OMNIBUS AMENDMENT AND SECURITIES PURCHASE AGREEMENT
OMNIBUS
AMENDMENT
AND
This OMNIBUS AMENDMENT AND SECURITIES
PURCHASE AGREEMENT, dated as of July 1, 2010 (this "Amendment"),
is entered into by and among (i) Compliance Systems
Corporation, a Nevada corporation (the “Company”
or “CSC”
or the “Debtor”),
(ii) Execuserve Corp., a
Virginia corporation ("ExecuServe"),
(iii) Call Compliance
Inc., a New York corporation (“Call
Compliance”), (iv) Spirits Management Inc.
(“Spirits”),
(v) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, a
natural person (“▇▇▇▇▇▇▇▇▇▇”),
(vi) ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, a
natural person (“▇▇▇▇▇▇▇▇▇”
and together with Execuserve, Call Compliance, Spirits and ▇▇▇▇▇▇▇▇▇▇, each a
“Guarantor”
and collectively, the “Guarantors”),
and (vii) Agile Opportunity
Fund, LLC, a Delaware limited liability company, ("Agile"
or the “Investor”
or the “Secured
Party”). Capitalized terms used but not otherwise defined
herein shall have the meanings set forth in the A&R Securities Purchase
Agreement (as defined below).
WITNESSETH:
WHEREAS, the Company and the
Investor entered into a Securities Purchase Agreement, dated as May 6, 2008 (the
“Original
Securities Purchase Agreement”); and
WHEREAS, in connection with
the Original Securities Purchase Agreement, (i) each of Spirits, ▇▇▇▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇▇▇ executed a Limited Non-Recourse Guaranty Agreement in favor of the
Investor (collectively, the “CSC
Guaranty Agreements”) and (ii) Spirits, ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ executed
a Stock Pledge Agreement, dated May 6, 2008 (the “CSC
Pledge Agreement”), securing their obligations under the CSC Guaranty
Agreements by a pledge of shares of preferred stock of the Company owned by them
as set forth on Schedule I to the Pledge Agreement; and
WHEREAS, the Company, the
Investor and the Guarantors entered into an Amended and Restated Securities
Purchase Agreement dated as of February 5, 2010 (the “A&R
Securities Purchase Agreement”) pursuant to which, among other things,
the Investor purchased from the Company an Amended and Restated Secured
Convertible Debenture in the original principal amount of $1,765,000.00 (the
“A&R
Debenture”); and
WHEREAS, in connection with
the purchase and sale of the A&R Debenture pursuant to the A&R
Securities Purchase Agreement, (i) the Company executed and delivered an Amended
and Restated Security Agreement in favor of the Investor (the “A&R
CSC Security Agreement”), (ii) Execuserve and Call Compliance executed
and delivered a Guaranty Agreement in favor of the Investor (the “Subsidiary
Guaranty” and together with the CSC Guaranty Agreements, the “Guaranty
Agreements”), and (iii) Call Compliance and Execuserve each executed and
delivered a Guarantor Security Agreement in favor of the Investor granting to
the Investor a first priority lien in the Collateral identified therein (the
“Guarantor
Security Agreements”); and
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WHEREAS, the A&R
Securities Purchase Agreement, the A&R CSC Security Agreement, the Guaranty
Agreements, the CSC Pledge Agreement, the Guarantor Security Agreements and the
A&R Debenture are collectively referred to herein as the “Existing
Transaction Documents”; and
WHEREAS, the Company desires
to sell to the Investor, and the Investor desires to purchase from the Company,
one or more additional Secured Convertible Debentures and make certain
amendments to the Existing Transaction Documents as set forth
herein.
NOW, THEREFORE, in
consideration of the foregoing and the mutual promises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the parties, the parties covenant and agree as
follows:
1. Issuance
of New Debenture.
(a) Subject
to the terms and conditions of this Amendment and in reliance on the
representations and warranties set forth or referred to herein, (i) at the
Initial Closing (as hereinafter defined), the Company shall sell to the Investor
and the Investor shall purchase from the Company a Secured Convertible Debenture
in the original principal amount of $175,000.00 (the “July
Debenture Purchase Price”), such Secured Convertible Debenture to be in
the form attached hereto as Exhibit A
(the “July
Debenture”); with a maturity date of one year from its date of issue, and
(ii) at the Second Closing (as defined below), if any, the Company shall sell to
the Investor and the Investor shall purchase from the Company a Secured
Convertible Debenture in the original principal amount of $125,000.00 (the
“August
Debenture Purchase Price”) such Secured Convertible Debenture to be in
the form attached hereto as Exhibit B
(the “August
Debenture” and together with the A&R Debenture and the July
Debenture, the “Debentures”).
The July Debenture and the August Debenture, including accrued but unpaid
interest thereon, will be convertible into shares of the common stock, par value
$0.001 per share (the “CSC
Common Stock”), of CSC at the lesser of $0.03 or the applicable
Conversion Price under the A&R Debenture (the “Common
Stock Debenture Shares”), subject to a minimum conversion price of $0.001
per share.
(b) In
connection with the purchase and sale of the July Debenture hereunder and in
addition thereto, the Company agrees to issue to the Investor at the Initial
Closing, Six Million (6,000,000) shares of CSC Common Stock (the “July
Incentive Shares”). The July Debenture and the July Incentive Shares are
collectively referred to herein as the “July
Securities”.
(c) The
closing of the purchase, sale and issuance of the July Securities shall take
place at the offices of ▇▇▇▇▇▇▇▇▇ Ball ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇, LLP
(“WBEMS”),
▇▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other location as agreed
to between the parties, simultaneous with the execution hereof (the "Initial
Closing"). At the Initial Closing:
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(i) the
Company shall deliver to the Investor the duly executed July Debenture and one
or more stock certificates evidencing the number of July Incentive Shares
registered in the name of Investor to be delivered pursuant to Section 1(b)
hereof against delivery by the Investor to the Company of the July Debenture
Purchase Price by wire transfer of immediately available funds in the amount
thereof to the Company’s bank account at Capital One Bank, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (Account Number: 7924030518) (the “Company
Bank Account”) or by such other method agreed to in writing by the
Investor and the Company; and
(ii) the
Company shall pay all fees due to third party agents and expenses incurred by
Agile and/or Agile Investments, LLC in connection with the transactions
hereunder, to wit: (x) the actual legal fees and expenses of WBEMS incurred in
connection with the preparation of this Agreement and the consummation of the
transactions contemplated hereby, subject to a maximum of $7,500, and (y)
$15,000 payable to Agile Investments, LLC for due diligence costs, structuring
work and ongoing debt monitoring fees.
