CSGI SETTLEMENT TERM SHEET
This Term Sheet is entered into by and between ConSyGen, Inc. ("CSGI") on
behalf of itself and its officers, directors, employees, attorneys and agents,
and Sovereign Partners Limited Partnership ("Sovereign"), Dominion Capital Fund
Limited ("Dominion"), Canadian Advantage Limited Partnership ("Canadian
Advantage"; collectively with Sovereign and Dominion, the "Debenture Holders"),
Xxxxxxx X. Xxxxx, Xxxxxxx Xxxxxxxxx & Co. and Xxxx Xxxxxxxxx (collectively the
"Debenture Parties") on behalf of themselves and their officers, directors,
employees, attorneys, heirs, executors and agents, in consideration for the
mutual promises and covenants contained herein, to avoid further risks and
uncertainty of litigation, and for other good and sufficient consideration, the
adequacy of which is hereby acknowledged. This Term Sheet is intended to provide
a framework for a complete and binding settlement of certain disputes and
litigation among the parties and is meant to be legally enforceable according to
its terms.
CSGI'S DUE DILIGENCE
1. Based upon CSGI's due diligence and the discovery that has been conducted,
CSGI has now determined that there was, and is, no basis in fact for the
statements made by CSGI, through its former management and other
representatives, alleging wrongdoing by the Debenture Parties. Therefore,
CSGI has concluded that there was no actionable conduct by any of the
Debenture Parties with respect to CSGI or its shareholders.
TERMS
THE DEBENTURE LITIGATION [No. 98 Civ. 8457 (RLC) (S.D.N.Y.)]
2. Subject to the consent of the Court, which all parties to this Term Sheet
will cooperate to obtain, the Debenture Litigation shall be stayed pending
CSGI's compliance with its obligations under this Term Sheet, at which
point the Debenture Litigation shall be dismissed, with prejudice, and the
parties to this Term Sheet shall exchange releases with respect to all
claims that were or could have been asserted in the Debenture Litigation.
Upon the execution of a final, detailed Settlement Agreement as provided in
paragraph 12 below, CSGI shall deliver to the Debenture Parties a
stipulated judgment, in favor of the Debenture Parties, in the amount of
$2,700,000, plus interest and penalties as set forth in paragraph 3 below,
plus $200,000 towards the Debenture Parties' attorneys' fees and costs,
which judgment shall be filed with the court upon a breach by CSGI of the
Settlement Agreement. As CSGI honors future conversion notices by the
Debenture Holders, the amount of the stipulated judgment shall be reduced
by the principal amount converted, together with the interest and penalties
applicable to that principal amount.
CSGI Will Honor The Debentures
3. CSGI acknowledges its obligations to honor the Debentures and the Debenture
Documents in the amount of $250,000 for Canadian Advantage, $1,450,000 for
Dominion Capital and $1,000,000 for Sovereign, plus accrued interest as per
the Debenture Documents and an additional 10% of the original principal
amount of $3,500,000, payable in CSGI stock, to cover a portion of the
liquidated damages relating to the lapse of the registration statement and
non-delivery of shares. CSGI also acknowledges its obligations, as stated
in the Debenture Documents, with respect to the Warrants associated with
the Debentures.
4. CSGI shall cooperate with the Debenture Holders so that they can sell the
maximum shares of CSGI stock allowed under this Term Sheet and Rule 144.
LIMITATIONS ON DEBENTURE HOLDERS
5. On the condition that CSGI is not in default of the Term Sheet or the final
Settlement Agreement, the Debenture Holders will limit their aggregate
daily sales of CSGI shares to the greater of (i) 25% of the higher of the
previous days trading volume or the current days trading volume, (ii) an
amount worth $20,000, or (iii) 20,000 shares.
6. The Debenture Holders agree not to engage in short sales of CSGI's stock,
as that term is defined in the Federal securities laws and SEC regulations.
7. [INTENTIONALLY LEFT BLANK].
THE DEFAMATION LITIGATION [No. 99 Civ. 0564 (RJW) (S.D.N.Y.) and No.
99-CV-162139 (Ontario Court General Division)]
8. Subject to the consent of the Court, which all parties to this Term Sheet
will endeavor to obtain, the Defamation Litigation also shall be stayed
pending CSGI's compliance with its obligations under this Term Sheet, at
which point the Defamation Litigation will be dismissed, with prejudice,
and the parties to this Term Sheet will exchange releases with respect to
all claims that were or could have been asserted in the Defamation
Litigation.
