EXHIBIT 10.5
SUPPLEMENTAL AGREEMENT
DATED AS OF FEBRUARY 24, 2005
BY AND AMONG
PATRON SYSTEMS, INC.,
CSSI ACQUISITION CO. I, INC.
AND
COMPLETE SECURITY SOLUTIONS, INC.
SUPPLEMENTAL AGREEMENT
SUPPLEMENTAL AGREEMENT dated as of February 24, 2005 (this
"AGREEMENT") by and among Patron Systems, Inc., a Delaware corporation
("PARENT"), CSSI Acquisition Co. I, Inc., a Delaware corporation ("Mergerco"),
and Complete Security Solutions, Inc., a Delaware corporation (the "COMPANY").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent, Mergerco and the Company are entering into an Agreement and
Plan of Merger of even date herewith (the "MERGER AGREEMENT"), in the form of
EXHIBIT A attached hereto, which provides, among other things, for the merger
("MERGER") of Mergerco with and into the Company pursuant to the applicable laws
of the State of Delaware;
WHEREAS, the parties hereto believe it is desirable to enter
into this Agreement in order to set forth the representations and warranties
made by Parent and the Company in connection with the Merger, to set forth
certain covenants and agreements of the parties and to set forth various other
provisions relating to the Merger and the relative rights and obligations of the
parties with respect thereto;
WHEREAS, the parties hereto desire that the Merger qualify as
a reorganization in accordance with Section 368(a) of the Code; and
WHEREAS, certain capitalized terms are defined in the Merger
Agreement and shall have the same meaning when used in this Agreement unless
otherwise defined herein or in Section 10.15, the definitions of such terms
being incorporated herein as if set forth in full herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Subject to the terms and conditions of this
Agreement and as more particularly described in the Merger Agreement, Mergerco
shall be merged with and into the Company at the Effective Time.
SECTION 1.2 FILING OF THE MERGER AGREEMENT. The Company, Parent and
Mergerco shall cause the Merger Agreement, duly executed in accordance with
Section 251 of the Delaware General Corporation Law (the "DGCL") to be filed on
the Closing Date (or on such other date as Parent and the Company may agree)
with the Secretary of State of the State of Delaware, in accordance with the
DGCL.
SECTION 1.3 CLOSING. The closing of the Merger (the "CLOSING") shall
take place on February 24, 2005 or on such other date as Parent and the Company
may agree; PROVIDED, THAT, in either case, each of the conditions set forth in
ARTICLE VI has been satisfied or waived prior to such date. The time and date on
which the Closing is actually held is sometimes referred to herein as the
"CLOSING DATE."
SECTION 1.4 MERGER CONSIDERATION. Subject to the provisions of Article
I of the Merger Agreement, as of the Effective Time, by virtue of the Merger,
(i) the aggregate outstanding shares of Company Common Stock immediately prior
to the Effective Time shall be converted, in the aggregate, into 7,500,000
validly issued, fully paid and nonassessable shares of Parent Common Stock, and
(ii) the aggregate outstanding shares of Company Preferred Stock immediately
prior to the Effective Time shall be converted into (A) Promissory Notes in the
aggregate principal amount of $4,500,000 in the form of EXHIBIT B attached
hereto and (B) Warrants in the form of EXHIBIT C attached hereto to purchase an
aggregate of 2,250,000 shares of Parent Common Stock (the "MERGER
CONSIDERATION"). The Merger Consideration shall be allocated among the
Stockholders to be set forth on ANNEX A.
SECTION 1.5 COMPANY COMMON WARRANTS. In accordance with the terms of
the Merger Agreement, each outstanding warrant to purchase shares of Company
Common Stock set forth on SCHEDULE 3.3 hereto (the "COMPANY COMMON WARRANTS"),
which are outstanding as of the Effective Time shall be terminated and be of no
further force and effect at the Effective Time.
SECTION 1.6 DISSENTING SHARES. Any issued and outstanding shares of
Company Stock held by a Person (a "DISSENTING STOCKHOLDER") who properly
exercises such Person's dissenters' rights under the DGCL ("DISSENTING SHARES")
shall not be converted as described in Section 1.4, but rather shall be
converted into the right to receive such consideration as may be determined to
be due to such Dissenting Stockholder pursuant to the DGCL. Subject to the
foregoing, if, after the Effective Time, such Dissenting Stockholder withdraws
his demand for payment or fails to perfect or otherwise loses his right of
payment, in any case pursuant to the DGCL, the Dissenting Shares of such
Dissenting Stockholder shall be deemed to be converted as of the Effective Time
into the right to receive the amount to which such Dissenting Stockholder would
otherwise have been entitled to pursuant to Section 1.4. The Company shall give
Parent prompt notice of any demands for payment received by the Company. The
Company shall not, without the prior written consent of Parent, make any payment
with respect to, or settle or offer to settle, any such demands, and, prior to
the Effective Time, Parent shall have the right to participate in all
negotiations and proceedings with respect to such demands.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
SECTION 2.1 ORGANIZATION OF PARENT. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. No other jurisdiction has demanded, requested or otherwise indicated
that Parent is required to qualify to transact business as a foreign
corporation, and Parent is not otherwise currently required under the laws of
any other jurisdiction to qualify to transact business as a foreign corporation.
Parent has full corporate power and authority to own or lease and to operate and
use its properties and assets and to carry on its business as now conducted.
Parent has delivered or otherwise made available to the Company true, correct
and complete copies of Parent's Amended and Restated Certificate of
Incorporation, as in effect on the date hereof, Amended and Restated Bylaws, as
in effect on the date hereof, minute books and stock
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transfer records. Parent is not in violation of any term or provision of its
charter, bylaws or other organizational document the consequences of which would
reasonably be expected to result in a Material Adverse Effect on Parent.
SECTION 2.2 SUBSIDIARIES AND INVESTMENTS OF PARENT. Except as set forth
on SCHEDULE 2.2 (which will include the percentage owned by Parent), Parent does
not, directly or indirectly, (i) own, of record or beneficially, or own or hold
the right to acquire, any outstanding voting or equity securities or other
voting or equity interests in any corporation, partnership, joint venture or
other entity or (ii) otherwise control any such corporation, partnership, joint
venture or other entity.
SECTION 2.3 PARENT ACQUISITION OPERATIONS. Other than the negotiation
and execution of this Agreement, the Merger Agreement and the transactions
contemplated hereby and thereby and the negotiation of other transactions for
the purchase by Parent of other business entities, each as described in SCHEDULE
2.3, prior to the date hereof, Parent has not conducted any material business
acquisition or combination activities or operations.
SECTION 2.4 CAPITAL STOCK OF PARENT. As of the date hereof, the
authorized capital of Parent consists of (i) 150,000,000 shares of Common Stock
of Parent, par value $.01 per share (the "PARENT COMMON STOCK"), of which, as of
the date hereof, 39,006,212 shares are issued and outstanding; and (ii)
75,000,000 shares of preferred stock, par value $.01 per share (the "PARENT
PREFERRED STOCK," together with the Parent Common Stock, the "PARENT CAPITAL
STOCK"), none of which is issued and outstanding or reserved for any purpose.
All outstanding shares of Parent Common Stock are validly issued, fully paid and
nonassessable. None of the issued and outstanding shares of Parent Common Stock
has been issued in violation of the preemptive rights of any person or in
violation of applicable federal or state securities laws, except where any such
violation or violations, individually or in the aggregate, would not have a
Material Adverse Effect on Parent. SCHEDULE 2.4 sets forth a true and complete
list of the names and addresses of each of the holders of record of options to
purchase Parent Common Stock (the "PARENT STOCK OPTIONS"), the respective number
of shares of Parent Common Stock subject to such Parent Stock Option, the
exercise price applicable to such Parent Stock Option and the expiration date of
such Parent Stock Option. Except for this Agreement, the Merger Agreement and
except as set forth on SCHEDULE 2.4 hereof, there are no agreements,
arrangements, warrants, options, puts, calls, rights or other commitments, plans
or understandings of any character relating to the issuance, sale, purchase,
redemption, conversion, exchange, registration, voting, or transfer of any
shares of Parent Common Stock or any other securities of Parent. Except as set
forth on SCHEDULE 2.4 and except pursuant to applicable laws, there are no
restrictions, including but not limited to self-imposed restrictions, on the
retained earnings of Parent or on the ability of Parent to declare and pay
dividends.
SECTION 2.5 MERGERCO. Mergerco is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Mergerco
has not conducted any business activities prior to the date of this Agreement,
other than the negotiation and execution of this Agreement and the Merger
Agreement. All outstanding shares of capital stock of Mergerco are owned,
beneficially and of record, by Parent.
SECTION 2.6 AUTHORIZATION. (a) Parent has full corporate power and
authority to enter into this Agreement, the Merger Agreement and the
Registration Rights Agreement (as
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defined below) (collectively, the "TRANSACTION DOCUMENTS"), to consummate the
transactions contemplated hereby and thereby and to comply with the terms and
provisions hereof and thereof, subject to the conditions hereof and thereof. The
execution, delivery and performance by Parent of each of the Transaction
Documents, and the actions to be taken by Parent contemplated hereby and thereby
have been duly and validly authorized by the Board of Directors of Parent, and
no other corporate proceedings on the part of Parent are necessary with respect
hereto or thereto. Each of the Transaction Documents constitutes the valid and
binding obligations of Parent, in each case enforceable in accordance with its
terms, subject to (i) general principles of equity, regardless of whether
enforcement is sought in a proceeding in equity or at law, and (ii) bankruptcy,
reorganization, insolvency, fraudulent conveyance, moratorium, receivership or
other similar laws relating to or affecting creditors' rights generally.
(b) Mergerco has full corporate power and authority to
enter into this Agreement and the Merger Agreement, to consummate the
transactions contemplated hereby and thereby and to comply with the terms,
conditions and provisions hereof and thereof. The execution, delivery and
performance by Mergerco of this Agreement and the Merger Agreement and the
actions contemplated hereby and thereby have been duly and validly authorized by
the Board of Directors and Stockholders of Mergerco, and no other corporate
proceedings on the part of Mergerco are necessary with respect hereto or
thereto. This Agreement and the Merger Agreement constitute the valid and
binding obligations of Mergerco, in each case enforceable in accordance with its
terms, subject to (i) general principles of equity, regardless of whether
enforcement is sought in a proceeding in equity or at law, and (ii) bankruptcy,
reorganization, insolvency, fraudulent conveyance, moratorium, receivership or
other similar laws relating to or affecting creditors' rights generally.
SECTION 2.7 NON-CONTRAVENTION. Except as set forth in SCHEDULE 2.7,
neither the execution or delivery of the Transaction Documents by Parent or this
Agreement and the Merger Agreement by Mergerco, nor the consummation of the
transactions contemplated hereby or thereby by Parent and Mergerco, will (a)
conflict with or result in the breach of any term or provision of, or constitute
a default under, the respective charters or Bylaws of Parent or Mergerco or any
material agreement, instrument or indenture to which Parent or Mergerco is a
party or by which either is bound; (b) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Parent or Mergerco; or (c)
require, as of the date hereof, the approval, consent, waiver, authorization or
act of, or the making by Parent or Mergerco of any declaration, filing or
registration with, any third party or any Governmental Body and the filing of a
copy of the Merger Agreement with the Secretary of State of the State of
Delaware and such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not,
individually or in the aggregate, have a Material Adverse Effect on Parent,
materially impair the ability of Parent or Mergerco to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
SECTION 2.8 VALID SHARES. The issuance of the Parent Common Stock in
connection with the Merger has been duly authorized on behalf of Parent and such
shares, when issued pursuant to this Agreement and the Merger Agreement, will be
duly and validly issued and outstanding, fully paid and nonassessable.
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SECTION 2.9 FAILURE TO FILE SEC DOCUMENTS ON A TIMELY BASIS. On March
31, 2004, Parent filed a Form 12b-25 with the United States Securities and
Exchange Commission ("SEC") providing notification that it was unable to file
its Annual Report on Form 10-KSB, for the year ended December 31, 2003, on a
timely basis. In such filing Parent reported that certain financial and other
information necessary for an accurate and full completion of such Annual Report
could not be provided within the prescribed time period without unreasonable
effort or expense. Parent, to date, has not filed such Annual Report nor has it
made any other filings required pursuant to the reporting requirements of the
Securities and Exchange Act of 1934, as amended ("EXCHANGE ACT"), since such
date, except for a Current Report on Form 8-K filed with the SEC on December 2,
2004. Parent's failure to maintain its Exchange Act filing requirements on a
current basis may have materially adverse implications on Parent's stockholders
including, without limitation, causing sales of Parent's Common Stock pursuant
to the provisions of Rule 144 promulgated under the Securities Act of 1933, as
amended ("SECURITIES ACT") to be unavailable to Parent's stockholders. In
addition, there does not currently exist any current information on Parent which
is publicly available including, without limitation, current financial
statements, the last financial statements being unaudited financial statements
for the quarterly period ended September 30, 2003, which were filed on December
29, 2003 with Parent's Form 10-QSB for the period ended September 30, 2003.
