WAIVER AND STANDSTILL AGREEMENT
This Waiver and Standstill
Agreement, dated as of January 26, 2009 (this “Agreement”), is entered
into among Compliance Systems
Corporation, a Nevada corporation (“CSC”), Call Compliance, Inc., a New
York corporation and wholly-owned subsidiary of CSC (“CCI,” and collectively
with CSC, “Compliance”) and Nascap Corp., a New York
corporation (“Nascap”).
WHEREAS, Nascap is the named
payee and holder of that certain Promissory Note of CCI, dated September 30,
2006, in the principal amount of $150,000 and payable upon demand (the
“Note”);
WHEREAS, pursuant to the terms
of that certain Guaranty Agreement, dated September 30, 2006 (the “Guaranty
Agreement”), between CSC and Nascap, CSC guaranteed specified obligations of CCI
under the Note;
WHEREAS, pursuant to that
certain Security Agreement, dated September 30, 2006, between CCI and Nascap,
CCI granted Nascap a security interest in certain assets of CCI consisting of
all amounts received (the “VeriSign/Comtel Receipts”) by CCI out of goods sold
or leased or for services rendered by CCI to VeriSign Inc. and Comtel Telcom
Assets, LP (the “Secured Assets”);
WHEREAS, by letter addressed
to CCI and dated January 26, 2009, Nascap demanded payment in full of all monies
due under the Note;
WHEREAS, Compliance currently
does not have sufficient available funds to make payment in full of all monies
due under the Note;
WHEREAS, Nascap is willing to
provide Compliance with a specified amount of time, expiring on April 15, 2009
(the “Standstill Termination Date”), in which to pay in full all monies owing
under the Note, provided that CCI segregate and hold separately all
VeriSign/Comtel Receipts received by either CSC or CCI, and to tender to Nascap
the VeriSign/Comtel Receipts on or prior to the Standstill Termination Date
(but, in no event, shall the amount tendered to Nascap exceed the total amount
owing under the Note as of the date of such tender);
WHEREAS, Events of Default
under each of the Note, Guaranty Agreement and Security Agreement include, but
not limited to, (a) either CSC’s or CCI’s failure to pay all amount due under
the Note on the business day on which Nascap has demanded such payment, (b)
CSC’s or CCI’s failure to pay interest accruing under the Note in arrears on the
30th
day of each calendar month and (c) CSC or CCI admitting that such entity is
unable to pay its debts as such debts become due (collectively, the “Waived
Defaults”);
WHEREAS, CSC and/or CCI may be
obligated to admit its inability to pay its debts as such debts become
due;
WHEREAS, at the request of
Compliance, Nascap
has agreed to (a) waive (i) the timely payment of the amounts due under the Note
up to the Standstill Termination Date, provided that all
amounts due under the Note are tendered to Nascap no later than the Standstill
Termination Date, and (ii) any default by Compliance caused by either CSC’s and
CCI’s admission that it is unable to pay its debts as such debts become due,
whether such default is under the Note, Guaranty Agreement or Security
Agreement, and (b) stand still and not declare, or otherwise assert the
occurrence of, an Event of Default prior to the Standstill Termination Date
under either of the Note, Guaranty Agreement or Security Agreement due to the
occurrence of any of the Waived Defaults.
NOW, THEREFORE, in
consideration of the mutual premises and agreements contained herein, and for
other good and valuable consideration, the adequacy and receipt of which is
hereby acknowledged by each of the parties to this Agreement, the parties agree
as follows:
1. Segregation of
Funds. Commencing on the date of this Agreement and continuing
through the date on which Compliance shall have tendered to Nascap all amounts
owing under the Note, Compliance shall segregate and hold separately from all
other amounts held by Compliance all VeriSign/Comtel Receipts received by
Compliance commencing as of the date of this Agreement and shall not utilize or
other transfer any of such VeriSign/Comtel Receipts except for transfers to
Nascap as payments to reduce the amounts owed under the Note.
2. Waiver.
(a) Nascap
hereby waives the timely tender of the payment of (i) all accrued interest due
under the Note on the 30th day of
each calendar month and (ii) all amounts due and owing to Nascap by CCI under
the Note, provided, in both of
such cases, that (x) Compliance segregate and hold separately from all other
amounts held by Compliance the VeriSign/Comtel Receipts received by Compliance
during the period commencing on the date of this Agreement and ending on the
date on which Compliance shall have tendered to Nascap all amounts owing under
the Note and (y) no later than the Standstill Termination Date, Compliance
tender to Nascap the aggregate amount of VeriSign/Comtel Receipts received by
Compliance on or after the date of this Agreement, but only to the extent that
such VeriSign/Comtel Receipts equal or are less than the total amount owing
under the Note on the earlier of the (1) Standstill Termination Date or (2) the
date on which Compliance shall have tendered to Nascap all amounts owing under
the Note. To the extent that the aggregate amount of VeriSign/Comtel
Receipts exceeds the total amount owing under the Note on the earlier of the (1)
Standstill Termination Date or (2) the date on which Compliance shall have
tendered to Nascap all amounts owing under the Note, such excess amount shall
become available for use by Compliance and Compliance shall no longer be
required to segregate or hold separately any VeriSign/Comtel Receipts upon
Compliance tendering payment to Nascap in accordance with clause (y) of the
immediately preceding sentence.
