AGREEMENT OF SETTLEMENT
This Agreement of Settlement (the "Agreement") is entered into this
14th day of August 2006 (the "Closing Date"), by and between Stronghold
Technologies, Inc. (the "Company") and Xxxxxxxxxxx Xxxxx ("Xxxxx").
WITNESSETH:
WHEREAS, as of the date hereof, the Company is in debt to Xxxxx
relating to accrued salary in the amount of $781,369 (the "Debt");
WHEREAS, as of the date hereof, the Company is in debt to Xxxxx
relating to a bridge loan in the amount $262,000, a bridge loan in the amount of
$360,000, auto allowance due in the amount of $25,600 and related accrued
interest in the amount of $370,299 (collectively, these debts in the aggregate
amount of $1,017,899 are hereinafter referred to as the "Additional Debt");
NOW, THEREFORE, in consideration of the mutual covenants, payments,
and agreements set forth in this Agreement, the Company and Xxxxx intending to
be legally bound hereby and thereby, and each warranting to the other that each
has the capacity and, in the case of the Company, the authority to execute this
Agreement, it is agreed between the undersigned parties, that all of the claims
asserted (or which could have been asserted) by Xxxxx or the Company against
Xxxxx are hereby settled and compromised on the following terms and conditions,
to wit:
(1) SETTLEMENT.
(a) Xxxxx hereby:
(i) waives all rights and claims relating to the Debt and the
Additional Debt;
(ii) releases the Company pursuant to the terms of the
"release" set forth in Section 2 below; and
(iii) resign as an executive officer and director of the
Company
(b) The Company shall:
(i) pay to Xxxxx or his order $120,000 as follows: $8,000 per
month on the fifteenth day of each month (commencing on August 15,
2006) until such time as $120,000 has been paid in full (15 months);
and
(ii) The Company shall issue to Xxxxx a Convertible Note in
the form of Exhibit A in the initial face amount of $661,369;
(iii) The Company shall issue to Xxxxx 5,117 Series D
Preferred Shares that shall have the rights, designations and
preferences as set forth in the Certificate of Designation attached
hereto as Exhibit B in the initial face amount of $1,017,899; and
(iv) grant to Xxxxx the release contained in Section 2 below.
1
(c) Each party shall bear its own costs and attorneys' fees incurred
in connection with the preparation of this Agreement. No actions taken to
consummate this Agreement shall be deemed to have occurred until all have
occurred, and when all have occurred they shall be deemed to have occurred
simultaneously.
(2) RELEASE.
(a) Xxxxx for himself and on behalf of his or his agents,
affiliates, administrators, successors, insurers, or assigns
(collectively, the "Xxxxx Parties"), hereby release the Company and its
directors, officers, partners, past and present employees, agents,
administrators, holding company, parent company, subsidiaries, successors,
insurers, assigns, principals and past and present control persons
(collectively, the "Company Parties"), from all actions, cause of action,
suits, debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions, claims,
and demands whatsoever, in law, admiralty or equity (collectively,
"Claims"), which against the Company or the Company Parties, Xxxxx or the
Xxxxx Parties ever had, now have or hereafter can, shall or may, have for,
upon, or by reason of any matter, cause or thing that has or may have
arisen from the beginning of the world to the day of the date of this
Agreement that solely relate to the Debt and the Additional Debt.
(b) The Company for itself and on behalf of the Company Parties,
hereby release Xxxxx and the Xxxxx Parties from all Claims, which against
Xxxxx or the Xxxxx Parties, the Company or the Company Parties ever had,
now have or hereafter can, shall or may, have against, for, upon, or by
reason of any matter, cause or thing that has or may have arisen from the
beginning of the world to the day of the date of this Agreement that
solely relate to the Debt and the Additional Debt.
(3) BINDING AGREEMENT. The terms of this Agreement are binding upon and inure
to the benefit of each of the parties hereto, their respective successors,
assigns, dependents, and all other related persons, affiliates or
associates.
(4) HEADINGS. The captions of the paragraphs and sections of this Agreement
are provided solely for convenience, and are not intended to, and in fact,
shall not affect the substance or meaning of this Agreement.
2
(5) REPRESENTATION. Each of the parties hereto represents that each has read
and fully understands each of the provisions as contained herein, and has
been afforded the opportunity to review same with his attorney of choice;
and further that each of the parties hereto represents that each and every
one of the provisions contained in this Agreement is fair and not
unconscionable to either party.