Although Parent, after the Closing Date, intends to make all filings necessary
to become current again in its Exchange Act filing requirements, there can be no
assurance that Parent will be able to regain compliance in an expeditious
manner.
SECTION 2.10 RESIGNATION OF INDEPENDENT ACCOUNTANTS. Effective as of
January 21, 2004, Xxxxx Xxxxxxxx LLP, Parent's former independent accountants,
resigned as Parent's independent public accountants based on its determination
that it could not rely on Parent's representations, and was unwilling to be
associated with Parent's financial statements. Accordingly, Xxxxx Xxxxxxxx
withdrew its audit reports and stated that such reports could no longer be
relied upon. A more detailed explanation of such resignation is set forth in
Parent's Current Report on Form 8-K filed with the SEC on January 26, 2004 and
its Current Report on Form 8-K/A filed with the SEC on February 10, 2004. Parent
has engaged Xxxxxx & Xxxxxxxx LLP as its new independent accountants to audit
Parent's financial statements for the period from April 30, 2002 through
December 31, 2002, and for the fiscal years ended December 31, 2003 and 2004.
SECTION 2.11 FINANCIAL STATEMENTS. Parent, to date, does not have
audited financial statements for the year ended December 31, 2003. Additionally,
although Parent filed audited financial statements with its Annual Report on
Form 10-KSB for the year ended December 31, 2002, Xxxxx Xxxxxxxx, upon its
resignation as Parent's independent public accountants, withdrew its audit
report for the year ended December 31, 2002, and stated that such audit report
could no longer be relied upon. As a result of the foregoing, Parent does not
have any financial statements which may be relied upon with respect to
compliance with audit requirements. The financial statements filed with the SEC
contain Parent's unaudited balance sheets and income statements from the period
of inception to September 30, 2003 (all of such financial statements being
hereafter collectively referred to as the "UNAUDITED FINANCIAL STATEMENTS"). The
Unaudited Financial Statements have been prepared in good faith, are complete
and correct in all material respects, have been prepared in accordance with GAAP
and in conformity with the practices consistently applied by Parent and present
fairly the financial position and results of operations of Parent as of the
dates and for the periods indicated.
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SECTION 2.12 TITLE TO ASSETS. Parent has good title to all of its
assets, free and clear of all Encumbrances, except for Permitted Encumbrances
and except as set forth in SCHEDULE 2.12.
SECTION 2.13 NO UNDISCLOSED LIABILITIES. Except as set forth on
SCHEDULE 2.13, Parent is not subject to any obligation or liability of a kind
required to be included as a liability on the balance sheet set forth in
SCHEDULE 2.13 (including, without limitation, unasserted claims whether known or
unknown), whether absolute, contingent, accrued or otherwise, which is not shown
or which is in excess of amounts shown or reserved for on such balance sheet,
other than liabilities reasonably incurred in the ordinary course of business
after the date of such balance sheet or incurred with respect to the matters
disclosed in SCHEDULE 2.3, none of which, individually or in the aggregate,
would have a Material Adverse Effect on Parent and none of which is a liability
for breach of contract, breach of warranty, tort, infringement or other lawsuit.
SECTION 2.14 NO VIOLATION, LITIGATION OR REGULATORY ACTION. Except as
set forth on SCHEDULE 2.14:
(a) To the Knowledge of Parent, Parent has complied with
all laws, regulations, rules, writs, injunctions, ordinances, franchises,
decrees, stipulations, awards or orders of any Governmental Body which are
applicable to Parent;
(b) No notice has been served upon Parent by any
Governmental Body or other person of any violation of any Requirements of Law or
calling attention to the necessity of any work, repairs, new construction,
installation or alteration of any real or personal property owned, leased or
used by Parent;
(c) There are no lawsuits, claims, suits, proceedings
pending or, to the Knowledge of Parent, threatened against Parent or
investigations pending regarding Parent nor, to the Knowledge of Parent, is
there any basis for any of the same, and there are no lawsuits, suits or
proceedings pending or contemplated in which Parent is the plaintiff or
claimant; and
(d) There is no action, suit or proceeding pending or, to
the Knowledge of Parent, threatened which questions the legality or propriety of
the transactions contemplated by this Agreement or the Merger Agreement.
SECTION 2.15 MATERIAL CONTRACTS AND AGREEMENTS. SCHEDULE 2.15 includes
a list of all material contracts, agreements and instruments to which Parent or
Mergerco is a party, true and complete copies of all of which have been
delivered by Parent to the Company. All of such material contracts, agreements
and instruments constitute valid and binding obligations of Parent and/or
Mergerco and, to the Knowledge of Parent, the other parties thereto and are in
full force and effect in all material respects, without any material breach by
Parent or Mergerco or, to the Knowledge of Parent, any other parties thereto.
SECTION 2.16 TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.16, no officer, director or other Affiliate of Parent (including
spouses, children and other relatives of any of the foregoing) is a party to any
agreement, contract, arrangement or
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transaction with Parent or has any interest in any property (real or personal or
mixed, tangible or intangible) owned or leased by Parent.
SECTION 2.17 STATUS OF PARENT. Neither Parent nor Mergerco nor any of
their officers, directors or affiliates, promoters or control persons, nor any
predecessor thereof, has been (a) the general partner or an executive officer of
any business with respect to which a petition for relief under the Bankruptcy
Code has been filed either at the time of the filing or within two years before
that time; (b) been convicted in a criminal proceeding or been the subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses); (c) been subject to any order, judgment or decree, subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his or its involvement in any type of business, securities or banking
activities; or (d) been found by a court of competent jurisdiction (in a civil
action) or the SEC to have violated a federal or state securities law, and the
judgment has not been reversed, suspended or vacated.
SECTION 2.18 SEC INVESTIGATION. The staff of the SEC is in the process
of conducting a formal investigation involving Parent. The Formal Order of
Investigation indicates that the staff is investigating certain registration
statements filed by Parent in 2002 and 2003 by which shares of Parent Common
Stock were issued to consultants. The staff also appears to be investigating
whether officers, directors and others made misrepresentations in certain of
Parent's press releases regarding planned mergers and acquisitions that were
never consummated. The investigation is ongoing. The staff has not indicated
whether it will or will not recommend that the Commission file an enforcement
action against Parent, it officers or directors, or others. If the SEC brings an
action against Parent based on the registration statements it could result in a
civil injunctive order or administrative cease and desist order being entered
against Parent in addition to the imposition of a significant civil penalty. If
the Commission brings an action based on alleged material misrepresentations, it
could result in civil injunctions and civil penalties being assessed against
Parent or persons formerly or currently affiliated with it that are alleged to
have been involved in the misrepresentations.
SECTION 2.19 INTENTIONALLY OMITTED.
SECTION 2.20 NO FINDER. Parent has not paid or become obligated to pay
any fee or commission to any broker, finder or intermediary for or on account of
the transactions contemplated by this Agreement.
SECTION 2.21 DISCLOSURE. No representation or warranty made by Parent
contained in this Agreement and no statement contained in any certificate, list,
exhibit or other instrument specified or referred to in this Agreement,
including, without limitation, the Parent Disclosure Schedules, contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein, in light of circumstances
under which they were made, not misleading.
SECTION 2.22 PARENT DISCLOSURE SCHEDULES. Notwithstanding anything in
this Agreement to the contrary, (a) all information contained in the Schedules
delivered by Parent pursuant to ARTICLE II hereto (the "PARENT DISCLOSURE
SCHEDULES") is and for all purposes shall be deemed to constitute a part of
Parent's representations and warranties set forth in this
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ARTICLE II, (b) the Parent Disclosure Schedules are incorporated in this
Agreement by reference, and (c) disclosure by Parent in or on one Parent
Disclosure Schedule shall be deemed to be disclosure for all other purposes on
any or all of the other Parent Disclosure Schedules for which such disclosure
may be relevant to the extent that a reasonable person would understand that
information disclosed in such Schedule might reasonably apply to such other
Schedule(s).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Mergerco as follows:
SECTION 3.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Company is duly qualified to transact business as a foreign corporation and
is in good standing in each of the jurisdictions listed in SCHEDULE 3.1, which
jurisdictions are the only ones in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified would not have a Material Adverse Effect on
the Company, and no other jurisdiction has demanded, requested or otherwise
indicated that the Company is required to so qualify. The Company has full
corporate power and authority to own or lease and to operate and use its
properties and assets and to carry on its business as now conducted. The Company
has delivered or otherwise made available to Parent true, correct and complete
copies of the Company's Articles of Incorporation, as in effect on the date
hereof, By-laws, as in effect on the date hereof, minute books and stock
transfer records. The Company is not in violation of any term or provision of
its charter, bylaws or other organizational document the consequences of which
would reasonably be expected to result in a Material Adverse Effect on the
Company.
SECTION 3.2 SUBSIDIARIES AND INVESTMENTS. Except as set forth on
SCHEDULE 3.2, the Company does not, directly or indirectly, (i) own, of record
or beneficially, or own or hold the right to acquire, any outstanding voting or
equity securities or other voting or equity interests in any corporation,
partnership, joint venture or other entity or (ii) otherwise control any such
corporation, partnership, joint venture or other entity. IDK Acquisition Sub,
LLC, a Delaware limited liability company, of which the Company is a sole member
acquired all of the issued and outstanding capital stock of IDK Enterprises,
Inc. d/b/a NetDelivery ("NETDELIVERY") as a result of the merger of IDK
Enterprises, Inc. with and into IDK Acquisition Sub, LLC.
SECTION 3.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock
of the Company consists of 40,000,000 shares of Common Stock, $.01 par value per
share ("COMPANY COMMON STOCK"), of which 10,499,999 are duly and validly issued
and outstanding, fully paid and nonassessable, and none of which are held by the
Company as treasury shares, and 10,000,000 shares of Preferred Stock, $.01 par
value per share ("COMPANY PREFERRED Stock", together with the Company Common
Stock, the "COMPANY STOCK"), of which 4,502,465 are duly and validly issued and
outstanding, fully paid and nonassessable, and none of which are held by the
Company as treasury shares. None of the issued and outstanding shares of Company
Stock has been issued in violation of the preemptive rights of any person or in
violation of applicable federal or state securities laws, except where any such
violation or violations, individually or in the aggregate, would not
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have a Material Adverse Effect on the Company. SCHEDULE 3.3 sets forth a true
and complete list of the names of each of the holders of record of the Company
Stock and the respective number of outstanding shares held of record by each
such holder. Except for this Agreement, the Merger Agreement and except as set
forth on SCHEDULE 3.3 hereof, there are no agreements, arrangements, warrants,
options, puts, calls, rights or other commitments, plans or understandings of
any character relating to the issuance, sale, purchase, redemption, conversion,
exchange, registration, voting, or transfer of any shares of Company Stock or
any other securities of the Company. Except as set forth on SCHEDULE 3.3 and
except pursuant to applicable laws, there are no restrictions, including but not
limited to self-imposed restrictions, on the retained earnings of the Company or
on the ability of the Company to declare and pay dividends.
All outstanding shares of Company Stock are held free and clear of all
Encumbrances created by the Company and, to the Knowledge of the Company, such
shares are beneficially owned by the holders listed on SCHEDULE 3.3 (and to the
Knowledge of the Company) free and clear of all Encumbrances (other than
restrictions under the Securities Act, and the rules and regulations thereunder,
and state securities laws).