(iii) the
Company shall prepay to Investor all interest due on the July Debenture through
September 30, 2010.
(d) The
closing of the purchase, sale and issuance of the August Debenture shall take
place, at the sole discretion of the Investor, upon two days prior written
notice to the Company, on or about August 1, 2010 at the offices of WBEMS (the
“Second
Closing”). At the Second Closing, if any:
(i) the
Company shall deliver to the Investor the duly executed August Debenture against
delivery by the Investor to the Company of the August Debenture Purchase Price
by wire transfer of immediately available funds in the amount thereof to the
Company’s Bank Account or by such other method agreed to in writing by the
Investor and the Company; and
(ii) the
Company shall deliver to the Investor an Officer’s Certificate in form and
substance satisfactory to the Investor certifying that all representations and
warranties made by the Company to the Investor in the Existing Transaction
Documents are (subject to representations and warranties which speak of a date
certain other than the date on the Second Closing) true and correct as of the
date of such Second Closing as if made on and as of the date of such Second
Closing with respect to this Amendment and the August Debenture, except that
representations with respect to the capitalization of the Company are subject to
the issuance of securities pursuant to the Existing Transaction
Documents.
(e) The
parties agree that the net proceeds from the issuance of the July Debenture,
and, if applicable, the August Debenture, shall be used for working capital
purposes.
2. Amendments
to Original Transaction Documents.
(a) The
A&R Securities Purchase Agreement is hereby amended by amended and restating
Section 1.5(a) thereof to read in its entirety as follows:
3
At no
time shall the Investor, together with any “affiliates” of the Investor (as
defined in the Exchange Act), “beneficially own” (as defined in the Exchange
Act) in excess of Nine and 90/00 percent (9.90%) of the outstanding shares of
CSC Common Stock. Accordingly, the Investor shall not convert any
portion of any Company Debenture if, as a result of such conversion, the
Investor (together with the Investor’s affiliates) would beneficially own in
excess of Nine and 90/00 percent (9.90%) of the outstanding shares of CSC Common
Stock, inclusive of shares of CSC Common Stock beneficially owned by the
Investor and acquired other than through the conversion of a Debenture in
violation of the foregoing.
(b) The
A&R Securities Purchase Agreement is hereby amended by amended and restating
Section 1.5(b) thereof to read in its entirety as follows:
To the
extent that the limitation contained in this Section 1.5 applies, the
determination of whether a Company security is convertible or exercisable (in
relation to other Company securities owned by the Investor) and which security
or portion thereof is convertible or exercisable shall be in the sole discretion
of the Investor. To ensure compliance with this restriction, the
Investor will be deemed to represent to the Company each time it delivers a
Notice of Conversion under any of the Debentures that such notice does not
violate the restrictions set forth in this Section 1.5 and the Company shall
have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 1.5, in determining the
number of outstanding shares of CSC Common Stock, the Investor may rely on the
number of outstanding shares of CSC Common Stock as reflected in (x) the
Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y) a more
recent public announcement by the Company, including the filing of a Form 8-K
which discloses the issuance of shares of CSC Common Stock, or (z) any other
notice by the Company or the Company’s Transfer Agent setting forth the number
of shares of CSC Common Stock outstanding. Upon the written or oral
request of the Investor, the Company shall within two business days confirm
orally and in writing to the Investor the number of shares of CSC Common Stock
then outstanding. In any case, the number of outstanding shares of
CSC Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company by the Investor or its affiliates since
the date as of which such number of outstanding shares of CSC Common Stock was
reported
(c) Each
of the A&R CSC Security Agreement, the Guaranty Agreements, the Guarantor
Security Agreement and the CSC Pledge Agreement is hereby amended by (i)
amending the definition of the term “Obligations” contained in the A&R CSC
Security Agreement, the Guarantor Security Agreements and the Guaranty
Agreements and the term “Debenture Obligations” contained in the CSC Pledge
Agreement to include collectively all obligations of the Debtor to the Secured
Party under each of the A&R Debenture, the July Debenture and, if issued,
the August Debenture as well as any other Company debentures, whether now
existing or hereafter arising and whether for principal, interest, costs, fees
or otherwise (collectively, the “Obligations”). The
A&R CSC Security Agreement and the Guarantor Security Agreements are further
amended by amending Section 20 and Section 21, respectively (Termination) to
include and extend to all of the Debentures. Consequently, and upon
the taking of all actions to be taken at the Initial Closing pursuant to Section
1(c) hereof, and, if applicable, the Second Closing pursuant to Section 1(d)
hereof, repayment of each of the A&R Debenture, the July Debenture, and, if
issued, the August Debenture, and the performance by the Company of all its
obligations thereunder, shall be secured with a first priority lien and security
interest (subject to exceptions to the first priority lien as set forth in the
A&R CSC Security Agreement, Guarantor Security Agreements and CSC Pledge
Agreement) in the collateral identified in each of the A&R CSC Security
Agreement, the Guarantor Security Agreements and the CSC Pledge Agreement on a
pari passu
basis.
4
(d) The
Existing Transaction Documents are hereby further amended: (i) to include the
obligations of the Company under this Amendment, the July Debenture and, if
issued, the August Debenture as obligations of the Company for all purposes
under the Existing Transaction Documents and (ii) as further necessary to
conform them to any potentially conflicting provisions contained in this
Amendment, the provisions of this Amendment prevailing in any such
conflict.
3. Representations
and Warranties of the Company. The Company and the Guarantors
hereby represent and warrant to the Investor that the representations and
warranties made by the Company and the Guarantors to the Investor in the
Existing Transaction Documents to which they are a party are (subject to
representations and warranties which speak of a date certain other than the date
of this Agreement) true and correct as of the date hereof as if made on and as
of the date hereof and with respect to this Amendment and the July Securities,
except that representations with respect to the capitalization of the Company
are subject to the issuance of securities pursuant to the Existing Transaction
Documents and this Agreement.
