IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
March 8, 2006
West Coast Stock Transfer, Inc.
Suite 000, 000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxx Xxxxxxxx
Canada V6C 1E1
RE: COMPLIANCE SYSTEMS CORPORATION
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase Agreement (the
"Securities Purchase Agreement") dated of even date herewith by and between
Compliance Systems Corporation, a Nevada corporation (formerly GSA Publishing,
Inc.) (the "Company"), and the Buyers set forth on Schedule I attached thereto
(collectively the "Buyers") and those certain Pledge and Escrow Agreements
(collectively, the "Pledge Agreements") between each of (i) the Company, (ii)
Xxxx Xxxxxxxxx, and (iii) Xxxxx Xxxxxxxxxx, and the Buyers and Xxxxx Xxxxxxxx,
as escrow agent (the "Escrow Agent"). Pursuant to the Securities Purchase
Agreement, the Company shall sell to the Buyers, an the Buyers shall purchase
from the Company, convertible debentures (collectively, the "Debentures") in the
aggregate principal amount of One Million Dollars ($1,000,000), plus accrued
interest, which are convertible into shares of the Company's common stock, par
value $0.001 per share (the "Common Stock"), at the Buyers discretion. These
instructions relate to the following stock or proposed stock issuances or
transfers:
1. The Company has agreed to issue to the Buyers shares of the
Company's Common Stock upon conversion of the Debentures
("Conversion Shares") plus the shares of Common Stock to be issued
to the Buyers upon conversion of accrued interest and liquidated
damages into Common Stock (the "Interest Shares")
2. The Company, Xxxx Xxxxxxxxx and Xxxxx Xxxxxxxxxx have prepared, or
will promptly prepare a stock certificate representing shares (the
"Escrowed Shares") of the Common Stock that have been or are being
delivered to the Escrow Agent pursuant to the Pledge Agreements.
This letter shall serve as our irrevocable authorization and direction to West
Coast Stock Transfer, Inc. (the "Transfer Agent") to do the following:
1. Conversion Shares.
a. Instructions Applicable to Transfer Agent. With respect to the
Conversion Shares and the Interest Shares, the Transfer Agent
shall issue the Conversion Shares and the Interest Shares to
the Buyers from time to time upon delivery to the Transfer
Agent of a properly completed and duly executed Conversion
Notice (the "Conversion Notice"), in the form attached hereto
as Exhibit I, delivered on behalf of the Company to the
Transfer Agent by the Escrow Agent. Upon receipt of a
Conversion Notice, the Transfer Agent shall within three (3)
Trading Days thereafter (i) issue and surrender to a common
carrier for overnight delivery to the address as specified in
the Conversion Notice, a certificate, registered in the name
of the Buyers or their designees, for the number of shares of
Common Stock to which the Buyers shall be entitled as set
forth in the Conversion Notice or (ii) provided Transfer Agent
are participating in The Depository Trust Company ("DTC") Fast
Automated Securities Transfer Program, upon the request of the
Buyers, credit such aggregate number of shares of Common Stock
to which the Buyers shall be entitled to the Buyers' or their
designees' balance account with DTC through its Deposit
Withdrawal At Custodian ("DWAC") system provided the Buyers
causes its bank or broker to initiate the DWAC transaction.
For purposes hereof "Trading Day" shall mean any day on which
the Nasdaq Market is open for customary trading.
b. The Company hereby confirms to the Transfer Agent and the
Buyers that certificates representing the Conversion Shares
shall not bear any legend restricting transfer and should not
be subject to any stop-transfer restrictions and shall
otherwise be freely transferable on the books and records of
the Company; provided that counsel to the Company delivers (i)
the Notice of Effectiveness set forth in Exhibit II attached
hereto and (ii) an opinion of counsel in the form set forth in
Exhibit III attached hereto, and that if the Conversion Shares
and the Interest Shares are not registered for sale under the
Securities Act of 1933, as amended, then the certificates for
the Conversion Shares and Interest Shares shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO
THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT."
