-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DIyBrO2kDj6/Ckhdq/6B1Z7DTT3zkzvrHnTGMXvmaG0w1XVbbqCBcyY8HLqj+rVr CZMQDVNiIEaE/k59uVU9OQ== 0000930413-04-004805.txt : 20041018 0000930413-04-004805.hdr.sgml : 20041018 20041018152326 ACCESSION NUMBER: 0000930413-04-004805 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20041012 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Unregistered Sales of Equity Securities ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20041018 DATE AS OF CHANGE: 20041018 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LION INC/WA CENTRAL INDEX KEY: 0000941179 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 912094375 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25159 FILM NUMBER: 041083163 BUSINESS ADDRESS: STREET 1: 4700-42ND AVE. SW, SUITE 430 CITY: SEATTLE STATE: WA ZIP: 98116 BUSINESS PHONE: 2065771440 MAIL ADDRESS: STREET 1: 4700-42ND AVE. SW, SUITE 430 CITY: SEATTLE STATE: WA ZIP: 98116 FORMER COMPANY: FORMER CONFORMED NAME: PLENUM COMMUNICATIONS INC/MN DATE OF NAME CHANGE: 20000331 FORMER COMPANY: FORMER CONFORMED NAME: LION INC DATE OF NAME CHANGE: 19991115 FORMER COMPANY: FORMER CONFORMED NAME: PLENUM COMMUNICATIONS INC DATE OF NAME CHANGE: 19981209 8-K 1 c34063.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 12, 2004 ------------- LION, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) WASHINGTON 0-25159 91-2094375 (STATE OR OTHER (COMMISSION (IRS EMPLOYER JURISDICTION OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.) 4700 - 42ND AVE. SW, SUITE 430 SEATTLE, WASHINGTON 98116 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (206) 577-1440 NONE (FORMER NAME OR FORMER ADDRESS, IF CHANGE SINCE LAST REPORT) ================================================================================ Item 2.01 ACQUISITION OR DISPOSITION OF ASSETS. On October 13, 2003, LION, Inc., a Washington corporation ("LION"), acquired Tuttle Risk Management Services Inc., a Delaware corporation ("TRMS"), by merging TRMS with and into LION's wholly-owned subsidiary, LION Acq. LLC, a Washington limited liability company. As a result of these transactions, TRMS became a wholly-owned subsidiary of LION operating as a limited liability company under the name "Tuttle Risk Management Services LLC" (the "Surviving LLC"). The acquisition was consummated pursuant to the terms of the Agreement of Merger, dated October 12, 2003, by and among LION, LION Acq. LLC, TRMS, Anthony Berris (individually and as the Stockholders' Representative), and Sern Clementson (the "Merger Agreement"). The acquisition is intended to qualify as a "reorganization" under Section 368(a) of the Internal Revenue Code of 1986, as amended. Immediately before the closing of the acquisition, TRMS distributed promissory notes in the aggregate principal amount of $303,049 to its stockholders. These notes have been assumed by Surviving LLC by virtue of the merger with TRMS, and LION has guaranteed Surviving LLC's performance of its obligations under the notes. At the effective time of the acquisition, each outstanding share of TRMS common stock was converted into the right to receive: o approximately 3.59 shares of LION common stock; and o an 8% promissory note due October 2007 (each, a "Note"). Pursuant to the terms of the Merger Agreement, the consideration issuable to the former TRMS stockholders is subject to adjustment if the actual working capital of TRMS as of October 13, 2004 (the "Closing Working Capital") is greater or less than the estimated working capital of TRMS as of such date. In connection with the acquisition, LION will issue approximately 3.1 million shares of its common stock and Notes in the aggregate principal amount of $1,027,496, subject to adjustment based on the Closing Working Capital. The shares to be issued to the former TRMS stockholders in the transaction were issued by LION in a transaction exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof and Rule 506 thereunder, and an exemption from registration and qualification under California securities law. Because these shares were issued in a transaction not involving a public offering, they are "restricted securities" under the Securities Act. As a partial inducement to TRMS to enter into the Merger Agreement and consummate the transactions contemplated therein, LION has granted the former stockholders of TRMS, other than Messrs. Berris and Clementson, the right to require LION, commencing on the first anniversary of the closing date, to repurchase the shares of LION common stock that each stockholder received in the merger at the then-fair market value of such shares, to the extent that such shares cannot be sold in reliance on Rule 144 under the Securities Act. Of the approximately 3.1 million shares of LION common stock to be issued to the former TRMS stockholders in the transaction, approximately 404,000 are subject to this right. Messrs. Berris and Clementson will continue in their current roles as President and Vice President, respectively, of the Surviving LLC. The foregoing description of the Merger Agreement and the transactions contemplated therein is qualified in its entirety by reference to the Merger Agreement, the form of Notes, the Put Agreement, the Secured Notes Agreement, the Unconditional Guaranty, and the LION, Inc. Employment and Non-Competition Agreement between LION and Anthony Berris attached as Exhibits 2.1, 4.1, 10.1, 10.2, 10.3, and 10.4, respectively, and incorporated herein by reference. Item 3.02 UNREGISTERED SALES OF EQUITY SECURITIES See discussion under Item 2.01, above. 2 Item 9.01 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. The financial statements of the acquired business required to be filed pursuant to Item 9.01(a) of Form 8-K were not available at the time of filing this Current Report on Form 8-K and will be filed on a Form 8-K/A as soon as practicable, but in no event later than 71 days after the date this Form 8-K is required to be filed. (B) PRO FORMA FINANCIAL INFORMATION. The pro forma financial information required to be filed pursuant to Item 9.01(b) of Form 8-K was not available at the time of filing of this Current Report on Form 8-K and will be filed on a Form 8-K/A as soon as practicable, but in no event later than 71 days after the date this Form 8-K is required to be filed. (C) EXHIBITS. EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.1 Agreement of Merger, dated October 12, 2004, by and among LION, Inc., LION Acq. LLC, Tuttle Risk Management Services Inc., Anthony Berris (individually and as the Stockholders' Representative), and Sern Clementson 4.1 Form of 8% Promissory Note due October 2007, issuable by LION, Inc. 10.1 Put Agreement, dated October 12, 2004, between LION, Inc. and certain stockholders of Tuttle Risk Management Services Inc. 10.2 Secured Notes Agreement, dated October 13, 2004, between Tuttle Risk Management Services Inc., the stockholders of Tuttle Risk Management Services Inc., LION, Inc., and Anthony Berris, as Stockholders' Representative 10.3 Unconditional Guaranty, dated October 13, 2004, by LION, Inc. 10.4 LION, Inc. Employment and Non-Competition Agreement, dated October 13, 2004, between LION, Inc., and Anthony Berris 99.1 Press release dated October 13, 2004, announcing LION's signing of a definitive agreement to acquire Tuttle Risk Management Services Inc. 99.2 Press release dated October 15, 2004, announcing the completion of the acquisition of Tuttle Risk Management Services Inc. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. LION, Inc. By: /s/ RANDALL D. MILES -------------------- Randall D. Miles Chairman and Chief Executive Officer Date: October 18, 2004 4 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.1 Agreement of Merger, dated October 12, 2004, by and among LION, Inc., LION Acq. LLC, Tuttle Risk Management Services Inc., Anthony Berris (individually and as the Stockholders' Representative), and Sern Clementson 4.1 Form of 8% Promissory Note due October 2007, issuable by LION, Inc. 10.1 Put Agreement, dated October 12, 2004, between LION, Inc. and certain stockholders of Tuttle Risk Management Services Inc. 10.2 Secured Notes Agreement, dated October 13, 2004, between Tuttle Risk Management Services Inc., the stockholders of Tuttle Risk Management Services Inc., LION, Inc., and Anthony Berris, as Stockholders' Representative 10.3 Unconditional Guaranty, dated October 13, 2004, by LION, Inc. 10.4 LION, Inc. Employment and Non-Competition Agreement, dated October 13, 2004, between LION, Inc., and Anthony Berris 99.1 Press release dated October 13, 2004, announcing LION's signing of a definitive agreement to acquire Tuttle Risk Management Services Inc. 99.2 Press release dated October 15, 2004, announcing the completion of the acquisition of Tuttle Risk Management Services Inc. 5 EX-2.1 2 c34063_ex2-1.txt EXHIBIT 2.1 AGREEMENT OF MERGER AMONG LION, INC., LION ACQ. LLC, TUTTLE RISK MANAGEMENT SERVICES INC., ANTHONY BERRIS, SERN CLEMENTSON, AND ANTHONY BERRIS, AS STOCKHOLDERS' REPRESENTATIVE DATED AS OF OCTOBER 12, 2004 CONTENTS ARTICLE 1 - DEFINITIONS........................................................1 ARTICLE 2 - THE MERGER.........................................................7 2.1 THE MERGER.......................................................7 2.2 The Closing......................................................7 2.3 EFFECTIVE DATE AND TIME..........................................7 2.4 Governance of the Surviving LLC..................................8 2.5 MERGER CONSIDERATION.............................................8 2.5.1 Conversion.......................................................8 2.5.2 EXCHANGE OF CERTIFICATES; ISSUANCE OF MERGER SHARES AND NOTES....8 2.5.3 No Fractional Shares.............................................9 2.6 CLOSING WORKING CAPITAL..........................................9 2.7 Adjustment to Merger Consideration..............................10 ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL STOCKHOLDERS............................................11 3.1 Organization....................................................11 3.2 AUTHORIZATION; ENFORCEABILITY...................................11 3.3 Capitalization..................................................12 3.4 SUBSIDIARIES AND AFFILIATES.....................................12 3.5 No Approvals; No Conflicts......................................12 3.6 FINANCIAL STATEMENTS............................................13 3.7 Absence of Certain Changes or Events............................13 3.8 TAXES...........................................................14 3.9 Property........................................................15 3.10 CONTRACTS.......................................................16 3.10.1 Material Contracts..............................................16 3.10.2 REQUIRED CONSENTS...............................................17 3.11 Claims and Legal Proceedings....................................18 3.12 LABOR AND EMPLOYMENT MATTERS....................................18 3.13 Employee Benefit Plans..........................................18 3.14 INTELLECTUAL PROPERTY...........................................20 3.15 Corporate Books and Records.....................................22 3.16 LICENSES PERMITS, AUTHORIZATIONS, ETC...........................22 3.17 Compliance With Laws............................................23 3.18 INSURANCE.......................................................23 3.19 Brokers or Finders..............................................23 3.20 ABSENCE OF QUESTIONABLE PAYMENTS................................23 3.21 Bank Accounts...................................................24 3.22 CUSTOMERS.......................................................24 3.23 Accounts Receivable.............................................24 3.24 CREDITORS' LIST.................................................24 3.25 Insider Interests...............................................24 i 3.26 COMPLIANCE WITH ENVIRONMENTAL LAWS..............................25 3.27 Full Disclosure.................................................25 ARTICLE 3A - ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL STOCKHOLDERS...........................................25 3A.1 Sophistication; Accreditation........................................25 3A.2 OWNERSHIP............................................................25 3A.3 Information..........................................................26 3A.4 NO REGISTRATION......................................................26 3A.5 Brokers or Agents....................................................26 3A.6 INVESTMENT FOR OWN ACCOUNT...........................................26 3A.7 Residency............................................................26 3A.8 LEGENDS 27 ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF LION AND MERGER LLC.............27 4.1 ORGANIZATION....................................................27 4.2 Enforceability..................................................27 4.3 SECURITIES......................................................28 4.4 No Approvals or Notices Required; No Conflicts With Instruments.....................................................28 4.5 SEC DOCUMENTS...................................................28 4.6 Full Disclosure.................................................28 ARTICLE 5 - CONDITIONS PRECEDENT TO OBLIGATIONS OF LION AND MERGER LLC.......29 5.1 Accuracy of Representations and Warranties......................29 5.2 PERFORMANCE OF AGREEMENTS.......................................29 5.3 Opinion of Counsel for TRMS.....................................29 5.4 AUDIT...........................................................29 5.5 Material Adverse Change.........................................29 5.6 APPROVALS AND CONSENTS..........................................29 5.7 Proceedings and Documents; Officer's Certificate................30 5.8 COMPLIANCE WITH LAWS............................................30 5.9 Legal Proceedings...............................................30 5.10 EMPLOYMENT AGREEMENTS...........................................30 5.11 Investor Acknowledgment.........................................30 5.12 CONSENTS TO MERGER..............................................30 5.13 Merger Consideration............................................31 5.14 COMPANY'S 401(K) PLAN AND BONUS PLANS...........................31 5.15 REITCO..........................................................31 5.16 COMPANY WORKING CAPITAL.........................................31 ARTICLE 6 - CONDITIONS PRECEDENT TO OBLIGATIONS OF TRMS AND THE PRINCIPAL STOCKHOLDERS............................................31 6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES......................31 6.2 Performance of Agreements.......................................31 ii 6.3 OPINION OF COUNSEL FOR LION AND MERGER LLC......................32 6.4 Officer's Certificate...........................................32 6.5 EMPLOYMENT AGREEMENTS...........................................32 6.6 Put Agreement...................................................32 6.7 LEGAL PROCEEDINGS...............................................32 6.8 Material Adverse Change.........................................32 6.9 APPROVALS AND CONSENTS..........................................32 6.10 REITCO..........................................................33 6.11 COMPLIANCE WITH LAWS............................................33 ARTICLE 7 - COVENANTS.........................................................33 7.1 CONDUCT OF BUSINESS BY TRMS PENDING THE MERGER..................33 7.2 Access to Information; Confidentiality..........................34 7.3 NO ALTERNATIVE TRANSACTIONS.....................................35 7.4 Notification of Certain Matters.................................35 7.5 FURTHER ACTION; REGULATORY MATTERS..............................35 7.6 Publicity.......................................................37 7.7 EXECUTION OF ALL OPERATIVE DOCUMENTS............................37 7.8 Limitation On Sales of Company Common Stock.....................37 7.9 REIT ADVISORY BUSINESS..........................................37 7.10 Tax Covenant....................................................37 ARTICLE 8 - TERMINATION, AMENDMENT AND WAIVER................................37 8.1 Termination.....................................................37 8.2 EFFECT OF TERMINATION...........................................38 8.3 Amendment; Waiver...............................................38 ARTICLE 9 - SURVIVAL AND INDEMNIFICATION......................................38 9.1 Survival........................................................38 9.2 INDEMNIFICATION BY THE PRINCIPAL STOCKHOLDERS...................39 9.3 Indemnification by Lion.........................................39 9.4 PROCEDURE FOR INDEMNIFICATION...................................39 9.5 Right of Offset.................................................41 9.6 THRESHOLDS AND LIMITATIONS......................................41 ARTICLE 10 - OTHER AGREEMENTS.................................................42 10.1 TAX MATTERS.....................................................42 10.2 Stockholders' Representative....................................42 10.3 POST-CLOSING OPERATIONS.........................................43 ARTICLE 11 - GENERAL..........................................................43 11.1 EXPENSES........................................................43 11.2 Notices.........................................................43 11.3 SEVERABILITY....................................................45 11.4 Assignment......................................................45 11.5 PARTIES IN INTEREST.............................................45 iii 11.6 Governing Law; Venue............................................45 11.7 OTHER REMEDIES; SPECIFIC PERFORMANCE............................45 11.8 Interpretation; Schedules.......................................46 11.9 KNOWLEDGE.......................................................46 11.10 Entire Agreement................................................46 11.11 COUNTERPARTS....................................................46 EXHIBITS - -------- 2.3.1 - Form of Certificate of Merger (Delaware) 2.3.2 - Form of Articles of Merger (Washington) 2.5.1 - Form of 8% Note due October 2007 2.5.2 - Letter of Transmittal 5.3 - Opinion of Counsel for TRMS and the Principal Stockholders 5.10.1 - Berris Employment Agreement 5.10.2 - Clementson Employment Agreement 5.10.3 - LION Confidentiality and Inventions Agreement 5.11 - Investor Questionnaire and Acknowledgement 6.3 - Opinion of Counsel for LION and Merger LLC 6.6 - Put Agreement 7.9.1 - REITCO Stock Purchase Agreement 7.9.2 - REITCO Right of First Refusal Agreement SCHEDULES - --------- 2.4 - Directors and Officers of Surviving LLC 3 - Disclosure Memorandum 5.10 - TRMS Employees 7.9 - REITCO Ownership iv AGREEMENT OF MERGER Agreement of Merger ("AGREEMENT") dated as of October 12, 2004, by and among LION, Inc., a Washington corporation ("LION"), LION Acq. LLC, a Washington limited liability company wholly-owned by LION ("MERGER LLC"), Tuttle Risk Management Services Inc., a Delaware corporation ( "TRMS"), Anthony Berris ("BERRIS") and Sern Clementson ("CLEMENTSON") (Berris and Clementson being collectively referred to as the "PRINCIPAL STOCKHOLDERS"), and Berris, as Stockholders' Representative. RECITALS A. TRMS, the Principal Stockholders, LION and Merger LLC believe it advisable and in their respective best interests to effect a merger of TRMS and Merger LLC pursuant to this Agreement (the "MERGER"). B. The board of directors and the stockholders of TRMS (the "STOCKHOLDERS") have adopted and approved this Agreement and the Merger as required by applicable law. C. The boards of directors of LION and Merger LLC and the sole member of Merger LLC have adopted and approved this Agreement and the Merger as required by applicable law. D. It is intended that the Merger will qualify as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"). AGREEMENT In consideration of the foregoing and the respective covenants, agreements, representations, and warranties set forth herein, the parties hereto agree as follows: ARTICLE 1 - DEFINITIONS As used herein, the following terms shall have the meanings herein specified: "ACCOUNTING REFEREE" means a firm of independent accountants of nationally recognized standing reasonably satisfactory to LION and the Stockholders' Representative (which firm shall not have any material relationship with LION, TRMS or the Principal Stockholders). "ADVISERS ACT" means the Investment Advisers Act of 1940, as amended, and the rules and regulations of the SEC thereunder. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or 1 otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "AGREEMENT" means this Agreement of Merger as described in the Preamble. "AVERAGE SHARE PRICE" shall be the lesser of (a) the closing price of LION common stock for the 20 Trading Days ending on the Trading Day immediately prior to the Closing Date and (b) $0.65. "BERRIS" is defined in the Preamble hereof. "BUSINESS DAY" means any day that is not a Saturday, Sunday or other day on which banks in the State of California are authorized or required to close. "CERTIFICATES OF MERGER" is defined in Section 2.3. "CLAIM" means any claim for indemnification under Article 9. "CLAIM NOTICE" means a written notice of any claim for indemnification under Article 9. "CLEMENTSON" is defined in the Preamble. "CLOSING" is defined in Section 2.2. "CLOSING DATE" is defined in Section 2.2. "CLOSING WORKING CAPITAL" means the excess of current assets of TRMS over current liabilities of TRMS on the Business Day immediately preceding the Closing Date, such current liabilities to include all legal, accounting and other out-of-pocket expenses incurred (and projected to be incurred) in connection with the transactions provided for in this Agreement and the other Operative Documents. "CLOSING WORKING CAPITAL STATEMENT" is defined in Section 2.6(b). "COBRA" is defined in Section 3.13(f). "CODE" is defined in Recital D. "DELAWARE LAW" means the Delaware General Corporation Law. "DISCLOSURE MEMORANDUM" means the disclosure memorandum attached as SCHEDULE 3 to this Agreement. "DISTRIBUTION NOTES" means the promissory notes that TRMS will issue to the Stockholders prior to the Closing. "EFFECTIVE DATE" is defined in Section 2.3. "EFFECTIVE TIME" is defined in Section 2.3. 2 "EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" (as such term is defined in ERISA ss. 3(3)) and any other material employee compensation or benefit plan, program or arrangement of any kind, including without limitation deferred compensation, severance pay, retirement, employment agreements, change in control agreements, insurance, stock purchase, stock option, and other benefit plans, programs or arrangements) that TRMS maintains or to which TRMS contributes, has any obligation to contribute or any material liability. "ENCUMBRANCE" means any liens, mortgages, pledges, deeds of trust, security interests, charges, or other encumbrances. "ERISA" means the Employee Retirement Income Security Act of 1974. "ERISA AFFILIATE" is defined in Section 3.13. "ERISA AFFILIATE PLAN" is defined in Section 3.13. "ESTIMATED CLOSING WORKING CAPITAL" is defined in Section 2.6. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FINAL WORKING CAPITAL" is defined in Section 2.7. "FULLY DILUTED COMMON STOCK NUMBER" means the total number of shares of TRMS Common Stock outstanding immediately prior to the Effective Time. "GAAP" means generally accepted accounting principles in the United States. "GOVERNMENTAL AUTHORITY" means any government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including the SEC or any other government authority, agency, department, board, commission or instrumentality of the United States, any state of the United States or any political subdivision thereof, and any court, tribunal or arbitrator of competent jurisdiction, and any governmental or non-governmental self-regulatory organization, agency or authority, including the NASD. "INDEMNIFICATION CAP" is defined in Section 9.6(c). "INDEMNIFIED PARTIES" means the TRMS Indemnified Parties and the LION Indemnified Parties, as the case may be. "INTELLECTUAL PROPERTY" means all trade names, inventions, processes, designs, formulae, trade secrets, know-how, and other proprietary rights. "INVESTOR ACKNOWLEDGMENT" means the Investor Questionnaire and Acknowledgment in the form set forth in EXHIBIT 5.12. "LETTER OF TRANSMITTAL" means a letter of transmittal substantially in the form set forth in EXHIBIT 2.5.2. 3 "LION" is defined in the Preamble. "LION COMMON STOCK" means the common stock, $0.001 par value per share, of LION. "LION INDEMNIFIED PARTIES" is defined in Section 9.2. "LOSS THRESHOLD" is defined in Section 9.6(a). "LOSSES" shall mean any and all loss, obligation, deficiency, damage, claim liability, cost and expense including, without limitation, the amount of any settlement entered into pursuant to this Agreement, and all reasonable legal fees and other expenses. "MATERIAL CONTRACTS" is defined in Section 3.10. "MERGER" is defined in Recital A. "MERGER CONSIDERATION" means the aggregate of (i) the Distribution Notes and (ii) the Notes and Merger Shares issued to the Stockholders as a result of the Merger, as described in Section 2.5.1. "MERGER LLC" is defined in the Preamble. "MERGER SHARES" means the number of shares of LION Common Stock to be issued to the Stockholders in the Merger as part of the Merger Consideration, such that the Share Value is not less than 50% of the Merger Consideration. "NASD" means the National Association of Securities Dealers, Inc. "NOTE" means the 8% promissory note due October 2007, the form of which is attached as EXHIBIT 2.5.1 hereto, to be issued to the Stockholders in the Merger as part of the Merger Consideration. "OPERATIVE DOCUMENTS" means this Agreement and the other agreements and certificates that are required to be completed and executed pursuant to this Agreement, including the Berris Employment Agreement and the Clementson Employment Agreement. "OUTSTANDING SHARES" is defined in Section 3.3(b). "PERMITS" means all currently required governmental approvals, authorizations, consents, licenses, orders, registrations and permits of all agencies, whether federal, state, local or foreign. "PERMITTED ENCUMBRANCES" means: (a) Encumbrances for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which TRMS maintains adequate reserves in accordance with GAAP; (b) Licenses or sublicenses granted by TRMS in the ordinary course of business and any interest or title of a licensor or under any such license or sublicense; 4 (c) Leases or subleases granted by TRMS in the ordinary course of business, including in connection with TRMS's leased premises or leased property; (d) Liens in favor of financial institutions arising in connection with TRMS's deposit accounts or securities accounts held at such institutions; (e) Banker's liens, rights of setoff and similar liens incurred on deposits made in the ordinary course of business; (f) Materialmen's, mechanic's, repairmen's, employees' or other like liens arising in the ordinary course of business and which are not delinquent; (g) Encumbrances to secure payment of worker's compensation, employment insurance, old age pensions or other social security obligations of TRMS in the ordinary course of business; and (h) Easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and similar charges or encumbrances affecting real property not constituting a TRMS Material Adverse Effect. "PERSON" means any person, corporation, partnership, joint venture, association, organization, other entity or Governmental Authority. "PERSONAL PROPERTY" is defined in Section 3.9. "PRE-CLOSING DISTRIBUTION" means the distribution to the Stockholders of cash and Distribution Notes prior to the Closing Date which will result in Closing Working Capital of not less than $300,000. "PRINCIPAL STOCKHOLDERS" is defined in the Preamble. "PRO RATA SHARE" means the quotient derived by dividing the number of shares of Company Common Stock held by a Stockholder by the Fully Diluted Common Stock Number. "PURCHASE PRICE" means $3,500,000 less the amount of the Pre-Closing Distribution. "REAL PROPERTY" is defined in Section 3.9. "REGISTERED INTELLECTUAL PROPERTY" means all registered patents, patent applications, registered trademarks, trademark applications, registered copyrights, copyright applications and domain name registrations used by TRMS in its business. "REGULATORY DOCUMENTS" means, with respect to a Person, all forms, reports, registration statements, schedules and other documents filed, or required to be filed, by such Person with any Governmental Authority. 5 "REITCO" means the newly-formed corporation to which TRMS shall have transferred and assigned the assets and liabilities of TRMS used in and necessary for its REIT advisory business, as described in Section 7.9. "REITCO RIGHT OF FIRST REFUSAL AGREEMENT" is defined in Section 7.9. "SEC" means the Securities and Exchange Commission and any successor thereto. "SEC DOCUMENTS" means true and complete copies of the following reports of LION filed or furnished to the SEC pursuant to the Exchange Act: Annual Report on Form 10-KSB, as amended, for the fiscal year ended December 31, 2003; Quarterly Report on Form 10-QSB, as amended, for the quarterly period ending March 31, and Quarterly Report on Form 10-QSB for the quarterly period ending June 30, 2004; definitive proxy statement, filed May 12, 2004, for LION's annual meeting of stockholders; and Current Reports on Form 8-K, as filed on February 2, 23, 26, April 28, June 8, July 30, and August 20, 2004. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARE VALUE" means the product of the Merger Shares multiplied by the Average Share Price; PROVIDED, that the Share Value shall not be less than 50% of the value of the Merger Consideration. "STOCKHOLDERS' REPRESENTATIVE" is defined in the Preamble. "STOCKHOLDERS" is defined in Recital B. "SURVIVAL PERIOD" is defined in Section 9.1. "SURVIVING LLC" means Merger LLC, as the surviving entity after the Effective Time. "TAX" or "TAXES" means any or all foreign, federal, state, county or local taxes, charges, fees, levies, imposts, duties and other assessments, including, but not limited to, any income, alternative minimum or add-on, estimated, gross income, gross receipts, sales, use, transfer, transactions, intangibles, ad valorem, value-added, franchise, registration, title, license, capital, paid-up capital, profits, withholding, payroll, employment, excise, severance, stamp, occupation, premium, real property, recording, personal property, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest, penalties or additions to tax. "TAX RETURNS" shall mean any return, declaration, report, claim or refund, information return, statement or other similar document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "THIRD PARTY CLAIM" is defined in Section 9.4. "TRADING DAY" means a day on which trades may be made in the over-the-counter market for the LION Common Stock. 6 "TRMS" is defined in the Preamble. "TRMS BALANCE SHEET" mean the balance sheet of TRMS as of September 30, 2004. "TRMS BUSINESS" means the business of providing interest rate and mortgage pipeline risk management services as presently conducted by TRMS. "TRMS COMMON STOCK" means the common stock, $0.001 par value per share, of TRMS. "TRMS FINANCIAL STATEMENTS" means (a) unaudited balance sheets, statements of income and expense, statements of cash flow and statements of stockholders' equity of TRMS as of and for the nine months ended September 30, 2004 and the fiscal years ended December 31, 2003, 2002 and 2001 and (b) the TRMS Balance Sheet "TRMS INDEMNIFIED PARTIES" is defined in Section 9.3. "TRMS MATERIAL ADVERSE EFFECT" means a material adverse effect on TRMS's business operations, assets, liabilities (absolute, accrued, contingent or otherwise) or condition (financial or otherwise). "WASHINGTON LAW" means the Washington Business Corporation Act, RCW 23B, and the Washington Limited Liability Company Act, RCW 25.15. ARTICLE 2 - THE MERGER 2.1 THE MERGER Upon the terms and subject to the conditions hereof, (a) at the Effective Time TRMS shall be merged with and into Merger LLC in accordance with Washington Law and Delaware Law, and (b) as of and from the Effective Time, Merger LLC shall continue as the surviving corporation and the separate corporate existence of TRMS shall cease. 2.2 THE CLOSING Subject to the terms and conditions of this Agreement, the closing of the Merger (the "CLOSING") shall take place on the earliest practicable Business Day (the "CLOSING DATE") after the satisfaction or waiver of the conditions set forth in Articles 5 and 6 at 10 a.m. local time at the offices of Stoel Rives LLP, 600 University Street, Suite 3600, Seattle, Washington, or such other date, time or location as LION and TRMS shall agree. 2.3 EFFECTIVE DATE AND TIME On the Closing Date and upon the terms and subject to conditions hereof, certificates of merger (the "CERTIFICATES OF MERGER"), substantially in the forms attached hereto as EXHIBITS 2.3.1 and 2.3.2 complying with the applicable provisions of Delaware Law and Washington Law shall 7 be delivered for filing with the Secretary of State of the state of Delaware and the Secretary of State of the state of Washington. The Merger shall become effective on the date (the "EFFECTIVE DATE") and at the time (the "EFFECTIVE TIME") of filing of the Certificates of Merger or at such other time as may be specified in the Certificates of Merger as filed. 2.4 GOVERNANCE OF THE SURVIVING LLC At and after the Effective Time, Surviving LLC shall continue to be governed by its certificate of formation and operating agreement as in effect at the Effective Time, as amended to provide for a change in name to Tuttle Risk Management Services LLC. The directors and officers of Surviving LLC shall be at and after the Effective Time as set forth SCHEDULE 2.4. 2.5 MERGER CONSIDERATION 2.5.1 CONVERSION As of the Effective Time, by virtue of the Merger and without any action on the part of the Stockholders, each issued and outstanding share of TRMS Common Stock shall be converted into the right to receive: (a) a Note in the principal amount calculated as follows: A / B = C where A = the dollar amount obtained by subtracting the Share Value from the Purchase Price; B = the Fully Diluted Common Stock Number; and C = the principal amount of the Note; and (b) the number of shares of LION common stock, determined by dividing the Merger Shares by the Fully Diluted Common Stock Number. 2.5.2 EXCHANGE OF CERTIFICATES; ISSUANCE OF MERGER SHARES AND NOTES As soon as practicable after the Effective Date, LION shall make available and each Stockholder shall be entitled to receive, promptly after surrender to LION of a Letter of Transmittal, together with documents delivered as required therein, for the shares of TRMS Common Stock held by such Stockholder: (a) a certificate representing the number of shares of LION Common Stock that such Stockholder is entitled to receive pursuant to Section 2.5.1 (unless the Final Working Capital has not yet been determined in accordance with Section 2.7 and any adjustments in the Merger Shares required under Section 2.7 have not yet been made, in which case LION shall deliver such certificate to the Stockholders' Representative to hold until such determinations are made); and (b) a Note in the principal amount that such Stockholder is entitled to receive pursuant to Section 2.5.1 (unless the Final Working Capital has not yet been determined in 8 accordance with Section 2.7 and any adjustments in the Notes required under Section 2.7 have not yet been made, in which case LION shall deliver such Note to the Stockholders' Representative to hold until such determinations are made). 2.5.3 NO FRACTIONAL SHARES No certificates or scrip representing fractional shares of LION Common Stock shall be issued by virtue of the Merger. The aggregate number of shares of LION Common Stock a Stockholder shall be entitled to receive pursuant to Section 2.5.1(b) shall be rounded to the nearest whole number of shares, with one-half of a share being rounded up to the next greatest whole share. 2.6 CLOSING WORKING CAPITAL (a) No later than five Business Days prior to the Closing Date, TRMS shall provide LION with a good faith estimate of the Closing Working Capital ("ESTIMATED CLOSING WORKING CAPITAL"), which shall be based on the latest available financial information and shall be prepared in accordance with GAAP, applied on a basis consistent with the preparation of the TRMS Balance Sheet, and giving full consideration to TRMS's intention to distribute all 2004 taxable earnings to the Stockholders prior to the Closing and giving pro-forma effect to the Pre-Closing Distribution. (b) As promptly as practicable, but no later than 75 days after the Closing Date, LION will cause to be prepared and delivered to the Stockholders' Representative an unaudited Closing Working Capital Statement (the "CLOSING WORKING CAPITAL STATEMENT"), setting forth LION's calculation of Closing Working Capital. The Closing Working Capital Statement shall (i) be prepared in accordance with GAAP, applied on a basis consistent with the preparation of the TRMS Balance Sheet, (ii) fairly present in all material respects the current assets and current liabilities of TRMS as at the close of business on the Business Day immediately preceding the Closing Date, and (iii) be prepared in accordance with accounting policies and practices consistent with those used in the preparation of the TRMS Balance Sheet. (c) If the Stockholders' Representative disagrees with LION's calculation of Closing Working Capital, the Stockholders' Representative may, within 10 days after delivery of the Closing Working Capital Statement, deliver a notice to LION disagreeing with such calculation and setting forth his calculation of such amount. Any such notice of disagreement shall specify those items or amounts as to which the Stockholders' Representative disagrees. If the Stockholders' Representative fails to deliver such a written notice within such 10-day period, LION's calculation of Closing Working Capital shall be binding upon the parties. (d) If the Stockholders' Representative delivers a notice of disagreement pursuant to Section 2.6(c), LION and the Stockholders' Representative shall, during the 30 days following such delivery, use their commercially reasonable efforts to reach agreement on the disputed items or amounts in order to determine the amount of Closing Working Capital, which amount shall not be less than the amount thereof shown in LION's calculations delivered pursuant to Section 2.6(b) nor more than the amount thereof shown in the Stockholders' Representative's calculation delivered pursuant to Section 2.6(c). If LION and the Stockholders' 9 Representative are unable to reach such agreement during the 30 days, they shall promptly thereafter cause the Accounting Referee promptly to review the disputed items or amounts for the purpose of calculating Closing Working Capital. In making such calculation, the Accounting Referee shall consider only those items or amounts in the Closing Working Capital Statement or LION's calculation of Closing Working Capital as to which the Stockholders' Representative has disagreed. The Accounting Referee shall deliver to LION and the Stockholders' Representative, as promptly as practicable, but not later than 120 days after the Closing Date, a report setting forth such calculation. Such report shall be final and binding upon LION, TRMS and the Stockholders' Representative. The costs, fees and expenses of the Accounting Referee shall be borne proportionately by LION, on the one hand, and the Stockholders, on the other, based on the extent to which LION's and the Stockholders' Representative's respective determinations differ from the Accounting Referee's determination. 2.7 ADJUSTMENT TO MERGER CONSIDERATION (a) If Final Working Capital is less than Estimated Closing Working Capital, then the Merger Consideration shall be adjusted by reducing the principal amounts of the Notes issuable to the Stockholders pursuant to Section 2.5.1(a) in an aggregate dollar amount equal to the difference between Estimated Closing Working Capital and Final Working Capital. (b) If Final Working Capital is greater than Estimated Closing Working Capital, then the Merger Consideration shall be adjusted by increasing the principal amounts of the Notes issuable to the Stockholders pursuant to Section 2.5.1(a) in an aggregate dollar amount equal to the difference between Final Working Capital and Estimated Closing Working Capital. The foregoing notwithstanding, if increasing the aggregate principal amount of the Notes pursuant to the preceding sentence would cause the Share Value to be less than 50% of the value of the Merger Consideration, then to the extent necessary to maintain the Share Value at not less than 50% of the Merger Consideration: (i) LION shall issue additional shares of LION Common Stock, which shall be considered part of the Merger Shares, such that the Share Value shall not be less than 50% of the value of the Merger Consideration; and (ii) the amount of the increase in the principal amount of the Notes that otherwise would have been made but for the limits imposed by this sentence shall be correspondingly reduced by the product of (x) the Average Share Price and (y) the additional shares of LION Common Stock issued pursuant to clause (i) of this sentence. (c) Any adjustment in the Merger Consideration required by this Section 2.7 shall be made based on each Stockholder's Pro Rata Share. (d) For purposes of this Section 2.7, "FINAL WORKING CAPITAL" means Closing Working Capital as shown in LION's calculation delivered pursuant to Section 2.6(b), if no notice of disagreement with respect thereto is duly delivered pursuant to Section 2.6(c); or if such a notice of disagreement is delivered, as agreed by LION and the Stockholders' Representative pursuant to Section 2.6(d) or, in the absence of such agreement, as shown in the Accounting Referee's calculation delivered pursuant to Section 2.6(d); PROVIDED that in no event 10 shall Final Working Capital be less than LION's calculation of Closing Working Capital delivered pursuant to Section 2.6(b) or more than the Stockholders' Representative's calculation of Closing Working Capital delivered pursuant to Section 2.6(c). ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL STOCKHOLDERS Except as otherwise is set forth in the Disclosure Memorandum, and in order to induce LION and Merger LLC to enter into and perform this Agreement and the other agreements and the other Operative Documents, TRMS and the Principal Stockholders severally represent and warrant to LION and Merger LLC as of the Closing Date as follows. 3.1 ORGANIZATION TRMS is a corporation duly organized and validly existing under the laws of the state of Delaware. TRMS has all requisite corporate power and authority to execute, deliver and perform its obligations each of the Operative Documents, and to consummate the transactions contemplated thereby. Each Principal Stockholder has the power, authority and capacity to execute, deliver and perform his obligations under each of the Operative Documents to which he is a party and to consummate the transactions contemplated thereby. TRMS is duly qualified and licensed as a foreign corporation to do business and is in good standing in each jurisdiction in which the character of TRMS's properties occupied, owned or held under lease or the nature of the business conducted by TRMS makes such qualification or licensing necessary, except that TRMS is not qualified and licensed as a foreign corporation to do business in the State of Pennsylvania, and except where the failure to be so qualified or licensed would not have a TRMS Material Adverse Effect. 3.2 AUTHORIZATION; ENFORCEABILITY All corporate action on the part of TRMS necessary for the authorization, execution, delivery and performance of the Operative Documents, the consummation of the Merger, and the performance of all TRMS's obligations under the Operative Documents has been taken or will be taken as of or prior to the Effective Time. The Stockholders have unanimously approved this Agreement and the Merger. Each of the Operative Documents has been duly executed and delivered by TRMS and each Principal Stockholder, as applicable, and each of the Operative Documents is a legal, valid and binding obligation of TRMS and each Principal Stockholder, as applicable, enforceable against each of them in accordance with its terms, except as enforceability may be limited or affected by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, or other laws of general application relating to or affecting the enforcement of creditors' rights, and except as enforceability may be limited by equitable principles, including those limiting the availability of specific performance, injunctive relief and other equitable remedies providing for defenses based on fairness and reasonableness, regardless of whether considered in a proceeding in equity or at law 11 3.3 CAPITALIZATION (a) The authorized capital stock of TRMS consists of 1,250,000 shares of TRMS Common Stock. (b) The issued and outstanding capital stock of TRMS consists solely of 862,599 shares of TRMS Common Stock (collectively, the "OUTSTANDING SHARES"), which are held of record and beneficially by the Stockholders in the amounts described on SCHEDULE 3.3(B) to the Disclosure Memorandum. The Outstanding Shares are, and immediately prior to the Closing will be, duly authorized, validly issued, fully paid and nonassessable, and issued in compliance with all applicable federal and state securities laws. To the knowledge of TRMS and each Principal Stockholder, and subject to applicable community property laws, no Person other than the Stockholders holds any interest in any of the Outstanding Shares. True and correct copies of the stock records of TRMS showing all issuances and transfers of shares of capital stock of TRMS since inception have been delivered to LION or its counsel. (c) There are no outstanding options, rights of first refusal or offer, preemptive rights, stock purchase rights or other agreements, either directly or indirectly, for the purchase or acquisition from TRMS or from any Stockholder of any shares of capital stock of TRMS or any securities convertible into or exchangeable for shares of capital stock of TRMS. (d) TRMS is not a party or subject to any agreement or understanding and, to the knowledge of TRMS and each Principal Stockholder, there is no agreement or understanding between any Persons that affects or relates to the voting or giving of written consents with respect to any securities of TRMS or the voting by any director of TRMS. No Stockholder or any Affiliate thereof is indebted to TRMS, and TRMS is not indebted to any Stockholder or any Affiliate thereof. TRMS is not under any contractual or other obligation to register any of its presently outstanding securities or any of its securities that may hereafter be issued. 3.4 SUBSIDIARIES AND AFFILIATES TRMS does not own, directly or indirectly, any ownership, equity, or voting interest in any corporation, partnership, joint venture or other entity, and has no agreement or commitment to purchase any such interest. 3.5 NO APPROVALS; NO CONFLICTS The execution, delivery and performance of the Operative Documents by TRMS and each of the Principal Stockholders, as applicable, and the consummation by them of the transactions contemplated thereby will not: (a) constitute a violation (with or without the giving of notice or lapse of time, or both) of any provision of law or any judgment, decree, order, regulation or rule of any court or other governmental authority applicable to TRMS or the Principal Stockholders; (b) except as contemplated by the Operative Documents, require any consent, approval or authorization of, or declaration, filing or registration with, any Person, except for approval by the Stockholders, which approval has been heretofore unanimously given, and the 12 filing of all documents necessary to consummate the Merger under Delaware Law and Washington Law; (c) result in a default under (with or without the giving of notice or lapse of time, or both), or acceleration or termination of, or the creation in any party of the right to accelerate, terminate, modify or cancel, any agreement, lease, note or other restriction, encumbrance, obligation or liability to which TRMS or the Principal Stockholders are parties or by which they are bound or to which TRMS's assets are subject; (d) result in the creation of any Encumbrance upon any assets of TRMS or the Outstanding Shares; (e) conflict with or violate any provision of TRMS's certificate of incorporation or bylaws; or (f) invalidate or adversely affect any Permit used in or necessary for the conduct of the TRMS Business. 3.6 FINANCIAL STATEMENTS TRMS has delivered to LION the TRMS Financial Statements. The TRMS Financial Statements have been prepared in conformity with GAAP on a basis consistent with prior accounting periods and fairly present the financial position, results of operations and changes in financial position of TRMS as of the dates and for the periods indicated. TRMS has no liabilities or obligations of any nature (absolute, contingent or otherwise) that are not fully reflected or reserved against in the TRMS Balance Sheet, except (i) liabilities or obligations incurred since the date of the TRMS Balance Sheet in the ordinary course of business and consistent with past practice, and (ii) liabilities or obligations otherwise disclosed in this Agreement or in the Disclosure Memorandum. TRMS maintains standard systems of accounting that are adequate for its business. 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS Except for transactions specifically contemplated in this Agreement, since the date of the TRMS Balance Sheet, neither TRMS, nor any of its officers, directors or Stockholders in their representative capacities on behalf of TRMS, have: (a) taken any action or entered into or agreed to enter into any transaction, agreement or commitment other than in the ordinary course of business; (b) forgiven or canceled any indebtedness or waived any claims or rights of material value; (c) granted any increase in the compensation of directors, officers, employees or consultants; (d) suffered any change having a TRMS Material Adverse Effect; 13 (e) borrowed or agreed to borrow any funds, incurred or become subject to, whether directly or by way of assumption or guarantee or otherwise, any obligations or liabilities in excess of $5,000 individually or $10,000 in the aggregate, except liabilities and obligations that are incurred in the ordinary course of business and consistent with past practice, or increased, or experienced any change in any assumptions underlying or methods of calculating, any bad debt, contingency or other reserves; (f) paid, discharged or satisfied any material claims, liabilities or obligations other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of claims, of liabilities and obligations reflected or reserved against in the TRMS Balance Sheet or incurred in the ordinary course of business and consistent with past practice since the date of the TRMS Balance Sheet, or prepaid any obligation having a fixed maturity of more than 90 days from the date such obligation was issued or incurred; (g) knowingly permitted or allowed any of its property or assets to be subjected to any Encumbrance, other than Permitted Encumbrances; (h) purchased or sold, transferred or otherwise disposed of any of its material properties or assets; (i) disposed of, other than through licenses in the ordinary course of business, or permitted to lapse, any rights to the use of any Intellectual Property, or disposed of or disclosed to any Person without obtaining an appropriate confidentiality agreement from any such Person any trade secret, formula, process or know-how not theretofore a matter of public knowledge; (j) made any single capital expenditure or commitment in excess of $10,000 for additions to property, plant, equipment or intangible capital assets or otherwise or made aggregate capital expenditures in excess of $10,000 for additions to property, plant, equipment or intangible capital assets or otherwise; (k) made any change in accounting methods or practices or internal control procedures; or (l) paid, loaned or advanced any amount to, or sold, transferred or leased any properties or assets to any of the Stockholders or any of TRMS's officers, directors or employees, or any Affiliate of any Stockholder or of TRMS's officers, directors or employees, except for (i) compensation paid to officers and employees at rates not exceeding the rates of compensation paid during the fiscal year last ended, (ii) advances for travel and other business-related expenses, and (iii) the Pre-Closing Distribution. 3.8 TAXES (a) (i) All Tax Returns required to be filed by or on behalf of TRMS have been timely filed and all such Tax Returns were (at the time they were filed) and are true, correct and complete in all material respects; (ii) all Taxes of TRMS have been fully and timely paid, except for those for which adequate reserves have been created in the TRMS Financial Statements in accordance with GAAP; (iii) no waivers of statutes of limitation have been given 14 or requested with respect to TRMS in connection with any Tax Returns; (iv) no taxing authority in a jurisdiction where TRMS does not file Tax Returns has made a claim, assertion or threat to TRMS that TRMS is or may be subject to taxation by such jurisdiction; (v) TRMS has duly and timely withheld from employee salaries, wages and other compensation and paid over to the appropriate Governmental Authority all amounts required to be so withheld and paid over for all periods under all applicable laws; (vi) there are no Encumbrances with respect to Taxes on any of TRMS's property or assets other than Encumbrances for current Taxes not yet payable; (vii) there are no Tax rulings, requests for rulings, or closing agreements relating to TRMS that could affect the liability for Taxes or the amount of taxable income of TRMS for any period (or portion of a period) after the Closing Date; and (viii) any adjustment of Taxes of TRMS made by the Internal Revenue Service in any examination that is required to be reported to the appropriate state, local or foreign taxing authorities has been reported, and any additional Taxes due with respect thereto have been paid. (b) There is no outstanding dispute or claim concerning any Tax liability of TRMS, nor to the knowledge of TRMS or the Principal Stockholders is any such claim or dispute pending. No Tax Returns filed with respect to TRMS for taxable periods ended on or after TRMS's inception or the inception of any predecessor have been audited or are currently the subject of audit. TRMS has delivered to LION correct and complete copies of all Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by TRMS since TRMS's inception. (c) TRMS has not made any payments, is not obligated to make any payments and is not a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Section 280G of the Code (or any similar provision of state, local or foreign law). (d) TRMS is not a party to any Tax allocation or sharing agreement. TRMS (i) has not been a member of a federal, state, local or foreign consolidated, affiliated, combined, unitary or other similar group of which TRMS is now or was formerly a member filing a consolidated income Tax Return under Section 1501 of the Code (or any similar provision of state, local or foreign law) and (ii) does not have any liability for Taxes of any Person under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign law) as a transferee or successor by contract or otherwise. (e) The unpaid Taxes of TRMS (i) did not, as the date of the TRMS Balance Sheet, exceed the reserve for Tax liability set forth on the face thereof and (ii) do not exceed that reserve as adjusted for the passage of time and operations in the ordinary course of business through the Closing Date. 3.9 PROPERTY (a) TRMS owns no real property other than the leasehold interests described on SCHEDULE 3.9(A) to the Disclosure Memorandum (the "REAL PROPERTY"). TRMS has delivered to LION or its counsel true and complete copies of all written leases, subleases, rental agreements, contracts of sale, tenancies or licenses relating to the Real Property and written 15 summaries of the terms of any oral leases, subleases, rental agreements, contracts of sale, tenancies or licenses to which the Real Property is subject. (b) TRMS has delivered to LION a complete and accurate list of each item of personal property that is owned, leased, rented or used by TRMS (the "PERSONAL PROPERTY"), and true and complete copies of all leases, subleases, rental agreements, contracts of sale, tenancies or licenses to which the Personal Property is subject. (c) The Real Property and the Personal Property include all the properties and assets other than the Intellectual Property reflected in the TRMS Balance Sheet. The Real Property and the Personal Property include all material property used in the TRMS Business, other than the Intellectual Property. (d) TRMS's leasehold interest in each parcel of the Real Property is free and clear of all Encumbrances, other than Permitted Encumbrances. Each lease of any portion of the Real Property is valid, binding and enforceable in accordance with its terms against the parties thereto and against any other Person with an interest in such Real Property (except to the extent that such other Person has an interest senior in priority to the lease and such other Person has not entered into a nondisturbance agreement with respect to the lease), TRMS has performed in all material respects all obligations imposed on it thereunder, and neither TRMS nor, to the knowledge of TRMS and each Principal Stockholder, any other party thereto is in default thereunder, nor is there any event that with notice or lapse of time, or both, would constitute a default thereunder by TRMS or, to the knowledge of TRMS and each Principal Stockholder, by any other party. TRMS has not granted any lease, sublease, tenancy or license of, or entered into any rental agreement or contract of sale with respect to, any portion of the Real Property. (e) TRMS owns all Personal Property free and clear of all Encumbrances, other than Permitted Encumbrances. Each lease, license, rental agreement, contract of sale or other agreement to which the Personal Property is subject is valid, binding and enforceable in accordance with its terms against the parties thereto, TRMS has performed in all material respects all obligations imposed on it thereunder, and neither TRMS nor, to the knowledge of TRMS or the Principal Stockholders, any other party thereto is in default thereunder, nor is there any event that with notice or lapse of time, or both, would constitute a default by TRMS or, to the knowledge of TRMS or the Principal Stockholders, any other party thereunder except for such defaults as would not give rise to a TRMS Material Adverse Effect. TRMS has not granted any lease, sublease, tenancy or license of any portion of the Personal Property, except in the ordinary course of business. 