Exhibit 10.12
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of April
27, 2005, by and among STRIKEFORCE TECHNOLOGIES, INC., a New Jersey corporation
(the "Company"), and the Buyers listed on Schedule I attached hereto
(individually, a "Buyer" or collectively "Buyers").
WITNESSETH:
WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act");
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer(s),
as provided herein, and the Buyer(s) shall purchase (i) up to Seven Hundred and
Fifty Thousand Dollars ($750,000) of secured convertible debentures (the
"Convertible Debentures"), which shall be convertible into shares of the
Company's common stock, par value $0.0001 (the "Common Stock") (as converted,
the "Conversion Shares") of which, subject to the deduction of any and all fees,
Three Hundred and Seventy Five Thousand Dollars ($375,000) shall be funded on
the Closing Date (the "First Closing") and Three Hundred and Seventy Five
Thousand Dollars ($375,000) shall be funded upon the filing of the registration
statement (the "Registration Statement"), pursuant to the Investor Registration
Rights Agreement dated the date hereof, with the United States Securities and
Exchange Commission (the "SEC") (the "Second Closing") (individually referred to
as a "Closing" collectively referred to as the "Closings"), and (ii) 150,000
shares of Common Stock (the "Shares") at the First Closing, for a total purchase
price of up to Seven Hundred and Fifty Thousand Dollars ($750,000), (the
"Purchase Price") subject to the deduction of any and all fees, in the
respective amounts set forth opposite each Buyer(s) name on Schedule I (the
"Subscription Amount");
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering an Investor
Registration Rights Agreement substantially in the form attached hereto as
Exhibit A (the "Investor Registration Rights Agreement") pursuant to which the
Company has agreed to provide certain registration rights under the Securities
Act and the rules and regulations promulgated there under, and applicable state
securities laws;
WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures
and Shares contemplated hereby shall be held in escrow pursuant to the terms of
an escrow agreement substantially in the form of the Escrow Agreement among the
Company, the Buyer and the Escrow Agent (as defined below) attached hereto as
Exhibit B (the "Escrow Agreement");
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Security Agreement
substantially in the form attached hereto as Exhibit C (the "Security
Agreement") pursuant to which the Company has agreed to provide the Buyer a
security interest in Pledged Collateral (as this term is defined in the Security
Agreement) to secure the Company's obligations under this Agreement, the
Convertible Debenture, the Investor Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined below), the Escrow Shares
Escrow Agreement, the Security Agreement or any other obligations of the Company
to the Buyer;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering an Escrow Shares
Escrow Agreement substantially in the form attached hereto as Exhibit D (the
"Escrow Shares Escrow Agreement") pursuant to which the Company shall issue and
deliver to the Escrow Agent 6,660,000 shares of Common Stock or "security stock"
(the "Escrow Shares") and the Escrow Agent shall distribute the Escrow Shares to
the Buyer(s) upon receipt of a Conversion Notice (as defined herein);
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions substantially in the form attached hereto as Exhibit E (the
"Irrevocable Transfer Agent Instructions");
WHEREAS, the Company entered into a Securities Purchase Agreement with
Cornell Capital Partners, LLP on December 20, 2004 (the "Cornell Agreement") in
which the Company issued a certain $1,000,000 Convertible Debenture (the
"Cornell Debenture"); and
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s) hereby agree
as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES and Shares.
(a) Purchase of Convertible Debentures. Subject to the satisfaction (or
waiver) of the terms and conditions of this Agreement, each Buyer agrees,
severally and not jointly, to purchase at Closing (as defined herein below) and
the Company agrees to sell and issue to each Buyer, severally and not jointly,
at Closing, Convertible Debentures in amounts corresponding with the
Subscription Amount set forth opposite each Buyer's name on Schedule I hereto
and the Shares. Upon execution hereof by a Buyer, the Buyer shall wire transfer
the Subscription Amount set forth opposite his name on Schedule I in same-day
funds or a check payable to Gottbetter & Partners, LLP as Escrow Agent for
StrikeForce Technologies, Inc., which Subscription Amount shall be held in
escrow pursuant to the terms of the Escrow Agreement and disbursed in accordance
therewith.
(b) Closing Date. The First Closing of the purchase and sale of the
Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time on
the fifth (5th) business day following the date hereof, subject to notification
of satisfaction of the conditions to the First Closing set forth herein and in
Sections 7 and 8 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the "First Closing Date") and the Second Closing of
the purchase and sale of the Convertible Debentures shall take place at 10:00
a.m. Eastern Standard Time two (2) business days prior to the date the
Registration Statement is filed with the SEC, subject to notification of
satisfaction of the conditions to the Second Closing set forth herein and in
Sections 7 and 8 below (or such later date as is mutually agreed to by the
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Company and the Buyer(s)) (the "Second Closing Date") (collectively referred to
a the "Closing Dates"). The Closing shall occur on the respective Closing Dates
at the offices of Gottbetter & Partners, LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000 (or such other place as is mutually agreed to by the Company and the
Buyer(s)).