(6) COUNTERPARTS/EXECUTION/FURTHER ACTION. This Agreement may be executed in
any number of counterparts and by the different signatories hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument. This Agreement may be executed by facsimile signature and
delivered by facsimile transmission. In order to carry out the terms and
conditions of this Agreement, including the Note, the parties agree to
execute promptly, upon reasonable request, any and all further documents
and instruments necessary to effectuate the terms of this Agreement and
the Note.
(7) ENTIRE AGREEMENT/WAIVER/ASSIGNMENT. This Agreement and other documents
delivered in connection herewith represent the entire agreement between
the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by all parties. No breach of any
provision hereof can be waived unless the waiver is set forth in writing.
Waiver of any one breach of any provision hereof shall not be deemed to be
a waiver of any other breach of the same or any other provision hereof.
Neither the Company nor Xxxxx have relied on any representations not
contained or referred to in this Agreement and the documents delivered
herewith. Except as expressly set forth herein, no right or obligation of
either party shall be assigned by that party without prior notice to and
the written consent of the other party, which will not be unreasonably
withheld.
(8) LAW GOVERNING THIS AGREEMENT. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. The parties and the
individuals executing this Agreement and other agreements referred to
herein or delivered in connection herewith on behalf of the Company agree
to submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of
this Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or
enforceability of any other provision of any agreement.
3
(9) CONFIDENTIALITY. The parties represent, warrant and agree that all matters
relating to this Agreement, are intended to be and shall be kept
confidential and shall not be disclosed to anyone by the parties or by any
of their respective agents or attorneys, unless such disclosure is plainly
required by law or is plainly compelled by legal process or court order.
However, prior to either party making such disclosure, the other party
shall be notified in order to have an opportunity to prevent the
disclosure. For avoidance of doubt, the parties may disclose (1) the terms
of the settlement to a court of competent jurisdiction if ordered to do so
or in an action to enforce the Agreement, (2) the terms and amount of the
settlement to tax authorities and to each party's respective tax advisors,
accountants and attorneys on an as-needed basis, so long as those
advisors, accountants and attorneys are advised as to the confidential
nature of this Agreement and agree to maintain confidentiality with
respect to its existence and content and (3) the terms of the settlement
on a Form 8-K Current Report to be filed with the Securities Exchange
Commission.
(10) INDEMNIFICATION. Each Party represents and warrants to the other that it
has not assigned all or any portion of any Claim pertaining to their
respective releases set forth in Section 2 hereto to any person or entity.
In the event any claims are made by any third persons or entities based
upon any purported assignment, then the party which has breached or
allegedly breached its representation or warranty contained in this
paragraph agrees to indemnify and hold harmless the other party from any
such claims being made.
(11) AUTHORITY. Each person signing this Agreement on behalf of a corporate or
other business entity represents and warrants that he or she is authorized
and empowered to do so and thereby binds his or her respective
corporation, partnership, or other business entity and further represents
and warrants that no further approval, whether by corporate board vote,
resolution or otherwise, is required to validate this Agreement or, if so
required, has been obtained.
(12) SURVIVAL. The representations, warranties and covenants contained in this
Agreement, including the Note, are deemed to, and shall, survive the
execution and delivery of this Agreement by the parties.
4
IN WITNESS WHEREOF, the parties have read and executed this
Agreement as of the date and year first above written.
STRONGHOLD TECHNOLOGIES, INC.
By:/s/ Xxxxxx Xxxxxxxxxx /s/ Xxxxxxxxxxx Xxxxx
--------------------- ---------------------
Name: Xxxxxx Xxxxxxxxxx Xxxxxxxxxxx Xxxxx
Title: President
5
EXHIBIT A
[FORM OF CONVERTIBLE NOTE]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES
MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF
COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN
COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT.
CONVERTIBLE NOTE
Addison, Texas $661,369
August 14, 2006
FOR VALUE RECEIVED, STRONGHOLD TECHNOLOGIES, INC., a Nevada
corporation (hereinafter called the "BORROWER"), hereby promises to pay to the
order of XXXXXXXXXXX X. XXXXX (the "HOLDER") the sum of Six Hundred Sixty One
Thousand Three Hundred Sixty Nine Dollars ($661,369), on August 13, 2016 (the
"MATURITY DATE"). No interest shall accrue on this Note paid or converted in
accordance with the terms set forth herein.