(b) Nascap
hereby acknowledges and agrees that, for the period commencing on the date of
this Agreement and terminating on the Standstill Termination Date, so long as
Compliance is in compliance with its obligations under paragraph 2(a), the
failure by Compliance to tender in full (i) all accrued interest due under the
Note on the 30th day of
each calendar month and (ii) all amounts owing under the Note shall be waived
and not be deemed an Event of Default under the Note.
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(c) Nascap
hereby further waives any Event of Default under the Note, Guaranty Agreement
and/or Security Agreement caused by the Waived Defaults.
2. Standstill. So long
as there is no occurrence of an Event of Default under the Note, Security
Agreement or Guaranty other than (x) the failure of Compliance to tender to
Nascap all accrued interest due under the Note on the 30th day of
each calendar month up to the Standstill Termination Date, (y) the failure of
Compliance to tender to Nascap all amounts owing to Nascap under the Note, and
(z) the Waived Defaults, provided, in each of
such cases Compliance is in compliance with its obligations under section 1,
then, in such an
event, Nascap will not, on or prior to the Standstill Termination Date,
take any action otherwise available to Nascap, whether under the Note, Guaranty
Agreement, Security Agreement, or otherwise, due to the fact that (a) Compliance
has failed to tendered to Nascap (i) all accrued interest due Nascap under the
Note on the 30th day of
each calendar month up to the Standstill Termination Date and/or (ii) all
amounts owing under the Note, (b) there has occurred any of the Waived
Defaults. In the event that, on or prior to the Standstill
Termination Date, Compliance has fully tendered to Nascap (1) all accrued
interest due Nascap under the Note on the 30th day of
each calendar month and (2) all other amounts owing to Nascap under the Note
through the date of such full tender, then, in such an event, the standstill
provisions of this Section 3 shall become permanent and
irrevocable.
3. General.
(a) Each
of the parties agrees to provide such other documents and to take such further
action reasonably requested by the other party as may be necessary in order to
effectuate this Agreement.
(b) This
Agreement and the rights and obligations of the parties hereunder shall be
interpreted, construed and enforced in accordance with the laws of the State of
New York, without regard to its choice and/or conflict of laws
provisions. Any legal action resulting from, arising under, out of or
in connection with, directly or indirectly, this Agreement shall be commenced
exclusively in the Supreme Court, State of New York, County of Nassau, or the
U.S. District Court for the Eastern District of New York. All parties
to this Agreement hereby submit themselves to the jurisdiction of any such
court, and agree that service of process on them in any such action, suit or
proceeding may be affected by the means by which notices are to be given under
this Agreement.
(c) This
Agreement sets forth the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein, and supersedes all
prior agreements, promises, understandings, letters of intent, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any party hereto or by any related or unrelated third
party. Except to the extent contemplated by this Agreement, the terms
and conditions of the Debentures shall remain in full force and
effect.
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(d) This
Agreement may not be changed, modified or rescinded orally. Any
change, modification or rescission need be in writing, signed by the party
against whom enforcement of any change, modification or rescission is
sought. Any waiver of any of the provisions of this Agreement, or of
any inaccuracy in or non-fulfillment of any of the representations, warranties
or obligations hereunder or contemplated hereby, shall not be effective unless
made in a writing signed by the party against whom the enforcement of any such
waiver is sought. A waiver given in any case shall only apply with
respect to that particular act or omission, and shall not be effective as to any
further acts or omissions, regardless of whether they are of the same or similar
nature.
(e) This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective administrators,
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other
party.
(f) The
waiver by any party to this Agreement of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
(g) This
Agreement may be executed simultaneously in any number of counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
(h) This
section and other headings contained in this Agreement are for purposes of
reference only, and shall not affect the meaning or interpretation of this
Agreement.
(i) Any
term or provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Agreement or affecting the validity
or enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction.
(j) Each
party hereto shall be responsible for their legal and other fees and expenses
relating to the negotiation, execution and delivery of this Agreement and
related agreements, and the consummation of the transaction contemplated by this
Agreement.
IN WITNESS WHEREOF, the
parties hereto have executed this Agreement as of the date first indicated
above.
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Compliance
Systems Corporation
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By:
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/s/
Xxxxx X. Xxxxxxxxxx
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Xxxxx
X. Xxxxxxxxxx
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Chief
Financial Officer
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By:
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/s/
Xxxxxxxx Xxxxxxxx
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Xxxxxxxx
Xxxxxxxx
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President
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