(c) Escrow Arrangements; Form of Payment. Upon execution hereof by
Buyer(s) and pending the Closings, $375,000 shall be deposited in a non-interest
bearing escrow account with Gottbetter & Partners, LLP, as escrow agent (the
"Escrow Agent"), pursuant to the terms of the Escrow Agreement. If the
conditions in Sections 7 and 8 and as set forth herein for the Second Closing
are satisfied, an additional $375,000 shall be deposited in a non-interest
bearing account with the Escrow Agent one business day prior to the Second
Closing Date. Subject to the satisfaction of the terms and conditions of this
Agreement, on the Closing Dates, (i) the Escrow Agent shall deliver to the
Company in accordance with the terms of the Escrow Agreement such aggregate
proceeds for the Convertible Debentures and Shares to be issued and sold to such
Buyer(s), minus if unpaid, structuring fees and expenses of Yorkville Advisors
Management, LLC of Seventy Five Thousand Dollars ($75,000) and the commitment
fee of Five Thousand ($5,000) which shall be paid directly from the gross
proceeds held in escrow of the First Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions and
(ii) the Company shall deliver to each Buyer, Convertible Debentures which such
Buyer(s) is purchasing in amounts indicated opposite such Buyer's name on
Schedule I, duly executed on behalf of the Company, and the Shares.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) Investment Purpose. Each Buyer is acquiring the Convertible
Debentures, Shares and, upon conversion of Convertible Debentures, the Buyer
will acquire the Escrow Shares and/or Conversion Shares then issuable, for its
own account for investment only and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the Securities Act; provided, however, that
by making the representations herein, such Buyer reserves the right to dispose
of the Conversion Shares, the Shares and the Escrow Shares at any time in
accordance with or pursuant to an effective registration statement covering such
Conversion Shares, Shares and Escrow Shares or an available exemption under the
Securities Act.
(b) Accredited Investor Status. Each Buyer is an "Accredited Investor"
as that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. Each Buyer understands that the Convertible
Debentures and Shares are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire such securities.
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(d) Information. Each Buyer and its advisors (and its counsel), if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and information deemed material to making an informed
investment decision regarding the purchase of the Convertible Debentures, the
Escrow Shares, the Shares and the Conversion Shares, which have been requested
by such Buyer. Each Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and its management. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Each Buyer understands that its investment in the
Convertible Debentures, the Escrow Shares, the Shares and the Conversion Shares
involves a high degree of risk. Each Buyer is in a position regarding the
Company, which, based upon employment, family relationship or economic
bargaining power, enabled and enables such Buyer to obtain information from the
Company in order to evaluate the merits and risks of this investment. Each Buyer
has sought such accounting, legal and tax advice, as it has considered necessary
to make an informed investment decision with respect to its acquisition of the
Convertible Debentures, the Escrow Shares, the Shares and the Conversion Shares.
(e) No Governmental Review. Each Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Convertible
Debentures, the Escrow Shares, the Shares or the Conversion Shares, or the
fairness or suitability of the investment in the Convertible Debentures, the
Escrow Shares, the Shares or the Conversion Shares, nor have such authorities
passed upon or endorsed the merits of the offering of the Convertible
Debentures, the Escrow Shares, the Shares or the Conversion Shares.
(f) Transfer or Resale. Each Buyer understands that except as provided
in the Investor Registration Rights Agreement: (i) the Convertible Debentures
and Shares have not been and are not being registered under the Securities Act
or any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, or (B) such Buyer
shall have delivered to the Company an opinion of counsel, in a generally
acceptable form, to the effect that such securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration requirements; (ii) any sale of such securities made in
reliance on Rule 144 under the Securities Act (or a successor rule thereto)
("Rule 144") may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such securities
under the Securities Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder.
(g) Legends. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures, the Escrow Shares, the
Shares and/or the Conversion Shares shall bear a restrictive legend in
substantially the following form (and a stop transfer order may be placed
against transfer of such stock certificates):
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS.
The legend set forth above shall be removed and the Company within three (3)
business days shall issue a certificate without such legend to the holder of the
Escrow Shares, Shares or Conversion Shares upon which it is stamped, if, unless
otherwise required by state securities laws, (i) in connection with a sale
transaction, provided the Escrow Shares, Shares or Conversion Shares are
registered under the Securities Act or (ii) in connection with a sale
transaction, after such holder provides the Company with an opinion of counsel,
which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale, assignment
or transfer of the Escrow Shares, Shares or Conversion Shares may be made
without registration under the Securities Act.
(h) Authorization, Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable in accordance with its terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(i) Receipt of Documents. Each Buyer and his or its counsel (i) has
received and read in their entirety: (A) this Agreement and each representation,
warranty and covenant set forth herein, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, the Escrow Shares Escrow
Agreement and the Irrevocable Transfer Agent Instructions; and (B) all due
diligence and other information necessary to verify the accuracy and
completeness of such representations, warranties and covenants; and (ii) has
received answers to all questions each Buyer submitted to the Company regarding
an investment in the Company; and each Buyer has relied on the information
contained therein and has been furnished with any other documents, literature,
memorandum or prospectus requested.
(j) Due Formation of Corporate and Other Buyers. If the Buyer(s) is a
corporation, trust, partnership or other entity that is not an individual
person, it has been formed and validly exists and has not been organized for the
specific purpose of purchasing the Convertible Debentures and Shares and is not
prohibited from doing so.
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(k) No Legal Advice From the Company. Each Buyer acknowledges, that it
had the opportunity to review this Agreement and the transactions contemplated
by this Agreement with his or its own legal counsel and investment and tax
advisors. Each Buyer is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect to this investment,
the transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
(l) No Group Participation. Each Buyer and its affiliates is not a
member of any group, nor is any Buyer acting in concert with any other person,
including any other Buyer, with respect to its acquisition of the Convertible
Debentures, Escrow Shares, Shares or Conversion Shares.