3.10 CONTRACTS 3.10.1 MATERIAL CONTRACTS SCHEDULE 3.10.1 to the Disclosure Memorandum contains a complete and accurate list of all contracts, agreements and understandings, oral or written, to which TRMS is currently a party or by which TRMS is currently bound providing for potential payments by or to TRMS in excess of $10,000 (collectively, the "MATERIAL Contracts"), including customer service agreements, distribution and marketing agreements, security agreements, license agreements, software 16 development agreements, joint venture agreements, credit agreements and instruments relating to the borrowing of money. All Material Contracts are valid, binding and enforceable in accordance with their terms against each party thereto, TRMS has performed in all material respects all obligations imposed on it thereunder, and neither TRMS nor, to the knowledge of TRMS or the Principal Stockholders, any other party thereto is in default thereunder, nor to the knowledge of TRMS or the Principal Stockholders is there any event that with notice or lapse of time, or both, would constitute a default by TRMS or, to the knowledge of TRMS or the Principal Stockholders, any other party thereunder. True and complete copies of each such written contract (or written summaries of the terms of any such oral contract) have been delivered to LION by TRMS. Other than as described on SCHEDULE 3.10.1 to the Disclosure Schedule, TRMS has no: (a) contracts with directors, officers, Stockholders, employees, agents, consultants, advisors, salespeople, sales representatives, distributors or dealers that cannot be canceled by TRMS within 30 days' notice without liability, penalty or premium, any agreement or arrangement providing for the payment of any bonus or commission based on sales or earnings, or any compensation agreement or arrangement affecting or relating to former employees of TRMS; (b) employment agreement, whether express or implied, or any other agreement for services that contains severance or termination pay liabilities or obligations; (c) non-competition agreement or other arrangement that would prevent TRMS from carrying on the TRMS Business anywhere in the world; (d) written notice or, to the knowledge of TRMS or the Principal Stockholders, any other form of notice that any party to any Material Contract intends to cancel, terminate or refuse to renew such contract (if such contract is renewable); (e) material dispute with any of its suppliers, customers, distributors, licensors or licensees; (f) joint venture contract or arrangement or any other agreement that involves a sharing of profits with other Persons; (g) instrument evidencing indebtedness for borrowed money by way of a direct loan, sale of debt securities, purchase money obligation, conditional sale or guarantee, or otherwise, except for trade indebtedness incurred in the ordinary course of business, and except as disclosed in the TRMS Financial Statements; and (h) agreements or commitments to provide indemnification. 3.10.2 REQUIRED CONSENTS The execution and delivery of this Agreement and the performance of the obligations of TRMS and the Principal Stockholders hereunder will not constitute a default under any Material Contract, except for those consents and/or waivers listed on SCHEDULE 3.10.2 to the Disclosure Memorandum, all of which will be obtained on or prior to the Closing. 17 3.11 CLAIMS AND LEGAL PROCEEDINGS There are no claims, actions, suits, arbitrations, investigations or proceedings pending or involving or, to the knowledge of TRMS or the Principal Stockholders, threatened against TRMS before or by any Person. To the knowledge of TRMS and the Principal Stockholders, there is no valid basis for any claim, action, suit, arbitration, proceeding or investigation before or by any Person that could reasonably be expected to have a TRMS Material Adverse Effect. There are no outstanding or unsatisfied judgments, orders, decrees or stipulations to which TRMS is a party. SCHEDULE 3.11 to the Disclosure Memorandum sets forth a description of any material disputes that have been settled or resolved by litigation or arbitration since TRMS's inception. 3.12 LABOR AND EMPLOYMENT MATTERS There are no labor disputes, employee grievances or disciplinary actions pending or, to the knowledge of TRMS or the Principal Stockholders, threatened against or involving TRMS or any of its present or former employees. TRMS has complied with all provisions of law relating to employment and employment practices, terms and conditions of employment, wages and hours, except where the failure to comply would not have a TRMS Material Adverse Effect. TRMS is not engaged in any unfair labor practice and has no liability for any arrears of wages or Taxes or penalties for failure to comply with any such provisions of law. Each employee, officer and consultant of TRMS has executed a nondisclosure agreement in the form provided to LION. To the knowledge of TRMS and the Principal Stockholders, no employee (or person performing similar functions) of TRMS is in violation of any such agreement or any employment agreement, non-competition agreement, patent disclosure agreement, invention assignment agreement, proprietary information agreement or other contract or agreement relating to the relationship of such employee with TRMS or any other party. SCHEDULE 3.12 to the Disclosure Memorandum lists the current compensation amounts of all directors, officers and employees of TRMS. All employees of TRMS are employed on an "at will" basis, and, to the knowledge of TRMS and the Principal Stockholders, are eligible to work and are lawfully employed in the United States. 3.13 EMPLOYEE BENEFIT PLANS (a) SCHEDULE 3.13(A) to the Disclosure Memorandum lists and describes all Employee Benefit Plans. Copies of each written Employee Benefit Plan, and all related documents, including funding agreements and employee booklets, as amended to the date hereof, have been provided to LION. In the case of any unwritten Employee Benefit Plan, a written description thereof, which accurately describes all material provisions of such Employee Benefit Plan, has been provided to LION. (b) There have been no promised improvements, increases or changes to the benefits provided under the Employee Benefit Plans. Each Employee Benefit Plan is, and has been, established and administered in compliance with all applicable laws, the terms of such Employee Benefit Plan and all written and oral understandings between TRMS and the employees of TRMS, in each case, in all material respects. No prohibited transaction (as such term is defined in Section 4975 of the Code and Section 406 of ERISA has occurred with respect 18 to an Employee Benefit Plan that is subject to either of such provisions for which an exemption is not available. TRMS and each Employee Benefit Plan providing health benefits complies with the applicable provisions of the Health Insurance Portability and Accountability Act (HIPAA) and has done so since the applicable effective date of each applicable provision of HIPAA. (c) Each Employee Benefit Plan that is intended to be tax-qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to qualify under Section 401(a) of the Code and nothing has occurred that could cause the loss of such qualification. (d) All obligations required under the Employee Benefit Plans and all applicable laws have been satisfied in all material respects and there are no defaults, violations or funding deficiencies thereunder. There are no claims (other than claims for benefits in the normal course), actions or lawsuits asserted or instituted against, and there are no pending or threatened litigation or claims against the assets of any Employee Benefit Plan (other than a Multiemployer Plan) or against any fiduciary of such Employee Benefit Plan with respect to the operation of such Employee Benefit Plan, which, if adversely determined, could have a TRMS Material Adverse Effect. (e) SCHEDULE 3.13 to the Disclosure Memorandum lists any defined benefit plan (as defined in Section 3(35) of ERISA), or any other pension plan (as defined in Treasury Regulation section 1.401-1(b)) to which TRMS or any subsidiary or trade or business (whether or not incorporated) that is a member of a "controlled group" of which either TRMS is a member or under "common control" with TRMS (within the meaning of Section 414(b) and (c) of the Code) (an "ERISA AFFILIATE") is or ever has been a party or by which any of them is or ever has been bound, legally or otherwise, and any Multiemployer Plan to which TRMS or any ERISA Affiliate contributes or is or was required to contribute (an "ERISA AFFILIATE PLAN"). Neither TRMS nor any ERISA Affiliate has incurred (i) any liability to the Pension Benefit Guaranty Corporation (other than routine claims and premium payments), (ii) any withdrawal liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 of ERISA as a result of a "complete withdrawal" or a "partial withdrawal" (within the meaning of Section 4203 or 4205 of ERISA) from a Multiemployer Plan, or (iii) any liability under Section 4062 of ERISA to the Pension Benefit Guaranty Corporation, or to a trustee appointed under Section 4042 of ERISA. Neither TRMS nor any of ERISA Affiliate nor any organization to which either TRMS or any such ERISA Affiliate is a successor or parent corporation (as described in Section 4069(b) of ERISA) has engaged in a transaction described in Section 4069 of ERISA. (f) TRMS has not established any "welfare benefit plan," other than those listed on SCHEDULE 3.13 to the Disclosure Memorandum, that provides for continuing benefits or coverage for any participant or any beneficiary of a participant after such participant's termination of employment except as may be required by the Section 4980B of the Code or Part 6 of Title I of ERISA ("COBRA"), and the regulations thereunder and at the expense of the participant or the beneficiary of the participant. TRMS is either exempt from or has complied with all applicable notice and continuation coverage requirements of COBRA and the regulations 19 thereunder such that there would not result in any material tax, penalty or liability to either TRMS, Merger LLC or LION. (g) TRMS has made, or will, prior to the Closing Date, have made, all contributions required (including payments of insurance premiums), if any, under all Employee Benefit Plans to fund fully all benefits and obligations accrued thereunder prior to the Closing Date. (h) There are no liabilities or obligations with respect to any of the plans, agreements or Employee Benefit Plans described in SCHEDULE 3.13 that are required to be funded for which contributions have not been made or properly accrued and there are no unfunded benefit obligations that have not been accounted for by reserves, or otherwise properly footnoted in accordance with generally accepted accounting principles on the TRMS Financial Statements. (j) The consummation of the transactions contemplated by this Agreement shall not accelerate the time of payment or vesting, or increase the amount of benefits or compensation due to any individual under any of the Employee Benefit Plans. 3.14 INTELLECTUAL Property (a) TRMS currently does not own any Registered Intellectual Property. TRMS is listed in the records of the appropriate United States federal or state agency as the sole owner for each item of the Registered Intellectual Property that is the subject of a registration in the United States and TRMS is listed in the records of the appropriate foreign agency as the sole owner for each item of Registered Intellectual Property that is the subject of a registration outside the United States. TRMS has not done, or failed to do, any act or thing which may, after the Closing Date, prejudice the validity or enforceability of any material Registered Intellectual Property in any material respect. The Intellectual Property used in the TRMS Business, including the Registered Intellectual Property, includes all Intellectual Property rights in and to all material inventions, works of authorship, and know-how created, invented or authored, as the case may be, by any employee of, or consultant to, TRMS in the course of such employment or consulting relationship, and TRMS is the sole and exclusive owner of all such Intellectual Property. (b) SCHEDULE 3.14(B) to the Disclosure Memorandum (i) sets forth a list of all computer software owned or licensed by, or otherwise used in the TRMS Business and (ii) identifies whether each of the foregoing items of computer software are owned, licensed, or otherwise used, as the case may be. (c) SCHEDULE 3.14(C) to the Disclosure Memorandum sets forth a list of all other licenses of Intellectual Property, specifying the name of the parties thereto and whether the license is an inbound license, an outbound license or a cross-license. Each such license is in full force and effect and is enforceable in accordance with its terms, TRMS is in material compliance with, and has not materially breached any term of any of such licenses, except for such breaches that would not cause a TRMS Material Adverse Effect, and, to the knowledge of TRMS and the 20 Principal Stockholders, all other parties to such licenses are in compliance with, and have not breached any term of, such licenses. (d) TRMS owns, free and clear of all Encumbrances, other than Permitted Encumbrances, or otherwise has the right to use all Intellectual Property necessary to (i) provide the services currently provided by TRMS to third parties, and (ii) operate the internal systems of TRMS that are material to its business and operations, including computer hardware systems and software applications. There are no facts or circumstances of which TRMS and the Principal Stockholders are aware that would reasonably lead TRMS or the Principal Stockholders to believe that TRMS does not own or otherwise have the right to use all Intellectual Property necessary to engage in the activities set forth in the foregoing sentence. Each material item of such Intellectual Property shall be owned, available for use or enforceable, as the case may be, by Surviving LLC and LION immediately following the Closing on substantially identical terms and conditions as it was available to or enforceable by TRMS immediately prior to the Closing. (e) The activities and the conduct of the TRMS Business did not prior to Closing, and will not when conducted in the same manner following the Closing, infringe upon, violate or constitute the unauthorized use of the copyrights or trademarks of any third party or, to the knowledge of TRMS and the Principal Stockholders, of any patents or other Intellectual Property rights of any third party that are issued as of the Closing Date. There is no pending or, to the knowledge of TRMS or the Principal Stockholders, threatened claim (i) alleging that the activities or the conduct of the TRMS Business does or will infringe upon, violate or constitute the unauthorized use of the Intellectual Property rights of any third party; or (ii) challenging the ownership, use, validity, enforceability or registrability of any Intellectual Property by TRMS. There are no settlements, forbearances to sue, consents, judgments, or orders or similar obligations (other than license agreements in the ordinary course of business) which (A) restrict the rights of TRMS to use any material Intellectual Property; (B) restrict the TRMS Business in order to accommodate a third party's intellectual property rights; or (C) permit third parties to use any material Intellectual Property owned by TRMS. (f) No third party possesses any copy of any source code to any material computer software that TRMS owns, except as permitted under a license set forth in SCHEDULE 3.14(C) to the Disclosure Memorandum. To the knowledge of TRMS and the Principal Stockholders, TRMS has not disclosed the source code for any of the computer software owned by TRMS or other confidential information constituting, embodied in or pertaining to such computer software to any Person, except pursuant to effective nondisclosure agreements, and TRMS has taken commercially reasonable measures to prevent disclosure of such source code, subject to the provisions of delivery of source code specified in licenses set forth in SCHEDULE 3.14(C) of the Disclosure Memorandum. (g) TRMS has taken commercially reasonable actions to protect each item of material Intellectual Property owned by it, except where the failure to take such actions was the result of a reasonable business decision by TRMS made in the ordinary course of business. TRMS implements and enforces a policy requiring all employees, contractors and other parties having access to TRMS's confidential information, including TRMS's Intellectual Property, to execute a proprietary information/confidentiality agreement, in substantially the form provided 21 to LION, with TRMS, and, to the knowledge of TRMS, no party to any such agreement is in breach thereof. (h) SCHEDULE 3.14(H) to the Disclosure Memorandum sets forth a list of all Internet domain names used in the TRMS Business (collectively, the "DOMAIN NAMES"). TRMS has, and, as of the Effective Time, Surviving LLC will have, a valid registration and all material rights (free of any material restriction) in and to the Domain Names, including, without limitation, all rights necessary to continue to conduct the TRMS Business as it is currently conducted and proposed to be conducted following the Effective Time. 3.15 CORPORATE BOOKS AND RECORDS TRMS has furnished to LION or its counsel for their examination true and complete copies of (a) the certificate of incorporation and bylaws of TRMS as currently in effect, including all amendments thereto, (b) the minute books of TRMS, and (c) the stock transfer books of TRMS. The contents of the minute books reflect all meetings of the Stockholders and TRMS's board of directors and any committees thereof since TRMS's inception, and such minutes accurately reflect in all material respects the material actions taken at such meetings. Such stock transfer books accurately reflect all issuances and transfers of shares of capital stock of TRMS since its inception. 3.16 LICENSES PERMITS, AUTHORIZATIONS, ETC. (a) TRMS has timely filed all Regulatory Documents that were required to be filed with any Governmental Authority and has paid all fees and assessments due and payable in connection therewith. TRMS is and has been since April 26, 2001 duly registered as an investment adviser under the Advisers Act and under all applicable state statutes. TRMS has engaged in no conduct prior to the date of this Agreement that would be reasonably likely to result in SEC action to disqualify TRMS or any Affiliate as an investment adviser. As of their respective dates, the Regulatory Documents of TRMS complied in all material respects with the requirements of all laws, rules and regulations applicable to such Regulatory Documents, and none of such Regulatory Documents, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. TRMS has previously delivered or made available to LION a true, correct and complete copy of each such Regulatory Document filed with the SEC, NASD or other Governmental Authority and prior to the date hereof, and will deliver or make available to LION promptly after the filing thereof a true, correct and complete copy of each Regulatory Document filed by TRMS after the date hereof and prior to the Closing Date. Neither TRMS nor its Principal Stockholders has engaged in any of the conduct specified in Section 203(e) of the Advisers Act prior to the date of this Agreement that would be reasonably likely to result in SEC action to disqualify TRMS as an investment adviser. (b) TRMS has received all currently required Permits where the failure to have obtained any such Permit would have a TRMS Material Adverse Effect. TRMS is in compliance in all material respects with the terms of all Permits, and all the Permits are valid and in full force and effect, and no proceeding is pending, or to the knowledge of TRMS or the 22 Principal Stockholders, threatened, the object of which is to revoke, limit or otherwise affect any of the Permits. TRMS has not received any notifications of any asserted present failure by it to have obtained any Permit, or any past and unremedied failure to obtain such items. 3.17 COMPLIANCE WITH LAWS Except as would not have a TRMS Material Adverse Effect, TRMS is in compliance with all federal, state, local and foreign laws, rules, regulations, ordinances, decrees and orders applicable to it, to its employees or to the Real Property and the Personal Property, including all such laws, rules, regulations, ordinances, decrees and orders relating to intellectual property protection, antitrust matters, consumer protection, currency exchange, environmental protection, equal employment opportunity, health and occupational safety, pension and employee benefit matters, securities and investor protection matters, labor and employment matters and trading-with-the-enemy matters. TRMS has not received any written notification or, to the knowledge of TRMS or the Principal Stockholders, any other form of notification of any asserted present or past unremedied failure by TRMS to comply with any of such laws, rules, regulations, ordinances, decrees or orders. Except for normal examinations conducted by any Governmental Authority in the ordinary course of business, no Governmental Authority has initiated any administrative proceeding or, to the knowledge of TRMS or the Principal Stockholders, investigation into or related to the business or operations of TRMS. There is no unresolved violation, criticism or exception by any Governmental Authority with respect to any report or statement by any Governmental Authority relating to any examination of TRMS. 3.18 INSURANCE TRMS maintains insurance against liabilities, claims and risks of a nature and in such amounts as are described in SCHEDULE 3.18 to the Disclosure Memorandum. All insurance policies of TRMS are in full force and effect, all premiums with respect thereto have been paid, and no notice of cancellation or termination has been received with respect to any such policy or binder. Such policies or binders are sufficient for compliance with all agreements to which TRMS is a party, will remain in full force and effect through the respective expiration dates of such policies or binders without the payment of additional premiums. 3.19 BROKERS OR FINDERS TRMS has not incurred, and will not incur, directly or indirectly, as a result of any action taken by or on behalf of TRMS, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with the Merger, this Agreement or any transaction contemplated hereby. 3.20 ABSENCE OF QUESTIONABLE PAYMENTS Neither TRMS nor, to the knowledge of TRMS or the Principal Stockholders, any director, officer, agent, employee or other Person acting on behalf of TRMS, has used any TRMS funds for improper or unlawful contributions, payments, gifts or entertainment, or made any improper or unlawful expenditures relating to political activity to domestic or foreign government officials or others. TRMS has reasonable financial controls to prevent such 23 improper or unlawful contributions, gifts, entertainment or expenditures. Neither TRMS nor any current director, officer, agent, employee or other Person acting on behalf of TRMS has accepted or received any improper or unlawful contributions, payments, gifts or expenditures relating to TRMS Business. TRMS has at all times complied, and is in compliance, in all respects with the Foreign Corrupt Practices Act and all foreign laws and regulations relating to prevention of corrupt practices and similar matters. 3.21 BANK ACCOUNTS SCHEDULE 3.21 to the Disclosure Memorandum sets forth the names and locations of all banks, trust companies, savings and loan associations and other financial institutions at which TRMS maintains safe deposit boxes or accounts of any nature and the names of all Persons authorized to draw thereon, make withdrawals therefrom or have access to such safe deposit boxes or accounts. 3.22 CUSTOMERS SCHEDULE 3.22 to the Disclosure Memorandum sets forth a complete and accurate list of the customers of TRMS during the fiscal year last ended and the eight-month period ended August 31, 2004, showing the approximate total revenues from each such customer during such fiscal year and eight-month period ended. TRMS has not received any notice from any customer named on SCHEDULE 3.22 to the Disclosure Memorandum that would cause it, in its reasonable judgment, to expect any material modification to its relationship with such customer. 3.23 ACCOUNTS RECEIVABLE All accounts receivable of TRMS reflected in the TRMS Balance Sheet or existing at the Effective Time represent sales actually made in the ordinary course of business and were recorded in TRMS's books consistent with the presentation applied in the TRMS Financial Statements for the eight-months ended August 31, 2004. The allowances for doubtful accounts reflected in the TRMS Balance Sheet are adequate. 3.24 CREDITORS' LIST SCHEDULE 3.24 to the Disclosure Memorandum sets forth a full, complete and accurate list of all creditors of Company, with the amount payable to each such creditor as of the date hereof. 3.25 INSIDER INTERESTS No Stockholder or officer or director of TRMS has any interest (other than as a stockholder of TRMS) (a) in any Personal Property or Intellectual Property used in or directly pertaining to the TRMS Business, or (b) in any agreement, contract, arrangement or obligation relating to TRMS, its present or prospective business or its operations. Neither TRMS nor any officer, director or Stockholder has any interest, either directly or indirectly, in any entity, including any corporation, partnership, joint venture, proprietorship, firm, licensee, business or association (whether, as an employee, officer, director, stockholder, agent, independent contractor, security holder, creditor, consultant or otherwise), other than ownership of capital stock comprising less than 1% of any publicly held company, that presently (i) provides any 24 services or engages in any activity that is the same, similar to or competitive with the business of TRMS; (ii) is a supplier, customer or creditor of TRMS; or (iii) has any direct or indirect interest in any asset or property of TRMS or any property that is necessary or desirable for the present or currently anticipated future conduct of the TRMS Business. 3.26 COMPLIANCE WITH ENVIRONMENTAL LAWS Neither TRMS nor, to the knowledge of TRMS or the Principal Stockholders, any other Person (including, without limitation, any previous owner, lessee or sublessee) has treated, stored or disposed of any material amounts of petroleum products, hazardous waste, hazardous substances, pollutants or contaminants on the Real Property, or any real property previously owned, leased, subleased or used by TRMS in the operation of its business, in violation of any applicable foreign, federal, state or local statutes, regulations or ordinances, or common law, in each case as in existence at or prior to the Closing. To the knowledge of TRMS and the Principal Stockholders, there have been no releases of any material amounts of petroleum, petroleum products, hazardous waste, hazardous substances, pollutants or contaminants on, at or from any assets or properties, including, without limitation, the Real Property, owned, leased, subleased or used by TRMS in the operation of its business in violation of applicable environmental laws. 3.27 FULL DISCLOSURE No information furnished by TRMS or the Principal Stockholders to LION or its representatives in connection with the Operative Documents contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements so made or information so delivered not misleading. ARTICLE 3A - ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL STOCKHOLDERS Except as set forth in the Disclosure Memorandum, and in order to induce LION and Merger LLC to enter into and perform this Agreement and the other Operative Documents to be entered into as of the Closing among LION and each of the Principal Stockholders, each Principal Stockholder, individually and not jointly, represents and warrants to LION and Merger LLC as of the Closing Date as follows. 3A.1 SOPHISTICATION; ACCREDITATION Such Principal Stockholder is an "accredited investor" as defined in Regulation D of the Securities Act. Such Principal Stockholder is in a financial position to hold the LION Common Stock for an indefinite period of time and is able to bear the economic risk and withstand a complete loss of his investment in the LION Common Stock. 3A.2 OWNERSHIP Such Principal Stockholder owns beneficially and of record TRMS Common Stock as described on SCHEDULE 3.3(B) of the Disclosure Memorandum, free and clear of any Encumbrance. 