9. The Defamation Litigation shall only be stayed and dismissed as against
CSGI, its officers, directors (including Xxxxxxx Xxxxx but only to the
extent claims against him arise out of his conduct during his tenure, in
his capacity, and within the scope of his duties as a CSGI director),
employees and agents. Neither the Defamation Litigation nor any other
litigation shall be stayed or dismissed as against any member of the Xxxxx
family (except Xxxxxxx Xxxxx to the extent described above), Xxxxx X. Xxxxx
& Associates. P.C., any person acting in concert with the Xxxxx family who
was not an officer or director of CSGI, any Internet posters (unless
specifically identified by CSGI in Exhibit A hereto), or any other person.
The Debenture Parties shall remain free to pursue all available legal
remedies, in any available forum, against any member of the Xxxxx family
(except Xxxxxxx Xxxxx to the extent described above), Xxxxx X. Xxxxx &
Associates. P.C., any person acting in concert with the Xxxxx family who
was not an officer or director of CSGI, any Internet posters (unless
specifically identified by CSGI in Exhibit A hereto), or any other person
not the beneficiary of the stay and release contemplated by this paragraph.
CSGI and its officers, directors, employees and agents agree to provide the
Debenture Parties with all information they have received from the Xxxxx
family and/or other third parties regarding the allegations made by CSGI or
others against the Debenture Parties. For example, CSGI will provide the
Debenture Parties with all documents and information CSGI or its attorneys
received from Xxxx Xxxx and other attorneys (except for X. Xxxxxx Xxxxx,
Xxxxxx X. Xxx, Xxxxxxxx, XxXxxxxx, Xxxxx, Xxxx & Xxx and Xxxxx, Xxxxxxxxx &
Xxxxx) and all information it has regarding the identity of "Tech." In
addition, CSGI will:
(a) Direct the law firm of Xxxx, Xxxxx & Bell ("RDB") to comply with the
subpoena served upon it in the Debenture Litigation and to withdraw
its claims of attorney-client privilege and work product immunity
asserted in response to the subpoena;
(b) Direct the firms of RDB and Xxxxx & Xxxxx, and any other lawyers or
firms it may have retained in connection with the litigations (except
for X. Xxxxxx Xxxxx, Xxxxxx X. Xxx, Xxxxxxxx, XxXxxxxx, Xxxxx, Xxxx &
Xxx and Xxxxx, Xxxxxxxxx & Xxxxx) to turn over to CSGI all information
and documents contained in their respective files concerning the
allegations made against the Debenture Parties;
(c) Upon the execution of the final, detailed Settlement Agreement, make
all such information and documents available to the Debenture Parties,
except to the extent that such materials are (i) privileged and (ii)
likely to prejudice the interests of CSGI and/or the Debenture
Parties, in which case CSGI and the Debenture Parties will consult in
good faith and make a joint determination as to whether such materials
should be turned over to the Debenture Parties.
The stay of the Defamation Litigation against Xxxxxx X. Xxxxxxx and other
former officers of CSGI shall only remain in effect to the extent that they
similarly cooperate with the Debenture Parties.
RETRACTION
10. CSGI shall immediately issue a retraction of its public accusations of
wrongdoing against the Debenture Parties. Such retraction shall be issued
as a press release by CSGI (on the news wires of Reuters, Bloomberg and the
Dow Xxxxx News Service and on Internet business wires of Yahoo and Silicon
Investors) and shall provide as follows:
"Based upon CSGI's due diligence and the discovery that has been conducted,
CSGI has now determined that there was, and is, no basis in fact for the
statements made by CSGI, through its former management and other
representatives, alleging wrongdoing by Xxxxxxx Xxxxxxxxx & Co. Ltd.,
Canadian Advantage Limited Partnership, Sovereign Partners Limited
Partnership, Dominion Capital Fund Limited, Xxxxxxx Xxxxx and Xxxx
Xxxxxxxxx (the "Debenture Parties"). Therefore, CSGI has concluded that
there was no actionable conduct by the Debenture Parties with respect to
CSGI or its shareholders. In recognition and acknowledgement of this fact
and CSGI's undisputed financial obligations to Sovereign Partners, Dominion
Capital and Canadian Advantage (the holders of CSGI debentures), CSGI has
reached a settlement in principle with the Debenture Parties. If CSGI
honors its obligations under the settlement and the debentures, the
settlement will fully and finally resolve the debenture holders' claims
asserting that CSGI defaulted on its obligations arising from CSGI
debentures held by them, and CSGI's claims of wrongdoing against the
Debenture Parties. The settlement also stays other litigation filed against
CSGI, including defamation actions, pending the repayment of all principal
and interest due under the debentures and other sums due under the terms of
the debentures. CSGI's board of directors has determined that the
settlement is beneficial to CSGI and its shareholders. Xxxxx Xxxxxxxx,
ConSyGen's current Chief Executive Officer, commented that `ConSyGen
regrets any harm caused to the Debenture Parties as a result of our
allegations of wrongdoing.' Xx. Xxxxxxxx added that `we are all relieved to
put this matter behind us so that we can move forward and implement our
business plan.'"
