contingent or otherwise) that are not fully reflected
or reserved against in the TRMS Balance Sheet, except (i) liabilities or
obligations incurred since the date of the TRMS Balance Sheet in the ordinary
course of business and consistent with past practice, and (ii) liabilities or
obligations otherwise disclosed in this Agreement or in the Disclosure
Memorandum. TRMS maintains standard systems of accounting that are adequate for
its business.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except for transactions specifically contemplated in this Agreement,
since the date of the TRMS Balance Sheet, neither TRMS, nor any of its officers,
directors or Stockholders in their representative capacities on behalf of TRMS,
have:
(a) taken any action or entered into or agreed to enter into any
transaction, agreement or commitment other than in the ordinary course of
business;
(b) forgiven or canceled any indebtedness or waived any claims or
rights of material value;
(c) granted any increase in the compensation of directors,
officers, employees or consultants;
(d) suffered any change having a TRMS Material Adverse Effect;
13
(e) borrowed or agreed to borrow any funds, incurred or become
subject to, whether directly or by way of assumption or guarantee or otherwise,
any obligations or liabilities in excess of $5,000 individually or $10,000 in
the aggregate, except liabilities and obligations that are incurred in the
ordinary course of business and consistent with past practice, or increased, or
experienced any change in any assumptions underlying or methods of calculating,
any bad debt, contingency or other reserves;
(f) paid, discharged or satisfied any material claims, liabilities
or obligations other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of claims, of liabilities
and obligations reflected or reserved against in the TRMS Balance Sheet or
incurred in the ordinary course of business and consistent with past practice
since the date of the TRMS Balance Sheet, or prepaid any obligation having a
fixed maturity of more than 90 days from the date such obligation was issued or
incurred;
(g) knowingly permitted or allowed any of its property or assets
to be subjected to any Encumbrance, other than Permitted Encumbrances;
(h) purchased or sold, transferred or otherwise disposed of any of
its material properties or assets;
(i) disposed of, other than through licenses in the ordinary
course of business, or permitted to lapse, any rights to the use of any
Intellectual Property, or disposed of or disclosed to any Person without
obtaining an appropriate confidentiality agreement from any such Person any
trade secret, formula, process or know-how not theretofore a matter of public
knowledge;
(j) made any single capital expenditure or commitment in excess of
$10,000 for additions to property, plant, equipment or intangible capital assets
or otherwise or made aggregate capital expenditures in excess of $10,000 for
additions to property, plant, equipment or intangible capital assets or
otherwise;
(k) made any change in accounting methods or practices or internal
control procedures; or
(l) paid, loaned or advanced any amount to, or sold, transferred
or leased any properties or assets to any of the Stockholders or any of TRMS's
officers, directors or employees, or any Affiliate of any Stockholder or of
TRMS's officers, directors or employees, except for (i) compensation paid to
officers and employees at rates not exceeding the rates of compensation paid
during the fiscal year last ended, (ii) advances for travel and other
business-related expenses, and (iii) the Pre-Closing Distribution.
3.8 TAXES
(a) (i) All Tax Returns required to be filed by or on behalf of
TRMS have been timely filed and all such Tax Returns were (at the time they were
filed) and are true, correct and complete in all material respects; (ii) all
Taxes of TRMS have been fully and timely paid, except for those for which
adequate reserves have been created in the TRMS Financial Statements in
accordance with GAAP; (iii) no waivers of statutes of limitation have been given
14
or requested with respect to TRMS in connection with any Tax Returns; (iv) no
taxing authority in a jurisdiction where TRMS does not file Tax Returns has made
a claim, assertion or threat to TRMS that TRMS is or may be subject to taxation
by such jurisdiction; (v) TRMS has duly and timely withheld from employee
salaries, wages and other compensation and paid over to the appropriate
Governmental Authority all amounts required to be so withheld and paid over for
all periods under all applicable laws; (vi) there are no Encumbrances with
respect to Taxes on any of TRMS's property or assets other than Encumbrances for
current Taxes not yet payable; (vii) there are no Tax rulings, requests for
rulings, or closing agreements relating to TRMS that could affect the liability
for Taxes or the amount of taxable income of TRMS for any period (or portion of
a period) after the Closing Date; and (viii) any adjustment of Taxes of TRMS
made by the Internal Revenue Service in any examination that is required to be
reported to the appropriate state, local or foreign taxing authorities has been
reported, and any additional Taxes due with respect thereto have been paid.
(b) There is no outstanding dispute or claim concerning any Tax
liability of TRMS, nor to the knowledge of TRMS or the Principal Stockholders is
any such claim or dispute pending. No Tax Returns filed with respect to TRMS for
taxable periods ended on or after TRMS's inception or the inception of any
predecessor have been audited or are currently the subject of audit. TRMS has
delivered to LION correct and complete copies of all Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by TRMS
since TRMS's inception.
(c) TRMS has not made any payments, is not obligated to make any
payments and is not a party to any agreement that under certain circumstances
could obligate it to make any payments that will not be deductible under Section
280G of the Code (or any similar provision of state, local or foreign law).
(d) TRMS is not a party to any Tax allocation or sharing
agreement. TRMS (i) has not been a member of a federal, state, local or foreign
consolidated, affiliated, combined, unitary or other similar group of which TRMS
is now or was formerly a member filing a consolidated income Tax Return under
Section 1501 of the Code (or any similar provision of state, local or foreign
law) and (ii) does not have any liability for Taxes of any Person under Treasury
Regulations Section 1.1502-6 (or any similar provision of state, local or
foreign law) as a transferee or successor by contract or otherwise.
(e) The unpaid Taxes of TRMS (i) did not, as the date of the TRMS
Balance Sheet, exceed the reserve for Tax liability set forth on the face
thereof and (ii) do not exceed that reserve as adjusted for the passage of time
and operations in the ordinary course of business through the Closing Date.
3.9 PROPERTY
(a) TRMS owns no real property other than the leasehold interests
described on SCHEDULE 3.9(A) to the Disclosure Memorandum (the "REAL PROPERTY").
TRMS has delivered to LION or its counsel true and complete copies of all
written leases, subleases, rental agreements, contracts of sale, tenancies or
licenses relating to the Real Property and written
15
summaries of the terms of any oral leases, subleases, rental agreements,
contracts of sale, tenancies or licenses to which the Real Property is subject.
(b) TRMS has delivered to LION a complete and accurate list of
each item of personal property that is owned, leased, rented or used by TRMS
(the "PERSONAL PROPERTY"), and true and complete copies of all leases,
subleases, rental agreements, contracts of sale, tenancies or licenses to which
the Personal Property is subject.
(c) The Real Property and the Personal Property include all the
properties and assets other than the Intellectual Property reflected in the TRMS
Balance Sheet. The Real Property and the Personal Property include all material
property used in the TRMS Business, other than the Intellectual Property.
(d) TRMS's leasehold interest in each parcel of the Real Property
is free and clear of all Encumbrances, other than Permitted Encumbrances. Each
lease of any portion of the Real Property is valid, binding and enforceable in
accordance with its terms against the parties thereto and against any other
Person with an interest in such Real Property (except to the extent that such
other Person has an interest senior in priority to the lease and such other
Person has not entered into a nondisturbance agreement with respect to the
lease), TRMS has performed in all material respects all obligations imposed on
it thereunder, and neither TRMS nor, to the knowledge of TRMS and each Principal
Stockholder, any other party thereto is in default thereunder, nor is there any
event that with notice or lapse of time, or both, would constitute a default
thereunder by TRMS or, to the knowledge of TRMS and each Principal Stockholder,
by any other party. TRMS has not granted any lease, sublease, tenancy or license
of, or entered into any rental agreement or contract of sale with respect to,
any portion of the Real Property.
(e) TRMS owns all Personal Property free and clear of all
Encumbrances, other than Permitted Encumbrances. Each lease, license, rental
agreement, contract of sale or other agreement to which the Personal Property is
subject is valid, binding and enforceable in accordance with its terms against
the parties thereto, TRMS has performed in all material respects all obligations
imposed on it thereunder, and neither TRMS nor, to the knowledge of TRMS or the
Principal Stockholders, any other party thereto is in default thereunder, nor is
there any event that with notice or lapse of time, or both, would constitute a
default by TRMS or, to the knowledge of TRMS or the Principal Stockholders, any
other party thereunder except for such defaults as would not give rise to a TRMS
Material Adverse Effect. TRMS has not granted any lease, sublease, tenancy or
license of any portion of the Personal Property, except in the ordinary course
of business.
3.10 CONTRACTS
3.10.1 MATERIAL CONTRACTS
SCHEDULE 3.10.1 to the Disclosure Memorandum contains a complete and
accurate list of all contracts, agreements and understandings, oral or written,
to which TRMS is currently a party or by which TRMS is currently bound providing
for potential payments by or to TRMS in excess of $10,000 (collectively, the
"MATERIAL Contracts"), including customer service agreements, distribution and
marketing agreements, security agreements, license agreements, software
16
development agreements, joint venture agreements, credit agreements and
instruments relating to the borrowing of money. All Material Contracts are
valid, binding and enforceable in accordance with their terms against each party
thereto, TRMS has performed in all material respects all obligations imposed on
it thereunder, and neither TRMS nor, to the knowledge of TRMS or the Principal
Stockholders, any other party thereto is in default thereunder, nor to the
knowledge of TRMS or the Principal Stockholders is there any event that with
notice or lapse of time, or both, would constitute a default by TRMS or, to the
knowledge of TRMS or the Principal Stockholders, any other party thereunder.