25 3A.3 INFORMATION Such Principal Stockholder has been furnished with all information that he deems necessary to evaluate the risks and merits of the LION Common Stock. Such Principal Stockholder has had the opportunity to ask questions and receive answers concerning the information he has received about the LION Common Stock and LION. 3A.4 NO REGISTRATION Such Principal Stockholder is aware and understands that (a) the Merger Shares have not been and will not prior to issuance be registered under the Securities Act, (b) the Merger Shares cannot be sold unless they are subsequently registered or an exemption from registration is available and (c) LION has no obligation to register the Merger Shares with the SEC and has not represented that it will register the Merger Shares. The foregoing notwithstanding, with a view to making available to the Principal Stockholders the benefits of Rule 144 under the Securities Act, LION will make and keep public information available, as those terms are understood and defined in Rule 144, so long as LION is subject to the periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act, file with the SEC in a timely manner all reports and other documents required of LION under the Securities Act and the Exchange Act, and furnish to the Principal Stockholders, upon request, a written statement by LION that it has complied with the reporting requirements of SEC Rule 144, the Securities Act and the Exchange Act and such other information as may reasonably be requested by the Principal Stockholders. 3A.5 BROKERS OR AGENTS Such Principal Stockholder has not employed any broker or agent in connection with the transactions contemplated by this Agreement and agrees to indemnify LION against all losses, damages or expenses relating to or arising out of claims for fees or commission of any broker or agent employed by such Principal Stockholder. 3A.6 INVESTMENT FOR OWN ACCOUNT The LION Common Stock is being acquired by such Principal Stockholder for investment for his account, not as a nominee or agent, and not with a view to the distribution of any part thereof. Such Principal Stockholder has no present intention of selling, granting any participation in or otherwise distributing any of the LION Common Stock in a manner contrary to the Securities Act or to any applicable state securities or Blue Sky law, nor does such Principal Stockholder have any contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or grant a participation to such person or entity with respect to any of the LION Common Stock. 3A.7 RESIDENCY For purposes of the application of state securities laws, such Principal Stockholder is a resident of the state set forth beside his name on SCHEDULE 3.3(B) of the Disclosure Memorandum. 26 3A.8 LEGENDS Such Principal Stockholder understands that certificates representing the Merger Shares will bear legends substantially similar to the following, in addition to any other legends required by federal or state laws: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY OTHER APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AND MAY NOT BE SOLD, DISTRIBUTED, PLEDGED ON OR OTHERWISE TRANSFERRED UNLESS (I) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING THESE SHARES, (II) LION INC. RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THE SHARES SATISFACTORY TO LION INC. STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (III) LION INC. OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION. Such Principal Stockholder agrees that, in order to ensure and enforce compliance with the restrictions imposed by applicable law and those referred to in the foregoing legend, LION may issue appropriate "stop transfer" instructions to its transfer agent with respect to any certificate or other instrument representing the Merger Shares. ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF LION AND MERGER LLC In order to induce TRMS and the Principal Stockholders to enter into and perform the Operative Documents, LION and Merger LLC jointly and severally represent and warrant to TRMS and the Principal Stockholders as of the date of this Agreement and as of the Closing Date as follows: 4.1 ORGANIZATION LION is a corporation duly incorporated and validly existing under the laws of the state of Washington. Merger LLC is a limited liability company validly existing under the laws of the state of Washington. Each of LION and Merger LLC has, as the case may be, all requisite corporate or limited liability company power and authority to execute, deliver and perform its obligations under the Operative Documents to which it is a party and to consummate the transactions contemplated thereby. All the issued and outstanding membership interests of Merger LLC are held of record and beneficially by LION. 4.2 ENFORCEABILITY All corporate and limited liability company action on the part of LION and Merger LLC and their respective officers, directors and Stockholders necessary for the authorization, execution, delivery and performance of the Operative Documents, the consummation of the Merger and the performance of all their respective obligations under the Operative Documents has been taken or will be taken prior to the Effective Time. Each of the Operative Documents has been duly executed and delivered by each of LION and Merger LLC, as applicable, and each of the Operative Documents is a legal, valid and binding obligation of each of LION and Merger 27 LLC, as applicable, enforceable against each of them in accordance with its terms, except as enforceability may be limited or affected by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, or other laws of general application relating to or affecting the enforcement of creditors' rights, and except as enforceability may be limited by equitable principles, including those limiting the availability of specific performance, injunctive relief and other equitable remedies providing for defenses based on fairness and reasonableness, regardless of whether considered in a proceeding in equity or at law. 4.3 SECURITIES The Merger Shares to be issued pursuant to this Agreement have been duly authorized for issuance, and such Merger Shares, when issued and delivered to the Stockholders pursuant to this Agreement, shall be validly issued, fully paid and nonassessable. 4.4 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS The execution, delivery and performance of the Operative Documents by Merger LLC and LION, as applicable, and the consummation by them of the transactions contemplated thereby will not: (a) constitute a violation (with or without the giving of notice or lapse of time, or both) of any provision of law or any judgment, decree, order, regulation or rule of any Governmental Authority applicable to LION or Merger LLC; (b) require any consent, approval or authorization of, or declaration, filing or registration with, any Person, except (i) compliance with applicable securities laws and (ii) the filing of all documents necessary to consummate the Merger under Delaware Law and Washington Law; or (c) conflict with or result in a breach of or constitute a default under any provision of the articles of incorporation or bylaws of LION or the charter documents of Merger LLC. 4.5 SEC DOCUMENTS LION has made available to the Stockholders true and complete copies of the LION SEC Documents. As of their respective filing dates, the LION SEC Documents complied in all material respects with the requirements of the Exchange Act and the applicable rules and regulations of the SEC promulgated thereunder. 4.6 FULL DISCLOSURE No information furnished by LION or Merger LLC to TRMS or the Principal Stockholders in connection with the Operative Documents contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements so made or information so delivered not misleading. 28 ARTICLE 5 - CONDITIONS PRECEDENT TO OBLIGATIONS OF LION AND MERGER LLC The obligations of LION and Merger LLC to perform and observe the covenants, agreements and conditions hereof to be performed and observed by them at or before the Closing shall be subject to the satisfaction of the following conditions, which may be expressly waived only in writing signed by LION and Merger LLC: 5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES The representations and warranties of TRMS and the Principal Stockholders contained herein and in the other Operative Documents shall have been true and correct in all respects when made and, except (a) for changes contemplated by this Agreement and the other Operative Documents and (b) to the extent that such representations and warranties speak as of an earlier date, shall be true and correct in all respects as of the Closing Date, as though made on that date. 5.2 PERFORMANCE OF AGREEMENTS TRMS and each of the Principal Stockholders shall have performed all obligations and agreements and complied with all covenants contained in this Agreement or any Operative Document to be performed and complied with by it or him at or prior to the Closing. 5.3 OPINION OF COUNSEL FOR TRMS LION shall have received the opinion of Gray Cary Ware & Freidenrich L.L.P., counsel for TRMS and the Principal Stockholders, dated the Closing Date, in the form attached hereto as EXHIBIT 5.3. 5.4 AUDIT LION shall have received assurances from its independent auditors with respect to the auditability of the TRMS Financial Statements. 5.5 MATERIAL ADVERSE CHANGE Since the date of the TRMS Balance Sheet and through the Closing, there shall not have occurred any change that is or is reasonably likely to result in a TRMS Material Adverse Effect. 5.6 APPROVALS and Consents All transfers of Permits and all approvals of or notices to Governmental Authorities, the granting or delivery of which is necessary for the consummation of the transactions contemplated hereby, including approvals or notices required under the Advisers Act and applicable state statutes or for the continued operation of TRMS, shall have been obtained, and all waiting periods specified by law shall have passed. All other consents, approvals and notices referred to in this Agreement shall have been obtained or delivered. 29 5.7 PROCEEDINGS AND DOCUMENTS; OFFICER'S CERTIFICATE LION shall have received a certificate of an officer of TRMS, in form and substance reasonably satisfactory to LION, as to the authenticity and effectiveness of the actions of TRMS's board of directors and Stockholders and the authorization of the Merger and the transactions contemplated by the Operative Documents. LION shall have received a certificate of an officer of TRMS, dated the Closing Date, in form and substance reasonably satisfactory to LION, certifying that the conditions to the obligations of LION set forth in this Article 5 have been fulfilled. 5.8 COMPLIANCE WITH LAWS The effectiveness of the Merger and the performance by LION, Merger LLC, TRMS, the Principal Stockholders and the Stockholders' Representative of their respective obligations pursuant to this Agreement and the other Operative Documents shall be legally permitted by all laws and regulations to which LION, Merger LLC, TRMS, the Principal Stockholders and the Stockholders' Representative are subject. 5.9 LEGAL PROCEEDINGS No order of any Governmental Authority shall be in effect that enjoins, restrains, conditions or prohibits consummation of this Agreement or any Operative Document, and no litigation, investigation or administrative proceeding shall be pending or, to the knowledge of TRMS or the Principal Stockholders, threatened that would enjoin, restrain, condition or prevent consummation of this Agreement or any Operative Document. 5.10 EMPLOYMENT AGREEMENTS Each of Berris and Clementson shall have executed and delivered the Employment Agreements substantially in the forms attached hereto as EXHIBIT 5.10.1 and EXHIBIT 5.10.2, respectively. Each of the employees of TRMS identified on SCHEDULE 5.10 hereto shall have accepted employment with LION and shall have executed the LION standard form of Confidentiality and Assignment of Inventions Agreement substantially in the form attached hereto as EXHIBIT 5.10.3, and each such agreement shall be in full force and effect on the Closing Date. 5.11 INVESTOR ACKNOWLEDGMENT Each Stockholder shall have executed an Investor Acknowledgment. 5.12 CONSENTS TO MERGER SCHEDULE 3.10.2 to the Disclosure Memorandum lists certain agreements, leases, notes or other documents that, by their terms, require consent or waiver to consummate the Merger. Unless otherwise set forth in SCHEDULE 3.10.2 to the Disclosure Memorandum, TRMS shall have received and shall have delivered to LION or its counsel written consents to the Merger or waivers, as applicable, from each of the parties to such agreements, leases, notes or other 30 documents, which consents or waivers, as the case may be, shall be reasonably satisfactory in all respects to LION. 5.13 MERGER CONSIDERATION TRMS shall provide LION with a spreadsheet in a form reasonably acceptable to LION detailing (a) the number of shares of TRMS Common Stock held by each Stockholder and (b) the amount of LION Common Stock to be received by each such Stockholder at the Effective Time in accordance with Section 2.5.1 hereof. 5.14 COMPANY'S 401(K) PROFIT SHARING PLAN Prior to Closing, TRMS shall take all actions necessary to terminate its 401(k) profit sharing plan, including adoption of any corporate resolutions and plan amendments required to effect termination of the plan. 5.15 REITCO REITCO shall have been established in accordance with the terms and conditions set forth in Section 7.9 and REITCO shall have executed and delivered the REITCO Right of First Refusal Agreement. 5.16 COMPANY WORKING CAPITAL Estimated Closing Working Capital shall be no less than $300,000. ARTICLE 6 - CONDITIONS PRECEDENT TO OBLIGATIONS OF TRMS AND THE PRINCIPAL STOCKHOLDERS The obligations of TRMS and each of the Principal Stockholders to perform and observe the covenants, agreements and conditions in this Agreement and the other Operative Documents to be performed and observed by it and him at or before the Closing shall be subject to the satisfaction of the following conditions, which may be expressly waived only in writing signed by TRMS and the Principal Stockholders: 6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES The representations and warranties of LION and Merger LLC contained herein and in the other Operative Documents shall have been true and correct in all respects when made and, except (a) for changes contemplated by this Agreement and the other Operative Documents and (b) to the extent that such representations and warranties speak as of an earlier date, shall be true and correct as of the Closing Date as though made on that date. 6.2 PERFORMANCE OF AGREEMENTS LION and Merger LLC shall have performed all obligations and agreements and complied with all covenants contained in this Agreement or any Operative Document to be performed and complied with by them at or prior to the Closing. 31 6.3 OPINION OF COUNSEL FOR LION AND MERGER LLC TRMS and the Principal Stockholders shall have received the opinion of Stoel Rives LLP, counsel for LION and Merger LLC, dated the Closing Date, in the form attached hereto as EXHIBIT 6.3. 6.4 OFFICER'S CERTIFICATE TRMS shall have received a certificate of an officer of LION, dated the Closing Date, in form and substance reasonably satisfactory to TRMS, certifying that the conditions to the obligations of TRMS and the Principal Stockholders set forth in this Article 6 have been fulfilled. 6.5 EMPLOYMENT AGREEMENTS Merger LLC shall have executed and delivered the Employment Agreements with the Principal Stockholders in form and substance as attached hereto as EXHIBITS 5.10.1 and 5.10.2. 6.6 PUT AGREEMENT LION shall have executed and delivered the put agreement in form and substance as attached hereto as EXHIBIT 6.6, pursuant to which LION grants each Stockholder, other than the Principal Stockholders, on the terms and conditions set forth therein, the right to require LION, commencing on the first anniversary of the Closing Date, to repurchase the number of Merger Shares that each Stockholder received in the Merger at the then-fair market value of such shares, to the extent that such shares cannot be sold in reliance on Rule 144 under the Securities Act. 6.7 LEGAL PROCEEDINGS No order of any Governmental Authority shall be in effect that enjoins, restrains, conditions or prohibits consummation of this Agreement or any other Operative Document, and no litigation, investigation or administrative proceeding shall be pending or, to LION's knowledge, threatened which would enjoin, restrain, condition or prevent consummation of this Agreement or any other Operative Document. 6.8 MATERIAL ADVERSE CHANGE Since the date of this Agreement and through the Closing, there shall not have occurred any material adverse change in LION's business operations, assets, liabilities or condition (financial or otherwise). Changes in the trading prices of LION Common Stock shall not be deemed material adverse changes under this Section 6.8. 6.9 APPROVALS AND CONSENTS All transfers of Permits and all approvals of or notices to Governmental Authorities, the granting or delivery of which is necessary on the part of LION and Merger LLC for the consummation of the transactions contemplated hereby, shall have been obtained, and all waiting 32 periods specified by law shall have passed. All other consents, approvals and notices on the part of LION and Merger LLC referred to in this Agreement shall have been obtained or delivered. 6.10 REITCO LION shall have complied with its obligation to purchase REITCO common stock in accordance with Section 7.9 and shall have executed and delivered the REITCO Right of First Refusal Agreement. 6.11 COMPLIANCE WITH LAWS The effectiveness of the Merger and the performance by LION, Merger LLC, TRMS, the Principal Stockholders and the Stockholders' Representatives of the obligations hereunder and under the other Operative Documents shall be legally permitted by all laws and regulations to which LION, Merger LLC, TRMS, the Principal Stockholders and the Stockholders' Representatives are subject. ARTICLE 7 - COVENANTS Between the date of this Agreement and the Effective Time, the parties covenant and agree as set forth in this Article 7. 7.1 CONDUCT OF BUSINESS BY TRMS PENDING THE MERGER Other than to effect the Pre-Closing Distribution or unless LION otherwise agrees in writing, TRMS and the Principal Stockholders covenant and agree to conduct the TRMS Business in and only in, and TRMS and the Principal Stockholders shall not take any action except in, the ordinary course of business and in a manner consistent with past practice and in accordance with applicable law except to the extent that it would not cause a TRMS Material Adverse Effect; and each of TRMS and the Principal Stockholders shall use its and his best efforts to preserve intact the TRMS Business, to keep available the services of the current officers, employees and consultants of TRMS and to preserve the current relationships of TRMS with, and the goodwill of, customers and other Persons with which TRMS has significant business relationships. By way of amplification and not limitation, except as otherwise contemplated by this Agreement, TRMS and the Principal Stockholders shall not directly or indirectly do, or propose to do, any of the following without the prior written consent of LION: (a) amend or otherwise change TRMS's certificate of incorporation or bylaws; (b) issue, sell, contract to issue or sell, pledge, dispose of, grant, encumber or authorize the issuance, sale, pledge, disposition, grant or Encumbrance of (i) any shares of capital stock of any class of TRMS, (ii) any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest (including, without limitation, any phantom interest) of TRMS, or (iii) any assets of TRMS, except in the ordinary course of business and in a manner consistent with past practice; 33 (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock or other securities, property or otherwise, with respect to any of its capital stock, other than the Pre-Closing Distribution; (d) (i) acquire (including, without limitation, by merger, consolidation, or acquisition of stock or assets) any corporation, partnership, other business organization or division thereof or any material amount of assets; (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation, become responsible for, the obligations of any Person, or make any loans or advances, except in the ordinary course of business and consistent with past practice; (iii) enter into any contract or agreement other than in the ordinary course of business, consistent with past practice; (iv) authorize any capital expenditures in excess of $10,000; or (v) enter into any agreement in which the obligation of TRMS exceeds $10,000 or which shall not terminate or be subject to termination for convenience within 30 days following execution; (e) enter into or amend any employment, consulting or agency agreement, or increase the compensation payable or to become payable to its officers, employees, agents or consultants, or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer or other employee of TRMS, or establish, adopt, enter into or amend any Employee Benefit Plan, collective bargaining, bonus, profit-sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance, benefit or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer or employee; (f) take any action, other than reasonable and usual actions in the ordinary course of business and consistent with past practice, with respect to accounting methods, policies or procedures (including, without limitation, procedures with respect to the payment of accounts payable and collection of accounts receivable); (g) make any Tax election or settle or compromise any Tax liability; (h) pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice; (i) take any action that would or is reasonably likely to result in any of the representations or warranties of TRMS and the Principal Stockholders set forth in this Agreement being untrue in any material respect, or in any covenant of TRMS or the Principal Stockholders set forth in this Agreement being breached, or in any of the conditions to the Merger specified in Article 5 not being satisfied; or (j) agree to do any of the foregoing. 7.2 ACCESS TO INFORMATION; CONFIDENTIALITY Each of TRMS and LION shall, and shall cause its officers, directors, employees and agents to, afford the officers, employees and agents of the other access, during normal business hours and upon reasonable notice, to the officers, employees, agents, offices, books and records 34 of the other and shall furnish the other with all reasonable financial, operating and other data and information as TRMS or LION, through its officers, employees or agents, may reasonably request. The parties shall continue to comply with and to perform their respective obligations under the Mutual Confidentiality Agreement between LION and TRMS entered into as of January 6, 2004. 7.3 NO ALTERNATIVE TRANSACTIONS Unless this Agreement shall have been terminated in accordance with its terms, neither TRMS nor the Principal Stockholders shall, directly or indirectly, through any officer, director, agent or otherwise, solicit, initiate or encourage the submission of any proposal or offer from any Person relating to any acquisition or purchase of all or any material portion of the assets of, or any equity interest in, TRMS or any business combination with TRMS, or participate in any negotiations regarding, or furnish to any other Person any information with respect to, or otherwise cooperate or negotiate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to do or seek any of the foregoing. TRMS shall notify LION in writing promptly if any such proposal or offer, or any inquiry or contact with any Person with respect thereto, is made and shall, in any such written notice to LION, indicate in reasonable detail the identity of the Person making such proposal, offer, inquiry or contact and the terms and conditions of such proposal, offer, inquiry or contact. 7.4 NOTIFICATION OF CERTAIN MATTERS Each party shall give prompt written notice to the other parties of (a) the occurrence or nonoccurrence of any event that would be reasonably likely to cause any representation or warranty made by such party contained in this Agreement to be untrue or inaccurate and (b) any failure by such party to comply with or satisfy any covenant, condition or agreement to be compiled with or satisfied by it hereunder; provided, however, that the delivery of any written notice pursuant to this Section 7.4 shall not limit or otherwise affect the remedies available to the parties hereunder. 7.5 FURTHER ACTION; REGULATORY MATTERS (a) Upon the terms and subject to the conditions hereof, each of the parties hereto shall use commercially reasonable efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated in this Agreement and the other Operative Documents, including using commercially reasonable efforts promptly to prepare and file (on a confidential basis if requested by the other parties) all necessary documentation, to effect (on a confidential basis if requested by the other parties) all applications, notices, petitions and filings, and to obtain all waivers, licenses, permits, consents, approvals, authorizations, waivers, qualifications and orders of all Persons that are necessary or advisable to consummate the transactions contemplated by this Agreement. (b) If any required consent of or waiver by any Person (excluding any Governmental Authority) is not obtained prior to the Closing, or if the assignment of any contract would be ineffective or would adversely affect any material rights or benefits thereunder 35 so that LION or Merger LLC would not in fact receive all such rights and benefits, the parties hereto, each without cost, expense or liability to the other, shall cooperate in good faith to seek, if possible, an alternative arrangement to achieve the economic results intended. (c) The parties hereto will have the right to review in advance, and will consult with the other on, in each case subject to applicable laws relating to the exchange of information, all the information relating to LION, Merger LLC or TRMS, as the case may be, which appear in any filing made with, or written materials submitted to, any Person in connection with the transactions contemplated by this Agreement. The parties hereto will consult with each other with respect to obtaining all permits, consents, approvals and authorizations of all Persons necessary or advisable to consummate the transactions contemplated by this Agreement and each party will keep the others apprised of the status of matters relating to completion of the transactions contemplated herein. (d) The party responsible for a filing as set forth above shall promptly deliver to the other parties hereto evidence of the filing of all applications, filings, registrations and notifications relating thereto, and any supplement, amendment or item of additional information in connection therewith. The party responsible for a filing also shall promptly deliver to the other parties hereto a copy of each material notice, order, opinion and other item of correspondence received by such filing party from any Governmental Authority in respect of any such application. In exercising the foregoing rights and obligations, LION, Merger LLC and TRMS shall act reasonably and as promptly as practicable. (e) LION and Merger LLC shall take all commercially reasonable steps necessary to satisfy any conditions or requirements imposed by any Governmental Authority in connection with the consummation of the transactions contemplated by this Agreement, other than those conditions or requirements, in the aggregate, the satisfaction of which by LION and Merger LLC are reasonably likely to result in either a TRMS Material Adverse Effect or a material adverse effect with respect to LION or Merger LLC. (f) Each party to this Agreement shall, upon request, furnish each other with all information concerning themselves, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with any statement, filing, notice or application made by or on behalf of LION, Merger LLC or TRMS to any Governmental Authority in connection with the transactions contemplated by this Agreement. (g) The parties to this Agreement shall promptly advise each other upon receiving any communication from any Governmental Authority whose consent or approval is required for consummation of the transactions contemplated by this Agreement which causes such party to believe that there is a reasonable likelihood that any requisite regulatory approval will not be obtained or that the receipt of any such approval will be materially delayed or that the transactions contemplated hereby will become subject to additional conditions imposed by a Governmental Authority. 36 7.6 PUBLICITY No party hereto shall issue any press release or otherwise make any statements to any third party with respect to this Agreement or the transactions contemplated hereby other than the issuance by LION of a press release announcing this Agreement and the transactions contemplated hereby or as required by law. 7.7 EXECUTION OF ALL OPERATIVE DOCUMENTS Each party shall execute at or prior to Closing each Operative Document to which he or it is a party. 7.8 LIMITATION ON SALES OF COMPANY COMMON STOCK Except as contemplated by this Agreement, neither Principal Stockholder will sell, assign, transfer, pledge, encumber or otherwise dispose of any of his shares of TRMS Common Stock. 7.9 REIT ADVISORY BUSINESS. TRMS shall have contributed the assets and assigned the liabilities of TRMS used in and necessary for its REIT advisory business, to REITCO, which shall be owned by all of the Stockholders in the ownership percentages described on SCHEDULE 7.9. REITCO shall have stockholders' equity of not less than $22,250 as of Closing and have no outstanding shares, equity interests, options or other rights to acquire equity other than as set forth on SCHEDULE 7.9. Concurrent with the Closing, (a) REITCO shall authorize the acceptance of subscriptions from and the issuance of REITCO common stock to LION in the amount of 25,000 shares at a per share subscription price of $0.10, pursuant to the stock purchase agreement attached as EXHIBIT 7.9.1 hereto and (b) REITCO and LION shall have executed and delivered the REITCO right of first refusal agreement attached as EXHIBIT 7.9.2 hereto (the "REITCO RIGHT OF FIRST REFUSAL AGREEMENT"), providing for the rights of first refusal, restrictions on transfer and the other rights and obligations with respect to ownership of REITCO capital stock set forth therein. 