SECTION 3.4 AUTHORIZATION. The Board of Directors of the Company and
the Stockholders have approved the Merger. The Company has complied with all
requirements of the General Corporation Law of the State of Delaware ("DGCL") in
connection with obtaining Stockholder approval, including, without limitation,
the requirements of Section 262 of the DGCL. The Company has full corporate
power and authority to enter into this Agreement and the Merger Agreement and to
consummate the transactions contemplated hereby and thereby and to comply with
the terms and provisions hereof and thereof, subject to the conditions hereof
and thereof. The execution, delivery and performance by the Company of this
Agreement and the Merger Agreement and the actions to be taken by the Company
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of the Company, subject to approval of
the Merger and the Merger Agreement by the Stockholders. Each of this Agreement
and the Merger Agreement constitutes the valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to (a) general
principles of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law, and (b) bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium, receivership or other similar laws relating
to or affecting creditors' rights generally.
SECTION 3.5 NON-CONTRAVENTION. Except as set forth on SCHEDULE 3.5,
neither the execution or delivery of this Agreement or the Merger Agreement by
the Company nor the consummation of the transactions contemplated hereby or
thereby by the Company will (a) conflict with or result in the breach of any
term or provision of, or constitute a default under, the Restated Certificate of
Incorporation or Bylaws of the Company; (b) result in a default, or give rise to
any right of termination, cancellation or acceleration, under any provisions of
any material agreement (including, without limitation, any loan agreements or
promissory note), indenture or instrument to which the Company is a party or by
which the Company is bound; (c) result in the creation or imposition of any
Encumbrance on any of the property of the Company; (d) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company; or
(e) require on the part of the Company or the Stockholders, as of the date
hereof, the approval, consent, waiver, authorization or act of, or the making by
the Company of any declaration, filing or registration with, any third party or
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any Governmental Body, except for the filing of a copy of the Merger Agreement
with the Secretary of State of the State of Delaware and such other consents,
orders, authorizations, registrations, declarations and filings the failure of
which to be obtained or made would not, individually or in the aggregate, have a
Material Adverse Effect on the Company, materially impair the ability of the
Company to perform its obligations hereunder or prevent the consummation of any
of the transactions contemplated hereby.
SECTION 3.6 FINANCIAL STATEMENTS. SCHEDULE 3.6 contains (a) the
unaudited balance sheets of the Company as of the fiscal year ended December 31,
2004 and the related statements of income, stockholder's equity and cash flows
for the year then ended, and the notes to such financial statements
(collectively, the "COMPANY'S 2004 FINANCIAL STATEMENTS"), (b) the unaudited
balance sheets of NetDelivery as of the fiscal years ended December 31, 2003 and
2004 and the related statements of income, stockholder's equity and cash flows
for the years then ended, and the notes to such financial statements and (c) the
unaudited balance sheet of the Company for the month ended February 28, 2005
(the "BALANCE SHEET" together with the Company's Financial Statements, the
"COMPANY'S FINANCIAL STATEMENTS").
Except as set forth on SCHEDULE 3.6, the Company's Financial
Statements have been prepared in accordance with GAAP applied on a consistent
basis except as may be noted therein, are true and correct and present fairly in
all material respects the financial condition and the results of operations and
cash flows of the Company at the dates and for the respective periods stated
therein. None of the Company's Financial Statements referred to in this Section
3.6 contains any material items of special or nonrecurring income except as
expressly specified therein.
SECTION 3.7 OPERATIONS SINCE BALANCE SHEET DATE.
(a) Except as set forth on SCHEDULE 3.7, during the
period from the Balance Sheet Date to the date hereof, inclusive, there has been
no damage, destruction, loss or claim made or filed against the Company (whether
or not covered by insurance) or condemnation or other taking which materially
adversely affects the Business or the results of operations, properties or
condition (financial or otherwise) of the Company.
(b) Since the Balance Sheet Date, except (i) as set forth
on SCHEDULE 3.7, (ii) for actions described below that would not result in a
Material Adverse Effect on the Company (other than subsections (i), (vi), (ix)
and (xiii) which shall not be qualified by this subclause (ii)) and (iii) for
actions described below that would not cause any of the representations and
warranties contained in this ARTICLE III (other than this Section 3.7) to be
untrue in any material respect, the Company has not:
(i) issued, delivered or agreed (conditionally or
unconditionally) to issue or deliver, or granted any option, warrant or
other right to purchase, any of its capital stock or other equity
interest or any security convertible into its capital stock or other
equity interest;
(ii) paid any obligation or liability (absolute or
contingent) other than current liabilities reflected on the Balance
Sheet and current liabilities incurred since the Balance Sheet Date in
the ordinary course of business consistent with past practice;
10
(iii) undertaken or committed to undertake capital
expenditures exceeding $10,000 for any single project or related series
of projects;
(iv) sold, leased, transferred or otherwise disposed of
(including any transfers from the Company to any of its Affiliates), or
mortgaged or pledged, or imposed or suffered to be imposed any
Encumbrance (other than Permitted Encumbrances) on, any of the assets
reflected on the Balance Sheet or any assets acquired after the Balance
Sheet Date, except for sales of inventory in the ordinary course of
business consistent with past practice;
(v) canceled any debts owed to or claims held by the
Company (including the settlement of any claims or litigation) or
waived any rights of material value;
(vi) created, incurred, guaranteed or assumed any
indebtedness for borrowed money or entered into any capitalized leases;
(vii) accelerated collection of any note or account
receivable to a date prior to the date such collection would have
occurred in the ordinary course of business consistent with past
practice;
(viii) delayed payment of any account payable or other
liability of the Company beyond its due date or the date when such
liability would have been paid in the ordinary course of business
consistent with past practice;
(ix) granted any bonus or other special compensation or
increased the compensation or benefits payable or to become payable to
any directors, officers or employees, or instituted any increase in or
otherwise amended any profit sharing, bonus, incentive, deferred
compensation, insurance, pension, retirement, medical, hospital,
disability, welfare or other employee benefit plan except for increases
required by law;
(x) sold, assigned or transferred any patents,
trademarks, service marks, trade names, copyrights, Software (as
defined in Section 3.17) (except in the ordinary course of business
consistent with past practice), trade secrets or other similar
intangible assets, or disclosed any proprietary or confidential
information to any person or entity (other than Parent, its Affiliates
and agents);
(xi) extended credit other than in the ordinary course of
business or permitted any change in credit practices or in the method
of maintaining books, accounts or business records;
(xii) declared, set aside or paid any dividend or made any
other distribution (whether in cash, stock or other property) to any of
the Stockholders in respect of any Company Stock or other securities of
the Company;
(xiii) purchased, redeemed, called for purchase or
redemption or otherwise acquired any shares of Company Stock or any
other securities of the Company;
(xiv) made any write-down of the value of any inventory or
write-offs as uncollectible of any notes or accounts receivable except
for write-downs and write-
11
offs in the ordinary course of business and consistent with past
practice, none of which would reasonably be expected to have a Material
Adverse Effect on the Business or the results of operations, properties
or condition (financial or otherwise) of the Company;
(xv) except as otherwise contemplated herein, entered into
any transaction other than in the ordinary course of business or any
transaction (not involving purchases and sales of inventory) including
commitments for expenditures in excess of $10,000;
(xvi) made any changes in the accounting methods or
practices followed by the Company;
(xvii) entered into or performed any transactions with any
of its Affiliates except for transactions in the ordinary course of
business and on terms no less favorable than those customarily enjoyed
by the Company;
(xviii) agreed or committed to do or authorized any of the
foregoing; or
(xix) prepared or filed any Tax Return inconsistent with
past practice or, on any such Tax Return taken any position, made any
election, or adopted any method that is inconsistent with positions
taken, elections made or methods used in preparing or filing similar
Tax Returns in prior periods (including, without limitation, positions,
elections or methods which would have the effect of deferring income to
periods ending after the Closing Date or accelerating deductions to
periods ending on or prior to the Closing Date).
SECTION 3.8 NO UNDISCLOSED LIABILITIES. Except as set forth on SCHEDULE
3.8, the Company is not subject to any obligation or liability of a kind
required to be included as a liability on the Balance Sheet under the method of
accounting described in Section 3.6 hereof (including, without limitation,
unasserted claims whether known or unknown), whether absolute, contingent,
accrued or otherwise, which is not shown or which is in excess of amounts shown
or reserved for on the Balance Sheet, other than liabilities reasonably incurred
in the ordinary course of business after the Balance Sheet Date, none of which,
individually or in the aggregate, would have a Material Adverse Effect on the
Company and none of which is a liability for breach of contract, breach of
warranty, tort, infringement or other lawsuit.
SECTION 3.9 TAXES.
(a) Except as set forth on SCHEDULE 3.9, (i) all Tax
Returns, required to be filed by or on behalf of the Company prior to the
Closing Date have been or will be timely filed, and such Tax Returns as so filed
are or will be complete and accurate in all material respects and disclose all
Taxes required to be paid for the periods covered thereby and all Taxes shown to
be due on such Tax Returns have been timely paid; (ii) no extension of time in
which to file any such Tax Returns is in effect or has been requested; (iii) all
Taxes for which the Company is liable relating to any period ending on or prior
to the Closing Date (or the portion of any Tax period ending on the Closing Date
and with respect to any Tax Period which begins before the Closing Date and ends
after the Closing Date) shall
12
have been paid or, if not yet due and payable, properly accrued for as of the
Closing Date; (iv) all Taxes which the Company is required by law to withhold or
to collect for payment have been duly withheld and collected, and have been paid
or will be paid to the proper Governmental Body; (v) there are no Tax liens
(except for liens relating to current Taxes not yet due) on any property of the
Company and, to the Knowledge of the Company, no basis exists for any such
liens; (vi) the Tax Returns referred to in clause (i) have been examined by the
appropriate taxing authority or the period for assessment of the Taxes in
respect of which such Tax Returns were required to be filed has expired; (vii)
no audit of any kind has been conducted with respect to any Tax Return by an
appropriate Taxing authority; (viii) all deficiencies which have been asserted
as a result of any examination set forth on SCHEDULE 3.9 hereto have been fully
paid or finally settled, and no issue has been raised in any such examination
which, by application of similar principles, reasonably would be expected to
result in assertion of a deficiency for any other year not so examined; (ix) the
Company has neither executed nor entered into a closing agreement pursuant to
Section 7121 of the Code, or any predecessor provision or any similar provision
of state, local or foreign law; (x) there are no outstanding agreements or
waivers extending the statutes of limitations with respect to the assessment of
any Tax and no such agreements or waivers have been requested; (xi) the Company
has not incurred any liability with respect to Taxes based upon income,
operations, purchases, sales, payroll, licenses, compensation, business, capital
stock or surplus, properties or assets except in the ordinary course of
business, or any liabilities for interest or penalties with respect to the
foregoing; (xii) there is no action, suit, investigation, audit, claim or
assessment pending or proposed or, to the Knowledge of the Company, threatened
with respect to Taxes of the Company and, to the Knowledge of the Company, no
basis exists therefor; (xiii) the accruals for Taxes reflected on the Balance
Sheet are adequate to cover any Tax liability of the Company; (xiv) since the
Balance Sheet Date, the Company has not and, to the Knowledge of the Company,
none of the Stockholders has taken any action not in accordance with past
practice that would have the effect of deferring any Tax liability for the
Company from any taxable period ending on or before the Closing Date to any
taxable period ending after the Closing Date; and (xv) no claim has ever been
made by a Taxing Authority in a jurisdiction where the Company has never paid
Taxes or filed Tax Returns asserting that the Company is or may be subject to
Taxes assessed by such jurisdiction.
(b) No transaction contemplated by this Agreement is
subject to withholding under Section 1445 of the Code and no stock transfer
Taxes, sales Taxes, use Taxes, real estate transfer or gains Taxes, or other
similar Taxes will be imposed on the transactions contemplated by this
Agreement.
(c) As a result of the Merger, none of the Company, the
Surviving Corporation or Parent will be obligated to make a payment to an
individual employed by the Company that would be a "parachute payment" to a
"disqualified individual" as those terms are defined in Section 280G of the
Code, without regard to whether such payment is reasonable compensation for
personal services performed or to be performed in the future.
(d) For any Taxable period as to which the relevant
statute of limitations will not have expired as of the Closing Date, the Company
has not been a member of an affiliated group (as defined in Section 1504(a) of
the Code without regard to the limitations contained in Section 1504(b) of the
Code) or has filed Tax Returns with a group of corporations filing a combined,
consolidated or unitary income Tax Return.
13
(e) The Company has not and, to the Knowledge of the
Company, the Stockholders have not taken or failed to take any action which
action or failure would cause the Merger to fail to qualify as a reorganization
within the meaning of Section 368(a) of the Code.
