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NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  SUCH WARRANTS HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH WARRANTS AND SUCH SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.

VOID AFTER 5:00 P.M. ON SEPTEMBER 30, 2016

COMPLIANCE SYSTEMS CORPORATION

COMMON STOCK PURCHASE WARRANT CERTIFICATE

1,050,000 Common Stock Purchase Warrants

	  	
Huntington, New York

	
Warrant Certificate Number: 2011C-020

	
As of October 1, 2011

THIS IS TO CERTIFY THAT, for value received, Nascap Corp. (the “Warrantholder”), is the registered owner of the number of common stock purchase warrants (each, a “Warrant”) of Compliance Systems Corporation, a Nevada corporation (the “Company”), set forth above, each Warrant entitling the owner thereof to purchase from the Company, at a purchase price of $0.001 per Warrant (the “Purchase Price”), as adjusted from time to time in accordance with section 3 of this Warrant Certificate, at any time on or after the Commencement Date (as defined in paragraph 1(b) below) and terminating at 5:00 p.m., Huntington, New York time, on September 30, 2016 (the “Expiration Time”), one duly authorized, validly issued, fully paid and non-assessable share (each, a “Warrant Share”) of the common stock, par value $0.001 per share (the “Common Stock”), of the Company, subject to the terms and conditions contained herein.  The number of Warrants evidenced by this Warrant Certificate (and the number and kind of securities which may be purchased upon exercise of the Warrants), and the Purchase Price per Warrant Share, each as set forth above, are as of the date hereof.  As provided herein, the Purchase Price and the number of shares of Common Stock or other securities which may be purchased upon the exercise of the Warrants evidenced by this Warrant Certificate are, upon the happening of certain events, subject to modification and adjustment.

This Warrant Certificate, together with any warrant certificate(s) issued in replacement or substitution hereof (as provided for herein) evidencing all or part of the Warrants evidenced hereby, are sometimes collectively referred to herein as the “Warrant Certificates.”

The rights of the registered holder of this Warrant Certificate shall be subject to the following further terms and conditions:

 

	
1.

	
Exercise of Warrants.

(a)     The Warrants may be exercised, in whole or in part, at any time and from time to time, during the period commencing on the Commencement Date and terminating at the Expiration Time by surrendering this Warrant Certificate, with the Exercise Form provided for herein duly completed and executed by the Warrantholder or by the Warrantholder’s duly authorized attorney-in-fact, at the principal office of the Company, presently located at 780 New York Avenue - Suite A, Huntington, New York 11743, or at such other office or agency in the United States as the Company may designate by notice in writing to the Warrantholder (in either event, the “Company Offices”), accompanied by payment in full, either in the form of cash, bank cashier’s check or certified check payable to the order of the Company, of the Purchase Price payable in respect of the Warrants being exercised.

 

  

  

  

 

(b)           For purposes of this Warrant Certificate, the term “Commencement Date” shall mean October 1, 2011.

(c)           Notwithstanding anything to the contrary contained in paragraph 1(a), payment of the applicable Purchase Price may be made by means of a “cashless exercise” through the surrender of the number of Warrants and receipt of the number of shares of Common Stock (in each case, as adjusted to reflect the provisions of section 3), determined based upon the following formula:

	 	
X =

	
Y(A-B)

	 	
A

	
  

	
  

	
where:

	
X =

	
the number of shares of Common Stock to be issued to Warrantholder upon exercise pursuant to this paragraph 1(c);

	
  

	
Y =

	
the number of shares of Common Stock issuable upon exercise of the Warrants so surrender, without giving effect to this paragraph 1(c);

	
  

	
A =

	
the per share Current Market Price (as such term is defined in paragraph 3(e)) on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form; and

	
  

	
B =

	
the Purchase Price in effect on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form.

(d)           On the day immediately following the date of a valid exercise of any Warrants, the Warrantholder exercising such Warrant(s) shall be deemed to have become the holder of record for all purposes of the Warrant Shares to which such valid exercise relates.

(e)           As soon as practicable, but not in excess of five days, after the valid exercise of all or part of the Warrants evidenced by this Warrant Certificate, 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 Warrantholder, or such other party identified in the purchase form, certificates evidencing the number of duly authorized, validly issued, fully paid and non-assessable Warrant Shares to which the Warrantholder, or such other party identified in the Exercise Form, shall be entitled upon such exercise, as adjusted to reflect the effects, if any, of the anti-dilution provisions of section 3 of this Warrant Certificate, such certificates to be in such reasonable denominations as Holder shall request when delivering the duly completed Exercise Form.

(f)           No certificates for fractional Warrant Shares shall be issued upon the exercise of any of the Warrants but, in lieu thereof, the Company shall, upon exercise of all the Warrants, round up any fractional Warrant Shares to the nearest whole share of Common Stock.

(g)           If fewer than all of the Warrants are exercised, the Company shall, upon each exercise prior to the Expiration Time, execute and deliver to the Warrantholder a new Warrant Certificate (dated as of the date hereof) evidencing the balance of the Warrants that remain exercisable.

2.           Issuance of Common Stock; Reservation of Warrant Shares.  The Company covenants and agrees that:

(a)           All Warrant Shares which may be issued upon the exercise of all or part of the Warrants will, upon issuance in accordance with the terms hereof, be validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof;

(b)           At all times prior to the Expiration Time, the Company shall keep reserved for issuance a sufficient number of authorized shares of Common Stock to permit the exercise in full of the Warrants evidenced by this Warrant Certificate; and

 

  

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(c)           If any shares of Common Stock to be reserved for the purpose of the issuance of Warrant Shares upon the exercise of Warrants require registration with, or approval of, any governmental authority under any federal or state law before such shares may be validly issued or delivered upon exercise, then the Company will promptly use its best efforts to effect such registration or obtain such approval, as the case may be.

3.           Adjustments of Purchase Price, Number and Character of Warrant Shares, Number of Warrants.  The Purchase Price and the number and kind of securities purchasable upon the exercise of each Warrant shall be subject to adjustment from time to time upon the happening of the events enumerated in this section 3.

(a)           Stock Dividends, Subdivisions and Combinations.  In case the Company shall at any time on or before the Expiration Time:

(i)           pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock or such other stock to holders of all its outstanding shares of Common Stock;

(ii)         subdivide, reclassify or recapitalize the outstanding shares of Common Stock into a greater number of shares;

(iii)        combine, reclassify or recapitalize the outstanding shares of Common Stock into a smaller number of shares of Common Stock; or

(iv)        issue by reclassification of shares of Common Stock into any other securities of the Company (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation);

then the number and kind of Warrant Shares purchasable upon exercise of each Warrant outstanding immediately prior thereto shall be adjusted so that the Warrantholder shall be entitled to receive the kind and number of shares of Common Stock or other securities of the Company which the Warrantholder would have owned or have been entitled to receive after the happening of any of the events described above had such Warrant been exercised in full immediately prior to the earlier of the happening of such event or any record date in respect thereto.  In the event of any adjustment of the number of Warrant Shares purchasable upon the exercise of each then outstanding Warrant pursuant to this paragraph 3(a), the Purchase Price shall be adjusted to be the amount resulting from dividing the number of shares of Common Stock (including fractional shares of Common Stock) covered by such Warrant immediately after such adjustment into the total amount payable upon exercise of such Warrant in full immediately prior to such adjustment.  An adjustment made pursuant to this paragraph 3(a) shall become effective immediately after the effective date of such event retroactive to the record date for any such event.  Such adjustment shall be made successively whenever any event listed in clauses (i) through (iv) of this paragraph 3(a) shall occur.

(b)           Extraordinary Dividends.  In case the Company shall, at any time on or before the Expiration Time, fix a record date for the issuance of rights, options, or warrants to all holders of outstanding shares of Common Stock, entitling such holders (for a period expiring within 45 days after such record date) to subscribe for or purchase shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) at a price per share of Common Stock (or having an exchange or conversion price per share of Common Stock, with respect to a security exchangeable for or convertible into shares of Common Stock) which is lower than the Purchase Price on such record date, then the Purchase Price shall be adjusted so that the Purchase Price, as so adjusted, shall equal the price determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, of which (i) the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so to be offered (or the aggregate initial exchange or conversion price of the exchangeable or convertible securities so to be offered) would purchase at the Purchase Price and (ii) the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the exchangeable or convertible securities so to be offered are initially exchangeable or convertible).  Such adjustment shall become effective at the close of business on such record date; provided, however, to the extent that shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) are not delivered after the expiration of such rights, options, or warrants, the Purchase Price shall be readjusted (but only with respect to Warrants exercised after such expiration) to the Purchase Price which would then be in effect had the adjustments made upon the issuance of such rights, options, or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) actually issued.  In case any subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company and shall be described in a statement mailed to the Warrantholder.  Shares of Common Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation.

 

  

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(c)           Extraordinary Distributions.  In case the Company shall, at any time on or before the Expiration Time, distribute to all holders of shares of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the surviving corporation) evidences of the Company’s indebtedness or assets (excluding cash dividends and distributions payable out of consolidated net income or earned surplus in accordance with Nevada law and dividends or distributions payable in shares of stock described in paragraph 3(a) of this Warrant Certificate) or rights, options, or warrants or exchangeable or convertible securities containing the right to subscribe for or purchase shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock), then the Purchase Price shall be adjusted by multiplying the Purchase Price in effect immediately prior to the record date for such distribution by a fraction, of which (i) the numerator shall be the Purchase Price as in effect on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company) of the portion of the evidences of indebtedness or assets so to be distributed or of such rights, options or warrants applicable to one share of Common Stock and (ii) the denominator shall be the Purchase Price as in effect on such record date.  Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of distribution retroactive to the record date for such transaction.