True and complete copies of each such written contract (or written summaries of
the terms of any such oral contract) have been delivered to LION by TRMS. Other
than as described on SCHEDULE 3.10.1 to the Disclosure Schedule, TRMS has no:
(a) contracts with directors, officers, Stockholders, employees,
agents, consultants, advisors, salespeople, sales representatives, distributors
or dealers that cannot be canceled by TRMS within 30 days' notice without
liability, penalty or premium, any agreement or arrangement providing for the
payment of any bonus or commission based on sales or earnings, or any
compensation agreement or arrangement affecting or relating to former employees
of TRMS;
(b) employment agreement, whether express or implied, or any other
agreement for services that contains severance or termination pay liabilities or
obligations;
(c) non-competition agreement or other arrangement that would
prevent TRMS from carrying on the TRMS Business anywhere in the world;
(d) written notice or, to the knowledge of TRMS or the Principal
Stockholders, any other form of notice that any party to any Material Contract
intends to cancel, terminate or refuse to renew such contract (if such contract
is renewable);
(e) material dispute with any of its suppliers, customers,
distributors, licensors or licensees;
(f) joint venture contract or arrangement or any other agreement
that involves a sharing of profits with other Persons;
(g) instrument evidencing indebtedness for borrowed money by way
of a direct loan, sale of debt securities, purchase money obligation,
conditional sale or guarantee, or otherwise, except for trade indebtedness
incurred in the ordinary course of business, and except as disclosed in the TRMS
Financial Statements; and
(h) agreements or commitments to provide indemnification.
3.10.2 REQUIRED CONSENTS
The execution and delivery of this Agreement and the performance of the
obligations of TRMS and the Principal Stockholders hereunder will not constitute
a default under any Material Contract, except for those consents and/or waivers
listed on SCHEDULE 3.10.2 to the Disclosure Memorandum, all of which will be
obtained on or prior to the Closing.
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3.11 CLAIMS AND LEGAL PROCEEDINGS
There are no claims, actions, suits, arbitrations, investigations or
proceedings pending or involving or, to the knowledge of TRMS or the Principal
Stockholders, threatened against TRMS before or by any Person. To the knowledge
of TRMS and the Principal Stockholders, there is no valid basis for any claim,
action, suit, arbitration, proceeding or investigation before or by any Person
that could reasonably be expected to have a TRMS Material Adverse Effect. There
are no outstanding or unsatisfied judgments, orders, decrees or stipulations to
which TRMS is a party. SCHEDULE 3.11 to the Disclosure Memorandum sets forth a
description of any material disputes that have been settled or resolved by
litigation or arbitration since TRMS's inception.
3.12 LABOR AND EMPLOYMENT MATTERS
There are no labor disputes, employee grievances or disciplinary
actions pending or, to the knowledge of TRMS or the Principal Stockholders,
threatened against or involving TRMS or any of its present or former employees.
TRMS has complied with all provisions of law relating to employment and
employment practices, terms and conditions of employment, wages and hours,
except where the failure to comply would not have a TRMS Material Adverse
Effect. TRMS is not engaged in any unfair labor practice and has no liability
for any arrears of wages or Taxes or penalties for failure to comply with any
such provisions of law. Each employee, officer and consultant of TRMS has
executed a nondisclosure agreement in the form provided to LION. To the
knowledge of TRMS and the Principal Stockholders, no employee (or person
performing similar functions) of TRMS is in violation of any such agreement or
any employment agreement, non-competition agreement, patent disclosure
agreement, invention assignment agreement, proprietary information agreement or
other contract or agreement relating to the relationship of such employee with
TRMS or any other party.
SCHEDULE 3.12 to the Disclosure Memorandum lists the current
compensation amounts of all directors, officers and employees of TRMS. All
employees of TRMS are employed on an "at will" basis, and, to the knowledge of
TRMS and the Principal Stockholders, are eligible to work and are lawfully
employed in the United States.
3.13 EMPLOYEE BENEFIT PLANS
(a) SCHEDULE 3.13(A) to the Disclosure Memorandum lists and
describes all Employee Benefit Plans. Copies of each written Employee Benefit
Plan, and all related documents, including funding agreements and employee
booklets, as amended to the date hereof, have been provided to LION. In the case
of any unwritten Employee Benefit Plan, a written description thereof, which
accurately describes all material provisions of such Employee Benefit Plan, has
been provided to LION.
(b) There have been no promised improvements, increases or changes
to the benefits provided under the Employee Benefit Plans. Each Employee Benefit
Plan is, and has been, established and administered in compliance with all
applicable laws, the terms of such Employee Benefit Plan and all written and
oral understandings between TRMS and the employees of TRMS, in each case, in all
material respects. No prohibited transaction (as such term is defined in Section
4975 of the Code and Section 406 of ERISA has occurred with respect
18
to an Employee Benefit Plan that is subject to either of such provisions for
which an exemption is not available. TRMS and each Employee Benefit Plan
providing health benefits complies with the applicable provisions of the Health
Insurance Portability and Accountability Act (HIPAA) and has done so since the
applicable effective date of each applicable provision of HIPAA.
(c) Each Employee Benefit Plan that is intended to be
tax-qualified under Section 401(a) of the Code has been determined by the
Internal Revenue Service to qualify under Section 401(a) of the Code and nothing
has occurred that could cause the loss of such qualification.
(d) All obligations required under the Employee Benefit Plans and
all applicable laws have been satisfied in all material respects and there are
no defaults, violations or funding deficiencies thereunder. There are no claims
(other than claims for benefits in the normal course), actions or lawsuits
asserted or instituted against, and there are no pending or threatened
litigation or claims against the assets of any Employee Benefit Plan (other than
a Multiemployer Plan) or against any fiduciary of such Employee Benefit Plan
with respect to the operation of such Employee Benefit Plan, which, if adversely
determined, could have a TRMS Material Adverse Effect.
(e) SCHEDULE 3.13 to the Disclosure Memorandum lists any defined
benefit plan (as defined in Section 3(35) of ERISA), or any other pension plan
(as defined in Treasury Regulation section 1.401-1(b)) to which TRMS or any
subsidiary or trade or business (whether or not incorporated) that is a member
of a "controlled group" of which either TRMS is a member or under "common
control" with TRMS (within the meaning of Section 414(b) and (c) of the Code)
(an "ERISA AFFILIATE") is or ever has been a party or by which any of them is or
ever has been bound, legally or otherwise, and any Multiemployer Plan to which
TRMS or any ERISA Affiliate contributes or is or was required to contribute (an
"ERISA AFFILIATE PLAN"). Neither TRMS nor any ERISA Affiliate has incurred (i)
any liability to the Pension Benefit Guaranty Corporation (other than routine
claims and premium payments), (ii) any withdrawal liability (and no event has
occurred which, with the giving of notice under Section 4219 of ERISA, would
result in such liability) under Section 4201 of ERISA as a result of a "complete
withdrawal" or a "partial withdrawal" (within the meaning of Section 4203 or
4205 of ERISA) from a Multiemployer Plan, or (iii) any liability under Section
4062 of ERISA to the Pension Benefit Guaranty Corporation, or to a trustee
appointed under Section 4042 of ERISA. Neither TRMS nor any of ERISA Affiliate
nor any organization to which either TRMS or any such ERISA Affiliate is a
successor or parent corporation (as described in Section 4069(b) of ERISA) has
engaged in a transaction described in Section 4069 of ERISA.
(f) TRMS has not established any "welfare benefit plan," other
than those listed on SCHEDULE 3.13 to the Disclosure Memorandum, that provides
for continuing benefits or coverage for any participant or any beneficiary of a
participant after such participant's termination of employment except as may be
required by the Section 4980B of the Code or Part 6 of Title I of ERISA
("COBRA"), and the regulations thereunder and at the expense of the participant
or the beneficiary of the participant. TRMS is either exempt from or has
complied with all applicable notice and continuation coverage requirements of
COBRA and the regulations
19
thereunder such that there would not result in any material tax, penalty or
liability to either TRMS, Merger LLC or LION.
(g) TRMS has made, or will, prior to the Closing Date, have made,
all contributions required (including payments of insurance premiums), if any,
under all Employee Benefit Plans to fund fully all benefits and obligations
accrued thereunder prior to the Closing Date.
(h) There are no liabilities or obligations with respect to any of
the plans, agreements or Employee Benefit Plans described in SCHEDULE 3.13 that
are required to be funded for which contributions have not been made or properly
accrued and there are no unfunded benefit obligations that have not been
accounted for by reserves, or otherwise properly footnoted in accordance with
generally accepted accounting principles on the TRMS Financial Statements.
(j) The consummation of the transactions contemplated by this
Agreement shall not accelerate the time of payment or vesting, or increase the
amount of benefits or compensation due to any individual under any of the
Employee Benefit Plans.
3.14 INTELLECTUAL Property
(a) TRMS currently does not own any Registered Intellectual
Property. TRMS is listed in the records of the appropriate United States federal
or state agency as the sole owner for each item of the Registered Intellectual
Property that is the subject of a registration in the United States and TRMS is
listed in the records of the appropriate foreign agency as the sole owner for
each item of Registered Intellectual Property that is the subject of a
registration outside the United States. TRMS has not done, or failed to do, any
act or thing which may, after the Closing Date, prejudice the validity or
enforceability of any material Registered Intellectual Property in any material
respect. The Intellectual Property used in the TRMS Business, including the
Registered Intellectual Property, includes all Intellectual Property rights in
and to all material inventions, works of authorship, and know-how created,
invented or authored, as the case may be, by any employee of, or consultant to,
TRMS in the course of such employment or consulting relationship, and TRMS is
the sole and exclusive owner of all such Intellectual Property.
(b) SCHEDULE 3.14(B) to the Disclosure Memorandum (i) sets forth a
list of all computer software owned or licensed by, or otherwise used in the
TRMS Business and (ii) identifies whether each of the foregoing items of
computer software are owned, licensed, or otherwise used, as the case may be.
(c) SCHEDULE 3.14(C) to the Disclosure Memorandum sets forth a
list of all other licenses of Intellectual Property, specifying the name of the
parties thereto and whether the license is an inbound license, an outbound
license or a cross-license. Each such license is in full force and effect and is
enforceable in accordance with its terms, TRMS is in material compliance with,
and has not materially breached any term of any of such licenses, except for
such breaches that would not cause a TRMS Material Adverse Effect, and, to the
knowledge of TRMS and the
20
Principal Stockholders, all other parties to such licenses are in compliance
with, and have not breached any term of, such licenses.
