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Patron to buy TrustWave of Annapolis for $63 million

THE BALTIMORE SUN

TrustWave Corp., an Annapolis-based information-security company, will be acquired by a Chicago company for about $63 million, suitor Patron Systems Inc. announced yesterday.

Patron said it was buying TrustWave and another company to help it achieve its goal of becoming a player in the burgeoning market for information-security products and services.

"We are really excited about" the buyout by Patron, said Joseph L. Patanella, TrustWave's founder and a veteran of the National Security Agency. "We have been thinking, for quite some time, about growing an entrepreneurial information-assurance firm. We have all the components to do that now, plus the resources" and financing to pursue that objective.

In addition to acquiring Trustwave, Patron Systems is buying Entelagent of Aliso Viejo, Calif.

For TrustWave, Patron Systems agreed to pay $20 million in cash and 8.85 million shares of parent company Patron Holdings Inc. common stock - worth $43.01 million at yesterday's closing price of $4.86 per share.

For Entelagent, Patron said, it will assume debt and other obligations, and will grant 1.8 million shares of its stock, worth $8.75 million at yesterday's trading close.

Ryan E. Kirch, a Patron Holdings spokesman and director of investor relations, said the company hopes to close both deals in about 60 days, although TrustWave's Patanella said the companies hope to have purchases completed by the end of this year.

Once that buyout is finished, Chicago will serve as the company's corporate headquarters, Kirch said. TrustWave will continue to maintain its New York and Annapolis offices. The Annapolis office is important because of its proximity to Washington, home to such key customers as the Department of Defense and other security-related agencies.

In addition to the government, TrustWave has served the health care and financial services industries.

Initially, Patron Systems' overall corporate employment will stand at about 100 - including the 35 TrustWave employees - although that number could easily grow as the business expands, Kirch said.

Patron Holdings was formed earlier this year and then acquired an existing public company - avoiding the long and costly initial public offering process - and refocused its business on the fast-growing market for information-security products and services.

Spending on information-security products and services is expected to reach $50 billion in 2005, as increased worries about terrorism and other potential problems have prompted companies to accelerate their efforts toward tighter security, according to IDC, the technology-research group.

With the deals complete, Patron said yesterday, it expects "minimum" revenue next year of $40 million, though sales could be higher depending on how many of the contracts it is currently negotiating reach fruition.

TrustWave was the first company to be certified by NSA to ensure that networks comply with the agency's stringent standards. It can also help other companies that wish to get into that business become certified, Patron said.

Entelagent markets e-mail security and surveillance products.

TrustWave was founded by Patanella, 40, an 18-year NSA veteran who said he saw the need for "information assurance" in the late 1990s, when the Internet was gaining widespread attention. At that point, studies showed that security was so poor that companies faced potential losses of $2 billion a day from misuse or theft of proprietary information, Patanella said. "I realized how vulnerable corporate America was," he said.

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