4. Representations
and Warranties of the Investor. The Investor hereby represents
and warrants to the Company that the representations and warranties made by the
Investor to the Company in the Existing Transaction Documents are true and
correct as of the date hereof as if made on and as of the date hereof and with
respect to this Amendment and the New Securities issued or to be issued
hereunder.
5. Existing
Transaction Documents in Effect; No Defaults. The terms and
provisions of the Existing Transaction Documents, as and to the extent amended
hereby, are and shall remain and continue in full force and effect and the
Company and the Guarantors hereby reaffirm all of their respective obligations
under the Existing Transaction Documents to which they are a
party. Neither the Company nor the Guarantors are aware of any Event
of Default under the Existing Transaction Documents, nor of any event which with
the giving of notice or lapse of time would constitute an Event of Default under
the Existing Transaction Document to which they are a party.
5
6. Miscellaneous
6.1 Registration
Rights. The July
Incentive Shares and the Common Stock Debenture Shares, shall be entitled to the
registration rights provided for under Section 7.1 of the A&R Securities
Purchase Agreement.
6.2 Successors
and Assigns. The terms and
conditions of this Amendment shall inure to the benefit of and be binding upon
the respective successors and permitted assigns of the
parties. Nothing in this Amendment, express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities
under or by reason of this Amendment, except as may be expressly provided
herein.
6.3 Governing
Law. This Amendment
and all acts and transactions pursuant hereto and the rights and obligations of
the parties hereto shall be governed, construed and interpreted in accordance
with the laws of the State of New York, without giving effect to principles of
conflicts of law.
6.4 Counterparts. This Amendment
may be executed in any number of counterparts, each of which shall be deemed an
original and all of which together shall constitute one instrument.
6.5 Titles
and Subtitles. The titles and
subtitles used in this Amendment are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
6.6 Confidentiality. This Agreement is
confidential, and none of its provisions or terms shall be disclosed to anyone
who is not an Investor or an officer or director of the Company or their agents,
advisers or legal counsel, unless required by law.
6.7 Notices. Any notice
required or permitted by this Amendment shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally (against written receipt
therefor), one business day following the business day on which such notice is
forwarded by overnight courier, or two business days following the business day
of deposit in the U.S. mail, as certified or registered mail, with postage
prepaid, addressed to the party to be notified at such party’s address as set
forth on the signature page hereto, or as subsequently modified by written
notice, and if to the Investor, with a copy to ▇▇▇▇▇▇▇▇▇ Ball ▇▇▇▇▇▇ ▇▇▇▇▇▇ and
▇▇▇▇▇▇▇▇▇▇, LLP, ▇▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇ ▇.
▇▇▇▇▇▇, Esq., and if to the Company, Spirits, ▇▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇▇▇, with a
copy to Moritt ▇▇▇▇ Hamroff & ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇▇▇ Attn: ▇▇▇▇▇▇ ▇’▇▇▇▇▇▇, Esq.
6.8 Entire
Agreement. This Amendment,
together with the Existing Transaction Documents as modified hereby, the July
Debenture and, if issued, the August Debenture, constitute the entire agreement
between the parties hereto pertaining to the subject matter hereof, and any and
all other written or oral agreements relating to the subject matter hereof
existing between the parties hereto are expressly canceled. This
Amendment may be modified or amended only with the written consent of all of the
parties hereto.
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[Remainder
of Page Intentionally Left Blank; Signature Pages Follow]
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IN WITNESS WHEREOF, each of
the undersigned has caused this Omnibus Amendment and Securities Purchase
Agreement to be executed by their respective duly authorized officer as of the
date first above written.
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COMPLIANCE
SYSTEMS CORPORATION
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By:
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/s/
▇▇▇▇
▇▇▇▇▇▇▇▇▇
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Name:
▇▇▇▇
▇▇▇▇▇▇▇▇▇
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Title:
President
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Address:
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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EXECUSERVE
CORP.
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By:
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/s/
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▇▇▇▇▇▇▇▇
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Name: ▇▇▇
▇▇▇▇▇▇▇▇
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Title:
President
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| Address: c/o Compliance Systems Corporation | |
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▇▇
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▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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SPIRITS
MANAGEMENT INC.
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By:
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/s/
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Name:
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▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇
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| Address: ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ – Suite A | |
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▇▇▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇
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CALL
COMPLIANCE INC.
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By:
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/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Title:
President
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Address: ▇▇
▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
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Address: ▇▇
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▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Address: ▇▇
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▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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AGILE
OPPORTUNITY FUND, LLC
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By:
AGILE INVESTMENTS, LLC, Managing Member
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By:
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/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Title: Managing
Member
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Address:
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[Omnibus
Amendment and Securities Purchase Agreement Counterpart Signature
Page]
9
EXHIBIT
A
FORM OF
JULY DEBENTURE
10
NEITHER
THIS DEBENTURE NOR ANY SHARES OF STOCK ISSUABLE UPON CONVERSION OF THIS
DEBENTURE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”),
OR UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THIS DEBENTURE NOR ANY SHARES
OF STOCK ISSUABLE UPON CONVERSION OF THIS DEBENTURE MAY BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THIS DEBENTURE OR SHARES OF STOCK ISSUABLE UPON
CONVERSION OF THIS DEBENTURE UNDER SUCH ACT UNLESS SUCH REGISTRATION IS NOT
REQUIRED PURSUANT TO A VALID EXEMPTION THEREFROM UNDER THE ACT.