(d) TRMS owns, free and clear of all Encumbrances, other than
Permitted Encumbrances, or otherwise has the right to use all Intellectual
Property necessary to (i) provide the services currently provided by TRMS to
third parties, and (ii) operate the internal systems of TRMS that are material
to its business and operations, including computer hardware systems and software
applications. There are no facts or circumstances of which TRMS and the
Principal Stockholders are aware that would reasonably lead TRMS or the
Principal Stockholders to believe that TRMS does not own or otherwise have the
right to use all Intellectual Property necessary to engage in the activities set
forth in the foregoing sentence. Each material item of such Intellectual
Property shall be owned, available for use or enforceable, as the case may be,
by Surviving LLC and LION immediately following the Closing on substantially
identical terms and conditions as it was available to or enforceable by TRMS
immediately prior to the Closing.
(e) The activities and the conduct of the TRMS Business did not
prior to Closing, and will not when conducted in the same manner following the
Closing, infringe upon, violate or constitute the unauthorized use of the
copyrights or trademarks of any third party or, to the knowledge of TRMS and the
Principal Stockholders, of any patents or other Intellectual Property rights of
any third party that are issued as of the Closing Date. There is no pending or,
to the knowledge of TRMS or the Principal Stockholders, threatened claim (i)
alleging that the activities or the conduct of the TRMS Business does or will
infringe upon, violate or constitute the unauthorized use of the Intellectual
Property rights of any third party; or (ii) challenging the ownership, use,
validity, enforceability or registrability of any Intellectual Property by TRMS.
There are no settlements, forbearances to xxx, consents, judgments, or orders or
similar obligations (other than license agreements in the ordinary course of
business) which (A) restrict the rights of TRMS to use any material Intellectual
Property; (B) restrict the TRMS Business in order to accommodate a third party's
intellectual property rights; or (C) permit third parties to use any material
Intellectual Property owned by TRMS.
(f) No third party possesses any copy of any source code to any
material computer software that TRMS owns, except as permitted under a license
set forth in SCHEDULE 3.14(C) to the Disclosure Memorandum. To the knowledge of
TRMS and the Principal Stockholders, TRMS has not disclosed the source code for
any of the computer software owned by TRMS or other confidential information
constituting, embodied in or pertaining to such computer software to any Person,
except pursuant to effective nondisclosure agreements, and TRMS has taken
commercially reasonable measures to prevent disclosure of such source code,
subject to the provisions of delivery of source code specified in licenses set
forth in SCHEDULE 3.14(C) of the Disclosure Memorandum.
(g) TRMS has taken commercially reasonable actions to protect each
item of material Intellectual Property owned by it, except where the failure to
take such actions was the result of a reasonable business decision by TRMS made
in the ordinary course of business. TRMS implements and enforces a policy
requiring all employees, contractors and other parties having access to TRMS's
confidential information, including TRMS's Intellectual Property, to execute a
proprietary information/confidentiality agreement, in substantially the form
provided
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to LION, with TRMS, and, to the knowledge of TRMS, no party to any such
agreement is in breach thereof.
(h) SCHEDULE 3.14(H) to the Disclosure Memorandum sets forth a
list of all Internet domain names used in the TRMS Business (collectively, the
"DOMAIN NAMES"). TRMS has, and, as of the Effective Time, Surviving LLC will
have, a valid registration and all material rights (free of any material
restriction) in and to the Domain Names, including, without limitation, all
rights necessary to continue to conduct the TRMS Business as it is currently
conducted and proposed to be conducted following the Effective Time.
3.15 CORPORATE BOOKS AND RECORDS
TRMS has furnished to LION or its counsel for their examination true
and complete copies of (a) the certificate of incorporation and bylaws of TRMS
as currently in effect, including all amendments thereto, (b) the minute books
of TRMS, and (c) the stock transfer books of TRMS. The contents of the minute
books reflect all meetings of the Stockholders and TRMS's board of directors and
any committees thereof since TRMS's inception, and such minutes accurately
reflect in all material respects the material actions taken at such meetings.
Such stock transfer books accurately reflect all issuances and transfers of
shares of capital stock of TRMS since its inception.
3.16 LICENSES PERMITS, AUTHORIZATIONS, ETC.
(a) TRMS has timely filed all Regulatory Documents that were
required to be filed with any Governmental Authority and has paid all fees and
assessments due and payable in connection therewith. TRMS is and has been since
April 26, 2001 duly registered as an investment adviser under the Advisers Act
and under all applicable state statutes. TRMS has engaged in no conduct prior to
the date of this Agreement that would be reasonably likely to result in SEC
action to disqualify TRMS or any Affiliate as an investment adviser. As of their
respective dates, the Regulatory Documents of TRMS complied in all material
respects with the requirements of all laws, rules and regulations applicable to
such Regulatory Documents, and none of such Regulatory Documents, as of their
respective dates, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. TRMS has previously delivered or made available to LION a
true, correct and complete copy of each such Regulatory Document filed with the
SEC, NASD or other Governmental Authority and prior to the date hereof, and will
deliver or make available to LION promptly after the filing thereof a true,
correct and complete copy of each Regulatory Document filed by TRMS after the
date hereof and prior to the Closing Date. Neither TRMS nor its Principal
Stockholders has engaged in any of the conduct specified in Section 203(e) of
the Advisers Act prior to the date of this Agreement that would be reasonably
likely to result in SEC action to disqualify TRMS as an investment adviser.
(b) TRMS has received all currently required Permits where the
failure to have obtained any such Permit would have a TRMS Material Adverse
Effect. TRMS is in compliance in all material respects with the terms of all
Permits, and all the Permits are valid and in full force and effect, and no
proceeding is pending, or to the knowledge of TRMS or the
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Principal Stockholders, threatened, the object of which is to revoke, limit or
otherwise affect any of the Permits. TRMS has not received any notifications of
any asserted present failure by it to have obtained any Permit, or any past and
unremedied failure to obtain such items.
3.17 COMPLIANCE WITH LAWS
Except as would not have a TRMS Material Adverse Effect, TRMS is in compliance
with all federal, state, local and foreign laws, rules, regulations, ordinances,
decrees and orders applicable to it, to its employees or to the Real Property
and the Personal Property, including all such laws, rules, regulations,
ordinances, decrees and orders relating to intellectual property protection,
antitrust matters, consumer protection, currency exchange, environmental
protection, equal employment opportunity, health and occupational safety,
pension and employee benefit matters, securities and investor protection
matters, labor and employment matters and trading-with-the-enemy matters. TRMS
has not received any written notification or, to the knowledge of TRMS or the
Principal Stockholders, any other form of notification of any asserted present
or past unremedied failure by TRMS to comply with any of such laws, rules,
regulations, ordinances, decrees or orders. Except for normal examinations
conducted by any Governmental Authority in the ordinary course of business, no
Governmental Authority has initiated any administrative proceeding or, to the
knowledge of TRMS or the Principal Stockholders, investigation into or related
to the business or operations of TRMS. There is no unresolved violation,
criticism or exception by any Governmental Authority with respect to any report
or statement by any Governmental Authority relating to any examination of TRMS.
3.18 INSURANCE
TRMS maintains insurance against liabilities, claims and risks of a
nature and in such amounts as are described in SCHEDULE 3.18 to the Disclosure
Memorandum. All insurance policies of TRMS are in full force and effect, all
premiums with respect thereto have been paid, and no notice of cancellation or
termination has been received with respect to any such policy or binder. Such
policies or binders are sufficient for compliance with all agreements to which
TRMS is a party, will remain in full force and effect through the respective
expiration dates of such policies or binders without the payment of additional
premiums.
3.19 BROKERS OR FINDERS
TRMS has not incurred, and will not incur, directly or indirectly, as a
result of any action taken by or on behalf of TRMS, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with the Merger, this Agreement or any transaction contemplated hereby.
3.20 ABSENCE OF QUESTIONABLE PAYMENTS
Neither TRMS nor, to the knowledge of TRMS or the Principal
Stockholders, any director, officer, agent, employee or other Person acting on
behalf of TRMS, has used any TRMS funds for improper or unlawful contributions,
payments, gifts or entertainment, or made any improper or unlawful expenditures
relating to political activity to domestic or foreign government officials or
others. TRMS has reasonable financial controls to prevent such
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improper or unlawful contributions, gifts, entertainment or expenditures.
Neither TRMS nor any current director, officer, agent, employee or other Person
acting on behalf of TRMS has accepted or received any improper or unlawful
contributions, payments, gifts or expenditures relating to TRMS Business. TRMS
has at all times complied, and is in compliance, in all respects with the
Foreign Corrupt Practices Act and all foreign laws and regulations relating to
prevention of corrupt practices and similar matters.
3.21 BANK ACCOUNTS
SCHEDULE 3.21 to the Disclosure Memorandum sets forth the names and
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which TRMS maintains safe deposit boxes or accounts of
any nature and the names of all Persons authorized to draw thereon, make
withdrawals therefrom or have access to such safe deposit boxes or accounts.
3.22 CUSTOMERS
SCHEDULE 3.22 to the Disclosure Memorandum sets forth a complete and
accurate list of the customers of TRMS during the fiscal year last ended and the
eight-month period ended August 31, 2004, showing the approximate total revenues
from each such customer during such fiscal year and eight-month period ended.
TRMS has not received any notice from any customer named on SCHEDULE 3.22 to the
Disclosure Memorandum that would cause it, in its reasonable judgment, to expect
any material modification to its relationship with such customer.
3.23 ACCOUNTS RECEIVABLE
All accounts receivable of TRMS reflected in the TRMS Balance Sheet or
existing at the Effective Time represent sales actually made in the ordinary
course of business and were recorded in TRMS's books consistent with the
presentation applied in the TRMS Financial Statements for the eight-months ended
August 31, 2004. The allowances for doubtful accounts reflected in the TRMS
Balance Sheet are adequate.
3.24 CREDITORS' LIST
SCHEDULE 3.24 to the Disclosure Memorandum sets forth a full, complete
and accurate list of all creditors of Company, with the amount payable to each
such creditor as of the date hereof.