(m) Company Registration Statement. No Buyer makes any representation or
warranty regarding the Company's ability to successfully become a public company
or to have any registration statement filed by the Company pursuant to the
Investor Registration Rights Agreement or otherwise declared effective by the
SEC. The Company has the sole obligation to make any and all such filings as may
be necessary to become a public company and to have any registration statement
declared effective by the SEC.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as
set forth in the Disclosure Schedule attached hereto:
(a) Organization and Qualification. The Company and its subsidiaries are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(b) Authorization, Enforcement, Compliance with Other Instruments. (i)
The Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Security Agreement, the Investor Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions, the Escrow Agreement,
the Escrow Shares Escrow Agreement and any related agreements (collectively the
"Transaction Documents") and to issue the Convertible Debentures, the Escrow
Shares, the Shares and the Conversion Shares in accordance with the terms hereof
and thereof, (ii) the execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including, without limitation, the issuance of the Convertible
Debentures, the Shares and the Escrow Shares, and the reservation for issuance
and the issuance of the Conversion Shares issuable upon conversion thereof, have
been duly authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or its
stockholders, (iii) the Transaction Documents have been duly executed and
delivered by the Company, (iv) the Transaction Documents constitute the valid
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and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. The
authorized officer of the Company executing the Transaction Documents knows of
no reason why the Company cannot file the registration statement as required
under the Investor Registration Rights Agreement or perform any of the Company's
other obligations under such documents.
(c) Capitalization. The authorized capital stock of the Company consists
of 100,000,000 shares of Common Stock, par value $0.0001 per share and
10,000,000 shares of Preferred Stock of which 17,288,855 shares of Common Stock
and are issued and outstanding. There are no issued and outstanding shares of
Preferred Stock. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. Except as disclosed in the Disclosure Schedule, no
shares of Common Stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company. Except
as disclosed in the Disclosure Schedule, as of the date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the Securities Act (except
pursuant to the Registration Rights Agreement) and (iv) there are no outstanding
registration statements and there are no outstanding comment letters from the
SEC or any other regulatory agency. There are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Convertible Debentures and Shares as described in this
Agreement. The Company has furnished to the Buyer true and correct copies of the
Company's Articles of Incorporation, as amended and as in effect on the date
hereof (the "Articles of Incorporation"), and the Company's By-laws, as in
effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto other than stock options issued to employees
and consultants.
(d) Issuance of Securities. The Convertible Debentures, the Shares and
the Escrow Shares are duly authorized and, upon issuance in accordance with the
terms hereof, shall be duly issued, fully paid and nonassessable, are free from
all taxes, liens and charges with respect to the issue thereof. The Conversion
Shares issuable upon conversion of the Convertible Debentures have been duly
authorized and reserved for issuance. Upon conversion in accordance with the
Convertible Debentures, Conversion Shares will be duly issued, fully paid and
nonassessable.
(e) No Conflicts. Except as disclosed in the Disclosure Schedule, the
execution, delivery and performance of the Transaction Documents by the Company
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and the consummation by the Company of the transactions contemplated hereby will
not (i) result in a violation of the Articles of Incorporation, any certificate
of designations of any outstanding series of preferred stock of the Company or
the By-laws or (ii) conflict with or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of The National Association of
Securities Dealers Inc.'s OTC Bulletin Board on which the Common Stock is
quoted) applicable to the Company or any of its subsidiaries or by which any
property or asset of the Company or any of its subsidiaries is bound or
affected. Except as disclosed in the Disclosure Schedule, neither the Company
nor its subsidiaries is in violation of any term of or in default under its
Articles of Incorporation or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted, and shall not be conducted
in violation of any material law, ordinance, or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the Securities Act and any applicable state securities laws, the Company
is not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement in accordance with the terms
hereof or thereof. Except as disclosed in the Disclosure Schedule, all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company and its subsidiaries are unaware of any
facts or circumstance, which might give rise to any of the foregoing.
(f) Financial Statements. As of their respective dates, the financial
statements of the Company (the "Financial Statements") for the three most
recently completed fiscal years and any subsequent interim period complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such Financial Statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer, including, without limitation, information referred to in this
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(g) Absence of Litigation. Except as disclosed in the Disclosure
Schedule, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
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(i) have a material adverse effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the
Disclosure Schedule, have a material adverse effect on the business, operations,
properties, financial condition or results of operations of the Company and its
subsidiaries taken as a whole.
(h) Acknowledgment Regarding Buyer's Purchase of the Convertible
Debentures and Shares. The Company acknowledges and agrees that the Buyer(s) is
acting solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by the Buyer(s) or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to such Buyer's
purchase of the Convertible Debentures, the Escrow Shares, the Shares or the
Conversion Shares. The Company further represents to the Buyer that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation by the Company and its representatives.
(i) No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Convertible Debentures, the Escrow Shares, the Shares or the Conversion
Shares.
(j) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Convertible Debentures, the Escrow Shares, the Shares or the Conversion Shares
under the Securities Act or cause this offering of the Convertible Debentures,
the Escrow Shares, the Shares or the Conversion Shares to be integrated with
prior offerings by the Company for purposes of the Securities Act.
(k) Employee Relations. Neither the Company nor any of its subsidiaries
is involved in any labor dispute nor, to the knowledge of the Company or any of
its subsidiaries, is any such dispute threatened. None of the Company's or its
subsidiaries' employees is a member of a union and the Company and its
subsidiaries believe that their relations with their employees are good.
(l) Intellectual Property Rights. The Company and its subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
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service names, service marks, service xxxx registrations, trade secret or other
similar rights of others, and, to the knowledge of the Company there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service xxxx registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
(m) Environmental Laws. The Company and its subsidiaries are (i) in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval.
(n) Title. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries.
(o) Insurance. The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its subsidiaries are
engaged. Neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
(p) Regulatory Permits. The Company and its subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(q) Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, and (iii) the recorded amounts for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
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(r) No Material Adverse Breaches, etc. Except as set forth in the
Disclosure Schedule, neither the Company nor any of its subsidiaries is subject
to any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation which in the judgment of the Company's officers has or
is expected in the future to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries. Except as set forth in the Disclosure
Schedule, neither the Company nor any of its subsidiaries is in breach of any
contract or agreement which breach, in the judgment of the Company's officers,
has or is expected to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries.