COMPLIANCE
SYSTEMS CORPORATION
SECURED
CONVERTIBLE DEBENTURE
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$175,000.00
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July
1, 2010
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FOR VALUE
RECEIVED, the undersigned Compliance Systems
Corporation, a Nevada corporation (referred to herein as “Borrower”
or the “Company”),
promises to pay to the order of Agile Opportunity Fund, LLC,
its successors or assigns (the “Lender”),
the principal sum of One Hundred Seventy-Five Thousand Dollars ($175,000.00) or
such lesser principal amount as is then outstanding on June 30, 2011 (the “Maturity
Date”), and interest thereon at a rate equal to twenty percent (20%) per
annum (the “Interest
Rate”). Interest to accrue hereunder through September 30,
2010 in the amount of $8,652.78 (assuming no Event of Default) shall be due and
payable in advance on the date hereof (“Prepaid
Interest”). Payments of interest accruing hereunder
after September 30, 2010 shall be due and payable on a monthly basis on the last
day of each calendar month prior to the Maturity Date beginning on October 31,
2010. Borrower shall pay the principal balance then outstanding under
this Secured Convertible Debenture (this “Debenture”)
plus accrued but unpaid interest in full on the Maturity Date along with payment
of any other amounts due hereunder or under the other Loan Documents (as defined
below). The Borrower acknowledges that in addition to the interest
due hereunder, Lender shall be entitled to an additional payment, on the
Maturity Date or whenever the principal of this Debenture is paid (including in
connection with any earlier redemption), such that Lender’s annualized rate of
return on such principal payment shall be equal to thirty (30%)
percent. Notwithstanding any other provision hereof, interest paid or
becoming due hereunder and any other payments hereunder which may constitute
interest shall in no event exceed the maximum rate permitted by applicable
law.
Interest
and any other amounts due hereunder are payable in lawful money of the United
States of America to the Lender at the address set forth in that certain Omnibus
Amendment and Securities Purchase Agreement executed by the Borrower, Lender and
the other parties thereto dated as of July 1, 2010, as amended from time to time
(the “Securities
Purchase Agreement”), and pursuant to which this Debenture is
issued. The terms and conditions of the Securities Purchase Agreement
and the other Loan Documents (as defined therein) are incorporated by reference
herein and made a part hereof. All capitalized terms not otherwise
defined herein shall have the respective meanings as set forth in the Securities
Purchase Agreement.
11
Section
1. Conversion.
(a) At
any time from the original issue date hereof through the date that this
Debenture is paid in full, Lender shall have the right, in its sole discretion,
but subject to the provisions of the Securities Purchase Agreement, to convert
the principal balance of this Debenture then outstanding plus accrued but unpaid
interest, in whole or in part, into shares (each, a “Conversion
Share”) of CSC Common Stock at a conversion price per Conversion Share
equal to the closing trading price of the CSC Common Stock on the Principal
Trading Market on the Conversion Date (as defined in Section 1(b) below), but in
no event less than $0.001 per share (the “Conversion
Price”).
(b) Lender
may convert this Debenture at the then applicable Conversion Price by the
surrender of this Debenture (properly endorsed) to the Company at the principal
office of the Borrower, together with the form of Notice of Conversion attached
hereto as Annex A (a
“Notice of
Conversion”) duly completed, dated and executed, specifying therein the
principal amount of Debenture and/or outstanding interest to be
converted. The “Conversion Date” shall be the date that such Notice
of Conversion and this Debenture is duly provided to Borrower hereunder (or, at
Lender's option, the next interest payment date with respect to Lender's
conversion of any scheduled interest payment).
(c) On
the date of receipt by the Company of the duly completed, dated and executed
Notice of Conversion and this Debenture in accordance with Section 1(b) with
respect to a conversion of any portion of this Debenture, the Lender (and any
person(s) receiving Conversion Shares in lieu of the Lender) shall be deemed to
have become the holder of record for all purposes of the Conversion Shares to
which such valid conversion relates.
(d) As
soon as practicable, but not in excess of five business days, after the valid
conversion of any portion of this Debenture, the Company, at the Company’s
expense (including the payment by Company of any applicable issuance and similar
taxes), will cause to be issued in the name of and delivered to the Lender
(and/or such other person(s) identified in the Notice of Conversion with respect
to such conversion), certificates evidencing the number of duly authorized,
validly issued, fully paid and non-assessable Conversion Shares to which the
Lender (and/or such other person(s) identified in such Notice of Conversion,
shall be entitled to receive upon the conversion), such certificates to be in
such reasonable denominations as Lender may request when delivering the Notice
of Conversion. In the event the closing price of the Common Stock on
the Principal Trading Market on the date the certificate(s) representing
Conversion Shares are actually delivered to the Investor (the "Delivery
Date") is less than the Conversion Price in effect as of the Conversion
Date, then the Company shall issue to the Investor the number of additional of
shares of its Common Stock (the "Guaranty
Shares") equal to the difference between the number of Conversion Shares
actually delivered to the Investor and the number of Conversion Shares which
would have been delivered to the Investor had the Conversion Price been equal to
the closing price of the Common Stock on the Principal Trading Market on the
Delivery Date (or $0.001 in the event said closing price is less than
$0.001).
12
(e) If
less than the entire principal and accrued interest under this Debenture is
being converted, the Company shall execute and deliver to the Lender a new
Debenture (dated as of the date hereof) evidencing the principal balance of this
Debenture that has not been so converted.
Section
2. Intentionally
Omitted.
Section
3. Redemption. (a) The
Borrower at its option shall have the right, upon 15 business days’
advance written notice, to redeem a portion or all amounts outstanding under
this Debenture prior to the Maturity Date. No portion of the Prepaid
Interest shall be refundable or otherwise returned to the Company in the event
of any such redemption.
(b) Notwithstanding
the foregoing in the event that the Borrower has elected to repay any
outstanding principal amount and accrued interest under this Debenture the
Lender shall still be entitled to effectuate conversions as contemplated
hereunder through the date of redemption.
Section
4. Transferability. Neither
this Debenture nor any shares of stock issuable upon conversion of this
Debenture have been registered under the Securities Act of 1933, as amended (the
“Act”),
or under the securities laws of any state. Neither this Debenture nor any shares
of stock issuable upon conversion of this Debenture may be sold, offered for
sale, pledged or hypothecated in the absence of a registration statement in
effect with respect to this Debenture or shares issuable upon conversion of this
Debenture under such Act unless such registration is not required pursuant to a
valid exemption therefrom under the Act. Provided the foregoing
requirements are satisfied, this Debenture and any of the rights granted
hereunder are freely transferable by the Lender in its sole
discretion.