3.25 INSIDER INTERESTS
No Stockholder or officer or director of TRMS has any interest (other
than as a stockholder of TRMS) (a) in any Personal Property or Intellectual
Property used in or directly pertaining to the TRMS Business, or (b) in any
agreement, contract, arrangement or obligation relating to TRMS, its present or
prospective business or its operations. Neither TRMS nor any officer, director
or Stockholder has any interest, either directly or indirectly, in any entity,
including any corporation, partnership, joint venture, proprietorship, firm,
licensee, business or association (whether, as an employee, officer, director,
stockholder, agent, independent contractor, security holder, creditor,
consultant or otherwise), other than ownership of capital stock comprising less
than 1% of any publicly held company, that presently (i) provides any
24
services or engages in any activity that is the same, similar to or competitive
with the business of TRMS; (ii) is a supplier, customer or creditor of TRMS; or
(iii) has any direct or indirect interest in any asset or property of TRMS or
any property that is necessary or desirable for the present or currently
anticipated future conduct of the TRMS Business.
3.26 COMPLIANCE WITH ENVIRONMENTAL LAWS
Neither TRMS nor, to the knowledge of TRMS or the Principal
Stockholders, any other Person (including, without limitation, any previous
owner, lessee or sublessee) has treated, stored or disposed of any material
amounts of petroleum products, hazardous waste, hazardous substances, pollutants
or contaminants on the Real Property, or any real property previously owned,
leased, subleased or used by TRMS in the operation of its business, in violation
of any applicable foreign, federal, state or local statutes, regulations or
ordinances, or common law, in each case as in existence at or prior to the
Closing. To the knowledge of TRMS and the Principal Stockholders, there have
been no releases of any material amounts of petroleum, petroleum products,
hazardous waste, hazardous substances, pollutants or contaminants on, at or from
any assets or properties, including, without limitation, the Real Property,
owned, leased, subleased or used by TRMS in the operation of its business in
violation of applicable environmental laws.
3.27 FULL DISCLOSURE
No information furnished by TRMS or the Principal Stockholders to LION
or its representatives in connection with the Operative Documents contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements so made or information so delivered not
misleading.
ARTICLE 3A - ADDITIONAL REPRESENTATIONS AND
WARRANTIES OF THE PRINCIPAL STOCKHOLDERS
Except as set forth in the Disclosure Memorandum, and in order to
induce LION and Merger LLC to enter into and perform this Agreement and the
other Operative Documents to be entered into as of the Closing among LION and
each of the Principal Stockholders, each Principal Stockholder, individually and
not jointly, represents and warrants to LION and Merger LLC as of the Closing
Date as follows.
3A.1 SOPHISTICATION; ACCREDITATION
Such Principal Stockholder is an "accredited investor" as defined in
Regulation D of the Securities Act. Such Principal Stockholder is in a financial
position to hold the LION Common Stock for an indefinite period of time and is
able to bear the economic risk and withstand a complete loss of his investment
in the LION Common Stock.
3A.2 OWNERSHIP
Such Principal Stockholder owns beneficially and of record TRMS Common
Stock as described on SCHEDULE 3.3(B) of the Disclosure Memorandum, free and
clear of any Encumbrance.
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3A.3 INFORMATION
Such Principal Stockholder has been furnished with all information that
he deems necessary to evaluate the risks and merits of the LION Common Stock.
Such Principal Stockholder has had the opportunity to ask questions and receive
answers concerning the information he has received about the LION Common Stock
and LION.
3A.4 NO REGISTRATION
Such Principal Stockholder is aware and understands that (a) the Merger
Shares have not been and will not prior to issuance be registered under the
Securities Act, (b) the Merger Shares cannot be sold unless they are
subsequently registered or an exemption from registration is available and (c)
LION has no obligation to register the Merger Shares with the SEC and has not
represented that it will register the Merger Shares. The foregoing
notwithstanding, with a view to making available to the Principal Stockholders
the benefits of Rule 144 under the Securities Act, LION will make and keep
public information available, as those terms are understood and defined in Rule
144, so long as LION is subject to the periodic reporting requirements under
Sections 13 or 15(d) of the Exchange Act, file with the SEC in a timely manner
all reports and other documents required of LION under the Securities Act and
the Exchange Act, and furnish to the Principal Stockholders, upon request, a
written statement by LION that it has complied with the reporting requirements
of SEC Rule 144, the Securities Act and the Exchange Act and such other
information as may reasonably be requested by the Principal Stockholders.
3A.5 BROKERS OR AGENTS
Such Principal Stockholder has not employed any broker or agent in
connection with the transactions contemplated by this Agreement and agrees to
indemnify LION against all losses, damages or expenses relating to or arising
out of claims for fees or commission of any broker or agent employed by such
Principal Stockholder.
3A.6 INVESTMENT FOR OWN ACCOUNT
The LION Common Stock is being acquired by such Principal Stockholder
for investment for his account, not as a nominee or agent, and not with a view
to the distribution of any part thereof. Such Principal Stockholder has no
present intention of selling, granting any participation in or otherwise
distributing any of the LION Common Stock in a manner contrary to the Securities
Act or to any applicable state securities or Blue Sky law, nor does such
Principal Stockholder have any contract, undertaking, agreement or arrangement
with any person or entity to sell, transfer or grant a participation to such
person or entity with respect to any of the LION Common Stock.
3A.7 RESIDENCY
For purposes of the application of state securities laws, such
Principal Stockholder is a resident of the state set forth beside his name on
SCHEDULE 3.3(B) of the Disclosure Memorandum.
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3A.8 LEGENDS
Such Principal Stockholder understands that certificates representing
the Merger Shares will bear legends substantially similar to the following, in
addition to any other legends required by federal or state laws:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY OTHER APPLICABLE FEDERAL OR
STATE SECURITIES LAWS, AND MAY NOT BE SOLD, DISTRIBUTED, PLEDGED ON OR
OTHERWISE TRANSFERRED UNLESS (I) THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING ANY SUCH TRANSACTION INVOLVING THESE SHARES, (II) LION INC.
RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THE SHARES
SATISFACTORY TO LION INC. STATING THAT SUCH TRANSACTION IS EXEMPT FROM
REGISTRATION, OR (III) LION INC. OTHERWISE SATISFIES ITSELF THAT SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION.
Such Principal Stockholder agrees that, in order to ensure and enforce
compliance with the restrictions imposed by applicable law and those referred to
in the foregoing legend, LION may issue appropriate "stop transfer" instructions
to its transfer agent with respect to any certificate or other instrument
representing the Merger Shares.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF
LION AND MERGER LLC
In order to induce TRMS and the Principal Stockholders to enter into
and perform the Operative Documents, LION and Merger LLC jointly and severally
represent and warrant to TRMS and the Principal Stockholders as of the date of
this Agreement and as of the Closing Date as follows:
4.1 ORGANIZATION
LION is a corporation duly incorporated and validly existing under the
laws of the state of Washington. Merger LLC is a limited liability company
validly existing under the laws of the state of Washington. Each of LION and
Merger LLC has, as the case may be, all requisite corporate or limited liability
company power and authority to execute, deliver and perform its obligations
under the Operative Documents to which it is a party and to consummate the
transactions contemplated thereby. All the issued and outstanding membership
interests of Merger LLC are held of record and beneficially by LION.
4.2 ENFORCEABILITY
All corporate and limited liability company action on the part of LION
and Merger LLC and their respective officers, directors and Stockholders
necessary for the authorization, execution, delivery and performance of the
Operative Documents, the consummation of the Merger and the performance of all
their respective obligations under the Operative Documents has been taken or
will be taken prior to the Effective Time. Each of the Operative Documents has
been duly executed and delivered by each of LION and Merger LLC, as applicable,
and each of the Operative Documents is a legal, valid and binding obligation of
each of LION and Merger
27
LLC, as applicable, enforceable against each of them in accordance with its
terms, except as enforceability may be limited or affected by applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, or
other laws of general application relating to or affecting the enforcement of
creditors' rights, and except as enforceability may be limited by equitable
principles, including those limiting the availability of specific performance,
injunctive relief and other equitable remedies providing for defenses based on
fairness and reasonableness, regardless of whether considered in a proceeding in
equity or at law.
4.3 SECURITIES
The Merger Shares to be issued pursuant to this Agreement have been
duly authorized for issuance, and such Merger Shares, when issued and delivered
to the Stockholders pursuant to this Agreement, shall be validly issued, fully
paid and nonassessable.
4.4 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS
The execution, delivery and performance of the Operative Documents by
Merger LLC and LION, as applicable, and the consummation by them of the
transactions contemplated thereby will not:
(a) constitute a violation (with or without the giving of notice
or lapse of time, or both) of any provision of law or any judgment, decree,
order, regulation or rule of any Governmental Authority applicable to LION or
Merger LLC;
(b) require any consent, approval or authorization of, or
declaration, filing or registration with, any Person, except (i) compliance with
applicable securities laws and (ii) the filing of all documents necessary to
consummate the Merger under Delaware Law and Washington Law; or
(c) conflict with or result in a breach of or constitute a default
under any provision of the articles of incorporation or bylaws of LION or the
charter documents of Merger LLC.
4.5 SEC DOCUMENTS
LION has made available to the Stockholders true and complete copies of
the LION SEC Documents. As of their respective filing dates, the LION SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the applicable rules and regulations of the SEC promulgated
thereunder.
4.6 FULL DISCLOSURE
No information furnished by LION or Merger LLC to TRMS or the Principal
Stockholders in connection with the Operative Documents contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements so made or information so delivered not misleading.
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ARTICLE 5 - CONDITIONS PRECEDENT TO
OBLIGATIONS OF LION AND MERGER LLC
The obligations of LION and Merger LLC to perform and observe the
covenants, agreements and conditions hereof to be performed and observed by them
at or before the Closing shall be subject to the satisfaction of the following
conditions, which may be expressly waived only in writing signed by LION and
Merger LLC:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of TRMS and the Principal
Stockholders contained herein and in the other Operative Documents shall have
been true and correct in all respects when made and, except (a) for changes
contemplated by this Agreement and the other Operative Documents and (b) to the
extent that such representations and warranties speak as of an earlier date,
shall be true and correct in all respects as of the Closing Date, as though made
on that date.
