PENALTY SETTLEMENT AGREEMENT
PENALTY
SETTLEMENT
AGREEMENT
This
Penalty
Settlement
Agreement
(the “Agreement”) dated as of March 10, 2008 is made between Chatsworth Data
Solutions, Inc., a Nevada corporation (the “Company”), and Vision Opportunity
Master Fund Ltd. (the “Majority Investor”), with respect to an Investor Rights
Agreement dated as of July 31, 2006 between the Company, the Majority Investor
and the other Purchasers listed on Schedule 1 attached thereto (the “Original
Agreement”). Capitalized terms not defined in this Agreement shall have the
meanings given them in the Original Agreement.
RECITALS:
WHEREAS,
the Purchasers have, under the Original Agreement, a right to receive certain
Periodic Amounts as liquidated damages for late registration of the Registrable
Securities described thereunder, as described in Section 7(e) of the Other
Agreement (the “Late Registration Penalties”); and
WHEREAS,
pursuant to Section 7(g) of the Other Agreement, the Majority Investor, as
the
Holder of at least a majority of the Registrable Securities, may amend or waive
any of the provisions of the Other Agreement; and
WHEREAS,
the Company and the Majority Investor have agreed to settle and compromise
the
Late Registration Penalties, and to waive all future penalties in respect
thereof;
NOW
THEREFORE, in consideration of the mutually negotiated promises, covenants,
and
obligations in this Agreement, the parties reach a final settlement in respect
of the Late Registration Penalties as set forth below:
1. Upon
the
receipt of the consideration described in section 2 below, the Purchasers hereby
waive all past, present and future Late Registration Penalties, for all past,
present and future circumstances.
2. Simultaneous
with the delivery of this Agreement, the Company shall issue to each of the
Purchasers its duly executed 12% Promissory Note, in the form attached hereto
as
Exhibit A (single, a “Note” and collectively, the “Notes”), in the principal
amount set forth next to such Purchaser’s name on Schedule
1
hereto.
3. The
parties acknowledge that the principal sum of the Notes is intended to reflect
the Late Registration Penalties which have accrued through February 29, 2008,
and the Purchasers’ potential ability after that to use SEC Rule 144 for resales
(subject to the requirements of Rule 144).
4. The
Company hereby represents and warrants to the Purchasers as follows as of the
date hereof:
(a) Authorization
and Enforcement.
(i) The
Company has the requisite power and authority to enter into and perform its
obligations under this Agreement and the Notes; (ii) the execution, delivery
and
performance of this Agreement and the Notes by the Company and the consummation
by it of the transactions contemplated hereby and thereby have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors or its stockholders is
required; and (iii) this Agreement and the Notes constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms.
(b) No
Conflicts.
The
execution, delivery and performance of this Agreement and the Notes by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby will not (i) result in a violation of the Certificate of
Incorporation (including without limitation the Certificate) or the bylaws
of
the Company; or (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give
to
others any rights under, or result in termination, amendment, acceleration
or
cancellation of, any agreement, indenture or instrument to which the Company
or
any of its subsidiaries is a party or result in a violation of any law, rule,
regulation, order, judgment or decree applicable to the Company or any of its
subsidiaries or by which any property or assets of the Company or any of its
subsidiaries is bound or affected.
5. This
Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof. Any negotiations, understandings or agreements, prior
or
contemporaneous, written or oral, with respect to such subject matter are
superseded hereby and merged herein. This Agreement may not be amended except
in
writing.
IN
WITNESS WHEREOF, the parties hereto have caused this Penalty Settlement
Agreement to be duly executed by their respective authorized persons as of
the
date first indicated above.
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THE
COMPANY:
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By:
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Name:
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Title:
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Schedule
1 to Penalty Settlement Agreement-Page 2
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MAJORITY
INVESTOR:
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VISION
OPPORTUNITY MASTER FUND LTD.