(s) Tax Status. Except as set forth in the Disclosure Schedule, the
Company and each of its subsidiaries has made and filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
(t) Certain Transactions. Except as set forth in the Disclosure
Schedule, and except for arm's length transactions pursuant to which the Company
makes payments in the ordinary course of business upon terms no less favorable
than the Company could obtain from third parties and other than the grant of
stock options disclosed in the Disclosure Schedule, none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(u) Fees and Rights of First Refusal. The Company is not obligated to
offer the securities offered hereunder on a right of first refusal basis or
otherwise to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties.
(v) Reliance. The Company acknowledges that the Buyer is relying on the
representations and warranties made by the Company hereunder and that such
representations and warranties are a material inducement to the Buyer purchasing
the Convertible Debentures and Shares. The Company further acknowledges that
without such representations and warranties of the Company made hereunder, the
Buyer would not enter into this Agreement.
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4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 7
and 8 of this Agreement.
(b) Form D. The Company agrees to file a Form D with respect to the
Escrow Shares, Shares and Conversion Shares as required under Regulation D and
to provide a copy thereof to each Buyer promptly after such filing. The Company
shall, on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Escrow Shares, the Shares and
the Conversion Shares, or obtain an exemption for the Escrow Shares, the Shares
and the Conversion Shares for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date.
(c) Reporting Status. Commencing on the effectiveness of the
registration statement filed with the SEC pursuant to the Investor Registration
Rights Agreement and until the earlier of (i) the date as of which the Buyer(s)
may sell all of the Escrow Shares, the Shares or Conversion Shares without
restriction pursuant to Rule 144(k) promulgated under the Securities Act (or
successor thereto), or (ii) the date on which (A) the Buyer(s) shall have sold
all the Conversion Shares and (B) none of the Convertible Debentures are
outstanding (the "Registration Period"), the Company shall file in a timely
manner all reports required to be filed with the SEC pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the regulations of the
SEC thereunder, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would otherwise permit such termination.
(d) Use of Proceeds. The Company covenants to the Buyers that the use
the proceeds from the sale of the Convertible Debentures and the Shares shall be
used for purposes detailed in Schedule III attached hereto, but in no event
shall the Company use the proceeds to repay any indebtedness of any Company
insiders.
(e) Reservation of Shares. The Company shall take all action reasonably
necessary to at all times have authorized, and reserved for the purpose of
issuance, that number of shares of Common Stock equal to a multiple of five (5)
times the number of shares of Common Stock into which the Convertible Debentures
are from time to time convertible unless a change in such multiple is agreed to
in writing by the Buyer(s) and the Company. If at any time the Company does not
have available such shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all of the Conversion Shares, including
the Escrow Shares, of the Company shall call and hold a special meeting of the
shareholders within thirty (30) days of such occurrence, for the sole purpose of
increasing the number of shares authorized. The Company's management shall
recommend to the shareholders to vote in favor of increasing the number of
shares of Common Stock authorized. Management shall also vote all of its shares
in favor of increasing the number of authorized shares of Common Stock.
(f) Listing or Quotation. The Company shall use its best efforts, after
the effectiveness of the registration statement filed with the SEC pursuant to
the Investor Registration Rights Agreement, to secure the listing or quotation
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of its Common Stock (including, without limitation, the Escrow Shares, the
Shares and Conversion Shares) upon a national securities exchange, automated
quotation system or Over-The-Counter Bulletin Board ("OTCBB") maintained by the
National Association of Securities Dealers, Inc. The Company shall maintain the
listing or quotation of the Common Stock for so long as the Buyer is the
beneficial owner of any Common Stock, Escrow Shares, Shares or Conversion Shares
(whether obtained or to be obtained under this Agreement), the Convertible
Debentures or any other agreement between the Company and the Buyer. The Company
shall maintain the Common Stock's authorization for quotation on the OTCBB. It
shall be an event of default hereunder if the Company fails to strictly comply
with its obligations under this Section 4(f).
(g) Fees and Expenses. Except as set forth below, each of the Company
and the Buyer(s) shall pay all costs and expenses incurred by such party in
connection with the negotiation, investigation, preparation, execution and
delivery of the Transaction Documents. The Company shall pay Yorkville Advisors
Management LLC a structuring fee equal to ten percent (10%) of the Purchase
Price.
(h) Commitment Fee. The Company has paid a commitment fee to Yorkville
Advisors Management, LLC of Five Thousand Dollars ($5,000) at the time of the
execution of the term sheet.
The Company shall be solely responsible for the contents of any such
registration statement, prospectus or other filing made with the SEC or
otherwise used in the offering of the Company's securities (except as such
disclosure relates solely to the Buyer and then only to the extent that such
disclosure conforms with information furnished in writing by the Buyer to the
Company), even if the Buyer or its agents as an accommodation to the Company
participate or assist in the preparation of such registration statement,
prospectus or other SEC filing. The Company shall retain its own legal counsel
to review, edit, confirm and do all things such counsel deems necessary or
desirable to such registration statement, prospectus or other SEC filing to
ensure that it does not contain an untrue statement or alleged untrue statement
of material fact or omit or alleged to omit a material fact necessary to make
the statements made therein, in light of the circumstances under which the
statements were made, not misleading.
(i) Corporate Existence. So long as any of the Convertible Debentures
remain outstanding, the Company shall not directly or indirectly consummate any
merger, reorganization, restructuring, reverse stock split consolidation, sale
of all or substantially all of the Company's assets or any similar transaction
or related transactions (each such transaction, an "Organizational Change")
unless, prior to the consummation of an Organizational Change, the Company
obtains the written consent of each Buyer. In any such case, the Company will
make appropriate provision with respect to such holders' rights and interests to
insure that the provisions of this Section 4(i) will thereafter be applicable to
the Convertible Debentures.