5.2 PERFORMANCE OF AGREEMENTS
TRMS and each of the Principal Stockholders shall have performed all
obligations and agreements and complied with all covenants contained in this
Agreement or any Operative Document to be performed and complied with by it or
him at or prior to the Closing.
5.3 OPINION OF COUNSEL FOR TRMS
LION shall have received the opinion of Xxxx Xxxx Xxxx & Freidenrich
L.L.P., counsel for TRMS and the Principal Stockholders, dated the Closing Date,
in the form attached hereto as EXHIBIT 5.3.
5.4 AUDIT
LION shall have received assurances from its independent auditors with
respect to the auditability of the TRMS Financial Statements.
5.5 MATERIAL ADVERSE CHANGE
Since the date of the TRMS Balance Sheet and through the Closing, there
shall not have occurred any change that is or is reasonably likely to result in
a TRMS Material Adverse Effect.
5.6 APPROVALS and Consents
All transfers of Permits and all approvals of or notices to
Governmental Authorities, the granting or delivery of which is necessary for the
consummation of the transactions contemplated hereby, including approvals or
notices required under the Advisers Act and applicable state statutes or for the
continued operation of TRMS, shall have been obtained, and all waiting periods
specified by law shall have passed. All other consents, approvals and notices
referred to in this Agreement shall have been obtained or delivered.
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5.7 PROCEEDINGS AND DOCUMENTS; OFFICER'S CERTIFICATE
LION shall have received a certificate of an officer of TRMS, in form
and substance reasonably satisfactory to LION, as to the authenticity and
effectiveness of the actions of TRMS's board of directors and Stockholders and
the authorization of the Merger and the transactions contemplated by the
Operative Documents. LION shall have received a certificate of an officer of
TRMS, dated the Closing Date, in form and substance reasonably satisfactory to
LION, certifying that the conditions to the obligations of LION set forth in
this Article 5 have been fulfilled.
5.8 COMPLIANCE WITH LAWS
The effectiveness of the Merger and the performance by LION, Merger
LLC, TRMS, the Principal Stockholders and the Stockholders' Representative of
their respective obligations pursuant to this Agreement and the other Operative
Documents shall be legally permitted by all laws and regulations to which LION,
Merger LLC, TRMS, the Principal Stockholders and the Stockholders'
Representative are subject.
5.9 LEGAL PROCEEDINGS
No order of any Governmental Authority shall be in effect that enjoins,
restrains, conditions or prohibits consummation of this Agreement or any
Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or, to the knowledge of TRMS or the Principal
Stockholders, threatened that would enjoin, restrain, condition or prevent
consummation of this Agreement or any Operative Document.
5.10 EMPLOYMENT AGREEMENTS
Each of Xxxxxx and Xxxxxxxxxx shall have executed and delivered the
Employment Agreements substantially in the forms attached hereto as EXHIBIT
5.10.1 and EXHIBIT 5.10.2, respectively. Each of the employees of TRMS
identified on SCHEDULE 5.10 hereto shall have accepted employment with LION and
shall have executed the LION standard form of Confidentiality and Assignment of
Inventions Agreement substantially in the form attached hereto as EXHIBIT
5.10.3, and each such agreement shall be in full force and effect on the Closing
Date.
5.11 INVESTOR ACKNOWLEDGMENT
Each Stockholder shall have executed an Investor Acknowledgment.
5.12 CONSENTS TO MERGER
SCHEDULE 3.10.2 to the Disclosure Memorandum lists certain agreements,
leases, notes or other documents that, by their terms, require consent or waiver
to consummate the Merger. Unless otherwise set forth in SCHEDULE 3.10.2 to the
Disclosure Memorandum, TRMS shall have received and shall have delivered to LION
or its counsel written consents to the Merger or waivers, as applicable, from
each of the parties to such agreements, leases, notes or other
30
documents, which consents or waivers, as the case may be, shall be reasonably
satisfactory in all respects to LION.
5.13 MERGER CONSIDERATION
TRMS shall provide LION with a spreadsheet in a form reasonably
acceptable to LION detailing (a) the number of shares of TRMS Common Stock held
by each Stockholder and (b) the amount of LION Common Stock to be received by
each such Stockholder at the Effective Time in accordance with Section 2.5.1
hereof.
5.14 COMPANY'S 401(K) PROFIT SHARING PLAN
Prior to Closing, TRMS shall take all actions necessary to terminate
its 401(k) profit sharing plan, including adoption of any corporate resolutions
and plan amendments required to effect termination of the plan.
5.15 REITCO
REITCO shall have been established in accordance with the terms and
conditions set forth in Section 7.9 and REITCO shall have executed and delivered
the REITCO Right of First Refusal Agreement.
5.16 COMPANY WORKING CAPITAL
Estimated Closing Working Capital shall be no less than $300,000.
ARTICLE 6 - CONDITIONS PRECEDENT TO OBLIGATIONS OF
TRMS AND THE PRINCIPAL STOCKHOLDERS
The obligations of TRMS and each of the Principal Stockholders to
perform and observe the covenants, agreements and conditions in this Agreement
and the other Operative Documents to be performed and observed by it and him at
or before the Closing shall be subject to the satisfaction of the following
conditions, which may be expressly waived only in writing signed by TRMS and the
Principal Stockholders:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of LION and Merger LLC contained
herein and in the other Operative Documents shall have been true and correct in
all respects when made and, except (a) for changes contemplated by this
Agreement and the other Operative Documents and (b) to the extent that such
representations and warranties speak as of an earlier date, shall be true and
correct as of the Closing Date as though made on that date.
6.2 PERFORMANCE OF AGREEMENTS
LION and Merger LLC shall have performed all obligations and agreements
and complied with all covenants contained in this Agreement or any Operative
Document to be performed and complied with by them at or prior to the Closing.
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6.3 OPINION OF COUNSEL FOR LION AND MERGER LLC
TRMS and the Principal Stockholders shall have received the opinion of
Stoel Rives LLP, counsel for LION and Merger LLC, dated the Closing Date, in the
form attached hereto as EXHIBIT 6.3.
6.4 OFFICER'S CERTIFICATE
TRMS shall have received a certificate of an officer of LION, dated the
Closing Date, in form and substance reasonably satisfactory to TRMS, certifying
that the conditions to the obligations of TRMS and the Principal Stockholders
set forth in this Article 6 have been fulfilled.
6.5 EMPLOYMENT AGREEMENTS
Merger LLC shall have executed and delivered the Employment Agreements
with the Principal Stockholders in form and substance as attached hereto as
EXHIBITS 5.10.1 and 5.10.2.
6.6 PUT AGREEMENT
LION shall have executed and delivered the put agreement in form and
substance as attached hereto as EXHIBIT 6.6, pursuant to which LION grants each
Stockholder, other than the Principal Stockholders, on the terms and conditions
set forth therein, the right to require LION, commencing on the first
anniversary of the Closing Date, to repurchase the number of Merger Shares that
each Stockholder received in the Merger at the then-fair market value of such
shares, to the extent that such shares cannot be sold in reliance on Rule 144
under the Securities Act.
6.7 LEGAL PROCEEDINGS
No order of any Governmental Authority shall be in effect that enjoins,
restrains, conditions or prohibits consummation of this Agreement or any other
Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or, to LION's knowledge, threatened which would
enjoin, restrain, condition or prevent consummation of this Agreement or any
other Operative Document.
6.8 MATERIAL ADVERSE CHANGE
Since the date of this Agreement and through the Closing, there shall
not have occurred any material adverse change in LION's business operations,
assets, liabilities or condition (financial or otherwise). Changes in the
trading prices of LION Common Stock shall not be deemed material adverse changes
under this Section 6.8.
6.9 APPROVALS AND CONSENTS
All transfers of Permits and all approvals of or notices to
Governmental Authorities, the granting or delivery of which is necessary on the
part of LION and Merger LLC for the consummation of the transactions
contemplated hereby, shall have been obtained, and all waiting
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periods specified by law shall have passed. All other consents, approvals and
notices on the part of LION and Merger LLC referred to in this Agreement shall
have been obtained or delivered.
6.10 REITCO
LION shall have complied with its obligation to purchase REITCO common
stock in accordance with Section 7.9 and shall have executed and delivered the
REITCO Right of First Refusal Agreement.
6.11 COMPLIANCE WITH LAWS
The effectiveness of the Merger and the performance by LION, Merger
LLC, TRMS, the Principal Stockholders and the Stockholders' Representatives of
the obligations hereunder and under the other Operative Documents shall be
legally permitted by all laws and regulations to which LION, Merger LLC, TRMS,
the Principal Stockholders and the Stockholders' Representatives are subject.
ARTICLE 7 - COVENANTS
Between the date of this Agreement and the Effective Time, the parties
covenant and agree as set forth in this Article 7.