Section
5. Reservation of
Stock. The Borrower covenants that it will at all times
reserve and keep available out of its authorized and unissued shares of CSC
Common Stock solely for the purpose of issuance upon conversion of this
Debenture as herein provided, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Lender, not less than such
number of shares of the CSC Common Stock as shall be issuable upon the
conversion of the outstanding principal of this Debenture and accrued and unpaid
interest thereon, subject to the restrictions on Lender’s beneficial ownership
of CSC Common Stock set forth in the Securities Purchase
Agreement. If at any time, the Company does not have available an
amount of authorized but unissued Common Stock or Common Stock held in treasury
necessary to satisfy any conversion of all amounts outstanding under this
Debenture, subject to the restrictions on Lender’s beneficial ownership of CSC
Common Stock set forth in the Securities Purchase Agreement, the Company shall
call and hold a special meeting of its stockholders within 30 days of the
occurrence of any shortfall in authorized shares for the purpose of approving an
increase in the number of shares of authorized CSC Common Stock to an amount
sufficient to enable conversion all amounts outstanding under this Debenture,
subject in all respects to compliance with the requirements of Section 14 of the
Securities Exchange Act of 1934 to which the Borrower is subject. The
Board of Directors of the Company shall recommend that stockholders vote in
favor of increasing the number of authorized shares of CSC Common Stock at any
such meeting. Each member of the Board of Directors of the Company
shall also vote all of such director’s voting securities of the Company in favor
of such increase in authorized shares. The Borrower covenants that
all shares of CSC Common Stock that may be issuable upon conversion of this
Debenture shall, upon issue, be duly and validly authorized, issued and fully
paid and nonassessable. No consent of any other party and no consent,
license, approval or authorization of, or registration or declaration with, any
governmental authority, bureau or agency is required in connection with the
execution, delivery or performance by the Borrower, or the validity or
enforceability of this Debenture other than such as have been met or obtained.
The execution, delivery and performance of this Debenture and all other
agreements and instruments executed and delivered or to be executed and
delivered pursuant hereto or thereto or the securities issuable upon conversion
of this will not violate any provision of any existing law or regulation or any
order or decree of any court, regulatory body or administrative agency or the
certificate of incorporation or by-laws of the Borrower or any mortgage,
indenture, contract or other agreement to which the Borrower is a party or by
which the Borrower or any property or assets of the Borrower may be
bound.
13
Section
6. No
Fractional Shares. Upon a conversion hereunder the Borrower
shall not be required to issue stock certificates representing fractions of
shares of Common Stock, and in lieu of any fractional shares which would
otherwise be issuable, the Borrower shall issue the next highest whole number of
shares of Common Stock, as the case may be.
Section
7. Event of
Default. (a) In the event that any one of the following events
shall occur (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) Any
default in the payment of the principal of, interest on or other charges in
respect of this Debenture, as and when the same shall become due and payable
(whether on a Conversion Date or the Maturity Date or by acceleration or
otherwise);
(ii) The
Borrower or any subsidiary of Borrower listed on Schedule 2.7 of the A&R
Securities Purchase Agreement (each, a “Subsidiary”)
shall fail to observe or perform any other material covenant, agreement or
warranty contained in, or otherwise commit any breach or default of any
provision of this Debenture or any Loan Document to which it is a
party;
(iii) The
Borrower or any Subsidiary, shall commence, or there shall be commenced against
the Borrower or any Subsidiary any applicable bankruptcy or insolvency laws as
now or hereafter in effect or any successor thereto, or the Borrower or any
Subsidiary commences any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect relating to
the Borrower or Subsidiary or there is commenced against the Borrower or
Subsidiary any such bankruptcy, insolvency or other proceeding which remains
undismissed for a period of 60 days; or the Borrower or Subsidiary is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Borrower or Subsidiary
suffers any appointment of any custodian, private or court appointed receiver or
the like for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the Borrower or Subsidiary
makes a general assignment for the benefit of creditors; or the Borrower or
Subsidiary shall fail to pay or shall state that it is unable to pay or shall be
liable to pay, its debts as they become due or by any act or failure to act
expressly indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Borrower or
Subsidiary for the purpose of effecting any of the foregoing;
or
14
(iv) The
Borrower or any Subsidiary shall default (subject to all applicable cure
periods) in any of its secured obligations under any other debenture or any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness for borrowed money or money due
under any leasing or factoring arrangement of the Borrower, whether such
indebtedness now exists or shall hereafter be created and such default shall
result in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable, then, in any such
event, a default by Borrower shall be deemed to occur under this Debenture,
which, unless such default is cured (in the case of clause (i) or (ii) of this
paragraph (a) only) by Borrower within five business days from delivery of
notice (an “Event of Default Notice”) to Borrower of such default, shall be
deemed, for the purposes of this Debenture, to be an “Event of
Default.”
(b) Following
an Event of Default, the Interest Rate shall increase to 24.99% per annum (but
not exceeding the maximum rate permitted by law) immediately following such
Event of Default. During
the time that any portion of this Debenture is outstanding, if any Event of
Default has occurred and has not been cured by the Borrower, the full principal
amount of this Debenture, together with interest and other amounts owing in
respect thereof, to the date of acceleration shall become at the Lender's
election, immediately due and payable. The Lender need not provide
and the Borrower hereby waives any presentment, demand, protest or other notice
of any kind, and the Lender may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law.
Section
8. Registration
Rights. The Lender is entitled to certain registration rights
with respect to the Conversion Shares as set forth in the Securities Purchase
Agreement.
Section
9. Notices. Any
and all notices, requests, documents or other communications or deliveries
required or permitted to be given or delivered hereunder shall be delivered in
accordance with the notice provisions of the Securities Purchase
Agreement. Notwithstanding anything to the contrary contained in the
immediately preceding sentence, an Event of Default Notice may be given by
Lender to Borrower via email addressed to: ▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
and shall be deemed given, if prior to 4:00 p.m. New York City time on a
business day or at any time on a nonbusiness day, on the immediately following
business day.