SECTION 3.10 GOVERNMENTAL PERMITS. To the Knowledge of the Company, the
Company owns, holds or possesses all governmental licenses, franchises, permits,
privileges, variances, immunities, approvals and other authorizations which are
necessary to entitle it to own, lease, operate and use its assets and properties
and to carry on and conduct the Business substantially as currently conducted
(herein collectively called "GOVERNMENTAL PERMITS"), except for such
Governmental Permits as to which the failure to so own, hold or possess would
not have a Material Adverse Effect on the Company. SCHEDULE 3.10 sets forth a
list and brief description of each such Governmental Permit.
To the Knowledge of the Company, the Company has fulfilled and
performed its respective obligations under each of such Governmental Permits,
and no event has occurred or condition or state of facts exists which
constitutes or, after notice or lapse of time or both, would constitute a breach
or default under any such Governmental Permit, or permits or, after notice or
lapse of time or both, would permit revocation or termination of any such
Governmental Permit, or which might adversely affect the right of the Company
under any such Governmental Permit. No notice of cancellation, of default or of
any dispute concerning any Governmental Permit, or of any event, condition or
state of facts described in the preceding sentence, has been received or is
known by the Company. Except as set forth on SCHEDULE 3.10, each of the
Governmental Permits is valid, subsisting and in full force and effect and will
continue in full force and effect after the Closing, in each case without (a)
the occurrence of any breach, default or forfeiture of rights thereunder or (b)
the consent, approval, or act of, or the making of any filing with, any
Governmental Body or other party.
SECTION 3.11 REAL PROPERTY. The Company does not own, and has never
owned, any real property or any option to acquire any real property.
SECTION 3.12 REAL PROPERTY LEASES. SCHEDULE 3.12 sets forth a list of
each lease or similar agreement under which the Company is lessee of, or holds
or operates, any real property owned by any third party. Except as set forth on
SCHEDULE 3.12, (i) there are no subleases, tenancies or other rights of
occupancy affecting all or any part of such leases, (ii) the Company has the
right to quiet enjoyment of the premises described in any lease identified on
such Schedule for the full term of each such lease or similar agreement (and any
renewal option related thereto) relating thereto, and (iii) the leasehold or
other interest of the Company therein is not subject or subordinate to any
Encumbrance held by persons claiming by, through or under the Company, except
for Permitted Encumbrances.
SECTION 3.13 CONDEMNATION. Neither the whole nor any part of any real
property listed on SCHEDULE 3.12 is subject to any pending suit for condemnation
or other taking by any public authority and, to the Knowledge of the Company, no
such condemnation or other taking is threatened.
SECTION 3.14 PERSONAL PROPERTY. SCHEDULE 3.14 contains a list as of the
date hereof of all machinery, equipment, vehicles, furniture and other personal
property owned by the Company having an original cost of $5,000 or more.
14
SECTION 3.15 PERSONAL PROPERTY LEASES. SCHEDULE 3.15 contains a list of
each lease or other agreement or right, whether written or oral, under which the
Company is lessee of, or holds or operates, any machinery, equipment, computer
hardware and related peripheral equipment, vehicle or other tangible personal
property owned by a third party.
SECTION 3.16 INTELLECTUAL PROPERTY.
(a) SCHEDULE 3.16 contains a list of:
(i) all United States and foreign patents and patent
applications and patent disclosures owned or controlled by the Company;
(ii) all United States and foreign copyrights, registered
or unregistered, copyrighted works and copyright registration
applications owned or controlled by the Company; (iii) all computer
software programs and software systems (including, without limitation,
all data, databases, compilations, tool sets, related documentation and
materials, whether in source code, object code or human readable form
and regardless of media), developed by or for the Company or otherwise
used in the Business ("SOFTWARE");
(iv) all United States, state and foreign trademarks,
service marks and trade names for which registrations have been issued
or applied for by the Company, and all other United States, state and
foreign trademarks, service marks and trade names owned or used by the
Company or in which the Company holds any right, license, sublicense or
interest;
(v) all agreements, commitments, contracts,
understandings, licenses, sublicenses, assignments and indemnities
which relate or pertain to any asset, property or right of the
character described in the preceding clause to which the Company is a
party;
(vi) all licenses, sublicenses or agreements which are
material to the Business and which relate or pertain to mailing lists,
know-how, trade secrets, disclosures or uses of ideas to which the
Company is a party, showing in each case the parties and the material
terms; and
(vii) all registered and unregistered assumed or fictitious
names under which the Company is conducting the Business or has within
the previous three years conducted the Business.
(b) All patents listed on SCHEDULE 3.16 as being owned,
controlled or used by the Company are valid and in force and all patent
applications of the Company listed therein are in good standing, all without
challenge of any kind, and, except as otherwise set forth on SCHEDULE 3.16, the
Company owns the entire right, title and interest in and to such patents and
patent applications, free and clear of all Encumbrances, except Permitted
Encumbrances. All of the registrations for trademarks, service marks, trade
names and copyrights listed on SCHEDULE 3.16 as being owned, controlled or used
by the Company are
15
valid and in force and all applications for such registrations are pending and
in good standing, all without challenge of any kind, and, except as otherwise
set forth on SCHEDULE 3.16, the Company owns the entire right, title and
interest in and to all such trademarks, service marks, trade names and
copyrights so listed as well as the registrations and applications for
registration therefor, free and clear of all Encumbrances, except Permitted
Encumbrances. Correct and complete copies of all the patents and patent
applications and of all of the trademarks, service marks, trade names and
copyrights and registrations, applications or deposits therefor and all the
agreements, commitments, contracts, understandings, licenses, sublicenses,
assignments, and indemnities listed on SCHEDULE 3.16 have heretofore been
delivered or otherwise made available by the Company to Parent.
SECTION 3.17 ACCOUNTS RECEIVABLE; INVENTORIES.
(a) All accounts receivable of the Company have arisen
from bona fide transactions by the Company in the ordinary course of business
consistent with past practice and, to the Knowledge of the Company, are not
subject to counterclaims or setoffs. Except as set forth on SCHEDULE 3.17, no
such receivable has been outstanding for more than 90 days beyond its due date.
To the Knowledge of the Company, all of the accounts receivable reflected on the
Balance Sheet, taken as a whole, are good and collectible in the ordinary course
of business at the aggregate amounts recorded in respect thereof, net of any
applicable allowance for doubtful accounts, which allowances will be determined
on a basis consistent with the basis used in determining the allowances for
doubtful accounts reflected in the Balance Sheet.
(b) The inventories of the Company (including raw
materials, supplies, work-in-process, finished goods and other materials) are in
good and useable condition and (i) are reflected in the Balance Sheet in
accordance with generally accepted accounting principles and (ii) are reflected
in the books and records of the Company at the lower of average cost or market
value. The inventory obsolescence policies of the Company are appropriate for
the nature of the products sold and the marketing methods used by the Company,
and the reserve for inventory obsolescence contained in the Balance Sheet fairly
reflects the amount of obsolete inventory as of the Balance Sheet Date. The
Company has heretofore delivered to Parent a list of places where material
inventories of the Company are located.
SECTION 3.18 TITLE TO ASSETS. To the Knowledge of the Company, the
Company has good title to all of its assets reflected on the Balance Sheet as
being owned by it and all of the assets thereafter acquired by it (except to the
extent that such assets have been disposed of after the Balance Sheet Date in
the ordinary course of business consistent with past practice), free and clear
of all Encumbrances, except for Permitted Encumbrances and except as set forth
in SCHEDULE 3.18.
SECTION 3.19 EMPLOYEES. SCHEDULE 3.19 contains a list of the employees
of the Company as of the date hereof. As of the date hereof, all bonuses payable
to employees of the Company for services performed on or prior to the date
hereof have been paid in full, and there are no outstanding agreements,
understandings or commitments of the Company with respect to any bonuses or
increases in compensation.
16
SECTION 3.20 EMPLOYEE MATTERS. To the Knowledge of the Company, the
Company has complied in all material respects with all applicable laws, rules
and regulations which relate to wages, hours, discrimination in employment and
collective bargaining and to the operation of its business and is not liable for
any arrears of wages or any taxes or penalties for failure to comply with any of
the foregoing. The Company believes that the Company's relations with its
employees are satisfactory. Except as set forth in SCHEDULE 3.20, the Company is
not a party to any collective bargaining agreement, the Company has complied in
all material respects with all collective bargaining agreements listed in such
Schedule and the Company is not a party to, and it is not affected by or, to the
Knowledge of the Company, threatened with, any dispute or controversy with a
union or with respect to unionization or collective bargaining involving its
employees. The Company is not materially affected by any dispute or controversy
with a union or with respect to unionization or collective bargaining involving
any supplier or customer of the Company. The Company is not affected by any
union organizing or election activities involving any employee of the Company
and, to the Knowledge of the Company, no such activities are threatened as of
the date hereof.
SECTION 3.21 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 3.21(a) lists each "employee welfare benefit
plan" (as such term is defined in Section 3(1) of ERISA) and "employee pension
benefit plan" (as such term is defined in Section 3(2) of ERISA) at any time
maintained by the Company or which provides or will provide benefits to present
or prior employees of the Company. In addition, set forth on SCHEDULE 3.21(a) is
a true and complete list of each stock ownership, stock purchase, stock option,
phantom stock, bonus, deferred compensation, incentive compensation, severance
or termination pay, change of control, death benefit or similar plan, agreement
or arrangement maintained by the Company (the "NON-ERISA COMMITMENTS"). The
Company has never maintained or been required to contribute to any "employee
pension benefit plan" subject to Section 302 or Title IV of ERISA or any
"multiemployer plan," as such term is defined in Section 3(37) of ERISA. The
Company does not have, and has never had, any ERISA Affiliate. Except as
disclosed on SCHEDULE 3.21(a), true copies of each "employee welfare benefit
plan," "employee pension benefit plan" and Non-ERISA Commitment, the annual
reports required to be filed under ERISA for the last two years with respect to
any "employee pension benefit plan," if any, and the financial statements for
the most recent year for which such statements exist with respect to any
"employee pension benefit plan" have been delivered or made available to Parent.
(b) Neither the Company nor, to the Knowledge of the
Company, any of the Stockholders, any other "disqualified person" (within the
meaning of Section 4975 of the Code) or any "party in interest" (within the
meaning of Section 3(14) of the Code) has engaged in any non-exempt prohibited
transaction (within the meaning of Section 4975 of the Code or Section 406 of
ERISA), nor, to the Knowledge of the Company, has any breach of fiduciary duty
occurred, with respect to any "employee pension benefit plan." Except as
disclosed on SCHEDULE 3.21(b), each "employee welfare benefit plan" and
"employee pension benefit plan" (i) has been administered in accordance with its
terms and (ii) complies in form, and has been maintained in accordance, with the
requirements of ERISA and, where applicable, the Code.
17
(c) Except as disclosed on SCHEDULE 3.21(c), the
Company's 401(k) Plan (the "401(K) PLAN") has received a favorable determination
letter from the Internal Revenue Service, and to the Knowledge of the Company
nothing has occurred and no condition exists that could cause the loss of such
qualification. All contributions or payments that are due from the Company with
respect to each "employee welfare benefit plan," "employee pension benefit plan"
and the Non-ERISA Commitments have been timely paid and any related insurance
and third party administration contracts remain in full force and effect. There
is no pending or to the Knowledge of the Company threatened claim in respect of
any "employee welfare benefit plan," "employee pension benefit plan" and any
Non-ERISA Commitment other than routine claims for benefits in the ordinary
course of business.
SECTION 3.22 CONTRACTS. Except as set forth on SCHEDULE 3.22 or any
other Schedule hereto, the Company is not a party to or bound by:
(a) any contract for the purchase, sale or lease of real
property or any option to purchase or sell real property;
(b) any indebtedness, obligation or liability for
borrowed money, or liability for the deferred purchase price of property in
excess of $10,000, or any instrument guaranteeing any indebtedness, obligation
or liability, or any obligation to incur any of the foregoing;
(c) any joint venture, partnership or other arrangement
involving a sharing of profits involving the Company; (d) any agreement which is
material to the Business and which includes provisions regarding minimum volumes
or volume discounts, excluding outstanding price quotations;
(e) any agreement which is material to the Business and
pursuant to which a rebate, discount, bonus, commission or other payment with
respect to the sale of any product of the Company will be payable or required
after the Closing;
(f) any guarantee of the obligations of the Company's
customers, suppliers, officers, directors, employees or Affiliates or others;
(g) any consignment, distributor, dealer, manufacturer's
representative, sales agency, advertising representative or advertising or
public relations contract which is material to the Business;
(h) any agreement limiting the Company's ability to
engage in any business anywhere in the world;
(i) any contract which provides for, or relates to, any
non-competition or confidentiality arrangement with any Person, including any
current or former officer or employee of the Company;
(j) any contract or group of related contracts for
capital expenditures in excess of $10,000 for any single project or related
series of projects;
18
(k) any contract which involves payments or receipts by
the Company of more than $5,000; or
(l) any contract not made in the ordinary course of
business.