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c. In the event that counsel to the Company fails or refuses to
render an opinion as required to issue the Conversion Shares
in accordance with the preceding paragraph (either with or
without restrictive legends, as applicable), then the Company
irrevocably and expressly authorizes counsel to the Buyers to
render such opinion. The Transfer Agent shall accept and be
entitled to rely on such opinion for the purposes of issuing
the Conversion Shares.
d. Instructions Applicable to Escrow Agent. Upon the Escrow
Agent's receipt of a properly completed conversion notice
substantially in the form attached as an exhibit to the
Debentures, the Escrow Agent shall, within one (1) Trading Day
thereafter, send to the Transfer Agent a Conversion Notice in
the form attached hereto as Exhibit I, which shall constitute
an irrevocable instruction to the Transfer Agent to process
such Conversion Notice in accordance with the terms of these
instructions.
2. Escrowed Shares.
a. With respect to the Escrowed Shares, upon an event of default
as set forth in the Pledge Agreements, the Escrow Agent shall
send written notice to the Transfer Agent ("Escrow Notice") to
transfer such number of Escrow Shares as set forth in the
Escrow Notice to the Buyers. Upon receipt of an Escrow Notice,
the Transfer Agent shall promptly transfer such number of
Escrow Shares to the Buyers as shall be set forth in the
Escrow Notice delivered to the Transfer Agent by the Escrow
Agent. Further, the Transfer Agent shall promptly transfer
such shares from the Buyers to any subsequent transferee
promptly upon receipt of written notice from the Buyers or
their counsel. If the Escrow Shares are not registered for
sale under the Securities Act of 1933, as amended, then the
certificates for the Escrow Shares shall bear the legend set
forth in Section 1b.
b. In the event that counsel to the Company fails or refuses to
render an opinion as may be required by the Transfer Agent to
affect a transfer of the Escrow Shares (either with or without
restrictive legends, as applicable), then the Company
irrevocably and expressly authorizes counsel to the Buyers to
render such opinion. The Transfer Agent shall accept and be
entitles to rely on such opinion for the purpose of
transferring the Escrow Shares.
3. All Shares.
a. The Transfer Agent shall reserve for issuance to the Buyers
the Conversion Shares and the Escrowed Shares. All such shares
shall remain in reserve with the Transfer Agent until the
Buyers provides the Transfer Agent instructions that the
shares or any part of them shall be taken out of reserve and
shall no longer be subject to the terms of these instructions.
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b. The Transfer Agent shall rely exclusively on the Conversion
Notice or the Escrow Notice and shall have no liability for
relying on such instructions. Any Conversion Notice or Escrow
Notice delivered hereunder shall constitute an irrevocable
instruction to the Transfer Agent to process such notice or
notices in accordance with the terms thereof. Such notice or
notices may be transmitted to the Transfer Agent by facsimile
or any commercially reasonable method.
c. The Company hereby confirms to the Transfer Agent and the
Buyers that no instructions other than as contemplated herein
will be given to Transfer Agent by the Company with respect to
the matters referenced herein. The Company hereby authorizes
the Transfer Agent, and the Transfer Agent shall be obligated,
to disregard any contrary instructions received by or on
behalf of the Company.
Certain Notice Regarding the Escrow Agent. The Company and the Transfer
Agent hereby acknowledge that the Escrow Agent is general counsel to the Buyers,
a partner of the general partner of the Buyers and counsel to the Buyers in
connection with the transactions contemplated and referred herein. The Company
and the Transfer Agent agree that in the event of any dispute arising in
connection with this Agreement or otherwise in connection with any transaction
or agreement contemplated and referred herein, the Escrow Agent shall be
permitted to continue to represent the Buyers and neither the Company nor the
Transfer Agent will seek to disqualify such counsel.
The Company hereby agrees that it shall not replace the Transfer Agent as
the Company's transfer agent without the prior written consent of the Buyers.
Any attempt by Transfer Agent to resign as the Company's transfer agent
hereunder shall not be effective until such time as the Company provides to the
Transfer Agent written notice that a suitable replacement has agreed to serve as
transfer agent and to be bound by the terms and conditions of these Irrevocable
Transfer Agent Instructions.
The Company herby confirms and the Transfer Agent acknowledges that while
any portion of the Debenture remains unpaid and unconverted the Company and the
Transfer Agent shall not, without the prior consent of the Buyers, (i) issue any
Common Stock or Preferred Stock without consideration or for a consideration per
share less than the closing bid price determined immediately prior to its
issuance, (ii) issue any Preferred Stock, warrant, option, right, contract,
call, or other security or instrument granting the holder thereof the right to
acquire Common Stock without consideration or for a consideration per share less
than the closing bid price of the Common Stock determined immediately prior to
its issuance, (iii) issue any S-8 shares of the Company's Common Stock.