(d)          Capital Reorganizations and Other Reclassifications.  In case of any capital reorganization of the Company, or of any reclassification of the shares of Common Stock (other than a reclassification, subdivision or combination of shares of Common Stock referred to in paragraph 3(a) of this Warrant Certificate), or in case of the consolidation of the Company with, or the merger of the Company with, or merger of the Company into, any other corporation (other than a reclassification of the shares of Common Stock referred to in paragraph 3(a) of this Warrant Certificate or a consolidation or merger which does not result in any reclassification or change of the outstanding shares of Common Stock) or of the sale of the properties and assets of the Company as, or substantially as, an entirety to any other corporation or entity occurring on or before the Expiration Time, each Warrant shall, after such capital reorganization, reclassification of shares of Common Stock, consolidation, merger, or sale, be exercisable, upon the terms and conditions specified in this Warrant Certificate, for the kind, amount and number of shares or other securities, assets, or cash to which a holder of the number of shares of Common Stock purchasable (at the time of such capital reorganization, reclassification of shares of Common Stock, consolidation, merger or sale) upon exercise of such Warrant would have been entitled to receive upon such capital reorganization, reclassification of shares of Common Stock, consolidation, merger, or sale; and in any such case, if necessary, the provisions set forth in this section 3 with respect to the rights and interests thereafter of the Warrantholder shall be appropriately adjusted so as to be applicable, as nearly equivalent as possible, to any shares or other securities, assets, or cash thereafter deliverable on the exercise of the Warrants.  The Company shall not effect any such consolidation, merger, or sale, unless prior to or simultaneously with the consummation thereof the successor corporation or entity (if other than the Company) resulting from such consolidation or merger or the corporation or entity purchasing such assets or other appropriate corporation or entity shall assume, by written instrument, the obligation to deliver to the Warrantholder such shares, securities, assets, or cash as, in accordance with the foregoing provisions, such holders may be entitled to purchase and the other obligations hereunder.  The subdivision or combination of shares of Common Stock at any time outstanding into a greater or lesser number of shares shall not be deemed to be a reclassification of the shares of Common Stock for purposes of this paragraph 3(d).

(e)           Minimum Adjustment.  Except as hereinafter provided, no adjustment of the Purchase Price hereunder shall be made if such adjustment results in a change of the Purchase Price then in effect of less than one cent ($.001) per share.  Any adjustment of less than one-tenth of one cent ($.001) per share of any Purchase Price shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, together with adjustment or adjustments so carried forward, amounts to one-tenth of one cent ($.001) per share or more.  However, upon exercise of this Warrant Certificate, the Company shall make all necessary adjustments (to the nearest one-tenth of a cent) not theretofore made to the Purchase Price up to and including the effective date upon which this Warrant Certificate is exercised.

(f)           Notice of Adjustments.  Whenever the Purchase Price shall be adjusted pursuant to this section 3, the Company shall promptly deliver a certificate signed by the President or a Vice President and by the Chief Financial Officer, Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company, setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board of Directors of the Company made any determination hereunder), by first class mail postage prepaid to the Warrantholder.

 

  

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(g)          Adjustments to Other Securities.  In the event that at any time, as a result of an adjustment made pursuant to this section 3, the Warrantholder shall become entitled to purchase any shares or securities of the Company other than the shares of Common Stock, thereafter the number of such other shares or securities so purchasable upon exercise of each Warrant and the purchase price for such shares or securities shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as possible to the provisions with respect to the shares of Common Stock contained in paragraphs 3(a), 3(b), 3(c) and 3(d) of this Warrant Certificate.

(h)          Deferral of Issuance of Additional Shares in Certain Circumstances.  In any case in which paragraph 3(b) of this Warrant Certificate shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event issuing to the holder of a Warrant exercised after such record date the shares of Common Stock, if any, issuable upon such exercise over and above the Warrant Shares, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver as soon as practicable to such holder a due bill or other appropriate instrument provided by the Company evidencing such holder’s right to receive such additional shares of Common Stock upon the occurrence of the event requiring such adjustment.

4.           Definition of Common Stock.  The Common Stock issuable upon exercise of the Warrants shall be the Common Stock as constituted on the Commencement Date, except as otherwise provided in section 3 of this Warrant Certificate.

5.           Replacement of Warrant Certificates.  If this Warrant Certificate shall be lost, stolen, mutilated or destroyed, the Company shall, on such terms as to indemnity or otherwise as the Company may in the Company’s discretion reasonably impose, issue a new certificate of like tenor or date representing in the aggregate the right to subscribe for and purchase the number of shares of Common Stock which may be subscribed for and purchased hereunder.  Any such new certificate shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at any time enforceable by anyone.

6.           Registration.  This Warrant Certificate, as well as all other warrant certificates representing Warrants shall be numbered and shall be registered in a register (the “Warrant Register”) maintained at the Company Offices as they are issued.  The Warrant Register shall list the name, address and Social Security or other federal taxpayer identifying number, if any, of all Warrantholders.  The Company shall be entitled to treat the Warrantholder as set forth in the Warrant Register as the owner in fact of the Warrants as set forth therein for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrants on the part of any other person, and shall not be liable for any registration of transfer of Warrants that are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration of transfer, or with such knowledge of such facts that its participation therein amounts to bad faith.

7.           Transfer.

(a)         NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  SUCH WARRANTS HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH WARRANTS AND SUCH SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.

 

  

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(b)         In the event of a transfer of any Warrants in accordance with this section 7, the Company shall, upon the surrender of this Warrant Certificate with the Assignment Form completed, dated and signed, execute and deliver to the transferee a new warrant certificate, substantially in form to this Warrant Certificate, evidencing the number of Warrants so transferred to such transferee and naming the transferee as the Warrantholder.

8.           Exchange of Warrant Certificates.  This Warrant Certificate may be exchanged for another certificate or certificates entitling the Warrantholder thereof to purchase a like aggregate number of Warrant Shares as this Warrant Certificate entitles such Warrantholder to purchase.  A Warrantholder desiring to so exchange this Warrant Certificate shall make such request in writing delivered to the Company, and shall surrender this Warrant Certificate therewith.  Thereupon, the Company shall execute and deliver to the person entitled thereto a new certificate or certificates, as the case may be, as so requested.

9.           Notices.  All notices and other communications hereunder shall be in writing and shall be deemed given when delivered in person, against written receipt therefor, or two days after being sent, by registered or certified mail, postage prepaid, return receipt requested, and, if to the Warrantholder, at such address as is shown on the Warrant Register or as may otherwise may have been furnished to the Company in writing in accordance with this section 9 by the Warrantholder and, if to the Company, at the Company Offices or such other address as the Company shall give notice thereof to the Warrantholder in accordance with this section 9.

10.         Registration Rights.

(a)           Defined Terms.  As used in this section 10, terms defined elsewhere herein shall have their assigned meanings and each of the following terms shall have the following meanings (such definitions to be applicable to both the plural and singular of the terms defined):

(i)           Registerable Securities.  The term “Registerable Securities” shall mean any of the Warrant Shares or other securities issuable upon exercise of any of the 1,050,000 Warrants originally issued to Nascap Corp. (the “Original Holder”) as of July 1, 2011 and represented, in whole or part, by this Warrant Certificate.  For the purposes of this section 10, securities will cease to be Registerable Securities when:

(A)           a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), covering such Registerable Securities has been declared effective and (1) such Registerable Securities have been disposed of pursuant to such effective registration statement or (2) such registration statement has remained effective for 270 consecutive days, or

(B)           such Registerable Securities are distributed to the public pursuant to the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act, including, without limitation, Rules 144 and 144A promulgated under the Securities Act and the Company has delivered new certificates or other evidences of ownership for such securities which are not subject to any stop transfer order or other restriction on transfer;

(ii)          Rightsholders.  The term “Rightsholders” shall include the Warrantholder, all successors and assigns of the Warrantholders and all transferees of Registerable Securities (and/or Warrants exercisable for Warrant Shares) where such transfer affirmatively includes the transfer and assignment of the rights of the transferor-Warrantholder under this Warrant Certificate with respect to the transferred Registerable Securities and such transferee agrees in writing to assume all of the transferor-Warrantholder’s agreements, obligations and liabilities under this section 10 with respect to the transferred Registerable Securities; and

(iii)         Interpretations of Terms.  The words “hereof,” “herein” and “hereunder” and words of similar import when used in this section 10 shall refer to this section 10 as a whole and not to any particular provision of this section 10, and subsection, paragraph, clause, schedule and exhibit references are to this section 10 unless otherwise specified.

 

  

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(b)          Piggy-Back Registration.