7.1 CONDUCT OF BUSINESS BY TRMS PENDING THE MERGER
Other than to effect the Pre-Closing Distribution or unless LION
otherwise agrees in writing, TRMS and the Principal Stockholders covenant and
agree to conduct the TRMS Business in and only in, and TRMS and the Principal
Stockholders shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice and in accordance with
applicable law except to the extent that it would not cause a TRMS Material
Adverse Effect; and each of TRMS and the Principal Stockholders shall use its
and his best efforts to preserve intact the TRMS Business, to keep available the
services of the current officers, employees and consultants of TRMS and to
preserve the current relationships of TRMS with, and the goodwill of, customers
and other Persons with which TRMS has significant business relationships. By way
of amplification and not limitation, except as otherwise contemplated by this
Agreement, TRMS and the Principal Stockholders shall not directly or indirectly
do, or propose to do, any of the following without the prior written consent of
LION:
(a) amend or otherwise change TRMS's certificate of incorporation
or bylaws;
(b) issue, sell, contract to issue or sell, pledge, dispose of,
grant, encumber or authorize the issuance, sale, pledge, disposition, grant or
Encumbrance of (i) any shares of capital stock of any class of TRMS, (ii) any
options, warrants, convertible securities or other rights of any kind to acquire
any shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest) of TRMS, or (iii) any assets of TRMS,
except in the ordinary course of business and in a manner consistent with past
practice;
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(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock or other securities, property or otherwise,
with respect to any of its capital stock, other than the Pre-Closing
Distribution;
(d) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation, partnership,
other business organization or division thereof or any material amount of
assets; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation,
become responsible for, the obligations of any Person, or make any loans or
advances, except in the ordinary course of business and consistent with past
practice; (iii) enter into any contract or agreement other than in the ordinary
course of business, consistent with past practice; (iv) authorize any capital
expenditures in excess of $10,000; or (v) enter into any agreement in which the
obligation of TRMS exceeds $10,000 or which shall not terminate or be subject to
termination for convenience within 30 days following execution;
(e) enter into or amend any employment, consulting or agency
agreement, or increase the compensation payable or to become payable to its
officers, employees, agents or consultants, or grant any severance or
termination pay to, or enter into any employment or severance agreement with,
any director, officer or other employee of TRMS, or establish, adopt, enter into
or amend any Employee Benefit Plan, collective bargaining, bonus,
profit-sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance, benefit
or other plan, agreement, trust, fund, policy or arrangement for the benefit of
any director, officer or employee;
(f) take any action, other than reasonable and usual actions in
the ordinary course of business and consistent with past practice, with respect
to accounting methods, policies or procedures (including, without limitation,
procedures with respect to the payment of accounts payable and collection of
accounts receivable);
(g) make any Tax election or settle or compromise any Tax
liability;
(h) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice;
(i) take any action that would or is reasonably likely to result
in any of the representations or warranties of TRMS and the Principal
Stockholders set forth in this Agreement being untrue in any material respect,
or in any covenant of TRMS or the Principal Stockholders set forth in this
Agreement being breached, or in any of the conditions to the Merger specified in
Article 5 not being satisfied; or
(j) agree to do any of the foregoing.
7.2 ACCESS TO INFORMATION; CONFIDENTIALITY
Each of TRMS and LION shall, and shall cause its officers, directors,
employees and agents to, afford the officers, employees and agents of the other
access, during normal business hours and upon reasonable notice, to the
officers, employees, agents, offices, books and records
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of the other and shall furnish the other with all reasonable financial,
operating and other data and information as TRMS or LION, through its officers,
employees or agents, may reasonably request. The parties shall continue to
comply with and to perform their respective obligations under the Mutual
Confidentiality Agreement between LION and TRMS entered into as of January 6,
2004.
7.3 NO ALTERNATIVE TRANSACTIONS
Unless this Agreement shall have been terminated in accordance with its
terms, neither TRMS nor the Principal Stockholders shall, directly or
indirectly, through any officer, director, agent or otherwise, solicit, initiate
or encourage the submission of any proposal or offer from any Person relating to
any acquisition or purchase of all or any material portion of the assets of, or
any equity interest in, TRMS or any business combination with TRMS, or
participate in any negotiations regarding, or furnish to any other Person any
information with respect to, or otherwise cooperate or negotiate in any way
with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other Person to do or seek any of the foregoing. TRMS shall
notify LION in writing promptly if any such proposal or offer, or any inquiry or
contact with any Person with respect thereto, is made and shall, in any such
written notice to LION, indicate in reasonable detail the identity of the Person
making such proposal, offer, inquiry or contact and the terms and conditions of
such proposal, offer, inquiry or contact.
7.4 NOTIFICATION OF CERTAIN MATTERS
Each party shall give prompt written notice to the other parties of (a)
the occurrence or nonoccurrence of any event that would be reasonably likely to
cause any representation or warranty made by such party contained in this
Agreement to be untrue or inaccurate and (b) any failure by such party to comply
with or satisfy any covenant, condition or agreement to be compiled with or
satisfied by it hereunder; provided, however, that the delivery of any written
notice pursuant to this Section 7.4 shall not limit or otherwise affect the
remedies available to the parties hereunder.
7.5 FURTHER ACTION; REGULATORY MATTERS
(a) Upon the terms and subject to the conditions hereof, each of
the parties hereto shall use commercially reasonable efforts to take, or cause
to be taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated in this Agreement
and the other Operative Documents, including using commercially reasonable
efforts promptly to prepare and file (on a confidential basis if requested by
the other parties) all necessary documentation, to effect (on a confidential
basis if requested by the other parties) all applications, notices, petitions
and filings, and to obtain all waivers, licenses, permits, consents, approvals,
authorizations, waivers, qualifications and orders of all Persons that are
necessary or advisable to consummate the transactions contemplated by this
Agreement.
(b) If any required consent of or waiver by any Person (excluding
any Governmental Authority) is not obtained prior to the Closing, or if the
assignment of any contract would be ineffective or would adversely affect any
material rights or benefits thereunder
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so that LION or Merger LLC would not in fact receive all such rights and
benefits, the parties hereto, each without cost, expense or liability to the
other, shall cooperate in good faith to seek, if possible, an alternative
arrangement to achieve the economic results intended.
(c) The parties hereto will have the right to review in advance,
and will consult with the other on, in each case subject to applicable laws
relating to the exchange of information, all the information relating to LION,
Merger LLC or TRMS, as the case may be, which appear in any filing made with, or
written materials submitted to, any Person in connection with the transactions
contemplated by this Agreement. The parties hereto will consult with each other
with respect to obtaining all permits, consents, approvals and authorizations of
all Persons necessary or advisable to consummate the transactions contemplated
by this Agreement and each party will keep the others apprised of the status of
matters relating to completion of the transactions contemplated herein.
(d) The party responsible for a filing as set forth above shall
promptly deliver to the other parties hereto evidence of the filing of all
applications, filings, registrations and notifications relating thereto, and any
supplement, amendment or item of additional information in connection therewith.
The party responsible for a filing also shall promptly deliver to the other
parties hereto a copy of each material notice, order, opinion and other item of
correspondence received by such filing party from any Governmental Authority in
respect of any such application. In exercising the foregoing rights and
obligations, LION, Merger LLC and TRMS shall act reasonably and as promptly as
practicable.
(e) LION and Merger LLC shall take all commercially reasonable
steps necessary to satisfy any conditions or requirements imposed by any
Governmental Authority in connection with the consummation of the transactions
contemplated by this Agreement, other than those conditions or requirements, in
the aggregate, the satisfaction of which by LION and Merger LLC are reasonably
likely to result in either a TRMS Material Adverse Effect or a material adverse
effect with respect to LION or Merger LLC.
(f) Each party to this Agreement shall, upon request, furnish each
other with all information concerning themselves, directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with any statement, filing, notice or application made by or on
behalf of LION, Merger LLC or TRMS to any Governmental Authority in connection
with the transactions contemplated by this Agreement.
(g) The parties to this Agreement shall promptly advise each other
upon receiving any communication from any Governmental Authority whose consent
or approval is required for consummation of the transactions contemplated by
this Agreement which causes such party to believe that there is a reasonable
likelihood that any requisite regulatory approval will not be obtained or that
the receipt of any such approval will be materially delayed or that the
transactions contemplated hereby will become subject to additional conditions
imposed by a Governmental Authority.
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7.6 PUBLICITY
No party hereto shall issue any press release or otherwise make any
statements to any third party with respect to this Agreement or the transactions
contemplated hereby other than the issuance by LION of a press release
announcing this Agreement and the transactions contemplated hereby or as
required by law.
7.7 EXECUTION OF ALL OPERATIVE DOCUMENTS
Each party shall execute at or prior to Closing each Operative Document
to which he or it is a party.
7.8 LIMITATION ON SALES OF COMPANY COMMON STOCK
Except as contemplated by this Agreement, neither Principal Stockholder
will sell, assign, transfer, pledge, encumber or otherwise dispose of any of his
shares of TRMS Common Stock.
7.9 REIT ADVISORY BUSINESS.
TRMS shall have contributed the assets and assigned the liabilities of
TRMS used in and necessary for its REIT advisory business, to REITCO, which
shall be owned by all of the Stockholders in the ownership percentages described
on SCHEDULE 7.9. REITCO shall have stockholders' equity of not less than $22,250
as of Closing and have no outstanding shares, equity interests, options or other
rights to acquire equity other than as set forth on SCHEDULE 7.9. Concurrent
with the Closing, (a) REITCO shall authorize the acceptance of subscriptions
from and the issuance of REITCO common stock to LION in the amount of 25,000
shares at a per share subscription price of $0.10, pursuant to the stock
purchase agreement attached as EXHIBIT 7.9.1 hereto and (b) REITCO and LION
shall have executed and delivered the REITCO right of first refusal agreement
attached as EXHIBIT 7.9.2 hereto (the "REITCO RIGHT OF FIRST REFUSAL
AGREEMENT"), providing for the rights of first refusal, restrictions on transfer
and the other rights and obligations with respect to ownership of REITCO capital
stock set forth therein.
7.10 TAX COVENANT
LION, Merger LLC and the Stockholders will not take any action that
could reasonably be expected to prevent the Merger from qualifying as a
reorganization under Section 368(a) of the Code.
ARTICLE 8 - TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time:
(a) by mutual written consent of TRMS and LION;
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(b) by either TRMS or LION, if the Merger has not been consummated
by November 15, 2004; provided, however, that the right to terminate this
Agreement under this subsection (b) shall not be available to any party whose
willful breach of any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date;
(c) by either TRMS or LION, if there shall be any law or
regulation that makes consummation of the Merger illegal or if any judgment,
injunction, order or decree enjoining LION, Merger LLC, TRMS or the Stockholders
from consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable; provided, however, that the party
seeking to terminate this Agreement pursuant to this subsection (c) shall have
used all reasonable efforts to remove such judgment, injunction, order or
decree;
(d) by TRMS, in the event of a material breach by LION or Merger
LLC of any representation, warranty or agreement contained herein that has not
been cured by November 15, 2004;
(e) by LION, in the event of a material breach by TRMS or either
Principal Stockholder of any representation, warranty or agreement contained
herein that has not been cured by November 15, 2004.
8.2 EFFECT OF TERMINATION
Except as specifically provided in this Section 8.2, in the event of
the termination of this Agreement pursuant to Section 8.1 hereof, there shall be
no further obligation on the part of any party hereto, except that nothing
herein shall relieve any party from any obligation under the Mutual
Confidentiality Agreement between LION and TRMS dated January 6, 2004.
