NOTE CONVERSION AND WARRANT LOCK-UP AGREEMENT
Exhibit
10.29
THIS
NOTE
CONVERSION AND WARRANT LOCK-UP AGREEMENT ("Agreement")
is
made as of August __, 2006 by and among CyberDefender Corporation, a California
corporation (the “Company”), on the one hand, and the undersigned security
holders of the Company set forth on Schedule A hereto (each, a “Bridge
Investor”,
collectively, the “Bridge
Investors”),
on
the other hand. The Company and the Bridge Investors are sometimes referred
to
hereinafter collectively as the “Parties”,
and
each, individually, as a “Party”).
RECITALS
A. The
Bridge Investors hold Secured Convertible Promissory Notes (collectively, the
“Bridge
Notes”)
and
Warrants to Purchase Common Stock (each, a “Bridge
Warrant”,
collectively, the “Bridge
Warrants”)
of the
Company, as set forth on Schedule 3.1(g) of that certain Securities Purchase
Agreement dated the date hereof by and among the Company and the purchasers
identified therein (the “Purchase
Agreement”).
B. Pursuant
to the Purchase Agreement, the Company is issuing in a private offering (the
“Offering”)
up to
$4,500,000 of its 6% Secured Convertible Debentures (the “Debentures”)
and
Common Stock Purchase Warrants (the “Warrants”).
C. Pursuant
to this Agreement, the Bridge Investors are agreeing to convert the Bridge
Notes
into common stock of the Company at a 33% discount to the conversion price
set
forth in the Debentures and to adopt the transfer restrictions set forth herein
with respect to the shares of common stock underlying the Bridge
Warrants.
D. The
conversion price of the Debentures and the exercise price of the Warrants are
equal to $12.5 million divided by the number of fully diluted outstanding shares
of common stock of the Company, excluding the shares that are subject to the
transfer restrictions set forth herein, so by agreeing to these transfer
restrictions the Bridge Investors are benefiting indirectly by minimizing the
dilutive effect of the Offering, this being the consideration for the Bridge
Investors agreeing to such transfer restrictions.
E. All
capitalized terms used but not defined herein shall have the meanings ascribed
to such terms in the Purchase Agreement.
AGREEMENT
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency
of
which are hereby acknowledged, and in consideration of the mutual promises,
covenants and conditions herein contained, the Parties agree as
follows:
1. Conversion
of Bridge Notes.
Notwithstanding anything to the contrary in Section 5 of the Bridge Notes,
the
Bridge Investors hereby agree to the automatic conversion at the Closing of
all
outstanding principal and accrued interest of the Bridge Notes into common
stock
of the Company at a 33% discount to the Conversion Price, as defined in the
Debentures. At or around the Closing, each Bridge Investor will surrender his,
her or its Bridge Note for cancellation by the Company and the Company will
issue a certificate to each Bridge Investor representing the number of shares
of
common stock into which such Bridge Investor’s Bridge Note is being
automatically converted pursuant hereto. The automatic conversion and
cancellation of the Bridge Notes contemplated hereby will be deemed to occur
at
the Closing regardless of the surrender of the original Bridge Notes and
issuance of common stock certificates to the Bridge Investors.
2. Warrant
Lock-Up.
Each
Bridge Investor irrevocably agrees with the Company that, from the date hereof
until and including the first anniversary of the Effective Date (such period,
the “Restriction
Period”),
the
undersigned shall not sell, contract to sell, hypothecate, pledge or otherwise
dispose of (or enter into any transaction which is designed to, or might
reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise) by the undersigned or any Affiliate of the undersigned or any person
in privity with the undersigned or any Affiliate of the undersigned), directly
or indirectly, or establish or increase a put equivalent position or liquidate
or decrease a call equivalent position within the meaning of Section 16 of
the
Exchange Act with respect to, any shares of Common Stock hereafter acquired
by
the undersigned upon exercise of the undersigned’s Bridge Warrant (the
“Securities”).
Beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act. In order to enforce this covenant, the Company shall impose irrevocable
stop-transfer instructions preventing the Transfer Agent from effecting any
actions in violation of this Agreement.