(i)           Piggy-Back Registration Rights.  If, at any time on or prior to the first anniversary of the Expiration Time, the Company (or any successor of the Company, by merger or otherwise) proposes to file a registration statement under the Securities Act with respect to an offering by the Company or any other party of any class of equity security similar to any Registerable Securities (other than a registration statement on Form S-4 or S-8 or any successor form or a registration statement filed solely in connection with an exchange offer, a business combination transaction or an offering of securities solely to the existing shareholders or employees of the Company), then the Company, on each such occasion, shall give written notice (each, a “Company Piggy-Back Notice”) of such proposed filing to all of the Rightsholders owning Registerable Securities at least twenty days before the anticipated filing date of such registration statement, and such Company Piggy-Back Notice also shall be required to offer to such Rightsholders the opportunity to register such aggregate number of Registerable Securities as each such Rightsholder may request.  Each such Rightsholder shall have the right, exercisable for the fifteen days immediately following the giving of a Company Piggy-Back Notice, to request, by written notice (each, a “Holder Notice”) to the Company, the inclusion of all or any portion of the Registerable Securities of such Rightsholders in such registration statement.  The Company shall use commercially best efforts to cause the managing underwriter(s) of a proposed underwritten offering to permit the inclusion of the Registerable Securities which were the subject of all Holder Notices in such underwritten offering on the same terms and conditions as any similar securities of the Company included therein.  Notwithstanding anything to the contrary contained in this subparagraph 10(b)(i), if the managing underwriter(s) of such underwritten offering or any proposed underwritten offering delivers a written opinion to the Rightsholders of Registerable Securities which were the subject of all Holder Notices that the total amount and kind of securities which they, the Company and any other person intend to include in such offering is such as to materially and adversely affect the success of such offering, then the amount of securities to be offered for the accounts of such Rightsholders and persons other than the Company shall be eliminated or reduced pro rata (based on the amount of securities owned by such Rightsholders and other persons which carry registration rights) to the extent necessary to reduce the total amount of securities to be included in such offering to the amount recommended by such managing underwriter(s) in the managing underwriter’s written opinion.

(ii)          Number of Piggy-Back Registrations; Expenses.  The Rightsholders shall be entitled, in the aggregate, to two Piggy-Back Registrations.  Subject to the provisions of paragraph 10(d) of this Warrant Certificate, the Company will pay all Registration Expenses in connection with any registration of Registerable Securities effected pursuant to this paragraph 10(b), but the Company shall not be responsible for the payment of any underwriter’s discount, commission or selling concession in connection therewith.

(iii)         Withdrawal or Suspension of Registration Statement.  The Company shall have the absolute right, whether before or after the giving of a Company Piggy-Back Notice or Holder Notice, to determine not to file a registration statement to which the Rightsholders shall have the right to include their Registerable Securities therein pursuant to this paragraph 10(b), to withdraw such registration statement or to delay or suspend pursuing the effectiveness of such registration statement.  In the event of such a determination after the giving of a Company Piggy-Back Notice, the Company shall give notice of such determination to all Rightsholders and, thereupon, (A) in the case of a determination not to register or to withdraw such registration statement, the Company shall be relieved of its obligation under this paragraph 10(b) to register any of the Registerable Securities in connection with such registration and (B) in the case of a determination to delay the registration, the Company shall be permitted to delay or suspend the registration of Registerable Securities pursuant to this paragraph 10(b) for the same period as the delay in the registration of such other securities.  No registration effected under this paragraph 10(b) shall relieve the Company of its obligation to effect any registration upon demand otherwise granted to a Rightsholder under any other agreement with the Company.

  

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(c)           Registration Procedures.

(i)           Obligations of the Company.  The Company will, in connection with any registration pursuant to paragraph 10(b) of this Warrant Certificate, as expeditiously as possible:

(A)          prepare and file with the Commission a registration statement under the Securities Act on any appropriate form chosen by the Company, in the Company’s sole discretion, which shall be available for the sale of all Registerable Securities in accordance with the intended method(s) of distribution thereof set forth in all applicable Holder Notices, and use the Company’s commercially best efforts to cause such registration statement to become effective as soon thereafter as reasonably practicable but in no event more than 100 days after receipt of such notices or requests; provided, that, at least five business days before filing with the Commission of such registration statement, the Company shall furnish to each Rightsholder whose Registerable Securities are included therein draft copies of such registration statement, including all exhibits thereto and documents incorporated by reference therein, and, upon the reasonable request of any such Rightsholder, shall continue to provide drafts of such registration statement until filed, and, after such filing, the Company shall, as diligently as practicable, provide to each such Rightsholders such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus), all exhibits thereto and documents incorporated by reference therein and such other documents as such Rightsholder may reasonably request in order to facilitate the disposition of the Registerable Securities owned by such Rightsholder and included in such registration statement; provided, further, the Company shall modify or amend the registration statement as it relates to such Rightsholder as reasonably requested by such Rightsholder on a timely basis, and shall reasonably consider other changes to the registration statement (but not including any exhibit or document incorporated therein by reference) reasonably requested by such Rightsholder on a timely basis, in light of the requirements of the Securities Act and any other applicable laws and regulations; and provided, further, that the obligation of the Company to effect such registration and/or cause such registration statement to become effective, may be postponed for (1) such period of time when the financial statements of the Company required to be included in such registration statement are not available (due solely to the fact that such financial statements have not been prepared in the regular course of business of the Company) or (2) any other bona fide corporate purpose, but then only for a period not to exceed 60 calendar days;

(B)           prepare and file with the Commission such amendments and post-effective amendments to a registration statement as may be necessary to keep such registration statement effective for up to nine months; and cause the related prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed to the extent required pursuant to Rule 424 promulgated under the Securities Act, during such nine-month period; and otherwise comply with the provisions of the Securities Act with respect to the disposition of all Registerable Securities covered by such registration statement during the applicable period in accordance with the intended method(s) of disposition of such Registerable Securities set forth in such registration statement, prospectus or supplement to such prospectus;

(C)           notify the Rightsholders whose Registerable Securities are included in such registration statement and the managing underwriter(s), if any, of an underwritten offering of any of the Registerable Securities included in such registration statement, and confirm such advice in writing, (1) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (2) of any request by the Commission for amendments or supplements to a registration statement or related prospectus or for additional information, (3) of the issuance by the Commission of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (4) if at any time the representations and warranties of the Company contemplated by subclause (J)(1) of subparagraph 10(c)(i) of this Warrant Certificate cease to be true and correct, (5) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registerable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (6) of the happening of any event which makes any statement made in the registration statement, the prospectus or any document incorporated therein by reference untrue or which requires the making of any changes in the registration statement or prospectus so that such registration statement, prospectus or document incorporated by reference will not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading;

(D)          make commercially best efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement at the earliest possible moment and to prevent the entry of such an order;

(E)           use commercially best efforts to register or qualify the Registerable Securities included in such registration statement under such other securities or blue sky laws of such jurisdictions as any Rightsholder whose Registerable Securities are included in such registration statement reasonably requests in writing and do any and all other acts and things which may be necessary or advisable to enable such Rightsholder to consummate the disposition in such jurisdictions of such Registerable Securities; provided, that the Company will not be required to (1) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this clause (E), (2) subject itself to taxation in any such jurisdiction or (3) take any action which would subject it to general service of process in any such jurisdiction;

 

  

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(F)           make available for inspection by each Rightsholder whose Registerable Securities are included in such registration, any underwriter(s) participating in any disposition pursuant to such registration statement, and any representative, agent or employee of or attorney or accountant retained by any such Rightsholder or underwriter(s) (collectively, the “Inspectors”), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the “Records”) as shall be reasonably necessary to enable them to exercise their due diligence responsibility (or establish a due diligence defense), and cause the officers, directors and employees of the Company to supply all information reasonably requested by any of the Inspectors in connection with such registration statement; provided, that records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors, unless (1) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (2) the disclosure of such Records is required by any applicable law or regulation or any governmental regulatory body with jurisdiction over such Rightsholder or underwriter; provided, further, that such Rightsholder or underwriter(s) agree that such Rightsholder or underwriter(s) will, upon learning the disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company’s expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential;

(G)           cooperate with the Rightsholders whose Registerable Securities are included in such registration statement and the managing underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Registerable Securities to be sold thereunder, not bearing any restrictive legends, and enable such Registerable Securities to be in such denominations and registered in such names as such Rightsholder or any managing underwriter(s) may reasonably request at least two business days prior to any sale of Registerable Securities;

(H)           comply with all applicable rules and regulations of the Commission and promptly make generally available to its security holders an earnings statement covering a period of twelve months commencing, (1) in an underwritten offering, at the end of any fiscal quarter in which Registerable Securities are sold to underwriter(s), or (2) in a non-underwritten offering, with the first month of the Company’s first fiscal quarter beginning after the effective date of such registration statement, which earnings statement in each case shall satisfy the provisions of Section 10(a) of the Securities Act;

(I)           provide a CUSIP number for all Registerable Securities not later than the effective date of the registration statement relating to the first public offering of Registerable Securities of the Company pursuant hereto;

(J)           enter into such customary agreements (including an underwriting agreement in customary form) and take all such other actions reasonably requested by the Rightsholders holding a majority of the Registerable Securities included in such registration statement or the managing underwriter(s) in order to expedite and facilitate the disposition of such Registerable Securities and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (1) make such representations and warranties, if any, to the holders of such Registerable Securities and any underwriter(s) with respect to the registration statement, prospectus and documents incorporated by reference, if any, in form, substance and scope as are customarily made by issuers to underwriter(s) in underwritten offerings and confirm the same if and when requested, (2) obtain opinions of counsel to the Company and updates thereof addressed to each such Rightsholder and the underwriter(s), if any, with respect to the registration statement, prospectus and documents incorporated by reference, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Rightsholders and underwriter(s), (3) obtain a “cold comfort” letter and updates thereof from the Company’s independent certified public accountants addressed to such Rightsholders and to the underwriter(s), if any, which letters shall be in customary form and cover matters of the type customarily covered in “cold comfort” letters by accountants in connection with underwritten offerings, and (4) deliver such documents and certificates as may be reasonably requested by the Rightsholders holding a majority of such Registerable Securities and managing underwriter(s), if any, to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company; each such action required by this clause (J) shall be done at each closing under such underwriting or similar agreement or as and to the extent required thereunder; and

 

  

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(K)           if requested by the holders of a majority of the Registerable Securities included in such registration statement, use its best efforts to cause all Registerable Securities which are included in such registration statement to be listed, subject to notice of issuance, by the date of the first sale of such Registerable Securities pursuant to such registration statement, on each securities exchange, if any, on which securities similar to the Registered Securities are listed.

