-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PgQ+rwRFTIfFmrUeJD73N541vVFfgMxCb4+d/pp5oaDpyW5AuK5aY+IBxV5wpHLk oNiUwt75nduNffjCQR75cA== 0001009448-08-000057.txt : 20080516 0001009448-08-000057.hdr.sgml : 20080516 20080516112621 ACCESSION NUMBER: 0001009448-08-000057 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20080513 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Unregistered Sales of Equity Securities ITEM INFORMATION: Changes in Registrant.s Certifying Accountant ITEM INFORMATION: Changes in Control of Registrant ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year ITEM INFORMATION: Change in Shell Company Status ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20080516 DATE AS OF CHANGE: 20080516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERF Go-Green Holdings, Inc CENTRAL INDEX KEY: 0001345444 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 203079717 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-141054 FILM NUMBER: 08840823 BUSINESS ADDRESS: STREET 1: 7425 BRIGHTON VILLAGE DR. CITY: CHAPEL HILL, STATE: NC ZIP: 27515 BUSINESS PHONE: (919) 538-2305 MAIL ADDRESS: STREET 1: 7425 BRIGHTON VILLAGE DR. CITY: CHAPEL HILL, STATE: NC ZIP: 27515 FORMER COMPANY: FORMER CONFORMED NAME: ESYS Holdings, Inc DATE OF NAME CHANGE: 20080319 FORMER COMPANY: FORMER CONFORMED NAME: La Solucion Inc DATE OF NAME CHANGE: 20051126 8-K 1 perf8k51308.txt PERF 8K 5 13 08 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 13, 2008 PERF-GO GREEN HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 333-141054 20-3079717 (State or Other Jurisdiction (Commission File (I.R.S. Employer of Incorporation) Number) Identification Number) 645 Fifth Avenue New York, New York 10022 (Address of principal executive offices) (zip code) (212) 848-0253 (Registrant's telephone number, including area code) Perf-Go Green Holdings, Inc. 7425 Brighton Village Drive Chapel Hill, North Carolina 27515 (Former name or former address, if changed since last report) Copies to: Adam P. Silvers, Esq. Ruskin Moscou Faltischek, P.C. 1425 RexCorp Plaza Uniondale, New York 11556 Phone: (516) 663-6600 Fax: (516) 663-6601 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) 1 Item 1.01 Entry into a Material Definitive Agreement. On May 13, 2008, Perf Holdings, Inc., f/k/a ESYS Holdings, Inc. and La Solucion, Inc. ("Perf Holdings" or the "Company") entered into a Share Exchange Agreement (the "Agreement") with Perf-Go Green, Inc. ("Perf-Go Green"), a privately-owned Delaware corporation, and the shareholders of Perf-Go Green (the "Perf-Go Green Shareholders") pursuant to which the Company acquired all of the outstanding shares of common stock of Perf-Go Green from the Perf-Go Green Shareholders (the "Share Exchange"). As consideration for the Share Exchange, the Company has agreed to issue an aggregate of 21,079,466 shares of common stock, $0.0001 par value (the "Common Stock") to the Perf-Go Green Shareholders. In connection with the Agreement, the Company filed a Certificate of Amendment with the Delaware Secretary of State changing its name from ESYS Holdings, Inc. to Perf-Go Green Holdings, Inc. The Share Exchange resulted in a change in control of the Company with Perf-Go Green Shareholders owning 21,079,466 shares of the Company's common stock out of a total of 32,279,470 shares issued and outstanding immediately following the Share Exchange. In addition, Anthony Tracy, Governor George E. Pataki, Ben Tran and Linda Daniels, directors of Perf-Go Green, were elected as directors of Perf Holdings, and appointed as the Company's executive officers, along with Arthur Stewart, the Chief Financial Officer of Perf-Go Green. On May 13, 2008, the Company completed a private placement offering (the "Offering") pursuant to which it issued to accredited investors (the "Investors"), 10% senior secured convertible debentures in the principal amount of $2,775,000, in the aggregate (the "Notes"), and warrants to purchase a total of 3,700,000 shares of the Company's common stock (the "Warrants") at an exercise price of $1.00 per share. The Warrants may be exercised for a period of five years. The Company intends to offer up to $5,000,000 in convertible notes in connection with the Offering. To complete the Offering, the Company entered into several agreements, including the following (collectively the "Transaction Documents"), each of which is discussed in more detail below: o Subscription Agreement, o Notes, o Warrant, o Registration Rights Agreement, and o Security Agreement. Subscription Agreement Under the terms of the Subscription Agreement, each Investor agreed to purchase the a certain number of Notes and Warrants. The Notes are convertible into shares of the Company's common stock at an initial conversion price of $0.75 per share. The Company made customary representations and warranties to the Investors, and received customary representations and warranties from the Investors. 2 Under the terms of the Subscription Agreement, The Company agreed to pay vFinance Investments, Inc., the placement agent ("Placement Agent") for the Offering, a fee equal to (i) 10% of the gross proceeds received by the Company payable at each Closing for the Offering; (ii) 10% of the cash held by the Company which will be available to the Company as a result of the Share Exchange, payable at the first Closing; (iii) warrants equal to 10% of the number of shares of common stock into which the Notes are initially convertible into at the first Closing and each additional Closing; and (iv) 420,000 Warrants. All Placement Agent warrants are exercisable at $1.00 per share, for a period of five years from the closing. The Company will also reimburse the Placement Agent for its out-of-pocket expenses (including attorneys' fees) incurred in connection with the Offering. The Company expects to use the proceeds for general working capital purposes and marketing related expenses. In effecting the Offering, the Company relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. The Company did not engage in any public advertising or general solicitation in connection with this transaction. The Company provided the Investors with disclosure of the material aspects of its and Perf-Go Green's business, including providing the Investors with its reports filed with the SEC, access to its auditors, and other financial, business, and corporate information. Each Investor represented to the Company that it was an "accredited investor" as defined under Regulation D under the Securities Act of 1933, as amended. 10% Senior Secured Convertible Debenture Under certain circumstances, the Note holders are entitled to have their conversion price adjusted to correspond to common stock holders' rights to any stock dividend, stock split, stock combination or reclassification of shares. The $0.75 conversion price (the "Fixed Conversion Price") may also be adjusted if the Company issues shares of its capital stock at a price of less than $0.75 per share. The Notes bear interest at a rate of 10% per annum and they will mature on May 13, 2011 unless previously paid. Security Agreement As security for the payment of the obligations represented by the Notes, the Company also entered into a Security Agreement and granted the Investors a first priority security interest in substantially all of the Company's assets subject to limited and specified exceptions. The Company also agreed, among other things, not to incur any additional indebtedness except under limited circumstances. Warrants The Warrants issued to the Investors are exercisable through May 13, 2013 at an initial price of $1.00 per share, subject to adjustment as provided for therein. Registration Rights Agreement As noted above, the Company entered into a Registration Rights Agreement with the Investors. As a result, the Company has an obligation to prepare and file with the SEC within 150 calendar days of the first Closing a registration statement to register the common stock underlying the Notes and the Warrants. In the event the Company fails to meet such filing deadlines, the Company shall pay each Investor as liquidated damages 1.25% of the aggregate purchase price paid by such Investor and shall pay each Investor such amount on a monthly basis until such failure is cured. In no case shall such liquidated damages exceed 15% of the aggregate subscription amount paid by the Investor. 3 Qualification of Summaries The foregoing descriptions of the Transaction Documents are merely summaries, and are not intended to be complete. The Transaction Documents are each filed as exhibits to this Current Report on Form 8-K, and the full text of each such exhibit is incorporated herein by reference in its entirety and the summaries discussed above are qualified in full by the full text of such exhibits. Item 2.01 Completion of Acquisition or Disposition of Assets The information set forth under Item 1.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 2.01 in its entirety. NOTE: The discussion contained in this Item 2.01 relates primarily to Perf-Go Green. Information relating to the business and results of operations of Perf Holdings and all other information relating to Perf Holdings has been previously reported in its Annual Report on Form 10-KSB for the year ended October 31, 2007 and prior periodic filings with the SEC and is herein incorporated by reference to those reports. DESCRIPTION OF PERF HOLDING'S BUSINESS Perf Holdings Organizational History Perf Holdings was incorporated in the State of Delaware in April 2005. Perf Holdings maintains its statutory registered agent's office at the Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801, New Castle County. Its registered agent is The Corporation Trust Company. Its business office is located at 100 Europa Drive, Chapel Hill, NC 27517. Its mailing address is P.O. Box 3254, Chapel Hill, North Carolina 27515. Originally, its business was intended to provide assistance to the non-English speaking Hispanic population in building and maintaining a life in North Carolina. It is a start up company and did not establish operations in connection with our business plan. As a result of the Share Exchange, Perf-Go Green became a wholly-owned subsidiary of Perf Holdings and Perf Holdings succeeded to the business of Perf-Go Green as its sole business. DESCRIPTION OF PERF-GO GREEN'S BUSINESS Perf-Go Green's executive office is located at 645 Fifth Avenue, 8th Floor, New York, New York 10022. Perf-Go Green's telephone number is (212) 848-0253. Perf-Go Green maintains an Internet Website at www.perfgogreen.com. Information contained on its Internet Website is for informational purposes only and is not part of this Current Report on Form 8-K. For the purposes of the sections entitled "Description of Perf-Go Green's Business" and "Risks Related to Our Business", Perf-Go Green is herein referred to as "we", "our" or the "Company". 4 We were organized in November 2007 as a Delaware limited liability company. In January 2008, we converted to a Delaware corporation. Our objective is to create an environmentally friendly "green" company for the development and global marketing of eco-friendly, non-toxic, food contact compliant, biodegradable plastic products. We believe our biodegradable plastic products offer a practical and viable solution for reducing plastic waste from the world environment. Based solely on environmental claims statements made by EPI Environmental Technologies, Inc. ("EPI"), the Company that manufactures TDPA, an oxo-biodegradable plastic additive that speeds up the break down of our plastic products, we believe our plastic products will break down in landfill environments within twelve (12) to twenty four (24) months, leaving no visible or toxic residue. All of our products incorporate recycled plastic. Our products make important strides towards the reduction of plastic from the environment. We have partnered with Spectrum Plastics, a large manufacturer and distributor of plastic bags and plastic products to manufacture and distribute our plastic products. With its headquarters located in Cerritos, California, Spectrum's revenues exceed $250,000,000 in the United States. Spectrum's owner and President, Ben Tran, is a director of Perf-Go Green and shares in one of the patents on our handle tie-bags. The manufacturing of our biodegradable plastic products is a multi-step process. Spectrum Plastics starts by using recycled plastic and combines it with TDPA. Spectrum Plastics has been issued a license by EPI to use TDPA. Spectrum Plastics utilizes a proprietary application method to produce the film made with TDPA for our trash bags. As a result of this process, we believe, based on EPI's environmental claims relating to TDPA, our plastic products, when discarded in soil in the presence of microorganisms, moisture and oxygen, will biodegrade, decomposing into simple materials found in nature and will be 100% degradable. We believe this degradable plastic additive technology will be suitable in the creation of many mainstream consumer products. During 2008, we intend to launch and market six (6) prominent plastic product categories: o Thirteen gallon, extra tall kitchen garbage bags o Thirty gallon garage, lawn and leaf garbage bags o Commercial garbage bags (various sizes for office buildings and for municipalities, parks and beaches.) o Kitty litter liner bags (three sizes) o 10 foot by 20 foot plastic drop cloths o Disposable diapers (baby and adult sizes) We anticipate the sale and distribution of our initial product offering, the thirteen gallon extra tall kitchen trash bags, will begin in the third quarter of 2008. We believe that we are the first company to mass-market 100% biodegradable trash bags and other plastic products. 5 The Market Place and Opportunity The need to control and shrink plastic waste worldwide presents a compelling challenge. According to a recycling study conducted by the University of Oregon, over 16 million tons of plastic waste is generated annually in the U.S. Only 2.2% of all plastics are currently recycled with the other 97.8% ending up in landfills. These plastic products can take up to 1000 years to breakdown. In the U.S., 18 billion disposable diapers end up in landfills each year. These diapers take about 500 years to breakdown. An estimated 500 billion to one trillion new plastic bags are used annually; this breaks down to more than one million plastic bags a minute. The number of Americans seeking green products stands at approximately 30 million today and that number is increasing. U.S. consumers continue to demonstrate a growing appetite for natural and organic products, as manufacturers and retailers expand into new and nontraditional areas and increase their offerings. Total sales for the natural and organic industry increased by fifty-six (56%) percent between 2002 and 2006. The opportunity exists to boldly mass market biodegradable plastic products to the consumers seeking green products. Todd Woody of the Green Wombat reported, since April 2007, Wal-Mart has tracked purchases of five eco-oriented products to measure its 180 million customers' attitudes toward buying green products. The products were compact fluorescent light bulbs, organic milk, concentrated or reduced-packaging liquid laundry detergents, extended-life paper products and organic baby food. Wal-Mart found approximately 18% of its customers are making green purchases at its stores. According to the AARP, 40 million baby boomers have gone green. A study by Accenture done in October 2007 found that two-thirds of consumers would pay a premium for green products. A study conducted by BDO Seidman, LLP in October 2007 found that 83% of the largest retailers, including companies such as Nike, Gap, Sears, Wal-Mart, Target and IKEA are involved in green practices. The majority of these companies are pursuing a combination of selling green products and improving operations and facility efficiencies. Competitive Landscape Glad and Hefty have yet to announce or market 100% biodegradable plastic trash bags. We believe these companies will be our strongest competitors as each are well-capitalized, have high brand recognition, highly recognizable packaging and split 75% of the shelf space allotted to plastic products in most retail stores. According to our research, the only other 100% biodegradable or compostable trash bags currently marketed, such as Compost-A-Bag, Al-PACK, and BioBag suffer from low consumer awareness, weak packaging, and overall minimal brand presence in big box retailers. Seventh Generation trash bags are made from recycled plastics, with a 55% minimum total recycled content according to its packaging. 6 Other bags marketed as biodegradable fall short of Perf Go Green's goal of using recycled plastic that is 100% biodegradable, disappearing in landfill in 12-24 months with extra strength at .9 and 1.0 mil. We believe Perf Go Green's packaging speaks to the customer in a smart and meaningful way. Our packaging is designed to give our products a strong and distinctive presence on the shelves of our customers. Marketing and Sales Objectives and Strategies The Company is currently negotiating to secure placement and premier featuring and exposure with "brand-making" retailers such as Wal-Mart, Walgreens and Target. Yearly growth and expansion with retailers across the country is expected with the release of new products and demand for Perf Go Green's biodegradable plastic products. A combination of brand building messages will be delivered through several marketing and advertising vehicles, including television, radio, national print, online marketing and search engine optimization, and retail store promotions. Our products were showcased at the Chicago International Housewares Show held March 16th through March 18th. 22,000 buyers from around the world attended this event. Our product received national attention by television networks and other media outlets as a "Hot New Household Product." Our product was awarded as a Design Defined Honoree for 2008 at the show. Additionally, we signed six representative firms that give will us reach to major national retailers in the U.S. and Canada. Green 21.0 Foundation We have established the Go Green 21.0 Foundation that brings another level of awareness to Perf Go Green Products. Go Green 21.0 will foster and promote green initiatives around the world with the help of schools, communities and individuals wanting to make a difference. We will capitalize and fund Go Green 21.0 with a percentage of our profits and shares of our common stock while seeking sponsorships with like-minded brands, associations and institutions. Our first green initiative will be rolled out in schools across the country. Go Green 21.0 will sponsor of an initiative to gather plastics for recycling while gaining monetary benefits to participating schools. Patents and Trademarks We presently hold a registered patent in the United States on the unique dispensing system utilized for our trash container liners. The dispensing system includes a ridge box containing a supply of liners in the form of a cylindrical roll of a continuous strip of liners. The liners extend through an open slot in the top of the box and the inner most liner of the roll is securely attached to a cylindrical spindle on which the liners are wound. The dispenser also includes a reinforcing insert in the form of a piece of sheet rock in a U-shape partially surrounding the role of liners. The box is detachably secured to the bottom of the trash container and the spindle is dimensioned so as not to pass through the slot. Accordingly, when the last line in the box is used and removed from the container, the box is removed as well. We also own (together with Ben Tran a principal of Spectrum Plastics and a Director of our Company) a patent 7 application which is currently pending in the United States Patent and Trademark Office which covers a roll of plastic bags having integral handles and which can also be used to close each bag. Both the patent and patent application are owned by the Company by assignment from Tracey Productions, LLC of which our Chief Executive Officer, Tony Tracy, is a principal. In addition, we are the exclusive licensee, for biodegradable plastic bags of the trademark "PERF". The trademark PERF is owned by Tracey Productions, LLC. In addition, we presently have several trademark applications pending in the United States Patent and Trademark Office. Below is a chart summarizing our pending trademark applications.
- ------------------------------------ ------------------ ------------------ ------------------------------------------- MARK SERIAL NO. FILING DATE DESCRIPTION - ------------------------------------ ------------------ ------------------ ------------------------------------------- BIODEGRADABLE BY NATURE GREEN BY 77/390,864 February 7, 2008 Trash bags; trash can liners; lawn and CHOICE leave bags; disposable diapers - ------------------------------------ ------------------ ------------------ ------------------------------------------- Plastic drop cloths - ------------------------------------ ------------------ ------------------ ------------------------------------------- Drinking straws - ------------------------------------ ------------------ ------------------ ------------------------------------------- Disposable trash bag dispenser; disposable kitty litter bag dispenser; beverage stirrers - ------------------------------------ ------------------ ------------------ ------------------------------------------- GO GREEN & DESIGN 77/390,510 February 7, 2008 Trash bags; trash can liners; lawn and leave bags - ------------------------------------ ------------------ ------------------ ------------------------------------------- Plastic drop cloths - ------------------------------------ ------------------ ------------------ ------------------------------------------- Drinking straw - ------------------------------------ ------------------ ------------------ ------------------------------------------- Disposable trash bag dispenser; disposable kitty litter bag dispenser; beverage stirrers - ------------------------------------ ------------------ ------------------ ------------------------------------------- GLOBAL COOLING 77/418,792 March 12, 2008 Plastic bags; plastic drop cloths and disposable diapers. - ------------------------------------ ------------------ ------------------ ------------------------------------------- GO GREEN (Green Stylized) 77/390,475 February 6, 2008 Trash bags; trash can liners; lawn and leave bags - ------------------------------------ ------------------ ------------------ ------------------------------------------- Plastic drop cloths - ------------------------------------ ------------------ ------------------ ------------------------------------------- Drinking straw - ------------------------------------ ------------------ ------------------ ------------------------------------------- Disposable trash bag dispenser; disposable kitty litter bag dispenser; beverage stirrers - ------------------------------------ ------------------ ------------------ ------------------------------------------- GREEN FUTURE 77/418,792 March 12, 2008 Plastic bags; plastic drop cloths and disposable diapers. - ------------------------------------ ------------------ ------------------ ------------------------------------------- GREEN GENERATION 77/418,777 March 12, 2008 Plastic bags; plastic drop cloths and disposable diapers. - ------------------------------------ ------------------ ------------------ ------------------------------------------- HELPING OUR PLANET, ONE DIAPER AT 77/390,838 February 7, 2008 Disposable Diaper A TIME - ------------------------------------ ------------------ ------------------ ------------------------------------------- HELPING OUR PLANET, ONE BAG AT A 77/390,833 February 7, 2008 Trash bags; trash can liners; lawn and TIME leave bags 8 - ------------------------------------ ------------------ ------------------ ------------------------------------------- MARK SERIAL NO. FILING DATE DESCRIPTION - ------------------------------------ ------------------ ------------------ ------------------------------------------- I'M THE SMARTEST BAG AROUND 77/390,850 February 7, 2008 Trash bags; trash can liners; lawn and leave bags - ------------------------------------ ------------------ ------------------ ------------------------------------------- PERF (Stylized in Red) 77/390,425 February 6, 2008 Trash bags; trash can liners; lawn and leave bags; disposable diapers - ------------------------------------ ------------------ ------------------ ------------------------------------------- Plastic drop cloths - ------------------------------------ ------------------ ------------------ ------------------------------------------- Drinking straws - ------------------------------------ ------------------ ------------------ ------------------------------------------- Disposable trash bag dispenser; disposable kitty litter dispenser; beverage s - ------------------------------------ ------------------ ------------------ -------------------------------------------
Government Regulation We are subject to a variety of federal, state and local government regulations. Our business is subject to local, state and federal laws and regulations concerning environmental, health and safety matters, including those relating to air emissions, wastewater discharges and the generation, handling, storage, transportation, treatment and disposal of hazardous materials. We believe we are in substantial compliance with all applicable laws and regulations. In addition, the manufacture, sale and use of biodegradable plastic products are subject to regulation by the U.S. Food and Drug Administration (the "FDA") as well as other federal and state agencies. The FDA's regulations are concerned with substances used in food packaging materials, not with specific finished food packaging products. Thus, food and beverage containers are in compliance with FDA regulations if the components used in the food and beverage containers: (i) are approved by the FDA as indirect food additives for their intended uses and comply with the applicable FDA indirect food additive regulations; or (ii) are generally recognized as safe for their intended uses and are of suitable purity for those intended uses. We may develop additional products, including food packaging products. Additionally, we advertise our products as biodegradable and must conform with the Federal Trade Commission's Guides for the use of Environmental Marketing Claims. Employees As of May 1, 2008, we had five employees. None of our employees are represented by a labor union, and we consider our employee relations to be excellent. Legal Proceedings From time to time, Perf-Go Green may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. On April 11, 2008, David Conklin, a shareholder of the Company, asserted a claim against Tony Tracy, our Chairman of the Board of Directors and Chief Executive Officer, alleging that, based on Mr. Conklin's prior contributions to other companies operated by Tony Tracy as well as prior agreements between Mr. Conklin and Mr. Tracy, Mr. Conklin was entitled to be issued a ten (10%) percent 9 interest in the Company. The parties are currently attempting to settle this dispute. In furtherance of these settlement discussions, Mr. Tracy has agreed to place 2,000,000 shares of the common stock of the Company in escrow until the dispute is resolved. At this time, Mr. Conklin has not asserted any claim against the Company. By written agreement dated April 16, 2008, Mr. Conklin agreed that in the event that it is determined, either by agreement or pursuant to court order, that he is entitled to shares of the Company's stock, such shares shall be taken from Mr. Tracy's interest in the Company. Description of Property Perf-Go Green is leasing office space at 645 Fifth Avenue, 8th Floor, New York, New York 10022. This office is approximately 1,000 square feet with access to another 1,000 square feet of conference space and 800 square feet of sitting space, and is leased on a month to month basis with rent of $8,000 per month. Perf-Go Green currently subleases certain office space in Westport, Connecticut. This office is 1,500 square feet and is leased on a month to month basis with rent of $1,500 for the month. RISK FACTORS Investors, prior to making an investment decision, should carefully read all information pertaining to the Company and consider, along with other matters referred to herein, the risk factors set forth below, and other information throughout this Current Report on Form 8-K before making a decision to purchase securities. You should only purchase securities if you can afford to suffer the loss of your entire investment. RISKS RELATED TO OUR BUSINESS We have no operating history. We have only recently commenced the marketing and sale of our biodegradable plastic products. Prospective investors in our securities have no operating history on which to base an evaluation of our future performance. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in an early stage of development, particularly companies in new or rapidly evolving markets. Although we believe that we have developed a model that will be successful, there can be no assurance that we will be able to achieve or sustain profitability, or generate sufficient cash flow to meet our capital and operating expense obligations. As a result, you could lose your entire investment. We are dependent on our relationship with Spectrum Plastics and if that relationship were terminated, the Company's business, financial condition and results of operations would be materially adversely affected. We do not own the intellectual property which makes our products biodegradable. We have established a working relationship with Spectrum Plastics, the exclusive manufacturing and distribution partner for our plastic products. Spectrum Plastics has a licensing agreement with EPI Environmental Technologies, Inc. ("EPI"). EPI holds the patent for TDPA, the chemical additive 10 which we believe, based on environmental claims statements published by EPI, makes our plastic products 100% biodegradable in conjunction with the Spectrum process. Spectrum Plastics has developed the process under which TDPA is utilized to make our products biodegradable. This process is Spectrum Plastic's trade secret. Our agreement with Spectrum Plastics allows us to market and sell our biodegradable plastic products utilizing TDPA. In the event of the termination of the agreement with Spectrum Plastics, we would be required to find a new manufacturer and distributor. We would also be required to develop a relationship with EPI in order to continue to utilize TDPA or find a replacement product. There is no assurance that we would successfully locate a replacement for Spectrum Plastics or EPI or that such replacement entities are capable of producing products which make the quality of those produced by Spectrum Plastics or EPI. The loss of our relationship with Spectrum Plastics or Spectrum's license to use TDPA would have a material adverse effect on our business, financial condition and results of operations. We have not performed any independent testing of the biodegradability of our plastic products. The manufacturing of our biodegradable plastic products is a multi-step process. Spectrum Plastics starts the process by using recycled plastic and then combines it with TDPA. Spectrum Plastics utilizes a proprietary application method to produce the film made with TDPA for our trash bags. Based solely on EPI's environmental claims relating to the degradability of TDPA, we believe our plastic products will biodegrade when discarded in soil in the presence of microorganisms, moisture and oxygen decomposing into simple materials found in nature and will be 100% degradable. We have not independently verified EPI's claims nor have we tested the effect, if any, of Spectrum Plastic's process on the biodegradability of our plastic products. There can be no assurance that our plastic products will achieve our expected result. In the event our products do not conform to EPI's claims regarding degradability, our business, financial condition and results of operations would be materially adversely affected. We may be unable to manage our growth. We are planning for rapid growth and intend to aggressively build our Company. The growth in the size and geographic range of our business will place significant demands on management and our operating systems. Our ability to manage our growth effectively will depend on our ability to attract additional management personnel; to develop and improve our operating systems; to hire, train, and manage an employee base; and to maintain adequate service capacity. Additionally, the proposed rapid roll-out of our products and operations may require hiring additional management personnel to oversee procurement and materials management duties. We will also be required to rapidly expand our operating systems and processes in order to support the projected increase in product applications and demand. There can be no assurance that we will be able to effectively manage growth and build the infrastructure necessary to achieve its rapid roll-out plan. Our success depends on our ability to retain our key personnel. Our present and future performance will depend on the continued service of our senior management personnel, key sales personnel, and consultants. Our key 11 employees include Tony Tracy, our Chairman and Chief Executive Officer, Michael Caridi, our Chief Operating Officer, Linda Daniels, our Chief Marketing Officer, and Arthur Stewart, our Chief Financial Officer. The loss of the services of any of these individuals could have an adverse effect on us. We currently have three-year employment agreements with Mr. Tracy, Mr. Caridi and Ms. Daniels. We do not maintain any key man life insurance on any of our key personnel. The commercial success of our business depends on the widespread market acceptance of plastics manufactured with TDPA, the chemical additive which makes our plastic products 100% biodegradable and if we are unable to generate interest in plastic products produced with TDPA, we will be unable to generate sales and we will be forced to cease operations. The market for biodegradable plastics produced with TDPA is still developing. Our success will depend on consumer acceptance of plastics produced with TDPA. At present, it is difficult to assess or predict with any assurance the potential size, timing and viability of market opportunities for our product in the plastics market. The standard plastics market sector is well established with entrenched and well-capitalized competitors with whom we must compete. Achieving widespread market acceptance for these products will require substantial marketing efforts and the expenditure of sufficient resources to create brand recognition and customer demand and to cause potential customers to consider the potential benefits of the Company's products as against the traditional products to which they have long been accustomed. Moreover, we have limited marketing capabilities and resources. To date, substantially all of our marketing activities have been conducted by members of management. The prospects for our product line will be largely dependent upon our ability to achieve market penetration for such products. Achieving market penetration will require sufficient efforts by the Company to create awareness of and demand for our products. The Company's ability to build its customer base will depend in part on our ability to locate, hire and retain sufficient qualified marketing personnel and to fund marketing efforts, including advertising. There can be no assurance that our products will achieve widespread market acceptance or that our marketing efforts will result in profitable operations We may not be successful in protecting our intellectual property and proprietary rights and we may be required to expend significant amounts of money and time in attempting to protect our intellectual property and proprietary rights and if we are unable to protect our intellectual property and proprietary rights our competitive position in the market could suffer. We have obtained a patent to protect our proprietary technologies relating to our unique dispensing system. In addition, we currently hold one registered trademark and have pending six trademark applications and one patent application pertaining to our intellectual property rights. If we fail to successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our operating results. Patents may not be issued for our patent applications that we may file in the future or for our patent applications we have filed to date, third parties may challenge, invalidate or circumvent any patent issued to us, unauthorized parties could obtain and use information that we regard as proprietary despite our efforts to protect our proprietary rights, rights granted under patents issued to us, if any, may not afford us any competitive advantage, others may independently develop similar technology and protection of our intellectual property rights may be limited in certain foreign 12 countries. We may be required to expend significant resources to monitor and police our intellectual property rights. Any future infringement or other claims or prosecutions related to our intellectual property could have a material adverse effect on our business. Any such claims, with or without merit, could be time consuming to defend, result in costly litigation, divert management's attention and resources, or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all. We may not be in a position to properly protect our position or stay ahead of competition in new research and the protecting of the resulting intellectual property. Although we believe that our products do not and will not infringe upon the patents or violate the proprietary rights of others, it is possible such infringement or violation has occurred or may occur which could have a material adverse effect on our business. In the event that products we sell are deemed to infringe upon the patents or other proprietary rights of third parties, we could be required to modify our products or obtain a license for the manufacture and/or sale of such products and services. In such event, we cannot assure you that we would be able to do so in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do any of the foregoing could have a material adverse effect upon our business. Moreover, we cannot assure you that we will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action. In addition, if our products or proposed products are deemed to infringe or likely to infringe upon the patents or proprietary rights of others, we could be subject to injunctive relief and, under certain circumstances, become liable for damages, which could also have an adverse effect on our business. We have not yet commenced full scale production of our biodegradable plastic products and it is possible that some of these products may not perform as well as other biodegradable or conventional plastics. Individual products produced with TDPA may not perform as well as other biodegradable or conventional plastic disposables. We are still developing many of our plastic products and we have not yet evaluated the performance of all of them. If our plastic products made with TDPA fail to perform comparably to conventional plastic products or biodegradable plastic products derived from other substances, this could cause consumers to prefer alternative products. We may not be able to timely fill orders for our products. In order for us to successfully market our products, we must be able to timely fill orders for our product line. Our ability to timely meet our supply requirements will depend on numerous factors including our ability to successfully maintain an effective distribution network and to maintain adequate inventories and our ability of the Company's sole supplier to adequately produce the Company's products in volumes sufficient to meet demand. Failure of the Company to adequately supply its products to retailers or of the Company's supplier to adequately produce products to meet demand could materially adversely impact the operations of the Company. 