SECTION 3.23 STATUS OF CONTRACTS. Each of the leases, contracts and
other agreements listed on SCHEDULES 3.12, 3.15, 3.16 and 3.22 (collectively,
the "MATERIAL CONTRACTS"), constitutes a valid and binding obligation of the
Company and, to the Knowledge of the Company, the other parties thereto, and is
in full force and effect and each of the Material Contracts (except as set forth
in SCHEDULE 3.23 and except for those Material Contracts which by their terms
will expire prior to the Closing Date or will be otherwise terminated prior to
the Closing Date in accordance with the provisions hereof) will continue in full
force and effect after the Closing Date, in each case without materially
breaching the terms thereof or resulting in the forfeiture or impairment of any
rights thereunder and without the consent, approval or act of, or the making of
any filing with, any other party. Except as set forth on SCHEDULE 3.23, the
Company has fulfilled and performed its obligations in all material respects
under each of the Material Contracts and the Company is not in, or, to the
Knowledge of the Company, alleged to be in, material breach or default under,
nor is there or, to the Knowledge of the Company, is there alleged to be any
basis for termination of any of the Material Contracts. To the Knowledge of the
Company, no other party to any of the Material Contracts has breached or
defaulted thereunder. No event has occurred and no condition or state of facts
exists which, with the passage of time or the giving of notice or both, would
constitute such a default or breach by the Company or, to the Knowledge of the
Company, by any other party. The Company is not currently renegotiating any of
the Material Contracts or paying liquidated damages in lieu of performance
thereunder.
SECTION 3.24 NO VIOLATION, LITIGATION OR REGULATORY ACTION. Except as
set forth on SCHEDULE 3.24:
(a) To the Knowledge of the Company, the Company has
complied with all laws, regulations, rules, writs, injunctions, ordinances,
franchises, decrees, stipulations, awards or orders of any Governmental Body
which are applicable to the Company or its Business;
(b) No notice has been served upon the Company by any
Governmental Body or other person of any violation of any Requirements of Law or
calling attention to the necessity of any work, repairs, new construction,
installation or alteration of any real or personal property owned, leased or
used by the Company;
(c) There are no lawsuits, claims, suits, proceedings
pending or, to the Knowledge of the Company, threatened against the Company or
investigations pending regarding the Company nor, to the Knowledge of the
Company, is there any basis for any of the same, and there are no lawsuits,
suits or proceedings pending or contemplated in which the Company is the
plaintiff or claimant; and
(d) There is no action, suit or proceeding pending or, to
the Knowledge of the Company, threatened which questions the legality or
propriety of the transactions contemplated by this Agreement or the Merger
Agreement.
19
SECTION 3.25 INSURANCE. All fire and casualty, liability (general,
products and other liability), workers' compensation and other forms of
insurance and bonds maintained by the Company are set forth on SCHEDULE 3.25,
provide full and adequate coverage for all normal risks incident to the Business
and the respective properties and assets of the Company, and, to the Knowledge
of the Company, are in character and amount at least equivalent to that carried
by Persons engaged in similar businesses and subject to the same or similar
peril or hazards. The Company has made any and all payments required to maintain
such policies in full force and effect. The Company has not received notice of
default under any such policy, and has not received written notice or, to the
Knowledge of the Company, oral notice of any pending or threatened termination
or cancellation, coverage limitation or reduction or material premium increase
with respect to such policy.
SECTION 3.26 CUSTOMERS AND SUPPLIERS. Set forth in SCHEDULE 3.26 hereto
is a list of names and addresses of the ten (10) largest customers and the ten
(10) largest vendors during each of the years ended December 31, 2003 and
December 31, 2004. Except as set forth in SCHEDULE 3.26, there exists no actual
or, to the Knowledge of the Company, threatened termination, cancellation or
limitation of, or any modification or change in, the business relationship of
the Company with any customer or group of customers or supplier or group of
suppliers listed in SCHEDULE 3.26, or whose purchases or sales individually or
in the aggregate are material to the operations of the Company's business.
SECTION 3.27 STOCKHOLDERS' ASSETS. None of the Stockholders owns,
directly or indirectly, any assets or properties relating to or used by the
Company in the Business.
SECTION 3.28 NO FINDER. The Company has not paid or become obligated to
pay any fee or commission to any broker, finder or intermediary for or on
account of the transactions contemplated by this Agreement.
SECTION 3.29 TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 3.29, no officer, director or other Affiliate of the Company (including
spouses, children and other relatives of any of the foregoing) is a party to any
agreement, contract, arrangement or transaction with the Company or has any
interest in any property (real or personal or mixed, tangible or intangible)
owned or leased by the Company.
SECTION 3.30 BANK ACCOUNTS; POWERS OF ATTORNEY; MINUTE BOOKS.
(a) SCHEDULE 3.30 sets forth a complete and correct list
of all bank accounts and safe deposit boxes of the Company and persons
authorized to sign or otherwise act with respect thereto as of the date hereof
and a complete and correct list of all persons holding a general or special
power of attorney granted by the Company.
(b) True and complete copies of the minute books of the
Company have been delivered to Parent. Such minute books contain true and
complete records of all meetings and other corporate action taken by the Board
of Directors and stockholders of the Company.
SECTION 3.31 DISCLOSURE. No representation or warranty made by the
Company contained in this Agreement and no statement contained in any
certificate, list, exhibit or other instrument specified or referred to in this
Agreement, including, without limitation, the
20
Company Disclosure Schedules, contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained
herein or therein, in light of circumstances under which they were made, not
misleading.
SECTION 3.32 COMPANY DISCLOSURE SCHEDULES. Notwithstanding anything in
this Agreement to the contrary, (a) all information contained in the Schedules
delivered by the Company pursuant to ARTICLE III hereto (the "COMPANY DISCLOSURE
SCHEDULES") for all purposes is and shall be deemed to constitute a part of the
Company's representations and warranties set forth in this ARTICLE III, (b) the
Company Disclosure Schedules are incorporated in this Agreement by this
reference, and (c) disclosure by the Company in or on one Company Disclosure
Schedule shall be deemed to be disclosure for all other purposes on any or all
of the other Company Disclosure Schedules for which such disclosure may be
relevant to the extent that a reasonable person would understand that
information disclosed in such Schedule might reasonably apply to such other
Schedule(s).
ARTICLE IV
[INTENTIONALLY OMITTED]
ARTICLE V
ADDITIONAL AGREEMENTS OF THE PARTIES
SECTION 5.1 ORDINARY COURSE. The Company covenants that prior to the
Closing, without Parent's written consent, the Company shall not:
(a) take or authorize any of the actions set forth in
Section 3.7(b);
(b) issue or sell any shares of its capital stock of any
class, or issue or sell any securities convertible into, or options with respect
to, or warrants to purchase or rights to subscribe to, any shares of its capital
stock of any class, or make any commitment to issue or sell any such shares or
securities;
(c) directly or indirectly solicit or negotiate with
respect to any inquiries or proposals from any person relating to: (i) the
merger or consolidation of the Company with any person; (ii) the direct or
indirect acquisition by any person of any of the assets of the Company (other
than the sale of assets in the ordinary course of business consistent with past
practice, not otherwise prohibited by this Section 5.1); or (iii) the
acquisition of direct or indirect beneficial ownership or control of the Company
or any securities thereof by any person;
(d) prepare or file any Tax Return inconsistent with past
practice or, on any such Tax Return, take any position, make any election, or
adopt any method that is inconsistent with positions taken, elections made or
methods used in preparing or filing similar Tax Returns in prior periods
(including, without limitation, positions, elections or methods which would have
the effect of deferring income to periods ending after the Closing Date or
accelerating deductions to periods ending on or prior to the Closing Date); or
(e) agree or commit to do or authorize any of the
foregoing;
21
PROVIDED, THAT, if the Company provides written notice to Parent
(pursuant to the terms of Section 10.2) of its intent to take, authorize, agree
or commit to do or authorize any action prohibited by this Section 5.1, and
prior to obtaining Parent's consent as required by this Section 5.1, the Board
of Directors of the Company acting in good faith determines that the failure to
take, authorize, agree or commit to do or authorize such action will jeopardize
the existence of the Company, the taking, authorization, agreement or commitment
to do or authorize any such action by the Company shall not constitute a breach
of this Agreement giving rise to a claim for damages by Parent or Mergerco;
PROVIDED, FURTHER, that the foregoing proviso shall in no way operate as a
waiver by Parent of the requirements of Section 6.2 or limit or condition
Parent's right to terminate this Agreement pursuant to Section 9.1(c).
SECTION 5.2 ACCESS PRIOR TO CLOSING; CERTAIN NOTICES.
(a) Upon reasonable notice, Parent, the Company, each of
their respective subsidiaries and each of their respective directors, officers,
agents and employees shall afford to the other and the other's representatives
(including, without limitation, its independent public accountants, banks or
other lenders' representatives and attorneys) reasonable access during regular
business hours from the date hereof through the Closing to any and all of its
premises, properties, contracts, books, records, data and personnel or relating
to its operations and during such period each shall make available or furnish
promptly to the other (a) a copy of each report, schedule, registration
statement and other document filed or received by it pursuant to the
requirements of federal or state securities laws and (b) all other information
concerning its business, properties and personnel as the other may reasonably
request. No investigation by either of the parties or their respective
representatives shall affect or otherwise obviate or diminish the
representations, warranties, covenants, agreements or conditions to the
obligations of the other party set forth herein.
(b) The Company covenants that prior to the Closing the
Company will promptly notify Parent of any notice or any pending, threatened or
contemplated lawsuit, claim, suit, proceeding or Governmental Body investigation
which, if existing on the date hereof, would have been disclosable pursuant to
Section 3.24(b) or (c).
SECTION 5.3 REGULATORY AND OTHER AUTHORIZATIONS.
(a) Parent and the Company shall use commercially
reasonable efforts to secure before the Closing Date, each consent, approval or
waiver, in form and substance reasonably satisfactory to the Company or Parent,
required to be obtained to satisfy the conditions set forth in Section 6.1 and
Section 6.2 below; PROVIDED, THAT, none of the Company, Parent or Mergerco shall
have any obligation to pay any consideration in order to obtain any such
consents or approvals.
(b) During the period prior to the Closing Date, Parent
and the Company shall use commercially reasonable efforts to secure any consents
and approvals of any Governmental Body required to satisfy the conditions set
forth in Sections 6.1 and 6.2 below; PROVIDED, HOWEVER, that the Company shall
not make any agreement or understanding affecting its assets or the Business as
a condition for obtaining any such consents or approvals except with the prior
written consent of Parent.
22
SECTION 5.4 FURTHER ASSURANCES. At any time and from time to time at or
after the Closing, the parties agree to cooperate with each other, to execute
and deliver such other documents, instruments of transfer or assignment, files,
books and records and do all such further acts and things as may be reasonably
required to carry out the transactions contemplated hereby.
SECTION 5.5 COMPANY FINANCIAL STATEMENTS. The Company shall promptly
provide to Parent copies of any financial statements prepared with respect to
the Company as of a date or for a period subsequent to that reflected in the
Company's Financial Statements.
SECTION 5.6 DELIVERY OF DOCUMENTS. Subject to the satisfaction of the
conditions to their respective obligations contained in Article VI, the parties
shall cause the delivery of the respective documents required to be delivered or
caused to be delivered by them pursuant to Article VII.
SECTION 5.7 EMPLOYEES. The Company hereby acknowledges that, after the
Closing, neither Parent nor the Surviving Corporation, has any obligation to
continue the employment of any of the employees of the Company.
SECTION 5.8 USE OF TRADE NAMES. Parent and Surviving Corporation and
their Affiliates shall, after the Effective Time, have the unlimited, exclusive,
royalty-free and perpetual right to use the name "Complete Security Solutions"
and any other names or tradenames used by the Company with respect to the
Business.