15
Section
10. Governing
Law. This Debenture and the provisions hereof are to be
construed according to and are governed by the laws of the State of New York,
without regard to principles of conflicts of laws thereof. Borrower
agrees that the New York State Supreme Court located in the County of Nassau,
State of New York shall have exclusive jurisdiction in connection with any
dispute concerning or arising out of this Debenture, the Loan Documents, or
otherwise relating to the parties relationship. In any action,
lawsuit or proceeding brought to enforce or interpret the provisions of this
Debenture, the Loan Documents and/or arising out of or relating to any dispute
between the parties, the Lender shall be entitled to recover all of his or its
costs and expenses relating to such issue (including without limitation,
reasonable attorney’s fees and disbursements) in addition to any other relief to
which the Lender may be entitled.
Section 11. Successors and
Assigns. Subject to applicable securities laws, this Debenture
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and assigns
of Lender.
Section 12. Entire Agreement;
Amendment. This
Debenture may be modified or amended or the provisions hereof waived only with
the written consent of the Lender and the Company.
Section 13. Severability. Wherever
possible, each provision of this Debenture shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Debenture shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Debenture.
IN
WITNESS WHEREOF, the Borrower has caused this Debenture to be duly executed by a
duly authorized officer as of the date first above indicated.
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COMPLIANCE
SYSTEMS CORPORATION
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By:
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Name: ▇▇▇▇
▇▇▇▇▇▇▇▇▇
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Title: President
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16
ANNEX
A
NOTICE OF
CONVERSION
To Be
Executed by the Lender
in Order
to Convert Debenture
The
undersigned Lender hereby elects to convert $__________ of principal and $_____
of interest currently outstanding and owed under the Secured Convertible
Debenture, dated July 1, 2010, of Compliance Systems Corporation
(the “Company”),
in the original principal amount of $175,000,000 and issued to Agile Opportunity Fund, LLC
(the “Debenture”),
into shares of the Common Stock, par value $0.001 per share (the “CSC
Common Stock”), of the Company at a Conversion Price of $___ of principal
and/or interest for each share of CSC Common Stock (such Conversion Price being
determined in accordance with the Debenture) and to purchase
such ___________ shares of CSC Common Stock issuable upon conversion
of the Debenture, and requests that certificates for such securities shall be
issued in the name of:
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(please
print or type name and address)
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(please
insert social security or other identifying number)
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and
be delivered as follows:
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please
print or type name and address)
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(please
insert social security or other identifying number)
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Lender Name:
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By:
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Name:
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Title:
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Conversion Date:
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17
EXHIBIT
B
FORM OF
AUGUST DEBENTURE
18
NEITHER
THIS DEBENTURE NOR ANY SHARES OF STOCK ISSUABLE UPON CONVERSION OF THIS
DEBENTURE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”),
OR UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THIS DEBENTURE NOR ANY SHARES
OF STOCK ISSUABLE UPON CONVERSION OF THIS DEBENTURE MAY BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THIS DEBENTURE OR SHARES OF STOCK ISSUABLE UPON
CONVERSION OF THIS DEBENTURE UNDER SUCH ACT UNLESS SUCH REGISTRATION IS NOT
REQUIRED PURSUANT TO A VALID EXEMPTION THEREFROM UNDER THE ACT.
COMPLIANCE
SYSTEMS CORPORATION
SECURED
CONVERTIBLE DEBENTURE
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$125,000.00
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August
__, 2010
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FOR VALUE
RECEIVED, the undersigned Compliance Systems
Corporation, a Nevada corporation (referred to herein as “Borrower”
or the “Company”),
promises to pay to the order of Agile Opportunity Fund, LLC,
its successors or assigns (the “Lender”),
the principal sum of One Hundred Twenty-Five Thousand Dollars ($125,000.00) or
such lesser principal amount as is then outstanding on August __, 2011 (the
“Maturity
Date”), and interest thereon at a rate equal to twenty percent (20%) per
annum (the “Interest
Rate”). Interest to accrue hereunder through November 30, 2010
in the amount of $_______ (assuming no Event of Default) shall be due and
payable in advance on the date hereof (“Prepaid
Interest”). Payments of interest accruing hereunder
after November 30, 2010 shall be due and payable on a monthly basis on the last
day of each calendar month prior to the Maturity Date beginning on December 31,
2010. Borrower shall pay the principal balance then outstanding under
this Secured Convertible Debenture (this “Debenture”)
plus accrued but unpaid interest in full on the Maturity Date along with payment
of any other amounts due hereunder or under the other Loan Documents (as defined
below). The Borrower acknowledges that in addition to the interest
due hereunder, Lender shall be entitled to an additional payment, on the
Maturity Date or whenever the principal of this Debenture is paid (including in
connection with any earlier redemption), such that Lender’s annualized rate of
return on such principal payment shall be equal to thirty (30%)
percent. Notwithstanding any other provision hereof, interest paid or
becoming due hereunder and any other payments hereunder which may constitute
interest shall in no event exceed the maximum rate permitted by applicable
law.
Interest
and any other amounts due hereunder are payable in lawful money of the United
States of America to the Lender at the address set forth in that certain Omnibus
Amendment and Securities Purchase Agreement executed by the Borrower, Lender and
the other parties thereto dated as of June ____, 2010, as amended from time to
time (the “Securities
Purchase Agreement”), and pursuant to which this Debenture is
issued. The terms and conditions of the Securities Purchase Agreement
and the other Loan Documents (as defined therein) are incorporated by reference
herein and made a part hereof. All capitalized terms not otherwise
defined herein shall have the respective meanings as set forth in the Securities
Purchase Agreement.
19
Section
1. Conversion.
(a) At
any time from the original issue date hereof through the date that this
Debenture is paid in full, Lender shall have the right, in its sole discretion,
but subject to the provisions of the Securities Purchase Agreement, to convert
the principal balance of this Debenture then outstanding plus accrued but unpaid
interest, in whole or in part, into shares (each, a “Conversion
Share”) of CSC Common Stock at a conversion price per Conversion Share
equal to the closing trading price of the CSC Common Stock on the Principal
Trading Market on the Conversion Date (as defined in Section 1(b) below), but in
no event less than $0.001 per share (the “Conversion
Price”).