13 Unavailability of raw materials used to manufacture our products, increases in the price of the raw materials, or the necessity of finding alternative raw materials to use in our products could delay the introduction and market acceptance of our products. Our failure to procure adequate supplies of raw materials could delay the commercial introduction or shipment and hinder market acceptance of our biodegradable plastic products. For example, we are dependent upon EPI's ability to maintain readily available supplies of TDPA in commercial quantities. If the supply of TDPA is disrupted, we may need to seek alternative sources of raw materials or modify our product formulations if the cost or availability of TDPA becomes prohibitive. If the Company's supply chain is disrupted, our financial condition and results of operations could be materially adversely affected. We rely on Spectrum Plastics for the manufacturing and distributions of our products. The interruption of supply, or a significant increase in the cost of manufacturing for any reason, could have a material adverse effect on our business, financial condition and results of operation. We could be materially and adversely affected should any of Spectrum Plastic's facilities be seriously damaged as a result of a fire, natural disaster or otherwise. Further, we could be materially and adversely affected should Spectrum Plastics be subject to adverse market, business or financial conditions. We may not be able to successfully compete in the environmentally-friendly plastic products market. The market for environmentally-friendly plastic products is recent and a rapidly growing segment of the United States economy. Numerous companies similar to us have entered the biodegradable market in the last few years in anticipation of the perceived opportunities surrounding environmentally safe products and as a result the markets for the Company's products are highly competitive. A significant factor in the ability of the Company's consumer products to compete successfully in the market will be its ability to secure and maintain shelf space with major national retail chains. There is no assurance that the Company's business plan to acquire and maintain such shelf space can be successfully implemented. The consumer product industry is highly competitive and the Company will compete with established manufacturers and distributors, many of which will have significantly greater operating history, name recognition and resources than the Company. Other companies and vendors may also enter into competition with the Company as a result of the Company's increased marketing efforts as expected after this Offering is successfully completed. The lack of financial strength of the Company may be a negative factor for the Company's ability to penetrate the home center market even if the Company's products are superior. We are dependent on third parties to transport our products, so their failure to transport our products could adversely affect our earnings, sales and geographic market. We will use third parties for the vast majority of our shipping and transportation needs. If these parties fail to deliver our products in a timely 14 fashion, including due to lack of available trucks or drivers, labor stoppages or if there is an increase in transportation costs, including due to increased fuel costs, it would have a material adverse effect on our earnings and could reduce our sales and geographic market. Purchasers of our products may assert product liability claims against us, which may materially and adversely affect our financial condition. Actual or claimed defects in our products could give rise to product liability claims against us. We might be sued because of injury or death, property damage, loss of production or suspension of operations resulting from actual or claimed defects in our products. Regardless of whether we are ultimately determined to be liable, we might incur significant legal expenses not covered by insurance. In addition, products liability litigation could damage our reputation and impair our ability to market our products. Litigation could also impair our ability to retain products liability insurance or make our insurance more expensive. We currently carry product liability insurance with a liability limit of $2,000,000. Spectrum Plastics carries general commercial liability and umbrella liability insurance that covers the products it manufactures with a liability limit of $6,000,000. We could incur product liability claims in excess of this insurance coverage or that are subject to substantial deductibles, or we may incur uninsured product liability costs. If we are subject to an uninsured or inadequately insured products liability claim based on our products, our business, financial condition and results of operations would be adversely affected. Environmental, health and safety laws regulating the operation of our business could increase the costs of producing our products and expose us to environmental claims. Our business is subject to local, state and federal laws and regulations concerning environmental, health and safety matters, including those relating to air emissions, wastewater discharges and the generation, handling, storage, transportation, treatment and disposal of hazardous materials. Violations of such laws and regulations could lead to substantial fines and penalties. Also, there are risks of substantial costs and liabilities relating to the investigation and remediation of past or present contamination, at current or former properties used or owned by us and at third-party disposal sites, regardless of fault or the legality of the original activities that led to such contamination. Moreover, future developments, such as changes in laws and regulations, more stringent enforcement or interpretation of laws and regulations, and claims for property damage or personal injury would cause us to incur substantial losses or expenditures. Although we believe we are in substantial compliance with all applicable laws and regulations, such laws, regulations, enforcement proceedings or private claims might have a material adverse effect on our business, results of operations and financial condition. Our Company may become subject to regulation by the U.S. Food and Drug Administration as well as other governmental agencies. The manufacture, sale and use of biodegradable plastic products may be subject to regulation by the U.S. Food and Drug Administration (the "FDA") as well as other federal and state agencies. The FDA's regulations are concerned with substances used in food packaging materials, not with specific finished 15 food packaging products. Thus, food and beverage containers are in compliance with FDA regulations if the components used in the food and beverage containers: (i) are approved by the FDA as indirect food additives for their intended uses and comply with the applicable FDA indirect food additive regulations; or (ii) are generally recognized as safe for their intended uses and are of suitable purity for those intended uses. We may develop additional products, including food packaging products. The FDA may find that our biodegradable food packaging products are not in compliance with all requirements of the FDA and require additional FDA approval. In addition, other federal and state agencies may impose additional regulatory requirements on our products and business, all of which could have a material adverse affect on our business operations. Our Company is subject to regulation by the Federal Trade Commission with respect to our environmental marketing claims. The Company advertises its products as biodegradable and must conform with the Federal Trade Commission's Guides for the use of Environmental Marketing Claims (the "Guides"). In the event Federal Trade Commission ("FTC") determined that our products are not in compliance with the Guides and applicable State law regulations, the FTC may bring enforcement actions against on the basis that our marketing claims are false or misleading. Such action could have a material adverse affect on our business operations. The Company is controlled by existing shareholders. The Company's officers, directors and principal shareholders and their affiliates own or control a majority of the Company's outstanding common stock. As a result, these shareholders, if acting together, would be able to effectively control matters requiring approval by the shareholders of the Company, including the election of the Company's Board of Directors. We may not meet our deadlines for registration and effectiveness of a "resale" registration in connection with the Offering. Pursuant to terms of the Registration Rights Agreement we entered into in connection with the Offering, we have agreed to file a "resale" registration statement with the SEC covering the shares of our common stock underlying the Notes and Warrants within 60 days of the closing of the Share Exchange. We agreed to use our best efforts to ensure that such registration statement is declared effective within 150 days of filing. There can be no assurance we will meet these deadlines. In the event we fail to file the registration statement or go effective within the requisite number of days, we are subject to substantial penalties. Our certificate of incorporation limits the liability of our directors. Our certificate of incorporation limits the personal liability of the director of our Company for monetary damages for breach of fiduciary duty as a director, subject to certain exceptions, to the fullest extent allowed by Delaware law. Accordingly, except in limited circumstances, our directors will not be liable to us or our stockholders for breach of their duties. 16 Provisions of our certificate of incorporation, bylaws and Delaware corporate law have anti-takeover effects. Some provisions in our certificate of incorporation and bylaws could delay or prevent a change in control of our Company, even if that change might be beneficial to our stockholders. Our certificate of incorporation and bylaws contain provisions that might make acquiring control of us difficult, including provisions limiting rights to call special meetings of stockholders and regulating the ability of our shareholders to nominate directors for election at annual meetings of our stockholders. In addition, our board of directors has the authority, without further approval of our stockholders, to issue common stock having such rights, preferences and privileges as the board of directors may determine. Any such issuance of common stock could, under some circumstances, have the effect of delaying or preventing a change in control of our Company and might adversely affect the rights of holders of common stock. In addition, we are subject to Delaware statutes regulating business combinations, takeovers and control share acquisitions, which might also hinder or delay a change in control of the Company. Anti-takeover provisions in our certificate of incorporation and bylaws, anti-takeover provisions that could be included in the common stock when issued and the Delaware statutes regulating business combinations, takeovers and control share acquisitions can depress the market price of our securities and can limit the stockholders' ability to receive a premium on their shares by discouraging takeover and tender offer bids, even if such events could be viewed as beneficial by our stockholders. RISKS RELATED TO OUR COMMON STOCK Upon consummation of the Share Exchange, we will be subject to the liabilities of Perf, both known and unknown. Upon consummation of the Share Exchange, Perf Holdings may become subject to all liabilities, claims and obligations of Perf-Go Green, both known and unknown. It is possible Perf-Go Green is subject to certain liabilities, claims and obligations unknown to it. If we are subject to any such liabilities or obligations, our business, financial condition and results of operations could be materially and adversely affected. Our management team does not have extensive experience in public company matters, which could impair our ability to comply with legal and regulatory requirements. We became a public company and subject to the applicable reporting requirements under the securities laws upon consummation of the Share Exchange. Our management team has had limited public company management experience or responsibilities. This could impair our ability to comply with legal and regulatory requirements such as the Sarbanes-Oxley Act of 2002 and applicable federal securities laws including filing required reports and other information required on a timely basis. There can be no assurance that our management will be able to implement and affect programs and policies in an effective and timely manner that adequately respond to increased legal, regulatory compliance and reporting requirements imposed by such laws and regulations. Our failure to comply with such laws and regulations could lead to the imposition of fines and penalties and further result in the deterioration of our business. 17 Our internal financial reporting procedures are still being developed and we will need to allocate significant resources to meet applicable internal financial reporting standards. As a public company we will be required to adopt disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. We are taking steps to develop and adopt appropriate disclosure controls and procedures. These efforts require significant time and resources. If we are unable to establish appropriate internal financial reporting controls and procedures, our reported financial information may be inaccurate and we will encounter difficulties in the audit or review of our financial statements by our independent auditors, which in turn may have material adverse effects on our ability to prepare financial statements in accordance with generally accepted accounting principles and to comply with our SEC reporting obligations. Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes Oxley Act of 2002 could prevent us from producing reliable financial reports or identifying fraud. In addition, current and potential stockholders could lose confidence in our financial reporting, which could have an adverse effect on our stock price. We became subject to Section 404 of the Sarbanes-Oxley Act of 2002 upon consummation of the Share Exchange. Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud, and a lack of effective controls could preclude us from accomplishing these critical functions. Commencing with our fiscal year ending March 31, 2009, we will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, in connection with, Public Company Accounting Oversight Board ("PCAOB") Auditing Standard No. 5 ("AS5")which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. Although we intend to augment our internal controls procedures and expand our accounting staff, there is no guarantee that this effort will be adequate. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404 and AS5. In addition, if we fail to maintain the adequacy of our internal accounting controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Failure to achieve and maintain an effective internal controls could cause us to face regulatory action and also cause investors to lose 18 confidence in our reported financial information, either of which could have an adverse effect on our stock price. There are additional requirements and costs associated with becoming a public company which may prove to be burdensome, especially for a smaller public company. As a result of the Share Exchange, we became subject to the information and reporting requirements of the U.S. securities laws, including the Sarbanes-Oxley Act. The U.S. securities laws require, among other things, review, audit and public reporting of our financial results, business activities, adequacy of controls and other matters. We cannot assure you that we will be able to comply with all of these requirements. Our cost of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders will cause our expenses to be higher than they would be if it had remained privately-held and the Share Exchange had not been consummated. In addition, we will incur substantial expenses in connection with the preparation of the registration statement and related documents with respect to the registration of the securities issued in the Offering. These increased costs may be material and may include the hiring of additional employees and/or the retention of additional consultants and professionals. Our failure to comply with U.S. securities laws could result in private or governmental legal action against us and/or our officers and directors, which could have a detrimental effect on our business and finances, the value of our securities and the ability of our stockholders to resell their securities. We became public through the Share Exchange and we may not be able to attract the attention of major brokerage firms. Additional risks are associated with our Company becoming public through the Share Exchange. For example, security analysts of major brokerage firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our common stock. In addition, even if we should so desire, we cannot assure you that brokerage firms will want to conduct any public offerings on our behalf in the future. Affiliates of our Placement Agent are also shareholders of Perf Holdings, and consequently, may have interests which differ from those of our Company. Two affiliates of the Placement Agent are stockholders of Perf Holdings. These affiliates may possess several conflicts of interest, including but not limited to, receiving compensation for placement of securities in the Offering, having investment objectives which differ from those of investors in the Offering, holding periods or rights that differ from investors, potentially different returns from investors in the Offering, among several other factors. Investors should carefully evaluate these and other potential conflicts of interest prior to determining whether to invest in the Company. There will be a limited trading market for our common stock. It is anticipated that there will be a limited trading market for the Company's common stock on the Financial Industry Regulatory Authority ("FINRA") 19 Over-the-Counter Bulletin Board. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of our common stock. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies or technologies by using common stock as consideration. You may have difficulty trading and obtaining quotations for our common stock. The Company's common stock may not be actively traded, and the bid and asked prices for our common stock on the Over-the-Counter Bulletin Board may fluctuate widely. As a result, investors may find it difficult to dispose of, or to obtain accurate quotations of the price of, our securities. This severely limits the liquidity of the common stock, and would likely reduce the market price of our common stock and hamper our ability to raise additional capital. The market price of our common stock may, and is likely to continue to be, highly volatile and subject to wide fluctuations. Following completion of the Share Exchange, the market price of the Company's common stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including: o dilution caused by our issuance of additional shares of common stock and other forms of equity securities, which we expect to make in the Offering and in connection with future capital financings to fund our operations and growth, to attract and retain valuable personnel and in connection with future strategic partnerships with other companies; o announcements of new acquisitions or other business initiatives by our competitors; o our ability to take advantage of new acquisitions or other business initiatives; o fluctuations in revenue from our biodegradable plastics products; o changes in the market for biodegradable plastics products and/or in the capital markets generally; o changes in the demand for biodegradable plastics products, including changes resulting from the introduction or expansion of new biodegradable products; o quarterly variations in our revenues and operating expenses; o changes in the valuation of similarly situated companies, both in our industry and in other industries; o changes in analysts' estimates affecting our Company, our competitors and/or our industry; 20 o changes in the accounting methods used in or otherwise affecting our industry; o additions and departures of key personnel; o announcements of technological innovations or new products available to the our industry; o announcements by relevant governments pertaining to incentives for biodegradable product development programs; o fluctuations in interest rates and the availability of capital in the capital markets; and o significant sales of our common stock, including sales by the investors following registration of the shares of common stock issued in this Offering and/or future investors in future offerings we expect to make to raise additional capital. These and other factors are largely beyond our control, and the impact of these risks, singly or in the aggregate, may result in material adverse changes to the market price of our common stock and/or our results of operations and financial condition. Our operating results may fluctuate significantly, and these fluctuations may cause our stock price to decline. Our operating results will likely vary in the future primarily as the result of fluctuations in our revenues and operating expenses, expenses that we incur, and other factors. If our results of operations do not meet the expectations of current or potential investors, the price of our common stock may decline. We do not expect to pay dividends in the foreseeable future. We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their common stock, and stockholders may be unable to sell their shares on favorable terms or at all. Investors cannot be assured of a positive return on investment or that they will not lose the entire amount of their investment in the common stock. Investors will experience dilution upon the exercise of Warrants or options. Following the Share Exchange, there are Warrants to purchase 10,340,000 shares of common stock outstanding, which if exercised, could decrease the net tangible book value of your common stock. Further, the sale or availability for sale of the underlying shares in the marketplace could depress our stock price. We have agreed to register for resale all of the underlying shares described 21 above. Holders of registered underlying shares could resell the shares immediately upon registration, resulting in significant downward pressure on our stock price. We also intend to adopt an equity incentive plan pursuant to which we, in the discretion of our Board of Directors, will be able to issue shares of restricted stock and options to purchase common stock in the aggregate of 10,000,000 shares. Directors and officers of the Company have a high concentration of common stock ownership. Based on the 32,279,470 shares of common stock outstanding following completion Share Exchange, our officers and directors beneficially own approximately 16,884,681 shares, or 52.2% of our outstanding common stock. Such a high level of ownership by such persons may have a significant effect in delaying, deferring or preventing any potential change in control of the Company. Additionally, as a result of their high level of ownership, our officers and directors might be able to strongly influence the actions of the Company's board of directors and the outcome of actions brought to our shareholders for approval. Such a high level of ownership may adversely affect the voting and other rights of our shareholders. Applicable SEC rules governing the trading of "penny stocks" limit the trading and liquidity of our common stock, which may affect the trading price of our common stock. Upon completion of the Share Exchange, shares of common stock may be considered a "penny stock" and be subject to SEC rules and regulations which impose limitations upon the manner in which such shares may be publicly traded and regulate broker-dealer practices in connection with transactions in "penny stocks." Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the FINRA's automated quotation system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules which may increase the difficulty investors may experience in attempting to liquidate such securities. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION Forward Looking Statements Some of the statements contained in this Form 8-K that are not historical facts are "forward-looking statements" which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in 22 this Form 8-K, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties, and other factors affecting our operations, market growth, services, products, and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results to differ materially from those contemplated by such forward-looking statements include without limitation: 1. Our ability to attract and retain management, and to integrate and maintain technical information and management information systems; 2. Our ability to generate customer demand for our products; 3. The intensity of competition; and 4. General economic conditions. All written and oral forward-looking statements made in connection with this Form 8-K that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements. Introduction Our Management's Discussion and Analysis of Financial Condition and Results of Operation ("MD&A") is intended to facilitate an understanding of our business and results of operations. MD&A consists of the following sections: o Perf Holdings Overview; o Perf-Go Green Overview: a summary of our business; o Results of Operations; o Plan of Operations; o Liquidity and Capital Resources: an analysis of cash flows, sources and uses of cash and financial position; o Critical Accounting Policies: a discussion of critical accounting policies that require the exercise of judgments and estimates; o Impact of Recently Issued Accounting Pronouncements: a discussion of how we may be affected by recent pronouncements; and 23 o Quantitative and Qualitative Disclosures About Market Risk. The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements and the related notes to those statements included elsewhere in this report. For the purpose of this MD&A, Perf-Go Green, Inc. is herein referred to as "we", "our" or the "Company". Perf Holdings Overview Perf Holdings was incorporated in the State of Delaware in April, 2005. Perf Holdings maintains its statutory registered agent's office at the Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801, New Castle County. Perf Holdings registered agent is The Corporation Trust Company. Its business office is located at 100 Europa Drive, Chapel Hill, NC 27517. Its mailing address is P.O. Box 3254, Chapel Hill, North Carolina 27515. Originally, its business was intended to provide assistance to the non-English speaking Hispanic population in building and maintaining a life in North Carolina. As a result of the Share Exchange, Perf-Go Green became a wholly-owned subsidiary of Perf Holdings and Perf Holdings succeeded to the business of Perf-Go Green as its sole business. As a result of the consummation of the Share Exchange, the historical results are those of Perf-Go Green. Perf-Go Green Overview The Company is a Delaware corporation which was established on November 15, 2007 as a Delaware limited liability company and converted to a "C" corporation on January 7, 2008. The Company has been created as an environmentally friendly "green" company for the development and global marketing of eco-friendly, non-toxic, food contact compliant, biodegradable plastic products. Through the production of biodegradable plastic products, the Company intends to offer a practical and viable solution for reducing plastic waste from the world environment. Based solely on environmental claims statements made by the Company that manufactures, the oxo-biodegradable plastic additive that speeds up the break down of our plastic products, we believe our plastic products will break down in landfill environments within twelve (12) to twenty four (24) months, leaving no visible or toxic residue. All of our products incorporate recycled plastic. Our products make important strides towards the reduction of plastic from the environment. The products are being presented to mass retailers in the United States and Canada and we intend to market our products worldwide. 24 Results of Operations from November 15, 2007 (Date Of Inception) through the period ended March 31, 2008 Revenues We are a start-up company and have not generated or realized any revenues from our business operations for the period from inception through March 31, 2008. We have incurred a net loss of $755,715. Operating Expenses For the period November 15, 2007 (date of inception) through March 31, 2008, our total operating expenses were $627,025. The total operating expenses consists of those of a development stage company, including debt and equity-based financing, product design costs, marketing and distribution costs. Our greatest costs for the period reported are packaging and design expenses, which totaled $150,019. Plan Of Operations We began operations on November 15, 2007 and are a development stage company. Activities during the development stage primarily include debt and equity-based financing, development, design and marketing of our biodegradable plastic products, and the development of mass market product distribution networks for the intended distribution of the products. As the Company is devoting its efforts to product design, development, marketing and distribution, there has been no revenue generated from sales as of the date of this report. Our objective is to create an environmentally friendly "green" company for the development and global marketing of eco-friendly, non-toxic, food contact compliant, biodegradable plastic products. We believe our biodegradable plastic products offer a practical and viable solution for reducing plastic waste from the world environment. Based solely on environmental claims statements made by the Company that manufactures, an oxo-biodegradable plastic additive that speeds up the break down of our plastic products, we believe our plastic products will break down in landfill environments within twelve (12) to twenty four (24) months, leaving no visible or toxic residue. All of our products incorporate recycled plastic. Our products make important strides towards the reduction of plastic from the environment. We have partnered with Spectrum Plastics, a large manufacturer and distributor of plastic bags and plastic products to manufacture and distribute our plastic products. With its headquarters located in Cerritos, California, Spectrum's revenues exceed $250,000,000 in the United States. The Company's owner and President, Ben Tran, is a director of our Company and shares in one of the patents on our handle tie-bags. The manufacturing of our biodegradable plastic products is a multi-step process. Spectrum Plastics starts by using recycled plastic and combines it with an oxo-biodegradable plastic additive. Spectrum Plastics has been issued a license by our oxo-biodegradable plastic additive supplier to use their 25 oxo-biodegradable plastic additive. Spectrum Plastics utilizes a proprietary application method to produce the film made with the oxo-biodegradable plastic additive for our trash bags. As a result of this process, we believe, based on our oxo-biodegradable plastic additive supplier's environmental claims relating to the oxo-biodegradable plastic additive, our plastic products, when discarded in soil in the presence of microorganisms, moisture and oxygen, will biodegrade, decomposing into simple materials found in nature and will be 100% degradable. We believe this degradable plastic additive technology will be suitable in the creation of many mainstream consumer products. During 2008, we intend to launch and market six (6) prominent plastic product categories including: thirteen gallon, tall kitchen garbage bags; thirty gallon garage, lawn and leaf garbage bags; commercial garbage bags (various sizes for office buildings and for municipalities, parks and beaches); kitty litter liner bags (three sizes); 10 foot by 20 foot plastic drop cloths, and; disposable diapers (baby and adult sizes). We anticipate the sale and distribution of our initial product offering, the thirteen-gallon tall kitchen trash bags, will begin in the third quarter of 2008. We believe that we are the first company to mass-market 100% biodegradable trash bags and other plastic products. The Company is currently negotiating to secure placement and premier featuring and exposure with "brand-making" retailers such as Amazon.com and Drugstore.com. In addition, we are in contact and in negotiations with a number of other named brand retailers. We anticipate yearly growth and expansion with retailers across the country with the release of new products and demand for our biodegradable plastic products. We intend to deliver brand building messages through several marketing and advertising vehicles, including television, radio, national print, online marketing and search engine optimization, and retail store promotions. Our products were showcased at the Chicago International Housewares Show held March 16th through March 18th. 22,000 buyers from around the world attended this event. Our product received national attention by television networks and other media outlets as a "Hot New Household Product." Our product was awarded as a Design Defined Honoree for 2008 at the show. Additionally, we signed six representative firms that give will us reach to major national retailers in the U.S. and Canada. Liquidity and Capital Resources For the period from inception through March 31, 2008, our net cash flow was $675,100, which is primarily attributable to the Company's financing activities. On January 15, 2008, February 8, 2008, February 28, 2008, and May 13, 2008 respectively, we sold $350,000, $250,000 and $150,000, respectively of convertible notes and warrants. The convertible notes were converted into common stock of the Company on March 28, 2008. As of March 31, 2008, we had cash and cash equivalents of $270,185 which was attributable to our financing activities. 26 Critical Accounting Policies and Estimates The preparation of financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. A critical accounting policy is one that is both important to the presentation of our financial position and results of operations, and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. Revenue Recognition The Company recognizes revenue when the significant risks and rewards of ownership have been transferred pursuant to all applicable laws, including such factors as when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, sales and value-added tax laws have been compiled with, and collectability is reasonably assured. No revenue has been recorded to date. Future revenues from its sales of consumer industry products will generally be recognized when the product is delivered to the customer's distribution center. Recent Accounting Pronouncements In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements", which clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. It also defines fair value and established a hierarchy that prioritizes the information used to develop assumptions. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not expect SFAS No. 157 to have a material impact on its financial position, results of operations or cash flows. In February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities", which permits entities to choose to measure many financial instruments and certain other items at fair value. The unrealized gains and losses on items for which the fair value option has been elected should be reported in earnings. The decision to elect the fair value option is determined on an instrument-by-instrument basis, should be applied to an entire instrument and is irrevocable. Assets and liabilities measured at fair values pursuant to the fair value option should be reported separately in the balance sheet from those instruments measured using other measurement attributes. SFAS No. 159 is effective as of the beginning of the Company's 2008 fiscal year. The 27 adoption of SFAS No. 159 is not expected to have a material effect on its financial position, results of operations or cash flows. In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No 51" (SFAS 160). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent's ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent's ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The adoption of SFAS No. 160 is not expected to have a material effect on its financial position, results of operations or cash flows. In December 2007, the FASB issued SFAS 141R, "Business Combinations" ("SFAS 141R"), which replaces FASB SFAS 141, "Business Combinations". This Statement retains the fundamental requirements in SFAS 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition. SFAS 141R will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date. This compares to the cost allocation method previously required by SFAS No. 141. SFAS 141R will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met. Finally, SFAS 141R will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date. This Statement will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008. Early adoption of this standard is not permitted and the standards are to be applied prospectively only. Upon adoption of this standard, there would be no impact to the Company's results of operations and financial condition for acquisitions previously completed. The adoption of SFAS No. 141R is not expected to have a material effect on its financial position, results of operations or cash flows. In January 2008, the SEC released SAB No. 110, which amends SAB No. 107 which provided a simplified approach for estimating the expected term of a "plain vanilla" option, which is required for application of the Black-Scholes option pricing model (and other models) for valuing share options. At the time, the Staff acknowledged that, for companies choosing not to rely on their own historical option exercise data (i.e., because such data did not provide a reasonable basis for estimating the term), information about exercise patterns with respect to plain vanilla options granted by other companies might not be available in the near term; accordingly, in SAB No. 107, the Staff permitted use of a simplified approach for estimating the term of plain vanilla options granted on or before December 31, 2007. The information concerning exercise behavior that the Staff contemplated would be available by such date has not materialized for many companies. Thus, in SAB No. 110, the Staff continues to allow use of the simplified rule for estimating the expected term of plain vanilla options until such time as the relevant data becomes widely available. The Company does not expect its adoption of SAB No. 110 to have a material impact on its financial position, results of operations or cash flows. In March 2008, the FASB issued SFAS No. 161 "Disclosures about Derivative Instruments and Hedging Activities-An Amendment of FASB Statement No. 133." ("SFAS 161"). SFAS 161 establishes the disclosure requirements for derivative instruments and for hedging activities with the intent to provide financial statement users with an enhanced understanding of the entity's use of derivative instruments, the accounting of derivative instruments and related hedged items under Statement 133 and its related interpretations, and the effects of these instruments on the entity's financial position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company does not expect its adoption of SFAS 161 to have a material impact on its financial position, results of operations or cash flows. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption. 28 Quantitative and Qualitative Disclosures About Market Risk Foreign Currency Risk Currently, we have no exposure to foreign currency risk as all our sales transactions, assets and liabilities are denominated in the U.S. dollar. Interest Rate Risk Our exposure to interest rate risk is limited to interest earned from our money market accounts and our interest expense on short-term and long-term borrowings. Currently, this exposure is not significant. Substantial increases in short-term and long-term borrowings to fund growth or make investments, combined with actual changes in interest rates could adversely affect our future results of operations. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of May 13, 2008, information regarding the beneficial ownership of our common stock by (a) each person who is known to us to be the owner of more than five percent of our common stock, (b) each of our directors, (c) each of the named executive officers, and (d) all directors and executive officers and executive employees as a group. For purposes of the table, a person or group of persons is deemed to have beneficial ownership of any shares that such person has the right to acquire within 60 days of May 13, 2008.