The following terms shall apply to this Note:
ARTICLE I
HOLDER'S CONVERSION RIGHT
SECTION 1.01 CONVERSION RIGHT. The Holder shall have the right from
time to time, and at any time on or prior to the Maturity Date to convert all or
any part of the outstanding and unpaid principal amount of this Note into fully
paid and non-assessable shares of Common Stock, as such Common Stock exists on
August 14, 2006 (the "Issue Date"), or any shares of capital stock or other
securities of the Borrower into which such Common Stock shall hereafter be
changed or reclassified ("SHARES") at the conversion price (the "CONVERSION
PRICE") determined as provided herein (a "CONVERSION"). The number of shares of
Common Stock to be issued upon each conversion of this Note shall be determined
by dividing the Conversion Amount (as defined below) by the applicable
Conversion Price then in effect on the date specified in the notice of
conversion (the "NOTICE OF CONVERSION"), delivered to the Borrower by the Holder
in accordance with Section 2.01 below; provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or reasonably expected
to result in, notice) to the Borrower before 6:00 p.m., New York, New York time
on such conversion date (the "CONVERSION DATE") or, if delivered after 6:00
p.m., the Conversion Date will automatically be the next Business Day. The term
"CONVERSION AMOUNT" means, with respect to any conversion of this Note, the
principal amount of this Note to be converted in such conversion. The term
"BUSINESS DAY" means any day other than a Saturday or Sunday on which banks are
open for business in the State of New York.
6
SECTION 1.02 CONVERSION PRICE. The Conversion Price shall be the
Market Price (as defined herein). "MARKET PRICE" means the Trading Prices (as
defined below) for the Common Stock during the five (5) Trading Day period
ending one Trading Day prior to the date the Conversion Notice is sent by the
Holder to the Borrower via facsimile (the "CONVERSION DATE"). "TRADING PRICE"
means, for any security as of any date, the intraday trading price on the
Over-the-Counter Bulletin Board (the "OTCBB") as reported by a reliable
reporting service mutually acceptable to and hereafter designated by the Holder
or, if the OTCBB is not the principal trading market for such security, the
intraday trading price of such security on the principal securities exchange or
trading market where such security is listed or traded or, if no intraday
trading price of such security is available in any of the foregoing manners, the
average of the intraday trading prices of any market makers for such security
that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If
the Trading Price cannot be calculated for such security on such date in the
manner provided above, the Trading Price shall be the fair market value as
mutually determined by the Borrower and the holders of a majority in interest of
the Notes being converted for which the calculation of the Trading Price is
required in order to determine the Conversion Price of such Notes. "TRADING DAY"
shall mean any day on which the OTCBB, or on the principal securities exchange
or other securities market on which the Common Stock is then being traded, is
open for trading.
SECTION 1.03 CONCERNING THE SHARES. The shares of Common Stock
issuable upon conversion of this Note may not be sold or transferred unless (i)
such shares are sold pursuant to an effective registration statement under the
Act or (ii) the Borrower or its transfer agent shall have been furnished with an
opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
the shares to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration or (iii) such shares are sold or transferred
pursuant to Rule 144 under the Act (or a successor rule) ("RULE 144"). The
shares of common stock issuable hereunder shall bear a legend substantially in
the following form, as appropriate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN
FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD
PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT."
7
SECTION 1.04 DELIVERY OF SHARES; SUBSTITUTE NOTE. As soon as
practicable after each Conversion of the Note, but no later than seven (7) days
from the date of such Conversion, the Borrower shall issue and deliver to the
Holder a certificate or certificates for the Shares issuable upon such
Conversion, registered in the name of the Holder or its designee. If this Note
is Converted in part only, the Borrower shall, upon surrender of this Note for
cancellation, execute and deliver to the Holder a new Note evidencing the
balance of principal amount and accrued interest, if any, then due. Upon receipt
by the Borrower of a Notice of Conversion, in proper form for Conversion, the
Holder shall automatically be deemed to be the holder of record of the Shares
issuable upon such Conversion, notwithstanding that the stock transfer books of
the Borrower shall then be closed or that certificates representing such Shares
shall not then be physically delivered to the Holder.
ARTICLE II
MISCELLANEOUS
SECTION 2.01 NOTICES. Any notice herein required or permitted to be
given shall be in writing and may be personally served or delivered by courier
or sent by United States mail and shall be deemed to have been given upon
receipt if personally served (which shall include telephone line facsimile
transmission) or sent by courier or three (3) days after being deposited in the
United States mail, certified, with postage pre-paid and properly addressed, if
sent by mail. For the purposes hereof, the address of the Holder shall be as
shown on the records of the Borrower; and the address of the Borrower shall be
00000 Xxxxxxx Xxxx, Xxxxx 000, Xxxxxxx, XX 00000, facsimile number:
000-000-0000. Both the Holder and the Borrower may change the address for
service by service of written notice to the other as herein provided.
SECTION 2.02 AMENDMENTS. This Note and any provision hereof may only
be amended by an instrument in writing signed by the Borrower and the Holder.