(ii)           Obligations of Rightsholders.  In connection with any registration of Registerable Securities of a Rightsholder pursuant to paragraph 10(b) of this Warrant Certificate:

(A)           The Company may require that each Rightsholder whose Registerable Securities are included in such registration statement furnish to the Company such information regarding the distribution of such Registerable Securities and such Rightsholder as the Company may from time to time reasonably request in writing;

(B)           Each Rightsholder, upon receipt of any notice from the Company of the happening of any event of the kind described in subclauses (2), (3), (5) and (6) of clause 10(c)(i)(C) of this Warrant Certificate, shall forthwith discontinue disposition of Registerable Securities pursuant to the registration statement covering such Registerable Securities until such Rightsholder’s receipt of the copies of the supplemented or amended prospectus contemplated by subclause (1) of said clause 10(c)(i)(C), or until such Rightsholder is advised in writing (the “Advice”) by the Company that the use of the applicable prospectus may be resumed, and until such Rightsholder has received copies of any additional or supplemental filings which are incorporated by reference in or to be attached to or included with such prospectus, and, if so directed by the Company, such Rightsholder will deliver to the Company (at the expense of the Company) all copies, other than permanent file copies then in the possession of such Rightsholder, of the current prospectus covering such Registerable Securities at the time of receipt of such notice; the Company shall have the right to demand that such Rightsholder or other holder verify its agreement to the provisions of this clause (B) in any Holder Notice of the Rightsholder or in a separate document executed by the Rightsholder; and

(C)           Each Rightsholder agrees that in an underwritten offering it will not, without the consent of the managing underwriter, dispose of or offer any securities of the Company for the period of restrictions on the sale or disposal of securities of the Company imposed, or consented to, by any principal shareholder of the Company.

(d)           Registration Expenses.  All expenses incident to the performance of or compliance with this Warrant Certificate by the Company, including, without imitation, all registration and filing fees of the Commission, Financial Industry Regulatory Authority and other appropriate agencies, whether public, quasi-public or private, fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registerable Securities), rating agency fees, printing expenses, messenger and delivery expenses, internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the fees and expenses incurred in connection with the listing, if any, of the Registerable Securities on any securities exchange and fees and disbursements of counsel for the Company and the Company’s independent certified public accountants (including the expenses of any special audit or “cold comfort” letters required by or incidental to such performance), Securities Act or other liability insurance (if the Company elects to obtain such insurance), the fees and expenses of any special experts retained by the Company in connection with such registration and the fees and expenses of any other person retained by the Company (but not including any underwriting discounts or commissions attributable to the sale of Registerable Securities or other out-of-pocket expenses of the Rightsholders, or the agents who act on their behalf, unless reimbursement is specifically approved by the Company) will be borne by the Company.  All such expenses are herein referred to as “Registration Expenses.”

 

  

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(e)           Indemnification: Contribution.

(i)           Indemnification by the Company.  The Company agrees to indemnify and hold harmless, to the full extent permitted by law, each Rightsholder, its officers and directors and each person who controls such Rightsholder (within the meaning of the Securities Act), if any, and any agent thereof against all losses, claims, damages, liabilities and expenses incurred by such party pursuant to any actual or threatened suit, action, proceeding or investigation (including reasonable attorney’s fees and expenses of investigation) arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, except insofar as the same arise out of or are based upon, any such untrue statement or omission based upon information with respect to such Rightsholder furnished in writing to the Company by such Rightsholder expressly for use therein.

(ii)           Indemnification by Rightsholder.  In connection with any registration statement in which a Rightsholder is participating, each such Rightsholder will be required to furnish to the Company in writing such information with respect to such Rightsholder as the Company reasonably requests for use in connection with any such registration statement or prospectus, and each Rightsholder agrees to the extent it is such a holder of Registerable Securities included in such registration statement, and each other such holder of Registerable Securities included in such Registration Statement will be required to agree, to indemnify, to the full extent permitted by law, the Company, the directors and officers of the Company and each person who controls the Company (within the meaning of the Securities Act) and any agent thereof, against any losses, claims, damages, liabilities and expenses (including reasonable attorney’s fees and expenses of investigation incurred by such party pursuant to any actual or threatened suit, action, proceeding or investigation arising out of or based upon any untrue or alleged untrue statement of a material fact or any omission or alleged omission of a material fact necessary, to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they are made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is based upon information relating to such Rightsholder or other holder furnished in writing to the Company expressly for use therein.

(iii)           Conduct of Indemnification Proceedings.  Promptly after receipt by an indemnified party under this paragraph 10(e) of written notice of the commencement of any action, proceeding, suit or investigation or threat thereof made in writing for which such indemnified party may claim indemnification or contribution pursuant to this Warrant Certificate, such indemnified party shall notify in writing the indemnifying party of such commencement or threat; but the omission so to notify the indemnifying party shall not relieve the indemnifying party from any liability which the indemnifying party may have to any indemnified party (A) hereunder, unless the indemnifying party is actually prejudiced thereby, or (B) otherwise than under this paragraph 10(e).  In case any such action, suit or proceeding shall be brought against any indemnified party, and the indemnified party shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and the indemnifying party shall assume the defense thereof, with counsel reasonably satisfactory to the indemnified party, and the obligation to pay all expenses relating thereto.  The indemnified party shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (A) the indemnifying party has agreed to pay such fees and expenses, (B) the indemnifying party shall have failed to assume the defense of such action, suit or proceeding or to employ counsel reasonably satisfactory to the indemnified party therein or to pay all expenses relating thereto or (C) the named parties to any such action or proceeding (including any impleaded parties) include both the indemnified party and the indemnifying party and the indemnified party shall have been advised by counsel that there may be one or more legal defenses available to the indemnified party which are different from or additional to those available to the indemnifying party and which may result in a conflict between the indemnifying party and such indemnified party (in which case, if the indemnified party notifies the indemnifying party in writing that the indemnified party elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action or proceeding on behalf of the indemnified party; it being understood, however, that the indemnifying party shall not, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys at any time for the indemnified party, which firm shall be designated in writing by the indemnified party).

 

  

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(iv)

	
Contribution.

(A)           If the indemnification provided for in this paragraph 10(e) from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (A) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other or (B) if the allocation provided by clause (A) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other but also the relative fault of the indemnifying party and indemnified party, as well as any other relevant equitable considerations.  The relative fault of such indemnifying party and the indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action.  The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitation set forth in subparagraph 10(e)(v) of this Warrant Certificate, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding.

(B)           The parties hereto agree that it would not be just and equitable if contribution pursuant to this subparagraph 10(e)(iv) were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in clauses (A) and (B) of the immediately preceding paragraph.  No person guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

(v)           Limitation.  Anything to the contrary contained in this paragraph 10(e) or in paragraph 10(f) of this Warrant Certificate notwithstanding, no holder of Registerable Securities shall be liable for indemnification and contribution payments aggregating an amount in excess of the maximum dollar amount of the net proceeds received by such holder in connection with any sale of Registerable Securities as contemplated herein.

(f)           Participation in Underwritten Registration.  No Rightsholder may participate in any underwritten registration hereunder unless such Rightsholder (i) agrees to sell such holder’s securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and to comply with Regulation M under the Exchange Act and (ii) completes and executes all questionnaires, appropriate and limited powers of attorney, escrow agreements, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangement; provided, that all such documents shall be consistent with the provisions of paragraph 10(e) of this Warrant Certificate.

11.         Miscellaneous.  This Warrant Certificate and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.  This Warrant Certificate is deemed to have been delivered in the State of New York and shall be construed and enforced in accordance with and governed by the laws of such State.  The headings in this Warrant Certificate are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof.

12.         Expiration.  Unless as hereinafter provided, the right to exercise the Warrants shall expire at the Expiration Time.

13.         No Rights as Shareholder; Notice to Warrantholder.

(a)           Nothing contained in this Warrant Certificate shall be constructed as conferring upon the Warrantholder the right to vote or to receive distributions or to consent to or receive notice as a shareholder in respect of any meeting of shareholders for the election of directors of the Company or any other matter, or any other rights whatsoever as shareholder of the Company.