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The Company and the Transfer Agent hereby acknowledge and confirm that
complying with the terms of this Agreement does not and shall not prohibit the
Transfer Agent from satisfying any and all fiduciary responsibilities and duties
it may owe to the Company.
The Company and the Transfer Agent acknowledge that the Buyers is relying
on the representations and covenants made by the Company and the Transfer Agent
hereunder and are a material inducement to the Buyers purchasing convertible
debentures under the Securities Purchase Agreement. The Company and the Transfer
Agent further acknowledge that without such representations and covenants of the
Company and the Transfer Agent made hereunder, the Buyers would not purchase the
Debentures.
Each party hereto specifically acknowledges and agrees that in the event
of a breach or threatened breach by a party hereto of any provision hereof, the
Buyers will be irreparably damaged and that damages at law would be an
inadequate remedy if these Irrevocable Transfer Agent Instructions were not
specifically enforced. Therefore, in the event of a breach or threatened breach
by a party hereto, including, without limitation, the attempted termination of
the agency relationship created by this instrument, the Buyers shall be
entitled, in addition to all other rights or remedies, to an injunction
restraining such breach, without being required to show any actual damage or to
post any bond or other security, and/or to a decree for specific performance of
the provisions of these Irrevocable Transfer Agent Instructions.
[SIGNATURE PAGE FOLLOWS: REMAINDER OF PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties have caused this letter agreement
regarding Irrevocable Transfer Agent Instructions to be duly executed and
delivered as of the date first written above.
COMPANY:
COMPLIANCE SYSTEMS CORPORATION
By:
-----------------------------------
Name: Xxxx Xxxxxxxxx
Title: Chairman
--------------------------------------
Xxxxx Xxxxxxxx, Esq.
ACKNOWLEDGED, AGREED TO AND ACCEPTED:
WEST COAST STOCK TRANSFER, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
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SCHEDULE I-1
SCHEDULE I
SCHEDULE OF BUYERS
Address/Facsimile
Name Signature Number of Buyers
---- --------- -----------------
Xxxxxxxxxx Equity By: Yorkville Advisors, LLC 000 Xxxxxx Xxxxxx - Xxxxx 0000
Partners, Ltd. Its: General Partner Jersey City, NJ 07303
Facsimile: (000) 000-0000
By: ---------------------
Name: Xxxx Xxxxxx
Its: Portfolio Manager
SCHEDULE I-I
EXHIBIT I
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
FORM OF CONVERSION NOTICE
Reference is made to the Securities Purchase Agreement (the "Securities
Purchase Agreement") between Compliance Systems Corporation, (the "Company"),
and the Buyers set forth on Schedule I attached thereto dated March 8, 2006. In
accordance with and pursuant to the Securities Purchase Agreement, the
undersigned hereby elects to convert convertible debentures into shares of
common stock, par value $0.001 per share (the "Common Stock"), of the Company
for the amount indicated below as of the date specified below.
Conversion Date: _______________________________
Amount to be converted: $______________________________
Conversion Price: $______________________________
Shares of Common Stock Issuable: _______________________________
Amount of Debenture unconverted: $______________________________
Amount of Interest Converted: $______________________________
Conversion Price of Interest: $______________________________
Shares of Common Stock Issuable: _______________________________
Amount of Liquidated Damages: $______________________________
Conversion Price of Liquidated Damages: $______________________________
Shares of Common Stock Issuable:
Total Number of shares of Common Stock to be issued:
EXHIBIT I-1
Please issue the shares of Common Stock in the following name and to the
following address:
Issue to: _______________________________
Authorized Signature: _______________________________
Name: _______________________________
Title: _______________________________
Phone #: _______________________________
Broker DTC Participant Code: _______________________________
Account Number*: _______________________________
* Note that receiving broker must initiate transaction on DWAC System.
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EXHIBIT II
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
_________, 2006
________________
________________
________________
Attention: _______________________________
RE: COMPLIANCE SYSTEMS CORPORATION
Ladies and Gentlemen:
We are counsel to Compliance Systems Corporation, (the "Company"), and
have represented the Company in connection with that certain Securities Purchase
Agreement, dated as of March 8, 2006 (the "Securities Purchase Agreement"),
entered into by and among the Company and the Buyers set forth on Schedule I
attached thereto (collectively the "Buyers") pursuant to which the Company has
agreed to sell to the Buyers up to One Million Dollars ($1,000,000) of secured
convertible debentures, which shall be convertible into shares (the "Conversion
Shares") of the Company's common stock, par value $0.001 per share (the "Common
Stock"), in accordance with the terms of the Securities Purchase Agreement.