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By:
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Print Name:
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Title:
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3
EXHIBIT
A
PROMISSORY
NOTE
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March
10, 2008
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$________
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Chatsworth
Data Solutions, Inc., a Nevada corporation (the “Company”), hereby promises to
pay to the order of [Name of Purchaser] the principal amount of $_______
together with interest thereon calculated from the date hereof in accordance
with the provisions of this Note.
This
Note
is issued pursuant to a Penalty Settlement Agreement, entered into as of March
10, 2008 (as amended and modified from time to time, the “Agreement”), between
the Company and Vision Opportunity Master Fund, Ltd. (“Vision”), amending that
certain Investor Rights Agreement dated as of July 31, 2006 between the Company,
Vision and the other Purchasers listed on Schedule 1 attached
thereto.
1. Payment
of Interest.
Except
as otherwise expressly provided in paragraph 3(b) hereof, interest shall accrue
at the rate of twelve percent (12%) per annum on the unpaid principal amount
of
this Note outstanding from time to time, or (if less) at the highest rate then
permitted under applicable law. The Company shall pay to the holder of this
Note
all accrued interest on the date the principal amount of this Note is due
(whether at maturity or otherwise). Unless prohibited under applicable law,
any
accrued interest which is not paid on the date on which it is due and payable
shall bear interest at the same rate at which interest is then accruing on
the
principal amount of this Note until such interest is paid. Interest shall accrue
on any principal payment due under this Note and, to the extent permitted by
applicable law, on any interest which has not been paid on the date on which
it
is due and payable until such time as payment therefor is actually delivered
to
the holder of this Note.
If
the
Adjusted Share Price (as hereinafter defined) of the Company’s Common Stock,
$0.00001 par value (the “Common Stock”), is equal to or greater than $0.25 for
any period of five (5) consecutive trading days ending prior to March 10, 2010,
then the Company shall have the option of paying all or any portion of the
accrued interest in shares of its Common Stock, in an amount of shares equal
to
the quotient obtained by dividing the amount of accrued interest by
$0.20.
As
used
herein, the term “Adjusted Share Price” shall mean the closing price of the
Common Stock on the principal national securities exchange or recognized
quotation system on which the Common Stock is then traded, before giving effect
to any adjustment effective after the date hereof resulting from (i) any
dividend or distribution on the outstanding Common Stock payable in shares
of
Common Stock, (ii) any subdivision of the outstanding Common Stock into a
greater number of shares, (iii) any combination of the outstanding Common Stock
into a smaller number of shares, or (iv) the issuance of any shares of capital
stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the surviving corporation).
Promissory
Note-Page 1 of 4
2. Payment
of Principal on Note.
(a) Scheduled
Payments.
The
Company shall pay the principal amount of $______ (or such lesser principal
amount then outstanding) to the holder of this Note on March 10, 2010, together
with all accrued and unpaid interest on the principal amount being
repaid.
(b) Prepayments.
The
Company may not prepay this Note without the prior written consent of the Holder
which may be withheld for any or no reason. In connection with each prepayment
of principal hereunder, the Company shall also pay all accrued and unpaid
interest to the date of prepayment on the principal amount of this Note being
repaid.
3. Events
of Default.
(a) Definition.
For
purposes of this Note, an Event of Default shall be deemed to have occurred
if:
(i) The
Company fails to pay when due and payable (whether at maturity or otherwise)
the
full amount of interest then accrued on this Note or the full amount of any
principal payment on this Note;
(ii) The
Company fails to perform or observe any other material provision contained
in
this Note or in the Agreement, and such failure is not cured within 5 days
after
the occurrence hereof;
(iii) Any
representation, warranty or information contained in the Agreement is false
or
misleading in any material respect on the date made; or
(iv) The
Company or any subsidiary makes an assignment for the benefit of creditors
or
admits in writing its inability to pay its debts generally as they become due;
or an order, judgment or decree is entered adjudicating the Company or any
subsidiary bankrupt or insolvent; or any order for relief with respect to the
Company or any subsidiary is entered under the Federal Bankruptcy Code; or
the
Company or any subsidiary petitions or applies to any tribunal for the
appointment of a custodian, trustee, receiver or liquidator of the Company
or
any subsidiary, or of any substantial part of the assets of the Company or
any
subsidiary, or commences any proceeding (other than a proceeding for the
voluntary liquidation and dissolution of any subsidiary) relating to the Company
or any subsidiary under any bankruptcy reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction; or
any
such petition or application is filed, or any such proceeding is commenced,
against the Company or any subsidiary and either (A) the Company or any such
subsidiary by any act indicates its approval thereof, consent thereto or
acquiescence therein or (B) such petition, application or proceeding is not
dismissed within 60 days.