7.10 TAX COVENANT LION, Merger LLC and the Stockholders will not take any action that could reasonably be expected to prevent the Merger from qualifying as a reorganization under Section 368(a) of the Code. ARTICLE 8 - TERMINATION, AMENDMENT AND WAIVER 8.1 TERMINATION This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time: (a) by mutual written consent of TRMS and LION; 37 (b) by either TRMS or LION, if the Merger has not been consummated by November 15, 2004; provided, however, that the right to terminate this Agreement under this subsection (b) shall not be available to any party whose willful breach of any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date; (c) by either TRMS or LION, if there shall be any law or regulation that makes consummation of the Merger illegal or if any judgment, injunction, order or decree enjoining LION, Merger LLC, TRMS or the Stockholders from consummating the Merger is entered and such judgment, injunction, order or decree shall become final and nonappealable; provided, however, that the party seeking to terminate this Agreement pursuant to this subsection (c) shall have used all reasonable efforts to remove such judgment, injunction, order or decree; (d) by TRMS, in the event of a material breach by LION or Merger LLC of any representation, warranty or agreement contained herein that has not been cured by November 15, 2004; (e) by LION, in the event of a material breach by TRMS or either Principal Stockholder of any representation, warranty or agreement contained herein that has not been cured by November 15, 2004. 8.2 EFFECT OF TERMINATION Except as specifically provided in this Section 8.2, in the event of the termination of this Agreement pursuant to Section 8.1 hereof, there shall be no further obligation on the part of any party hereto, except that nothing herein shall relieve any party from any obligation under the Mutual Confidentiality Agreement between LION and TRMS dated January 6, 2004. 8.3 AMENDMENT; WAIVER This Agreement may be amended by an instrument in writing signed by LION, TRMS the Principal Stockholders, and the Stockholders' Representative. At any time prior to the Effective Time, any party hereto may (a) extend the time for the performance of any obligation or other act of any other party hereto, (b) waive any inaccuracy in the representations and warranties contained herein or in any document delivered pursuant hereto, or (c) waive compliance with any agreement or condition contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby. No other course of dealing between or among any of the parties hereto or any delay in exercising any rights pursuant to this Agreement shall operate as a waiver of any rights of any party hereto. ARTICLE 9 - SURVIVAL AND INDEMNIFICATION 9.1 SURVIVAL All representations and warranties contained in this Agreement shall survive until the date 18 months after the Effective Time, and shall not be deemed waived or otherwise affected by any investigation made or any knowledge acquired with respect thereto, or by any notice 38 delivered pursuant to Section 7.4 or otherwise; provided, however, that the representations and warranties of TRMS and the Principal Stockholders contained in Section 3.8 (Taxes) and any claim relating to fraud shall survive the Effective Time until the statute of limitations for the matter addressed in such representation and warranty, and any such claim relating to fraud, expires (the "SURVIVAL PERIOD"). 9.2 INDEMNIFICATION BY THE PRINCIPAL STOCKHOLDERS Subject to the limitations set forth in this Article 9, the Principal Stockholders severally shall indemnify and hold LION and its officers, directors and Affiliates (the "LION INDEMNIFIED PARTIES") harmless from and against, and shall reimburse the LION Indemnified Parties for, any and all Losses arising out of (i) any inaccuracy or misrepresentation in, or breach of, any representation or warranty made by TRMS or either Principal Stockholder in any Operative Document; (ii) any failure by TRMS or the Principal Stockholders to perform or comply, in whole or in part, with any covenant or agreement in any Operative Document; and (iii) all liability for Taxes of TRMS assessed during or attributable to any taxable period ending on or prior to the Effective Date, and the portion of any taxable period that includes, but does not end on, the Effective Date to the extent such Taxes exceed the reserve for Tax liability set forth on the face of the TRMS Balance Sheet. 9.3 INDEMNIFICATION BY LION Subject to the limitations set forth in this Article 9, LION shall indemnify and hold the Stockholders and TRMS's officers, directors and Affiliates (the "TRMS INDEMNIFIED PARTIES") harmless from and against, and shall reimburse TRMS Indemnified Parties for, any and all Losses arising out of or in connection with (a) any inaccuracy in, or misrepresentation or breach of, any representation or warranty made by LION or Merger LLC in any Operative Document, and (b) any failure by LION or Merger LLC to perform or comply, in whole or in part, with any covenant or agreement in any Operative Document. 9.4 PROCEDURE FOR Indemnification (a) The Indemnified Party shall give a Claim Notice of any Claim to the indemnifying party (in the case of a Claim against a Principal Stockholder, to the Stockholders' Representative) as promptly as practicable, but in any event: (i) if such Claim relates to the assertion against an Indemnified Party of any claim by a third party (a "THIRD PARTY CLAIM"), within 30 days after the assertion of such Third Party Claim, or (ii) if such Claim is not in respect of a Third Party Claim, within 30 days after the discovery of facts upon which the Indemnified Party intends to base a Claim for indemnification pursuant to this Article 9, provided, however, that the failure or delay to so notify the indemnifying party shall not relieve the indemnifying party of any obligation or liability that the indemnifying party may have to the Indemnified Party except to the extent that the indemnifying party demonstrates that the indemnifying party's ability to defend or resolve such Claim is adversely affected thereby. Any such Claim Notice shall describe the facts and circumstances on which the asserted Claim for indemnification is based, the amount thereof if then ascertainable and, if not then ascertainable, the estimated maximum amount thereof, and the provisions in this Agreement on which the Claim is based. 39 (b) (i) Subject to the rights of or duties to any insurer or other third party having potential liability therefor, the indemnifying party shall have the right, upon written notice given to the Indemnified Party within 30 days after receipt of the notice from the Indemnified Party of any Third Party Claim, to assume the defense or handling of such Third Party Claim, at the indemnifying party's sole expense, in which case the provisions of Section 9.4(b)(ii) hereof shall govern. (ii) The indemnifying party shall select counsel reasonably acceptable to the Indemnified Party in connection with conducting the defense or handling of such Third Party Claim, and the indemnifying party shall defend or handle the same in consultation with the Indemnified Party and shall keep the Indemnified Party timely apprised of the status of such Third Party Claim. The indemnifying party shall not, without the prior written consent of the Indemnified Party, agree to a settlement of any Third Party Claim, unless (A) the settlement provides an unconditional release and discharge of the Indemnified Party and the Indemnified Party is reasonably satisfied with such discharge and release and (B) the Indemnified Party shall not have reasonably objected to any such settlement on the ground that the circumstances surrounding the settlement could result in an adverse impact on the business, operations, assets, liabilities (absolute, accrued, contingent or otherwise), condition (financial or otherwise) or prospects of the Indemnified Party. The Indemnified Party shall cooperate with the indemnifying party and shall be entitled to participate in the defense or handling of such Third Party Claim with its own counsel and at its own expense. (c) (i) If the indemnifying party does not give written notice to the Indemnified Party within 30 days following receipt of the notice from the Indemnified Party of any Third Party Claim of the indemnifying party's election to assume the defense or handling of such Third Party Claim, the provisions of Section 9.4(c)(ii) hereof shall govern. (ii) The Indemnified Party may, at the indemnifying party's expense (which shall be paid from time to time by the indemnifying party as such expenses are incurred by the Indemnified Party), select counsel in connection with conducting the defense or handling of such Third Party Claim and defend or handle such Third Party Claim in such manner as it may deem appropriate; provided, however, that the Indemnified Party shall keep the indemnifying party timely apprised of the status of such Third Party Claim and shall not settle such Third Party Claim without the prior written consent of the indemnifying party, which consent shall not be unreasonably withheld. If the Indemnified Party defends or handles such Third Party Claim, the indemnifying party shall cooperate with the Indemnified Party and shall be entitled to participate in the defense or handling of such Third Party Claim with its own counsel and at its own expense. (d) The amount of any Losses shall be determined net of any amounts that the Indemnified Party recovers under insurance policies, indemnities (other than pursuant hereto) or other reimbursement arrangements with respect to such Losses. Each party waives, to the extent permitted under its applicable insurance policies, any subrogation rights that its insurer may have with respect to any indemnifiable Losses. 40 9.5 RIGHT OF OFFSET Subject to the notice requirements and other limitations provided in this Article 9, LION shall have the right to offset any Losses for which a Claim by a LION Indemnified Party has been made pursuant to this Article 9, once such Losses are finally determined to be subject to indemnification hereunder either by agreement of the parties or in a decision of a court of competent jurisdiction, against any amounts payable to the Principal Stockholders under the Notes. LION also shall have the right, in the event of any breach by Berris or Clementson of such Principal Stockholder's covenants and obligations under Section 5.10 hereof or such Principal Stockholder's employment agreement, to offset any Losses resulting from such breach against any amounts payable to such Principal Stockholder pursuant to his Note. 9.6 THRESHOLDS AND LIMITATIONS (a) The LION Indemnified Parties shall be not entitled to receive any indemnification payment with respect to any claims for indemnification under this Article 9 unless the amount of the Losses in question exceed $25,000 (the "LOSS THRESHOLD"); provided, however, that once such Losses exceed the Loss Threshold, such LION Indemnified Parties shall be entitled to indemnification for the aggregate amount of all Losses from the first dollar. (b) The TRMS Indemnified Parties shall be not entitled to receive any indemnification payment with respect to any claims for indemnification under this Article 9 unless the amount of the Losses in question exceed the Loss Threshold; provided, however, that once such Losses exceed the Loss Threshold, such TRMS Indemnified Parties shall be entitled to indemnification for the aggregate amount of all Losses from the first dollar. (c) Except for Losses based on fraud, the aggregate total liability of the Principal Stockholders pursuant to this Article 9 shall be limited to an amount equal to 25% of the Purchase Price (the "INDEMNIFICATION CAP"). (d) Except for Losses based on fraud, the aggregate total liability of LION pursuant to this Article 9 shall be limited to the amount of the Indemnification Cap. (e) An indemnifying party shall not be obligated to defend and hold harmless an Indemnified Party, or otherwise be liable to such party, with respect to any claims made by the Indemnified Party after the expiration of the Survival Period or other applicable time limitation described in Section 9.1, except that indemnity may be sought after the expiration of the Survival Period or other applicable time limitation if a Claim Notice shall have been delivered to the Stockholders' Representative prior to the expiration of such time period. (f) Except for Losses based on fraud, (i) the obligations of the Principal Stockholders to indemnify the LION Indemnified Parties under this Article 9 shall be the sole and exclusive remedy of the LION Indemnified Parties under the Operative Documents against the Principal Stockholders, and (ii) the obligations of LION to indemnify TRMS Indemnified Parties under this Article 9 shall be the sole and exclusive remedy of TRMS Indemnified Parties under the Operative Documents against LION. 41 ARTICLE 10 - OTHER AGREEMENTS 10.1 TAX MATTERS Unless otherwise required by law, the parties hereto shall treat the Merger as a reorganization under Section 368(a) of the Code and the underlying regulations for all Tax reporting purposes. 10.2 STOCKHOLDERS' REPRESENTATIVE (a) Each Principal Stockholder, by executing this Agreement, and each other Stockholder, by approving this Agreement and the transactions contemplated hereby, irrevocably authorize and appoint Berris, as Stockholders' Representative, with full power of substitution and resubstitution, as such stockholder's agent and attorney-in-fact for the purposes contemplated herein. (b) The Stockholders' Representative shall have the full power, authority and right to perform, do and take any and all actions he deems necessary or advisable to carry out the purposes of Sections 2.6, 2.7 and Article 9 of this Agreement. Such actions include the power to amend, modify or waive any agreement in the name of each Principal Stockholder as if such Principal Stockholder had himself amended, modified or waived such agreement; provided that the Stockholders' Representative shall have no power to amend, modify or waive any term of this Agreement, the effect of which would reduce the amount or change the type of consideration to be received by any Stockholder in respect of the Merger unless the affected Stockholder shall so agree. In particular, but not by way of limitation, the Stockholders' Representative shall have the power to make and carry out decisions under this Agreement and the other Operative Documents on behalf of each Principal Stockholder and to sign documents and make filings on behalf of each Principal Stockholder as if such Principal Stockholder had himself signed or filed such document. The Stockholders consent to the taking by the Stockholders' Representative of any and all actions and the making of any decisions required or permitted to be taken by him under this Agreement. (c) The Stockholders' Representative hereby agrees to negotiate, enter into settlements and compromises of claims, including third-party claims, to comply with orders of courts and awards of arbitrators with respect to such claims, resolve any claim made pursuant to Article 9 hereof, take all actions necessary in his judgment for the accomplishment of the foregoing, and hereby accepts his appointment as the Stockholders' Representative for purposes of Article 9. The LION Indemnified Parties shall be entitled to deal exclusively with the Shareholders' Representative on all matters relating to Article 9 and shall be entitled to rely conclusively (without further evidence of any kind whatsoever) on any document executed or purported to be executed on behalf of a Principal Stockholder by the Stockholders' Representative, and on any other action taken or purported to be taken on behalf of any Stockholders by the Stockholders' Representative, as fully binding upon such Stockholder. (d) The Stockholders' Representative may resign at any time. Upon such resignation, the other Principal Stockholder shall replace such resigning Stockholders' Representative with the same powers and duties as such resigning Stockholders' Representative. 42 (e) If the Stockholders' Representative or any successor shall die or become unable to act as the Stockholders' Representative, a replacement shall promptly be appointed by a writing signed by the other Principal Stockholder. 10.3 POST-CLOSING OPERATIONS (a) It is the intention of LION that after Closing the TRMS Business will be operated through Merger LLC and will be combined with LION's operations that support its Pipeline Tools product to vertically integrate the product line and necessary support. LION also intends that TRMS's employees and operations will be combined with LION's existing operations in California. (b) After the Closing, each party hereto, at the request of and without any further cost or expense to the other parties, shall take any further actions reasonably necessary or desirable to carry out the purposes of any Operative Document, to vest in Surviving LLC full title to all properties, assets and rights of TRMS, and to effect the issuance of the Merger Shares to the Stockholders pursuant to the terms and conditions hereof. 10.4 MEGA MORTGAGE CLAIM Prior to the Closing, TRMS has distributed to the Stockholder (separate from the Pre-Closing Distribution), a claim of TRMS against Mega Capital Funding, Inc. ("Mega") for a receivable due to TRMS from Mega (the "Mega Claim"). TRMS and the Principal Stockholders have entered into a Nominee Agreement in the form of Exhibit 10.4 (the "Nominee Agreement"), pursuant to which TRMS has agreed to hold, as a nominee for the Stockholders (via the Principal Stockholders, as Principal) the Mega Claim. At the Closing Surviving LLC shall succeed to and assume all of the rights and obligations of TRMS under the Nominee Agreement. ARTICLE 11 - GENERAL 11.1 EXPENSES Each party shall pay its own fees and expenses incident to the negotiation, preparation and execution of the Operative Documents, including legal and accounting fees and expenses; provided, however, that the attorneys' fees and expenses of the prevailing party in any action brought hereunder shall be paid by the other party to such action. 11.2 NOTICES Any notice, request or demand desired or required to be given hereunder shall be in writing given by personal delivery, confirmed facsimile transmission or overnight courier service, in each case addressed as respectively set forth below or to such other address as any party shall have previously designated by such a notice. The effective date of any notice, request or demand shall be the date of personal delivery, the date on which successful facsimile transmission is confirmed or the date actually delivered by a reputable overnight courier service, as the case may be, in each case properly addressed as provided herein and with all charges prepaid. 43 TO LION AND LION ACQ. LLC: LION, Inc. 4700 - 42nd Ave. S.W. Suite 430 Seattle, WA 98116 Fax: (206) 577-1441 Attention: Randall D. Miles, Chairman and CEO with a copy to: Stoel Rives LLP 600 University Avenue, Suite 3600 Seattle, Washington 98101 Fax: (206) 386-7500 Attention: Christopher J. Voss TO TRMS: Tuttle Risk Management Services Inc. 4040 Civic Center Drive, Suite 540 San Rafael, California 94903 Fax: (415) 462-7505 Attention: Mr. Anthony Berris TO THE STOCKHOLDERS' REPRESENTATIVE: Mr. Anthony Berris c/o Tuttle Risk Management Services LLC 4040 Civic Center Drive, Suite 540 San Rafael, California 94903 Fax: (415) 462-7505 in the case of TRMS and the Stockholders' Representative, with a copy to: Gray Cary Ware & Freidenrich LLP 2000 University Avenue East Palo Alto, California 94303 Fax: (650) 833-2001 Attention: Craig M. Tighe 44 11.3 SEVERABILITY If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. 11.4 ASSIGNMENT This Agreement shall not be assigned by operation of law or otherwise; provided, however, that Merger LLC's rights and obligations may be assigned to and assumed by LION or any other corporation wholly-owned (directly or through intermediate wholly-owned subsidiaries) by LION. 11.5 PARTIES IN INTEREST This Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their respective successors, heirs, legal representatives and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 11.6 GOVERNING LAW; VENUE Except for the mandatorily applicable provisions of Delaware Law, this Agreement shall be governed by, and construed in accordance with, the laws of the state of Washington without giving effect to any choice or conflict of law provision or rule (whether of the State of Washington or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Washington. The parties irrevocably consent to the jurisdiction and venue of the state and federal courts located in King County, Washington in connection with any action relating to this Agreement. 11.7 OTHER REMEDIES; SPECIFIC PERFORMANCE Except as otherwise provided herein, any and all remedies herein expressly conferred upon any party hereto will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by any party hereto of any one remedy will not preclude the exercise of any other remedy. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, in addition to any other remedy to which they may be entitled at law or in equity. 45 11.8 INTERPRETATION; SCHEDULES Unless the context otherwise requires, references in this Agreement to Articles, Sections, Schedules and Exhibits refer to the Articles and Sections of, and Schedules and Exhibits to, this Agreement. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All references to dollar amounts contained in this Agreement shall mean United States dollars. References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. Unless the context otherwise requires, the words "hereof," "hereby" and "herein" and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement. The Schedules and Exhibits to this Agreement, including the Disclosure Memorandum, constitute a part of this Agreement and are incorporated into this Agreement for all purposes as if fully set forth herein. 11.9 KNOWLEDGE Representations and warranties made in this Agreement that are qualified "to the knowledge of TRMS and the Principal Stockholders" mean that there is no fact or circumstance contrary to such representation or warranty within the actual knowledge of Berris and Clementson, after reasonable inquiry. 11.10 ENTIRE AGREEMENT This Agreement, the other Operative Documents and the Mutual Confidentiality Agreement, dated January 6, 2004, constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, whether written or oral, among the parties, or any of them, with respect to the subject matter hereof and thereof. 11.11 COUNTERPARTS This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. 46 IN WITNESS WHEREOF, the parties hereto have entered into and signed this Agreement of Merger as of the date and year first above written. LION, INC. /s/ RANDALL MILES ----------------- By: Randall Miles Its: Chairman and Chief Executive Officer LION ACQ. LLC /s/ RANDALL MILES ----------------- By: Randall Miles Its: Chief Executive Officer 47 TUTTLE RISK MANAGEMENT SERVICES, INC. ------------------------------------------ By: /s/ ANTHONY BERRIS Its: PRESIDENT PRINCIPAL STOCKHOLDERS /s/ ANTHONY BERRIS ------------------------------------------ Anthony Berris /s/ SERN CLEMENTSON ------------------------------------------ Sern Clementson STOCKHOLDERS' REPRESENTATIVE /s/ ANTHONY BERRIS ------------------------------------------ Anthony Berris 48 LIST OF EXHIBITS NOT PROVIDED * 2.3.1 - Form of Certificate of Merger (Delaware) 2.3.2 - Form of Articles of Merger (Washington) 2.5.2 - Letter of Transmittal 5.3 - Opinion of Counsel for TRMS and the Principal Stockholders 5.10.2 - Clementson Employment Agreement 5.10.3 - LION Confidentiality and Inventions Agreement 5.11 - Investor Questionnaire and Acknowledgement 6.3 - Opinion of Counsel for LION and Merger LLC 7.9.1 - REITCO Stock Purchase Agreement 7.9.2 - REITCO Right of First Refusal Agreement LIST OF SCHEDULES NOT PROVIDED * 2.4 - Directors and Officers of Surviving LLC 3 - Disclosure Memorandum 5.10 - TRMS Employees 7.9 - REITCO Ownership * LION, Inc. agrees to furnish copies of these Exhibits and Schedules to the Securities and Exchange Commission upon request. 1 EX-4.1 3 c34063_ex4-1.txt EXHIBIT 4.1 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT AS PROVIDED HEREIN AND (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES AND BLUE SKY LAWS RELATING TO THE DISPOSITION OF SECURITIES, PROVIDED THAT AN OPINION OF COUNSEL TO SUCH EFFECT IS PROVIDED TO THE COMPANY IN CONNECTION THEREWITH. PROMISSORY NOTE $_______________ October ___, 2004 FOR VALUE RECEIVED, LION, Inc., a Washington corporation ("LION"), promises to pay to _________________________ ("Holder"), at Holder's office at _________________________ or at such other address as Holder may from time to time designate in writing, the principal sum of _______________________ Dollars ($_______________) together with interest from the date of this Promissory Note (this "Note") until October ___, 2007 ("Maturity") on the principal balance from time to time remaining unpaid hereon at the rate of eight percent (8.0%) per annum compounded annually. Interest shall be computed based on the basis of a 365 day year for the actual number of days elapsed. 1. PAYMENT OF PRINCIPAL AND INTEREST. Interest on this Note will be payable in arrears on October __ of each calendar year, with the first such payment payable on October __, 2005. No payments of principal on this Note shall be due and payable until Maturity, at which time all then unpaid principal and interest shall be due and payable. All payments on this Note shall be first applied against interest and shall be made and are expressed in United States dollars. 2. PREPAYMENT. LION shall have the right to prepay any or all of the outstanding balance of this Note at any time and from time to time without penalty or premium of any kind. 3. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default ("Event of Default") hereunder: a. Failure of LION to make any payment of principal or interest upon this Note when due and such failure or refusal shall continue for ten (10) days; or b. Filing by LION of a voluntary petition in bankruptcy or filing by LION of any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, or similar relief for itself under any present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors, or the seeking, consenting to, or acquiescing by LION in the appointment of any trustee, receiver, 1 custodian, conservator or liquidator for LION, or the making by LION of any general assignment for the benefit of creditors; c. Filing of a petition against LION seeking any reorganization, arrangement, composition, readjustment, liquidation, or similar relief under any present or future federal, state or other law or regulation relating to bankruptcy, insolvency or other relief for debts, or the appointment of any trustee, receiver, custodian, conservator or liquidator of LION, unless such petition shall be dismissed within sixty (60) days after such filing, but in any event prior to the entry of an order, judgment or decree approving such petition; d. The occurrence of an Event of Default, as defined in the Secured Notes Agreement, dated as of the date hereof, by and among LION, Holder and the other parties named therein; e. If there is a default in any agreement between LION and a third party that gives the third party the right to accelerate any indebtedness exceeding $100,000; or f. If there (i) occurs a material adverse change in the business, operations, prospects or condition (financial or otherwise) of LION, or (ii) is a material impairment of the Company's ability to perform its obligations under this Note. 4. ACCELERATION. Upon [(a)] the occurrence of any Event of Default [or (b) LION's termination of Holder's employment without "cause" (as defined in the Employment and Non-Competition Agreement between Holder and LION dated October ___, 2004)], Holder shall have the option in writing to declare the entire amount of principal and interest due under this Note immediately due and payable, and Holder may exercise any of its rights under this Note. 5. [RIGHT OF OFFSET. Reference is made to the Agreement of Merger (the "Merger Agreement"), dated as of October __, 2004 between LION, LION Acq. LLC, Tuttle Risk Management Services, Inc., and certain stockholders thereof. In the event that, either by agreement of Holder and LION, or by a decision of a court of competent jurisdiction, Holder is found responsible under the indemnification provisions of Article 9 of the Merger Agreement for a Loss (as that term is defined in the Merger Agreement) the LION Indemnified Parties (as that term is defined in the Merger Agreement) shall have the right to have satisfied any such amount owing by Holder in respect of such indemnification obligations by setting off such amount against amounts due and owing by LION to Holder under this Note. The withholding of all or any portion of the principal or interest due under this Note pursuant to the terms of Article 9 of the Merger Agreement shall not be deemed a default under this Note and shall not be the basis for any claim of acceleration hereunder.] [THIS PROVISION TO BE INCLUDED ONLY IN NOTES ISSUABLE TO CLEMENTSON AND BERRIS] 6. EXPENSES. In the event suit or action is instituted to enforce or interpret this Note, the prevailing party shall be entitled to recover all reasonable expenses, including, without limitation, reasonable attorneys' fees and expenses. 