(j) Transactions With Affiliates. So long as any Convertible Debentures
are outstanding, the Company shall not, and shall cause each of its subsidiaries
not to, enter into, amend, modify or supplement, or permit any subsidiary to
enter into, amend, modify or supplement any agreement, transaction, commitment,
or arrangement with any of its or any subsidiary's officers, directors, person
who were officers or directors at any time during the previous two (2) years,
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stockholders who beneficially own five percent (5%) or more of the Common Stock,
or Affiliates (as defined below) or with any individual related by blood,
marriage, or adoption to any such individual or with any entity in which any
such entity or individual owns a five percent (5%) or more beneficial interest
(each a "Related Party"), except for (a) customary employment arrangements and
benefit programs on reasonable terms, (b) any investment in an Affiliate of the
Company, (c) any agreement, transaction, commitment, or arrangement on an
arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, (d) any agreement
transaction, commitment, or arrangement which is approved by a majority of the
disinterested directors of the Company, for purposes hereof, any director who is
also an officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a ten percent (10%) or more equity interest in that person or entity,
(ii) has ten percent (10%) or more common ownership with that person or entity,
(iii) controls that person or entity, or (iv) shares common control with that
person or entity. "Control" or "controls" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
(k) Transfer Agent. The Company covenants and agrees that, in the event
that the Company's agency relationship with the transfer agent should be
terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).
(l) Restriction on Issuance of the Capital Stock. So long as any
Convertible Debentures are outstanding, other than securities issued in
connection with the Cornell Debentures, the Company shall not, without the prior
written consent of the Buyer(s), (i) issue or sell shares of Common Stock or
Preferred Stock without consideration or for a consideration per share less than
the Closing Bid Price of the Common Stock determined immediately prior to its
issuance, (ii) issue any warrant, option, right, contract, call, or other
security instrument granting the holder thereof, the right to acquire Common
Stock without consideration or for a consideration less than such Common Stock's
Bid Price value determined immediately prior to its issuance, (iii) enter into
any security instrument granting the holder a security interest in any and all
assets of the Company, or (iv) file any registration statement on Form S-8.
(m) Resales Absent Effective Registration Statement. Each of the Buyers
understand and acknowledge that (i) this Agreement and the agreements
contemplated hereby requires the Company to issue and deliver Escrow Shares and
may require the Company to issue and deliver Conversion Shares and Shares to the
Buyers without legend restricting their transferability under the 1933 Act, and
(ii) it is aware that resales of such Escrow Shares and Conversion Shares may
not be made unless, at the time of resale, there is an effective registration
statement under the 1933 Act covering such Buyer's resale(s) or an applicable
exemption from registration.
(n) Lock-up Agreement. On the date hereof, the Company shall obtain from
each officer and director of the Company a lock-up agreement. Such lock-up
agreement shall prohibit sales of the Company's Common Stock, without the prior
14
written consent of the Buyer, for so long as any portion of the Convertible
Debentures is outstanding, except pursuant to Rule 144 of the General Rules and
Regulations under the Securities Act of 1933, as amended.
(o) No Payment of Management Fees. Except as set forth in the Disclosure
Schedule, the Company shall not make any payments of (i) accrued and unpaid
salaries, management fees, commissions or any other remuneration to officers or
directors of the Company or any person or entity that is an "affiliate" of any
such person or entity (the "Management Group") or (ii) except for reimbursement
of ordinary travel and entertainment expenses, on any notes, accounts payable or
other obligations or liabilities owed to any member of Management Group until
the Registration Statement has been effective (as declared by the Securities and
Exchange Commission) for a period of at least 90 days from the effective date of
the Registration Statement (the "Prohibition Period").
(p) No Merger or Sale of Business. For so long as the Convertible
Debenture is outstanding, the Company hereby agrees that it will not merge or
consolidate with any person or entity, or sell, lease or otherwise dispose of
its assets other than in the ordinary course of business involving an aggregate
consideration of more than ten percent (10%) of the book value of its assets on
a consolidated basis in any 12 month period, or liquidate, dissolve,
recapitalize or reorganize.
(q) No Indebtedness. For so long as the Convertible Debenture is
outstanding, except as provided in the Disclosure Schedule, the Company shall
not incur any indebtedness for borrowed money or become a guarantor or otherwise
contingently liable for any such indebtedness except for trade payables or
purchase money obligations incurred in the ordinary course of business.
(r) No Other Registration Statements. Except as set forth in the
Disclosure Schedule and filing of the registration statements contemplated in
the Cornell Agreement (the "Permitted Registration Statements"), for so long as
the Convertible Debenture is outstanding, the Company shall not file any other
registration statements on any form (including but not limited to forms X-0,
XX-0, X-0 and S-8) without the prior written consent of the Buyer. Further, the
Company shall not register for sale or resale of any shares of capital stock in
the Permitted Registration Statements other than the capital stock beneficially
owned by the Buyer or to be issued to the Buyer upon conversion of the
Convertible Debentures.
(s) Capital Structure of the Company. The Company agrees to change or
modify its capital structure as necessary to comply with this agreement at the
Buyer's request, which request may be made by the Buyer at any time or from time
to time so long as such modification is permitted by laws of the State in which
the Company is incorporated.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing Gottbetter & Partners, LLC as its agent
for purpose of having certificates issued, registered in the name of the
Buyer(s) or its respective nominee(s), for the Conversion Shares representing
such amounts of Convertible Debentures as specified from time to time by the
15
Buyer(s) to the Company upon conversion of the Convertible Debentures, for
interest owed pursuant to the Convertible Debenture, and for any and all
Liquidated Damages (as this term is defined in the Investor Registration Rights
Agreement). Gottbetter & Partners, LLC shall be paid a cash fee of Fifty Dollars
($50) for every occasion they act pursuant to the Irrevocable Transfer Agent
Instructions. The Company shall not change its transfer agent without the
express written consent of the Buyer(s), which may be withheld by the Buyer(s)
in its sole discretion. The successor transfer agent shall be required to
execute the irrevocable transfer agent instructions. Prior to registration of
the Conversion Shares under the Securities Act, all such certificates shall bear
the restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(g) hereof (in the case of the Conversion Shares prior
to registration of such shares under the Securities Act) will be given by the
Company to its transfer agent and that the Conversion Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Investor Registration Rights Agreement.