Promissory
Note-Page 2 of 4
The
foregoing shall constitute Events of Default whatever the reason or cause for
any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of
any
court or any order, rule or regulation of any administrative or governmental
body.
(b) Consequences
of Events of Default.
(i) If
any
Event of Default of the type described in subparagraphs 3(a)(i) – (iii) has
occurred that has not been cured within ten (10) business days from the date
of
written notice by the holder of this Note, the interest rate on this Note shall
increase immediately to the lesser of [18%] or the highest interest rate
permitted by law.
(ii) If
an
Event of Default of the type described in subparagraph 3(a)(iv) has occurred,
the aggregate principal amount of this Note (together with all accrued interest
thereon and all other amounts due and payable with respect thereto) shall become
immediately due and payable without any action on the part of the holders of
this Note, and the Company shall immediately pay to the holders of this Note
all
amounts due and payable with respect to this Note.
(iii) The
holder of this Note shall also have any other rights which such holder may
have
been afforded under any contract or agreement at any time and any other rights
which such holder may have pursuant to applicable law.
(iv) The
Company hereby waives diligence, presentment, protest and demand and notice
of
protest and demand, dishonor and nonpayment of this Note, and expressly agrees
that this Note, or any payment hereunder, may be extended from time to time
and
that the holder hereof may accept security for this Note or release security
for
this Note, all without in any way affecting the liability of the Company
hereunder.
4. Amendment
and Waiver.
Except
as otherwise expressly provided herein, the provisions of this Note may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company
has
obtained the written consent of the holder of this Note.
Promissory
Note-Page 3 of 4
5. Payments.
All
payments to be made to the holder of this Note shall be made in the lawful
money
of the United States of America in immediately available funds.
6. Place
of Payment.
Payments of principal and interest shall be paid by wire transfer of immediately
available funds to an account designated by the holder of this
Note.
7. Business
Days.
If any
payment is due, or any time period for giving notice or taking action expires,
on a day which is a Saturday, Sunday or legal holiday in the State of New York,
the payment shall be due and payable on, and the time period shall automatically
be extended to, the next business day immediately following such Saturday,
Sunday or legal holiday, and interest shall continue to accrue at the required
rate hereunder until any such payment is made.
8. Governing
Law.
All
issues and questions concerning the construction, validity, enforcement and
interpretation of this Note shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to any choice
of
law or conflict of law rules or provisions (whether of the State of New York
or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9. Application
of Payments.
All
payments shall be applied first, to accrued and unpaid interest on the unpaid
principal balance of this Note and then to the unpaid principal balance of
this
Note.
10. Costs
of Collection.
If any
suit or action is instituted or attorneys are employed to collect this Note
or
any part hereof, the Company promises and agrees to pay all costs of collection,
including all court costs and reasonable attorneys' fees based upon customary
hourly rates and not a percentage of the indebtedness outstanding.
11. WAIVER
OF JURY TRIAL.
THE
COMPANY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER
THIS
NOTE WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND THEREFORE, THE COMPANY
AGREES THAT ANY COURT PROCEEDING ARISING OUT OF ANY SUCH CONTROVERSY WILL BE
TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
IN
WITNESS WHEREOF, the Company has executed and delivered this Note on March
10,
2008.
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By:
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Print Name:
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Title:
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Promissory
Note-Page 4 of 4