8.3 AMENDMENT; WAIVER
This Agreement may be amended by an instrument in writing signed by
LION, TRMS the Principal Stockholders, and the Stockholders' Representative. At
any time prior to the Effective Time, any party hereto may (a) extend the time
for the performance of any obligation or other act of any other party hereto,
(b) waive any inaccuracy in the representations and warranties contained herein
or in any document delivered pursuant hereto, or (c) waive compliance with any
agreement or condition contained herein. Any such extension or waiver shall be
valid only if set forth in an instrument in writing signed by the party or
parties to be bound thereby. No other course of dealing between or among any of
the parties hereto or any delay in exercising any rights pursuant to this
Agreement shall operate as a waiver of any rights of any party hereto.
ARTICLE 9 - SURVIVAL AND INDEMNIFICATION
9.1 SURVIVAL
All representations and warranties contained in this Agreement shall
survive until the date 18 months after the Effective Time, and shall not be
deemed waived or otherwise affected by any investigation made or any knowledge
acquired with respect thereto, or by any notice
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delivered pursuant to Section 7.4 or otherwise; provided, however, that the
representations and warranties of TRMS and the Principal Stockholders contained
in Section 3.8 (Taxes) and any claim relating to fraud shall survive the
Effective Time until the statute of limitations for the matter addressed in such
representation and warranty, and any such claim relating to fraud, expires (the
"SURVIVAL PERIOD").
9.2 INDEMNIFICATION BY THE PRINCIPAL STOCKHOLDERS
Subject to the limitations set forth in this Article 9, the Principal
Stockholders severally shall indemnify and hold LION and its officers, directors
and Affiliates (the "LION INDEMNIFIED PARTIES") harmless from and against, and
shall reimburse the LION Indemnified Parties for, any and all Losses arising out
of (i) any inaccuracy or misrepresentation in, or breach of, any representation
or warranty made by TRMS or either Principal Stockholder in any Operative
Document; (ii) any failure by TRMS or the Principal Stockholders to perform or
comply, in whole or in part, with any covenant or agreement in any Operative
Document; and (iii) all liability for Taxes of TRMS assessed during or
attributable to any taxable period ending on or prior to the Effective Date, and
the portion of any taxable period that includes, but does not end on, the
Effective Date to the extent such Taxes exceed the reserve for Tax liability set
forth on the face of the TRMS Balance Sheet.
9.3 INDEMNIFICATION BY LION
Subject to the limitations set forth in this Article 9, LION shall
indemnify and hold the Stockholders and TRMS's officers, directors and
Affiliates (the "TRMS INDEMNIFIED PARTIES") harmless from and against, and shall
reimburse TRMS Indemnified Parties for, any and all Losses arising out of or in
connection with (a) any inaccuracy in, or misrepresentation or breach of, any
representation or warranty made by LION or Merger LLC in any Operative Document,
and (b) any failure by LION or Merger LLC to perform or comply, in whole or in
part, with any covenant or agreement in any Operative Document.
9.4 PROCEDURE FOR Indemnification
(a) The Indemnified Party shall give a Claim Notice of any Claim
to the indemnifying party (in the case of a Claim against a Principal
Stockholder, to the Stockholders' Representative) as promptly as practicable,
but in any event: (i) if such Claim relates to the assertion against an
Indemnified Party of any claim by a third party (a "THIRD PARTY CLAIM"), within
30 days after the assertion of such Third Party Claim, or (ii) if such Claim is
not in respect of a Third Party Claim, within 30 days after the discovery of
facts upon which the Indemnified Party intends to base a Claim for
indemnification pursuant to this Article 9, provided, however, that the failure
or delay to so notify the indemnifying party shall not relieve the indemnifying
party of any obligation or liability that the indemnifying party may have to the
Indemnified Party except to the extent that the indemnifying party demonstrates
that the indemnifying party's ability to defend or resolve such Claim is
adversely affected thereby. Any such Claim Notice shall describe the facts and
circumstances on which the asserted Claim for indemnification is based, the
amount thereof if then ascertainable and, if not then ascertainable, the
estimated maximum amount thereof, and the provisions in this Agreement on which
the Claim is based.
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(b) (i) Subject to the rights of or duties to any insurer or other
third party having potential liability therefor, the indemnifying party shall
have the right, upon written notice given to the Indemnified Party within 30
days after receipt of the notice from the Indemnified Party of any Third Party
Claim, to assume the defense or handling of such Third Party Claim, at the
indemnifying party's sole expense, in which case the provisions of Section
9.4(b)(ii) hereof shall govern.
(ii) The indemnifying party shall select counsel reasonably
acceptable to the Indemnified Party in connection with conducting the defense or
handling of such Third Party Claim, and the indemnifying party shall defend or
handle the same in consultation with the Indemnified Party and shall keep the
Indemnified Party timely apprised of the status of such Third Party Claim. The
indemnifying party shall not, without the prior written consent of the
Indemnified Party, agree to a settlement of any Third Party Claim, unless (A)
the settlement provides an unconditional release and discharge of the
Indemnified Party and the Indemnified Party is reasonably satisfied with such
discharge and release and (B) the Indemnified Party shall not have reasonably
objected to any such settlement on the ground that the circumstances surrounding
the settlement could result in an adverse impact on the business, operations,
assets, liabilities (absolute, accrued, contingent or otherwise), condition
(financial or otherwise) or prospects of the Indemnified Party. The Indemnified
Party shall cooperate with the indemnifying party and shall be entitled to
participate in the defense or handling of such Third Party Claim with its own
counsel and at its own expense.
(c) (i) If the indemnifying party does not give written notice to
the Indemnified Party within 30 days following receipt of the notice from the
Indemnified Party of any Third Party Claim of the indemnifying party's election
to assume the defense or handling of such Third Party Claim, the provisions of
Section 9.4(c)(ii) hereof shall govern.
(ii) The Indemnified Party may, at the indemnifying party's
expense (which shall be paid from time to time by the indemnifying party as such
expenses are incurred by the Indemnified Party), select counsel in connection
with conducting the defense or handling of such Third Party Claim and defend or
handle such Third Party Claim in such manner as it may deem appropriate;
provided, however, that the Indemnified Party shall keep the indemnifying party
timely apprised of the status of such Third Party Claim and shall not settle
such Third Party Claim without the prior written consent of the indemnifying
party, which consent shall not be unreasonably withheld. If the Indemnified
Party defends or handles such Third Party Claim, the indemnifying party shall
cooperate with the Indemnified Party and shall be entitled to participate in the
defense or handling of such Third Party Claim with its own counsel and at its
own expense.
(d) The amount of any Losses shall be determined net of any
amounts that the Indemnified Party recovers under insurance policies,
indemnities (other than pursuant hereto) or other reimbursement arrangements
with respect to such Losses. Each party waives, to the extent permitted under
its applicable insurance policies, any subrogation rights that its insurer may
have with respect to any indemnifiable Losses.
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9.5 RIGHT OF OFFSET
Subject to the notice requirements and other limitations provided in
this Article 9, LION shall have the right to offset any Losses for which a Claim
by a LION Indemnified Party has been made pursuant to this Article 9, once such
Losses are finally determined to be subject to indemnification hereunder either
by agreement of the parties or in a decision of a court of competent
jurisdiction, against any amounts payable to the Principal Stockholders under
the Notes. LION also shall have the right, in the event of any breach by Xxxxxx
or Xxxxxxxxxx of such Principal Stockholder's covenants and obligations under
Section 5.10 hereof or such Principal Stockholder's employment agreement, to
offset any Losses resulting from such breach against any amounts payable to such
Principal Stockholder pursuant to his Note.
9.6 THRESHOLDS AND LIMITATIONS
(a) The LION Indemnified Parties shall be not entitled to receive
any indemnification payment with respect to any claims for indemnification under
this Article 9 unless the amount of the Losses in question exceed $25,000 (the
"LOSS THRESHOLD"); provided, however, that once such Losses exceed the Loss
Threshold, such LION Indemnified Parties shall be entitled to indemnification
for the aggregate amount of all Losses from the first dollar.
(b) The TRMS Indemnified Parties shall be not entitled to receive
any indemnification payment with respect to any claims for indemnification under
this Article 9 unless the amount of the Losses in question exceed the Loss
Threshold; provided, however, that once such Losses exceed the Loss Threshold,
such TRMS Indemnified Parties shall be entitled to indemnification for the
aggregate amount of all Losses from the first dollar.
(c) Except for Losses based on fraud, the aggregate total
liability of the Principal Stockholders pursuant to this Article 9 shall be
limited to an amount equal to 25% of the Purchase Price (the "INDEMNIFICATION
CAP").
(d) Except for Losses based on fraud, the aggregate total
liability of LION pursuant to this Article 9 shall be limited to the amount of
the Indemnification Cap.
(e) An indemnifying party shall not be obligated to defend and
hold harmless an Indemnified Party, or otherwise be liable to such party, with
respect to any claims made by the Indemnified Party after the expiration of the
Survival Period or other applicable time limitation described in Section 9.1,
except that indemnity may be sought after the expiration of the Survival Period
or other applicable time limitation if a Claim Notice shall have been delivered
to the Stockholders' Representative prior to the expiration of such time period.
(f) Except for Losses based on fraud, (i) the obligations of the
Principal Stockholders to indemnify the LION Indemnified Parties under this
Article 9 shall be the sole and exclusive remedy of the LION Indemnified Parties
under the Operative Documents against the Principal Stockholders, and (ii) the
obligations of LION to indemnify TRMS Indemnified Parties under this Article 9
shall be the sole and exclusive remedy of TRMS Indemnified Parties under the
Operative Documents against LION.
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ARTICLE 10 - OTHER AGREEMENTS
10.1 TAX MATTERS
Unless otherwise required by law, the parties hereto shall treat the
Merger as a reorganization under Section 368(a) of the Code and the underlying
regulations for all Tax reporting purposes.