Nothing in this Section 5 shall affect in any way the Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of
Conversion Shares. If the Buyer(s) provides the Company with an opinion of
counsel, in form, scope and substance customary for opinions of counsel in
comparable transactions to the effect that registration of a resale by the
Buyer(s) of any of the Conversion Shares is not required under the Securities
Act, and absent manifest error in such opinion, the Company shall within two (2)
business days instruct its transfer agent to issue one or more certificates in
such name and in such denominations as specified by the Buyer. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyer by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyer(s) shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. THE ESCROW SHARES; LIMITATION ON CONVERSION.
(a) Share Denominations. The Escrow Agent shall retain and hold the
Escrow Shares which shall be held in accordance with the terms of this Agreement
and the Escrow Shares Escrow Agreement. The Escrow Shares shall be in the share
denominations specified in Schedule II attached hereto, registered in the name
of the Buyer(s) specified in Schedule II.
(b) Conversion Notice. Exhibit F attached hereto and made a part hereof
sets forth the procedures with respect to the conversion of the Convertible
Debentures, including the forms of Conversion Notice to be provided upon
conversion, instructions as to the procedures for conversion and such other
information and instructions as may be reasonably necessary to enable the
Buyer(s) or its permitted transferee(s) to exercise the right of conversion
smoothly and expeditiously.
(c) The Company agrees that, at any time the conversion price of the
Convertible Debentures is such that the number of Escrow Shares for the
Convertible Debentures is less than five (5) times the number of shares of
16
Common Stock that would be needed to satisfy full conversion of all of such
Convertible Debentures then outstanding, given the then current conversion price
(the "Full Conversion Shares"), upon five (5) business days written notice of
such circumstance to the Company by the Buyer and the Escrow Agent, the Company
shall issue additional share certificates in the name of the Buyer(s) and/or its
assigns in denominations specified by the Buyer(s), and deliver same to the
Escrow Agent, such that the new number of Escrow Shares with respect to the
Convertible Debentures is equal to five (5) times the Full Conversion Shares.
The Company shall ensure that the number of Escrow Shares on the day immediately
prior to the Second Closing Date shall equal five (5) times the Full
Subscription Conversion Shares on the day immediately following the Second
Closing Date.
(d) Buyer's Ownership of Common Stock. In addition to and not in lieu of
the limitations on conversion set forth in the Convertible Debentures, the
conversion rights of the Buyer set forth in the Convertible Debentures shall be
limited, solely to the extent required, from time to time, such that, unless the
Buyer gives written notice 65 days in advance to the Company of the Buyer's
intention to exceed the Limitation on Conversion as defined herein, with respect
to all or a specified amount of the Convertible Debentures and the corresponding
number of the Conversion Shares in no instance the Buyer (singularly, together
with any Persons who in the determination of the Buyer, together with the Buyer,
constitute a group as defined in Rule 13d-5 of the Exchange Act) be entitled to
convert the Convertible Debentures to the extent such conversion would result in
the Buyer beneficially owning four point nine nine percent (4.99%) of the
outstanding shares of Common Stock of the Company. For these purposes,
beneficial ownership shall be defined and calculated in accordance with Rule
13d-3, promulgated under the Exchange Act (the foregoing being herein referred
to as the "Limitation on Conversion"); provided, however, that the Limitation on
Conversion shall not apply to any forced or automatic conversion pursuant to
this Agreement or the Convertible Debentures; and provided, further that if the
Company shall have breached any of the Transaction Documents, the provisions of
this Section 4.19 shall be null and void from and after such date. The Company
shall, promptly upon its receipt of a Conversion Notice tendered by the Buyer
(or its sole designee) for the Convertible Debentures, as applicable, notify the
Buyer by telephone and by facsimile (the "Limitation Notice") of the number of
shares of Common Stock outstanding on such date and the number of Conversion
Shares, which would be issuable to the Buyer (or its sole designee, as the case
may be) if the conversion requested in such Conversion Notice were effected in
full and the number of shares of Common Stock outstanding giving full effect to
such conversion whereupon, in accordance with the Convertible Debentures,
notwithstanding anything to the contrary set forth in the Convertible
Debentures, the Buyer may, by notice to the Company within one (1) business day
of its receipt of the Limitation Notice by facsimile, revoke such conversion to
the extent (in whole or in part) that the Buyer determines that such conversion
would result in the ownership by the Buyer of shares of Common Stock in excess
of the Limitation on Conversion. The Limitation Notice shall begin the 65 day
advance notice required in this Section 7(d).
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Convertible
Debentures and the Shares to the Buyer(s) at the Closings is subject to the
satisfaction, at or before the Closing Dates, of each of the following
17
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:
(a) Each Buyer shall have executed the Transaction Documents and
delivered them to the Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the Purchase
Price for Convertible Debentures in respective amounts as set forth next to each
Buyer as outlined on Schedule I attached hereto and the Shares and the Escrow
Agent shall have delivered the net proceeds to the Company by wire transfer of
immediately available U.S. funds pursuant to the wire instructions provided by
the Company.
(c) The representations and warranties of the Buyer(s) shall be true and
correct in all material respects as of the date when made and as of the Closing
Dates as though made at that time (except for representations and warranties
that speak as of a specific date), and the Buyer(s) shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Buyer(s) at or prior to the Closing Dates.