 

  

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(b)           The Company shall give notice to the Warrantholder by postage-paid, certified mail, return receipt requested, if, at any time prior to the Expiration Time, any of the following events shall occur:

(i)           the Company shall authorize the payment of any distributions upon Common Stock payable in any securities or authorize the making of any distribution (other than a cash distribution subject to the second parenthetical set forth in section 3(c) of this Warrant Certificate) to all holders of Common Stock;

(ii)           the Company shall authorize the issuance to all holders of Common Stock of any additional shares of Common Stock or of rights, options or warrants to subscribe for or purchase Common Stock or of any other subscription rights, options or warrants;

(iii)           a dissolution, liquidation or winding up of the Company (including, without limitation, a consolidation, merger, or sale or conveyance of the property of the Company as an entirety or substantially as an entirety); or

(iv)           a capital reorganization or reclassification of the Common Stock (other than a subdivision or combination of the outstanding Common Stock) or any consolidation or merger of the Company with or into another corporation (excluding any consolidation or merger in which the Company is the continuing company and that does not result in any reclassification of, or change to, the Common Stock then outstanding) or in the case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety.

Such giving of notice shall be given (x) at least twenty business days (a day other than a Saturday, Sunday or other day on which banks in the State of New York are authorized by law to remain closed) prior to the date fixed as a record date or effective date or the date of closing of the Company’s transfer books for the determination of the holders entitled to such distribution or subscription rights, or for the determination of the holders entitled to vote on such proposed merger, consolidation, sale, conveyance, dissolution, liquidation, winding up or conversion to corporate or other form.  Such notice shall specify such record date or the date of closing the transfer books, as the case may be.  In addition, the Company shall provide to Warrantholder, at the same time such notice is provided, such information relating to such distribution or subscriptions rights, or proposed merger, consolidation, sale, conveyance, dissolution, liquidation, winding up or conversion to corporate or other form as may be reasonably necessary for Warrantholder to make an informed decision whether to exercise Warrantholder’s rights as evidenced by this Warrant Certificate.

14.         Severability.  If any term or other provision of this Warrant Certificate is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Warrant Certificate 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 materially adverse to either the Company or Warrantholder.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Company and Warrantholder shall negotiate in good faith to modify this Warrant Certificate so as to effect the original intent of the Company and the Original Holder in connection with the issuance of the Warrants, to the greatest extent possible.  Any provision of this Warrant Certificate held invalid or unenforceable only in part, degree or in certain jurisdictions will remain in full force and effect to the extent not held invalid or unenforceable.

 

IN WITNESS WHEREOF, Compliance Systems Corporation has caused this Warrant Certificate to be executed by its officer thereunto duly authorized.

 

	
Dated:  As of October 1, 2011

	
Compliance Systems Corporation

	  	  
	  	
By:

	
  

	  	  	
Barry M. Brookstein

	  	  	
Chief Financial Officer

  

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EXERCISE FORM

 

TO:           Compliance Systems Corporation

The undersigned hereby irrevocably elects to exercise its warrant exercise rights evidenced by this Warrant Certificate to the extent of purchasing _______________ shares of the common stock, par value $0.001 per share, of Compliance Systems Corporation and hereby makes payment of the aggregate Purchase Price therefor as follows:

CHOOSE AND COMPLETE ONE:

	
⁭

	
Tendering, contemporaneous with the delivery of this Warrant Certificate, the amount of $_____________ in the form of (a) cash or (b) bank cashier’s or certified check payable to the order of “Compliance Systems Corporation”

	
⁭

	
Surrendering _________ Warrants evidenced by this Warrant Certificate in accordance with paragraph 1(c) of this Warrant Certificate.

INSTRUCTIONS FOR REGISTRATION OF STOCK

(Please type or print in block letters)

	
Name:

	  	
  

	  	  	  
	
Taxpayer Identification Number:

	  	
  

	  	  	  
	
Address:

	  	
  

	  	  	  
	  	  	
  

	  	  	  
	  	  	
  

	  	  	  
	
Signature:

	  	
  

	  	  	
(Signature must conform in all respects to the name of the Warrantholder

	  	  	
as set forth on the face of this Warrant Certificate.)

	  	  	  
	
Date:

	  	
  

 

  

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ASSIGNMENT FORM

(Please type or print in block letters)

 

FOR VALUE RECEIVED, ________________________________________________________

hereby sells, assigns and transfers unto:

	
Name:

	  	
  

	  
	
Taxpayer

	  	  	  
	
Identification

	  	  	  
	
Number:

	  	
  

	  
	  	  	  	  
	
Address:

	  	
  

	  
	  	  	  	  
	  	  	
  

	  
	  	  	  	  
	  	  	
  

	  

this Warrant Certificate and the Warrants represented by this Warrant Certificate to the extent of ________________ Warrants and does hereby irrevocably constitute and appoint ___________________________ Attorney-in-Fact, to transfer the same on the books of the Company with full power of substitution in the premises.

	
Dated:

	  	
  

	  
	  	  	  	  
	
Signature:

	  	
  

	  
	  	  	
(Signature must conform in all respects to the name of the

	  
	  	  	
Warrantholder as set forth on the face of this Warrant Certificate.)

	  

 

  

15Unassociated Document

 

 

PURCHASE AGREEMENT

by and between

Heartland Bridge Capital, Inc.

a Delaware corporation,

on the one hand

and

Digisort LLC

a Texas limited liability company

 

 

 

 

  

  

  

 

PURCHASE AGREEMENT

This PURCHASE AGREEMENT (the “Agreement”) is dated as of November  18, 2011 (the “Effective Date”), by and among Heartland Bridge Capital, Inc., a Delaware corporation (“HLBC”), on the one hand, and Digisort LLC, a Texas limited liability company (“Digisort”), on the other hand.  Each of HLBC and Digisort shall be referred to herein as a “Party” and collectively as the “Parties.”

WITNESSETH

WHEREAS, HLBC owns 100% of the issued and outstanding securities of the iSafe Entities, as set forth in Exhibit A attached hereto (the “iSafe Securities”)

WHEREAS, HLBC desires to sell and Digisort desires to purchase all of the iSafe Securities in accordance with the terms set forth herein;

WHEREAS, the Parties desire and intend that the transactions contemplated by this Agreement will be a tax free reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.

NOW THEREFORE, in consideration of the premises and respective mutual agreements, covenants, representations, and warranties herein contained, it is agreed between the Parties hereto as follows:

ARTICLE 1

SALE AND PURCHASE OF THE ISAFE SECURITIES

1.1           Sale of the iSafe Securities.  At the Closing (as defined in Section 4.1), subject to the terms and conditions herein set forth, and on the basis of the representations, warranties, and agreements herein contained, HLBC shall sell to and Digisort shall purchase all of the iSafe Securities.

1.2           Purchase Price.  As consideration for the purchase of the iSafe Securities (the “Purchase Price”), Digisort shall pay to HLBC a total of Two Hundred Fifty Thousand Dollars ($250,000) (the “Cash”), One Hundred Thirty Thousand (130,000) shares of HLBC common stock (the “HLBC Common Shares”) and warrants to purchase Fifty Thousand (50,000) shares of HLBC common stock with an exercise price of $3.05 per share, in the form attached hereto as Exhibit B (the “HLBC Warrants”).  Together, the Cash, HLBC Common Shares, and the HLBC Warrants are referred to herein as the “Payment.”

 

  

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ARTICLE 2

REPRESENTATIONS AND WARRANTIES

OF THE ISAFE ENTITIES AND HLBC

2.1           Representations and Warranties of HLBC.  To induce Digisort to enter into this Agreement and to consummate the transactions contemplated hereby, HLBC represents and warrants as of the date hereof and as of the Closing, as follows:

2.1.1           Authority of HLBC; Transfer of iSafe Securities.  HLBC has the full right, power, and authority to enter into this Agreement and to carry out and consummate the transactions contemplated herein.  This Agreement and all of the Exhibits attached hereto constitute the legal, valid, and binding obligation of HLBC.  HLBC shall transfer title in and to the iSafe Securities to Digisort free and clear of all liens, security interests, pledges, encumbrances, charges, restrictions, demands, and claims of any kind or nature whatsoever, whether direct or indirect or contingent.

2.1.2           Corporate Existence and Authority of  HLBC and the iSafe Entities.  HLBC is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware.  iSafe Canada is a corporation duly organized, validly existing, and in good standing under the laws of the Province of Alberta, Canada.  iSafe Texas is a limited partnership duly organized, validly existing, and in good standing under the laws of the State of Texas.  eMedi-Safe is a limited partnership duly organized, validly existing, and in good standing under the laws of the State of Texas.  HLBC and all of the iSafe Entities have all requisite power, franchises, licenses, permits, and authority to own their own properties and assets and to carry on their respective businesses as they have been and continue to be conducted.  HLBC and the iSafe Entities are in good standing in each state, nation, or other jurisdiction in each state, nation, or other jurisdiction wherein the character of the business transacted by it makes such qualification necessary.