SECTION 5.9 CONTINUED RELATIONSHIPS. After the date hereof and through
the Closing the Company shall use commercially reasonable efforts to preserve
intact the business of the Company and keep available the services of its
officers and employees and maintain good relationships with suppliers,
advertising and other customers and others having business relations with the
Company.
SECTION 5.10 PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES.
Between the date hereof and the Closing Date, each of the parties hereto shall
refrain from taking any action which would render any of its respective
representations or warranties contained in Article II or III of this Agreement
inaccurate as of the Closing Date. Each party shall promptly notify the other of
any action, suit or proceeding that has been instituted or threatened against
such party to restrain, prohibit or otherwise challenge the legality of any
transaction contemplated by this Agreement or the Merger Agreement.
SECTION 5.11 NOTIFICATION BY THE COMPANY OF CERTAIN MATTERS. The
Company shall promptly advise Parent in writing of (i) any change or event
having a Material Adverse Effect on the Company, (ii) any notice or other
communication from any third Person alleging that the consent of such third
Person is or may be required in connection with the transactions contemplated by
this Agreement, and (iii) any material default under any Material Contract or
event which, with notice or lapse of time or both, would become such a default
on or prior to the Effective Time and of which the Company has Knowledge.
SECTION 5.12 NECESSARY ACTIONS. Subject to the terms of this Agreement,
Parent, Mergerco and the Company shall use commercially reasonable efforts to
effect the Merger as promptly as possible after the date hereof. The Company
shall prepare ANNEX A hereto.
23
SECTION 5.13 NO ASSURANCE OF PUBLIC OFFERING. The Company acknowledges
and agrees:
(a) that there exists no firm commitment, binding
agreement, or promise or other assurance of any kind, whether express or
implied, oral or written, that a public offering of the capital stock of Parent
will occur at a particular price or within a particular range of prices or occur
at all;
(b) that neither Parent, any of its subsidiaries, any of
their respective officers, directors, agents or representatives nor any
prospective underwriter shall have any liability to the Company, any Stockholder
or any other person or entity affiliated or associated with the Company for any
failure of a public offering of the capital stock of Parent to occur at a
particular price or within a particular range of prices or to occur at all; and
(c) that the decision of each Stockholder to vote in
favor of or consent to the proposed Merger has been or will be made independent
of, and without reliance upon, any statements, opinions or other communications,
or due diligence investigations which have been or will be made or performed by
any prospective underwriter or by Parent personnel, relative to Parent or any
possible public offering of the capital stock of Parent.
SECTION 5.14 REORGANIZATION. During the period from the date of this
Agreement through the Effective Time, unless the other parties hereto shall
otherwise agree in writing, none of Parent, Mergerco, the Company or any of
their respective subsidiaries shall knowingly take or fail to take any action
which action or failure would cause the Merger to fail to qualify as a
reorganization within the meaning of Section 368(a) of the Code.
SECTION 5.15 PARENT BOARD OF DIRECTORS. Immediately subsequent to the
Closing, Parent's sole director shall nominate and elect, in accordance with
Section 2.2 of the Amended and Restated Bylaws of Parent ("PARENT'S Bylaws"),
Xxxxxx Xxxxxxxxx and Xxxxxx Xxxxx to fill two of the vacant seats on the Board
of Directors of Parent ("BOARD"). At such time that Parent obtains Director and
Officer Liability Insurance, the Board shall nominate and elect, in accordance
with Section 2.2 of Parent's Bylaws, Xxxx Xxxxxx and an independent director
("DIRECTOR DESIGNEE") (as defined in the Rules of the National Association of
Securities Dealers) to be designated by Xxxxxx X. Xxx, XX, to fill two of the
vacant seats on the Board. Thereafter, Xxxx Xxxxxx and the Director Designee
shall nominate two individuals ("INDEPENDENT DESIGNEES") who qualify as
independent directors (as defined in the Rules of the National Association of
Securities Dealers), and the Board shall elect, in accordance with Section 2.2
of Parent's Bylaws, the Independent Designees to fill two of the vacant seats on
the Board.
SECTION 5.16 INDEBTEDNESS. The Company shall use commercially
reasonable efforts to restructure all monies lent or debts owed by the Company
to any of its employees, any Stockholder or third parties. All indebtedness of
the Company as of the date hereof is set forth on SCHEDULE 5.16 hereto.
SECTION 5.17 INTENTIONALLY OMITTED.
SECTION 5.18 INTENTIONALLY OMITTED.
24
SECTION 5.19 INTENTIONALLY OMITTED.
SECTION 5.20 INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY.
For six (6) years from and after the Effective Time (or, in the case of matters
occurring at or prior to the Effective Time that have not been resolved prior to
the sixth anniversary of the Effective Time, until such matters are finally
resolved), Parent shall indemnify and hold harmless each individual who as of
the date hereof is a director or officer of the Company (an "INDEMNIFIED
PERSON") for and against all losses, expenses and liabilities that such person
incurs or may incur based upon or relating to facts, events and/or matters
existing or occurring prior to or at the Effective Time (including in connection
with the Merger or the consummation thereof), to the same extent as provided in
(or permitted by) the Company's Articles of Incorporation and/or Bylaws, in each
case, as in effect on the date of this Agreement; PROVIDED, HOWEVER, that Parent
shall not be required to indemnify or hold harmless any Indemnified Person in
connection with any proceeding (or portion thereof) to the extent (but only to
such extent) involving any claim initiated by any Indemnified Person (or any
spouse or member of such Indemnified Person's family, or a custodian, trustee
(including a trustee of a voting trust), executor or other fiduciary for the
account of such Indemnified Person's spouse or members of such Indemnified
Person's family, or a trust for such Indemnified Person's own self) unless such
proceeding is brought by such Indemnified Person solely to enforce rights under
this Section 5.20. As used herein, the word "family" shall include any spouse,
lineal ancestor or descendent, step-child, brother or sister. The Bylaws of the
Surviving Corporation shall contain provisions substantially similar in effect
with respect to indemnification to those set forth in the Company's Bylaws as in
effect on the date of this Agreement and the Charter of the Surviving
Corporation shall contain provisions substantially similar in effect with
respect to indemnification as those set forth in the Articles of Incorporation
of the Company as in effect as of the date of this Agreement and such provisions
shall not be amended, repealed or otherwise modified for a period of six (6)
years from the Effective Time in any manner that would adversely affect any of
the rights of indemnification of persons covered thereby immediately before the
Effective Time. Subject to all of the foregoing provisions in this Section 5.20,
from and after the Effective Time, each person who as of the date of this
Agreement is a director and/or officer of the Company who becomes a director
and/or officer of Parent or any of its subsidiaries (including the Surviving
Corporation) shall (in addition to that which they are and shall be entitled
pursuant to the foregoing provisions of this Section) have indemnification
rights (with respect to their capacities as directors or officers of Parent or
any of its subsidiaries (including the Surviving Corporation) at or after the
Effective Time) to the extent provided in the Certificate of Incorporation or
similar governing documents of Parent and its subsidiaries (including the
Surviving Corporation), as in effect from time to time after the Effective Time.
SECTION 5.21 REGISTRATION RIGHTS AGREEMENT. At the Closing, Parent
shall execute and deliver the Registration Rights Agreement ("REGISTRATION
RIGHTS AGREEMENT") in the form of EXHIBIT D attached hereto.
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.1 THE COMPANY'S CONDITIONS TO CLOSE. The obligations of the
Company under this Agreement are subject to the satisfaction at or prior to the
Closing of each of the following conditions, but compliance with any or all of
such conditions may be
25
waived (in whole or in part), in writing, by the Company, to the extent
permitted by applicable law:
(a) The representations and warranties of Parent
contained in this Agreement that are qualified as to materiality shall be true
and correct in all respects and the representations and warranties of Parent
contained in this Agreement that are not so qualified shall be true and correct
in all material respects on the date hereof and on the Closing Date, with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except to the extent that they expressly relate to an
earlier date); PROVIDED, THAT, the conditions set forth in this Section 6.1(a)
shall be deemed satisfied by Parent to the extent that any such inaccuracies
contained in any such representation or warranty of Parent do not, individually
or in the aggregate, adversely affect Parent or the properties, assets,
liabilities (fixed or otherwise) or condition (financial or otherwise) of Parent
and any of its subsidiaries, taken as a whole, in an amount in excess of
$200,000;
(b) Parent and Mergerco shall have performed and complied
in all material respects with all of the covenants and agreements contained in
this Agreement (other than Section 5.6) and satisfied in all material respects
all of the conditions required by this Agreement to be performed or complied
with or satisfied by Parent at or prior to the Closing;
(c) Parent and Mergerco shall have received all approvals
and actions of or by all Governmental Bodies, which are necessary to consummate
the transactions contemplated hereby;
(d) There shall not have occurred any change which would
have or would be likely to have a Material Adverse Effect with respect to Parent
or Mergerco;
(e) On the Closing Date, there shall be no Requirement of
Law, injunction, restraining order or decree of any nature of any court or
Governmental Body in effect that restrains or prohibits the consummation of the
transactions contemplated by this Agreement;
(f) No action, suit or proceeding shall have been
instituted by any person or entity, or threatened by any Governmental Body,
before a court or Governmental Body, to restrain or prevent the carrying out of
the transactions contemplated by this Agreement and the Merger Agreement;
(g) The Merger and the Merger Agreement shall have been
duly approved by the affirmative vote of the holders of not less than a majority
of the shares of Company Stock outstanding and entitled to vote with respect
thereof in accordance with the Company's Restated Certificate of Incorporation;
(h) The Company shall be reasonably satisfied that the
Merger and the transactions contemplated thereby are exempt from the
registration requirements of the Securities Act under Section 4(2) of the
Securities Act;
26
(i) The Company shall be reasonably satisfied that the
Merger and the transactions contemplated thereby are exempt from the
registration or qualification provisions of all state securities laws applicable
to the Merger and the transactions contemplated thereby;
(j) The Merger Agreement shall be concurrently filed with
the Secretary of State of the State of Delaware;
(k) The merger between Parent and LucidLine, Inc. shall
be concurrently consummated, such merger to be as described in that certain
Amended Confidential Information Memorandum, dated as of February 16, 2005, and
entitled "$3,000,000 Patron Systems, Inc. Interim Bridge Loan Financing" (the
"CIM");
(l) Parent shall have completed a closing, in escrow, of
its acquisition of Entelagent Software Corp. as described in the CIM;
(m) Parent shall concurrently consummate the Bridge Loan
Financing as described in the CIM, pursuant to which all of the funds held in
escrow pursuant to the CIM will be concurrently released;
(n) Parent shall have executed and delivered to the
Stockholders signatory thereto the Registration Rights Agreement; and
(o) Parent shall have delivered to the Company a
certificate, in form and substance reasonably satisfactory to the Company, dated
as of the Closing Date, signed by Parent's Chairman of the Board, to the effect
set forth in clauses (a) through (n), inclusive, of this Section 6.1.