(d) The Company shall have filed a form UCC -1 with regard to the
Pledged Property and Pledged Collateral as detailed in the Security Agreement
dated the date hereof and provided proof of such filing to the Buyer(s).
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
(a) The obligation of the Buyer(s) hereunder to Purchase the Convertible
Debentures and Shares at the First Closing is subject to the satisfaction, at or
before the First Closing Date, of each of the following conditions, provided
that the conditions are for the sole benefit of Buyer and may be waived by the
Buyer at any time in its sole discretion:
(i) The Company shall have executed the Transaction Documents and
delivered the same to the Buyer(s).
(ii) The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
First Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the First Closing Date. If
requested by the Buyer, the Buyer shall have received a certificate, executed by
the President or Chief Executive Officer of the Company, dated as of the First
Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by the Buyer including, without limitation an update as of
the First Closing Date regarding the representation contained in Section 3(c)
above.
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(iii) The Company shall have executed and delivered to the Buyer(s)
the Convertible Debentures in the respective amounts set forth opposite each
Buyer(s) name on Schedule I attached hereto.
(iv) The Buyer(s) shall have received an opinion of counsel from
Sichenzia, Ross, Xxxxxxxx and Xxxxxxx LLP in a form satisfactory to the
Buyer(s).
(v) The Company shall have provided to the Buyer(s) a certificate of
good standing from the secretary of state from the state in which the company is
incorporated.
(vi) The Company shall have delivered to the Escrow Agent the Escrow
Shares.
(vii) The Company shall have provided to the Buyer an acknowledgement,
to the satisfaction of the Buyer, from the Company's certified public accountant
as to its ability to provide all consents required in order to file a
registration statement in connection with this transaction.
(viii) The Company shall have reserved out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of the
Convertible Debentures, shares of Common Stock to effect the conversion of all
of the Conversion Shares then outstanding.
(ix) The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyer, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(b) The obligation of the Buyer(s) hereunder to accept the Convertible
Debentures at the Second Closing is subject to the satisfaction, at or before
the Second Closing Date, of each of the following conditions:
(i) The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Second Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Second Closing Date. If
requested by the Buyer, the Buyer shall have received a certificate, executed by
two officers of the Company, dated as of the Second Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
the Buyer including, without limitation an update as of the Second Closing Date
regarding the representation contained in Section 3(c) above.
19
(ii) The Company shall have executed and delivered to the Buyer(s) the
Convertible Debentures in the respective amounts set forth opposite each
Buyer(s) name on Schedule I attached hereto.
(iii) The Company shall have certified that all conditions to the
Second Closing have been satisfied and that the Company will file the
Registration Statement with the SEC in compliance with the rules and regulations
promulgated by the SEC for filing thereof two (2) business days after the Second
Closing. If requested by the Buyer, the Buyer shall have received a certificate,
executed by the two officers of the Company, dated as of the Second Closing
Date, to the foregoing effect. The Buyers have no obligation to fund at the
Second Closing if the Company has filed the Registration Statement.
(iv) The Company shall have provided to the Buyer(s) a certificate of
good standing from the secretary of the state in which the Company is
incorporated.
(v) The Company shall have delivered to the Escrow Agent the
additional Escrow Shares pursuant to 6(c) hereof, if necessary.
(vi) The Company shall have provided to the Buyer an acknowledgement,
to the satisfaction of the Buyer, from the Company's certified public accountant
as to its ability to provide all consents required in order to file a
registration statement in connection with this transaction.
9. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Convertible Debentures, the Escrow Shares, the
Shares and the Conversion Shares hereunder, and in addition to all of the
Company's other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Buyer(s) and each other holder of the
Convertible Debentures, the Escrow Shares, the Shares and the Conversion Shares,
and all of their officers, directors, employees and agents (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Buyer Indemnitees") from and against any and
all actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Buyer Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Indemnities, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Convertible
20
Debentures or the status of the Buyer or holder of the Convertible Debentures,
the Escrow Shares, the Shares and the Conversion Shares, as a Buyer of
Convertible Debentures in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities, which is permissible under applicable law.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Buyer's other obligations under this
Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Company Indemnitees") from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, instrument or document contemplated hereby or
thereby executed by the Buyer, (b) any breach of any covenant, agreement or
obligation of the Buyer(s) contained in this Agreement, the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Buyer, or (c) any cause of
action, suit or claim brought or made against such Company Indemnitee based on
material misrepresentations or due to a material breach and arising out of or
resulting from the execution, delivery, performance or enforcement of this
Agreement, the Investor Registration Rights Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnities. To the extent that the foregoing undertaking by each Buyer may be
unenforceable for any reason, each Buyer shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
10. GOVERNING LAW: MISCELLANEOUS.
(a) Governing Law. The parties hereto acknowledge that the transactions
contemplated by this Agreement and the exhibits hereto bear a reasonable
relation to the State of New York. The parties hereto agree that the internal
laws of the State of New York shall govern this Agreement and the exhibits
hereto, including, but not limited to, all issues related to usury. Any action
to enforce the terms of this Agreement or any of its exhibits shall be brought
exclusively in the state and/or federal courts situated in the County and State
of New York. Service of process in any action by the Buyers to enforce the terms
of this Agreement may be made by serving a copy of the summons and complaint, in
addition to any other relevant documents, by commercial overnight courier to the
Company at its principal address set forth in this Agreement.
(b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which 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. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
21
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement, Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyer(s), the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
(f) Notices. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company, to: StrikeForce Technologies, Inc.
0000 Xxxx Xxxxxxx Xxxx Xxxx
Xxxxxx, XX, 00000
Attention: Xxxx Xxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Sichenzia, Ross, Xxxxxxxx and Xxxxxxx, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Transfer Agent, to: Continental Stock Transfer & Trust Co.