2.1.3           Capitalization of The iSafe Entities.  The authorized equity securities of iSafe Canada consists of an unlimited number of shares of Class “A” common stock, of which Five Hundred Thousand (500,000) shares are issued and outstanding as set forth on Exhibit A, an unlimited number of shares of Class “B” common stock, none of which are issued and outstanding, and an unlimited number of shares of preferred stock, none of which are issued and outstanding.  No other shares of the iSafe Canada are issued and outstanding.  Both iSafe Texas and eMedi-Safe are limited partnerships with the individuals and entities listed on Exhibit A owning the ownership percentage indicated on Exhibit A, which represents 100% of the ownership of both entities.  All of the issued and outstanding shares and partnership interests, as applicable, have been duly and validly issued in accordance and compliance with all applicable laws, rules, regulations, and agreements and are fully paid and nonassessable.  Other than as set forth in Schedule 2.1.3, there are no options, warrants, rights, calls, commitments, plans, contracts, or other agreements of any character granted or issued by the iSafe Entities which provide for the purchase, issuance, or transfer of any shares or interests of the iSafe Entities, nor are there any outstanding securities granted or issued by the iSafe Entities that are convertible into any shares or interests of the iSafe Entities, and none are authorized.  The iSafe Entities are not obligated or committed to purchase, redeem, or otherwise acquire any of their equity or interests.  All presently exercisable voting rights in the iSafe Entities are vested exclusively in the outstanding securities and interests listed on Exhibit A and there are no voting trusts or other voting arrangements with respect to any of the iSafe Entities’ equity securities or interests.

 

  

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2.1.4           Subsidiaries.  “Subsidiary” or “Subsidiaries” means all corporations, trusts, partnerships, associations, joint ventures, or other Persons, as defined below, of which a corporation or any other Subsidiary of such corporation owns not less than twenty percent (20%) of the voting securities or other equity or of which such corporation or any other Subsidiary of such corporation possesses, directly or indirectly, the power to direct or cause the direction of the management and policies, whether through ownership of voting shares, management contracts, or otherwise.  “Person” means any individual, corporation, trust, association, partnership, proprietorship, joint venture or other entity.  The iSafe Entities do not have any Subsidiaries.

2.1.5           Execution of Agreement.  The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not: (a) violate, conflict with, modify, or cause any default under or acceleration of (or give any Party any right to declare any default or acceleration upon notice or passage of time or both), in whole or in part, any charter, article of incorporation, bylaw, mortgage, lien, deed of trust, indenture, lease, agreement, instrument, order, injunction, decree, judgment, law, or any other restriction of any kind to which the Digisort or HLBC are a party or by which any of them or any of their properties are bound; (b) result in the creation of any security interest, lien, encumbrance, adverse claim, proscription, or restriction on any property or asset (whether real, personal, mixed, tangible, or intangible), right, contract, agreement, or business of HLBC, Digisort, or the iSafe Entities; (c) violate any law, rule, or regulation of any federal or state regulatory agency; or (d) permit any federal or state regulatory agency to impose any restrictions or limitations of any nature on Digisort or HLBC or any of their respective actions.

2.1.6           Taxes.

2.1.6.1       All taxes, assessments, fees, penalties, interest, and other governmental charges with respect to the iSafe Entities which have become due and payable as of the date hereof have been paid in full or adequately reserved against by the iSafe Entities, (including without limitation, income, property, sales, use, franchise, capital stock, excise, added value, employees’ income withholding, social security, and unemployment taxes), and all interest and penalties thereon with respect to the periods then ended and for all periods thereto;

 

  

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2.1.6.2       There are no agreements, waivers, or other arrangements providing for an extension of time with respect to the assessment of any tax or deficiency against the iSafe Entities, nor are there any actions, suits, proceedings, investigations, or claims now pending against the iSafe Entities, nor are there any actions, suits, proceedings, investigations, or claims now pending against the iSafe Entities in respect of any tax or assessment, or any matters under discussion with any federal, state, local, or foreign authority relating to any taxes or assessments, or any claims for additional taxes or assessments asserted by any such authority, and there is no basis for the assertion of any additional taxes or assessments against the iSafe Entities; and

2.1.6.3       The consummation of the transactions contemplated by this Agreement will not result in the imposition of any additional taxes on or assessments against the iSafe Entities.

2.1.7           Disputes and Litigation.  Except as set forth in Schedule 2.1.7, (a) there are no suits, actions, litigation, proceedings, investigations, claims, complaints, or accusations pending, threatened against, or affecting HLBC or  the iSafe Entities or any of their properties, assets, or business or to which it is a party, in any court or before any arbitrator of any kind or before or by any governmental agency (including, without limitation, any federal, state, local, foreign, or other governmental department, commission, board, bureau, agency, or instrumentality), and there is no basis for such suit, action, litigation, proceeding, investigation, claim, complaint, or accusation; (b) there is no pending or threatened change in any environmental, zoning, or building laws, regulations, or ordinances which affect or could affect HLBC or  the iSafe Entities or any of its properties, equipment, assets, or businesses; and (c) there is no outstanding order, writ, injunction, decree, judgment, or award by any court, arbitrator, or governmental body against or affecting HLBC or  the iSafe Entities or any of their properties, assets, or businesses.  There is no litigation, proceeding, investigation, claim, complaint, or accusation, formal or informal, or arbitration pending, or any of the aforesaid threatened, or any contingent liability which would give rise to any right of indemnification or similar right on the part of any director or officer of HLBC or any such person’s heirs, executors, or administrators as against HLBC.

2.1.8           Compliance with Laws.  The iSafe Entities have at all times been, and presently is, in full compliance with, and has not received notice of any claimed violation of, any applicable federal, state, local, foreign, and other laws, rules, and regulations.  The iSafe Entities have filed all returns, reports and other documents and furnished all information required or requested by any federal, state, local, or foreign governmental agency and all such returns, reports, documents, and information are true and complete in all respects.  All permits, licenses, orders, franchises, and approvals of all federal, state, local, or foreign governmental or regulatory bodies required of the iSafe Entities for the conduct of their businesses have been obtained, no violations are or have been recorded in respect of any such permits, licenses, orders, franchises and approvals, and there is no litigation, proceeding, investigation, arbitration, claim, complaint or accusation, formal or informal, pending or threatened, which may revoke, limit, or question the validity, sufficiency or continuance of any such permit, license, order, franchise or approval.  Such permits, licenses, orders, franchises and approvals are valid and sufficient for all activities presently carried on by the iSafe Entities.

 

  

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2.1.9           Books and Records.  The iSafe Entities keeps its books, records, and accounts (including, without limitation, those kept for financial reporting purposes and for tax purposes) in accordance with good business practices and in sufficient detail to reflect the transactions and dispositions of its assets, liabilities, and equities.  The minute books of the iSafe Entities contain records of the iSafe Holders’s meetings and of action taken by such iSafe Holders.  The iSafe Holders’s meetings referred to in such minute books were duly called and held, and the resolutions appearing in such minute books were duly adopted.  The signatures appearing on all documents contained in such minute books are the true signatures of the persons purporting to have signed the same.  Attached hereto on Schedule 2.1.10 is a list of all contracts and agreements to which the iSafe Entities are a party or obligated as of the Closing Date, and the iSafe Entities hereby represent and warrant that there are no other material contracts or agreements in existence as of the Closing Date.

2.1.10         Securities Representations.  HLBC hereby represents and warrants as of the date hereof and as of the Closing, as follows:

	 	
(a)

	
acknowledge that the HLBC Securities are restricted securities under Rule 144 of the Act and, therefore, any certificates reflecting the ownership interest in the HLBC Securities will contain a restrictive legend substantially similar to the following:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

 

  

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            (g)           No Backup Withholding.  The Social Security Number or taxpayer identification shown in this Agreement is correct, and HLBC is not subject to backup withholding because (i) HLBC  has not been notified that he or she is subject to backup withholding as a result of a failure to report all interest and dividends or (ii) the Internal Revenue Service has notified HLBC that it is no longer subject to backup withholding.

2.1.11           Leases.  The iSafe Entities either own or have valid and existing leases with all facilities where its offices are located or where any of the iSafe Entities’s equipment or other assets are located.

2.1.12           Assets.  The iSafe Entities own certain non-cash assets, including, but not limited to, those listed on Schedule 2.1.12.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF DIGISORT

3.1           Representations and Warranties of Digisort.  To induce HLBC to enter into this Agreement and to consummate the transactions contemplated hereby Digisort represents and warrants, as of the date hereof and as of the Closing, as follows:

3.1.1           Authority of Digisort.  Digisort has the full right, power and authority to enter into this Agreement and to carry out and consummate the transactions contemplated herein.  This Agreement and all of the Exhibits attached hereto constitute the legal, valid, and binding obligation of Digisort.

3.1.2           Corporate Existence and Authority of Digisort.  Digisort is a limited liability company  duly organized, validly existing, and in good standing under the laws of the State of Texas.  It has all requisite corporate power, franchises, licenses, permits, and authority to own its properties and assets and to carry on its business as it has been and is being conducted.  It is in good standing in each state, nation, or other jurisdiction in each state, nation, or other jurisdiction wherein the character of the business transacted by it makes such qualification necessary.