Notwithstanding
the foregoing, the undersigned may transfer Securities (i) as a bona
fide
gift or
gifts, provided that the donee or donees thereof agree to be bound by the
restrictions set forth herein, (ii) to any trust for the direct or indirect
benefit of the undersigned or the immediate family of the undersigned, provided
that the trustee of the trust agrees to be bound by the restrictions set forth
herein, and provided further that any such transfer shall not involve a
disposition for value, or (iii) in transactions relating to shares of Common
Stock acquired by the undersigned in open market transactions after the
completion of the transactions contemplated by the Purchase Agreement. For
purposes of this Agreement, “immediate family” shall mean any relationship by
blood, marriage or adoption, not more remote than first cousin. In addition,
notwithstanding the foregoing, if the undersigned is a business entity, the
entity may transfer the Securities to any Affiliate of such entity; provided,
however,
that in
any such case, it shall be a condition to the transfer that the transferee
execute an agreement stating that the transferee is receiving and holding such
Securities subject to the provisions of this Agreement and there shall be no
further transfer of such Securities except in accordance with this Agreement,
and provided further that any such transfer shall not involve a disposition
for
value.
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3. Cancellation
of Agreement.
This
Agreement shall be cancelled and of no force or effect if the Closing does
not
occur on or before September 15, 2006.
4. Remedies.
The
undersigned Bridge Investors acknowledge that the execution, delivery and
performance of this Agreement are a material inducement to the Company to
complete the transactions contemplated by the Purchase Agreement and that the
Company shall be entitled to specific performance of the undersigned’s
obligations hereunder.
5. Authority.
Each
undersigned Bridge Investor hereby represents that the undersigned has the
power
and authority to execute, deliver and perform this Agreement, that the
undersigned has received adequate consideration therefor, and that the
undersigned will indirectly benefit from the closing of the transactions
contemplated by the Purchase Agreement.
6. Entire
Agreement.
This
Agreement contains the sole, complete and entire agreement and understanding
of
the Parties concerning the matters contained herein and may not be altered,
modified, or changed in any manner except by a writing duly executed by the
Parties. No Party is relying on any representations other than those expressly
set forth herein. All prior discussions and negotiations have been and are
merged, integrated into and superseded by this Agreement.
7. Waiver.
The
delay or failure of a Party to exercise any right, power or privilege hereunder,
or failure to strictly enforce any breach or default shall not constitute a
waiver with respect thereto; and no waiver of any such right, power, privilege,
breach or default on any one occasion shall constitute a waiver thereof on
any
subsequent occasion unless clear and express notice thereof in writing is
provided.
8. Applicable
Law; Venue.
This
Agreement shall be governed by and construed and enforced in accordance with
and
subject to the laws of the State of California, and any and all actions brought
under this Agreement shall be brought in the state or federal courts of the
United States sitting in the City of Los Angeles, State of
California.
9. Advice
of Counsel.
The
Parties represent that prior to the execution of this Agreement they had the
opportunity to seek the benefit of independent legal counsel of their own
selection regarding the substance of this Agreement. The Parties acknowledge
and
agree that the law firm Xxxxxxxxxx & Xxxxx LLP has not represented any Party
other than the Company in connection with the negotiation, preparation,
execution and delivery of this Agreement.
10. Execution.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective as to any Bridge Investor when such Bridge Investor has signed this
Agreement and delivered such signature to the Company. The Parties need not
sign
the same counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original thereof.
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11. Recitals
Incorporated.
The
recitals of this Agreement are incorporated herein and made a part
hereof.
[SIGNATURE
PAGES FOLLOW]
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IN
WITNESS WHEREOF, the Parties hereto have executed this Note Conversion and
Warrant Lock-Up Agreement as of the day and year first written
above.
| CyberDefender Corporation | ||
| |
|
|
| By: | ||
| Name: |
Xxxx Xxxxxxxx |
|
| Title: | Chief Executive Officer | |
[BRIDGE
INVESTOR SIGNATURE PAGE FOLLOWS]
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SCHEDULE
A
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