CSGI acknowledges that the intention of the retraction is to undo whatever
negative appearance, impression or harm that has been caused to the
Debenture Parties by the allegations made as to them by CSGI. Such
retraction/statement shall also be made in a CSGI 8K report to be filed
with Securities and Exchange Commission no later than one week after the
execution of this Term Sheet, and in a sworn statement to be signed, under
penalty of perjury, upon information and belief, by Xxxxx Xxxxxxxx. The
Debenture Parties agree that CSGI may, at its option, include the following
statement in the press release: "A spokesman for the Debenture Parties
stated, `we are pleased to put this matter behind us and look forward to
working with CSGI in the future so that they can effectively move forward
with their business plans.'"
TERMINATION AND FINALIZATION OF SETTLEMENT
11. This Term Sheet shall be terminated, and the Debenture Holders may proceed
with the Debenture Litigation, the Defamation Litigation, and any other
claims they may have against CSGI, its officers, directors, employees,
attorneys and agents, upon the occurrence of any of the following events of
default by CSGI:
(a) Failure to comply with the obligations set forth in this Term Sheet;
(b) Delisting of CSGI's stock by the OTC Bulletin Board;
(c) Failure by CSGI to comply with its reporting requirements under the
Federal securities laws and SEC regulations;
(d) Any statement by or on behalf of CSGI, its directors, officers,
employees, attorneys or agents that contradicts the text of the
retraction and press release set forth in paragraph 10, that
repudiates this Term Sheet, or that accuses the Debenture Parties of
wrongdoing in connection with the Debentures and/or CSGI.
12. Assuming no event of default, the parties will work in good faith towards
preparing and executing a final, detailed Settlement Agreement to embody
the terms of this Term Sheet and any other usual, customary or desirable
provisions not inconsistent with this Term Sheet.
MISCELLANEOUS
13. If this Term Sheet is terminated prior to the execution of the final,
detailed Settlement Agreement, its terms shall not be admissible for any
purpose whatsoever in any litigation now pending or brought by the
Debenture Holders, CSGI or any affiliates of CSGI, except a proceeding for
the enforcement, interpretation or breach of the Term Sheet.
14. The parties have entered into this Term Sheet of their own free will, after
due consideration and an opportunity to consult with their respective legal
counsel, based solely upon the promises and representations made herein and
not upon any promises or representations not made herein.
CONSYGEN, INC.
By: /s/ X. Xxxxx Xxxxxxxx Dated: 8 March, 2000
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Its President - CEO
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SOVEREIGN PARTNERS LIMITED PARTNERSHIP
By: /s/ Xxxxxxx X. Xxxxx Dated: 8 March 2000
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Its
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DOMINION CAPITAL FUND LIMITED
By: /s/ Xxxxx X. Xxxx Dated: March 8, 2000
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Its Director
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CANADIAN ADVANTAGE LIMITED PARTNERSHIP
By: /s/ Xxxx Xxxxxxxxx Dated: 8 March 2000
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Its General Partner
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XXXXXXX X. XXXXX
/s/ Xxxxxxx X. Xxxxx Dated: 8 March 2000
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THOMSON KERNAGHAN & CO.
By: /s/ Xxxx Xxxxxxxxx Dated: 8 March 2000
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Its Chairman
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XXXX XXXXXXXXX
/s/ Xxxx Xxxxxxxxx Dated: 8 March 2000
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