3.1.3           Execution of Agreement.  The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not: (a) violate, conflict with, modify, or cause any default under or acceleration of (or give any Party any right to declare any default or acceleration upon notice or passage of time or both), in whole or in part, any charter, article of incorporation, bylaw, mortgage, lien, deed of trust, indenture, lease, agreement, instrument, order, injunction, decree, judgment, law, or any other restriction of any kind to which Digisort is a party or by which it or any of its properties are bound; (b) result in the creation of any security interest, lien, encumbrance, adverse claim, proscription, or restriction on any property or asset (whether real, personal, mixed, tangible, or intangible), right, contract, agreement, or business of Digisort; (c) violate any law, rule, or regulation of any federal or state regulatory agency; or (d) permit any federal or state regulatory agency to impose any restrictions or limitations of any nature on Digisort or any of its actions.

 

  

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ARTICLE 4

CLOSING AND DELIVERY OF DOCUMENTS

4.1           Closing.  The Closing (the “Closing”) shall take place remotely at the offices of The Lebrecht Group, APLC, 9900 Research Drive, Irvine, CA 92618, no later than the close of business (Pacific Standard Time) on November 18, 2011, or at such other place, date, and time as the Parties may agree in writing (the “Closing Date”).

4.2           Deliveries by Digisort.  At the Closing:

4.2.1           Digisort shall deliver to HLBC:

	 	
(a) 

	
written confirmation of the approval of this Agreement and the herein described transactions by Digisort’s Board of Directors;

	 	
(b)

	
the Payment; and

	 	
(c) 

	
an officer’s certificate, executed by the President of Digisort, in the form attached hereto asExhibit D.

4.3           Delivery by HLBC.  At the Closing, or as otherwise set forth below:

4.3.1           HLBC shall deliver to Digisort:

	 	
(a) 

	
an officer’s certificate, executed by the CEO of HLBC, in the form attached hereto asExhibit E; and

	 	
(b) 

	
written confirmation of the approval of this Agreement and the herein described transactions by HLBC’s Board of Directors.

	 	
(c) 

	
the iSafe Securities; and

	 	
(d) 

	
stock powers or other required evidence of transfer of the iSafe Securities to Digisort.

ARTICLE 5

CONDITIONS, TERMINATION, AMENDMENT, AND WAIVER

5.1           Conditions Precedent.  This Agreement, and the transactions contemplated hereby, shall be subject to the following conditions precedent:

5.1.1           The obligation of Digisort to make the Payment and to satisfy its other obligations hereunder shall be subject to the fulfillment (or waiver by HLBC), at or prior to the Closing, of the following conditions, which HLBC agrees to use their best efforts to cause to be fulfilled:

 

  

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(a)           Representations, Performance.  If the Closing Date is not the date hereof, the representations and warranties contained in Section 2.1 hereof shall be true at and as of the date hereof and shall be repeated and shall be true at and as of the Closing Date with the same effect as though made at and as of the Closing Date, except as affected by the transactions contemplated hereby; HLBC shall have duly performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date; and HLBC shall have delivered to Digisort a certificate dated the Closing Date, and signed by its Chief Executive Officer, as applicable, to the effect set forth above in this Section.

 

(b)           Consents.  Any required consent to the transactions contemplated by this Agreement shall have been obtained or waived.

(c)           Litigation.  No suit, action, arbitration, or other proceeding or investigation shall be threatened or pending before any court or governmental agency in which it is sought to restrain or prohibit or to obtain material damages or other material relief in connection with this Agreement or the consummation of the transactions contemplated hereby or which is likely to affect materially the value of the iSafe Entities, other than as set forth in Schedule 2.1.7.

 

(d)           Proceedings and Documentation.  All proceedings of the iSafe Entities in connection with the transactions contemplated by this Agreement, and all documents and instruments incident to such proceedings, shall be satisfactory in form and substance to Digisort and Digisort’s counsel, and Digisort and Digisort’s counsel shall have received all such receipts, documents, and instruments, or copies thereof, certified if requested, to which Digisort is entitled and as may be reasonably requested.

 

(e)           Property Loss.  No portion of the iSafe Entities’s assets shall have been destroyed or damaged or taken by condemnation under circumstances where the loss thereof will not be substantially reimbursed to Digisort through the proceeds of applicable insurance or condemnation award.

 

(f)           Consents and Approvals.  All material licenses, permits, consents, approvals, authorizations, qualifications, and orders of governmental or regulatory bodies which are (1) necessary to enable Digisort to fully operate the business of the iSafe Entities as contemplated from and after the Closing shall have been obtained and be in full force and effect, or (2) necessary for the consummation of the transactions contemplated hereby, shall have been obtained.  Any notices to or consents of any party to any agreement or commitment constituting part of the transactions contemplated hereby, or otherwise required to consummate any such transactions, shall have been delivered or obtained.

 

  

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5.1.2           The obligation of HLBC to deliver the iSafe Securities and to satisfy their other obligations hereunder shall be subject to the fulfillment (or waiver by HLBC), at or prior to the Closing, of the following conditions, which Digisort agrees to use its best efforts to cause to be fulfilled:

 

(a)           Representations, Performance.  If the Closing Date is not the date hereof, the representations and warranties contained in Section 3.1 hereof shall be true at and as of the date hereof and shall be repeated and shall be true at and as of the Closing Date with the same effect as though made at and as of the Closing Date, except as affected by the transactions contemplated hereby; Digisort shall have duly performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date.

 

(b)           Proceedings and Documentation.  All corporate and other proceedings of Digisort in connection with the transactions contemplated by this Agreement, and all documents and instruments incident to such corporate proceedings, shall be satisfactory in form and substance to  HLBC and their counsel, and they have received all such receipts, documents, and instruments, or copies thereof, certified if requested, to which HLBC is entitled and as may be reasonably requested.

5.2           Termination.  Notwithstanding anything to the contrary contained in this Agreement, this Agreement may be terminated and the transactions contemplated hereby may be abandoned prior to the Closing Date only by the mutual consent of all of the Parties.

5.3           Waiver and Amendment.  Any term, provision, covenant, representation, warranty, or condition of this Agreement may be waived, but only by a written instrument signed by the Party entitled to the benefits thereof.  The failure or delay of any Party at any time or times to require performance of any provision hereof or to exercise its rights with respect to any provision hereof shall in no manner operate as a waiver of or affect such Party’s right at a later time to enforce the same.  No waiver by any Party of any condition, or of the breach of any term, provision, covenant, representation, or warranty contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or waiver of any other condition or of the breach of any other term, provision, covenant, representation, or warranty.  No modification or amendment of this Agreement shall be valid and binding unless it be in writing and signed by all Parties hereto.

 

  

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ARTICLE 6

COVENANTS, INDEMNIFICATION

6.1           To induce Digisort to enter into this Agreement and to consummate the transactions contemplated hereby, and without limiting any covenant, agreement, representation or warranty made, HLBC covenants and agrees as follows:

6.1.1           Notices and Approvals.  HLBC agrees: (a) to give all notices to third parties which may be necessary or deemed desirable by Digisort in connection with this Agreement and the consummation of the transactions contemplated hereby; (b) to use their best efforts to obtain all federal and state governmental regulatory agency approvals, consents, permit, authorizations, and orders necessary or deemed desirable by Digisort in connection with this Agreement and the consummation of the transaction contemplated hereby; and (c) to use their best efforts to obtain all consents and authorizations of any other third parties necessary or deemed desirable by Digisort in connection with this Agreement and the consummation of the transactions contemplated hereby.

6.1.2           Information for HLBC’s Statements and Applications.  HLBC and their employees, accountants, and attorneys shall cooperate fully with Digisort in the preparation of any statements or applications made by HLBC to any federal or state governmental regulatory agency in connection with this Agreement and the transactions contemplated hereby and to furnish Digisort with all information concerning the iSafe Entities necessary or deemed desirable by Digisort for inclusion in such statements and applications, including, without limitation, all requisite financial statements and schedules.

6.1.3           Access to Information.  Digisort, together with its appropriate attorneys, agents, and representatives, shall be permitted to make a full and complete investigation of the iSafe Entities and have full access to all of the books and records of the iSafe Entities during reasonable business hours.  Notwithstanding the foregoing, such parties shall treat all such information as confidential and shall not disclose such information without the prior consent of the other.

6.2           To induce  HLBC to enter into this Agreement and to consummate the transactions contemplated hereby, and without limiting any covenant, agreement, representation, or warranty made, Digisort covenants and agrees as follows:

6.2.1           Access to Information.  HLBC, together with their appropriate attorneys, agents, and representatives, shall be permitted to make a full and complete investigation of Digisort and have full access to all of the books and records of Digisort during reasonable business hours.  Notwithstanding the foregoing, such parties shall treat all such information as confidential and shall not disclose such information without the prior consent of the other.

 

  

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6.3           Indemnification.

6.3.1           Indemnity of  Digisort.  HLBC agrees to indemnify, defend, and hold  Digisort harmless from and against any and all Losses (as hereinafter defined) arising out of or resulting from the breach by HLBC of any representation, warranty, covenant, or agreement of HLBC contained in this Agreement or the schedules and exhibits hereto.  For purposes of Section 6.3, the term “Losses” shall mean all damages, costs, and expenses (including reasonable attorneys’ fees) of every kind, nature, or description, it being the intent of the Parties that the amount of any such Loss shall be the amount necessary to restore the indemnified party to the position it would have been in (economically or otherwise), including any costs or expenses incident to such restoration, had the breach, event, occurrence, or condition occasioning such Loss never occurred.  Notwithstanding the foregoing provisions of this section, no claim for indemnification shall be made by the Digisort under this Section unless and until the aggregate amount of all Losses of  Digisort in respect thereof shall exceed $5,000.