10.2 STOCKHOLDERS' REPRESENTATIVE
(a) Each Principal Stockholder, by executing this Agreement, and
each other Stockholder, by approving this Agreement and the transactions
contemplated hereby, irrevocably authorize and appoint Xxxxxx, as Stockholders'
Representative, with full power of substitution and resubstitution, as such
stockholder's agent and attorney-in-fact for the purposes contemplated herein.
(b) The Stockholders' Representative shall have the full power,
authority and right to perform, do and take any and all actions he deems
necessary or advisable to carry out the purposes of Sections 2.6, 2.7 and
Article 9 of this Agreement. Such actions include the power to amend, modify or
waive any agreement in the name of each Principal Stockholder as if such
Principal Stockholder had himself amended, modified or waived such agreement;
provided that the Stockholders' Representative shall have no power to amend,
modify or waive any term of this Agreement, the effect of which would reduce the
amount or change the type of consideration to be received by any Stockholder in
respect of the Merger unless the affected Stockholder shall so agree. In
particular, but not by way of limitation, the Stockholders' Representative shall
have the power to make and carry out decisions under this Agreement and the
other Operative Documents on behalf of each Principal Stockholder and to sign
documents and make filings on behalf of each Principal Stockholder as if such
Principal Stockholder had himself signed or filed such document. The
Stockholders consent to the taking by the Stockholders' Representative of any
and all actions and the making of any decisions required or permitted to be
taken by him under this Agreement.
(c) The Stockholders' Representative hereby agrees to negotiate,
enter into settlements and compromises of claims, including third-party claims,
to comply with orders of courts and awards of arbitrators with respect to such
claims, resolve any claim made pursuant to Article 9 hereof, take all actions
necessary in his judgment for the accomplishment of the foregoing, and hereby
accepts his appointment as the Stockholders' Representative for purposes of
Article 9. The LION Indemnified Parties shall be entitled to deal exclusively
with the Shareholders' Representative on all matters relating to Article 9 and
shall be entitled to rely conclusively (without further evidence of any kind
whatsoever) on any document executed or purported to be executed on behalf of a
Principal Stockholder by the Stockholders' Representative, and on any other
action taken or purported to be taken on behalf of any Stockholders by the
Stockholders' Representative, as fully binding upon such Stockholder.
(d) The Stockholders' Representative may resign at any time. Upon
such resignation, the other Principal Stockholder shall replace such resigning
Stockholders' Representative with the same powers and duties as such resigning
Stockholders' Representative.
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(e) If the Stockholders' Representative or any successor shall die
or become unable to act as the Stockholders' Representative, a replacement shall
promptly be appointed by a writing signed by the other Principal Stockholder.
10.3 POST-CLOSING OPERATIONS
(a) It is the intention of LION that after Closing the TRMS Business
will be operated through Merger LLC and will be combined with LION's operations
that support its Pipeline Tools product to vertically integrate the product line
and necessary support. LION also intends that TRMS's employees and operations
will be combined with LION's existing operations in California.
(b) After the Closing, each party hereto, at the request of and without
any further cost or expense to the other parties, shall take any further actions
reasonably necessary or desirable to carry out the purposes of any Operative
Document, to vest in Surviving LLC full title to all properties, assets and
rights of TRMS, and to effect the issuance of the Merger Shares to the
Stockholders pursuant to the terms and conditions hereof.
10.4 MEGA MORTGAGE CLAIM
Prior to the Closing, TRMS has distributed to the Stockholder (separate
from the Pre-Closing Distribution), a claim of TRMS against Mega Capital
Funding, Inc. ("Mega") for a receivable due to TRMS from Mega (the "Mega
Claim"). TRMS and the Principal Stockholders have entered into a Nominee
Agreement in the form of Exhibit 10.4 (the "Nominee Agreement"), pursuant to
which TRMS has agreed to hold, as a nominee for the Stockholders (via the
Principal Stockholders, as Principal) the Mega Claim. At the Closing Surviving
LLC shall succeed to and assume all of the rights and obligations of TRMS under
the Nominee Agreement.
ARTICLE 11 - GENERAL
11.1 EXPENSES
Each party shall pay its own fees and expenses incident to the
negotiation, preparation and execution of the Operative Documents, including
legal and accounting fees and expenses; provided, however, that the attorneys'
fees and expenses of the prevailing party in any action brought hereunder shall
be paid by the other party to such action.
11.2 NOTICES
Any notice, request or demand desired or required to be given hereunder
shall be in writing given by personal delivery, confirmed facsimile transmission
or overnight courier service, in each case addressed as respectively set forth
below or to such other address as any party shall have previously designated by
such a notice. The effective date of any notice, request or demand shall be the
date of personal delivery, the date on which successful facsimile transmission
is confirmed or the date actually delivered by a reputable overnight courier
service, as the case may be, in each case properly addressed as provided herein
and with all charges prepaid.
43
TO LION AND LION ACQ. LLC:
LION, Inc.
0000 - 00xx Xxx. X.X.
Xxxxx 000
Xxxxxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Chairman and CEO
with a copy to:
Stoel Rives LLP
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxxxxxx X. Xxxx
TO TRMS:
Xxxxxx Risk Management Services Inc.
0000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxx Xxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xx. Xxxxxxx Xxxxxx
TO THE STOCKHOLDERS' REPRESENTATIVE:
Xx. Xxxxxxx Xxxxxx
c/o Tuttle Risk Management Services LLC
0000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxx Xxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
in the case of TRMS and the Stockholders' Representative, with a copy
to:
Xxxx Xxxx Xxxx & Freidenrich LLP
0000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx X. Xxxxx
44
11.3 SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.
11.4 ASSIGNMENT
This Agreement shall not be assigned by operation of law or otherwise;
provided, however, that Merger LLC's rights and obligations may be assigned to
and assumed by LION or any other corporation wholly-owned (directly or through
intermediate wholly-owned subsidiaries) by LION.
11.5 PARTIES IN INTEREST
This Agreement shall be binding upon and inure solely to the benefit of
the parties hereto and their respective successors, heirs, legal representatives
and permitted assigns, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
11.6 GOVERNING LAW; VENUE
Except for the mandatorily applicable provisions of Delaware Law, this
Agreement shall be governed by, and construed in accordance with, the laws of
the state of Washington without giving effect to any choice or conflict of law
provision or rule (whether of the State of Washington or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Washington. The parties irrevocably consent to the jurisdiction and
venue of the state and federal courts located in King County, Washington in
connection with any action relating to this Agreement.
11.7 OTHER REMEDIES; SPECIFIC PERFORMANCE
Except as otherwise provided herein, any and all remedies herein
expressly conferred upon any party hereto will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by any party hereto of any one remedy will not preclude
the exercise of any other remedy. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties hereto shall be entitled to
seek an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, in addition to any other remedy to
which they may be entitled at law or in equity.
45
11.8 INTERPRETATION; SCHEDULES
Unless the context otherwise requires, references in this Agreement to
Articles, Sections, Schedules and Exhibits refer to the Articles and Sections
of, and Schedules and Exhibits to, this Agreement. The words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. All references to
dollar amounts contained in this Agreement shall mean United States dollars.
References in this Agreement to any gender include references to all genders,
and references to the singular include references to the plural and vice versa.
Unless the context otherwise requires, the words "hereof," "hereby" and "herein"
and words of similar meaning when used in this Agreement refer to this Agreement
in its entirety and not to any particular Article, Section or provision of this
Agreement. The Schedules and Exhibits to this Agreement, including the
Disclosure Memorandum, constitute a part of this Agreement and are incorporated
into this Agreement for all purposes as if fully set forth herein.
11.9 KNOWLEDGE
Representations and warranties made in this Agreement that are
qualified "to the knowledge of TRMS and the Principal Stockholders" mean that
there is no fact or circumstance contrary to such representation or warranty
within the actual knowledge of Xxxxxx and Xxxxxxxxxx, after reasonable inquiry.
11.10 ENTIRE AGREEMENT
This Agreement, the other Operative Documents and the Mutual
Confidentiality Agreement, dated January 6, 2004, constitute the entire
agreement among the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, whether written
or oral, among the parties, or any of them, with respect to the subject matter
hereof and thereof.
11.11 COUNTERPARTS
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
46
IN WITNESS WHEREOF, the parties hereto have entered into and signed
this Agreement of Merger as of the date and year first above written.
LION, INC.
/s/ XXXXXXX XXXXX
-----------------
By: Xxxxxxx Xxxxx
Its: Chairman and Chief Executive Officer
LION ACQ. LLC
/s/ XXXXXXX XXXXX
-----------------
By: Xxxxxxx Xxxxx
Its: Chief Executive Officer
47
XXXXXX RISK MANAGEMENT SERVICES, INC.
------------------------------------------
By: /s/ XXXXXXX XXXXXX
Its: PRESIDENT
PRINCIPAL STOCKHOLDERS
/s/ XXXXXXX XXXXXX
------------------------------------------
Xxxxxxx Xxxxxx
/s/ XXXX XXXXXXXXXX
------------------------------------------
Xxxx Xxxxxxxxxx
STOCKHOLDERS' REPRESENTATIVE
/s/ XXXXXXX XXXXXX
------------------------------------------
Xxxxxxx Xxxxxx
48
LIST OF EXHIBITS NOT PROVIDED *
2.3.1 - Form of Certificate of Merger (Delaware)
2.3.2 - Form of Articles of Merger (Washington)
2.5.2 - Letter of Transmittal
5.3 - Opinion of Counsel for TRMS and the Principal Stockholders
5.10.2 - Xxxxxxxxxx Employment Agreement
5.10.3 - LION Confidentiality and Inventions Agreement
5.11 - Investor Questionnaire and Acknowledgement
6.3 - Opinion of Counsel for LION and Merger LLC
7.9.1 - REITCO Stock Purchase Agreement
7.9.2 - REITCO Right of First Refusal Agreement
LIST OF SCHEDULES NOT PROVIDED *
2.4 - Directors and Officers of Surviving LLC
3 - Disclosure Memorandum
5.10 - TRMS Employees
7.9 - REITCO Ownership
* LION, Inc. agrees to furnish copies of these Exhibits and Schedules to the
Securities and Exchange Commission upon request.
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