Name and Address of Amount and Nature of Percent of Class (%) Beneficial Owner (1) Beneficial Ownership --------------------- --------------------- -------------------- Anthony Tracy 13,650,000 42.3 Michael Caridi 2,935,372 9.1 Gov. George Pataki * (2) * Linda Daniels 207,447 0.6 Ben Tran** * (3) * Arthur Stewart 51,862 0.2 Officers and Directors 16,844,681 52.2 as a group (6 persons) Rig Fund II A, LTD. 3,000,000 9.3 40 A Route De Malagnou Geneva, Switzerland 1208 Five (5) percent owners as a group 3,000,000 9.3 --------------
* Less than 1% of the outstanding common stock or less than 1% of the voting power. 29 (1) The address for Messrs. Tracy, Caridi, Pataki, Tran and Stewart and Ms. Daniels is c/o Perf-Go Green Holdings, Inc., 645 Fifth Avenue, New York, New York 10022. Beneficial ownership percentages gives effect to the completion of the Share Exchange, and are calculated based on shares of common stock issued and outstanding. Beneficial ownership is determined in accordance with Rule 13d-3 of the Exchange Act. The number of shares beneficially owned by a person includes shares of common stock underlying options or warrants held by that person that are currently exercisable or exercisable within 60 days of May 13, 2008. The shares issuable pursuant to the exercise of those options or warrants are deemed outstanding for computing the percentage ownership of the person holding those options and warrants but are not deemed outstanding for the purposes of computing the percentage ownership of any other person. The persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite that person's name, subject to community property laws, where applicable, unless otherwise noted in the applicable footnote (2) Does not include options to purchase 1,000,000 shares of common stock at an exercise price of $0.50 per share pursuant to our soon to be adopted equity incentive plan immediately following the completion of the Share Exchange. (3) Does not include options to purchase 30,000 shares of our Common Stock on a monthly basis at an exercise price of $0.50 per share pursuant to our soon to be adopted equity incentive plan immediately following the completion of the Share Exchange granted to Spectrum Plastics. DIRECTORS AND EXECUTIVE OFFICERS Executive Officers and Directors Below are the names and certain information regarding the Company's executive officers, directors and director nominees following the Share Exchange and the resignations of Mr. Acevedo as Director and President and the resignation of Mr. Gonzalez as Secretary and Director. Officers are elected annually by the Board of Directors. Name Age Position ---- --- -------- Tony Tracy 47 Chairman of the Board and Chief Executive Officer Michael Caridi 44 Chief Operating Officer Gov. George E. Pataki 62 Director Ben Tran 42 Director Linda Daniels 59 Director, Chief Marketing Officer and Secretary Arthur Stewart 52 Chief Financial Officer 30 Our Board of Directors currently consists of four members. We are currently searching for additional individuals who would qualify as "independent" to serve as directors. At this time the Company does not maintain a separate audit committee, compensation committee or nominating committee but we intend to form such committees in the future. All Directors of the Company hold office until the next annual meeting of stockholders or until their successors are elected and qualified. Officers serve at the discretion of the Board of Directors of the Company. There are no family relationships among any of the officers or directors. The backgrounds of the Executive Officers and Directors of the Company are as follows: Tony Tracy has been our Chairman of the Board of Directors and Chief Executive Officer since May 2008 and held the same positions with Perf-Go Green since January 2008. He is the Chief Executive Officer of Tracy Productions and Prime 9 LLC and is an entrepreneur and designer of 15 patented products ranging from household products, exercise equipment, and grooming products for men and women. Some of his patented products include: the MAG BAR(TM), a total body isometric apparatus sold on the Home Shopping Network; Le Scoop(TM) which allows the user to "scoop" the extra fat and calories from a bagel; Le Slice(TM) which allows the user to slice a bagel without injury to fingers or hands and Supra Liners(TM), the automatic trash bag dispenser, sold at Wal-Mart, Wakefern, Shop-Rite, and now trade marked under the name PERF BAGS.(TM) The PERF BAGS line has been expanded to six sizes including the Kitty Litter PERF BAG(TM). Michael Caridi has been our Chief Operating Officer since May 2008 and held the same positions with Perf-Go Green since January 2008. He is currently or has been an executive officer of several companies including MAJIC Development Group LLC, Protection Plus Security Consultants, Inc. Quest Imports International and Berkshire Financial Group Inc. His business endeavors span various industries including residential construction and development, concrete operations, interior/exterior and ground-up commercial construction for Fortune 500 corporations. In addition, Michael is also engaged in a diverse mix of independent business ventures including residential and commercial property-ownership, management and banking, ship salvaging and dismantling, hotel ownership and development, consulting and management, corporate janitorial services, magazine publishing, and alcohol/non-alcoholic import and export. Mr. Caridi is also a licensed real estate broker. As head of MAJIC Development Group LLC, he has been involved in several significant development projects, as well as construction for many Fortune 500 clients and retailers. Mr. Caridi also advises the Boards of Directors of Isonics, Immunejen and Uysiys. Governor George E. Pataki has been a director since May 2008 and held the same positions with Perf-Go Green since January 2008. Mr. Pataki was Governor of New York from 1995 until 2006. He has been of counsel to the law firm of Chadbourne & Park since March 2007. He is a principal of Pataki Cahill Group, a consulting firm specializing in climate change issues. He is a director of Cosan. Ben Tran has been a director since May 2008 and held the same positions with Perf-Go Green since January 2008. Mr. Tran has been President of Spectrum Plastics since 1995. From 1992 until 1995, Mr. Tran was a business manager for 31 the Inteplast Group. From 1988 until 1992, he was a product manager for Mobil Corporation. Mr. Tran has bachelors degrees in economics and marketing. Linda Daniels has been our Chief Marketing Officer and Secretary since May 2008 and held the same positions with Perf-Go Green since January 2008. She has 20 years of experience as a creative, strategic, global marketing executive with exceptionally diverse experience in creating business to business and business to consumer initiatives across many industries. She has worked with IBM, Xerox, NYSE, CNBC, MSNBC, Citigroup, Smith Barney, Prudential Securities and The New York Clearing House producing inventive, provocative, and engaging marketing strategies that succeeded in building their brand equity. Ms. Daniels is President and Founder of The Punch Factory, a marketing consultancy that creates and executes great ideas to grow great brands. She is also a director of Prime 9, LLC. Arthur F. Stewart CPA has been our chief financial officer since May 2008 and held the same positions with Perf-Go Green since January 2008. He has over 20 years of experience in the public accounting field. Prior to being licensed in the State of New York, he worked as the senior auditor of a firm, which specialized in audits of major labor unions, inclusive of the Westchester Teamsters Local 456, a $70 million dollar combined fund local. Subsequent to this tenure he opened his own accounting firm Arthur F. Stewart CPA which now currently services tax and accounting issues for clients in the industries of Construction, Real Estate & Cellular Tower Providers, Professional Corporations, Retail and Wholesale businesses, Not For Profit Community Youth Organizations. In addition, his firm supplies support services, in the area of monthly overview and adherence to compliance issues to over thirty varied clients inclusive of the full back office operation for RMOUSA Inc., a division of Reed Elesvier PLC a publicly traded company on the NYSE. As head of the firm he oversees the preparation of over 500 federal corporate, partnership and individual tax returns, inclusive of varied State filings. Non-Employee Director Compensation The following table sets forth a summary of the compensation we paid to our non-employee directors in 2008:
Fees Earned or Option All Other Name Paid in Cash Awards Compensation Total - ---- -------------- ------ ------------ ----- Governor George E. Pataki - (1) - - Ben Tran - (2) - -
(1) Does not include options to purchase 1,000,000 shares of common stock at an exercise price of $0.50 per share pursuant to our soon to be adopted equity incentive plan immediately following the completion of the Share Exchange. (2) Does not include options to purchase 30,000 shares of our Common Stock on a monthly basis at an exercise price of $0.50 per share pursuant to our soon to be adopted equity incentive plan immediately following the completion of the Share Exchange granted to Spectrum Plastics. 32 As a development stage company, the Company has not made any determination as to how our directors shall be compensated. EXECUTIVE COMPENSATION Perf-Go Green Summary Compensation Table The following table sets forth the compensation of our chief executive officer and chief financial officer and our "named executive officers," for the period ended March 31, 2008. The Company has no executive officers other than the "named executive officers." Name and principal position Year Salary ($) Total ($) - ------------------ ---- ---------- --------- Anthony Tracy, Chairman of the 2008 45,066 45,066 Board and Chief Executive Officer Michael Cardi, Chief Operating 2008 31,533 31,533 Officer Linda Daniels, Chief Marketing 2008 31,270 31,270 Officer Arthur Stewart, Chief Financial 2008 12,500 12,500 Officer Outstanding equity awards at March 31, 2008. None. Grants of Plan - Based Awards at March 31, 2008. None. Each of Tony Tracy and Michael Caridi have been granted reimbursements for the use of an individually owned vehicle. The use of the individually owned vehicle provides an expense-saving opportunity, as this vehicle is used for business-related travel as needed, helping to cut out-of-pocket travel expenses. Employment Agreements Mr. Tracy has entered into an employment agreement with us, dated as of January 1, 2008, providing for a base salary of $175,000 in the first year, plus a twenty (20%) percent increase in each year thereafter. The initial term of the agreement is three years, with yearly extensions thereafter, unless either party gives contrary notice at least thirty (30) days prior to any yearly extension. In addition to a base salary, Mr. Tracy is entitled to receive a twenty (20%) 33 percent bonus per year upon receipt pf the Company's first significant purchase order. In addition, Mr. Tracy is entitled to sales and override commissions. The Company can terminate the employment agreement with Mr. Tracy upon his death, disability or for "Cause," as defined in the employment agreement. Mr. Caridi has entered into an employment agreement with us, dated as of January 1, 2008, providing for a base salary of $125,000 in the first year, plus a twenty (20%) percent increase in each year thereafter. The initial term of the agreement is three years, with yearly extensions thereafter, unless either party gives contrary notice at least thirty (30) days prior to any yearly extension. In addition to a base salary, Mr. Caridi is entitled to receive a twenty (20%) percent bonus per year upon receipt of the Company's first significant purchase order. In addition, Mr. Caridi is entitled to sales and override commissions. The Company can terminate the employment agreement with Mr. Caridi upon his death, disability or for "Cause," as defined in the employment agreement. Ms. Daniels has entered into an employment agreement with us, dated as of January 1, 2008, providing for a base salary of $125,000 in the first year, plus a twenty (20%) percent increase in each year thereafter. The initial term of the agreement is three years, with yearly extensions thereafter, unless either party gives contrary notice at least thirty (30) days prior to any yearly extension. In addition to a base salary, Ms. Daniels is entitled to receive a twenty (20%) percent bonus per year upon receipt pf the Company's first significant purchase order. In addition, Ms. Daniels is entitled to sales and override commissions. The Company can terminate the employment agreement with Ms. Daniels upon her death, disability or for "Cause," as defined in the employment agreement. Stock Option Plan Subject to the approval of our board of directors and shareholders and subsequent to the consummation of the Share Exchange, we intend to implement an employee incentive stock plan and cancel Perf Holdings 2005 Equity Compensation Plan. The new plan will provide for the issuance of stock options and other equity-based awards for up to a maximum of 10,000,000 shares of common stock. Options to be granted under the plan will be either "incentive," which are meant to qualify under Section 422 of the Internal Revenue Code or "non-qualified," which do not qualify as incentive options under the Code. Other awards may be in the form of restricted stock. Subject to the terms of the proposed plan, the Board will be solely responsible for the administration of the plan, including the granting of awards and the determination of the purchase price of options. Under the proposed plan, the exercise price for qualified stock options may not be less than 100% of the fair market value of a share of common stock at the time the option is granted. We anticipate that the term of a stock option will be ten years and each award will vest in accordance with a schedule to be determined by the Board at the time of grant. Officers and key employees will be eligible to receive options under the proposed plan. Code of Business Conduct and Ethics Our Board of Directors has not adopted a code of business and ethics as of this time, but expects to do so in the near future. 34 Transactions with Related Persons, Promoters and Certain Control Persons In January 2008, MAJIC Development Group LLC, the lessor of office space located on the 8th floor of 645 Fifth Avenue, New York, New York, and of which Mr. Caridi is a managing member, subleased that office space to us at a monthly rent of $5,500 for the first two months, increasing to approximately $8,000 after that. This space is currently occupied by the Company. The Punch Factory, of which Linda Daniels is the President, currently subleases certain office space to us at a monthly rent of $1,500 for the month. We recently entered into a letter agreement with Spectrum Plastics, Inc. ("Spectrum") pursuant to which Spectrum agreed to manufacture certain biodegradable plastic products incorporation TDPA exclusively for us for so long as we purchase certain minimum amounts of products per month. The prices and times shall be mutually agreed upon between the parties. Ben Tran, a director of the Company, is the President of Spectrum. Compensation Committee Interlocks and Insider Participation Our Board of Directors does not maintain a standing compensation committee. As a development stage company, the founders of the Company did not believe it necessary or appropriate to maintain a standing compensation committee, instead decisions concerning compensation were discussed and recommended by Tony Tracy, our chairman and chief executive officer, and Michael Caridi, our chief operating officer. DESCRIPTION OF SECURITIES Perf Holding's authorized capital stock consists of 100,000,000 shares of common stock, $.0001 par value per share, and 5,000,000 shares of Preferred Stock $.0001 par value per share. Common Stock The holders of shares of common stock are entitled to share ratably in such dividends and distributions as may be legally declared by the Board of Directors with respect to the common stock and in any assets of the Company available for to stockholders upon its liquidation. Upon liquidation assets will only be available for distribution after satisfaction or provision for all debts and other obligations of the Company, including to holders of common stock designated as senior in right of payment upon liquidation. The holders of shares of common stock have one vote per share in person or by proxy at all meetings of stockholders. There are no cumulative voting rights with respect to the election of the Company, which means that holders of more than 50% of the shares of common stock voting in an election for directors can elect all of the directors then to be elected. There are no preemptive, conversion, sinking fund or redemption rights applicable to the common stock. Preferred Stock Our certificate of incorporation provides that we are authorized to issue "blank check" preferred stock, which may be issued from time to time in one or more series upon authorization by our board of directors. Our Board of Directors 35 without approval of our stockholders, is authorized to fix any dividend rights, conversion rights, voting rights, redemption rights and terms, liquidation preferences and any other rights, preferences, privileges and restrictions applicable to each series of preferred stock. The issuance of preferred stock, while providing us flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, adversely affect your voting power and the voting power of the holders of the common stock. Under certain circumstances, the issuance of preferred stock could also make it more difficult for a third party to gain control of our Company, discourage bids for our outstanding securities at a premium or otherwise adversely affect the price of our outstanding securities. Senior Secured Convertible Notes In connection with the first Closing of the Offering, the Company issued $2,775,000 of its 10% Senior Secured Convertible Notes due May 13, 2011. The Senior Secured Convertible Notes were secured by a first priority lien and security interest on substantially all of the assets of the Company subject to certain limited and specified exclusions. The notes are convertible into common stock of Perf Holdings. Warrants There are warrants to purchase 10,340,000 shares outstanding. We issued 3,700,000 warrants to Investors to purchase common stock in connection with the Offering. The Warrants issued to the Investors are exercisable through May 13, 2013 at an initial price of $1.00 per share, subject to adjustment as provided for therein. The Placement Agent was issued 790,000 in connection with the Offering. We issued 1,500,000 warrants to investors in a prior offering and 150,000 warrants to the Placement Agent in connection with the prior offering at an initial price of $0.75 per share, subject to adjustment as provided for therein. The Company also issued 4,200,000 warrants to the Epitome Investors at an initial price of $1.00 per share, subject to adjustment as provided for therein. See "Recent Sales of Unregistered Securities." Delaware Anti-Takeover Law The Company and its stockholders will be subject to Section 203 of the General Corporation Law of the State of Delaware, an anti-takeover law. In general, the law prohibits a public Delaware corporation from engaging in a "business combination" within an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in the prescribed manner. "Business combination" includes merger, asset sales and other transactions resulting in a financing benefit to the interested stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or more of the corporation's voting stock. 36 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Market Information Our common stock was approved to trade under the symbol "PGOG" on the Over the Counter Bulletin Board. Although our common stock was approved to trade, to date the stock has not traded. Holders As of May 12, 2008, in accordance with our transfer agent records, we had 33 record holders of our Common Stock. Dividends Holders of our common stock are entitled to receive dividends if, and when declared by the Board of Directors out of funds legally available therefore. We have never declared or paid any dividends on our common stock. We intend to retain any future earnings for use in the operation and expansion of our business. Consequently, we do not anticipate paying any cash dividends on our common stock to our stockholders for the foreseeable future. Equity Compensation Plan Information There is no stock option plans, retirement, pension, or profit sharing plans for the benefit of our officer and directors other than our 2005 Equity Compensation Plan. We have not issued and shares under this plan and no options have been granted thereunder. Subject to the approval of our board of directors and shareholders, we intend to cancel the 2005 Equity Compensation Plan and implement a new equity incentive plan. Transfer Agent The transfer agent for the common stock is Island Stock Transfer. The transfer agent phone number is 727-289-0010. LEGAL PROCEEDINGS From time to time, Perf Holdings may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. On April 11, 2008, David Conklin, a shareholder of Perf-Go Green, asserted a claim against Tony Tracy, our Chairman of the Board of Directors and Chief Executive Officer, alleging that, based on Mr. Conklin's prior contributions to other companies operated by Tony Tracy as well as prior agreements between Mr. Conklin and Mr. Tracy, Mr. Conklin was entitled to be issued a ten (10%) percent interest in Perf-Go Green. The parties are currently attempting to settle this 37 dispute. In furtherance of these settlement discussions, Mr. Tracy has agreed to place 2,000,000 shares of the common stock of Perf Holdings in escrow until the dispute is resolved. At this time, Mr. Conklin has not asserted any claim against the Perf Holdings or Perf-Go Green. By written agreement dated April 16, 2008, Mr. Conklin agreed that in the event that it is determined, either by agreement or pursuant to court order, that he is entitled to shares of the Company's stock, such shares shall be taken from Mr. Tracy's interest in the Perf Holdings. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Upon consummation of the Share Exchange, we dismissed Webb & Company, P.A. ("Webb") as our principal accountant effective on such date, and we appointed Berman & Company, P.A. ("Berman") as our new principal accountant. Webb's report on our financial statements for fiscal year 2007 did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles, with the exception of a qualification with respect to uncertainty as to our ability to continue as a going concern. The decision to change accountants was recommended and approved by our Board of Directors. During fiscal year 2007, and the subsequent interim period through consummation of the Share Exchange, there were no disagreements with Webb on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures, which disagreement(s), if not resolved to the satisfaction of Webb, would have caused them to make reference to the subject matter of the disagreement(s) in connection with their report, nor were there any reportable events as defined in Item 304(a)(1)(iv)(B) of Regulation S-K. We engaged Berman as our new independent registered public accounting firm as of consummation of the Share Exchange. During fiscal year 2007, and the subsequent interim period through Share Exchange, we nor anyone on our behalf engaged Berman regarding either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or any matter that was either the subject of a "disagreement" or a "reportable event," both as such terms are defined in Item 304 of Regulation S-K. We have requested Webb to furnish us with a letter addressed to the Commission stating whether it agrees with the statements made by us in this Current Report, and, if not, expressing the respects in which it does not agree. RECENT SALES OF UNREGISTERED SECURITIES During December 2007, the Company offered units which consisted of 100,000 common shares and a three year warrant to purchase 100,000 common shares at an exercise price of $0.75 per share for $50,000 per unit. The Company issued 5,200,000 common shares and 5,200,000 warrants to three investors (the "Epitome Investors") and received cash proceeds of $2,600,000 ($0.50 per share) in 38 connection with the offering. This offering was done in connection with a letter of intent between Perf-Go Green Holdings, Inc. and Epitome Systems, Inc. whereby the two companies entered into good faith negotiations in furtherance of entry into a definitive merger agreement which was not consummated but the Epitome Investors did not rescind their investment. The Epitome Investors committed $2.1 million dollars of the prior $2.6 million dollar investment to Perf-Go Green Holdings, Inc. in connection with the Share Exchange and remain as shareholders of the Company. One of the Epitome Investors, E&P Fund, Ltd., has reduced its investment in the Company by $500,000 and has returned one million shares of the Company's common stock to the Company which has been cancelled. In connection with the cancellation and, pursuant to an Assignment Agreement entered into in April 2008 between the Company and E&P Fund, Ltd., the Company agreed to assign the right to the repayment of a refundable deposit of $500,000 paid to Epitome Systems, Inc. in connection with the abandoned merger, to E&P Fund, Ltd. in exchange for the return of 1,000,000 shares of common stock. In addition, the Epitome Investors have agreed to cancel the warrants they received as part of the Epitome investment in exchange for the same number of warrants currently being offered in the Company's current offering of 10% Senior Secured Convertible Notes and Common Stock Purchase Warrants and have signed releases releasing Perf Holdings from any liability resulting from the prior transaction with Epitome. On May 13, 2008, the Company completed a private placement offering pursuant to which it issued to accredited investors (the "Investors"), 10% senior secured convertible debentures in the principal amount of $2,775,000, in the aggregate (the "Notes"), and warrants to purchase a total of 3,700,000 shares of the Company's common stock (the "Warrants") at an exercise price of $1.00 per share. The Warrants may be exercised for a period of five years. The information set forth under Item 1.01 of this Current Report on Form 8-K relating to the private placement offering is hereby incorporated by reference into this Item 2.01 in its entirety. INDEMNIFICATION OF DIRECTORS AND OFFICERS Under our Articles of Incorporation and Bylaws of the corporation, we may indemnify an officer or director who is made a party to any proceeding, including a law suit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he is to be indemnified, we must indemnify him against all expenses incurred, including attorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Delaware. Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to directors or officers under Delaware law, we are informed that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable. 39 Item 2.03 - Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. The information set forth under Item 1.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 2.03 in its entirety. Item 3.02 Unregistered Sales of Securities. The information set forth under Item 1.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 3.02 in its entirety. During December 2007, the Company offered units which consisted of 100,000 common shares and a three year warrant to purchase 100,000 common shares at an exercise price of $0.75 per share for $50,000 per unit. The Company issued 5,200,000 common shares and 5,200,000 warrants to three investors (the "Epitome Investors") and received cash proceeds of $2,600,000 ($0.50 per share) in connection with the offering. This offering was done in connection with a letter of intent between Perf-Go Green Holdings, Inc. and Epitome Systems, Inc. whereby the two companies entered into good faith negotiations in furtherance of entry into a definitive merger agreement which was not consummated but the Epitome Investors did not rescind their investment. The Epitome Investors committed $2.1 million dollars of the prior $2.6 million dollar investment to Perf-Go Green Holdings, Inc. in connection with the Share Exchange and remain as shareholders of the Company. One of the Epitome Investors, E&P Fund, Ltd., has reduced its investment in the Company by $500,000 and has returned one million shares of the Company's common stock to the Company which have been cancelled. In connection with the cancellation and, pursuant to an Assignment Agreement entered into in April 2008 between the Company and E&P Fund, Ltd., the Company agreed to assign the right to the repayment of a refundable deposit of $500,000 paid to Epitome Systems, Inc. in connection with the abandoned merger, to E&P Fund, Ltd. in exchange for the return of 1,000,000 shares of common stock. In addition, the Epitome Investors have agreed to cancel the warrants they received as part of the Epitome investment in exchange for the same number of warrants currently being offered in the Company's current offering of 10% Senior Secured Convertible Notes and Common Stock Purchase Warrants and have signed releases releasing Perf Holdings from any liability resulting from the prior transaction with Epitome. Item 4.01 Changes in Registrant's Certifying Accountant Upon consummation of the Share Exchange, we dismissed Webb & Company, P.A. ("Webb") as our principal accountant effective on such date, and we appointed Berman & Company, P.A. ("Berman") as our new principal accountant. Webb's report on our financial statements for fiscal year 2007 did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles, with the exception of a qualification with respect to uncertainty as to our ability to continue as a going concern. The decision to change accountants was recommended and approved by our Board of Directors. 40 Item 5.01 Changes in Control of Registrant. The information set forth under Item 2.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 5.01 in its entirety. Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers. The information set forth under Item 2.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 5.02 in its entirety. Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. On May 13, 2008, in accordance with the Registrant's By-Laws, the Registrant's Board of Directors resolved that the Registrant's fiscal year be changed to end on March 31. The Registrant's fiscal year previously ended as of October 31. The Registrant's financial statements for the transition period shall be filed on Form 10-K. Item 5.06 Change in Shell Company Status. The information set forth under Item 2.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 5.06 in its entirety. Item 9.01 Financial Statements and Exhibits. (a) Financial statements of business acquired. (b) Pro forma financial information. - not applicable. (c) Exhibits Exhibit Number Description - ------- ------------------------------------------------------------------ 10.1 Employment Agreement dated January 1, 2008 between the Company and Anthony Tracy 10.2 Employment Agreement dated January 1, 2008 between the Company and Michael Caridi 10.3 Employment Agreement dated January 1, 2008 between the Company and Linda Daniels 10.4 Share Exchange Agreement 10.5 Form of 10% Secured Convertible Debenture 10.6 Form of Warrant 10.7 Security Agreement 10.8 Registration Rights Agreement 10.9 Form of Subscription Agreement SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Perf-Go Green Holdings, Inc. May 16, 2008 By: /s/ Tony Tracy --------------------------------- Tony Tracy President CONTENTS
Page(s) Report of Independent Registered Public Accounting Firm F-1 Financial Statements: Balance Sheet - As of March 31, 2008 F-2 Statement of Operations - For the Period from November 15, 2007 (Inception) to March 31, 2008 F-3 Statement of Changes in Stockholders' Equity - For the Period from November 15, 2007 (Inception) to March 31, 2008 F-4 Statement of Cash Flows - For the Period from November 15, 2007 (Inception) to March 31, 2008 F-5 Notes to Financial Statements F-6-15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders' of: Perf-Go Green, Inc. We have audited the accompanying balance sheet of Perf-Go Green, Inc., (a development stage company) as of March 31, 2008 and the related statements of operations, changes in stockholders' equity and cash flows for the period from November 15, 2007 (Inception) to March 31, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included considerations of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Perf-Go Green, Inc. as of March 31, 2008, and the results of its operations and its cash flows for the period from November 15, 2007 (Inception) to March 31, 2008, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has a net loss of $755,715 and net cash used in operations of $402,370 for the period ended March 31, 2008; and a deficit accumulated during the development stage of $755,715 at March 31, 2008. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Berman & Company, P.A. - ---------------------------- Berman & Company, P.A. Boca Raton, Florida May 2, 2008 F-1 PERF-GO GREEN, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET -------------
March 31, 2008 ------------------ Assets ------ Current Assets: Cash and cash equivalents $ 270,185 Prepaid expenses 32,615 --------------------- Total Current Assets 302,800 Equipment, net of accumulated depreciation of $85 2,460 --------------------- Total Assets $ 305,260 ======================= Liabilities and Stockholders' Equity ------------------------------------ Current Liabilities: Accounts payable $ 199,645 Accrued expenses 55,270 --------------------- Total Current Liabilities 254,915 --------------------- Stockholders' Equity: Preferred stock ($.0001 par value, 10,000,000 shares authorized, none issued and outstanding) - Common stock ($0.0001 par value, 100,000,000 shares authorized, 20,322,767 shares issued and outstanding) 2,032 Additional paid-in capital 804,028 Deficit accumulated during development stage (755,715) --------------------- Total Stockholders' Equity 50,345 --------------------- Total Liabilities and Stockholders' Equity $ 305,260 =====================
See accompanying notes to financial statements. F-2 PERF-GO GREEN, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF OPERATIONS ----------------------- For the Period from November 15, 2007 (Inception) to March 31, 2008 ----------------------- Operating expenses General and administrative $ 627,025 ----------------------- Total operating expenses 627,025 ----------------------- Loss from operations (627,025) Other income (expense) Interest income 391 Interest expense (129,081) ------------------------ Total other expense - net (128,690) ------------------------ Net loss $ (755,715) ======================== Net loss per share - basic and diluted $ (0.04) ======================== Weighted average number of shares outstanding during the period - basic and diluted 18,860,109 ======================== See accompanying notes to financial statements. F-3
PERF-GO GREEN, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD FROM NOVEMBER 15, 2007 (INCEPTION) TO MARCH 31, 2008 ------------------------------------------------------------------- Deficit Common Stock Additional Accumulated Total ----------------------- Paid-in during Stockholders' Shares Amount Capital Development Stage Equity ------------------------------------------------------------------------- Contributed capital - related party - $ - $ 100 $ - $ 100 Common stock issued for compensation - founders - ($0.0001/share) 18,800,000 1,880 - - 1,880 Common stock issued in connection with conversion of convertible debt and related accrued interest ($0.50/share) 1,522,767 152 761,231 - 761,383 Warrants issued as compensation in connection with convertible debt funding - - 42,697 - 42,697 Net loss from November 15, 2007 (inception date) to March 31, 2008 - - - (755,715) (755,715) ---------------------------------------------------------------------------- Balance March 31, 2008 20,322,767 $ 2,032 $ 804,028 $ (755,715) 50,345 ============================================================================
See accompanying notes to financial statements. F-4 PERF-GO GREEN, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CASH FLOWS -----------------------
For the Period from November 15, 2007 (Inception) to March 31, 2008 --------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (755,715) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of debt issue costs 75,000 Depreciation 85 Stock issued for compensation - founders 1,880 Warrants issued as compensation in connection with convertible debt funding 42,697 Changes in operating assets and liabilities: (Increase) in prepaid expenses (32,615) Increase in accounts payable 199,645 Increase in accrued expenses 55,270 Increase in accrued interest payable 11,383 -------------------------- Net Cash Used In Operating Activities (402,370) -------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment (2,545) -------------------------- Net Cash Used in Investing Activities (2,545) -------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Contributed capital - related party 100 Proceeds from sale of convertible debt 750,000 Cash paid as direct offering costs - convertible debt funding (75,000) -------------------------- Net Cash Provided By Financing Activities 675,100 -------------------------- Net Increase in Cash and Cash Equivalents 270,185 Cash and Cash Equivalents - Beginning of Period - -------------------------- Cash and Cash Equivalents - End of Period $ 270,185 ========================== SUPPLEMENTARY CASH FLOW INFORMATION: Cash Paid During the Period for: Income Taxes $ - ========================== Interest $ 75,000 ========================== NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock for conversion of convertible debt and related accrued interest $ 761,383 ========================== See accompanying notes to financial statements. F-5