SECTION 6.2 PARENT'S CONDITIONS TO CLOSE. The obligations of Parent
under this Agreement are subject to the satisfaction at or prior to the Closing
of each of the following conditions, but compliance with any or all of any such
conditions may be waived (in whole or in part), in writing, by Parent, to the
extent permitted by applicable law:
(a) The representations and warranties of the Company
contained in this Agreement that are qualified as to materiality shall be true
and correct in all respects and the representations and warranties of the
Company contained in this Agreement that are not so qualified shall be true and
correct in all material respects on the date hereof and on the Closing Date with
the same effect as though such representations and warranties had been made on
and as of the Closing Date (except to the extent that they expressly relate to
an earlier date); PROVIDED, THAT, the conditions set forth in this Section
6.2(a) shall be deemed satisfied by the Company to the extent that any such
inaccuracies contained in any such representation or warranty of the Company do
not, individually or in the aggregate, adversely affect the Company or the
properties, assets, liabilities (fixed or otherwise) or condition (financial or
otherwise) of the Company in an amount in excess of $200,000;
(b) The Company shall have performed and complied in all
material respects with all the covenants and agreements contained in this
Agreement (other than Section 5.6) and satisfied in all material respects all
the conditions required by this Agreement to be performed or complied with or
satisfied by it at or prior to the Closing;
27
(c) The Company shall have received all approvals and
actions of or by all Governmental Bodies, which are necessary to consummate the
transactions contemplated hereby;
(d) On the Closing Date, there shall be no Requirement of
Law, injunction, restraining order or decree of any nature of any court or
Governmental Body in effect that restrains or prohibits the consummation of the
transactions contemplated by this Agreement or the Merger Agreement;
(e) No action, suit or proceeding shall have been
instituted by any person or entity, or threatened by any Governmental Body,
before a court or Governmental Body, to restrain or prevent the carrying out of
the transactions contemplated by this Agreement or that would, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
the Business or the results of operations, properties or condition (financial or
otherwise) of the Company;
(f) The Merger and the Merger Agreement shall have been
duly approved by the affirmative vote of the holders of not less than a majority
of the shares of Company Stock outstanding and entitled to vote with respect
thereof in accordance with the Company's Articles of Incorporation;
(g) The Company shall have received all necessary
consents or approvals, in form and substance reasonably satisfactory to Parent,
to the transactions contemplated by this Agreement as specified in Schedules 3.5
and 3.24 hereto;
(h) Since the Balance Sheet Date, there shall not have
occurred any change which has had or would reasonably be expected to result in a
Material Adverse Effect with respect to the Company;
(i) Parent shall be reasonably satisfied that the Merger
and the transactions contemplated thereby are exempt from the registration
requirements of the Securities Act under Section 4(2) of the Securities Act;
(j) Parent shall be reasonably satisfied that the Merger
and the transactions contemplated thereby are exempt from the registration or
qualification provisions of all state securities laws applicable to the Merger
and the transactions contemplated thereby;
(k) The Merger Agreement shall be concurrently filed with
the Secretary of State of the State of Delaware;
(l) The Stockholders signatory thereto shall have
executed and delivered to Parent the Registration Rights Agreement; and
(m) The Company shall have delivered to Parent a
certificate, in form and substance reasonably satisfactory to Parent, dated as
of the Closing Date, signed by the Company's chief executive officer and chief
financial officer, to the effect set forth in clauses (a) through (l), inclusive
of this Section 6.2.
28
ARTICLE VII
THE CLOSING
SECTION 7.1 DELIVERIES BY THE COMPANY. At the Closing, the Company
shall deliver the following to Parent:
(a) A certificate of good standing as of a recent date
from the Secretary of State of the State of Delaware stating that the Company is
a validly existing corporation in good standing under the laws of Delaware.
(b) Copies of duly adopted resolutions of the Board of
Directors of the Company and the Stockholders approving the Merger and the
execution, delivery and performance of this Agreement and the Merger Agreement
and the other agreements and instruments contemplated hereby and thereby,
certified by the Secretary of the Company;
(c) The duly executed Merger Agreement;
(d) The certificate described in Section 6.2(m); and
(e) A true and complete copy of the Restated Certificate
of Incorporation, as in effect on the Closing Date, of the Company, certified by
the Secretary of State of the State of Delaware, and a true and complete copy of
the Bylaws, as in effect on the Closing Date, of the Company, certified by the
Secretary of the Company.
SECTION 7.2 PARENT'S DELIVERIES. At the Closing, Parent shall deliver
the following to the Company:
(a) Certificate of good standing as of a recent date from
the Secretary of State of the State of Delaware stating that Parent is a validly
existing corporation in good standing;
(b) Certificate of good standing as of a recent date from
the Secretary of State of the State of Delaware stating that Mergerco is a
validly existing corporation in good standing;
(c) Copies of duly adopted resolutions of Parent's and
Mergerco's Boards of Directors approving the execution, delivery and performance
of this Agreement and the Merger Agreement and the other agreements and
instruments contemplated hereby and thereby, certified by the Secretary or an
Assistant Secretary of Parent or Mergerco;
(d) The duly executed Merger Agreement;
(e) The certificate described in Section 6.1(o); and
(f) A true and complete copy of the Certificate of
Incorporation as in effect on the Closing Date, of Parent and Mergerco,
certified by the Secretary of State of the State of Delaware, and a true and
complete copy of the Bylaws, in effect on the Closing Date, of Parent and
Mergerco, certified by the Secretary of Parent and Mergerco, respectively.
29
ARTICLE VIII
[INTENTIONALLY OMITTED]
ARTICLE IX
TERMINATION
SECTION 9.1 TERMINATION. This Agreement shall be terminated
automatically in the event the Merger Agreement is terminated in accordance with
its terms. Anything contained in this Agreement to the contrary notwithstanding,
this Agreement may also be terminated at any time prior to the Closing Date:
(a) By the Company or Parent if the Closing shall not
have occurred on or before March 30, 2005 (or such later date as shall be
mutually agreed to in writing by the Company and Parent); provided that the
party seeking termination is not in default or breach of this Agreement;
(b) By the Company in the event of a material breach by
Parent of any of its representations, warranties, agreements or covenants
contained in this Agreement, which breach is not cured by Parent within 10 days
after written notice of such breach; PROVIDED, THAT, the Company shall have no
right to terminate pursuant to this Section 9.1(b) if any such breach or
breaches, individually or in the aggregate, do not deprive the Company of the
economic benefits of the transactions contemplated hereby in an amount in excess
of $200,000; or
(c) By Parent in the event of a material breach by the
Company of any of its respective representations, warranties, agreements and
covenants contained in this Agreement, which breach is not cured by the Company
with 10 days after written notice of such breach; PROVIDED, THAT, Parent shall
have no right to terminate pursuant to this Section 9.1(c) if any such breach or
breaches, individually or in the aggregate, do not deprive Parent of the
economic benefits of the transactions contemplated hereby in an amount in excess
of $200,000.
SECTION 9.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to the preceding Section of this Agreement, all further
obligations of the parties under this Agreement and the Merger Agreement shall
be terminated without further liability of any party or its stockholders,
directors or officers to the other parties, provided (a) that this Section 9.2,
Section 10.1 and Section 10.13 shall survive any such termination and (b) that
nothing herein shall relieve any party from liability for its willful breach of
this Agreement or the Merger Agreement.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 EXPENSES.
(a) No later than two (2) business days prior to the
Closing, the Company shall provide to Parent a good faith written estimate of
the expenses and fees of counsel to
30
the Company and the Company's accountants incurred by the Company in connection
with the preparation, negotiation and execution of the Transaction Documents and
consummation of the transactions contemplated hereby and thereby (the "COMPANY
EXPENSE Report"). Unless this Agreement is terminated pursuant to ARTICLE IX,
payment of the expenses and fees set forth on the Company Expense Report shall
be made by Parent at Closing.
(b) Except as otherwise provided herein, Parent shall
bear its own expenses and fees and commissions (including, but not limited to,
all compensation and expenses of counsel, consultants and accountants) incurred
in connection with its preparation, negotiation and execution of the Transaction
Documents and consummation of the transactions contemplated hereby or thereby.
SECTION 10.2 NOTICES. All notices required or permitted to be given
under this Agreement (and, unless otherwise expressly provided therein, under
any document delivered pursuant to this Agreement) shall be given in writing and
shall be deemed received (i) when personally delivered to the relevant party at
such party's address as set forth below, (ii) if sent by mail (which must be
certified or registered mail, postage prepaid) or overnight courier, when
received or rejected by the relevant party at such party's address indicated
below, or (iii) if sent by facsimile, when confirmation of delivery is received
by the sending party:
If to the Company prior to Closing, to:
Complete Security Solutions, Inc.
0000 00xx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx Xxxxx, Chief Executive Officer
Facsimile: (000) 000-0000
If to Parent or Mergerco, to:
Patron Systems, Inc.
000 Xxxxx Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxx, XX, Chairman of the Board
Facsimile: (000) 000-0000
Each party hereto may change its address or facsimile number for purposes of
this Section 10.2 by providing notice to the other parties in accordance with
this Section 10.2.
SECTION 10.3 ASSIGNMENT. Prior to the Effective Time, this Agreement
may not be assigned, by operation of law or otherwise. Following the Effective
Time, any party may assign any of its rights hereunder, but no such assignment
shall relieve it of its obligations hereunder.
SECTION 10.4 INTERPRETATION. The article and section headings contained
in this Agreement are for reference purposes only and shall not in any way
affect the meaning or
31
interpretation of this Agreement. Whenever the context may require, any pronoun
used herein shall include the corresponding masculine, feminine or neuter forms.
SECTION 10.5 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument; and shall become
binding when two or more counterparts have been signed by each of the parties
hereto and delivered to each of Parent, Mergerco and the Company.
SECTION 10.6 AMENDMENT. This Agreement may not be amended, modified or
supplemented except by a writing signed by an authorized representative of each
of the parties hereto.
SECTION 10.7 ENTIRE AGREEMENT. The Merger Agreement (which is
incorporated herein in its entirety) and this Agreement (including the Schedules
and Exhibits attached hereto and the documents delivered pursuant hereto)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
SECTION 10.8 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns.
SECTION 10.9 SURVIVAL. The representations and warranties contained in
this Agreement or in any certificate or other writing delivered pursuant this
Agreement shall not survive the Effective Time or the termination of this
Agreement. This Section 10.9 shall not limit any covenant or agreement of the
parties contained in this Agreement which by its terms provides for performance
after the Effective Time. Except for the representations and warranties
contained in this Agreement, none of the Company, Parent or Mergerco has made
any representation or warranty, and, each of the Company, Parent and Mergerco
hereby acknowledges that no representations or warranties have been made by, and
it has not relied on any representation or warranty made by, any of the parties
hereto or any of their respective representatives in respect of this Agreement
and the transactions contemplated hereby and the documents and instruments
referred to herein, notwithstanding the delivery or disclosure to such party or
its representatives of any documentation or other information in respect of any
one or more of the foregoing. The inclusion of any entry on any of the Company
Disclosure Schedules or the Parent Disclosure Schedules hereto shall not
constitute an admission by, or agreement of, the Company or Parent, as
applicable, that such matter is material to the Company or Parent, as
applicable.
SECTION 10.10 SEVERABILITY. Wherever possible, each provision hereof
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective in the jurisdiction involved to the
extent, but only to the extent, of such invalidity, illegality or
unenforceability without invalidating the remainder of such invalid, illegal or
unenforceable provision or provisions or any other provisions hereof, unless
such a construction would be unreasonable.
32
SECTION 10.11 THIRD PARTIES. Nothing contained in this Agreement or in
any instrument or document executed by any party in connection with the
transactions contemplated hereby shall create any rights in, or be deemed to
have been executed for the benefit of, any person or entity that is not a party
hereto or a successor or permitted assign of such a party.
SECTION 10.12 WAIVERS. Any term or provision of this Agreement may be
waived, or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Agreement if, as to any party,
it is authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.
SECTION 10.13 CONFIDENTIAL NATURE OF INFORMATION. Each party agrees
that it will treat in confidence all documents, materials and other information
which it shall have obtained regarding the other parties during the course of
the negotiations leading to the consummation of the transactions contemplated
hereby (whether obtained before or after the date of this Agreement), the
investigation provided for herein and the preparation of this Agreement and
other related documents, and, in the event the transactions contemplated hereby
shall not be consummated, each party will return to the other parties all copies
of nonpublic documents and materials which have been furnished in connection
therewith. Such documents, materials and information shall not be communicated
to any third Person (other than, in the case of Parent and Mergerco, to their
counsel, accountants, financial advisors, stockholders or lenders, and in the
case of the Company, to their counsel, accountants, stockholders or financial
advisors). No other party shall use any confidential information in any manner
whatsoever except solely for the purpose of evaluating the proposed Merger;
PROVIDED, HOWEVER, that after the Effective Time, Parent and the Surviving
Corporation may use or disclose any confidential information included in the
assets of the Company as of the Effective Time or otherwise reasonably related
to the assets or business of the Company. The obligation of each party to treat
such documents, materials and other information in confidence shall not apply to
any information which (i) is or becomes available to such party from a source
other than such party, (ii) is or becomes available to the public other than as
a result of disclosure by such party or its agents, (iii) is required to be
disclosed under applicable law or judicial process, but only to the extent it
must be disclosed, or (iv) such party reasonably deems necessary to disclose to
obtain any of the consents or approvals contemplated hereby.
SECTION 10.14 GOVERNING LAW; ARBITRATION. This Agreement shall be
governed by and construed in accordance with the internal laws (as opposed to
the conflicts of law provisions) of the State of Delaware.
(a) Any dispute, controversy or claim arising out of or
relating to this Agreement or its breach, interpretation, termination or
validity, including any question whether a matter is subject to arbitration
hereunder, is referred to herein as a "DISPUTE."