7. GOVERNING LAW; VENUE. This Note shall be governed and construed in accordance with the laws of the State of Washington. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the courts located in the State of Washington, King County, and the 2 federal courts sitting in King County, State of Washington, over any action or proceeding arising out of or relating to this Note, and waives any claim that such proceedings have been brought in an inconvenient forum. 8. WAIVER AND CONSENT. LION and all sureties, endorsers, guarantors and other parties now or hereafter liable for the payment of this Note, in whole or in part, hereby severally (i) waive demand, notice of demand, presentment for payment, notice of nonpayment, notice of default, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notices (except as provided in Section 3), and further waive diligence in collecting this Note or in enforcing any of the security for this Note; (ii) agree to the release of any party primarily or secondarily liable for the payment of this Note; (iii) agree that Holder shall not be required to first institute suit or exhaust its remedies hereon against LION or others liable or to become liable for the payment of this Note; and (iv) consent to any extension of time for the payment of this Note, or any installment hereof, made by agreement by Holder with any person now or hereafter liable for the payment of this Note, even if LION is not a party to such agreement. 9. GENERAL PROVISIONS. LION may not assign its obligations under this Note without the written consent of Holder. Holder may assign, pledge or otherwise transfer this Note upon advance written notice to LION. The rights and obligations of LION and Holder shall be binding upon and shall inure to the benefit of their successors and permitted assigns, if any, heirs and administrators. The provisions of this Note may be amended, waived or modified only upon the written consent of Holder and LION. All notices with respect to this Note shall be in writing, delivered, and effective as provided in the Merger Agreement. 10. NOTICES. Any notice or written communication given pursuant to or in connection with this Note shall be in writing and shall be given by delivering the same personally or by prepaid courier, prepaid certified or registered mail or telecopier, addressed to the party to be notified at the address of such party set out below or at such other address of which such party has given notice to the other parties hereto. Any such notice shall be conclusively deemed to have been given and received on the day of actual receipt by the addressee or, if given by prepaid certified or registered mail, on the third day (excluding Saturday, Sunday and any statutory holiday) following the mailing date (absent a general disruption in postal service). 3 ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. LION, INC. By: --------------------------------- Its: -------------------------------- 4 EX-10.1 4 c34063_ex10-1.txt EXHIBIT 10.1 PUT AGREEMENT This PUT AGREEMENT ("AGREEMENT") is made as of October 12, 2004, by and between LION Inc., a Washington corporation (the "COMPANY"), and the undersigned stockholders (each a "STOCKHOLDER," and collectively, the "STOCKHOLDERS") of Tuttle Risk Management Services Inc., a Delaware corporation ("TRMS"). RECITALS A. Effective as of the date hereof, TRMS is merging with and into LION Acq. LLC, a Washington limited liability company and wholly-owned subsidiary of the Company (the "MERGER"), pursuant to the Agreement of Merger, dated October 12, 2004, among the Company, LION Acq. LLC, TRMS, the principal stockholders of TRMS, and Anthony Berris, as Stockholders' Representative (the "MERGER AGREEMENT"). B. By virtue of the Merger, each outstanding share of TRMS common stock will be converted into a right to receive a promissory note and shares of the Company's common stock, all in accordance with the terms and conditions of the Merger Agreement. C. As an inducement to TRMS to enter into the Merger Agreement and consummate the transactions contemplated therein, the Company has agreed to grant the Stockholders the right to require the Company, in certain circumstances, to purchase the shares of the Company's common stock issuable to the Stockholders in the Merger (the "PUT SHARES"). AGREEMENT In consideration of the foregoing and the respective covenants and agreements set forth herein, and for other good and valuable consideration, the parties hereto agree as follows: 1. GRANT OF PUT RIGHT. Subject to the terms and conditions hereof, the Company grants to each Stockholder the right to require the Company to purchase the Put Shares (the "PUT") at a purchase price per share equal to the closing bid price for the Company's common stock, as reported on the OTC Bulletin Board, on the last business day before the effective date of the Put Notice (as defined in Section 2) (the "PUT PRICE") at any time or from time to time beginning one year after the closing date of the Merger; PROVIDED, that a Stockholder may exercise the Put only if and to the extent that such Stockholder is unable to resell the Put Shares in the public market pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended. The Put shall be personal to each Stockholder and shall not be assignable or transferable, except that the Put may be transferred in connection with and to the extent of any transfer of the Put Shares by bequest to such transferee. 1 2. EXERCISE OF PUT. Subject to the terms and conditions hereof, a Stockholder may exercise the Put with respect to all or part of his Put Shares by delivering a written notice to the Company, requesting that the Company purchase the specified number of Put Shares at the Put Price (the "PUT NOTICE"). 3. CLOSING. Closing of each purchase by the Company upon exercise of a Put under this Agreement (the "CLOSING") shall occur not later than 15 business days after delivery of an eligible Put Notice to the Company. On or before the date of Closing, the Stockholder shall deliver to the Company the certificate or certificates evidencing the Put Shares being purchased by the Company, either with stock powers for each such certificate or certificates endorsed in blank, and the Company shall deliver to the Stockholder the entire Put Price of the Put Shares being purchased by check or wire transfer to the Stockholder's order at the Closing. 4. LIMITATIONS ON ABILITY TO PURCHASE. If the Company may not lawfully purchase all of the Put Shares specified in a Put Notice, or is limited by the provisions of Section 5, then the Company shall purchase only that number of Put Shares with respect to which the Company then may purchase in compliance with applicable law and in accordance with Section 5 hereof. The Company shall inform the Stockholder in writing at such time thereafter as the Company may lawfully purchase the remainder of such Put Shares. The Company shall purchase any such Put Shares previously specified in a Put Notice within 10 business days after the date of the Company's notice to the Stockholder, at the Put Price as of the effective date of the Put Notice, unless the stockholder, by notice delivered to the Company before Closing, elects to revoke such Put Notice. Subject to Section 5, if the Company receives a Put Notice from other Stockholders in the interval between its receipt of the first Put Notice and the related Closing, then the Company shall apply its available funds to purchase the Put Shares subject to all Put Notices that it receives pro rata, in proportion to the number of Put Shares subject to each such Put Notice. 5. FURTHER ACTIONS; CONSENTS. The Company shall do all acts and execute all documents necessary to enable the Company to consummate the purchase of the Put Shares upon exercise of a Put, provided that such acts do not unreasonably interfere with the Company's business, as determined in good faith by the board of directors of the Company, including obtaining all necessary waivers and amendments of any agreements or instruments that may restrict the right of the Company to purchase the Put Shares. If, however, any lender or other party whose consent is required to enable the Company to purchase the Put Shares refuses to consent to the Company's purchase of the Put Shares on the terms set forth herein, then the Company shall purchase the Put Shares on terms as similar to the terms set forth in this Agreement as such consenting party permits, including any subordination terms as the consenting party may require; provided, that the Company shall make commercially reasonable efforts to obtain from such lender or party the consent to the Company's purchase of the Put Shares pursuant to the terms hereof. 2 6. TERMINATION OF AGREEMENT. This Agreement shall terminate upon the earlier of (a) the sale or transfer (except transfers by bequest) of all Put Shares by the Stockholders, (b) the completion of any merger, share exchange or other transaction in which the Company is not the surviving or continuing entity or that results in any person or group of affiliated persons owning capital stock that has the voting power to elect a majority of the Company's directors if such person or group did not have such power before the completion of the transaction, or (c) two years from the date of the closing of the Merger. 7. OTHER PROVISIONS. A. NOTICES. Any notice, request or demand desired or required to be given hereunder shall be in writing given by personal delivery, confirmed facsimile transmission or overnight courier service, in each case addressed as respectively set forth below or to such other address as any party shall have previously designated by such a notice. The effective date of any notice, request or demand shall be the date of personal delivery, the date on which successful facsimile transmission is confirmed or the date actually delivered by a reputable overnight courier service, as the case may be, in each case properly addressed as provided herein and with all charges prepaid. TO THE COMPANY TO THE STOCKHOLDERS LION, Inc. To the addresses set forth on the 4700 - 42nd Ave. S.W. the signature page hereto Suite 430 Seattle, WA 98116 Fax: (206) 577-1441 Attention: Randall D. Miles, Chairman and CEO B. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. C. ASSIGNMENT; PARTIES IN INTEREST. This Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their respective successors, heirs, legal representatives and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. Neither party may assign its respective rights and duties under this Agreement without the prior written consent 3 of the other party, except as described in Section 1 and except that the Company may assign its rights and duties hereunder to a successor-in-interest. D. AMENDMENT AND MODIFICATION. The parties may amend or modify this Agreement only by a written amendment signed by the Company and all the Stockholders. E. GOVERNING LAW; VENUE. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Washington without giving effect to any choice or conflict of law provision or rule (whether of the State of Washington or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Washington. The parties irrevocably consent to the jurisdiction and venue of the state and federal courts located in King County, Washington in connection with any action relating to this Agreement. F. ATTORNEYS' FEES. The prevailing party in any litigation to interpret or enforce any provision of this Agreement shall be entitled to reimbursement from the non-prevailing party of the prevailing party's costs, including reasonable attorneys' fees, incurred in such litigation. G. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, whether written or oral, between the parties, or any of them, with respect to the subject matter hereof. H. COUNTERPARTS. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. [Signature pages follow] 4 IN WITNESS WHEREOF, the parties hereto have entered into and signed this Put Agreement as of the date and year first above written. LION, INC. /s/ RANDALL MILES ------------------------------------------- By: Randall Miles Its: Chairman and Chief Executive Officer 5 STOCKHOLDERS By: /s/ ------------------------------------- ------------------------------------- Name ------------------------------------- Title (if applicable) ------------------------------------- Address ------------------------------------- Address ------------------------------------- Facsimile No. (if available) 6 EX-10.2 5 c34063_ex10-2.txt EXHIBIT 10.2 SECURED NOTES AGREEMENT This Secured Notes Agreement (the "AGREEMENT"), dated as of October 13, 2004, is entered by and among Tuttle Risk Management Services Inc., a Delaware corporation (the "COMPANY"), the Company's stockholders listed on the Stockholder Schedule attached hereto as EXHIBIT "A" (individually a "STOCKHOLDER" and collectively the "STOCKHOLDERS"), LION, Inc., a Washington corporation ("LION"), and Anthony Berris, as the Stockholders' Representative, as defined below. RECITALS WHEREAS, pursuant to the Agreement of Merger, dated as of October 12, 2004, by and among LION, LION Acq., LLC, a Washington limited liability company wholly-owned by LION ("MERGER LLC"), the Company, Anthony Berris, Sern Clementson, and Anthony Berris, as Stockholders' Representative (the "MERGER AGREEMENT"; capitalized terms used herein without definition shall have the meanings assigned to them in the Merger Agreement), LION is to acquire from the Stockholders all of the Company's outstanding Common Stock through the merger of Merger LLC with the Company (the "MERGER"); WHEREAS, under the Merger Agreement, it is a condition precedent to the Merger that the Company make a distribution to the Stockholders in the form of cash and notes (the "DISTRIBUTION NOTES") immediately prior to the closing of the Merger; WHEREAS, the Stockholders are willing to receive the Distribution Notes as part of the Merger transaction, and to approve the Merger, provided that (i) the Distribution Notes are substantially in the form of the note attached hereto as EXHIBIT "B" (the "FORM OF DISTRIBUTION NOTE"), (ii) the Company's obligations under the Distribution Notes are secured by a first priority security interest in all of the Company's personal property, and (iii) LION guaranties the Company's obligations under the Distribution Notes and the other Note Documents, effective as of the closing of the Merger pursuant to a guaranty substantially in the form of the guaranty attached hereto as EXHIBIT "C" (the "GUARANTY"); and WHEREAS, LION and the Company are willing to have the Company grant such security interest and to have the Distribution Notes be in the form of the Form of Distribution Note and LION is willing to guaranty the Company's obligations under the Distribution Notes and the other Note Documents pursuant to the Guaranty, effective as of the closing of the Merger; NOW, THEREFORE, IT IS AGREED THAT: 1. THE DISTRIBUTION NOTES. (a) ISSUANCE OF NOTES. Pursuant to the resolutions of the Company's Board of Directors attached hereto as EXHIBIT "D" (the "BOARD DISTRIBUTION RESOLUTIONS"), the Company shall issue to each Stockholder a Distribution Note in the original principal amount indicated opposite such Stockholder's name on the Stockholder Schedule. E-1 (b) SECURITY INTEREST. (i) GRANT OF SECURITY INTEREST. The Company hereby grants to the Stockholders' Representative, on behalf of the Stockholders, a first priority security interest in all of the Company's right, title and interest in the presently existing and hereafter acquired personal property described in EXHIBIT "E" attached hereto (the "COLLATERAL") to secure the payment of all of the indebtedness under the Distribution Notes and the other Note Documents and the performance of all the Company's obligations under the Note Documents (the "SECURED OBLIGATIONS"). (ii) REPRESENTATIONS AND WARRANTIES AND COVENANTS REGARDING COLLATERAL. The Company represents and warrants to the Stockholders that it is the true and lawful owner of the Collateral, having good and marketable title thereto, free and clear of all Liens other than the security interest granted to the Stockholders hereunder and the Liens described in Section 3(d)(the "PERMITTED LIENS"). The Company shall not create or assume or permit to exist any such Lien on or against any of the Collateral except as created or permitted hereby and the Permitted Liens, and it shall promptly notify the Stockholders of any such other Lien against the Collateral and shall defend the Collateral against, and take all such action as may be necessary to remove or discharge, any such Lien. (iii) PERFECTION OF SECURITY NTEREST. The Company shall take all actions that the Stockholders request to perfect, to continue the perfection of, and to otherwise give notice of, the Lien granted hereunder. 2. STOCKHOLDERS' REPRESENTATIVE. (a) GENERAL POWER. The Stockholders' Representative shall have the power to take all actions that the Stockholders have under the Note Documents and by law, including the power to exercise the Stockholders' rights and remedies under the Note Documents and by law during the continuance of an Event of Default, provided that, absent exigent circumstances where action is determined by the Stockholders' Representative to be necessary to protect Collateral, the Stockholders' Representative shall not proceed to enforce the Stockholders' rights and remedies against the Collateral or the Company by foreclosure, judicial action or the like (each, an "ENFORCEMENT ACTION"), unless and until directed to do so by the Requisite Holders. Unless the Stockholders' Representative shall request further guidance or consents, any direction by the Requisite Holders to begin an Enforcement Action shall state only that the Stockholders' Representative shall begin enforcement, and shall not specify the manner in which enforcement should proceed. Once the Stockholders' Representative receives direction from the Requisite Holders to commence an Enforcement Action, all decisions as to how to proceed to enforce the Stockholders' rights and remedies, including the methods and timing or proceeding, may be made by the Stockholders' Representative in his good faith business judgment, with such consultation with the Stockholders as the Stockholders' Representative in his sole discretion deems reasonable under the circumstances. Notwithstanding the foregoing, if the Stockholders' Representative requests the consent of the Stockholders as to any specific enforcement action, and the Stockholders do not unanimously agree, in writing, as to whether such action should be taken, then the Stockholders' Representative may (i) rely upon the decision E-2 of the Requisite Holders, or (ii) in his discretion, refrain from taking such action, unless the Requisite Holders agree to indemnify the Stockholders' Representative expressly with respect to the specific Enforcement Action proposed to be taken. In the event of one or more foreclosure sales, the Stockholders' Representative shall have the right to credit bid on behalf of all the Stockholders in respect of the Secured Obligations. (b) LIMITATION ON INDIVIDUAL STOCKHOLDER ACTION. Except through the Stockholders' Representative, no Stockholder shall collect, take possession of, foreclose upon, or exercise any rights or remedies with respect to the Collateral, the Company or LION, judicially or non-judicially, in order to satisfy or collect any Secured Obligations or attempt to do any of the foregoing. (c) ACQUISITION OF COLLATERAL. If Collateral is acquired by the Stockholders' Representative by foreclosure sale or otherwise, at the option of the Stockholders' Representative, title may be taken in the name of the Stockholders' Representative or in the name of a corporation affiliated with the Stockholders' Representative or other nominee designated by the Stockholders' Representative, in any case, for the ratable benefit of the Stockholders subject to the terms of this Agreement. Although the Stockholders' Representative shall consult with the Stockholders as to the general operation and disposition of any Collateral for which title has been acquired through foreclosure or otherwise, the Stockholders' consent shall not be required for decisions by the Stockholders' Representative relating to the management, operation, or repair of the Collateral so acquired. (d) ENFORCEMENT COSTS. The costs of repossession, sale, possession and management (including any costs of holding any Collateral the title to which is acquired by the Stockholders' Representative on behalf of the Stockholders), and distribution shall be borne by the Stockholders pro rata until repaid by the Company. Each Stockholder shall reimburse the Stockholders' Representative for his share of all such costs promptly upon demand. Without limiting any obligations of one Stockholder to reimburse the Stockholders' Representative as contained herein, if the Company fails to pay taxes, assessments, insurance premiums, claims against the Collateral or any other amount required to be paid by the Company pursuant to any of the Note Documents, the Stockholders' Representative may (but shall not be obligated to) advance amounts necessary to pay the same, and each Stockholder agrees to reimburse the Stockholders' Representative promptly upon demand for his pro rata share of any such payments, provided that the Stockholders' Representative has advanced such amounts with the approval of the Requisite Holders. (e) POWER OF ATTORNEY. The Company appoints the Stockholders' Representative, and any agent of the Stockholders' Representative, with full power of substitution, as the Company's true and lawful attorney-in-fact, effective as of the date hereof, with power, in his own name or in the name of the Company, (A) at any time, at the Company's expense, to take such actions as are necessary to perfect or to continue the perfection of the Stockholders' security interest in any of the Collateral and (B) during the continuance of an Event of Default, (i) to endorse any notes, checks, drafts, money orders, or other instruments of payment in respect of the Collateral that may come into the Stockholders' possession, (ii) to sign and endorse any drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to Collateral, (iii) to pay or discharge taxes or Liens levied or placed on or threatened against the Collateral, (iv) to demand, collect, issue receipt for, E-3 compromise, settle and sue for monies due in respect of the Collateral, (v) to notify Persons obligated with respect to the Collateral to make payments directly to the Stockholders' Representative, and (vi) generally, to do, at the Stockholders' Representative's option and at the Company's expense, all acts and things which the Stockholders' Representative deems necessary to protect, preserve and realize upon the Collateral and the Stockholders' security interest therein to effect the intent of the Note Documents, all as fully and effectually as the Company might or could do; and the Company hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable as long as any of the Secured Obligations are outstanding. (f) EXERCISE OF RIGHTS AND REMEDIES. During the continuance of an Event of Default, the Stockholders' Representative shall have the right, himself or through any of his agents, with or without notice to the Company (as provided below), as to any or all of the Collateral, by any available judicial procedure, or without judicial process (provided, however, that it is in compliance with the UCC), to exercise any rights afforded to a secured party under the UCC or other applicable law. Without limiting the generality of the foregoing, the Stockholders' Representative shall have the right to sell or otherwise dispose of all or any part of the Collateral, either at public or private sale, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such terms and conditions, all as the Stockholders' Representative, in his sole discretion, may deem advisable, and it shall have the right to purchase at any such sale on behalf of the Stockholders. The Company agrees that a notice sent at least fifteen (15) days before the time of any intended public sale or of the time after which any private sale or other disposition of the Collateral is to be made shall be reasonable notice of such sale or other disposition. The proceeds of any such sale, or other Collateral disposition shall be applied, first to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like, and to the Stockholders' reasonable attorneys' fees and legal expenses, and then to the Secured Obligations and to the payment of any other amounts required by applicable law, after which the Stockholders shall account to the Company for any surplus proceeds. If, upon the sale or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Stockholders are legally entitled, the Company shall be liable for the deficiency and the reasonable fees of any attorneys the Stockholders' Representative employs to collect such deficiency; PROVIDED, HOWEVER, that the foregoing shall not be deemed to require the Stockholders' Representative to resort to or initiate proceedings against the Collateral prior to the collection of any such deficiency from the Company. To the extent permitted by applicable law, the Company waives all claims, damages and demands against the Stockholders' Representative and the other Stockholders arising out of the retention or sale or lease of the Collateral or other exercise of the Stockholders' rights and remedies with respect thereto. All of the Stockholders' rights and remedies with respect to the Collateral, whether established hereby or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently. (g) COMPANY WAIVERS. To the extent permitted by law, the Company covenants that it will not at any time insist upon or plead, or in any manner whatever claim or take any benefit or advantage of, any stay or extension law now or at any time hereafter in force, nor claim, take or insist upon any benefit or advantage of or from any law now or hereafter in force providing for the valuation or appraisal of the Collateral or any part thereof, prior to any sale or sales thereof to be made pursuant to any provision herein contained, or the decree, E-4 judgment or order of any court of competent jurisdiction; or, after such sale or sales, claim or exercise any right under any statute now or hereafter made or enacted by any state or otherwise to redeem the property so sold or any part thereof, and, to the full extent legally permitted, hereby expressly waives all benefit and advantage of any such law or laws, and covenants that it will not invoke or utilize any such law or laws or otherwise hinder, delay or impede the execution of any power herein granted and delegated to the Stockholders, but will suffer and permit the execution of every such power as though no such power, law or laws had been made or enacted. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to the Stockholders that, except as set forth in the Schedule of Exceptions attached hereto as EXHIBIT "F", as of the date hereof, except as otherwise stated to the contrary herein: (a) CORPORATE POWER; BINDING OBLIGATIONS. The Company has all requisite legal and corporate power to enter into, execute and deliver this Agreement, the Distribution Notes and the other Note Documents to which it is a party. The Note Documents to which it is a party are valid and binding obligations of the Company, enforceable in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, moratorium, and other laws of general application affecting the enforcement of creditors' rights and by general principles of equity. (b) AUTHORIZATION. All corporate and legal action on the part of the Company needed for the Company to issue the Distribution Notes and to perform its obligations hereunder and under the Distribution Notes and the other Note Documents to which it is a party have been taken or will be taken prior to the date hereof. (c) NO LIENS. The Distribution Notes, when issued in compliance with the provisions hereof, will be free of any liens or encumbrances; PROVIDED, HOWEVER, that the Distribution Notes may be subject to restrictions on transfer under state and/or federal securities laws. (d) TITLE TO ASSETS; LIENS. The Company has good and marketable title to the Collateral, in each case subject to no Lien, other than (i) those resulting from taxes which have not yet become delinquent, and (ii) minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the Company's operations. The Company's execution, delivery, and performance of and compliance with this Agreement and the other Note Documents to which it is a party, and the issuance and sale of the Distribution Notes will not, with or without the passage of time or giving of notice, result in the creation of any Lien upon any of the Company's assets. 4. COMPANY COVENANTS. For so long as any of the Distribution Notes are outstanding: (a) FINANCIAL STATEMENTS. The Company shall deliver to each Stockholder as soon as practicable after the end of each calendar month, and in any event within thirty (30) days thereafter, an unaudited balance sheet of the Company as of the end of such month, cash flow statements and an unaudited statement of operations of the Company for the portion of the fiscal year ended with such month prepared in accordance with GAAP and certified by the E-5 Company's chief financial officer, subject, however, to the exclusion of footnotes and to normal year-end audit adjustments; (b) ADDITIONAL INDEBTEDNESS. The Company shall not incur any Indebtedness, other than the Indebtedness outstanding as of the date hereof, without the consent of the Requisite Holders, given in their sole discretion; and (c) PREPAYMENT OF OTHER INDEBTEDNESS. The Company shall not prepay, voluntarily or involuntarily, the principal outstanding or accrued interest with respect to any other Indebtedness. 5. EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an "EVENT OF DEFAULT" hereunder and the other Note Documents: (a) The Company's failure to pay any amount payable under any of the Distribution Notes or any other Note Documents in accordance with the terms thereof; (b) The Company's breach of any representation and warranty hereunder or any of the other Note Documents or the Company's breach of any covenant hereunder or any of the other Note Documents which is not cured within ten (10) days of the earlier of the Company learning of such breach or of notice thereof from the Stockholders' Representative or any of the Stockholders; PROVIDED, HOWEVER, that if the cure will take more than ten (10) days and the Company is diligently pursuing such cure during such ten (10) day period, then an Event of Default shall not occur with respect to such breach if it is cured within twenty (20) days of the earlier of the Company learning of such breach or of notice thereof from the Stockholders' Representative or any of the Stockholders; (c) The Company (A) has an order for relief entered against it under Chapter 11 of Title Eleven of the United States Code (the "BANKRUPTCY CODE"), (B) makes an assignment for the benefit of creditors, (C) applies for or seeks the appointment of a receiver, liquidator, assignee, trustee or other similar official for it or of any substantial part of its property or any such official is appointed, other than upon the Company's request, and such unrequested appointment continues for thirty (30) days, (D) institutes proceedings seeking an order for relief under the federal Bankruptcy Code or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or any of its debts under other applicable federal or state law relating to creditor rights and remedies, or any such proceeding is filed against it, other than upon the Company's request, and such unrequested proceeding continues undismissed or unstayed for thirty (30) days, or (E) takes corporate action in furtherance of any of the foregoing actions; (d) If there is a default in any agreement between the Company and a third party that gives the third party the right to accelerate any Indebtedness exceeding $100,000, or if there is an Event of Default, as defined in the Notes, as issued pursuant to the Merger Agreement; (e) If there (i) occurs a material adverse change in the business, operations, prospects or condition (financial or otherwise) of the Company or the Guarantor, or (ii) is a E-6 material impairment of the Company's ability to satisfy any portion of the Secured Obligations; or (f) The Guaranty ceases for any reason to be in full force or the Guarantor or any circumstance described in Section 5(b) or Section 5(c) occurs to or with respect to the Guarantor. 6. DEFINITIONS. As used herein, the following terms shall have the following meanings: "GAAP": generally accepted accounting principles as in effect from time to time. "INDEBTEDNESS": any liability, whether or not contingent, (i) with respect to borrowed money, or evidenced by bonds, notes, debentures or similar instruments, (ii) representing the balance deferred and unpaid of the purchase price of any property or services (except such balance that constitutes an account payable to a trade creditor created or incurred in the ordinary course of business, (iii) as lessee under leases that are capital leases for GAAP purposes, (iv) consisting of reimbursement obligations with respect to surety bonds, letters of credit, banker's acceptances, drafts or similar documents or instruments issued for the liable Person's account, and (v) as a guarantor for any liability described in clause (i), (ii), (iii) or (iv) of this definition, including any guarantor arising from the pledge of any property as security for any liability of a third party described in clause (i), (ii), (iii) or (iv) of this definition. "LIENS": any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge, claim or other encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any agreement to give or refrain from giving a lien, mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge, claim or other encumbrance of any kind. "NOTE DOCUMENTS": this Agreement, the Distribution Notes, the Guaranty and all documents needed to perfect or give notice of the Stockholders' security interest in the Collateral. "PERSON": any individual, sole proprietorship, corporation, limited liability company, limited liability partnership, partnership, joint venture, trust, unincorporated organization, estate or any other entity or any governmental agency. "REQUISITE HOLDERS": at any time, the Stockholders holding a majority, measured by principal amount, of the Distribution Notes outstanding. "UCC": the Uniform Commercial Code in effect from time to time in the relevant jurisdiction. 7. MISCELLANEOUS. (a) ENTIRE AGREEMENT. This Agreement, the Distribution Notes and the Guaranty constitute the full and entire understanding and agreement between the parties with regard to the subject matters hereof and thereof. E-7 (b) WAIVERS AND AMENDMENTS. No provision of this Agreement or any other Note Document to which the Company is a party may be amended, waived or modified other than by a document signed by the Company and the Requisite Holders (as of the effective date of such action); PROVIDED, HOWEVER, that no amendment, waiver or modification of this subsection may be made without the consent of all the Stockholders. Upon any such amendment, waiver or modification, the Company shall promptly give written notice thereof to the Stockholders who did not execute the written consent. Each Stockholder acknowledges that the Requisite Holders will have the power under this subsection to diminish or eliminate rights of such Stockholder under the Note Documents. (c) STOCKHOLDER RIGHTS. Each Stockholder shall have the absolute right to exercise or to refrain from exercising any right such Stockholder has under the Note Documents, including the right to consent to an amendment, waiver or modification of any of such documents, and such Stockholder shall not incur any liability to any other Stockholder with respect to exercising or refraining from exercising any such right. (d) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of law provisions. The Company, LION and each Stockholder each hereby submits to the jurisdiction of the state and Federal courts located in the County of San Francisco, State of California, or, at Stockholders' Representative's sole option, such other venues and courts which have appropriate jurisdiction over the matter in controversy with respect to all actions relating to the Note Documents. Each of the Company and LION (i) waives any objection of forum non conveniens and venue, (ii) waives personal service of any process upon it, (iii) consents that all such service of process be made in the manner set forth in Section 7(e) for the giving of notice and (iv) waives any right it may otherwise have to collaterally attack any judgment entered against it. The Company, LION and each Stockholder each hereby waive their respective rights to a jury trial of any claim or cause of action based upon or arising out of any of the Note Documents or any of the transactions contemplated therein, including contract claims, tort claims, breach of duty claims, and all other common law or statutory claims. Each party recognizes and agrees that the foregoing waiver constitutes a material inducement for entering into the Note Documents. Each party represents and warrants that such party has reviewed this waiver with legal counsel and that such party knowingly and voluntarily waives such party's jury trial rights following consultation with legal counsel. (e) NOTICES. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier or personal delivery or sent by facsimile, addressed (i) if to a Stockholder or the Stockholders' Representative, at the address such Person has furnished to the Company in writing, (ii) if to the Company, at the address set forth on the signature page hereof or such other address as it has furnished to the Stockholders' Representative in writing in accordance with this subsection, and (iii) if to LION, at the address set forth on the signature page hereof or such other address as it has furnished to the Stockholders' Representative in writing in accordance with this subsection. A notice shall be deemed effectively given, (a) upon personal delivery to the party to be notified; (b) when sent by confirmed facsimile if sent during normal business hours of the recipient, and if not, then on the next business day; (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) one (1) day after E-8 deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. (f) EXPENSES. The Company shall reimburse the Stockholders' Representative and the Stockholders for all reasonable fees and expenses that they incur in enforcing the Note Documents and their rights and remedies under the Note Documents and by law, including reasonable attorneys' fees and legal expenses. All such fees and expenses shall be Secured Obligations. (g) VALIDITY. If any provision of this Agreement is judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. (h) TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. (i) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall be deemed to constitute one instrument. E-9 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date first written above. TUTTLE RISK MANAGEMENT SERVICES INC. By: /s/ ANTHONY BERRIS -------------------------------------------- Title: President ----------------------------------------- ADDRESS FOR NOTICES: Tuttle Risk Management Services Inc. 4040 Civic Center Drive, Suite 540 San Rafael, CA 94903 Fax: (415) 462-7505 Attention: Mr. Anthony Berris /s/ ANTHONY BERRIS ------------------------------------------------ Anthony Berris, the Stockholders' Representative LION INC. By: /s/ RANDALL D. MILES -------------------------------------------- Title: Chairman and CEO ----------------------------------------- ADDRESS FOR NOTICES: 4700 - 42nd Ave. S.W., Suite 430 Seattle, WA 98116 Fax: (206) 577-1441 Attention: Randall D. Miles, Chairman and CEO STOCKHOLDER: /s/ ------------------------------------------------ Address: E-10 EXHIBIT A [ INTENTIONALLY OMITTED ] E-11 EXHIBIT B THIS SECURED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR HOLDERHOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION. SECURED PROMISSORY NOTE $______ October __, 2004 For value received, TUTTLE RISK MANAGEMENT SERVICES INC., a Delaware corporation (the "COMPANY"), promises to pay to the order of _________________ ("HOLDER") the principal sum of $_____, with interest on the unpaid principal from the date hereof at a rate equal to ten percent (10%) per annum. Interest shall be computed based on the basis of a 365 day year for the actual number of days elapsed. The principal shall be paid in four (4) equal installments, due on January __, 2005, April __, 2005, July __, 2005, and October __, 2005 (the "MATURITY DATE"). Each scheduled principal payment shall be accompanied by accrued and unpaid interest outstanding. In addition to such scheduled principal payments, the Company shall make on the fifteenth day of each calendar month, commencing with November 15, a principal payment equal to the amount obtained by multiplying fifteen percent (15%) of the Company's accounts receivable collections during the preceding calendar month (in the case of October 2004, for the period from the date hereof to the last day of such month), by a fraction, the numerator of which is the then principal amount outstanding under this Note and the denominator of which is the then aggregate principal amount outstanding under all of the Notes issued under the Note Agreement, as defined herein. Each such principal payment shall be applied to the scheduled quarterly principal payments in the inverse order of maturity. This Note is issued pursuant to the Secured Notes Agreement, dated as of the date hereof, by and among the Company, the Holder, LION, Inc., Anthony Berris, as the Stockholders' Representative, and the other stockholders of the Company named therein (the "NOTE AGREEMENT"; capitalized terms used herein without definition shall have the meanings assigned to them in the Note Agreement). The Company shall have the right to prepay, in whole or in part, the principal outstanding hereunder. Each such principal prepayment shall be accompanied by the interest accrued and outstanding with respect to such principal amount. Each such principal prepayment shall be applied to the scheduled quarterly principal payments in the inverse order of maturity. All payments of principal and interest shall be in lawful money of the United States of America. E-12 Pursuant to the Note Agreement, the Company's payment and other obligations hereunder are secured by the Collateral. Upon the Company's receipt of reasonably satisfactory evidence of the loss, theft, destruction or mutilation of this Note and (i) in the case of any such loss theft or destruction, upon delivery of indemnity reasonably satisfactory to the Company in form and amount, or (ii) in the case of any such mutilation, upon surrender of this Note for cancellation, the Company, at its expense, shall execute and deliver, in lieu thereof, a new Note. If any provision of this Note is judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. This Note shall be binding upon, and shall inure to the benefit of, Company and Holder and their respective successors and permitted assigns. Company may not assign its obligations under this Note without the Holder's consent, given in the Holder's sole discretion. This Note shall be construed in accordance with the laws of the State of California, without giving effect to conflicts of law principles thereof. TUTTLE RISK MANAGEMENT SERVICES INC By: -------------------------------------- Title: ---------------------------------- E-13 EXHIBITS C - F [ INTENTIONALLY OMITTED ] E-14 EX-10.3 6 c34063_ex10-3.txt EXHIBIT 10.3 UNCONDITIONAL GUARANTY THIS UNCONDITIONAL GUARANTY (the "GUARANTY") is entered into as of October 13, 2004, by LION, INC., a Washington corporation (the "THE GUARANTOR"), in favor of the holders of the notes that TUTTLE RISK MANAGEMENT SERVICES INC., a Delaware corporation (the "COMPANY"), issued to its stockholders (the "STOCKHOLDERS") pursuant to the Secured Notes Agreement, dated as of October 13, 2004, by and among the Company, the Guarantor, Anthony Berris, as the Stockholders' Representative, and the Stockholders (the "NOTE AGREEMENT"; capitalized terms used herein without definition shall have the meanings assigned to them in the Note Agreement). RECITALS WHEREAS, pursuant to the Agreement of Merger, dated as of October 12, 2004, by and among the Guarantor, LION Acq., LLC, a Washington limited liability company wholly-owned by the Guarantor ("MERGER LLC"), the Company, Anthony Berris, Sern Clementson, and Anthony Berris, as the Stockholders' Representative (the "MERGER Agreement"), the Company will be merged with and into Merger LLC and all of the Company's outstanding Common Stock will be converted into the right to receive shares of Guarantor's common stock and promissory notes issued by Guarantor (the "MERGER"); WHEREAS, under the Merger Agreement, it is a condition precedent to the Merger that the Company make a distribution to the Stockholders in the form of cash and notes (the "DISTRIBUTION NOTES") immediately prior to the closing of the Merger; and WHEREAS, the Stockholders are willing to receive the Distribution Notes as part of the Merger transaction, and to approve the Merger, provided that the Guarantor guaranties the Company's obligations under the Distribution Notes and the other Note Documents, on the terms set forth herein, and the Guarantor is so willing to guaranty the Company's obligations under the Distribution Notes and the other Note Documents; and NOW, THEREFORE, IT IS AGREED THAT: 1. The Guarantor unconditionally and irrevocably guarantees payment of all amounts that the Company owes to the Stockholders under the Note Documents and the Company's performance of its obligations under the Note Documents (the "GUARANTEED OBLIGATIONS"). If the Company does not perform its payment obligations under the Note Documents (including payment obligations arising as a result of a breach of performance obligations), the Guarantor will immediately pay all amounts due (including all principal, interest and fees) and satisfy all the Company's payment obligations under the Note Documents. This Guaranty is a guaranty of prompt and punctual payment of the Guaranteed Obligations, whether at stated maturity, by acceleration or otherwise, and is not merely a guaranty of collection. 2. These obligations are independent of the Company's obligations and separate actions may be brought against the Guarantor (whether action is brought against the Company or whether the Company is joined in the action). The Guarantor waives benefit of any statute of 1 limitations affecting its liability. The Guarantor's liability is not contingent on the genuineness or enforceability of the Note Documents. 3. The Stockholders may, without notice to the Guarantor and without affecting the Guarantor's obligations under this Guaranty, (a) renew, extend, or otherwise change the terms of the Note Documents with the Company's consent; (b) take security for the payment of this Guaranty or the other Note Documents; (c) exchange, enforce, waive and release any security; and (d) apply the security and direct its sale as the Stockholders, in their discretion, choose. 4. The Guarantor waives: a) Any right to require the Stockholders to (i) proceed against the Company or any other Person; (ii) proceed against or exhaust any security or (iii) pursue any other remedy. The Stockholders may exercise or not exercise any right or remedy they have against the Company or any security they hold (including the right to foreclose by judicial or nonjudicial sale) without affecting the Guarantor's liability. b) Any defenses from disability or other defense of the Company or from the cessation of the Company's liabilities. c) Any setoff, defense or counterclaim against the Stockholders. d) Any defense from the absence, impairment or loss of any right of reimbursement or subrogation or any other rights against the Company. Until the Company's obligations to the Stockholders have been paid, the Guarantor has no right of subrogation or reimbursement or subrogation or other rights against the Company. e) Any right to enforce any remedy that the Stockholders have against the Company. f) Any rights to participate in any security held by the Stockholders. g) Any demands for performance, notices of nonperformance or of new or additional indebtedness. The Guarantor is responsible for being and keeping itself informed of the Company's financial condition. The Stockholders have no duty to provide information regarding the Company to the Guarantor. h) The benefits of California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2847, 2848, 2849, 2850, 2899 and 3433. 5. If the Company becomes insolvent or is adjudicated bankrupt or files a petition for reorganization, or similar relief under the United States Bankruptcy Code, or if a petition is filed against the Company and/or any obligation under the Note Documents is terminated or rejected or any obligation of the Company is modified or if the Company's obligations are avoided, the Guarantor's liability will not be affected and its liability will continue. If the Stockholders must return any payment because of the insolvency, bankruptcy or reorganization 2 of the Company, the Guarantor or any other the guarantor, this Guaranty will remain effective or be reinstated. 6. Until payment in full in cash of the Company's obligations under the Note Documents and termination or expiration of the Note Documents, the Guarantor subordinates any indebtedness of the Company that it holds to the Guaranteed Obligations; and the Guarantor will collect, enforce and receive payments as the Stockholders' trustee and will pay the Stockholders those payments without reducing or affecting its liability under this Guaranty. 7. Except as otherwise specifically provided herein, the Guarantor waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of the Secured Obligations on which the Guarantor is liable. 8. The Guarantor will pay the Stockholders' reasonable fees and expenses incurred in enforcing this Guaranty, including reasonable attorneys' fees and expenses. This Guaranty may not be waived, revoked or amended without the Stockholders' and the Guarantor's prior written consent. If any provision of this Guaranty is unenforceable, all other provisions remain effective. This Guaranty is the entire agreement among the parties about this guaranty. No prior dealings, no usage of trade, and no parol or extrinsic evidence may supplement or vary this Guaranty. The Stockholders may assign this Guaranty. This Guaranty benefits the Stockholders, their successors and assigns. This Guaranty is in addition to any other guaranties the Stockholders obtain. 9. This Guaranty shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of law provisions thereof. Date: October 13, 2004 LION, INC. By: /s/ RANDALL D. MILES ---------------------------------- Title: CHAIRMAN AND CEO ------------------------------- 3 EX-10.4 7 c34063_ex10-4.txt EXHIBIT 10.4 LION, INC. EMPLOYMENT AND NON-COMPETITION AGREEMENT This Employment and Non-Competition Agreement (this "Agreement") is made effective the 13th day of October 2004 ("Effective Date"), by LION, Inc. ("Employer"), and Anthony Berris ("Executive"). RECITALS A. Employer has acquired Tuttle Risk Management Services, Inc. (TRMS, Inc.), including all of its goodwill, for valuable consideration through a merger (the "Merger") of TRMS, Inc. with and into LION Acquisition, LLC, a wholly owned subsidiary of Employer. LION Acquisition, LLC shall change its name after the Merger closes to Tuttle Risk Management Services, LLC ("TRMS"). B. Executive, a principal stockholder of TRMS, Inc. has knowledge of TRMS Inc.'s trade secrets and proprietary information of TRMS, Inc., including, but not limited to, its customer lists, business plans and business strategies. As a condition and inducement to Employer to undertake the Merger, Executive has agreed to be employed by Employer on the terms set forth in this Agreement. AGREEMENT The parties, intending to be legally bound, agree as follows: 1. DEFINITIONS For the purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1. 1.1 "Basic Compensation" is defined as Salary and Benefits (see Section 3.1.1 and 3.1.2). 1.2 "Bonus Compensation" is defined in Section 3.2. 1.3 "Cause" is defined in Section 6.2 1.4 "Confidential Information" is defined as the following information and materials in written, oral, magnetic, photographic, optical or other form and whether now existing or developed or created during the term of this Agreement which are proprietary to Employer and are highly sensitive in nature. 1.4.1 INFORMATION MARKED PROPRIETARY OR CONFIDENTIAL. All data, documents, materials, drawings and information in tangible form and marked "Proprietary" or "Confidential." 1 1.4.2 PRODUCTS. Any and all ideas, designs, inventions, discoveries, processes, methods, plans, concepts, know-how, methods, techniques, structures, specifications, design specifications, design notes, flow charts, documentation, technical and engineering data, laboratory studies, test results and any other information and materials, whether or not in tangible form, relating to Employer's operations. 1.4.3 TRADE SECRETS. All Employer's trade secrets, including as defined in any agreement between Executive and Employer, any of Employer's policies, or the Washington Trade Secrets Law, RCW 19.108 et seq., and including without limitation, the specific terms of Employer's relationships or agreements with significant vendors and customers, and targeted prospective vendors and customers; Employer's customer list; and information concerning Employer's management, finance, marketing and business plans. 1.4.4 LEGAL RIGHTS. Patents, copyrights, trade secrets, trademarks, and service marks ("Intellectual Property"), including any documents containing information concerning such Intellectual Property. 1.4.5 THIRD PARTY INFORMATION. Any and all information and materials in Employer's possession or under its control from any other person or entity which Employer is obligated to treat as confidential or proprietary ("Third Party Information"). 1.4.6 NOT GENERALLY KNOWN. Any and all information not generally known to the public or within the industries or trades in which Employer competes. 1.5 "Effective Date" means the date stated in the first paragraph of the Agreement. 1.6 "Employment Period" means the period beginning on the Effective Date and ending on termination of Executive's employment pursuant to Section 6. 1.7 "Person" is any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, or governmental body. 1.8 "Proprietary Items" is defined in Section 7.2.4. 1.9 "Salary" is defined in Section 3.1.1. 1.10 "Severance Benefit" is defined as 50% of the Executive's annual salary for the calendar year in which this Agreement is terminated, together with continuation of Benefits as defined in Sections 3.1.2 and 6.3.5 herein, at the level the Executive is receiving at the time of Termination for six months immediately following the Date of Termination. 1.11 "Severance Period" means a period of six months immediately following the Date of 2 2. EMPLOYMENT AND DUTIES 2.1 EMPLOYMENT Employer hereby employs Executive, and Executive hereby accepts employment by Employer, upon the terms and conditions set forth in this Agreement. 2.2 TERM Subject to the provision of Section 6, the term of Executive's employment under this Agreement will be three (3) years, beginning on the effective date (October 13, 2004) and ending on the third anniversary of the Effective Date. 2.3 DUTIES Executive will have such duties as are assigned or delegated to Executive by the CEO and will serve as President of TRMS, reporting initially to Employer's CEO. Executive will devote his entire business, time, attention, skill, and energy exclusively to the business of Employer, will use his best efforts to promote the success of Employer's business, and will cooperate fully with Employer and its Board of Directors in the advancement of the best interests of Employer. The foregoing notwithstanding, Executive may devote time, attention, skill and energy to REITCO, as defined in the Agreement of Merger, among Employer, TRMS and the other parties named therein (the "Merger Agreement"). Executive will initially be placed on TRMS's Board of Directors. 3. COMPENSATION 3.1 BASIC COMPENSATION 3.1.1 SALARY. Executive will be paid an annual salary of $145,314 per year subject to adjustment as provided below (the "Salary"), which will be payable in equal periodic installments according to Employer's customary payroll practices, but no less frequently than monthly. The Salary and Benefits (i.e. Basic Compensation) will be reviewed by the CEO and Compensation Committee not less frequently than annually. 3.1.2 BENEFITS. Executive will, during the Employment Period, be permitted to participate in such pension, profit sharing, bonus, life insurance, hospitalization, major medical, and other employee benefit plans of Employer that may be in effect from time to time, to the extent Executive is eligible under the terms of those plans (collectively, the "Benefits"). If Employer grants registration rights to other senior executives with respect to their Employer securities, Employer shall grant Executive the same registration rights with respect to his Employer securities. 3.2 BONUS COMPENSATION Annually the CEO and Compensation Committee will review and/or determine any bonus compensation plans or changes thereto for the Executive. 3 4. FACILITIES AND EXPENSES 4.1 GENERAL Employer will furnish Executive office space, equipment, supplies, and such other facilities and personnel as Employer deems necessary or appropriate for the performance of Executive's duties under this Agreement. Employer will pay on behalf of Executive (or reimburse Executive for) reasonable expenses incurred by Executive at the request of, or on behalf of, Employer in the performance of Executive's duties pursuant to this Agreement, and in accordance with Employer's policies. Executive must file expense reports with respect to such expenses in accordance with Employer's policies. 4.2 BUSINESS EXPENSES Employer shall reimburse Executive for all reasonable, ordinary and necessary business expenses incurred by Executive in the performance of his duties and the promotion of the Employer's business. 4.3 CELLULAR PHONE Employer will pay for and provide Executive with a cellular phone and phone service for business use if so requested by the Executive. 5. VACATIONS AND HOLIDAYS Executive will be entitled to vacation each calendar year in accordance with the vacation policies of Employer in effect for its employee officers from time to time, but in no event shall Executive be entitled to less than four (4) weeks vacation annually. Vacation must be taken by Executive at such time or times as approved by the CEO. Executive will also be entitled to the paid holidays set forth in Employer's policies. Vacation days and holidays during any calendar year that are not used by Executive during such calendar year may not be used in any subsequent calendar year without Employer's prior written consent. 