Perf-Go Green, Inc. (A Development Stage Company) Notes to Financial Statements March 31, 2008 Note 1 Nature of Operations and Summary of Significant Accounting Policies - -------------------------------------------------------------------------- Nature of Operations Perf Go Green, Inc. (the "Company") is a Delaware corporation that was incorporated on November 15, 2007 as an LLC and then converted to a "C" corporation on January 7, 2008. The Company had no activity during its existence as an LLC. The Company has been created as an environmentally friendly "green" company for the development and global marketing of eco-friendly, non-toxic, food contact compliant, biodegradable plastic products. We believe our plastic products will break down in landfill environments within twelve to twenty four months, leaving no visible or toxic residue. All of our products incorporate recycled plastic. The product is intended to be presented to mass retailers in the United States and Canada and it is the Company's intention to market the products worldwide. Development stage The Company's financial statements are presented as those of a development stage enterprise. Activities during the development stage primarily include debt financing, product design and the development of mass-market product distribution networks for the eventual distribution of the products. There have been no sales since our Inception. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in 2008 included the valuation of stock issued for compensation and services, stock issued to convert outstanding debt and related accrued interest, warrants issued as compensation, estimated useful life of equipment, and a 100% valuation allowance for deferred taxes due to the Company's continuing and expected future losses. Cash and cash equivalents For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. At March 31, 2008, the balance exceeded the federally insured limit by $185,328. F-6 Perf-Go Green, Inc. (A Development Stage Company) Notes to Financial Statements March 31, 2008 Equipment Equipment is stated at cost, less accumulated depreciation on a straight-line basis over the estimated useful life, which is five years. Earning per share Earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. At March 31, 2008, the Company had 1,650,000 warrants that could potentially dilute future earnings per share; however, a separate computation of diluted loss per share is not presented, as these common stock equivalents would be anti-dilutive. Fair value of financial instruments Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosures of information about the fair value of certain financial instruments for which it is practicable to estimate the value. For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amount reported in the balance sheet for prepaid expenses, accounts payable and accrued expenses approximates its fair market value based on the short-term maturity of these instruments. Segment information The Company follows Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." During 2008, the Company only operated in one segment; therefore, segment information has not been presented. Stock-based compensation All share-based payments to employees is recorded and expensed in the statement of operations as applicable under SFAS No. 123R, "Share-Based Payment". The Company has not issued any stock based compensation since inception. Non-employee stock based compensation Stock-based compensation awards issued to non-employees for services are recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, F-7 Perf-Go Green, Inc. (A Development Stage Company) Notes to Financial Statements March 31, 2008 using the measurement date guidelines enumerated in Emerging Issues Task Force Issue EITF No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services" ("EITF 96-18"). The Company has issued stock warrants to a third party placement agent (See Note 4). Derivative Liabilities SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires bifurcation of embedded derivative instruments and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are valued using the Black-Scholes option-pricing model. At March 31, 2008, we had no such derivative instruments. Advertising costs Advertising costs are expensed as incurred. Advertising expense totaled $2,840 for the period from November 15, 2007 (Inception) to March 31, 2008. Income taxes For the period November 15, 2007 (Inception) to January 6, 2008, the Company was taxed as an LLC and was treated as a pass through entity. On January 7, 2008, the Company became a "C" corporation. The Company accounts for income taxes under the liability method in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We adopted the provisions of FASB Interpretation No. 48; "Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109" ("FIN 48). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments. At March 31, 2008, we did not record any liabilities for uncertain tax position. F-8 Perf-Go Green, Inc. (A Development Stage Company) Notes to Financial Statements March 31, 2008 Recent accounting pronouncements In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements", which clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. It also defines fair value and established a hierarchy that prioritizes the information used to develop assumptions. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not expect SFAS No. 157 to have a material impact on its financial position, results of operations or cash flows. In February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities", which permits entities to choose to measure many financial instruments and certain other items at fair value. The unrealized gains and losses on items for which the fair value option has been elected should be reported in earnings. The decision to elect the fair value option is determined on an instrument-by-instrument basis, should be applied to an entire instrument and is irrevocable. Assets and liabilities measured at fair values pursuant to the fair value option should be reported separately in the balance sheet from those instruments measured using other measurement attributes. SFAS No. 159 is effective as of the beginning of the Company's 2008 fiscal year. The adoption of SFAS No. 159 is not expected to have a material effect on its financial position, results of operations or cash flows. In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No 51" (SFAS 160). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent's ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent's ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The adoption of SFAS No. 160 is not expected to have a material effect on its financial position, results of operations or cash flows. In December 2007, the FASB issued SFAS 141R, "Business Combinations" ("SFAS 141R"), which replaces FASB SFAS 141, "Business Combinations". This Statement retains the fundamental requirements in SFAS 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition. SFAS 141R will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date. This compares to the cost allocation method previously required by SFAS No. 141. SFAS 141R will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual F-9 Perf-Go Green, Inc. (A Development Stage Company) Notes to Financial Statements March 31, 2008 or non-contractual, if certain criteria are met. Finally, SFAS 141R will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date. This Statement will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008. Early adoption of this standard is not permitted and the standards are to be applied prospectively only. Upon adoption of this standard, there would be no impact to the Company's results of operations and financial condition for acquisitions previously completed. The adoption of SFAS No. 141R is not expected to have a material effect on its financial position, results of operations or cash flows. In January 2008, the SEC released SAB No. 110, which amends SAB No. 107 which provided a simplified approach for estimating the expected term of a "plain vanilla" option, which is required for application of the Black-Scholes option pricing model (and other models) for valuing share options. At the time, the Staff acknowledged that, for companies choosing not to rely on their own historical option exercise data (i.e., because such data did not provide a reasonable basis for estimating the term), information about exercise patterns with respect to plain vanilla options granted by other companies might not be available in the near term; accordingly, in SAB No. 107, the Staff permitted use of a simplified approach for estimating the term of plain vanilla options granted on or before December 31, 2007. The information concerning exercise behavior that the Staff contemplated would be available by such date has not materialized for many companies. Thus, in SAB No. 110, the Staff continues to allow use of the simplified rule for estimating the expected term of plain vanilla options until such time as the relevant data becomes widely available. The Company does not expect its adoption of SAB No. 110 to have a material impact on its financial position, results of operations or cash flows. In March 2008, the FASB issued SFAS No. 161 "Disclosures about Derivative Instruments and Hedging Activities--An Amendment of FASB Statement No. 133." ("SFAS 161"). SFAS 161 establishes the disclosure requirements for derivative instruments and for hedging activities with the intent to provide financial statement users with an enhanced understanding of the entity's use of derivative instruments, the accounting of derivative instruments and related hedged items under Statement 133 and its related interpretations, and the effects of these instruments on the entity's financial position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company does not expect its adoption of SFAS 161 to have a material impact on its financial position, results of operations or cash flows. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption. Note 2 Going Concern - -------------------- As reflected in the accompanying financial statements, the Company has a net loss of $755,715 and net cash used in operations of $402,370 for the period ended March 31, 2008; and a deficit accumulated during the development stage of F-10 Perf-Go Green, Inc. (A Development Stage Company) Notes to Financial Statements March 31, 2008 $755,715 at March 31, 2008. In addition, the Company is in the development stage and has not yet generated any revenues. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and to continue to raise funds through debt or equity raises. The financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. Note 3 Equipment - ---------------- At March 31, 2008, equipment consisted of the following: Useful Life ------------------- ------------------ Computer equipment 5 Years $ 2,545 Less: accumulated depreciation (85) ------------------ $ 2,460 ================== Note 4 Convertible Debt Offering - -------------------------------- On January 15, 2008, February 8, 2008 and February 28, 2008, respectively, the Company sold $350,000, $250,000 and $150,000, respectively, of convertible debt each with warrants. The terms for the debt and warrants were as follows: (A) Convertible Debt (1) Terms a. Interest rate at 10%. b. Secured by substantially all assets of the Company. c. Due one year from issue date. d. Conversion - all debt and related accrued interest was convertible at $0.50/share. (2) Conversion All debt and related accrued interest was converted on March 27, 2008. The Company issued 1,522,767 shares of common stock in exchange for $750,000 principal and $11,383 of accrued interest. (3) Debt Issue Costs In connection with raising these proceeds, the Company paid $75,000 as direct offering costs to the placement agent. These costs were initially capitalized as debt issue costs and were being amortized over the life of the related convertible debt instrument. F-11 Perf-Go Green, Inc. (A Development Stage Company) Notes to Financial Statements March 31, 2008 Upon conversion of the debt on March 27, 2008, the remaining unamortized portion of debt issue costs was charged to interest expense on the statement of operations. (4) Beneficial Conversion Feature and Derivative Liability Pursuant to EITF No.'s 98-5 and 00-27 and APB No. 14, the Company determined that the exercise price of $0.50 exceeded the market price of $0.0001 on each commitment date discussed above. The market price was determined based upon the Company's issuances to its founders for services rendered. As a result, no allocation of fair value was required amongst the convertible debt and warrants. The Company also determined that SFAS No. 133 and EITF 00-19 were not applicable, as the embedded conversion option did not require bifurcation. (B) Warrants (1) Terms a. Exercise price - $0.75. b. Expected term - 5 years (2) Issuance a. The Company issued 1,500,000 warrants in the above debt offering. Each $1 of debt sold was accompanied by 2 stock warrants. b. The Company also issued, as a placement agent fee, 10% of the gross warrants sold with the convertible debt. Therefore, an additional 150,000 warrants were issued as additional compensation. The Company determined the valuation of these warrants by applying EITF 96-18 as follows: (3) Determining Fair Value The Company estimates the fair value of stock warrants granted using the Black-Scholes option-pricing formula. The fair value of this warrant compensation was $42,697 and was charged to interest expense upon each commitment date for services rendered in the form of a direct offering cost. The Company's determination of fair value using an option-pricing model is affected by the stock price as well as assumptions regarding the number of highly subjective variables. F-12 Perf-Go Green, Inc. (A Development Stage Company) Notes to Financial Statements March 31, 2008 The fair value of warrant grants for the period from November 15, 2007 (Inception) to March 31, 2008 was estimated using the following weighted- average assumptions: Risk free interest rate 1.90 - 2.70 % Expected term (in years) 5 Expected dividend yield 0 % Expected volatility of common stock 150 % Estimated annual forfeitures 0 % Exercise price $0 .75 See Note 6 for additional warrant disclosure. Note 5 Commitments and Related Party Transactions - ------------------------------------------------- During January 2008, the Company's CEO contributed $100 for general corporate activities. The Company recorded this as contributed capital. Effective January 1, 2008, the Company entered into four separate three-year employment agreements with its senior management. The agreements provided for salaries ranging from $75,000 - $175,000 per annum. Each of these individuals will be entitled to an annual increase of 20% per annum over the term of the initial term of the employment agreement. There is additional compensation that can be earned given certain milestones. The Company's Chief Operating Officer and Chief Marketing Officer have subleased certain office space to the Company. For the period from November 15, 2007 (Inception) to March 31, 2008, the Company was charged fair market value rent of $15,500. Each of these leases is month to month, and there is no committed arrangement. Beginning April 2008, monthly rent will be approximately $9,500/month. A director of our Company is the officer of a manufacturer that the Company has entered into an agreement with. The terms require the Company to purchase a minimum amount of products on a monthly basis. The minimum requirement is not required to be met until October 2008. F-13 Perf-Go Green, Inc. (A Development Stage Company) Notes to Financial Statements March 31, 2008 Note 6 Stockholders' Equity - --------------------------- On January 15, 2008, the Company issued 18,800,000 shares of common stock, having a fair value of $1,880 ($0.0001/ share), for services rendered. A summary of warrant activity at March 31, 2008 is as follows: Number of Warrants Weighted Average Exercise Price ------------------ ------------------------------- Granted 1,650,000 $ 0.75 Exercised - - Forfeited - - Cancelled - - Balance - March 31, 2008 1,650,000 $ 0.75 ========= All outstanding warrants are fully vested and exercisable.
Warrants Outstanding/Exercisable -------------------------------- Range of Exercise Price Number Outstanding/Exercisable Weighted Average Remaining Contractual Life ----------------------- ------------------------------ ------------------------------------------- $0.75 1,650,000 4.88 years
Note 7 Income Taxes - ------------------- SFAS 109 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. SFAS 109 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company has a net operating loss carryforward for tax purposes totaling $701,602 at March 31, 2008, expiring through the year 2028. Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by carryforwards after a change in control (generally greater than a 50% change in ownership). Temporary differences, which give rise to a net deferred tax asset, are as follows: Significant deferred tax assets at March 31, 2008 are as follows: Gross deferred tax assets: Net operating loss carryforwards $315,944 -------- Total deferred tax assets 315,944 Less: valuation allowance (315,944) ----------- Net deferred tax asset recorded $ - ============ F-14 Perf-Go Green, Inc. (A Development Stage Company) Notes to Financial Statements March 31, 2008 The valuation allowance at January 7, 2008 (Inception of the "C" corporation) was $0. The net change in valuation allowance during the period ended March 31, 2008, was an increase of $315,944. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of March 31, 2008. The actual tax benefit differs from the expected tax benefit for the period ended March 31, 2008 (computed by applying the U.S. Federal Corporate tax rate of 34% to income before taxes and 16.72 % for New York State/City income taxes, a blended rate of 45.03%) as follows: Expected tax expense (benefit) - Federal $ (213,995) Expected tax expense (benefit) - State/City (126,318) Non-deductible stock and warrant compensation 20,074 Meals and entertainment 4,295 Change in valuation allowance 315,944 ----------------- Actual tax expense (benefit) $ - ================= Note 8 Subsequent Event - ----------------------- In April 2008, the Company entered into a one-year agreement with a third party to provide public relations services. The Company is required to pay $12,000/month over the term of the agreement as well as certain related expenses. F-15 EX-10 2 exhibit101.txt EXHIBIT 10.1 Exhibit 10.1 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 January 1st, 2008 Mr. Anthony Tracy Dear Tony; In furtherance of our recent discussions, I am pleased to present to you the terms and conditions regarding your employment (the "Agreement") by Perf Go Green Inc. (the "Company"), a Delaware corporation that is engaged in the business of selling biodegradable plastics and related materials, products and services targeted to corporate America and beyond (the "Business"). Start Date: January 1st, 2008 Employment Term: Subject to earlier termination as set forth hereafter, the initial term ("Initial Term") will be for a period of three (3) years, renewable automatically for additional successive one (1) year periods thereafter ("Renewal Term") unless either party gives written notice to the other to not proceed with such renewal at least thirty (30) days prior to the end of the Initial Term or any Renewal Term. Title and Duties: You will be employed in the position of Chief Executive Officer, working from your home or office located in New York City. You will be expected to travel extensively in building the overall business of the Company, including meetings in the Company's New York City headquarters. You will also, if so requested, be expected over time to recruit, train and manage other sales representatives (the "Sales Reps"). Your duties and responsibilities shall be on a full-time basis and shall be subject, at all times, to the direction and control of the Company's CEO and its Board of Directors. Current Compensation: (a) During the Initial Term and any Renewal Term you will be paid a base salary of $175,000 per year ("Base Salary"), plus a 20% increase for additional year, payable monthly in accordance with the Company's normal payroll practice. In addition to the Base Salary, you will be entitled to receive a bonus of 20% per year to be paid in 12 equal installments (the "Current Bonus"), upon receiving first significant purchase order. 1 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 Any Sales and Override Commissions earned shall be payable ten (10) days following the end of the prior calendar quarter, provided that the Company has received such auction revenue from the client or its agent, as the case may be. Compensation Reviews: Base Salary reviews shall be performed annually on each anniversary of your Start Date. Any increases in Base Salary or cash bonuses shall be made in the Company's discretion on the anniversary date, pursuant to both the Company guidelines as they exist from time to time, and the Company's overall financial, as well as your individual, performance. Commission reviews shall be performed on a quarterly basis and/or as new sales personnel are hired by the Company. Benefits: You will be entitled to two (2) weeks paid vacation during the Initial Term, and three (3) weeks paid vacation for any Renewal Term. You will also be entitled to such medical and other insurance, retirement and pension plan eligibility and all other fringe benefits which will generally be provided to other employees of the Company on your level at some future time. Until the Company obtains group medical insurance for employees, the Company shall pay for the monthly premiums for your current health care coverage. Expenses: You will be reimbursed monthly (upon submission of appropriate documentation) for all reasonable expenses including travel (local and out of town) and entertainment, phone and auto incurred by you in the performance of your employment hereunder. Of which can be directed by you to be paid directly by Company. Termination: (a) Your employment shall terminate upon the first to occur of the following: (1) The expiration of the Initial Term or any Renewal Term specified above. (2) Upon your (i) death or (ii) permanent disability or incapacity. (3) For Cause. The Company shall have the right to terminate your employment upon twenty-four (24) hours' written notice to you For Cause. The grounds for such termination For Cause shall be: 2 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 (i) a material breach of your agreement of employment hereunder, including, but not limited to a violation of any non-competition, non-solicitation or confidentiality provisions hereinafter set forth; or (ii) Your criminal conviction for fraud, embezzlement, bribery, moral turpitude or any felonious offense (other than strictly a motor vehicle matter); or (iii) Your commission of any act of fraud, dishonesty or negligence in connection with the performance of your duties as an employee of the Company; or (b) If you are terminated For Cause, or pursuant to subparagraph (a) (4) above, the Company shall have no further obligations to you following the last date of employment. Agreement Not To Compete: In consideration of the above, you agree that during the Initial Term or any Renewal Term, and for six (6) months following the expiration of such term or earlier termination of your employment, you shall not either for yourself or on behalf of any other person, partnership, corporation or entity, directly or indirectly or by action in concert with others: (a) interfere with any of the Company's or its affiliates' or its subsidiaries' relationships with, or endeavor to employ or entice away from the Company or its affiliates or its subsidiaries, any person who, at any time on or after the date hereof, is or shall be an employee of the Company or its affiliates or its subsidiaries or under some other contractual relationship with the Company interfere, with or seek to adversely alter the Company's or its affiliates or its subsidiaries' relationship with, solicit or divert any supplier, licensee or distributor of the Company or its affiliates or its subsidiaries; or (b) directly or indirectly engage in or facilitate or support others to engage in the production, sale or distribution of any products or services relating to the Business of the Company in which the Company or any successor thereof (only to the extent of the products and services of the Company immediately prior to the successor succeeding to the Company's business) is then engaged or actively contemplating engaging or any successor thereof anywhere in the United States or any other country in which Company is then conducting its Business or, directly or indirectly, solicit or attempt to solicit for business in a manner which could reasonably be expected to result in a 3 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 detriment, or be directly competitive to the Company or any successor thereof, any suppliers, clients, customers, strategic partners and/or principal stockholders with whom the Company or any successor thereof shall have done business; or (c) seek or obtain employment with, or provide services to, any customer, client, strategic partner and/or principal stockholder of the Company with whom Employee interacted during the Initial Term or any Renewal Term which employment or services could reasonably be expected to be directly competitive to the Company's Business or result in a detriment to the Company. Property Rights: With respect to information, inventions and discoveries or any interest in any copyright and/or property right developed, made or conceived of by you, either alone or with others, at any time during your employment by the Company and whether or not within working hours (and written six months thereafter) arising out of such employment or pertinent to any field of business or research in which, during such employment, the Company is engaged or (if such is known to or ascertainable by you) is considering engaging, you agree: (a) that all such information, inventions and discoveries or any interest in any copyright and/or other property right, whether or not patented or patentable, shall be and remain the exclusive property of the Company; (b) to disclose promptly to an authorized representative of the Company all such information, inventions and discoveries or any copyright and/or other property right and all information in your possession as to possible applications and uses thereof; (c) not to file any patent application relating to any such invention or discovery except with the prior written consent of an authorized officer of the Company (other than yourself); (d) that you hereby waive and release any and all rights you may have in and to such information, inventions and discoveries and hereby assign to the Company and/or its nominees all of your right, title and interest in them and all your right, title and interest in any patent, patent application, copyright or other property right based thereon. You hereby irrevocably designate and appoint the Company and each of its duly authorized officers and agents as your agent and attorney-in-fact to act for you and in your behalf and stead to execute and file any document and to do all other lawfully permitted acts to further the 4 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 prosecution, issuance and enforcement of any such patent, patent application, copyright or other property right with the same force and effects as if executed and delivered by you; and (e) at the request of the Company, and without expense to you, to execute such documents and perform such other acts as the Company deems necessary or appropriate, for the Company to obtain patents on such inventions in a jurisdictions designated by the Company, and to assign to the Company or its designees such inventions and any and all patent applications and patents relating thereto. Confidentiality: With respect to the information, inventions and discoveries referred to above and also with respect to all other information, whatever its nature and form and whether obtained orally, by observation, from Graphic Materials (as defined below) or otherwise (except such as is generally available through publication), obtained by you and relating to any invention, improvement, enhancement, product, know-how, formula, software, process, apparatus, design, drawings, codes, data printouts, magnetic tapes and disks, recordings, marketing and sales programs, financial projections, concept or other creation, or to any use of any of them, or to materials, tolerances, specifications, costs (including, without limitation, manufacturing costs), pricing formulae, or to any plans of the Company, or to any other trade secret or proprietary information of the Company, related to the Business and operations of the Company or the Company's customers, strategic alliances, and shareholders, you agree: (a) to hold all such information, inventions and discoveries which have not otherwise become public knowledge in strict confidence and not to publish or otherwise disclose any thereof to any person or entity other than the Company except with the prior written consent of an authorized officer of the Company or as may be required by law; (b) to take all reasonable precautions to assure that all such information, inventions and discoveries are properly protected from access by unauthorized persons; (c) to make no use of nor exploit in any way any such information, invention or discovery except as required in the performance of your employment duties of the Company; and 5 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 (d) upon termination of your employment by the Company, or at any time upon request of the Company, to deliver to it all Graphic Materials (as defined below) and all substances, models, software, prototypes and the like containing or relating to any such information, invention or discovery, all of which Graphic materials (as defined below) and other things shall be and remain the exclusive property of the Company. For purposes of this Agreement, the term "Graphic Materials" includes, without limitation, letters, memoranda, reports, notes, notebooks, books of accounts, drawings, prints, specifications, formulae, software, data printouts, microfilms, magnetic tapes and disks and other documents and recordings, together with all copies, excerpts and summaries, thereof. Miscellaneous: We agree that it is our intention and covenant that your employment and performance thereunder be governed by and construed under the laws of the State of New York concerning contracts to be made and performed wholly within such state, without regard to any conflict of law principles. (a) This letter sets forth the entire agreement regarding your employment and may not be modified or changed except by mutual written agreement. Your obligations hereunder may not be assigned by you. (b) You represent and warrant that the execution, delivery and performance by you of this Agreement and the matters contemplated thereunder does not, and will not, violate, result in a breach of, or constitute a default under any agreement or arrangement to which you are a party. You also represent and warrant that you have had the opportunity to consult with the counsel of your choice in the negotiation and execution of this Agreement. (c) The invalidity of all or any part of any paragraph or subparagraph of this Agreement shall not render invalid the remainder of the Agreement and obligations contemplated hereunder. (d) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which when together, shall constitute one and the same agreement. (e) Any notice given hereunder shall be in writing and either delivered in person, by nationally recognized overnight courier, or be registered or certified first class 6 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 mail, (postage prepaid, addressed) if to the Company at Perf Go Green Inc,645 Fifth Avenue, 8th Fl New York, New York, 10022, and (b) if to the Employee at the address noted above. Notices delivered personally shall be deemed given as of actual receipt; notices sent via facsimile transmission shall be deemed given as of one business day following sender's receipt from sender's facsimile machine of written confirmation of transmission thereof; notices sent by overnight courier shall be deemed as given as of one business day following sending; and notices mailed shall be deemed given as of five business days after proper mailing. Any party may change its address in notice given to the other party in accordance with this Section (e). If the above meets with your understanding, please countersign this Agreement at the lower left to acknowledge your agreement and acceptance with the terms and conditions outlined above and return a signed copy to me at your earliest convenience. We look forward to a long and mutually rewarding relationship. Sincerely, PERF GO GREEN INC. By: /s/ Michael Caridi --------------------------------- Michael Caridi, Vice Chairman ACCEPTED AND AGREED TO THIS 1st day of January 2008: By: /s/ Anthony Tracy ----------------------------- Anthony Tracy 7 EX-10 3 exhibit102.txt EXHIBIT 10.2 Exhibit 10.2 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 January 1st, 2008 Michael Caridi Dear Michael; In furtherance of our recent discussions, I am pleased to present to you the terms and conditions regarding your employment (the "Agreement") by Perf Go Green Inc. (the "Company"), a Delaware corporation that is engaged in the business of selling biodegradable plastics and related materials, products and services targeted to corporate America and beyond (the "Business"). Start Date: January 1st, 2008 Employment Term: Subject to earlier termination as set forth hereafter, the initial term ("Initial Term") will be for a period of three (3) years, renewable automatically for additional successive one (1) year periods thereafter ("Renewal Term") unless either party gives written notice to the other to not proceed with such renewal at least thirty (30) days prior to the end of the Initial Term or any Renewal Term. Title and Duties: You will be employed in the position of Chief Executive Officer, working from your home or office located in New York City. You will be expected to travel extensively in building the overall business of the Company, including meetings in the Company's New York City headquarters. You will also, if so requested, be expected over time to recruit, train and manage other sales representatives (the "Sales Reps"). Your duties and responsibilities shall be on a full-time basis and shall be subject, at all times, to the direction and control of the Company's CEO and its Board of Directors. Current Compensation: (a) During the Initial Term and any Renewal Term you will be paid a base salary of $125,000 per year ("Base Salary"), plus a 20% increase for additional year, payable monthly in accordance with the Company's normal payroll practice. In addition to the Base Salary, you will be entitled to receive a bonus of 20% per year to be paid in 12 equal installments 1 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 (the "Current Bonus"), upon receiving first significant purchase order. Any Sales and Override Commissions earned shall be payable ten (10) days following the end of the prior calendar quarter, provided that the Company has received such auction revenue from the client or its agent, as the case may be. Compensation Reviews: Base Salary reviews shall be performed annually on each anniversary of your Start Date. Any increases in Base Salary or cash bonuses shall be made in the Company's discretion on the anniversary date, pursuant to both the Company guidelines as they exist from time to time, and the Company's overall financial, as well as your individual, performance. Commission reviews shall be performed on a quarterly basis and/or as new sales personnel are hired by the Company. Benefits: You will be entitled to two (2) weeks paid vacation during the Initial Term, and three (3) weeks paid vacation for any Renewal Term. You will also be entitled to such medical and other insurance, retirement and pension plan eligibility and all other fringe benefits which will generally be provided to other employees of the Company on your level at some future time. Until the Company obtains group medical insurance for employees, the Company shall pay for the monthly premiums for your current health care coverage. Expenses: You will be reimbursed monthly (upon submission of appropriate documentation) for all reasonable expenses including travel (local and out of town) and entertainment, phone and auto incurred by you in the performance of your employment hereunder. Of which can be directed by you to be paid directly by Company. Termination: (a) Your employment shall terminate upon the first to occur of the following: (1) The expiration of the Initial Term or any Renewal Term specified above. (2) Upon your (i) death or (ii) permanent disability or incapacity. (3) For Cause. The Company shall have the right to terminate your employment upon twenty-four (24) hours' written notice to you For Cause. The grounds for such termination For Cause shall be: 2 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 (i) a material breach of your agreement of employment hereunder, including, but not limited to a violation of any non-competition, non-solicitation or confidentiality provisions hereinafter set forth; or (ii) Your criminal conviction for fraud, embezzlement, bribery, moral turpitude or any felonious offense (other than strictly a motor vehicle matter); or (iii) Your commission of any act of fraud, dishonesty or negligence in connection with the performance of your duties as an employee of the Company; or (b) If you are terminated For Cause, or pursuant to subparagraph (a) (4) above, the Company shall have no further obligations to you following the last date of employment. Agreement Not To Compete: In consideration of the above, you agree that during the Initial Term or any Renewal Term, and for six (6) months following the expiration of such term or earlier termination of your employment, you shall not either for yourself or on behalf of any other person, partnership, corporation or entity, directly or indirectly or by action in concert with others: (a) interfere with any of the Company's or its affiliates' or its subsidiaries' relationships with, or endeavor to employ or entice away from the Company or its affiliates or its subsidiaries, any person who, at any time on or after the date hereof, is or shall be an employee of the Company or its affiliates or its subsidiaries or under some other contractual relationship with the Company interfere, with or seek to adversely alter the Company's or its affiliates or its subsidiaries' relationship with, solicit or divert any supplier, licensee or distributor of the Company or its affiliates or its subsidiaries; or (b) directly or indirectly engage in or facilitate or support others to engage in the production, sale or distribution of any products or services relating to the Business of the Company in which the Company or any successor thereof (only to the extent of the products and services of the Company immediately prior to the successor succeeding to the Company's business) is then engaged or actively contemplating engaging or any successor thereof anywhere in the United States or any other country in which Company is then conducting its Business or, directly or indirectly, solicit or attempt to solicit for business in a manner which could reasonably be expected to result in a detriment, or be directly competitive to the Company or any 3 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 successor thereof, any suppliers, clients, customers, strategic partners and/or principal stockholders with whom the Company or any successor thereof shall have done business; or (c) seek or obtain employment with, or provide services to, any customer, client, strategic partner and/or principal stockholder of the Company with whom Employee interacted during the Initial Term or any Renewal Term which employment or services could reasonably be expected to be directly competitive to the Company's Business or result in a detriment to the Company. Property Rights: With respect to information, inventions and discoveries or any interest in any copyright and/or property right developed, made or conceived of by you, either alone or with others, at any time during your employment by the Company and whether or not within working hours (and written six months thereafter) arising out of such employment or pertinent to any field of business or research in which, during such employment, the Company is engaged or (if such is known to or ascertainable by you) is considering engaging, you agree: (a) that all such information, inventions and discoveries or any interest in any copyright and/or other property right, whether or not patented or patentable, shall be and remain the exclusive property of the Company; (b) to disclose promptly to an authorized representative of the Company all such information, inventions and discoveries or any copyright and/or other property right and all information in your possession as to possible applications and uses thereof; (c) not to file any patent application relating to any such invention or discovery except with the prior written consent of an authorized officer of the Company (other than yourself); (d) that you hereby waive and release any and all rights you may have in and to such information, inventions and discoveries and hereby assign to the Company and/or its nominees all of your right, title and interest in them and all your right, title and interest in any patent, patent application, copyright or other property right based thereon. You hereby irrevocably designate and appoint the Company and each of its duly authorized officers and agents as your agent and attorney-in-fact to act for you and in your behalf and stead to execute and file any document and to do all other lawfully permitted acts to further the prosecution, issuance and enforcement of any such patent, 4 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 patent application, copyright or other property right with the same force and effects as if executed and delivered by you; and (e) at the request of the Company, and without expense to you, to execute such documents and perform such other acts as the Company deems necessary or appropriate, for the Company to obtain patents on such inventions in a jurisdictions designated by the Company, and to assign to the Company or its designees such inventions and any and all patent applications and patents relating thereto. Confidentiality: With respect to the information, inventions and discoveries referred to above and also with respect to all other information, whatever its nature and form and whether obtained orally, by observation, from Graphic Materials (as defined below) or otherwise (except such as is generally available through publication), obtained by you and relating to any invention, improvement, enhancement, product, know-how, formula, software, process, apparatus, design, drawings, codes, data printouts, magnetic tapes and disks, recordings, marketing and sales programs, financial projections, concept or other creation, or to any use of any of them, or to materials, tolerances, specifications, costs (including, without limitation, manufacturing costs), pricing formulae, or to any plans of the Company, or to any other trade secret or proprietary information of the Company, related to the Business and operations of the Company or the Company's customers, strategic alliances, and shareholders, you agree: (a) to hold all such information, inventions and discoveries which have not otherwise become public knowledge in strict confidence and not to publish or otherwise disclose any thereof to any person or entity other than the Company except with the prior written consent of an authorized officer of the Company or as may be required by law; (b) to take all reasonable precautions to assure that all such information, inventions and discoveries are properly protected from access by unauthorized persons; (c) to make no use of nor exploit in any way any such information, invention or discovery except as required in the performance of your employment duties of the Company; and 5 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 (d) upon termination of your employment by the Company, or at any time upon request of the Company, to deliver to it all Graphic Materials (as defined below) and all substances, models, software, prototypes and the like containing or relating to any such information, invention or discovery, all of which Graphic materials (as defined below) and other things shall be and remain the exclusive property of the Company. For purposes of this Agreement, the term "Graphic Materials" includes, without limitation, letters, memoranda, reports, notes, notebooks, books of accounts, drawings, prints, specifications, formulae, software, data printouts, microfilms, magnetic tapes and disks and other documents and recordings, together with all copies, excerpts and summaries, thereof. Miscellaneous: We agree that it is our intention and covenant that your employment and performance thereunder be governed by and construed under the laws of the State of New York concerning contracts to be made and performed wholly within such state, without regard to any conflict of law principles. (a) This letter sets forth the entire agreement regarding your employment and may not be modified or changed except by mutual written agreement. Your obligations hereunder may not be assigned by you. (b) You represent and warrant that the execution, delivery and performance by you of this Agreement and the matters contemplated thereunder does not, and will not, violate, result in a breach of, or constitute a default under any agreement or arrangement to which you are a party. You also represent