Pursuant to the Securities Purchase Agreement, the Company also has entered into
a Registration Rights Agreement, dated as of March 8, 2006, with the Buyers (the
"Investor Registration Rights Agreement") pursuant to which the Company agreed,
among other things, to register the Conversion Shares under the Securities Act
of 1933, as amended (the "1933 Act"). In connection with the Company's
obligations under the Securities Purchase Agreement and the Registration Rights
Agreement, on _______, 2006, the Company filed a Registration Statement (File
No. ___-_________) (the "Registration Statement") with the Securities and
Exchange Commission (the "SEC") relating to the sale of the Conversion Shares.
In connection with the foregoing, we advise the Transfer Agent that a
member of the SEC's staff has advised us by telephone that the SEC has entered
an order declaring the Registration Statement effective under the 1933 Act at
____ P.M. on __________, 2006 and we have no knowledge, after telephonic inquiry
of a member of the SEC's staff, that any stop order suspending its effectiveness
has been issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC and the Conversion Shares are available for sale under
the 1933 Act pursuant to the Registration Statement.
EXHIBIT II-1
The Buyers has confirmed it shall comply with all securities laws and
regulations applicable to it including applicable prospectus delivery
requirements upon sale of the Conversion Shares.
Very truly yours,
By:_______________________________
EXHIBIT II-2
EXHIBIT III
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
FORM OF OPINION
________________ 2006
VIA FACSIMILE AND REGULAR MAIL
________________
________________
________________
Attention: _______________
RE: COMPLIANCE SYSTEMS CORPORATION
Ladies and Gentlemen:
We have acted as special counsel to Compliance Systems Corporation (the
"Company"), in connection with the registration of ___________shares (the
"Shares") of its common stock with the Securities and Exchange Commission (the
"SEC"). We have not acted as your counsel. This opinion is given at the request
and with the consent of the Company.
In rendering this opinion we have relied on the accuracy of the Company's
Registration Statement on Form SB-2, as amended (the "Registration Statement"),
filed by the Company with the SEC on _________ ___, 2006. The Company filed the
Registration Statement on behalf of certain selling stockholders (the "Selling
Stockholders"). This opinion relates solely to the Selling Shareholders listed
on Exhibit "A" hereto and number of Shares set forth opposite such Selling
Stockholders' names. The SEC declared the Registration Statement effective on
__________ ___, 2006.
We understand that the Selling Stockholders acquired the Shares in a
private offering exempt from registration under the Securities Act of 1933, as
amended. Information regarding the Shares to be sold by the Selling Shareholders
is contained under the heading "Selling Stockholders" in the Registration
Statement, which information is incorporated herein by reference. This opinion
does not relate to the issuance of the Shares to the Selling Stockholders. The
opinions set forth herein relate solely to the sale or transfer by the Selling
Stockholders pursuant to the Registration Statement under the Federal laws of
the United States of America. We do not express any opinion concerning any law
of any state or other jurisdiction.
EXHIBIT III-1
In rendering this opinion we have relied upon the accuracy of the
foregoing statements.
Based on the foregoing, it is our opinion that the Shares have been
registered with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, and that ________ may remove the restrictive legends
contained on the Shares. This opinion relates solely to the number of Shares set
forth opposite the Selling Stockholders listed on Exhibit "A" hereto.
This opinion is furnished to Transfer Agent specifically in connection
with the issuance of the Shares, and solely for your information and benefit.
This letter may not be relied upon by Transfer Agent in any other connection,
and it may not be relied upon by any other person or entity for any purpose
without our prior written consent. This opinion may not be assigned, quoted or
used without our prior written consent. The opinions set forth herein are
rendered as of the date hereof and we will not supplement this opinion with
respect to changes in the law or factual matters subsequent to the date hereof.
Very truly yours,
EXHIBIT III-2
EXHIBIT A
(LIST OF SELLING STOCKHOLDERS)
Name: No. of Shares:
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EXHIBIT A-1