6. TERMINATION 6.1 EVENTS OF TERMINATION The Employment Period, Executive's Salary and Benefits and any and all other rights of Executive under this Agreement or otherwise as an employee of Employer will terminate (except as otherwise provided in this Section 6) on the earliest of: 6.1.1 the death of Executive; 6.1.2 written notice by Executive; 6.1.3 written notice by Employer; or 4 6.1.4 for Cause (as defined in Section 6.2), immediately upon notice from Employer to Executive, or Executive to Employer, as applicable. 6.2 DEFINITION OF "CAUSE" For purposes of Section 6.2, "Cause" for Employer shall mean any of the following: (i) Executive's theft, dishonesty, or falsification of Employer's documents or records; (ii) Executive's participation in a fraud or act of dishonesty against Employer; (iii) any action taken in bad faith by Executive which has a detrimental effect on Employer's reputation or business; (iv) Executive's willful failure or inability to perform any reasonable assigned duties that is not remedied by Executive within forty-five (45) days of written notice of such failure or inability from Employer; (v) Executive's unremedied material breach of this Agreement after receipt of the written notice discussed above, or any violation of Employer's written policies constituting gross intentional misconduct adversely and demonstrably affecting Employer's business or reputation; or (vi) Executive's conviction (including any plea of guilty or NOLO CONTENDERE) of any felony or crime involving dishonesty. For purposes of Section 6.2, "Cause" for Executive shall mean any one of the following events which occurs without Executive's consent: (i) any reduction of Executive's then existing compensation or benefits, except to the extent that such compensation of all other senior executives of Employer is equally reduced; (ii) any material diminution of Executive's duties, responsibilities, authority, reporting structure, titles or offices; provided, that Executive gives Employer written notice of such material diminution and it is not remedied by Employer within thirty (30) days of receipt of such notice; (iii) any request that Executive relocate to a work site that would increase Executive's one-way commute distance by more than fifty (50) miles from Executive's then principal residence; (iv) any material breach by Employer of its obligations under this Agreement that is not remedied by Employer within thirty (30) days of written notice of such breach from Executive; (v) another entity or person becoming the majority owner through a hostile takeover of Employer; or (vi) a slate of directors is elected, a majority of which were not recommended by the existing directors and management prior to the vote. 6.3 TERMINATION PAY Effective upon the termination of this Agreement, Employer will be obligated to pay Executive only such compensation as is provided in this Section 6.3, and in lieu of all other amounts and in settlement and complete release of all claims Executive may have against Employer. 6.3.1 TERMINATION BY EMPLOYER FOR CAUSE OR TERMINATION BY EXECUTIVE WITHOUT CAUSE. If Employer terminates this Agreement for Cause, or Executive terminates this Agreement without cause, Executive will be entitled to receive his Salary only through the date such termination is effective. 6.3.2 TERMINATION UPON DEATH. If this Agreement is terminated because of Executive's death, Executive will be entitled to receive his Salary through the end of the calendar month in which his death occurs, plus a Severance Benefit. 6.3.3 TERMINATION BY EMPLOYER WITHOUT CAUSE. If Employer terminates this Agreement without Cause, Employer will pay Executive his Salary through the end of the calendar month in which such termination occurs. Employer will also pay the Severance Benefit. 5 6.3.4 TERMINATION BY EXECUTIVE FOR CAUSE. If the Executive terminates this Agreement "for cause", the Employer will pay Executive his Salary through the end of the calendar month in which such termination occurs. Employer will also pay the Severance Benefit. 6.3.5 BENEFITS. Executive's accrual of, or participation in plans providing for benefits will cease at the effective date of the termination of this Agreement, and Executive will be entitled to accrued Benefits pursuant to such plans only as provided in such plans. Following the Termination Date, the Executive has the right to continue coverage under Employer's health insurance plans as provided by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), provided the Executive makes a timely election for such continued coverage. However, if the Executive terminates "for cause" or the Employer terminates the Executive "without cause", Employer will pay Executive's cost of COBRA during the 6-month Severance Period. 7. NON-DISCLOSURE COVENANT 7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE Executive acknowledges that (a) during the Employment Period and as a part of his employment, Executive will be afforded access to Confidential Information; (b) disclosure of such Confidential Information to any third party could have an adverse effect on Employer and its business; and (c) the provisions of this Section 7 are reasonable and necessary to prevent the improper use or disclosure of Confidential Information. 7.2 AGREEMENTS OF THE EXECUTIVE In consideration of the compensation and benefits to be paid or provided to Executive by Employer under this Agreement, Executive covenants as follows: 7.2.1 During and following the Employment Period, Executive will hold in confidence the Confidential Information and will not disclose it to any person except with the specific prior written consent of Employer or except as otherwise expressly permitted by the terms of this Agreement. 7.2.2 Any trade secrets of Employer will be entitled to all of the protections and benefits under Washington trade secret law, RCW 19.108 et seq., and any other applicable law. If any information that Employer deems to be a trade secret is found by a court of competent jurisdiction not to be a trade secret for purposes of this Agreement, such information will, nevertheless, be considered Confidential Information for purposes of this Agreement. Executive hereby waives any requirement that Employer submit proof of the economic value of any trade secret or post a bond or other security. 7.2.3 None of the foregoing obligations and restrictions applies to any part of the Confidential Information that Executive demonstrates was or became generally available to the public other than as a result of a disclosure by Executive. 7.2.4 Executive will not remove from Employer's premises (except to the extent such removal is for purposes of the performance of Executive's duties at home or while traveling, or except as otherwise specifically authorized by Employer) any document, record, notebook, plan, model, component, device, or computer software or code, whether embodied in a disk or in any other form (collectively, the "Proprietary Items"). Executive recognizes that, as between Employer and Executive, 6 all of the Proprietary Items, whether or not developed by Executive, are the exclusive property of Employer. Upon termination of this Agreement by either party, or upon the request of Employer during the Employment Period, Executive will return to Employer all of the Proprietary Items in Executive's possession or subject to Executive's control, and Executive shall not retain any copies, abstracts, sketches, or other physical embodiment of any of the Proprietary Items. 7.3 DISPUTES OR CONTROVERSIES Executive recognizes that should a dispute or controversy arising from or relating to this Agreement be submitted for adjudication to any court, arbitration panel, or other third party, the preservation of the secrecy of Confidential Information may be jeopardized. All pleadings, documents, testimony, and records relating to any such adjudication will be maintained in secrecy and will be available for inspection by Employer, Executive, and their respective attorneys and experts, who will agree, in advance and in writing, to receive and maintain all such information in secrecy, except as may be limited by them in writing. 8. NON-COMPETITION AND NON-SOLICITATION COVENANTS 8.1 NON-COMPETITION. Executive covenants that, during the three (3) year period commencing on the date hereof, including any period during which he is no longer employed by Employer, regardless of the reason for termination of such employment, he shall not anywhere in the United States where Employer does business, directly or indirectly, provide any management, supervisory, employment, consulting or other services to himself, any other person, or any entity (including any business to be formed or in planning of formation) which is, or intends to be, competitive with the business that Employer acquired from TRMS in connection with the Merger, as defined in the Merger Agreement (the "Acquired Business"). For purposes of this Section 8.1, the Acquired Business includes, without limitation, providing the mortgage industry with products and services using TRMS's solutions. These developed solutions include all technology envisioned, developed and/or produced by TRMS as well as any and all TRMS tools or artifacts used to facilitate the development and hosting processes. This Agreement also includes any of TRMS's past, current or future business, business plans or intentions that were, or could reasonably have been, known to Executive during the term of this Agreement or any other period during which he may have worked or provided services for Employer. Among other roles and without limitation, Executive may not assist or serve any competing person or entity as a shareholder, "founder," director, officer, employee, partner, agent, consultant, lessor, creditor or otherwise; provided, however, that Executive may assist or serve REITCO in any such roles. Executive agrees that he will promptly and fully disclose to Company any business opportunity coming to his attention, or conceived or developed in whole or in part by him, which relates to Company's business. The terms of this Section 8.1 shall be construed so as to be consistent with any other noncompetition agreements between Employer and Executive. Any such agreements shall remain in full force and effect unless otherwise stated in writing signed by Executive and Employer's CEO. Executive may, notwithstanding his obligations under this Section 8.1, own, as a passive investor, up to one percent (1%) of any publicly traded company without violating this provision. 8.2 NON-SOLICITATION. Executive covenants that, during the three (3) year period commencing on the date hereof, including any period during which he is no longer employed by Employer, regardless of the reason for termination of such employment, he shall not, directly or indirectly, (i) solicit any current or former customer of the Employer other than in his capacity and consistent with his duties as an 7 officer and employee of Employer or REITCO; or (ii) attempt to induce any employee, vendor or supplier of Employer to terminate their relationship with Employer. 8.3 INJUNCTIVE RELIEF. If Executive violates any of the covenants set forth in Section 8,1 or 8.2, Employer will be entitled to have and obtain a mandatory injunction in any court having jurisdiction to enforce such covenants to prevent and terminate any violation or attempted violation hereof, and may have and recover from the violating party any appropriate damages for any violations of the covenants made herein. If the time or area limitations, or both, contained herein are held by any court of competent jurisdiction to be unreasonable or otherwise unenforceable, this covenant will nevertheless be enforceable for such lesser time or lesser area, or both, as the court shall find reasonable. 9. GENERAL PROVISIONS 9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY Executive acknowledges that the injury that would be suffered by Employer as a result of a breach of the provisions of this Agreement would be irreparable and that an award of monetary damages to Employer for such a breach would be an inadequate remedy. Consequently, Employer will have the right, in addition to any other rights it may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement. Without limiting Employer's rights under this Section 9.1 or any other remedies of Employer, if Executive breaches any of the provisions of Section 7 or 8, Employer will have the right to cease making any payments otherwise due to Executive under this Agreement. 9.2 COVENANTS OF SECTION 7 and 8 ARE ESSENTIAL AND INDEPENDENT COVENANTS The covenants by Executive in Sections 7 and 8 are essential elements of this Agreement, and without Executive's agreement to comply with such covenants, Employer would not have entered into this Agreement or employed Executive. Executive has independently consulted his counsel and has been advised in all respects concerning the reasonableness and propriety of such covenants, with specific regard to the nature of the business conducted by Employer. Executive's covenants in Section 7 and 8 (and each subsection thereof) are independent covenants and the existence of any claim by Executive against Employer under this Agreement or otherwise, will not excuse Executive's breach of any covenant in Section 7 or 8. If Executive's employment hereunder expires or is terminated, this Agreement will continue in full force and effect as is necessary or appropriate to enforce the covenants and agreements of Executive in Section 7 or 8. 9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE Executive represents and warrants to Employer that the execution and delivery by Executive of this Agreement do not, and the performance by Executive of Executive's obligations hereunder will not, with or without the giving of notice or the passage of time, or both: (a) violate any judgment, writ, injunction, or order of any court, arbitrator, or governmental agency applicable to Executive; or (b) 8 conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which Executive is a party or by which Executive is or may be bound. 9.4 OBLIGATIONS CONTINGENT ON PERFORMANCE The obligations of Employer hereunder, including its obligation to pay the compensation provided for herein, are contingent upon Executive's performance of Executive's obligations hereunder. 9.5 WAIVER The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by either party in exercising any right, power, or privilege under this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement. 9.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, and legal representatives, including any entity with which Employer may merge or consolidate or to which all or substantially all of its assets may be transferred. The duties and covenants of Executive under this Agreement, being personal, may not be delegated. 9.7 NOTICES All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties): If to Executive: Anthony Berris 645 Fawn Drive San Anselmo, CA 94960 Telephone No.:___________ or to such other addresses and faxes as the parties may from time to time designate in writing. 9 If to Employer: Randall D. Miles, CEO LION, Inc. 4200 - 42nd Ave. SW, Suite 430 Seattle, WA 98116 Telephone No.: (206) 577-1446 or to such other addresses and telephone numbers as the Employer may from time to time designate in writing. 9.8 ENTIRE AGREEMENT; AMENDMENTS This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof, provided, however, that any prior or contemporaneous agreements between the parties concerning confidentiality, intellectual property, inventions, non-competition, and/or non-solicitation shall remain in full force and effect if and to the extent that they provide greater protection to Employer. This Agreement may not be amended orally, but only by an agreement in writing signed by the parties hereto. 9.9 ARBITRATION Except when injunctive relief is sought by Employer pursuant to Section 9.1, Employer and Executive shall settle any and all claims, disputes or controversies arising out of or relating to Executive's candidacy for employment, employment and/or cessation of employment with Employer, exclusively by final and binding arbitration before a single neutral Arbitrator. Such claims include claims under federal, state and local statutory or common law; wrongful termination; claims for wages, including, but not limited to, claims under the Fair Labor Standards Act, Washington Minimum Wage Act, or other state equivalent; breach of public policy; claims of discrimination or harassment, including, but not limited to, claims under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act, the Washington Law Against Discrimination, and any other state or local discrimination laws. The arbitration shall be submitted to the American Arbitration Association, and it shall be conducted in San Francisco, California in accordance with the Commercial Dispute Resolution Procedures then in effect. Judgment upon the award rendered may be entered in any court of competent jurisdiction. 9.10 GOVERNING LAW This Agreement will be governed by the laws of the State of Washington without regard to the conflicts of laws principles thereof, except that the provisions of Section 7 and Section 8 shall be governed by the laws of the State of California without regard to conflicts of laws principles thereof. 9.11 JURISDICTION Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against either of the parties in the federal or state courts of the State of California, County of San Francisco, and each of the parties consents to the jurisdiction of such courts 10 (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Executive acknowledges that this venue provision is proper because Employer is headquartered in Seattle, Washington, and that for consistency and other purposes in interpretation of agreements venue rests properly in the Seattle, Washington area. Process in any action or proceeding referred to in the preceding sentence may be served on either party anywhere in the world. 9.12 SECTION HEADINGS, CONSTRUCTION The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement unless otherwise specified. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 9.13 SEVERABILITY If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 9.14 DRAFTSMANSHIP There shall be no presumption of draftsmanship in the preparation or execution of this Agreement. 9.15 COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date above first written above. EMPLOYER: EXECUTIVE: /s/ RANDALL D. MILES /s/ ANTHONY BERRIS - -------------------------------- -------------------------------------- Randall D. Miles Anthony Berris Chairman and CEO 11 EX-99.1 8 c34063_ex99-1.txt EXHIBIT 99.1 LION, INC. FOR IMMEDIATE RELEASE CONTACTS: Dave Stedman President LION, Inc. 800-546-6463 LION, INC. TO ACQUIRE TUTTLE RISK MANAGEMENT SERVICES, INC. ACQUISITION SOLIDIFIES POSITION AS A LEADING PROVIDER OF MORTGAGE RISK MANAGEMENT SOLUTIONS SEATTLE, WA - OCTOBER 13, 2004 - LION, INC. (OTC Bulletin Board: LINN) , a leading provider of advanced business solutions that streamline the mortgage fulfillment process, today announced that it has signed a definitive agreement to acquire Tuttle Risk Management Services, Inc. (TRMS), a privately held provider of mortgage pipeline risk management services for mortgage companies and financial institutions. The acquisition, LION's second in the last 10 months, is part of the Company's continuing strategy to extend its reach in providing end-to-end productivity and efficiency solutions to the mortgage industry. "This is an important strategic and accretive acquisition for LION," stated Randall D. Miles, Chairman and CEO of LION, Inc. "It facilitates the vertical integration of our risk management technology business and leverages the reputation and expertise of an organization that has successfully used LION's Pipeline Tools technology for the benefit of mortgage lenders nationwide. The pairing of TRMS' risk management services with LION's technology and market presence will improve operating efficiencies by better aligning product development with distribution, to better serve our existing customers, expand our customer base and reduce costs. This further strengthens our objective of offering products and services that deliver value from leads to loans to capital markets." Under the terms of the agreement, TRMS shareholders will receive approximately $2.7 million in consideration, comprised of approximately 3.1 million restricted shares of LION common stock and promissory notes in the principal amount of approximately $1.3 million. The promissory notes are due in 2007. LION paid no cash to TRMS shareholders in the transaction. TRMS recorded unaudited revenue of $6.2 million in 2003 and $4.7 million in revenue for the first nine months of 2004. At TRMS' present 1 run rate, the transaction could add a penny or more per share to LION's fully diluted 2005 earnings. Since 2000, TRMS has licensed Pipeline Tools for its risk management technology. LION acquired the Pipeline Tools product from Ignition Mortgage Technology Solutions, Inc. in December 2003. TRMS paid licensing fees for its use of Pipeline Tools of $2.8 million in 2003 and $2.5 million for the first nine months of 2004. The incremental revenue that TRMS is expected to contribute to LION in 2005 could range from $2.5 million to $3.5 million. TRMS and its predecessors have for almost 20 years provided advanced mortgage pipeline risk management for mortgage companies and financial institutions that originate and then sell mortgage loans into the secondary market. TRMS currently provides risk management services to more than 50 lenders. "We are very pleased to be associated with LION," stated Anthony Berris, President of TRMS. "We have worked closely with the developers of the Pipeline Tools technology for three years and merging with an industry leading technology provider will improve our ability to deploy additional risk management strategies and expand the scope of our client services." Mr. Miles added, "Integrating TRMS with LION's Pipeline Tools business line will present a minimum of distraction since our organizations have worked closely together for some time. TRMS will operate as a wholly owned subsidiary of LION and will retain its name. Consolidation of our respective San Francisco Bay Area offices will reduce costs, increase profitability and will enable software developers to work closely with the trade desk. Our ability to service existing customers will be enhanced, as will our opportunity to offer additional products and services that appeal to an expanded universe of potential customers." The acquisition has been approved by the board of directors of both companies and is subject to customary closing conditions. The transaction is expected to close later this month. ABOUT LION, INC. LION, INC. is a leading provider of advanced business solutions that streamline the mortgage loan fulfillment process in the over $2 trillion mortgage industry. From LEADS TO LOANS TO CAPITAL MARKETS, LION offers consistent, seamless business solutions to consumers, brokers, realtors, originators and lenders. LION provides an integrated technology platform offering online loan productivity, mortgage pipeline hedging and risk management, software development and data communications tools. LION has offices in Washington, California and Colorado and has been named by Deloitte & Touche LLP as one of the 50 fastest growing technology companies in the State of Washington for 2004. For more information, please visit www.lioninc.com. 2 ABOUT TUTTLE RISK MANAGEMENT SERVICES, INC. Tuttle Risk Management Services, Inc. and its predecessors have since 1983 been providing hands on management of mortgage pipelines for mortgage companies and financial institutions that originate and then sell mortgage loans into the secondary market. The Company is registered as a Commodity Trading Advisor. For more information, please visit www.trmshedge.com. ### This press release contains forward-looking statements that involve risks and uncertainties concerning our expected performance. Actual results may differ materially from the results predicted and historical results should not be considered as an indication of our future performance. Factors that may cause such differences include risks and uncertainties inherent in acquisition transactions, including those relating to the inability to achieve planned synergies, execute integration plans and establish an efficient management and organizational structure. Other potential risks and uncertainties include interest rate changes; housing and consumer trends effecting home purchases; the management of our potential growth; our ability to integrate newly acquired assets and product lines; risks of new business areas and new Internet technology; joint-marketing and sales agreements; our ability to attract and retain high quality employees; changes in the overall economy and in technology; and the number and size of our Internet competitors. More information about these and other important factors that could affect our business and financial results is included in our Annual Report on Form 10-KSB/A for the fiscal year ended December 31, 2003, including (without limitation) under the captions, "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations", and in those sections of our quarterly reports on Form 10-QSB all of which reports have been filed with the Securities and Exchange Commission and are available at WWW.SEC.GOV. Statements in this release should be evaluated in light of these important factors. All information set forth in this release is as of October 13, 2004, and LION undertakes no duty to update this information. 3 EX-99.2 9 c34063_ex99-2.txt EXHIBIT 99.2 LION, INC. FOR IMMEDIATE RELEASE CONTACTS: Dave Stedman President LION, Inc. 800-546-6463 LION, INC. COMPLETES ACQUISITION OF TUTTLE RISK MANAGEMENT SERVICES, INC. ACQUISITION SOLIDIFIES POSITION AS A LEADING PROVIDER OF MORTGAGE RISK MANAGEMENT SOLUTIONS SEATTLE, WA - OCTOBER 15, 2004 - LION, INC. (OTC Bulletin Board: LINN) , a leading provider of advanced business solutions that streamline the mortgage fulfillment process, today announced that it has completed its previously announced acquisition of Tuttle Risk Management Services, Inc. (TRMS), a privately held provider of mortgage pipeline risk management services for mortgage companies and financial institutions. The acquisition, LION's second in the last 10 months, is part of the Company's continuing strategy to extend its reach in providing end-to-end productivity and efficiency solutions to the mortgage industry. ABOUT LION, INC. LION, INC. is a leading provider of advanced business solutions that streamline the mortgage loan fulfillment process in the over $2 trillion mortgage industry. From LEADS TO LOANS TO CAPITAL MARKETS, LION offers consistent, seamless business solutions to consumers, brokers, realtors, originators and lenders. LION provides an integrated technology platform offering online loan productivity, mortgage pipeline hedging and risk management, software development and data communications tools. LION has offices in Washington, California and Colorado and has been named by Deloitte & Touche LLP as one of the 50 fastest growing technology companies in the State of Washington for 2004. For more information, please visit www.lioninc.com. 1 ABOUT TUTTLE RISK MANAGEMENT SERVICES, INC. Tuttle Risk Management Services, Inc. and its predecessors have since 1983 been providing hands on management of mortgage pipelines for mortgage companies and financial institutions that originate and then sell mortgage loans into the secondary market. The Company is registered as a Commodity Trading Advisor. For more information, please visit www.trmshedge.com. ### This press release contains forward-looking statements that involve risks and uncertainties concerning our expected performance. Actual results may differ materially from the results predicted and historical results should not be considered as an indication of our future performance. Factors that may cause such differences include risks and uncertainties inherent in acquisition transactions, including those relating to the inability to achieve planned synergies, execute integration plans and establish an efficient management and organizational structure. Other potential risks and uncertainties include interest rate changes; housing and consumer trends affecting home purchases; the management of our potential growth; our ability to integrate newly acquired assets and product lines; risks of new business areas and new Internet technology; joint-marketing and sales agreements; our ability to attract and retain high quality employees; changes in the overall economy and in technology; and the number and size of our Internet competitors. More information about these and other important factors that could affect our business and financial results is included in our Annual Report on Form 10-KSB/A for the fiscal year ended December 31, 2003, including (without limitation) under the captions, "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations", and in those sections of our quarterly reports on Form 10-QSB all of which reports have been filed with the Securities and Exchange Commission and are available at www.sec.gov. Statements in this release should be evaluated in light of these important factors. All information set forth in this release is as of October 15, 2004, and LION undertakes no duty to update this information. 2 -----END PRIVACY-ENHANCED MESSAGE-----