and warrant that you have had the opportunity to consult with the counsel of your choice in the negotiation and execution of this Agreement. (c) The invalidity of all or any part of any paragraph or subparagraph of this Agreement shall not render invalid the remainder of the Agreement and obligations contemplated hereunder. (d) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which when together, shall constitute one and the same agreement. (e) Any notice given hereunder shall be in writing and either delivered in person, by nationally recognized overnight courier, or be registered or certified first class 6 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 mail, (postage prepaid, addressed) if to the Company at Perf Go Green Inc,645 Fifth Avenue, 8th Fl New York, New York, 10022, and (b) if to the Employee at the address noted above. Notices delivered personally shall be deemed given as of actual receipt; notices sent via facsimile transmission shall be deemed given as of one business day following sender's receipt from sender's facsimile machine of written confirmation of transmission thereof; notices sent by overnight courier shall be deemed as given as of one business day following sending; and notices mailed shall be deemed given as of five business days after proper mailing. Any party may change its address in notice given to the other party in accordance with this Section (e). If the above meets with your understanding, please countersign this Agreement at the lower left to acknowledge your agreement and acceptance with the terms and conditions outlined above and return a signed copy to me at your earliest convenience. We look forward to a long and mutually rewarding relationship. Sincerely, PERF GO GREEN INC. By: /s/ Anthony Tracy --------------------------------- Anthony Tracy, CEO ACCEPTED AND AGREED TO THIS 1st day of January 2008: By: /s/ Michael Caridi ---------------------------- Michael Caridi 7 EX-10 4 exhibit103.txt EXHIBIT 10.3 Exhibit 10.3 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 January 1st, 2008 Ms. Linda Daniels Dear Linda; In furtherance of our recent discussions, I am pleased to present to you the terms and conditions regarding your employment (the "Agreement") by Perf Go Green Inc. (the "Company"), a Delaware corporation that is engaged in the business of selling biodegradable plastics and related materials, products and services targeted to corporate America and beyond (the "Business"). Start Date: January 1st, 2008 Employment Term: Subject to earlier termination as set forth hereafter, the initial term ("Initial Term") will be for a period of three (3) years, renewable automatically for additional successive one (1) year periods thereafter ("Renewal Term") unless either party gives written notice to the other to not proceed with such renewal at least thirty (30) days prior to the end of the Initial Term or any Renewal Term. Title and Duties: You will be employed in the position of Director of Marketing, working from your home or office located in New York City. You will be expected to travel extensively in building the overall business of the Company, including meetings in the Company's New York City headquarters. You will also, if so requested, be expected over time to recruit, train and manage other sales representatives (the "Sales Reps"). Your duties and responsibilities shall be on a full-time basis and shall be subject, at all times, to the direction and control of the Company's CEO and its Board of Directors. Current Compensation: (a) During the Initial Term and any Renewal Term you will be paid a base salary of $125,000 per year ("Base Salary"), plus a 20% increase for additional year, payable monthly in accordance with the Company's normal payroll practice. In addition to the Base Salary, you will be entitled to receive a bonus of 20% per year to be paid in 12 equal installments 1 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 (the "Current Bonus"), upon receiving first significant purchase order. Any Sales and Override Commissions earned shall be payable ten (10) days following the end of the prior calendar quarter, provided that the Company has received such auction revenue from the client or its agent, as the case may be. Compensation Reviews: Base Salary reviews shall be performed annually on each anniversary of your Start Date. Any increases in Base Salary or cash bonuses shall be made in the Company's discretion on the anniversary date, pursuant to both the Company guidelines as they exist from time to time, and the Company's overall financial, as well as your individual, performance. Commission reviews shall be performed on a quarterly basis and/or as new sales personnel are hired by the Company. Benefits: You will be entitled to two (2) weeks paid vacation during the Initial Term, and three (3) weeks paid vacation for any Renewal Term. You will also be entitled to such medical and other insurance, retirement and pension plan eligibility and all other fringe benefits which will generally be provided to other employees of the Company on your level at some future time. Until the Company obtains group medical insurance for employees, the Company shall pay for the monthly premiums for your current health care coverage. Expenses: You will be reimbursed monthly (upon submission of appropriate documentation) for all reasonable expenses including travel (local and out of town) and entertainment, phone and auto incurred by you in the performance of your employment hereunder. Of which can be directed by you to be paid directly by Company. Termination: (a) Your employment shall terminate upon the first to occur of the following: (1) The expiration of the Initial Term or any Renewal Term specified above. (2) Upon your (i) death or (ii) permanent disability or incapacity. (3) For Cause. The Company shall have the right to terminate your employment upon twenty-four (24) hours' written notice to you For Cause. The grounds for such termination For Cause shall be: 2 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 (i) a material breach of your agreement of employment hereunder, including, but not limited to a violation of any non-competition, non-solicitation or confidentiality provisions hereinafter set forth; or (ii) Your criminal conviction for fraud, embezzlement, bribery, moral turpitude or any felonious offense (other than strictly a motor vehicle matter); or (iii) Your commission of any act of fraud, dishonesty or negligence in connection with the performance of your duties as an employee of the Company; or (b) If you are terminated For Cause, or pursuant to subparagraph (a) (4) above, the Company shall have no further obligations to you following the last date of employment. Agreement Not To Compete: In consideration of the above, you agree that during the Initial Term or any Renewal Term, and for six (6) months following the expiration of such term or earlier termination of your employment, you shall not either for yourself or on behalf of any other person, partnership, corporation or entity, directly or indirectly or by action in concert with others: (a) interfere with any of the Company's or its affiliates' or its subsidiaries' relationships with, or endeavor to employ or entice away from the Company or its affiliates or its subsidiaries, any person who, at any time on or after the date hereof, is or shall be an employee of the Company or its affiliates or its subsidiaries or under some other contractual relationship with the Company interfere, with or seek to adversely alter the Company's or its affiliates or its subsidiaries' relationship with, solicit or divert any supplier, licensee or distributor of the Company or its affiliates or its subsidiaries; or (b) directly or indirectly engage in or facilitate or support others to engage in the production, sale or distribution of any products or services relating to the Business of the Company in which the Company or any successor thereof (only to the extent of the products and services of the Company immediately prior to the successor succeeding to the Company's business) is then engaged or actively contemplating engaging or any successor thereof anywhere in the United States or any other country in which Company is then conducting its Business or, directly or indirectly, solicit or attempt to solicit for business in a manner which could reasonably be expected to result in a detriment, or be directly competitive to the Company or any 3 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 successor thereof, any suppliers, clients, customers, strategic partners and/or principal stockholders with whom the Company or any successor thereof shall have done business; or (c) seek or obtain employment with, or provide services to, any customer, client, strategic partner and/or principal stockholder of the Company with whom Employee interacted during the Initial Term or any Renewal Term which employment or services could reasonably be expected to be directly competitive to the Company's Business or result in a detriment to the Company. Property Rights: With respect to information, inventions and discoveries or any interest in any copyright and/or property right developed, made or conceived of by you, either alone or with others, at any time during your employment by the Company and whether or not within working hours (and written six months thereafter) arising out of such employment or pertinent to any field of business or research in which, during such employment, the Company is engaged or (if such is known to or ascertainable by you) is considering engaging, you agree: (a) that all such information, inventions and discoveries or any interest in any copyright and/or other property right, whether or not patented or patentable, shall be and remain the exclusive property of the Company; (b) to disclose promptly to an authorized representative of the Company all such information, inventions and discoveries or any copyright and/or other property right and all information in your possession as to possible applications and uses thereof; (c) not to file any patent application relating to any such invention or discovery except with the prior written consent of an authorized officer of the Company (other than yourself); (d) that you hereby waive and release any and all rights you may have in and to such information, inventions and discoveries and hereby assign to the Company and/or its nominees all of your right, title and interest in them and all your right, title and interest in any patent, patent application, copyright or other property right based thereon. You hereby irrevocably designate and appoint the Company and each of its duly authorized officers and agents as your agent and attorney-in-fact to act for you and in your behalf and stead to execute and file any document and to do all other lawfully permitted acts to further the prosecution, issuance and enforcement of any such patent, 4 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 patent application, copyright or other property right with the same force and effects as if executed and delivered by you; and (e) at the request of the Company, and without expense to you, to execute such documents and perform such other acts as the Company deems necessary or appropriate, for the Company to obtain patents on such inventions in a jurisdictions designated by the Company, and to assign to the Company or its designees such inventions and any and all patent applications and patents relating thereto. Confidentiality: With respect to the information, inventions and discoveries referred to above and also with respect to all other information, whatever its nature and form and whether obtained orally, by observation, from Graphic Materials (as defined below) or otherwise (except such as is generally available through publication), obtained by you and relating to any invention, improvement, enhancement, product, know-how, formula, software, process, apparatus, design, drawings, codes, data printouts, magnetic tapes and disks, recordings, marketing and sales programs, financial projections, concept or other creation, or to any use of any of them, or to materials, tolerances, specifications, costs (including, without limitation, manufacturing costs), pricing formulae, or to any plans of the Company, or to any other trade secret or proprietary information of the Company, related to the Business and operations of the Company or the Company's customers, strategic alliances, and shareholders, you agree: (a) to hold all such information, inventions and discoveries which have not otherwise become public knowledge in strict confidence and not to publish or otherwise disclose any thereof to any person or entity other than the Company except with the prior written consent of an authorized officer of the Company or as may be required by law; (b) to take all reasonable precautions to assure that all such information, inventions and discoveries are properly protected from access by unauthorized persons; (c) to make no use of nor exploit in any way any such information, invention or discovery except as required in the performance of your employment duties of the Company; and 5 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 (d) upon termination of your employment by the Company, or at any time upon request of the Company, to deliver to it all Graphic Materials (as defined below) and all substances, models, software, prototypes and the like containing or relating to any such information, invention or discovery, all of which Graphic materials (as defined below) and other things shall be and remain the exclusive property of the Company. For purposes of this Agreement, the term "Graphic Materials" includes, without limitation, letters, memoranda, reports, notes, notebooks, books of accounts, drawings, prints, specifications, formulae, software, data printouts, microfilms, magnetic tapes and disks and other documents and recordings, together with all copies, excerpts and summaries, thereof. Miscellaneous: We agree that it is our intention and covenant that your employment and performance thereunder be governed by and construed under the laws of the State of New York concerning contracts to be made and performed wholly within such state, without regard to any conflict of law principles. (a) This letter sets forth the entire agreement regarding your employment and may not be modified or changed except by mutual written agreement. Your obligations hereunder may not be assigned by you. (b) You represent and warrant that the execution, delivery and performance by you of this Agreement and the matters contemplated thereunder does not, and will not, violate, result in a breach of, or constitute a default under any agreement or arrangement to which you are a party. You also represent and warrant that you have had the opportunity to consult with the counsel of your choice in the negotiation and execution of this Agreement. (c) The invalidity of all or any part of any paragraph or subparagraph of this Agreement shall not render invalid the remainder of the Agreement and obligations contemplated hereunder. (d) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which when together, shall constitute one and the same agreement. (e) Any notice given hereunder shall be in writing and either delivered in person, by nationally recognized overnight courier, or be registered or certified first class 6 PERF GO GREEN INC 645 FIFTH AVENUE 8TH FL NEW YORK, NEW YORK 10022 mail, (postage prepaid, addressed) if to the Company at Perf Go Green Inc,645 Fifth Avenue, 8th Fl New York, New York, 10022, and (b) if to the Employee at the address noted above. Notices delivered personally shall be deemed given as of actual receipt; notices sent via facsimile transmission shall be deemed given as of one business day following sender's receipt from sender's facsimile machine of written confirmation of transmission thereof; notices sent by overnight courier shall be deemed as given as of one business day following sending; and notices mailed shall be deemed given as of five business days after proper mailing. Any party may change its address in notice given to the other party in accordance with this Section (e). If the above meets with your understanding, please countersign this Agreement at the lower left to acknowledge your agreement and acceptance with the terms and conditions outlined above and return a signed copy to me at your earliest convenience. We look forward to a long and mutually rewarding relationship. Sincerely, PERF GO GREEN INC. By: /s/ Michael Caridi --------------------------------- Michael Caridi, Vice Chairman ACCEPTED AND AGREED TO THIS 1st day of January 2008: By: /s/ Linda Daniels --------------------------- Linda Daniels 7 EX-10 5 exhibit104.txt EXHIBIT 10.4 Exhibit 10.4 SHARE EXCHANGE AGREEMENT This Share Exchange Agreement (the "Agreement") dated as of the 13th day of May 2008, by and among Perf-Go Green Holdings, Inc. (formerly ESYS Holdings, Inc. and formerly La Solucion, Inc.), a Delaware corporation, having its offices at 7425 Brighton Village Drive, Chapel Hill, North Carolina 27515 (the "Company"), Perf-Go Green, Inc., a Delaware corporation ("Perf"), the stockholders of Perf named on the signature page of this Agreement and the warrant holders of Perf named on Schedule 1(b) to this Agreement (collectively, the "Stockholders" and each, individually, a "Stockholder"). WITNESSETH: WHEREAS, the Stockholders are the holders of all of the issued and outstanding capital stock of Perf (the "Perf Shares"); WHEREAS, the Company was incorporated on April 20, 2005 and became a Securities and Exchange Commission reporting company on March 14, 2007; WHEREAS, the Company and its officers and agents has been given the opportunity to ask questions and receive answers from Perf concerning any aspect of Perf's business; WHEREAS, the Stockholders are acquiring a controlling interest in the Company; and WHEREAS, the Company will issue 21,079,466 shares of its common stock, par value $0.0001 per share (the "Common Stock"), which is equal to 54.1% of the issued and outstanding common stock of the Company after this Share Exchange, to the Stockholders in consideration for all of the Perf Shares; NOW, THEREFORE, in consideration of the premises and the mutual agreements, representations and warranties contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Exchange of Shares and Issuance to Bridge Investors. (a) Issuance of Shares by the Company. On and subject to the conditions set forth in this Agreement, the Company will issue to the Stockholders, in exchange for 20,322,767 Perf Shares, which represents all of the issued and outstanding capital stock of Perf, an aggregate of 21,079,466 shares of Common Stock which is equal to 54.1% of the Company's outstanding common stock. The Common Stock will be issued to the Stockholders in the amounts set forth after their respective names in Schedule II to this Agreement. (b) Warrants. On and subject to the conditions set forth in this Agreement, the Company will issue to the Stockholders, in exchange for 1,650,000 Perf warrants, which represents all of the issued and outstanding warrants of Perf, an aggregate of 1,650,000 warrants of the Company (the "Warrants"). The Warrants will be issued to the Stockholders in the amounts and exercise price set forth after their respective names in Schedule 1(b) to this Agreement. (c) Transfer of Perf Shares by the Stockholders. Subject to the conditions set forth in this Agreement, the Stockholders will transfer to the Company all of the Perf Shares free and clear of all liens, claims and encumbrances whatsoever (except as set forth on Schedule 3), in exchange for 21,079,466 shares of Common Stock. Each Stockholder holds the number of Perf Shares set forth after his or her name in Schedule I to this Agreement. (d) Closing. The issuance of the Common Stock to the Stockholders and the transfer of the Perf Shares to the Company will take place at a closing (the "Closing") to be held at the office of Ruskin Moscou Faltischek, P.C., East Tower, 15th Floor, 1425 RexCorp Plaza, Uniondale, New York 11556-1425 as soon as possible after or contemporaneously with the satisfaction or waiver of all of the conditions to closing set forth in Section 6 of this Agreement (the "Closing Date") but in no event later than May 31, 2008. 2. Representations and Warranties of the Company. The Company hereby represents, warrants, covenants and agrees as follows: (a) Organization and Authority. (i) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company does not have any equity investment or other interest, direct or indirect, in, or any outstanding loans, advances or guarantees to or on behalf of, any domestic or foreign corporation, limited liability company, association, partnership, joint venture or other entity. (ii) Complete and correct copies of the Company's certificate of incorporation and all amendments thereto and by-laws are available for review on the EDGAR system maintained by the U.S. Securities and Exchange Commission (the "Commission") and have been provided to counsel for Perf. The Company has delivered to counsel for Perf accurate and complete copies of the Company's stock records and the minutes and other records of the meetings and other proceedings (including any action taken by written consent or otherwise without a meeting) of the Company's stockholders and the Company's Board of Directors. (iii) The Company has full power and authority to carry out the transactions provided for in this Agreement, and this Agreement constitutes the legal, valid and binding obligations of the Company, 2 enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency and other laws of general application affecting the enforcement of creditor's rights and except that any remedies in the nature of equitable relief are in the discretion of the court. All necessary action required to be taken by the Company for the consummation of the transactions contemplated by this Agreement has been taken. (iv) The execution and performance of this Agreement will not constitute a breach of any agreement, indenture, mortgage, license or other instrument or document to which the Company is a party or by which its assets and properties are bound, and will not violate any judgment, decree, order, writ, rule, statute, or regulation applicable to the Company or its properties. The execution and performance of this Agreement will not violate or conflict with any provision of the certificate of incorporation, any amendments thereto or by-laws of the Company. (v) The Common Stock, when issued pursuant to this Agreement, will be duly and validly authorized and issued, fully paid and non-assessable. The issuance of the Common Stock to the Stockholders is exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), pursuant to an exemption provided by Section 4(2) and Rule 506 promulgated thereunder. (vi) The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock, of which 32,208,404 shares are presently outstanding, and 5,000,000 shares of preferred stock, of which none have been designated or issued. Except as set forth on Schedule 2(a)(vi), the Company has no outstanding or authorized warrants, options, other rights to purchase or otherwise acquire capital stock or any other securities of the Company, preemptive rights, or rights of first refusal, registration rights or related commitments of any nature. All issued and outstanding shares were either (i) registered under the Securities Act, or (ii) issued pursuant to valid exemptions from registration thereunder, and complied in all respects with applicable "Blue Sky" state securities laws, rules and regulations. (vii) No consent, approval or agreement of any person, party, court, governmental authority, or entity is required to be obtained by the Company in connection with the execution and performance by the Company of this Agreement or the execution and performance by the Company of any agreements, instruments or other obligations entered into in connection with this Agreement. (viii) The Company is not qualified to do business as a foreign corporation in any jurisdiction. The conduct of the Company's business or the ownership or leasing of its properties does not require the Company to be qualified to do business as a foreign corporation. 3 (b) SEC Documents. (i) The Company is current with its reporting obligations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). None of the Company's filings made pursuant to the Exchange Act (collectively, the "SEC Documents") contains any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company SEC Documents, as of their respective dates, were timely filed and complied in all material respects with the requirements of the Exchange Act, and the rules and regulations of the Commission thereunder, and are available on the Commission's EDGAR system. (ii) The Company SEC Documents include the Company's audited consolidated financial statements for the fiscal years ended October 31, 2007 and 2006 and the unaudited consolidated financial statements for the quarters ended January 31, 2008 and April 30, 2008 (collectively, the "Financial Statements"), including, in each case, a balance sheet and the related statements of income, stockholders' equity and cash flows for the period then ended, together with the related notes. The audited Financial Statements for the fiscal year ended October 31, 2007 have been certified by Webb & Company, P.A. ("Webb"). The audited Financial Statements for the fiscal year ended October 31, 2006 have been certified by Williams & Webster, P.S. ("Williams"). The Financial Statements which have been prepared from the books, records and accounts of the Company, are true, correct and complete and have been prepared in accordance with GAAP, consistently applied. Webb is independent as to the Company under the rules of the Commission pursuant to the Securities Act and is registered with the PCAOB. The Financial Statements present fairly and accurately the financial position of the Company at the respective balance sheet dates, and fairly and accurately present the results of the Company's operations, changes in stockholders' equity and cash flows for the periods covered. (iii) Other than as disclosed in the SEC Documents, at the close of business on October 31, 2007, the Company did not have any material liabilities, absolute or contingent, of the type required to be reflected on balance sheets prepared in accordance with GAAP which are not fully reflected, reserved against or disclosed on the October 31, 2007 balance sheet. The Company has not guaranteed or assumed or incurred any obligation with respect to any debt or obligations of any Person. The Company does not have any debts, contracts, guaranty, standby, indemnity or hold harmless commitments, liabilities or 4 obligations of any kind, character or description, whether accrued, absolute, contingent or otherwise, or due or to become due except to the extent set forth or noted in the Financial Statements, and not heretofore paid or discharged. (c) Absence of Changes. Since October 31, 2007, other than as disclosed in the SEC Documents there have not been: (i) any change in the consolidated assets, liabilities, or financial condition of the Company, except changes in the ordinary course of business which do not and will not have a material adverse effect on the Company; (ii) any damage, destruction, or loss to the Company's assets, whether or not covered by insurance, materially and adversely affecting the assets or financial condition of the Company (as conducted and as proposed to be conducted); (iii) any change or amendment to a contract, to the Company's certificate of incorporation or by-laws, or arrangement to which the Company is a party other than contracts which are to be terminated at or prior to the Closing which are set forth on Schedule 2(c)(iii); (iv) any loans made by the Company to any affiliate of the Company or any of the Company's employees, officers, directors, Stockholders or any of its affiliates; (v) any declaration or payment of any dividend or other distribution or any redemption of any capital stock of the Company; (vi) any sale, transfer or issuance of any shares of capital stock or other securities of the Company, except for the shares sold to the investors in the previous financing that raised $2,100,000 for the Company; (vii) any sale, transfer, or lease of any of the Company's assets other than in the ordinary course of business; (viii) any capital expenditure; (ix) any other event or condition of any character which might have a material adverse effect on the Company; (x) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by Company except in the ordinary 5 course of business and that is not material to the assets or financial condition of the Company; or (xi) any agreement or commitment by the Company to do any of the things described in this Section 2(c). (d) Property. The Company does not own any real estate and is not a party to any lease agreement. (e) Taxes. The Company has filed all federal, state, county and local income, excise, franchise, property and other tax, governmental and/or related returns, forms, or reports, which are due or required to be filed by it prior to the date hereof, except where the failure to do so would have no material adverse impact on the Company, and has paid or made adequate provision in the financial statement included in the Company SEC Documents for the payment of all taxes, fees, or assessments which have or may become due pursuant to such returns or pursuant to any assessments received. The Company is not delinquent or obligated for any tax, penalty, interest, delinquency or charge. (f) Labor Matters. The Company is not a party to any collective agreement relating to its business with any labor union or other association of employees and no part of the Company's business has been certified as a unit appropriate for collective bargaining or, to the knowledge of the Company, has made any attempt in that regard. (g) Contracts and Commitments. Except as contemplated under this Agreement or set forth on Schedule 2(g) the Company is not a party to any contract, agreement or commitment. (h) No Material Adverse Change. Since October 31, 2007, there has not been any Material Adverse Change (defined below) in the financial condition of the Company, although Stockholders recognize that the Company has continued not to generate any revenue and has continued to generate losses as a result of ongoing expenses, including expenses relating to this Agreement and the consummation of the transactions contemplated hereby. A "Material Adverse Change" shall mean any change, effect, circumstance, occurrence, state of facts or developments that is materially adverse to the business, assets, liabilities, results of operations, condition (financial or otherwise), properties or prospects of the Company or a material impairment or delay in the ability of the Company to perform its obligations hereunder and consummate this transaction. (i) No Defaults. The Company is not in violation of its certificate of incorporation or by-laws or any judgment, decree or order, applicable to it. (j) Litigation. There are no claims, actions, suits, proceedings, inquiries, labor disputes or investigations (whether or not purportedly on behalf of the Company) pending or, to Company's knowledge, threatened 6 against the Company or any of its assets, at law or in equity or by or before any governmental entity or in arbitration or mediation. (k) Compliance with Laws. The Company is in full compliance with all laws applicable to it (including, without limitation, with respect to zoning, building, wages, hours, hiring, firing, promotion, equal opportunity, pension and other benefit, immigration, nondiscrimination, warranties, advertising or sale of products, trade regulations, anti-trust or control and foreign exchange or, to the Company's knowledge, environmental, health and safety requirements). (l) Contracts and Commitments. The Company is not a party to any contract or agreement, other than those agreements that will be terminated at or prior to the Closing without cost or liability to the Company. There are currently no guarantees or other agreement, and there has never been any guarantee or agreement, pursuant to which the Company would cause, insure or become liable for the performance or payment of any obligation or liability of any other person or entity. (m) Intellectual Property. The Company has no intellectual property rights. (n) No Broker. Except as set forth on Schedule 2(n), neither the Company nor any of its agents or employees has employed or engaged any broker or finder or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated by this Agreement. The Company shall indemnify and hold the Stockholders harmless against any loss, damage, liability or expense, including reasonable fees and expenses of counsel, as a result of any brokerage fees, commissions or finders' fees which are due as a result of the consummation of the transaction contemplated by this Agreement. (o) No Related Party Debt. The Company is not and will not be indebted to any affiliate, stockholder, director or officer of the Company on the Closing Date. (p) No Pension Plans. There are no pension, profit sharing, group insurance or similar plans or other deferred compensation plans affecting the Company. (q) Reliance by Stockholders. The representations and warranties set forth in this Section 2 taken together, do not contain any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein and wherein, when taken together, not misleading, and there is no fact or condition existing which materially and adversely affects the business, operations, financial condition or prospects of the Company. Stockholders may rely on the representations set forth in this Section 2 notwithstanding any investigation they may have made. 7 3. Representations and Warranties of the Stockholders. The Stockholder is the record and beneficial owner of the Perf Shares set forth after their respective names on Schedule I and, except as set forth on Schedule 3, has the full right, power, capacity and authority to sell, transfer, and deliver their respective Perf Shares in accordance with the terms of this Agreement and upon delivery of their respective Perf Shares as herein contemplated, the Company will receive good and marketable title to the Perf Shares, free and clear of all claims, liens, pledges and encumbrances of any kind. 4. Closing Deliveries. (a) On the Closing Date, the Company shall deliver or cause to be delivered to each Stockholder: (i) fully executed and duly authorized transaction documents, including this Share Exchange Agreement and all other ancillary documents and resolutions required by the Company; (ii) a certificate registered in the name of each Stockholder representing the number of shares of Common Stock set forth on Schedule II; (iii) a legal opinion of counsel to the Company acceptable to the Stockholders; (iv) undated letters of resignation from each of the directors and officers of the Company; (v) certified copies of such resolutions of the directors of the Company as are required to be passed to authorize the execution, delivery and implementation of this Agreement; (vi) good standing certificate of the Company; and (vii) such other documents as Perf may reasonably require to give effect to the terms and intention of this Agreement. (b) On the Closing Date, each Stockholder and Perf shall deliver or cause to be delivered to the Company: (i) fully executed and duly authorized transaction documents, including this Share Exchange Agreement and all other ancillary documents and resolutions required by the Company; and (ii) the certificates representing such Stockholder's shares of Perf stock, or if the shares were issued in uncertificated form, a written representation executed by an officer of Perf and the Stockholder that such Stockholder was issued the number of shares set forth next to its name on Schedule I. 8 (c) On the Closing Date, all officers, directors and key employees of Perf shall deliver Lock-Up Agreements with the Company for a term of eighteen (18) months whereby they agree to certain restrictions on the sale or disposition of all of the Common Stock of the Company acquired by them in connection with the Share Exchange. 5. Conditions to the Obligation of the Stockholders to Close. The obligations of Stockholders under this Agreement are subject to the satisfaction of the following conditions unless waived by Stockholders: (a) Representations and Warranties. On the Closing Date, the representations and warranties of the Company shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as if made on such date, and the Company shall have performed all of its obligations required to be performed by it pursuant to this Agreement at or prior to the Closing Date, and Stockholders shall have received a certificate of an executive officer of the Company to such effect and as to any other matters set forth in this Agreement. (b) No Material Adverse Change. No Material Adverse Change in the business or financial condition of the Company shall have occurred or be threatened since the date of this Agreement, and no action, suit or proceedings shall be threatened or pending before any court of governmental agency or authority or regulatory body seeking to restraint, prohibition or the obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated by this Agreement or that, if adversely decided, has or may have a Material Adverse Effect. (c) Liabilities. On the Closing Date, the Company's total liabilities shall not exceed $2,000. (d) Legal Opinion. The Stockholders shall have received a legal opinion from the Company's legal counsel, acceptable to the Stockholders. (e) Resignations. All officers and directors of the Company shall have tendered an undated letter of resignation. (f) Elections and Appointments. The following individuals shall have been elected as directors of the Company effective as of the Closing Date: Anthony Tracy Linda Daniels Ben Tran Governor George E. Pataki [ESYS DESIGNEE] (g) Cancellation of Shares and Total Shares Outstanding. Certain Stockholders shall cancel in the aggregate 21,008,400 shares of common stock in the amounts set forth on Schedule 5(g) and the Company shall have 11,200,004 shares of Common Stock outstanding without giving effect to the issuances contemplated under this Agreement. 9 (h) Private Placement. The closing of the minimum offering of the Company's private placement offering of $2,775,000 in senior secured convertible promissory notes described in the Private Placement Memorandum annexed hereto as Exhibit 2(h) to certain investors set forth on Schedule 5(h), which shall be amended from time to time to include additional investors in the offering (referred to herein as the "Pipe Investors"). (i) Financial Statements. The Company shall have filed its quarterly report on Form 10-Q for the quarter ending April 30, 2008. (j) Post-Closing Matters. Forthwith after the Closing, Perf and the Company agree to use their best efforts to change the name of the Company to "Perf-Go Green Holdings, Inc." if such same change has not been effectuated prior to Closing. 6. Indemnity. The Company agrees to indemnify and hold harmless the Perf Stockholders and the Pipe Investors (who are deemed to be third party beneficiaries of this section) and from and against any and all claims, demands, actions, suits, proceedings, assessments, judgments, damages, costs, losses and expenses, including reasonable attorneys fees and including any payment made in good faith in settlement of any claim (subject to the right of the Company to defend any such claim), resulting from the failure to disclose the existence of any material liability or the breach by it of any representation, warranty, covenant or agreement made under this Agreement or from any misrepresentation in or omission from any certificate or other instrument furnished or to be furnished by the Company to the Perf Stockholders hereunder. 7. Further Assurances. The parties agree to take any additional steps or execute any additional documents as may be necessary to effectuate this Agreement. 8. Accredited Investor Status. By countersigning this Agreement, each of the Stockholders, severally and not jointly, represents that such Stockholder is an accredited investor as such is defined in Regulation D promulgated under the Securities Act of 1933 as amended. 9. Notices. All notices, requests and other communications to any party hereunder shall be in writing and either delivered personally, telecopied or sent by certified or registered mail return receipt requested, postage prepaid, if to Perf: Perf-Go Green, Inc. 645 Fifth Avenue, 8th Floor New York, New York 10022 10 with a copy to: --------------- Ruskin Moscou, Faltischek, P.C. Attn: Adam Silvers East Tower, 15th Floor 1425 RexCorp Plaza Uniondale, New York 11556-1425 (516) 663-6600 (phone) if to the Company: ----------------- Perf-Go Green Holdings, Inc. 7425 Brighton Village Drive Chapel Hill, North Carolina 27515 with a copy to: --------------- Anslow & Jaclin, LLP Attn: Eric Stein 195 Route 9 South, Suite 204 Manalapan, New Jersey Phone: (732) 409-1212 Fax: (732) 577-1188 or such other address or fax number as such party may hereafter specify for the purpose by notice to the other parties hereto. All such notices, requests and other communications shall be deemed received on the date delivered personally or by overnight delivery service or, if mailed, five business days after the date of mailing if received prior to 5 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt 10. Miscellaneous. (a) This Agreement constitutes the entire agreement between the parties relating to the subject matter hereof, superseding any and all prior or contemporaneous oral and prior written agreements, understandings and letters of intent. This Agreement may not be modified or amended nor may any right be waived except by a writing which expressly refers to this Agreement, states that it is a modification, amendment or waiver and is signed by all parties with respect to a modification or amendment or the party granting the waiver with respect to a waiver. No course of conduct or dealing and no trade custom or usage shall modify any provisions of this Agreement. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. Each party hereby consents and submits to personal jurisdiction over each of them in the State of New York. Each party agree that any disputes arising out of or in any way connected with this 11 Agreement shall be adjudicated exclusively in the federal or state courts located in the County of New York, State of New York. (c) Each of the parties will execute and deliver such further and other documents and do and perform such further and other acts as any other party may reasonably require to carry out and give effect to the terms and intention of this Agreement. (d) This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. (e) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same document. (f) The various representations, warranties, and covenants set forth in this Agreement or in any other writing delivered in connection therewith shall survive the issuance of the Shares. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 12 [SIGNATURE PAGE TO SHARE EXCHANGE AGREEMENT] IN WITNESS WHEREOF, the parties have executed this Securities Exchange Agreement the day and year first above written. PERF -GO GREEN HOLDINGS, INC. By: /s/ Raymond Tejeda-Acevedo ----------------------------------------- Raymond Tejeda-Acevedo PERF-GO GREEN, INC. By: /s/ Anthony Tracy ------------------------------------------ Anthony Tracy, President and Chief Executive Officer STOCKHOLDERS OF PERF-GO GREEN, INC. /s/ Anthony Tracy ------------------------------- ANTHONY TRACY /s/ Michael Caridi ------------------------------- MICHAEL CARIDI /s/ Linda Daniels ------------------------------- LINDA DANIELS /s/ Arthur Stewart ------------------------------- ARTHUR STEWART /s/ Frank Seyer ------------------------------- FRANK SEYER /s/ David Conklin ------------------------------- DAVID CONKLIN MMC VENTURES INC. /s/ Marco Caridi -------------------------------- By: Marco Caridi 13 [SIGNATURE PAGE TO SHARE EXCHANGE AGREEMENT] /s/ John Peter Tracy -------------------------------- John Peter Tracy /s/ Lawrence N. Escott -------------------------------- Lawrence N. Escott /s/ Jack Rhine -------------------------------- Jack Rhine /s/ Dennis Hasher -------------------------------- Dennis Hasher THE QUERCUS TRUST /s/ David Gelbaum -------------------------------- By: David Gelbaum /s/ Harold Crowley -------------------------------- Harold Crowley /s/ Erno Bodek -------------------------------- Erno Bodek /s/ Richard Brown -------------------------------- Richard Brown /s/ Joan Brown -------------------------------- Joan Brown /s/ Eliezer Heilbrun -------------------------------- Eliezer Heilbrun BESSIE WEISS FAMILY PARTNERSHIP, L.P. /s/ Barry Weiss -------------------------------- By: Barry Weiss /s/ Norman Rothstein -------------------------------- Norman Rothstein 14 [SIGNATURE PAGE TO SHARE EXCHANGE AGREEMENT] VFINANCE INVESTMENTS, INC. /s/ Jonathan Rich -------------------------------- By: Jonathan Rich /s/ Jeffrey Auerbach -------------------------------- Jeffrey Auerbach /s/ Scott Shames -------------------------------- Scott Shames /s/ Jonathan Rich -------------------------------- Jonathan Rich /s/ Solomon Sharbat -------------------------------- Solomon Sharbat /s/ Trey Marinello -------------------------------- Trey Marinello /s/ David Rich -------------------------------- David Rich /s/ Robert Bookbinder -------------------------------- Robert Bookbinder 15 EX-10 6 exhibit105.txt EXHIBIT 10.5 Exhibit 10.5 NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. Original Issue Date: May __, 2008 Initial Conversion Price (subject to adjustment herein): $0.75 $------ 10% SENIOR SECURED CONVERTIBLE DEBENTURE DUE MAY __, 2011 THIS 10% SENIOR SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and issued 10% Senior Secured Convertible Debentures of ESYS Holdings, Inc., a Delaware corporation, having a principal place of business at 7425 Brighton Village Drive, Chapel Hill, North Carolina, 27515 (the "Company" or the "Debtor"), designated as its 10% Senior Secured Convertible Debenture, due [_____], 2011 (the "Debentures"). FOR VALUE RECEIVED, the Company promises to pay to ________________ or its registered assigns (the "Holder"), or shall have paid pursuant to the terms hereunder, the principal sum of $____________ by May __, 2011, or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder (the "Maturity Date"), and to pay accrued and unpaid interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. The Company has issued this Debenture pursuant to a Subscription Agreement, dated as of May __, 2008 (the "Subscription Agreement"). The obligations set forth in this Debenture are subject to the terms and conditions set forth in that certain Security Agreement, dated May __, 2008, between the Company and the Holders. This Debenture is subject to the following additional provisions: Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined herein have the meanings given to such terms in the Subscription Agreement, and (b) the following terms shall have the following meanings: "Alternate Consideration" shall have the meaning set forth in Section 5(d). "Base Conversion Price" shall have the meaning set forth in Section 5(b). "Business Day" means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close. "Change of Control Transaction" means the occurrence after the date hereof of any of (i) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the outstanding voting securities of the Company, or (ii) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, or (iii) the Company sells or transfers all or substantially all of its assets to another Person in on or a series of related transactions and the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, or (iv) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (i) through (iii). "Common Stock" means the common stock, $.0001 par value per share, of the Company and stock of any other class of securities into which such securities may hereafter have been reclassified or changed into. "Conversion Date" shall have the meaning set forth in Section 4(a). "Conversion Price" shall have the meaning set forth in Section 4(b). "Conversion Shares" means the shares of Common Stock issuable upon conversion of this Debenture or as payment of interest in accordance with the terms. "Debenture Register" shall have the meaning set forth in Section 2(c). "Dilutive Issuance" shall have the meaning set forth in Section 5(b). "Dilutive Issuance Notice" shall have the meaning set forth in Section 5(b). "Event of Default " shall have the meaning set forth in Section 7. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Fundamental Transaction" shall have the meaning set forth in Section 5(d). "Late Fees" shall have the meaning set forth in Section 2(d). "Lien" shall mean any mortgage, pledge, hypothecation, assignment, security interest, encumbrance, lien (statutory or other), preference, priority, or other security agreement or preferential arrangement of any kind or nature whatsoever (including conditional sale or other title retention agreement). 2 "Mandatory Default Amount" shall equal the sum of (i) the greater of: 110% of the principal amount of this Debenture to be prepaid, plus all accrued and unpaid interest thereon, or (B) the principal amount of this Debenture to be prepaid, plus all other accrued and unpaid interest hereon, divided by the Conversion Price on (x) the date the Mandatory Default Amount is demanded or otherwise due or (y) the date the Mandatory Default Amount is paid in full, whichever is less, multiplied by the VWAP on (x) the date the Mandatory Default Amount is demanded or otherwise due or (y) the date the Mandatory Default Amount is paid in full, whichever is greater, and (ii) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture. "New York Courts" shall have the meaning set forth in Section 8(d). "Notice of Conversion" shall have the meaning set forth in Section 4(a). "Offering Documents" shall have the meaning set forth in the Subscription Agreement. "Original Issue Date" shall mean the date of the first issuance of the Debenture regardless of the number of transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debenture. "Permitted Indebtedness" shall mean lease obligations and purchase money indebtedness of up to $250,000 in the aggregate and at any time existing, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets. "Permitted Lien" shall mean the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings, (b) Liens imposed by law which were incurred in the ordinary course of business, such as carriers', warehousemen's and mechanics' Liens, statutory landlords' Liens, and other similar Liens arising in the ordinary course of business, and (x) which do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or asset subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased, and (d) Liens granted to Spectrum Plastics, Inc. to secure payment for inventory supplied to Debtor in the ordinary course of Debtor's business. "Person" means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency. "Reverse Merger" means the share exchange transaction to be entered into between the Company and Perf-Go Green, Inc. ("Perf"), a Delaware corporation pursuant to which Perf will become a wholly-owned subsidiary of the Company. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Security Agreement" means the Security Agreement, dated as of the date hereof, to which the Company and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms. 3 "Subsidiary" shall mean any subsidiary of the Company, at any time. "Trading Day" means a day on which the Common Stock is traded on a Trading Market. "Trading Market" means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq Capital Market, the Over the Counter Bulletin Board Market, the American Stock Exchange, the New York Stock Exchange or the Nasdaq Global Market. "VWAP" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed or quoted on a Trading Market and if prices for the Common Stock are then quoted on the OTC Bulletin Board, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported in the "Pink Sheets" published by the Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company. Section 2. Interest. (a) Payment of Interest. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of 10% per annum, payable on the Maturity Date (except that, if any such date is not a Business Day, then such payment shall be due on the next succeeding Business Day) (each such date, an "Interest Payment Date"), in cash. (b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year and shall accrue daily commencing on the Original Issue Date until payment in full of the principal sum, together with all accrued and unpaid interest and other amounts which may become due hereunder, has been made. Interest shall cease to accrue with respect to any principal amount converted, provided that the Company in fact delivers the Conversion Shares within the time period required by Section 4(c)(ii). Interest hereunder will be paid to the Person in whose name this Debenture is registered on the records of the Company regarding registration and transfers of this Debenture (the "Debenture Register"). (c) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at the rate of 15% per annum (or such lower maximum amount of interest permitted to be charged under applicable law) ("Late Fees") which will accrue daily, from the date such interest is due hereunder through and including the date of payment. (d) Prepayment. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder. Section 3. Registration of Transfers and Exchanges. 4 (a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration of transfer or exchange. (b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Subscription Agreement and may be transferred or exchanged only in compliance with the Subscription Agreement and applicable federal and state securities laws and regulations. (c) Reliance on Debenture Register. Prior to due presentment to the Company for transfer of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. Section 4. Conversion. (a) Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible into shares of Common Stock at the option of the Holder, in whole or in part at any time and from time to time (subject to any limitations on conversion). The Holder shall effect conversions by delivering to the Company the form of Notice of Conversion attached hereto as Annex A (a "Notice of Conversion"), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion is to be effected (a "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 is provided hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture plus all accrued and unpaid interest thereon has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion amount. The Holder and the Company shall maintain records showing the principal amount converted and the date of such conversions. The Company shall deliver any objection to any Notice of Conversion within one (1) Business Day of receipt of such notice. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof. (b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.75 (subject to adjustment) (the "Conversion Price"). (c) Mechanics of Conversion. (i) Conversion Shares Issuable Upon Conversion of Principal Amount. The number of shares of Common Stock issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price. (ii) Delivery of Certificate Upon Conversion. Not later than three (3) Business Days after any Conversion Date, the Company will deliver or cause to be delivered to the Holder (A) a certificate or certificates representing the Conversion Shares which shall be free of restrictive legends and trading restrictions (other than those required by the Subscription Agreement) 5 representing the number of shares of Common Stock being acquired upon the conversion of this Debenture and (B) a bank check in the amount of accrued and unpaid interest (if the Company is required to pay accrued interest in cash). The Company shall, if available and if allowed under applicable securities laws, use its commercially reasonable efforts to deliver any certificate or certificates required to be delivered by the Company under this Section electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. (iii) Failure to Deliver Certificates. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Business Day after a Conversion Date, the Holder shall be entitled by written notice to the Company at any time on or before its receipt of such certificate or certificates thereafter, to rescind such conversion, in which event the Company shall immediately return the certificates representing the principal amount of this Debenture tendered for conversion. (iv) Obligation Absolute; Partial Liquidated Damages. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the third Business Day after the Conversion Date, the Company shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $1000 of principal amount being converted, $5 per Business Day (increasing to $10 per Business Day after ten (10) Business Days after such damages begin to accrue) for each Business Day after such third Business Day until such certificates are delivered. The Company's obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. Nothing herein shall limit a Holder's right to pursue actual damages or declare an Event of Default pursuant to Section 7 herein for the Company's failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. (v) Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock solely for the purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder (and the other holders of the Debentures), not less than such number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Subscription Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and fully paid, nonassessable. (vi) Fractional Shares. Upon a conversion hereunder the Company shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the VWAP at such time. If the Company 6 elects not, or is unable, to make such a cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock. (vii) Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Section 5. Certain Adjustments. (a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Debenture, including as interest thereon), (B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. (b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Debenture is outstanding, shall offer, sell, grant any option to purchase or offer, sell or grant any right to reprice its securities, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or any securities convertible into or entitling any Person to acquire shares of Common Stock, other than shares of Common Stock or securities convertible or entitling any Person to acquire shares of Common Stock issued to a Person or service on the Board of Directors of the Company or pursuant to a stock option or other similar plan adopted by the Company, at an effective price per share less than the then Conversion Price (such issuances collectively, a "Dilutive Issuance"), then the Conversion Price shall be adjusted immediately thereafter so that it shall equal the lower of (i) the price determined by multiplying the Conversion Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to the issuance of such securities and the number of shares of Common Stock which the aggregate consideration received for such securities would purchase at the VWAP per share of Common Stock, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to such issuance and the maximum number of shares of Common Stock deliverable upon conversion of or in exchange for such securities at their initial conversion or exchange price or rate or (ii) in the event the initial conversion or exercise price of such securities is equal to or higher than the VWAP per share but less than the Conversion Price, the price determined by multiplying the Conversion Price in effect immediately prior to the date of issuance by a fraction, the numerator of which shall be the sum of the number of shares outstanding immediately prior to the issuance of such securities and the number of shares of Common Stock which the aggregate consideration received for 7 such securities would purchase at the Conversion Price in effect immediately prior to the date of such issuance, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to the issuance of such securities and the maximum number of shares of Common Stock deliverable upon conversion of or in exchange for such securities at their initial conversion or exchange price or rate. The Company shall notify the Holder in writing, no later than the Business Day following the issuance of any Common Stock or Common Stock equivalents subject to this section, indicating therein the applicable issuance price, or of applicable reset price, exchange price, conversion price and other pricing terms (such notice the "Dilutive Issuance Notice"). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion. (c) Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, shall distribute to all holders of Common Stock (and not to the holders of the Debenture) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security, then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above. (d) Fundamental Transaction. If, subsequent to the consummation of the Reverse Merger and at any time while this Debenture is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental Transaction"), then upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the "Alternate Consideration"). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any 8 successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder's right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (d) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. (e) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding. (f) Notice to the Holder. (i) Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any of this Section 5, the Company shall promptly mail to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Company issues a variable rate security, despite any prohibition thereon, the Company shall be deemed to have issued Common Stock or Common Stock equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised. (ii) Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be mailed to the Holder at its last addresses as it shall appear upon the stock books of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during the 20-day period commencing the date of such notice to the effective date of the event triggering such notice. Section 6. Negative Covenants. So long as any portion of this Debenture is outstanding, the Company will not and will not permit any of its subsidiaries to directly or indirectly: 9 (a) other than Permitted Indebtedness, except with the prior written consent of the Agent (as defined in the Security Agreement) such consent not to be unreasonably withheld, delayed or conditioned, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind outside of the ordinary course of business, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom; (b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom; (c) amend its certificate of incorporation, bylaws or other charter documents so as to materially and adversely affect any rights of the Holder; (d) except as permitted or required under the Company's certificate of incorporation, repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its capital stock; (e) enter into any agreement with respect to any of the foregoing ; or (f) except as permitted or required under the Company's certificate of incorporation, pay cash dividends or distributions on any equity securities of the Company. Section 7. Events of Default. (a) "Event of Default", wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or 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): (i) any default in the payment of (A) the principal amount of any Debenture, or (B) interest on, any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured, within three (3) Business Days after notice of such default sent by the Holder or by any other Holder; (ii) the Company shall fail to observe or perform any other covenant or agreement contained in this Debenture or any other Debenture (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion which breach is addressed in clause (xi) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) five (5) Business Days after notice of such default sent by the Holder or by any other Holder and (B) ten (10) Business Days after the Company shall become or should have become aware of such failure; (iii) a default or event of default (subject to any grace or cure period provided for in the applicable agreement, document or instrument) shall occur under (A) any of the Offering Documents, or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is bound; (iv) any representation or warranty made herein, in any other Offering Documents, in any written statement pursuant hereto or thereto, or in any other report, financial statement or certificate made or delivered to the Holder or 10 any other holder of Debentures shall be untrue or incorrect in any material respect as of the date when made or deemed made; (v) (i) the Company or any of its Subsidiaries shall commence a case, as debtor, a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any Subsidiary commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any Subsidiary thereof or (ii) there is commenced a case against the Company or any Subsidiary thereof, under any applicable bankruptcy or insolvency laws, as now or hereafter in effect or any successor thereto which remains undismissed for a period of 90 days; or (iii) the Company or any Subsidiary thereof is adjudicated by a court of competent jurisdiction insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or (iv) the Company or any Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 90 days; or (v) the Company or any Subsidiary thereof makes a general assignment for the benefit of creditors; or (vi) the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or (vii) the Company or any Subsidiary thereof shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (viii) the Company or any Subsidiary thereof shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or (ix) any corporate or other action is taken by the Company or any Subsidiary thereof for the purpose of effecting any of the foregoing; (vi) the Company or any Subsidiary shall default in any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company in an amount exceeding $50,000, whether such indebtedness now exists or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; (vii) the Company shall be a party to any Change of Control Transaction or Fundamental Transaction, shall agree to sell or dispose of all or in excess of 51% of its assets in one or more transactions (whether or not such sale would constitute a Change of Control Transaction) or shall redeem or repurchase more than a de minimis number of its outstanding shares of Common Stock or other equity securities of the Company; (viii) the Company shall fail for any reason to deliver certificates to a Holder prior to the third Business Day after a Conversion Date pursuant to and in accordance with Section 4(c) or the Company shall provide notice to the Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversions of any Debentures in accordance with the terms hereof; (b) Remedies Upon Event of Default. If any Event of Default occurs, the full principal amount of this Debenture, together with interest and other amounts owing in respect thereof, to the date of acceleration shall become, at the Holder's election, immediately due and payable in cash. The aggregate amount payable upon an Event of Default shall be equal to the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at the rate of 15% per annum, or such lower maximum amount of interest permitted to be charged under applicable law. Upon the payment in full of the Mandatory Default Amount on this entire Debenture the Holder shall promptly surrender this Debenture to or as directed by the Company. The Holder 11 need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a Debenture holder until such time, if any, as the full payment under this Section shall have been received by it. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. Section 8. Miscellaneous. (a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, facsimile number (212) 980-2077, Attn: Tony Tracy, or such other address or facsimile number as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile telephone number or address of such Holder appearing on the books of the Company, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 5:30 p.m. (New York City time), (ii) the date after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section later than 5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. (b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on, this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein. (c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, and indemnity, if requested, all reasonably satisfactory to the Company. (d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by any of the Offering Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the "New York Courts"). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute 12 hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Offering Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. (e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver must be in writing. (f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted. (g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. (h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof. (i) Assumption. Any successor to the Company or surviving entity in a Fundamental Transaction shall (i) assume in writing all of the obligations of the Company under this Debenture and the other Offering Documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) prior to such Fundamental Transaction and (ii) to issue to the Holder a new debenture of such successor entity evidenced by a written instrument substantially similar in form and 13 substance to this Debenture, including, without limitation, having a principal amount and interest rate equal to the principal amounts and the interest rates of the Debentures held by the Holder and having similar ranking to this Debenture, and satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed). The provisions of this Section 8(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Debenture. ********************* 14 IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated. ESYS HOLDINGS, INC. By: /s/ Raymond Tejeda-Acevedo --------------------------------- Name: Raymond Tejeda-Acevedo Title: President and Chief Executive Officer 15 EX-10 7 exhibit106.txt EXHIBIT 10.6 Exhibit 10.6 WARRANT TO PURCHASE COMMON STOCK OF ESYS HOLDINGS, INC. THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT OR ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT. ------------------------------------------ This is to Certify that, FOR VALUE RECEIVED, ________________, or assigns ("Holder"), is entitled to purchase, subject to the provisions of this Warrant, from ESYS Holdings, Inc., a Delaware corporation (the "Company"), ________ fully paid, validly issued and nonassessable shares of common stock, par value $.0001 per share, of the Company ("Common Stock") at a price of $1.00 per share (the "Initial Exercise Price"), which exercise may take place at any time or from time to time during the period of five (5) years from ___________, 2008 (the "Exercise Period"). The Initial Exercise Price is subject to adjustment as set forth herein. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for each share of Common Stock may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares" and the exercise price of a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price". This Warrant is issued in connection with an offering by the Company of up to $5,000,000 of 10% Senior Secured Convertible Debentures (the "Private Placement"). (a) EXERCISE OF WARRANT; CANCELLATION OF WARRANT. (1) This Warrant may be exercised in whole or in part at any time or from time to time during the Exercise Period; provided, however, that (i) if either such day is a day on which banking institutions in the State of New York are authorized by law to close, then on the next succeeding day which shall not be such a day, and (ii) in the event of any merger, consolidation or sale of substantially all the assets of the Company as an entirety, resulting in any distribution to the Company's stockholders, prior to termination of the Exercise Period, the Holder shall have the right to exercise this Warrant commencing at such time through the termination of the Exercise Period into the kind and amount of shares of stock and other securities and property (including cash) receivable by a holder of the number of shares of Common Stock into which this Warrant might have been exercisable immediately prior thereto. This Warrant may be exercised by presentation and surrender hereof to the Company at its principal office with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of Warrant Shares specified in such form. As soon as practicable after each such exercise of the warrants, but not later than five business (5) days following the receipt of good and available funds, the Company shall issue and deliver to the Holder a certificate or certificate for the Warrant Shares issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt by the Company of this Warrant at its office in proper form for exercise (including payment of the applicable Exercise Price), the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be physically delivered to the Holder. (2) In the event a registration statement covering the sale of the Warrant Shares is not in effect with the Securities and Exchange Commission within one (1) year following the issuance of this Warrant, at any time thereafter up until the expiration of the Exercise Period, the Holder may, at its option, exercise this Warrant on a cashless basis by exchanging this Warrant, in whole or in part (a "Warrant Exchange"), into the number of Warrant Shares determined in accordance with this Section (a)(2), by surrendering this Warrant at the principal office of the Company or at the office of its stock transfer agent, accompanied by a notice stating such Holder's intent to effect such exchange, the number of Warrant Shares to be exchanged and the date on which the Holder requests that such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the date specified in the Notice of Exchange or, if later, the date the Notice of Exchange is received by the Company (the "Exchange Date"). Certificates for the shares issuable upon such Warrant Exchange and, if applicable, a new warrant of like tenor evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Exchange Date and delivered to the Holder within seven four (4) days following the Exchange Date. In connection with any Warrant Exchange, this Warrant shall represent the right to subscribe for and acquire the number of Warrant Shares equal to (i) the number of Warrant Shares specified by the Holder in its Notice of Exchange (the "Total Number") less (ii) the number of Warrant Shares equal to the quotient obtained by dividing (A) the product of the Total Number and the existing Exercise Price by (B) the current market value of a share of Common Stock. Current market value shall have the meaning set forth Section (c) below, except that for purposes hereof, the date of exercise, as used in such Section (c), shall mean the Exchange Date. 2 (b) RESERVATION OF SHARES. The Company shall at all times reserve for issuance and/or delivery upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance and delivery upon exercise of the Warrants. (c) FRACTIONAL SHARES. No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value ("Current Market Value") of a share, determined as follows: (1) If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the Nasdaq Global Market, the current market value shall be the last reported sale price of the Common Stock on such exchange or market on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average of the closing bid and asked prices for such day on such exchange or market; or (2) If the Common Stock is not so listed or admitted to unlisted trading privileges, but is traded on the Nasdaq Capital Market, the current market value shall be the average of the closing bid and asked prices for such day on such market and if the Common Stock is not so traded, the current market value shall be the mean of the last reported bid and asked prices reported by the FINRA Electronic Bulletin Board on the last business day prior to the date of the exercise of this Warrant; or (3) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value shall be an amount, not less than book value thereof as at the end of the most recent fiscal year of the Company ending prior to the date of the exercise of the Warrant, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. (d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company at its principal office or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled. This Warrant may be divided or combined with other warrants which carry the same rights upon presentation hereof at the principal office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this 3 Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone. (e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. (f) ANTI-DILUTION PROVISIONS. Subject to the provisions of Section l hereof, the Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of the Warrants shall be subject to adjustment from time to time upon the happening of certain events as follows: (1) In case the Company shall hereafter (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action with an appropriate adjustment in the number of shares purchasable hereunder. Such adjustment shall be made successively whenever any event listed above shall occur. (2) Subject to the provisions of Subsection (5) below, in case the Company shall fix a record date for the issuance of rights or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price (the "Subscription Price") (or having a conversion price per share) less than the Current Market Value of the Common Stock on the record date mentioned below, or less than the Exercise Price on such record date, the Exercise Price shall be adjusted so that the same shall equal the lower of (i) the price determined by multiplying the Exercise Price in effect immediately prior to the date of such issuance by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding on the record date mentioned below and the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate conversion price of the convertible securities so offered) would purchase at such Current Market Value per share of the Common Stock, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding on such record date and the number of additional shares of Common Stock offered for subscription or purchase (or into which the convertible securities so offered are convertible) or (ii) in the event the Subscription Price is equal to or higher than the Current Market Value but is less than the Exercise Price, the 4 price determined by multiplying the Exercise Price in effect immediately prior to the date of issuance by a fraction, the numerator of which shall be the sum of the number of shares outstanding on the record date mentioned below and the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate conversion price of the convertible securities so offered) would purchase at the Exercise Price in effect immediately prior to the date of such issuance, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding on the record date mentioned below and the number of additional shares of Common Stock offered for subscription or purchase (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever such rights or warrants are issued and shall become effective immediately after the record date for the determination of shareholders entitled to receive such rights or warrants; and to the extent that shares of Common Stock are not delivered (or securities convertible into Common Stock are not delivered) after the expiration of such rights or warrants the Exercise Price shall be readjusted to the Exercise Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or securities convertible into Common Stock) actually delivered. (3) In case the Company shall hereafter distribute to the holders of its Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions and dividends or distributions referred to in Subsection (1) above) or subscription rights or warrants (excluding those referred to in Subsection (2) above), then in each such case the Exercise Price in effect thereafter shall be determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Current Market Value per share of Common Stock, less the fair market value (as determined by the Company's Board of Directors) of said assets or evidences of indebtedness so distributed or of such rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Current Market Value per share of Common Stock. Such adjustment shall be made successively whenever such a record date is fixed. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution. (4) Subject to the provisions of Subsection (6) below, in case the Company shall hereafter issue shares of its Common Stock (excluding shares issued (a) in any of the transactions described in Subsection (1) above, (b) upon conversion of the Notes and Warrants issued in connection with the Private Placement, (c) upon exercise of options, warrants and convertible debentures outstanding as of or issued on the date hereof, (d) to shareholders of any corporation which merges into the Company in proportion to their stock holdings of such corporation immediately prior to such merger, upon such merger, (e) issued in a bona fide public offering pursuant to a firm commitment underwriting, but only if no adjustment is required pursuant to any other specific subsection of this Section (f) (without regard to Subsection (8) below) with respect to the transaction giving rise to such rights) for a consideration per share (the "Offering Price") less than the Current Market Value per share on the date the Company fixes the offering price of such additional shares or less than the Exercise Price, the Exercise Price shall be adjusted immediately thereafter so that it shall equal the lower of (i) the price determined by multiplying the 5 Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares and the number of shares of Common Stock which the aggregate consideration received (determined as provided in Subsection (7) below) for the issuance of such additional shares would purchase at such Current Market Value per share of Common Stock, and the denominator of which shall be the number of shares of Common Stock outstanding immediately after the issuance of such additional shares or (ii) in the event the Offering Price is equal to or higher than the current market price per share but less than the Exercise Price, the price determined by multiplying the Exercise Price in effect immediately prior to the date of issuance by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares and the number of shares of Common Stock which the aggregate consideration received (determined as provided in subsection (7) below) for the issuance of such additional shares would purchase at the Exercise Price in effect immediately prior to the date of such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately after the issuance of such additional shares. Such adjustment shall be made successively whenever such an issuance is made. (5) Subject to the provisions of Subsection (6) below, in case the Company shall hereafter issue any securities convertible into or exchangeable for its Common Stock (excluding securities issued in transactions described in Subsections (2) and (3) above) for a consideration per share of Common Stock (the "Conversion Price") initially deliverable upon conversion or exchange of such securities (determined as provided in Subsection (7) below) less than the Current Market Value per share in effect immediately prior to the issuance of such securities, or less than the Exercise Price, the Exercise Price shall be adjusted immediately thereafter so that it shall equal the lower of (i) the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to the issuance of such securities and the number of shares of Common Stock which the aggregate consideration received (determined as provided in Subsection (7) below) for such securities would purchase at such Current Market Value per share of Common Stock, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to such issuance and the maximum number of shares of Common Stock of the Company deliverable upon conversion of or in exchange for such securities at the initial conversion or exchange price or rate or (ii) in the event the Conversion Price is equal to or higher than the current market price per share but less than the Exercise Price, the price determined by multiplying the Exercise Price in effect immediately prior to the date of issuance by a fraction, the numerator of which shall be the sum of the number of shares outstanding immediately prior to the issuance of such securities and the number of shares of Common Stock which the aggregate consideration received (determined as provided in subsection (7) below) for such securities would purchase at the Exercise Price in effect immediately prior to the date of such issuance, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to the issuance of such securities and the maximum number of shares of Common Stock of the Company deliverable upon conversion of or in exchange for such securities at the initial conversion or exchange price or rate. Such adjustment shall be made successively whenever such an issuance is made. 6 (6) Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Subsections (1), (2), (3), (4), and (5) above, the number of Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted. (7) For purposes of any computation respecting consideration received pursuant to Subsections (4) and (5) above, the following shall apply: (A) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith; (B) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by an independent appraiser selected by the Board of Directors of the Company whose determination shall be conclusive; and (C) in the case of the issuance of securities convertible into or exchangeable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (A) and (B) of this Subsection (8)). (8) All calculations under this Section (f) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Section (f) to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the Exercise Price, in addition to those required by this Section (f), as it shall determine, in its sole discretion, to be advisable in order that any dividend or distribution in shares of Common Stock, or any subdivision, reclassification or combination of Common Stock, hereafter made by the Company shall not result in any Federal Income tax liability to the holders of Common Stock or securities convertible into Common Stock (including Warrants). (9) Whenever the Exercise Price is adjusted, as herein provided, the Company shall promptly but no later than 10 days after any request for such an adjustment by the Holder, cause a notice setting forth the adjusted Exercise Price and adjusted number of Shares issuable upon exercise of each Warrant, and, if requested, information describing the transactions giving rise to such adjustments, to be mailed to the Holders at their last addresses appearing in the Warrant Register, and shall cause a certified copy thereof to be mailed to its transfer agent, if any. The Company may retain a firm of independent certified public accountants selected by the Board of Directors (who may be the 7 regular accountants employed by the Company) to make any computation required by this Section (f), and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment. (10) In the event that at any time, as a result of an adjustment made pursuant to Subsection (1) above, the Holder of this Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsections (1) to (9), inclusive above. (11) Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon exercise of this Warrant, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Agreement. (g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as required by the provisions of the foregoing Section, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by the holder or any holder of a Warrant executed and delivered pursuant to Section (a) and the Company shall, forthwith after each such adjustment, mail a copy by certified mail of such certificate to the Holder or any such holder. (h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding, (i) if the Company shall pay any dividend or make any distribution upon the Common Stock or (ii) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any share of any class or any other rights or (iii) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then in any such case, the Company shall cause to be mailed by certified mail to the Holder, at least ten (10) days prior the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up. 8 (i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety, the Company shall, as a condition precedent to such transaction, cause adequate provisions to be made so that the Holder shall have the right thereafter by exercising this Warrant at any time prior to the expiration of the Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which might have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (i) shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Subsection (1) of Section (f) hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 9 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed as of the Issue Date first set forth above by an authorized officer. ESYS HOLDINGS, INC. By: /s/ Raymond Tejeda-Acevedo ---------------------------------------- Name: Raymond Tejeda-Acevedo Title: President and Chief Executive Officer Dated: ____________, 2008 10 EX-10 8 exhibit107.txt EXHIBIT 10.7 Exhibit 10.7 SECURITY AGREEMENT This SECURITY AGREEMENT, dated as of May 13, 2008 (this "Agreement"), is among ESYS Holdings, Inc., a Delaware corporation (the "Company" or "Debtor"), and the holder or holders of the Company's 10% Senior Secured Convertible Debenture in the original aggregate principal amount of up to $5,000,000 (plus an additional 20% of such principal amount, at the option of the Company's placement agent) (each, a "Debenture," and collectively, the "Debentures"), signatory hereto, their endorsees, transferees and assigns (collectively referred to as, the "Secured Parties"). W I T N E S S E T H: WHEREAS, pursuant to subscription agreements entered into between the Company and the Secured Parties (the "Subscription Agreement"), Company has agreed to issue to the Secured Parties and the Secured Parties have severally agreed to purchase from Company the Debentures which are convertible into shares of Company's Common Stock, par value $.0001 per share (the "Common Stock"). In connection therewith, Company shall issue the Secured Parties certain Common Stock purchase warrants (the "Warrants"); and WHEREAS, pursuant to the Debentures, the Secured Parties have severally agreed to extend the loans to the Company evidenced by the Debentures; and WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the Debentures, the Debtor has agreed to execute and deliver to the Secured Parties this Agreement and to grant the Secured Parties, pari passu with each other Secured Party, a perfected first priority lien and security interest in certain property of the Debtor to secure the prompt payment, performance and discharge in full of all of the Company's obligations under the Debentures. NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as "account", "chattel paper", "commercial tort claim", "deposit account", "document", "equipment", "fixtures", "general intangibles", "goods", "instruments", "inventory", "investment property", "letter-of-credit rights", "proceeds" and "supporting obligations") shall have the respective meanings given such terms in Article 9 of the UCC. (a) "Collateral" means the collateral in which the Secured Parties are granted a security interest by this Agreement and which shall include the following personal property of the Debtor, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith: (i) All goods, including, without limitations, (A) all machinery, equipment, computers, motor vehicles, trucks, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in connection with the Debtor's businesses and all improvements thereto; and (B) all inventory; (ii) All contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests, stock or other securities, rights under any of the Organizational Documents, agreements related to any pledged securities, licenses, distribution and other agreements, computer software (whether "off-the-shelf", licensed from any third party or developed by the Debtor), computer software development rights, leases, franchises, customer lists, quality control procedures, grants and rights, goodwill, trademarks, service marks, trade styles, trade names, patents, patent applications, copyrights, and income tax refunds; (iii) All accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each account, including any right of stoppage in transit; (iv) All documents, letter-of-credit rights, instruments and chattel paper; (v) All commercial tort claims; (vi) All deposit accounts and all cash (whether or not deposited in such deposit accounts); (vii) All investment property; (viii) All supporting obligations; (ix) All files, records, books of account, business papers, and computer programs; and (x) the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(ix) above. Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset. (b) "Intellectual Property" means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, 2 service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing. (c) "Majority in Interest " shall mean, at any time of determination, the majority in interest (based on then-outstanding principal amounts of Debentures at the time of such determination) of the Secured Parties. (d) "Necessary Endorsement " shall mean undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents as the Agent (as that term is defined below) may reasonably request. (e) "Obligations" means all obligations under this Agreement, the Debentures, and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term "Obligations" shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtor from time to time under or in connection with this Agreement, the Debentures, and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Debtor. (f) "Organizational Documents" means with respect to the Debtor, the documents by which the Debtor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of the Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement). (g) "UCC" means the Uniform Commercial Code of the State of New York and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term "Collateral" will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling. 2. Grant of Perfected First Priority Security Interest. As an inducement for the Secured Parties to extend the loans as evidenced by the Debentures and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, the Debtor hereby unconditionally 3 and irrevocably pledges, grants and hypothecates to the Secured Parties a continuing and perfected security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral other than Permitted Liens (as defined in the Debentures) (the "Security Interest"). 3. Delivery of Certain Collateral. Contemporaneously or prior to the execution of this Agreement, the Debtor shall deliver or cause to be delivered to the Agent (a) any and all certificates and other instruments representing or evidencing pledged securities, and (b) any and all certificates and other instruments or documents representing any of the other Collateral, in each case, together with all Necessary Endorsements. The Debtor is, contemporaneously with the execution hereof, delivering to Agent, or have previously delivered to Agent, a true and correct copy of each Organizational Document governing any pledged securities. 4. Representations, Warranties, Covenants and Agreements of the Debtor. The Debtor represents and warrants to, and covenants and agrees with, the Secured Parties as follows: (a) The Debtor has the requisite corporate, power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by the Debtor of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of the Debtor and no further action is required by the Debtor. This Agreement has been duly executed by the Debtor. This Agreement constitutes the legal, valid and binding obligation of the Debtor, enforceable against the Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity. (b) The Debtor has no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto. Except as disclosed on Schedule A, none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor. (c) Except for Permitted Liens (as defined in the Debentures), the Debtor is the sole owner of the Collateral (except for non-exclusive licenses granted by the Debtor in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and are fully authorized to grant the Security Interest. There is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral. So long as this Agreement shall be in effect, the Debtor shall not execute and shall not knowingly permit to be on file in any such office or agency any such financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of this Agreement). (d) No written claim has been received that any Collateral or the Debtor's use of any Collateral violates the rights of any third party. There has been no adverse decision to the Debtor's claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to the Debtor's right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of the Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority. 4 (e) The Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Parties at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interest to create in favor of the Secured Parties a valid, perfected and continuing perfected first priority lien in the Collateral. (f) This Agreement creates in favor of the Secured Parties a valid, security interest in the Collateral, subject only to Permitted Liens (as defined in the Debentures), securing the payment and performance of the Obligations. Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected. Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, the recordation of the Intellectual Property Security Agreement (as defined below) with respect to copyrights and copyright applications in the United States Copyright Office referred to in paragraph (m), the execution and delivery of deposit account control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC with respect to each deposit account of the Debtor, and the delivery of the certificates and other instruments provided in Section 3, no action is necessary to create, perfect or protect the security interests created hereunder. Without limiting the generality of the foregoing, except for the filing of said financing statements, the recordation of said Intellectual Property Security Agreement, and the execution and delivery of said deposit account control agreements, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral or (iii) the enforcement of the rights of the Secured Parties hereunder. (g) The Debtor hereby authorizes the Secured Parties, or any of them, to file one or more financing statements under the UCC, with respect to the Security Interest with the proper filing and recording agencies in any jurisdiction deemed proper by them. (h) The execution, delivery and performance of this Agreement by the Debtor does not (i) violate any of the provisions of any Organizational Documents of the Debtor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to the Debtor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing the Debtor's debt or otherwise) or other understanding to which the Debtor is a party or by which any property or asset of the Debtor is bound or affected. No consent (including, without limitation, from stockholders or creditors of the Debtor) is required for the Debtor to enter into and perform its obligations hereunder. (i) The Debtor shall at all times maintain the liens and Security Interest provided for hereunder as valid and perfected first priority liens and security interests in the Collateral in favor of the Secured Parties until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 11 hereof. The Debtor hereby agrees to defend the same against the claims of any and all persons and entities. The Debtor shall safeguard and protect all Collateral for the account of the Secured Parties. At the request of the Secured Parties, the Debtor will sign and deliver to the Secured Parties at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Secured Parties and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Secured 5 Parties to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, the Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interest hereunder, and the Debtor shall obtain and furnish to the Secured Parties from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interest hereunder. (j) The Debtor will not transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except in the ordinary course of business) without the prior written consent of a Majority in Interest. (k) The Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage. (l) The Debtor shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof. Copies of such policies or the related certificates, in each case, naming the Agent as lender loss payee and additional insured shall be delivered to the Agent at least annually and at the time any new policy of insurance is issued. (m) The Debtor shall, within five (5) days of obtaining knowledge thereof, advise the Secured Parties promptly, in sufficient detail, of any substantial change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Parties' security interest therein. (n) The Debtor shall promptly execute and deliver to the Secured Parties such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Secured Parties may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce its security interest in the Collateral including, without limitation, if applicable, the execution and delivery of a separate security agreement with respect to the Debtor's Intellectual Property ("Intellectual Property Security Agreement") in which the Secured Parties have been granted a security interest hereunder, substantially in a form acceptable to the Secured Parties, which Intellectual Property Security Agreement, other than as stated therein, shall be subject to all of the terms and conditions hereof. (o) The Debtor shall permit the Secured Parties and their representatives and agents to inspect the Collateral at any time, and to make copies of records pertaining to the Collateral as may be requested by a Secured Party from time to time. (p) The Debtor shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral. (q) The Debtor shall promptly, and in any event within five (5) days of such event, notify the Secured Parties in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by the Debtor that may 6 materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Parties hereunder. (r) All information heretofore, herein or hereafter supplied to the Secured Parties by or on behalf of the Debtor with respect to the Collateral is accurate and complete in all material respects as of the date furnished. (s) The Debtor shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights and franchises material to its business. (t) The Debtor will not change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least 30 days prior written notice to the Secured Parties of such change and, at the time of such written notification, the Debtor provides any financing statements or fixture filings necessary to perfect and continue perfected the perfected Security Interest granted and evidenced by this Agreement. (u) The Debtor may not relocate its chief executive office to a new location without providing 30 days prior written notification thereof to the Secured Parties and so long as, at the time of such written notification, the Debtor provides any financing statements or fixture filings necessary to perfect and continue perfected the perfected security Interest granted and evidenced by this Agreement. (v) (i) The actual name of the Debtor is the name set forth in the preamble above; (ii) the Debtor has not used any trade names except as set forth on Schedule B attached hereto; (iii) the Debtor has not used any name other than that stated in the preamble hereto or as set forth on Schedule B for the preceding five years; and (iv) no entity has merged into the Debtor or been acquired by the Debtor within the past five years except as set forth on Schedule B. (w) At any time and from time to time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by the secured party to perfect the security interest created hereby, the Debtor shall deliver such Collateral to the Agent. (x) The Debtor shall cause all tangible chattel paper constituting Collateral to be delivered to the Agent, or, if such delivery is not possible, then to cause such tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement. To the extent that any Collateral consists of electronic chattel paper, the Debtor shall cause the underlying chattel paper to be "marked" within the meaning of Section 9-105 of the UCC (or successor section thereto). (y) If there is any investment property or deposit account included as Collateral that can be perfected by "control" through an account control agreement, the Debtor shall cause such an account control agreement, in form and substance in each case satisfactory to the Secured Parties, to be entered into and delivered to the Secured Parties. (z) To the extent that any Collateral consists of letter-of-credit rights, the Debtor shall cause the issuer of each underlying letter of credit to consent to an assignment of the proceeds thereof to the Secured Parties. (aa) To the extent that any Collateral is in the possession of any third party, the Debtor shall join with the Secured Parties in notifying such third party of the Secured Parties' security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance satisfactory to the Secured Parties. 7 (bb) If the Debtor shall at any time hold or acquire a commercial tort claim, the Debtor shall promptly notify the Secured Parties in a writing signed by the Debtor of the particulars thereof and grant to the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Secured Parties. (cc) The Debtor shall cause each subsidiary to immediately become a party hereto (an "Additional Debtor"), by executing and delivering an Additional Debtor Joinder in substantially the form of Annex A attached hereto and comply with the provisions hereof applicable to the Debtor. Concurrent therewith, the Additional Debtor shall deliver replacement schedules for, or supplements to all other Schedules to (or referred to in) this Agreement, as applicable, which replacement schedules shall supersede, or supplements shall modify, the Schedules then in effect. The Additional Debtor shall also deliver such opinions of counsel, authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements and other information and documentation as the Secured Parties may reasonably request. Upon delivery of the foregoing to the Secured Parties, the Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtor, for all purposes hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations, warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder, and all references herein to the "Debtor" shall be deemed to include each Additional Debtor. (dd) In the event that, upon an occurrence of an Event of Default, Agent shall sell all or any pledged securities to another party or parties (herein called the "Transferee") or shall purchase or retain all or any pledged securities, the Debtor shall, to the extent applicable: (i) deliver to Agent or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock certificate books, corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of account, financial records and all other Organizational Documents and records of the Debtor and their direct and indirect subsidiaries; and (ii) use its best efforts to obtain resignations of the persons then serving as officers and directors of the Debtor and their direct and indirect subsidiaries, if so requested. (ee) Without limiting the generality of the other obligations of the Debtor hereunder, the Debtor shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property. (ff) The Debtor will from time to time, at the joint and several expense of the Debtor, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Secured Parties may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Parties to exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement. (gg) Schedule C attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by any of the Debtor as of the date hereof. Schedule C lists all material licenses in favor of the Debtor for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks of the Debtor have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtor have been duly recorded at the United States Copyright Office. 8 (hh) None of the account Debtor or other persons or entities obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or any similar federal, state or local statute or rule in respect of such Collateral. 5. Effect of Pledge on Certain Rights. If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Agent's rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which the Debtor is subject or to which the Debtor is party. 6. Defaults. The following events shall be "Events of Default": (a) The occurrence of an Event of Default (as defined in the Debenture) under the Debenture; (b) Any representation or warranty of the Debtor in this Agreement shall prove to have been incorrect in any material respect when made; (c) The failure by the Debtor to observe or perform any of its obligations hereunder for five (5) days after delivery to the Debtor of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and the Debtor is using best efforts to cure same in a timely fashion; or (d) If any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by the Debtor, or a proceeding shall be commenced by the Debtor, or by any governmental authority having jurisdiction over the Debtor, seeking to establish the invalidity or unenforceability thereof, or the Debtor shall deny that the Debtor has any liability or obligation purported to be created under this Agreement. 7. Duty To Hold In Trust. (a) Upon the occurrence of any Event of Default and at any time thereafter, the Debtor shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interest, whether payable pursuant to the Debenture or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Parties, pro-rata in proportion to their initial purchases of Debentures for application to the satisfaction of the Obligations (and if any Debenture is not outstanding, pro-rata in proportion to the initial purchases of the remaining Debentures). (b) If the Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of pledged securities or instruments representing pledged securities acquired after the date hereof, or any options, warrants, rights or other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of the Debtor or any of its direct or indirect subsidiaries) in respect of pledged securities (whether as an addition to, in substitution of, or in exchange for, such pledged securities or otherwise), the Debtor agrees to (i) accept the same as the agent of the Secured 9 Parties; (ii) hold the same in trust on behalf of and for the benefit of the Secured Parties; and (iii) to deliver any and all certificates or instruments evidencing the same to Agent on or before the close of business on the fifth business day following the receipt thereof by the Debtor, in the exact form received together with the Necessary Endorsements, to be held by Agent subject to the terms of this Agreement as Collateral. 8. Rights and Remedies Upon Default. (a) Upon the occurrence of any Event of Default and at any time thereafter, the Secured Parties, acting through any agent appointed by them for such purpose, shall have the right to exercise all of the remedies conferred hereunder and under the Debentures, and the Secured Parties shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Secured Parties shall have the following rights and powers: (i) The Secured Parties shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and the Debtor shall assemble the Collateral and make it available to the Secured Parties at places which the Secured Parties shall reasonably select, whether at the Debtor's premises or elsewhere, and make available to the Secured Parties, without rent, all of the Debtor's respective premises and facilities for the purpose of the Secured Parties taking possession of, removing or putting the Collateral in saleable or disposable form. (ii) Upon notice to the Debtor by Agent, all rights of the Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of the Debtor to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease. Upon such notice, Agent shall have the right to receive any interest, cash dividends or other payments on the Collateral and, at the option of Agent, to exercise in such Agent's discretion all voting rights pertaining thereto. Without limiting the generality of the foregoing, Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as it were the sole and absolute owners thereof, including, without limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or the Debtor or any of its direct or indirect subsidiaries. (iii) The Secured Parties shall have the right to operate the business of the Debtor using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Secured Parties may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to the Debtor or right of redemption of the Debtor, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the Secured Parties may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of the Debtor, which are hereby waived and released. (iv) The Secured Parties shall have the right (but not the obligation) to notify any account Debtor and any obligors under instruments or accounts to make payments directly to the Secured Parties and to enforce the Debtor's rights against such account Debtor and obligors. 10 (v) The Secured Parties may (but are not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Secured Parties or their designee. (vi) The Secured Parties may (but are not obligated to) transfer any or all Intellectual Property registered in the name of the Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Parties or any designee or any purchaser of any Collateral. (b) The Agent may comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Debtor will only be credited with payments actually made by the purchaser. In addition, the Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent's rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto. (c) For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, the Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to the Debtor) to use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by the Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. 9. Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys' fees and expenses incurred by the Secured Parties in enforcing their rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Debentures at the time of any such determination), and to the payment of any other amounts required by applicable law, after which the Secured Parties shall pay to the Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtor will be liable for the deficiency, together with interest thereon, at the rate of 10% per annum or the lesser amount permitted by applicable law (the "Default Rate"), and the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency. To the extent permitted by applicable law, the Debtor waives all claims, damages and demands against the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. 10. Securities Law Provision. The Debtor recognizes that Agent may be limited in its ability to effect a sale to the public of all or part of any pledged securities by reason of certain prohibitions in the Securities Act of 1933, as amended, or other federal or state securities laws (collectively, the " Securities Laws "), and may be compelled to resort to one or more sales to a restricted group of purchasers who may be required to agree to acquire pledged securities for their own account, for investment and not with a view to the 11 distribution or resale thereof. The Debtor agrees that sales so made may be at prices and on terms less favorable than if pledged securities were sold to the public, and that Agent has no obligation to delay the sale of any pledged securities for the period of time necessary to register pledged securities for sale to the public under the Securities Laws. The Debtor shall cooperate with Agent in its attempt to satisfy any requirements under the Securities Laws (including, without limitation, registration thereunder if requested by Agent) applicable to the sale of pledged securities by Agent. 11. Costs and Expenses. The Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Secured Parties. The Debtor shall also pay all other claims and charges which in the reasonable opinion of the Secured Parties might prejudice, imperil or otherwise affect the Collateral or the Security Interest therein. The Debtor will also, upon demand, pay to the Secured Parties the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Secured Parties may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Parties under the Debentures. Until so paid, any fees payable hereunder shall be added to the principal amount of the Debentures and shall bear interest at the Default Rate. 12. Responsibility for Collateral. The Debtor assumes all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) the Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by the Debtor thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of the Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times. 13. Security Interest Absolute. All rights of the Secured Parties and all obligations of the Debtor hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Debentures or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Debentures or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guaranty, or any other security, for all or any of the Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to the Debtor, or 12 a discharge of all or any part of the Security Interest granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Parties shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy. The Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Parties, then, in any such event, the Debtor's obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. The Debtor waives all right to require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. The Debtor waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby. 14. Term of Agreement. This Agreement and the Security Interest shall terminate on the date on which all payments under the Debentures have been indefeasibly paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Debtor contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement. 15. Power of Attorney; Further Assurances. (a) The Debtor authorizes the Secured Parties, and does hereby make, constitute and appoint the Secured Parties and their respective officers, agents, successors or assigns with full power of substitution, as the Debtor's true and lawful attorney-in-fact, with power, in the name of the various Secured Parties or the Debtor, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Secured Parties; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against Debtor, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Secured Parties, and at the expense of the Debtor, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Secured Parties deem necessary to protect, preserve and realize upon the Collateral and the Security Interest granted therein in order to effect the intent of this Agreement and the Debentures all as fully and effectually as the Debtor might or could do; and the Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which the Debtor is subject or to which the Debtor is a party. Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office. 13 (b) On a continuing basis, the Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Secured Parties, to perfect the Security Interest granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Secured Parties the grant or perfection of a perfected security interest in all the Collateral under the UCC. (c) The Debtor hereby irrevocably appoints the Secured Parties as the Debtor's attorney-in-fact, with full authority in the place and instead of the Debtor and in the name of the Debtor, from time to time in the Secured Parties' discretion, to take any action and to execute any instrument which the Secured Parties may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of the Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as "all assets" or "all personal property" or words of like import, and ratifies all such actions taken by the Secured Parties. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. 16. Notices. All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Subscription Agreement (as such term is defined in the Debentures). 17. Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Secured Parties shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Parties' rights and remedies hereunder. 18. Appointment of Agent. The Secured Parties hereby appoint Jonathan Rich, to act as their agent ("Mr. Rich" or "Agent") for purposes of exercising any and all rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Agent; provided, that Mr. Rich may not be removed. The Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto. 19. Miscellaneous. (a) No course of dealing between the Debtor and the Secured Parties, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under the Debentures shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. (b) All of the rights and remedies of the Secured Parties with respect to the Collateral, whether established hereby or by the Debentures or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently. (c) This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and is intended to supersede all prior negotiations, understandings and agreements with respect thereto. Except as specifically set forth in this Agreement, no provision of this Agreement may be modified or amended except by a written agreement specifically referring to this Agreement and signed by the parties hereto. 14 (d) In the event any provision of this Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction for any reason, unless such provision is narrowed by judicial construction, this Agreement shall, as to such jurisdiction, be construed as if such invalid, prohibited or unenforceable provision had been more narrowly drawn so as not to be invalid, prohibited or unenforceable. If, notwithstanding the foregoing, any provision of this Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction, such provision, as to such jurisdiction, shall be ineffective to the extent of such invalidity, prohibition or unenforceability without invalidating the remaining portion of such provision or the other provisions of this Agreement and without affecting the validity or enforceability of such provision or the other provisions of this Agreement in any other jurisdiction. (e) No waiver of any breach or default or any right under this Agreement shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach or default or right, whether of the same or similar nature or otherwise. (f) This Agreement shall be binding upon and inure to the benefit of each party hereto and its successors and assigns. (g) Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement. (h) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. The Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Debenture (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. The Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If any party shall commence a proceeding to enforce any provisions of this Agreement, then the prevailing party in such proceeding shall be reimbursed by the other party for its reasonable attorney's fees and other costs and expenses incurred with the investigation, preparation and prosecution of such proceeding. (i) This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such 15 signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. (j) The Debtor shall indemnify, reimburse and hold harmless the Secured Parties and their respective partners, members, shareholders, officers, directors, employees and agents (collectively, "Indemnitees") from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Debentures, the Subscription Agreement (as such term is defined in the Debentures) or any other agreement, instrument or other document executed or delivered in connection herewith or therewith. (k) To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of the Debtor or any direct or indirect subsidiary of the Debtor or compliance with any provisions of any of the Organizational Documents, the Debtor hereby grant such consent and approval and waive any such noncompliance with the terms of said documents. [SIGNATURE PAGES FOLLOW] 16 IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written. ESYS HOLDINGS, INC. By: /s/ Raymond Tejeda-Acevedo ----------------------------------- Name: Raymond Tejeda-Acevedo Title: President and Chief Executive Officer [SIGNATURE PAGE OF HOLDERS FOLLOWS] 17 [SIGNATURE PAGE OF HOLDERS] Name of Holder: ______________________________ Signature of Authorized Signatory of Holder: ____________________ Name of Authorized Signatory: _______________________________ Title of Authorized Signatory: ________________________________ 18 EX-10 9 exhibit108.txt EXHIBIT 10.8 Exhibit 10.8 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of May 13, 2008, between ESYS Holdings, Inc., a Delaware corporation (the "Company") and each of the several purchasers signatory hereto (each such purchaser, a "Purchaser" and, collectively, the "Purchasers"). This Agreement is made pursuant to the Subscription Agreement, dated as of the date hereof, between the Company and each Purchaser (the "Purchase Agreement"). The Company and each Purchaser hereby agree as follows: 1. Definitions Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Advice" shall have the meaning set forth in Section 6(d). "Effectiveness Date" means, with respect to the Initial Registration Statement required to be filed hereunder, the 150th calendar day following the date the Initial Registration Statement is required to be filed hereunder and with respect to any additional Registration Statements which may be required pursuant to Section 3(c), the 60th calendar day following the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required to be filed hereunder; provided, however, that in the event the Company is notified by the Commission that one or more of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates otherwise required above. "Effectiveness Period" shall have the meaning set forth in Section 2(a). "Event" shall have the meaning set forth in Section 2(b). "Event Date" shall have the meaning set forth in Section 2(b). "Filing Date" means, with respect to the Initial Registration Statement required hereunder, the 60th calendar day following the date hereof and, with respect to any additional Registration Statements which may be required pursuant to Section 3(c), the 30th day following the date on which the Company first knows, or reasonably should have known that such additional Registration Statement is required hereunder. 