The term "Note" and all reference thereto, as used throughout this instrument,
shall mean this instrument (and the other Notes issued pursuant to the Purchase
Agreement) as originally executed, or if later amended or supplemented, then as
so amended or supplemented.
SECTION 2.03 ASSIGNABILITY. This Note shall not be assignable by
either party.
SECTION 2.04 GOVERNING LAW. THIS NOTE SHALL BE ENFORCED, GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER AND THE HOLDER HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS
LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS
NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES
FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY DELIVERED PURSUANT TO THE
NOTICE PROVISIONS CONTAINED IN SECTION 2.01 ABOVE SHALL BE DEEMED IN EVERY
RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS'
FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.
8
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in
its name by its duly authorized officer this 14th day of August, 2006.
STRONGHOLD TECHNOLOGIES, INC.
By: /s/Xxxxxx Xxxxxxxxx
-------------------
Xxxxxx Xxxxxxxxx
President
9
EXHIBIT B
CERTIFICATE OF DESIGNATION
SERIES D PREFERRED STOCK
Xxxxxx Xxxxxxxxx certifies that he is the President and Secretary of
Stronghold Technologies, Inc., a Nevada corporation (hereinafter referred to as
the "Corporation") and that pursuant to the Corporation's Certificate of
Incorporation, as amended, and Section 78.1955 of the Nevada General Corporation
Law, the Board of Directors of the Corporation adopted the following resolutions
effective on August 14, 2006, and that none of the shares of Series D Preferred
Stock referred to in this Certificate of Designation have been issued.
1. Designation; Number of Shares; Stated Value.
The designation of said series of Preferred Stock shall be Series D
Preferred Stock (the "Series D Preferred Stock"). The number of shares of Series
D Preferred Stock shall be 10,000. The shares of Series D Preferred Stock shall
be issued as full shares and shall have a par value of $.01 per share and a
Stated Value of $198.92 per share. 5% interest shall accrue on the Stated Value
per annum.
2. Conversion.
Conversions at the Option of the Holder. Each share of Series D Preferred
Stock shall be convertible into shares of common stock determined by dividing
the Stated Value of such share by the closing bid price on the day immediately
before such conversion (the "Set Price"), at the option of the holder, at any
time and from time to time from. Holder shall effect conversions by providing
the Corporation with the form of conversion notice. Each Notice of Conversion
shall specify the number of shares of Series D Preferred Stock to be converted,
the number of shares of Series D Preferred Stock owned prior to the conversion
at issue, the number of shares of Series D Preferred Stock owned subsequent to
the conversion at issue and the date on which such conversion is to be effected,
which date may not be prior to the date the holder delivers such Notice of
Conversion to the Corporation by facsimile (the "Conversion Date"). If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the date that such Notice of Conversion to the Corporation is deemed
delivered hereunder. The calculations and entries set forth in the Notice of
Conversion shall control in the absence of manifest or mathematical error.
3. Number of Shares.
The Board of Directors reserves the right, by subsequent amendment of this
resolution, from time to time to decrease the number of shares which constitute
the Series D Preferred Stock (but not below the number of shares thereof then
outstanding) and, subject to anything to the contrary set forth in the
Certificate of Incorporation applicable to the Preferred Stock, to subdivide the
number of shares, the stated value per share and the liquidation value per share
of the Series D Preferred Stock and in other respects to amend, within the
limitations provided by law, this resolution and the Certificate of
Incorporation.
10
4. Liquidation Rights.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of shares of Series D Preferred Stock
then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders on parity with other
shares of preferred stock, after and subject to the payment in full of all
amounts required to be distributed to the holders of any senior securities, but
before any payment shall be made to the holders of junior securities by reason
of their ownership thereof, an amount equal to the Stated Value. If upon any
such liquidation, dissolution or winding up of the Corporation the remaining
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of shares of Series D Preferred Stock the
full amount to which they shall be entitled, the holders of shares of Series D
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series D Preferred Stock shall share ratably in any distribution
of the remaining assets and funds of the Corporation in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full.
5. Voting Rights.
The holders of the Series D Preferred Stock shall not be entitled to vote.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation of Series D Preferred Stock to be duly executed by its Chief
Executive Officer and attested to by its Secretary this 14th day of August,
2006, who, by signing their names hereto, acknowledge that this Certificate of
Designation is the act of the Corporation and state to the best of their
knowledge, information and belief, under the penalties of perjury, that the
above matters and facts are true in all material respects.
STRONGHOLD TECHNOLOGIES, INC.
_____________________________
Xxxxxx Xxxxxxxxx,
President and Secretary
11