33
(b) If the parties fail to settle any Dispute within 30
days after any party has given notice to the other parties hereto of the claimed
existence of a Dispute, the Dispute shall be resolved by a confidential, binding
arbitration. All such Disputes shall be arbitrated in Chicago, Illinois pursuant
to the arbitration rules and procedures of J.A.M.S. Endispute before an
arbitrator or arbitrators selected in the manner provided in such rules and
procedures, except that the "Final Offer (or Baseball)" Arbitration Option shall
not be used unless otherwise agreed in writing. As a condition to JAMS'
jurisdiction, the parties shall be entitled to conduct discovery pursuant to the
Federal Rules of Civil Procedure.
(c) Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction, and each party hereto consents
and submits to the jurisdiction of such court for purposes of such action. The
statute of limitations, estoppel, waiver, laches and similar doctrines, which
would otherwise be applicable in any action brought by a party, shall be
applicable in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed to be the commencement of an action for those
purposes. The Federal Arbitration Act shall apply to the construction,
interpretation and enforcement of this arbitration provision. Each party shall
bear its own expenses (including, without limitation, the fees and expenses of
legal counsel and accountants) in connection with such arbitration, and Parent
and the Company shall each bear one-half of the arbitrators' fees and expenses,
provided that the arbitral award shall allocate such fees and expenses of
counsel, accountants, other advisors and arbitrators according to the relative
success of the contesting parties in the arbitration, as determined by the
arbitrators. The arbitrators shall award an amount equal to the actual monetary
damages suffered by each contesting party, which may include interest costs
incurred by such party and, in the case of the Surviving Corporation, actual
reductions in retail earnings before interest, taxes, depreciation and
amortization for the period in which they occur, but the arbitrators shall not
have the authority to award punitive damages.
SECTION 10.15 DEFINITIONS. In this Agreement, the following terms have
the meanings specified or referred to in this Section 10.15 and shall be equally
applicable to both the singular and plural forms.
"AFFILIATE" shall mean: any person or entity (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, the person or entity involved, including, without
limitation, officers and directors, (b) that directly or beneficially owns or
holds 5% or more of any equity interest in the person or entity involved, or (c)
5% or more of whose voting securities (or in the case of a person which is not a
corporation, 5% or more of any equity interest) is owned directly or
beneficially by the person or entity involved. As used herein, the term
"control" shall mean possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a person or entity,
whether through ownership of securities, by contract or otherwise.
"AGREEMENT" has the meaning specified in the first paragraph of this
Agreement.
"BALANCE SHEET" has the meaning specified in Section 3.6(b).
"BALANCE SHEET DATE" means January 31, 2004.
34
"BANKRUPTCY CODE" means 11 U.S.C. xx.xx. 101 ET SEQ.
"BUSINESS" means the businesses engaged in by the Company as of the
date of this Agreement.
"DGCL" has the meaning specified in Section 1.2.
"CLOSING" has the meaning specified in Section 1.3.
"CLOSING DATE" has the meaning specified in Section 1.3.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY COMMON STOCK" has the meaning specified in Section 3.3.
"COMPANY COMMON WARRANTS" has the meaning specified in Section 1.5.
"COMPANY DISCLOSURE SCHEDULES" has the meaning specified in Section
3.32.
"COMPANY EXPENSE REPORT" has the meaning specified in Section 10.1(a).
"COMPANY PREFERRED STOCK" has the meaning specified in Section 3.3.
"COMPANY'S 2004 FINANCIAL STATEMENTS" has the meaning specified in
Section 3.6.
"COMPANY'S FINANCIAL STATEMENTS" has the meaning specified in Section
3.6.
"DISPUTE" has the meaning specified in Section 10.14.
"DISSENTING STOCKHOLDER" has the meaning specified in Section 1.6.
"DISSENTING SHARES" has the meaning specified in Section 1.6.
"EFFECTIVE TIME" has the meaning specified in Section 1.2 of the Merger
Agreement.
"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, covenant or other restriction of any kind.
"FACILITY" means any real or personal property, plant, building,
facility, structure, underground storage tank, or equipment or unit, or other
asset owned, used, leased or operated by the Company.
"GAAP" means generally accepted accounting principles in the United
States of America.
"GOVERNMENTAL BODY" means any court, government (federal, state, local
or foreign), department, commission, board, bureau, agency, official or other
regulatory, administrative or governmental authority.
35
"GOVERNMENTAL PERMITS" has the meaning specified in Section 3.11.
"INDEMNIFIED PERSON" has the meaning specified in Section 5.20.
"KNOWLEDGE OF THE COMPANY" means, as a particular matter, the actual
knowledge of the following persons: Xxxxxx Xxxxx and Xxxxx Xxxxxx.
"KNOWLEDGE OF PARENT" means, as a particular matter, the actual
knowledge of the following person: Xxxxxx X. Xxx, XX.
"MATERIAL ADVERSE EFFECT" means any change or effect (or any
development that, insofar as can be reasonably foreseen, would result in any
change or effect) that is materially adverse to the assets, business, financial
condition, results of operations or prospects of the applicable Person or
Persons.
"MATERIAL CONTRACTS" has the meaning specified in Section 3.23.
"MERGER" has the meaning specified in the first recital to this
Agreement.
"MERGER AGREEMENT" has the meaning specified in the first recital of
this Agreement.
"MERGERCO" has the meaning specified in the first paragraph of this
Agreement.
"MERGER CONSIDERATION" has the meaning specified in Section 1.4.
"PARENT" has the meaning specified in the first paragraph of this
Agreement.
"PARENT COMMON STOCK" has the meaning specified in Section 2.4.
"PARENT DISCLOSURE SCHEDULES" has the meaning specified in Section
2.22.
"PARENT STOCK OPTIONS" has the meaning specified in Section 2.4.
"PERMITTED ENCUMBRANCES" means: (a) encumbrances for taxes or
assessments or other governmental charges which are not yet due and payable; (b)
materialmen's, merchants', carriers', worker's, repairer's, or other similar
Encumbrances arising in the ordinary course of business which are not yet due or
payable and; (c) purchase money security interests.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
Governmental Body.
"PREFERRED STOCKHOLDER" means a holder of Company Preferred Stock.
"PROMISSORY NOTE" means the non-interest bearing subordinated
promissory notes to be issued by Parent to the Preferred Stockholders as Merger
Consideration.
"REQUIREMENTS OF LAW" means any federal, state or local law, rule or
regulation, Governmental Permit or other binding determination of any
Governmental Body.
36
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCKHOLDERS" has the meaning specified in the Merger Agreement.
"SOFTWARE" has the meaning specified in Section 3.16(a)(iii).
"SURVIVING CORPORATION" has the meaning specified in Section 1.1 of the
Merger Agreement.
"TAX" (and, with correlative meaning, "TAXES" and "TAXABLE") means (a)
any federal, state, local or foreign income, gross receipts, windfall profits,
severance, property, production, sales, use, license, excise, franchise,
employment, payroll, withholding, alternative or add-on minimum, ad valorem,
transfer, value-added stamp or environmental tax, or any other tax, custom,
duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, addition to tax or additional
amount imposed by any Governmental Body; and (b) liability of the Company or any
of its subsidiaries for the payment of amounts with respect to payments of a
type described in clause (a) as a result of being a member of an affiliated,
consolidated, combined or unitary group, or as a result of any obligation of the
Company or any of its subsidiaries under any Tax sharing arrangement or Tax
indemnity arrangement.
"TAX RETURNS" means any return, report or similar statement required to
be filed with respect to any Taxes (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
"TRANSACTION DOCUMENTS" has the meaning specified in Section 2.6.
*****
37
IN WITNESS WHEREOF, the parties hereto have executed or caused
this Agreement to be duly executed as of the date first above written.
PATRON SYSTEMS, INC.
By: /S/ XXXXXX X. XXX, XX
-----------------------------
Name: Xxxxxx X. Xxx, XX
Title: Chairman of the Board
CSSI ACQUISITION CO. I, INC.
By: /S/ XXXXXX X. XXX, XX
-----------------------------
Name: Xxxxxx X. Xxx, XX
Title: Chief Executive Officer
COMPLETE SECURITY SOLUTIONS, INC.
By: /S/ XXXXXX XXXXX
-----------------------------
Name: Xxxxxx Xxxxx
Title: Chief Executive Officer
38
ANNEX
-----
A Stockholders' Consideration Table
EXHIBITS
--------
A Form of Agreement and Plan of Merger
B Form of Promissory Note
C Form of Warrant
D Form of Registration Rights Agreement
PARENT SCHEDULES
----------------
2.2 Subsidiaries and Investments
2.3 Operations
2.4 Capital Stock
2.7 Non-Contravention
2.12 Title to Assets
2.13 No Undisclosed Liabilities
2.14 No Violation, Litigation or Regulatory Action
2.15 Material Contracts
2.16 Transactions with Affiliates
COMPANY SCHEDULES
-----------------
3.1 Organization
3.2 Subsidiaries and Investments
3.3 Capital Stock; Stockholders
3.5 Non-Contravention
3.6 Financial Statements
3.7 Operations Since Balance Sheet Date
3.8 No Undisclosed Liabilities
3.9 Taxes
3.10 Governmental Permits
3.12 Real Property Leases
3.14 Personal Property
3.15 Personal Property Leases
3.16 Intellectual Property
3.17 Accounts Receivable
3.18 Title to Assets of the Company
3.19 Employees
3.20 Employee Matters
3.21(a) Employee Benefit Plans
3.21(b) Employee Benefit Plans--Compliance
3.21(c) 401(k) Plan
3.22 Contracts
3.23 Status of Contracts
3.24 No Violation, Litigation or Regulatory Action
3.25 Insurance
3.26 Customers and Suppliers
3.29 Transactions with Affiliates
39
3.30 Bank Accounts
5.16 Company Indebtedness
40
ANNEX A - STOCKHOLDERS' CONSIDERATION TABLE
PATRON COMMON STOCK SHARES ALLOCATION
-------------------------------------
Xxxxx Xxxxxx 10,610
Victoria XX Xxxxxxxx 10,610
Xxxxxxxx X. Xxxxxxx 4,705
Xxxxx X. Xxxxxx 75,793
Xxxxxxx X. Xxxxx 5,053
Xxxxxx X. Xxxxx 12,633
Xxx X. Xxxxxxxx 7,580
Xxxxxx Xxxx 75,793
Xxxxx X. Xxxx 7,580
Xxxxx X. Xxxxxx 202,114
Xxxxxxx X. Xxxxxx 25,264
Xxxxx X. Xxxxxxxxxx 101,058
Xxxx X. Xxxxx 198,925
R. Xxxxxx Xxxxxxx 7,580
Xxxxxx X. Xxxxx 353,701
Ondrej Vanha 12,633
Xxxx Xxxxx 101,058
Xxxxxx Xxxxxxxxx 22,751
Xxxxxx Xxxxx 66,667
Xxxxx X. Xxxxxx 500,000
Xxxxxxx X. Xxxxxxxx 500,000
Xxxxxx X. Xxxxx 500,000
Apex Fund 3 895,387
Apex Fund 4 1,183,543
Apex Strategic Partners 44,947
Apex Strategic Partners 4 40,955
Innovative Technology Partners II, L.P. 258,333
Northport III Private Equity LLC 25,833
Jo-Bar Enterprises LLC 36,167
Petros Ventures Limited Partnership 33,583
Xxxxxxxx Xxxxxxx Trust 10,333
Xxxx Xxxxxx 51,667
Xxxx Xxxxx 25,833
Xxxxxx Xxxxx 10,333
Xxxxx Xxxxxxxx 10,333
Xxxx Xxxxxx 10,333
Xxxxxxx X. Xxxxxx, Xx. 6,717
Xxx Xxxxxxxx 2,687
Xxxxxx Xxxxxx 10,075
Northwestern Mutual 800,833
Advanced Equities 1,240,000
------------------
7,500,000
------------------
41
PATRON NOTES ALLOCATION
-----------------------
Apex Investment Fund V, L.P. 3,248,221
The Northwestern Mutual Life Insurance Company 999,453
Advanced Equities Venture Partners I, L.P. 252,327
------------------
4,500,000
------------------
PATRON WARRANTS ALLOCATION
--------------------------
Apex Investment Fund V, L.P. 1,624,111
The Northwestern Mutual Life Insurance Company 499,726
Advanced Equities Venture Partners I, L.P. 126,163
------------------
2,250,000
------------------
42