(b) Lender
may convert this Debenture at the then applicable Conversion Price by the
surrender of this Debenture (properly endorsed) to the Company at the principal
office of the Borrower, together with the form of Notice of Conversion attached
hereto as Annex A (a
“Notice of
Conversion”) duly completed, dated and executed, specifying therein the
principal amount of Debenture and/or outstanding interest to be
converted. The “Conversion Date” shall be the date that such Notice
of Conversion and this Debenture is duly provided to Borrower hereunder (or, at
Lender's option, the next interest payment date with respect to Lender's
conversion of any scheduled interest payment).
(c) On
the date of receipt by the Company of the duly completed, dated and executed
Notice of Conversion and this Debenture in accordance with Section 1(b) with
respect to a conversion of any portion of this Debenture, the Lender (and any
person(s) receiving Conversion Shares in lieu of the Lender) shall be deemed to
have become the holder of record for all purposes of the Conversion Shares to
which such valid conversion relates.
(d) As
soon as practicable, but not in excess of five business days, after the valid
conversion of any portion of this Debenture, the Company, at the Company’s
expense (including the payment by Company of any applicable issuance and similar
taxes), will cause to be issued in the name of and delivered to the Lender
(and/or such other person(s) identified in the Notice of Conversion with respect
to such conversion), certificates evidencing the number of duly authorized,
validly issued, fully paid and non-assessable Conversion Shares to which the
Lender (and/or such other person(s) identified in such Notice of Conversion,
shall be entitled to receive upon the conversion), such certificates to be in
such reasonable denominations as Lender may request when delivering the Notice
of Conversion. In the event the closing price of the Common Stock on
the Principal Trading Market on the date the certificate(s) representing
Conversion Shares are actually delivered to the Investor (the "Delivery
Date") is less than the Conversion Price in effect as of the Conversion
Date, then the Company shall issue to the Investor the number of additional of
shares of its Common Stock (the "Guaranty
Shares") equal to the difference between the number of Conversion Shares
actually delivered to the Investor and the number of Conversion Shares which
would have been delivered to the Investor had the Conversion Price been equal to
the closing price of the Common Stock on the Principal Trading Market on the
Delivery Date (or $0.001 in the event said closing price is less than
$0.001).
20
(e) If
less than the entire principal and accrued interest under this Debenture is
being converted, the Company shall execute and deliver to the Lender a new
Debenture (dated as of the date hereof) evidencing the principal balance of this
Debenture that has not been so converted.
Section
2. Intentionally
Omitted.
Section
3. Redemption. (a) The
Borrower at its option shall have the right, upon 15 business days’
advance written notice, to redeem a portion or all amounts outstanding under
this Debenture prior to the Maturity Date. No portion of the Prepaid
Interest shall be refundable or otherwise returned to the Company in the event
of any such redemption.
(b) Notwithstanding
the foregoing in the event that the Borrower has elected to repay any
outstanding principal amount and accrued interest under this Debenture the
Lender shall still be entitled to effectuate conversions as contemplated
hereunder through the date of redemption.
Section
4. Transferability. Neither
this Debenture nor any shares of stock issuable upon conversion of this
Debenture have been registered under the Securities Act of 1933, as amended (the
“Act”),
or under the securities laws of any state. Neither this Debenture nor any shares
of stock issuable upon conversion of this Debenture may be sold, offered for
sale, pledged or hypothecated in the absence of a registration statement in
effect with respect to this Debenture or shares issuable upon conversion of this
Debenture under such Act unless such registration is not required pursuant to a
valid exemption therefrom under the Act. Provided the foregoing
requirements are satisfied, this Debenture and any of the rights granted
hereunder are freely transferable by the Lender in its sole
discretion.
21
Section
5. Reservation of
Stock. The Borrower covenants that it will at all times
reserve and keep available out of its authorized and unissued shares of CSC
Common Stock solely for the purpose of issuance upon conversion of this
Debenture as herein provided, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Lender, not less than such
number of shares of the CSC Common Stock as shall be issuable upon the
conversion of the outstanding principal of this Debenture and accrued and unpaid
interest thereon, subject to the restrictions on Lender’s beneficial ownership
of CSC Common Stock set forth in the Securities Purchase
Agreement. If at any time, the Company does not have available an
amount of authorized but unissued Common Stock or Common Stock held in treasury
necessary to satisfy any conversion of all amounts outstanding under this
Debenture, subject to the restrictions on Lender’s beneficial ownership of CSC
Common Stock set forth in the Securities Purchase Agreement, the Company shall
call and hold a special meeting of its stockholders within 30 days of the
occurrence of any shortfall in authorized shares for the purpose of approving an
increase in the number of shares of authorized CSC Common Stock to an amount
sufficient to enable conversion all amounts outstanding under this Debenture,
subject in all respects to compliance with the requirements of Section 14 of the
Securities Exchange Act of 1934 to which the Borrower is subject. The
Board of Directors of the Company shall recommend that stockholders vote in
favor of increasing the number of authorized shares of CSC Common Stock at any
such meeting. Each member of the Board of Directors of the Company
shall also vote all of such director’s voting securities of the Company in favor
of such increase in authorized shares. The Borrower covenants that
all shares of CSC Common Stock that may be issuable upon conversion of this
Debenture shall, upon issue, be duly and validly authorized, issued and fully
paid and nonassessable. No consent of any other party and no consent,
license, approval or authorization of, or registration or declaration with, any
governmental authority, bureau or agency is required in connection with the
execution, delivery or performance by the Borrower, or the validity or
enforceability of this Debenture other than such as have been met or obtained.
The execution, delivery and performance of this Debenture and all other
agreements and instruments executed and delivered or to be executed and
delivered pursuant hereto or thereto or the securities issuable upon conversion
of this will not violate any provision of any existing law or regulation or any
order or decree of any court, regulatory body or administrative agency or the
certificate of incorporation or by-laws of the Borrower or any mortgage,
indenture, contract or other agreement to which the Borrower is a party or by
which the Borrower or any property or assets of the Borrower may be
bound.