1 "Holder" or "Holders" means the holder or holders, as the case may be, from time to time of Registrable Securities. "Indemnified Party" shall have the meaning set forth in Section 5(c). "Indemnifying Party" shall have the meaning set forth in Section 5(c). "Initial Registration Statement" means the initial Registration Statement filed pursuant to this Agreement. "Initial Shares" means a number of shares of Common Stock equal to one-third of the number of shares of Common Stock issued and outstanding and held by non-affiliates of the Company immediately prior to the filing date of the Initial Registration Statement. "Losses" shall have the meaning set forth in Section 5(a). "Prospectus" means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "Registrable Securities" means (i) all of the shares of Common Stock issuable upon conversion in full of the Notes (assuming on the date of determination the Notes are converted in full without regard to any conversion limitations therein), (ii) all shares of Common Stock issuable as interest or principal on the Notes assuming all permissible interest and principal payments are made in shares of Common Stock and the Notes are held until maturity, (iii) all shares of Common Stock issuable upon exercise of the Warrants ("Warrant Shares") (assuming on the date of determination the Warrants are exercised in full without regard to any exercise limitations therein), (iv) any additional shares of Common Stock issuable in connection with any anti-dilution provisions in the Notes or the Warrants (in each case, without giving effect to any limitations on conversion set forth in the Notes or limitations on exercise set forth in the Warrant) and (v) any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing. "Registration Statement" means the registration statement required to be filed hereunder and any additional registration statements contemplated by Section 3(c), including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. 2 "Rule 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. "Rule 424" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. "Selling Shareholder Questionnaire" shall have the meaning set forth in Section 3(a). "SEC Guidance" means (i) any publicly-available written or oral guidance, comments, requirements or requests of the Commission staff and (ii) the Securities Act. 2. Shelf Registration (a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all or such portion of the Registrable Securities as permitted by SEC Guidance (provided that the Company shall use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, the Manual of Publicly Available Telephone Interpretations D.29) that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith, it being understood that the Initial Registration Statement filed hereunder shall be on Form SB-2). Subject to the terms of this Agreement, the Company shall use its commercially reasonable efforts to cause a Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to the applicable Effectiveness Date, and shall use its commercially reasonable efforts to keep such Registration Statement continuously effective under the Securities Act until all Registrable Securities covered by such Registration Statement have been sold, or may be sold without volume restrictions pursuant to Rule 144(k), as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected Holders, but in no event longer than two (2) years (the "Effectiveness Period"). The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. New York City time on a Trading Day. The Company shall immediately notify the Holders via facsimile or by e-mail delivery of a ".pdf" format data file of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of a Registration Statement. The Company shall, by 9:30 a.m. New York City time on the Trading Day after the Effective Date, file a final Prospectus with the 3 Commission as required by Rule 424. Failure to so notify the Holder within 1 Trading Day of such notification of effectiveness or failure to file a final Prospectus as foresaid shall be deemed an Event under Section 2(b). Notwithstanding any other provision of this Agreement and subject to the payment of liquidated damages in Section 2(b), if any SEC Guidance sets forth a limitation of the number of Registrable Securities permitted to be registered on a particular Registration Statement (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater number of Registrable Securities), unless otherwise directed in writing by a Holder as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will first be reduced by Registrable Securities represented by Warrant Shares (applied, in the case that some Warrant Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Warrant Shares held by such Holders), and second by Registrable Securities represented by Conversion Shares (applied, in the case that some Conversion Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Conversion Shares held by such Holders) until such amount of Registrable Securities is acceptable to the Commission. (b) If (i) the Initial Registration Statement is not filed on or prior to its Filing Date (if the Company files the Initial Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a) herein, the Company shall be deemed to have not satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated under the Securities Act, within 10 Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that such Registration Statement will not be "reviewed" or not be subject to further review, or (iii) prior to the Effectiveness Date of a Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within 10 Trading Days after the receipt of comments by or notice from the Commission that such amendment is required in order for such Registration Statement to be declared effective, or (iv) as to, in the aggregate among all Holders on a pro-rata basis based on their purchase of the Securities pursuant to the Purchase Agreement, a Registration Statement registering for resale all of the Initial Shares is not declared effective by the Commission by the Effectiveness Date of the Initial Registration Statement, or (v) all of the Registrable Securities are not registered for resale pursuant to one or more effective Registration Statements on or before ______________, or (vi) after the Effectiveness Date of a Registration Statement, such Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities included in such Registration Statement, or the Holders are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than 10 consecutive calendar days or more than an aggregate of 15 calendar days during any 12-month period (which need not be consecutive calendar days) (any such failure or breach being referred to as an "Event", ----- and for purposes of clause (i), (iv) or (v) the date on which such Event occurs, or for purposes of clause (ii) the date on which such five Trading Day period is exceeded, or for purposes of clause (iii) the date which such 10 calendar day period is exceeded, 4 or for purposes of clause (vi) the date on which such 10 or 15 calendar day period, as applicable, is exceeded being referred to as "Event Date"), then, in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 1.25% of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement for any unregistered Registrable Securities then held by such Holder. The parties agree that (1) the Company shall not be liable for liquidated damages under this Agreement with respect to any Warrants or Warrant Shares and (2) the maximum aggregate liquidated damages payable to a Holder under this Agreement shall be 15% of the aggregate Subscription Amount paid by such Holder pursuant to the Purchase Agreement. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cure of an Event. 3. Registration Procedures. In connection with the Company's registration obligations hereunder, the Company shall: (a) Not less than 5 Trading Days prior to the filing of each Registration Statement and not less than one Trading Day prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that the Company is notified of such objection in writing no later than 5 Trading Days after the Holders have been so furnished copies of a Registration Statement or 1 Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Annex A (a "Selling Shareholder Questionnaire") not less than two Trading Days prior to the Filing Date or by the end of the fourth Trading Day following the date on which such Holder receives draft materials in accordance with this Section. (b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act 5 all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible to the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement (provided that the Company may excise any information contained therein which would constitute material non-public information as to any Holder which has not executed a confidentiality agreement with the Company); and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented. (c) If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than the number of such Registrable Securities. (d) Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one Trading Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement; and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other 6 documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus, provided that any and all of such information shall remain confidential to each Holder until such information otherwise becomes public, unless disclosure by a Holder is required by law; provided, further, that notwithstanding each Holder's agreement to keep such information confidential, each such Holder makes no acknowledgement that any such information is material, non-public information. (e) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment. (f) Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that any such item which is available on the EDGAR system need not be furnished in physical form. (g) Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d). (h) The Company shall effect a filing with respect to the public offering contemplated by each Registration Statement (an "Issuer Filing") with the National Association of Securities Dealers, Inc. ("NASD") Corporate Financing Department pursuant to NASD Rule 2710(b)(10)(A)(i) within one Trading Day of the date that the Registration Statement is first filed with the Commission and pay the filing fee required by such Issuer Filing. The Company shall use commercially reasonable efforts to pursue the Issuer Filing until the NASD issues a letter confirming that it does not object to the terms of the offering contemplated by the Registration Statement. A copy of the Issuer Filing and all related correspondence to or from the NASD with respect thereto shall be provided to FWS. 7 (i) Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction. (j) If requested by a Holder, cooperate with such Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request. (k) Upon the occurrence of any event contemplated by Section 3(d), as promptly as reasonably possible under the circumstances taking into account the Company's good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus. The Company will use its best commercial efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company shall be entitled to exercise its right under this Section 3(k) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of partial liquidated damages otherwise required pursuant to Section 2(b), for a period not to exceed 60 calendar days (which need not be consecutive days) in any 12 month period. (l) Comply with all applicable rules and regulations of the Commission. (m) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially 8 owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company's request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company. 4. Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company's counsel and auditors) (A) with respect to filings made with the Commission, (B) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (D) if not previously paid by the Company in connection with an Issuer Filing, with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with the NASD pursuant to NASD Rule 2710, so long as the broker is receiving no more than a customary brokerage commission in connection with such sale, (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders. 5. Indemnification. (a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each Person who controls any such Holder (within the 9 meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, shareholders, partners, agents and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. (b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder's failure to comply with the prospectus delivery requirements of the Securities Act or (y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in such Registration Statement or such Prospectus or (ii) to the extent that such information relates to such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto or (ii) in the case of 10 an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d). In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the "Indemnifying Party") in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have prejudiced the Indemnifying Party. An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. 11 Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is judicially determined to be not entitled to indemnification hereunder. (d) Contribution. If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys' or other fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, except in the case of fraud by the Holder. The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 12 6. Miscellaneous. (a) Remedies. In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate. (b) No Piggyback on Registrations. Except for securities to be registered by the Company on Form S-8, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statements other than the Registrable Securities. The Company shall not file any other registration statements until all Registrable Securities are registered pursuant to a Registration Statement that is declared effective by the Commission, provided that this Section 6(b) shall not prohibit the Company from filing amendments to registration statements filed prior to the date of this Agreement. (c) Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to a Registration Statement. (d) Discontinued Disposition. By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as it practicable. The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(b). (e) Piggy-Back Registrations. If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the Company's stock option or other employee benefit plans, then the Company shall send to each Holder a written notice of such determination and, if within fifteen days after the date of such notice, any such Holder shall so request in writing, the Company shall 13 include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered, subject to customary underwriter cutbacks applicable to all holders of registration rights; provided, however, that the Company shall not be required to register any Registrable Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule 144(k) promulgated under the Securities Act or that are the subject of a then effective Registration Statement. (f) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of a majority of the then outstanding Registrable Securities (including, for this purpose any Registrable Securities issuable upon exercise or conversion of any Security). If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of some Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence of this Section 6(f). (g) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement. (h) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then-outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement. (i) No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as set forth on Schedule 6(i), neither the Company nor any of its subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full. (j) Execution and Counterparts. 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 when counterparts have been signed by each party and delivered to the other party, it being understood that both 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. 14 (k) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement. (l) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any other remedies provided by law. (m) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (n) Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof. (o) Independent Nature of Holders' Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. ******************** 15 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. ESYS HOLDINGS, INC. By:/s/ Raymond Tejeda-Acevedo -------------------------------------------- Name: Raymond Tejeda-Acevedo Title: President and Chief Executive Officer [SIGNATURE PAGE OF HOLDERS FOLLOWS] 16 [SIGNATURE PAGE OF HOLDERS TO RRA] Name of Holder: __________________________ Signature of Authorized Signatory of Holder: __________________________ Name of Authorized Signatory: _________________________ Title of Authorized Signatory: __________________________ [SIGNATURE PAGES CONTINUE] -17- EX-10 10 exhibit109.txt EXHIBIT 10.9 Exhibit 10.9 ESYS HOLDINGS, INC. SUBSCRIPTION AGREEMENT INSTRUCTIONS Each prospective investor must complete, execute and submit the following: (1) The Subscription Agreement; (2) The Accredited Investor Questionnaire; (3) The signature page to the Security Agreement; (4) The signature page to the Registration Rights Agreement; and (5) A check or money order made payable to Signature Bank, as Escrow Agent for ESYS Holdings, Inc. in the amount of the purchase price for the notes and warrants ("Securities") subscribed for by the investor, or funds can be wired as follows: Bank: Signature Bank Address: 1225 Franklin Avenue, Garden City, New York 11530 ABA No.: Beneficiary Name: Signature Bank As Escrow Agent For ESYS Holdings, Inc. Account No.: The foregoing materials should be delivered via a trackable delivery system (overnight delivery) to: vFinance Investments, Inc. 880 Third Avenue New York, NY 10022 Attn: Jonathan Rich (6) If and when accepted by ESYS Holdings, Inc., a Delaware corporation (the "Company"), this Agreement shall constitute a subscription for Securities of the Company. The minimum investment is $50,000, unless waived by the Company. (7) The Company reserves the right to reject in its entirety any subscription which is tendered or to allocate to any prospective purchaser a smaller number of Securities than the prospective purchaser has subscribed to purchase. In such event, the Company will return to you this Agreement and your payment (or a pro rata portion of your payment, if such subscription is rejected only in part), without interest or deduction. (8) An accepted copy of this Agreement and a Debenture and Warrant issued in your name will be returned to you shortly after the closing of the Offering. ALL SUBSCRIPTION DOCUMENTS MUST BE COMPLETE AND ONLY THE PROSPECTIVE INVESTOR'S PRINCIPAL RESIDENCE SHOULD BE STATED. SUBSCRIPTION AGREEMENT Name of Subscriber ___________________ ESYS Holdings, Inc. 7425 Brighton Village Drive Chapel Hill, NC 27515 Ladies and Gentlemen: 1. Subscription. I (sometimes referred to herein as the "Investor") hereby subscribe for and agree to purchase securities (the "Securities") comprised of 10% Senior Secured Convertible Debentures (the "Notes") and Warrants to purchase common stock (the "Warrants") of ESYS Holdings, Inc., a Delaware corporation (the "Company"), on the terms and conditions described herein (including the exhibits hereto, collectively referred to as the "Offering Documents"). The Minimum Offering is $2,500,000 and the Maximum Offering is $5,000,000. At the option of the Company, additional monies up to 20% of the Maximum Offering may also be accepted. The aggregate amount subscribed for hereby is $___________. I understand that a closing will not be held until the Minimum Offering is received and accepted by the Company and upon the closing of a share exchange transaction between the Company and shareholders of Perf-Go Green Inc. (the "Share Exchange") and that additional closings may be held at any time thereafter until the Termination Date (as defined below). The Notes have a term of three years from the date of closing and carry an interest rate of 10% per annum. Notes may be converted into shares of the Company's Common Stock at an initial conversion price of $0.75 per share. The obligations of the Company under the Notes shall be secured pursuant to the terms of the Security Agreement annexed hereto as Exhibit C (the "Security Agreement"). The Warrants shall be exercisable for a period of five years at an exercise price of $1.00 per share. Warrants shall be convertible into that number of shares of Common Stock equal to 100% of the shares issuable upon conversion of the Notes. The holders of the shares of Common Stock issuable upon conversion of the Notes and exercise of the Warrants shall be entitled to certain registration rights pursuant to the terms of the Registration Rights Agreement annexed hereto as Exhibit D. I understand and acknowledge that the foregoing summary of the Offering Documents is qualified in its entirety by reference to the Offering Documents annexed hereto. 2. Purchase. (a) I hereby tender to the Company a check, money order, or wire transfer in the amount indicated above, an executed copy of this Subscription Agreement, an executed copy of my Investor Questionnaire and an executed copy of the Security Agreement. 1 (b) This offering will continue until the earlier of (i) the sale of all of the Maximum Offering or (ii) April 30, 2008, unless extended one or more times by the Company without notice to the Investors, ("Termination Date"). Prior to the Termination Date, payments delivered herewith will be held in an escrow account subject to the terms and conditions herein. Upon the earlier of a closing for my subscription or completion of the offering, I will be notified promptly by the Company as to whether my subscription has been accepted by the Company. 3. Acceptance or Rejection of Subscription. (a) I understand and agree that the Company reserves the right to reject this subscription for the Securities, in whole or in part, for any reason and at any time prior to the Closing, notwithstanding prior receipt by me of notice of acceptance of my subscription. (b) In the event of the rejection of this subscription, my subscription payment will be promptly returned to me without interest or deduction and this Subscription Agreement shall have no force or effect. In the event my subscription is accepted and the offering is completed, the funds specified above shall be released to the Company. 4. Closing. The closing ("Closing") of this offering may occur at any time after receipt by the Company of accepted subscriptions for the Minimum Offering and the closing of the Share Exchange and thereafter, at any time, for closings with respect to funds received by the Escrow Agent before the Termination Date. The Securities subscribed for herein shall not be deemed issued to or owned by me until one copy of this Subscription Agreement has been executed by me and countersigned by the Company and the Closing with respect to such Securities has occurred. 5. Disclosure. Because this offering is limited to accredited investors as defined in Section 2(15) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 501 promulgated thereunder, in reliance upon the exemption contained in Sections 3(b) or 4(2) of the Securities Act and applicable state securities laws, the Securities are being sold without registration under the Securities Act. I acknowledge receipt of the Offering Documents and all related documents and represent that I have carefully reviewed and understand the Offering Documents. I have received all information and materials regarding the Company that I have requested. 6. Investor Representations and Warranties. I acknowledge, represent and warrant to, and agree with, the Company as follows: (a) Accredited Investor Status. I am an "accredited investor" within the meaning of Securities and Exchange Commission Rule 501 of Regulation D. (b) Purchase Entirely for Own Account. The Notes and Warrants will be acquired by me for investment for my own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and I have no present intention of selling, granting any participation in, or otherwise distributing the same. I further represent that I do not have any contract, undertaking, agreement or 2 arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Securities. (c) Disclosure of Information. I fully understand that the Securities are speculative investments which involve a high degree of risk of the loss of my entire investment. I represent that I have received the disclosure I believe relevant and necessary to my investment decision and have had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of this transaction and the business, properties, prospects and financial condition of the Company and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) and/or conduct its own independent investigation necessary to verify the accuracy of any information furnished to me or to which I have had access. I have received no representation or warranty from the Company or any of its officers, directors, employees or agents in respect of my investment in the Company and I have received no information (written or otherwise) from it relating to the Company or its business other than as set forth in the Offering Documents. I am not participating in the offer as a result of or subsequent to: (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. (d) Investment Experience. I (i) am experienced in evaluating and investing in private placement transactions in securities of companies similar to the Company and have such knowledge and experience in financial or business matters that I am capable of evaluating the merits and risks of the investment in the Securities and (ii) acknowledge that I can bear the economic risk of my investment, including the loss of the entire investment. I have been urged to seek independent advice from my professional advisors relating to the suitability of an investment in the Company in view of my overall financial needs and with respect to the legal and tax implications of such investment. (e) Restricted Securities. I understand that the Securities are being sold pursuant to exemptions from registration under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") and Rule 506 of Regulation D promulgated thereunder. I also understand that the Securities and any securities issuable on exercise or conversion thereof may not be resold by me without registration under the Securities Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Securities or an available exemption from registration under the Securities Act, the Securities may be restricted from resale in a transaction to which United States securities laws apply for an indefinite period of time. (f) Illiquid Investment. I understand that no market for the Securities exists and no such market may ever exist. 3 (g) Operating History. I understand and acknowledge that the Company has a limited operating history. The Company will use the proceeds of this Offering to (i) develop its business and the relationships acquired upon the consummation of the Share Exchange and (ii) pay the legal fees and other costs related to the Share Exchange, all as described in the Offering Documents.. An investor in the Company must consider the risks, uncertainties, expenses, and difficulties frequently encountered by companies in their early stages of development. The Company makes no assurance that its business strategy will be successful or that it will successfully address these risks or difficulties. (h) Need for Additional Financing. I acknowledge and agree that the Company may, in the future, need to raise additional funds to expand its concept and/or respond to business contingencies which may include the need to: fund more rapid expansion; fund additional marketing expenditures; enhance its operating infrastructure; hire additional personnel; respond to competitive pressures; or acquire complementary businesses or necessary technologies. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of the Company's stockholders will be reduced, and these newly-issued securities may have rights, preferences or privileges senior to those of existing members, including those acquiring Securities in this Offering. The Company makes no assurances that additional financing will be available on terms favorable to it, or at all. If adequate funds are not available or are not available on acceptable terms, the Company's ability to fund operations, take advantage of unanticipated opportunities, develop or enhance products and services or otherwise respond to competitive pressures would be significantly limited. (i) Use of Proceeds. I acknowledge and agree that the Company will have broad discretion with respect to the use of the net proceeds from this Offering, and investors will be relying on the judgment of management regarding the application of these proceeds. The Company has only made preliminary determinations of the amount of net proceeds to be used for specific purposes based upon current expectations regarding financial performance and business needs over the foreseeable future. These expectations may prove to be inaccurate, as the Company's financial performance may differ from current expectations or business needs may change as our business and industry evolve. As a result, the proceeds received in this Offering may be used in a manner significantly different from current plans. The Company makes no assurances that the net proceeds will be used for purposes that increase results of operations or the value of the Securities you purchase in this Offering. (j) Financial Projections. I acknowledge and agree that operating and financial information contained in any of the Company's projected financial data have been prepared by management and reflect its current estimates of future performance. The projected results are dependent on the successful implementation of management's growth 4 strategies and are based on assumptions and events over which it has only partial or no control. The assumptions underlying such projected information require the exercise of judgment, and the projections are subject to uncertainty due to the effects that economic, business, competitive, legislative, political or other changes might have on future events. Changes in the facts or circumstances underlying such assumptions could materially affect the projections. To the extent that assumed events do not materialize, actual results might vary substantially from the projected results. As a result, the Company might not achieve the operating or financial results set forth in financial projections. (k) Forward-looking statements. I acknowledge that I have not relied on forward-looking statements contained in the Offering Documents because they are inherently uncertain. Words as "anticipates," "believes," "plans," "expects," "future," "intends," and similar expressions are used to identify these forward-looking statements. I have not placed undue reliance on these forward-looking statements for many reasons, including the risks faced by the Company described above and elsewhere. (l) Residence. I reside, or my office primarily responsible for the purchase of the Securities is located, at the address listed on the signature page. (m) Brokers or Finders. All negotiations on the part of the Investor relative to the transactions contemplated hereby have been carried on by me without the intervention of any person or as the result of any act of mine in such manner as to give rise to any valid claim for a brokerage commission, finder's fee, or other like payment. The foregoing notwithstanding, I acknowledge that vFinance Investments, Inc. has been retained by the Company to serve as placement agent ("Placement Agent") in this offering, as in such capacity, will be paid a commission equal to (i) 10% of the gross proceeds payable at the First Closing and each additional Closing; (ii) 10% of the cash held by the Company which will be available to the Company as a result of the Share Exchange (as described in the Private Placement Memorandum) payable at the First Closing; (iii) warrants equal to 10% of the gross proceeds to the Company payable at the First Closing and each additional Closing; and (iv) 420,000 warrants. All Placement Agent warrants are exercisable at $1.00 per share, for a period of five years from the Closing. The Company will also reimburse the Placement Agent for its out-of-pocket expenses (including attorneys' fees) incurred in connection with the offering. (n) Reliance. I understand that this agreement is made with me in reliance upon my representations to the Company, as set forth above. (o) Cancellation Rights. I understand that except for any rescission rights that may be provided under applicable laws, I am not entitled to cancel, terminate or revoke this subscription, and any agreements made in connection herewith shall survive my death or disability. 5 7. Indemnification. I hereby agree to indemnify and hold harmless each of the Company and Perf-Go Green, Inc. and each of its respective officers, directors, stockholders, employees, agents, and counsel against any and all losses, claims, demands, liabilities, and expenses (including reasonable legal or other expenses, including reasonable attorneys' fees) incurred by each such person in connection with defending or investigating any such claims or liabilities, whether or not resulting in any liability to such person, to which any such indemnified party may become subject under the Securities Act, under any other statute, at common law or otherwise, insofar as such losses, claims, demands, liabilities and expenses (a) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact made by me and contained in this Subscription Agreement or my Investor Questionnaire, or (b) arise out of or are based upon any breach by me of any representation, warranty, or agreement made by me contained herein or therein. 8. Severability. In the event any parts of this Subscription Agreement are found to be void, the remaining provisions of this Subscription Agreement shall nevertheless be binding with the same effect as though the void parts were deleted. 9. Choice of Law and Jurisdiction. This Subscription Agreement will be deemed to have been made and delivered in New York County, State of New York and will be governed as to validity, interpretation, construction, effect and in all other respects by the internal laws of the State of New York. The Company and the undersigned (i) agree that any legal suit, action or proceeding arising out of or relating to this Subscription Agreement shall be instituted exclusively in New York State Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, (ii) waive any proceeding, and (iii) irrevocably consent to the jurisdiction of the New York State Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding. The Company and the undersigned further agree to accept and acknowledge service of any and all process which may be served in any such suit action or proceeding brought in the New York State Supreme Court, County of New York, or in the United States District Court for the Southern District of New York and agree that service of process upon it mailed by certified mail to its address shall be deemed in every respect effective service of process upon it in any suit, action or proceeding. 10. Counterparts. This Subscription Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. The execution of this Subscription Agreement may be by actual or facsimile signature or delivered via other electronic means. 11. Benefit. This Subscription Agreement shall be binding upon and inure to the benefit of the parties hereto. 12. Notices and Addresses. All notices, offers, acceptance and any other acts under this Subscription Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addresses in person, by Federal Express or similar courier delivery or by facsimile delivery, as follows: 6 Investor: At the address designated on the signature page of this Subscription Agreement. Placement Agent: vFinance Investments, Inc. 880 Third Avenue New York, New York 10022 Attn: Jonathan Rich Fax: (212) 380-2828 Company: ESYS Holdings, Inc. 7425 Brighton Village Drive Chapel Hill, NC 27515 with a copy to: Anslow & Jaclin, LLP 195 Route 9 South, Suite 204 Manalapar, New Jersey 07726 Tel: (732) 577-1188 Attention: Eric M. Stein, Esq.. or to such other address as any of them, by notice to the others may designate from time to time. The transmission confirmation receipt from the sender's facsimile machine shall be conclusive evidence of successful facsimile delivery. Time shall be counted to, or from, as the case may be, the delivery in person or by mailing. 13. Entire Agreement. This Subscription Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof. This Subscription Agreement may not be changed, waived, discharged, or terminated orally but, rather, only by a statement in writing signed by the party or parties against which enforcement or the change, waiver, discharge or termination is sought. 14. Section Headings. Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part, any of the terms or provisions of this Subscription Agreement. 15. Survival of Representations, Warranties and Agreements. The representations, warranties and agreements contained herein shall survive the delivery of, and the payment for, the Securities. 7 16. Acceptance of Subscription. The Company may accept this Subscription Agreement at any time for all or any portion of the Securities subscribed for by executing a copy hereof as provided and notifying me within a reasonable time thereafter. RESIDENTS OF ALL STATES: THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO REGISTRATIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS CONFIDENTIAL INVESTMENT SUMMARY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. 8 Manner in Which Title is to be Held. (check one) ___ Individual Ownership ___ Community Property ___ Joint Tenant with Right of Survivorship (both parties must sign) ___ Partnership ___ Tenants in common ___ Corporation ___ Trust ___ IRA or Keough ___ Other (please indicate) Dated: ____________ INDIVIDUAL INVESTORS ENTITY INVESTORS Name of entity, if any __________________ - --------------------------------- Signature (Individual) By: -------------------------------------- *Signature Its - ---------------------------------- -------------------------------------- Signature (Joint) Title (all record holders must sign) - ---------------------------------- ---------------------------------------- Name(s) Typed or Printed Name Typed or Printed Address to Which Correspondence Address to Which Correspondence Should be Directed Should be Directed - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- City, State and Zip Code City, State and Zip Code - ---------------------------------- ----------------------------------------- Tax Identification or Tax Identification or Social Security Number Social Security Number * If Securities are being subscribed for by any entity, the Certificate of Signatory on the next page must also be completed The foregoing subscription is accepted and the Company hereby agrees to be bound by its terms. ESYS HOLDINGS, INC. Dated: _____, 2008 By: ----------------------------------- Name:______________________________ Title:_______________________________ 9 CERTIFICATE OF SIGNATORY (To be completed if Securities are being subscribed for by an entity) I, ____________________________________, the ______________________________ (name of signatory) (title) of __________________________ (the"Entity"), a_____________________________ (type of entity) hereby certify that I am empowered and duly authorized by the Entity to execute the Subscription Agreement and to purchase the Securities, and certify further that the Subscription Agreement has been duly and validly executed on behalf of the Entity and constitutes a legal and binding obligation of the Entity. IN WITNESS WHEREOF, I have set my hand this day of , 2008. ----------------------------- (Signature) ------------------------------ (Print Name) 10 Exhibit A Form of Debenture See Attached. Exhibit B Form of Warrant See Attached. Exhibit C Form of Security Agreement See Attached. Exhibit D Form of Registration Rights Agreement See Attached. -----END PRIVACY-ENHANCED MESSAGE-----