6.3.2           Indemnity of HLBC.   Digisort, and each of them, hereby agrees to indemnify, defend, and hold HLBC harmless from and against any and all Losses arising out of or resulting from the breach by Digisort of any representation, warranty, agreement, or covenant contained in this Agreement or the exhibits and schedules hereto, including, without limitation, the failure to disclose any liabilities or material contracts or agreements pursuant to Section 2.1.10.  HLBC shall have the right to offset any Losses incurred and actually paid pursuant to this Section 6.3.2 against any amounts due from Digisort to HLBC, however, any offset shall not act as HLBC’s sole remedy.  Notwithstanding the foregoing provisions of this Section, no claim for indemnification shall be made by HLBC under this Section unless and until the aggregate amount of all Losses of HLBC in respect thereof shall exceed $5,000.

6.3.3           Indemnification Procedure.

 

(a)           An indemnified party shall notify the indemnifying party of any claim of such indemnified party for indemnification under this Agreement within thirty days of the date on which such indemnified party or an executive officer or representative of such indemnified party first becomes aware of the existence of such claim.  Such notice shall specify the nature of such claim in reasonable detail and the indemnifying party shall be given reasonable access to any documents or properties within the control of the indemnified party as may be useful in the investigation of the basis for such claim.  The failure to so notify the indemnifying party within such thirty-day period shall not constitute a waiver of such claim but an indemnified party shall not be entitled to receive any indemnification with respect to any additional loss that occurred as a result of the failure of such person to give such notice.

 

  

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In the event any indemnified party is entitled to indemnification hereunder based upon a claim asserted by a third party (including a claim arising from an assertion or potential assertion of a claim for Taxes), the indemnifying party shall be given prompt notice thereof, in reasonable detail.  The failure to so notify the indemnifying party shall not constitute a waiver of such claim but an indemnified party shall not be entitled to receive any indemnification with respect to any Loss that occurred as a result of the failure of such person to give such notice.  The indemnifying party shall have the right (without prejudice to the right of any indemnified party to participate at its expense through counsel of its own choosing) to defend or prosecute such claim at its expense and through counsel of its own choosing if it gives written notice of its intention to do so not later than twenty days following notice thereof by the indemnifying party or such shorter time period as required so that the interests of the indemnified party would not be materially prejudiced as a result of its failure to have received such notice; provided, however, that if the defendants in any action shall include both an indemnifying party and an indemnified party and the indemnified party shall have reasonably concluded that counsel selected by the indemnifying party has a conflict of interest because of the availability of different or additional defenses to the indemnified party, the indemnified party shall have the right to select separate counsel to participate in the defense of such action on its behalf, at the expense of the indemnifying party.  If the indemnifying party does not so choose to defend or prosecute any such claim asserted by a third party for which any indemnified party would be entitled to indemnification hereunder, then the indemnified party shall be entitled to recover from the indemnifying party, on a monthly basis, all of its attorneys’ reasonable fees and other costs and expenses of litigation of any nature whatsoever incurred in the defense of such claim.  Notwithstanding the assumption of the defense of any claim by an indemnifying party pursuant to this paragraph, the indemnified party shall have the right to approve the terms of any settlement of a claim (which approval shall not be unreasonably withheld).

(b)           The indemnifying party and the indemnified party shall cooperate in furnishing evidence and testimony and in any other manner which the other may reasonably request, and shall in all other respects have an obligation of good faith dealing, one to the other, so as not to unrea­sonably expose the other to an undue risk of loss.  The indemnified party shall be entitled to reimbursement for out-of-pocket expenses reasonably incurred by it in connec­tion with such cooperation.  Except for fees and expenses for which indemnification is provided pursuant to Section 6.3, as the case may be, and as provided in the preceding sentence, each party shall bear its own fees and expenses incurred pursuant to this paragraph (b).

 

  

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ARTICLE 7

MISCELLANEOUS

7.1           Expenses.  Except as otherwise specifically provided for herein, whether or not the transactions contemplated hereby are consummated, each of the Parties hereto shall bear the cost of all fees and expenses relating to or arising from its compliance with the various provisions of this Agreement and such Party’s covenants to be performed hereunder, and except as otherwise specifically provided for herein, each of the Parties hereto agrees to pay all of its own expenses (including, without limitation, attorneys and accountants’ fees and printing expenses) incurred in connection with this Agreement, the transactions contemplated hereby, the negotiations leading to the same, and the preparations made for carrying the same into effect, and all such fees and expenses of the Parties hereto shall be paid prior to Closing.

7.2           Notices.  Any notice, request, instruction, or other document required by the terms of this Agreement, or deemed by any of the Parties hereto to be desirable, to be given to any other Party hereto shall be in writing and shall be delivered by facsimile or overnight courier to the following addresses:

To HLBC:

James F. Groelinger

Chief Executive Officer

Heartland Bridge Capital, Inc.

1 International Boulevard, Suite 400

Mahwah, NJ  07495

E-mail: jgroelinger@hbcapital.com

Fax:  (518) 252-3917

with a copy to:

The Lebrecht Group, APLC

9900 Research Drive

Irvine, CA  92618

Facsimile No.: (949) 635-1244

Attn:  Craig V. Butler, Esq.

E-mail:  cbutler@thelebrechtgroup.com

 

  

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To Digisort LLC:

Harry P. Pond

610 S 11th St

Richmond, TX 77469

E-mail: rockhpond@gmail.com

The persons and addresses set forth above may be changed from time to time by a notice sent as aforesaid.  Notice shall be conclusively deemed given at the time of delivery if made during normal business hours, otherwise notice shall be deemed given on the next business day.

7.3           Entire Agreement.  This Agreement, together with the schedules and exhibits hereto, sets forth the entire agreement and understanding of the Parties hereto with respect to the transactions contemplated hereby, and supersedes all prior agreements, arrangements and understandings related to the subject matter hereof.  No understanding, promise, inducement, statement of intention, representation, warranty, covenant, or condition, written or oral, express or implied, whether by statute or otherwise, has been made by any Party hereto which is not embodied in this Agreement or exhibits hereto or the written statements, certificates, or other documents delivered pursuant hereto or in connection with the transactions contemplated hereby, and no Party hereto shall be bound by or liable for any alleged understanding, promise, inducement, statement, representation, warranty, covenant, or condition not so set forth.

7.4           Survival of Representations.  All statements of fact (including financial statements) contained in the schedules, the exhibits, the certificates, or any other instrument delivered by or on behalf of the Parties hereto, or in connection with the transactions contemplated hereby, shall be deemed representations and warranties by the respective Party hereunder.  All representations, warranties, agreements, and covenants hereunder shall survive the Closing and remain effective regardless of any investigation or audit at any time made by or on behalf of the Parties or of any information a Party may have in respect thereto.  Consummation of the transactions contemplated hereby shall not be deemed or construed to be a waiver of any right or remedy possessed by any Party hereto, notwithstanding that such Party knew or should have known at the time of Closing that such right or remedy existed.

7.5           Incorporated by Reference.  All documents (including, without limitation, all financial statements) delivered as part hereof or incident hereto are incorporated as a part of this Agreement by reference.

7.6           Remedies Cumulative.  No remedy herein conferred upon any Party is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise.

 

  

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7.7           Execution of Additional Documents.  Each Party hereto shall make, execute, acknowledge, and deliver such other instruments and documents, and take all such other actions as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby.

7.8           Finders and Related Fees.  Each of the Parties hereto is responsible for, and shall indemnify the other against, any claim by any third party to a fee, commission, bonus, or other remuneration arising by reason of any services alleged to have been rendered to or at the instance of said Party to this Agreement with respect to this Agreement or to any of the transactions contemplated hereby.

7.9           Governing Law.  This Agreement has been negotiated and executed in the State of Texas and shall be construed and enforced in accordance with the laws of such state.

7.10           Forum.  Each of the Parties hereto agrees that any action or suit which may be brought by any Party hereto against any other Party hereto in connection with this Agreement or the transactions contemplated hereby may be brought only in a federal or state court in Fort Bend County, Texas.

7.11           Attorneys Fees.  Except as otherwise provided herein, if a dispute should arise between the Parties including, but not limited to, arbitration, the prevailing Party shall be reimbursed by the nonprevailing Party for all reasonable expenses incurred in resolving such dispute, including reasonable attorneys fees exclusive of such amount of attorneys fees as shall be a premium for result or for risk of loss under a contingency fee arrangement.

7.12           Binding Effect and Assignment.  This Agreement shall inure to the benefit of and be binding upon the Parties hereto and their respective heirs, executors, administrators, legal representatives, and assigns.

7.13           Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.

[remainder of page intentionally left blank; signature page to follow]

 

  

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first written hereinabove.

	
“HLBC”

	 	
“Digisort”

	  	 	  
	
Heartland Bridge Capital, Inc.,

	 	
Digisort LLC

	
a Delaware corporation

	 	
a Texas limited liability company

	  	 	  
	  	 	  
	
/s/          James F. Groelinger

	 	
/s/           Harry P. Pond 

	
By:         James F. Groelinger

	 	
By:          Harry P. Pond

	
Its:         Chief Executive Officer

	 	
Its:          President

 

  

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