Section
6. No
Fractional Shares. Upon a conversion hereunder the Borrower
shall not be required to issue stock certificates representing fractions of
shares of Common Stock, and in lieu of any fractional shares which would
otherwise be issuable, the Borrower shall issue the next highest whole number of
shares of Common Stock, as the case may be.
Section
7. Event of
Default. (a) In the event that any one of the following events
shall occur (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) Any
default in the payment of the principal of, interest on or other charges in
respect of this Debenture, as and when the same shall become due and payable
(whether on a Conversion Date or the Maturity Date or by acceleration or
otherwise);
(ii) The
Borrower or any subsidiary of Borrower listed on Schedule 2.7 of the A&R
Securities Purchase Agreement (each, a “Subsidiary”)
shall fail to observe or perform any other material covenant, agreement or
warranty contained in, or otherwise commit any breach or default of any
provision of this Debenture or any Loan Document to which it is a
party;
(iii) The
Borrower or any Subsidiary, shall commence, or there shall be commenced against
the Borrower or any Subsidiary any applicable bankruptcy or insolvency laws as
now or hereafter in effect or any successor thereto, or the Borrower or any
Subsidiary commences any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect relating to
the Borrower or Subsidiary or there is commenced against the Borrower or
Subsidiary any such bankruptcy, insolvency or other proceeding which remains
undismissed for a period of 60 days; or the Borrower or Subsidiary is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Borrower or Subsidiary
suffers any appointment of any custodian, private or court appointed receiver or
the like for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the Borrower or Subsidiary
makes a general assignment for the benefit of creditors; or the Borrower or
Subsidiary shall fail to pay or shall state that it is unable to pay or shall be
liable to pay, its debts as they become due or by any act or failure to act
expressly indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Borrower or
Subsidiary for the purpose of effecting any of the foregoing;
or
22
(iv) The
Borrower or any Subsidiary shall default (subject to all applicable cure
periods) in any of its secured obligations under any other debenture or any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness for borrowed money or money due
under any leasing or factoring arrangement of the Borrower, whether such
indebtedness now exists or shall hereafter be created and such default shall
result in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable, then, in any such
event, a default by Borrower shall be deemed to occur under this Debenture,
which, unless such default is cured (in the case of clause (i) or (ii) of this
paragraph (a) only) by Borrower within five business days from delivery of
notice (an “Event of Default Notice”) to Borrower of such default, shall be
deemed, for the purposes of this Debenture, to be an “Event of
Default.”
(b) Following
an Event of Default, the Interest Rate shall increase to 24.99% per annum (but
not exceeding the maximum rate permitted by law) immediately following such
Event of Default. During
the time that any portion of this Debenture is outstanding, if any Event of
Default has occurred and has not been cured by the Borrower, the full principal
amount of this Debenture, together with interest and other amounts owing in
respect thereof, to the date of acceleration shall become at the Lender's
election, immediately due and payable. The Lender need not provide
and the Borrower hereby waives any presentment, demand, protest or other notice
of any kind, and the Lender may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law.
Section
8. Registration
Rights. The Lender is entitled to certain registration rights
with respect to the Conversion Shares as set forth in the Securities Purchase
Agreement.
Section
9. Notices. Any
and all notices, requests, documents or other communications or deliveries
required or permitted to be given or delivered hereunder shall be delivered in
accordance with the notice provisions of the Securities Purchase
Agreement. Notwithstanding anything to the contrary contained in the
immediately preceding sentence, an Event of Default Notice may be given by
Lender to Borrower via email addressed to: ▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
and shall be deemed given, if prior to 4:00 p.m. New York City time on a
business day or at any time on a nonbusiness day, on the immediately following
business day.
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Section
10. Governing
Law. This Debenture and the provisions hereof are to be
construed according to and are governed by the laws of the State of New York,
without regard to principles of conflicts of laws thereof. Borrower
agrees that the New York State Supreme Court located in the County of Nassau,
State of New York shall have exclusive jurisdiction in connection with any
dispute concerning or arising out of this Debenture, the Loan Documents, or
otherwise relating to the parties relationship. In any action,
lawsuit or proceeding brought to enforce or interpret the provisions of this
Debenture, the Loan Documents and/or arising out of or relating to any dispute
between the parties, the Lender shall be entitled to recover all of his or its
costs and expenses relating to such issue (including without limitation,
reasonable attorney’s fees and disbursements) in addition to any other relief to
which the Lender may be entitled.
Section 11. Successors and
Assigns. Subject to applicable securities laws, this Debenture
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and assigns
of Lender.
Section 12. Entire Agreement;
Amendment. This
Debenture may be modified or amended or the provisions hereof waived only with
the written consent of the Lender and the Company.
Section 13. Severability. Wherever
possible, each provision of this Debenture shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Debenture shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Debenture.
IN
WITNESS WHEREOF, the Borrower has caused this Debenture to be duly executed by a
duly authorized officer as of the date first above indicated.
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COMPLIANCE
SYSTEMS CORPORATION
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By:
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Name: ▇▇▇▇
▇▇▇▇▇▇▇▇▇
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Title:
President
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24
ANNEX
A
NOTICE OF
CONVERSION
To Be
Executed by the Lender
in Order
to Convert Debenture
The
undersigned Lender hereby elects to convert $__________ of principal and $_____
of interest currently outstanding and owed under the Secured Convertible
Debenture, dated August ___, 2010, of Compliance Systems Corporation
(the “Company”),
in the original principal amount of $125,000,000 and issued to Agile Opportunity Fund, LLC
(the “Debenture”),
into shares of the Common Stock, par value $0.001 per share (the “CSC
Common Stock”), of the Company at a Conversion Price of $___ of principal
and/or interest for each share of CSC Common Stock (such Conversion Price being
determined in accordance with the Debenture) and to purchase
such ___________ shares of CSC Common Stock issuable upon conversion
of the Debenture, and requests that certificates for such securities shall be
issued in the name of:
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(please
print or type name and address)
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(please
insert social security or other identifying number)
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and
be delivered as follows:
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please
print or type name and address)
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(please
insert social security or other identifying number)
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Lender Name:
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By:
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Name:
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Title:
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Conversion Date:
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