00 Xxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
22
If to the Buyer(s), to its address and facsimile number on Schedule I, with
copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party
hereto.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(i) Survival. Unless this Agreement is terminated under Section 10(l),
the representations and warranties of the Company and the Buyer(s) contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
10, and the indemnification provisions set forth in Section 9, shall survive the
Closing for a period of two (2) years following the date on which the
Convertible Debentures are converted in full. The Buyer(s) shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.
(j) Publicity. The Company and the Buyer(s) shall have the right to
approve, before issuance any press release or any other public statement with
respect to the transactions contemplated hereby made by any party; provided,
however, that the Company shall be entitled, without the prior approval of the
Buyer(s), to issue any press release or other public disclosure with respect to
such transactions required under applicable securities or other laws or
regulations (the Company shall use its best efforts to consult the Buyer(s) in
connection with any such press release or other public disclosure prior to its
release and Buyer(s) shall be provided with a copy thereof upon release
thereof).
(k) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Termination. In the event that the Closing shall not have occurred
with respect to the Buyers on or before five (5) business days from the date
hereof due to the Company's or the Buyer's failure to satisfy the conditions set
forth in Sections 7 and 8 above (and the non-breaching party's failure to waive
such unsatisfied condition(s)), the non-breaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated by the Company pursuant
to this Section 10(l), the Company shall remain obligated to reimburse the
Buyer(s) for the fees and expenses of Yorkville Advisors Management, LLC
described in Section 4(g) above.
23
(m) No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
24
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY:
STRIKEFORCE TECHNOLOGIES, INC.
By:/s/ Xxxx X. Xxx
---------------
Name: Xxxx Xxx
Title: Chief Executive Officer
25
EXHIBIT A
FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT
26
EXHIBIT B
FORM OF ESCROW AGREEMENT
27
EXHIBIT C
SECURITY AGREEMENT
28
EXHIBIT D
ESCROW SHARES ESCROW AGREEMENT
29
EXHIBIT E
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
30
EXHIBIT F
CONVERSION PROCEDURES
1. At any time and from time to time during the term of the Convertible
Debentures, the Holder may deliver to the Escrow Agent written notice (a
"Conversion Notice") that it has elected to convert the Company Convertible
Debentures (the "Debentures") registered in the name of such Holder in whole or
in part in accordance with the terms of the Debentures and the Conversion Notice
shall be in the form annexed as Exhibit A to the Debentures. A fee of $50,
payable by the Holder, shall accompany every Conversion Notice delivered to the
Escrow Agent.
2. The Holder shall send by fax or e-mail the executed Conversion Notice to
the Escrow Agent (with a copy to the Company) by 4:00 p.m. New York time at
least one business day prior to the Conversion Date (as defined in the
Debentures). The Escrow Agent shall send the Conversion Notice by facsimile or
e-mail address to the Company by the end of the business day on the day
received, assuming received by 6:00 p.m. New York time and if thereafter on the
next business day, at the facsimile telephone number or e-mail address, as the
case may be, of the principal place of business of the Company. Each Company
Conversion Notice price adjustment under Article V of the Debentures shall be
given by facsimile addressed to the Holder of Debentures at the facsimile
telephone number of such Holder appearing on the books of the Company as
provided to the Company by such Holder for the purpose of such Company
Conversion Notice price adjustment, with a copy to the Escrow Agent. Any such
notice shall be deemed given and effective upon the transmission of such
facsimile or e-mail at the facsimile telephone number or e-mail address, as the
case may be, specified in this paragraph 2 (with printed confirmation of
transmission). In the event that the Escrow Agent receives the Conversion Notice
after 4:00 p.m. New York time, the Conversion Notice shall be deemed to have
been received on the next business day. In the event that the Company receives
the Conversion Notice after the end of the business day, notice will be deemed
to have been given the next business day.
3. The Company shall have one (1) business day from transmission of the
Conversion Notice by the Escrow Agent to object only to the calculation of the
number of Company Escrow Shares to be released. If the Company fails to object
to the calculation of the number of Escrow Shares to be released within said
time, then the Company shall be deemed to have waived any objections to said
calculation. The Company's only basis for any objection hereunder shall be to
the calculation of the number of Escrow Shares to be released. If the Escrow
Agent does not receive said objection notice within the time period set forth
above from the Company, and provided that the Purchaser does not revoke such
conversion, the Escrow Agent shall release from escrow and deliver to the Holder
certificates or instruments representing the number of Escrow Shares issuable to
the Holder in accordance with such conversion on the second business day from
the receipt by the Company of the Conversion Notice. In the event that the
certificates evidencing the Escrow Shares held by the Escrow Agent are not in
denominations appropriate for such delivery to the Holder, the Escrow Agent
shall request the Company to cause its transfer agent and registrar to reissue
certificates in smaller denominations. The Escrow Agent shall, however,
immediately release to the requesting Holder certificates representing such
31
lesser number of shares as the denominations in its possession will allow that
is closest to but no more than the actual number to be released to such Holder.
Upon receipt of the reissued shares in lesser denominations from the Company's
transfer agent, the Escrow Agent shall release to such Holder the balance of the
shares due to such Holder.
4. The Holder shall send the original Debentures and Conversion Notice to
the Escrow Agent via FedEx or other commercial overnight courier, along with a
fee of $50, instructions regarding names and amount of certificates for the
issuance of the Conversion Shares, and, if conversion is not in full,
instructions as to the re-issuance of the balance of the Debentures; provided,
however, that if the Escrow Agent is holding the Debentures, then the Conversion
Notice may be faxed or e-mailed and the fee may be transmitted via wire transfer
to the Escrow Agent. The Escrow Agent shall deliver the foregoing to the Company
within one (1) business day of the Escrow Agent's receipt thereof. In the event
that the Escrow Agent has custody of the Debentures, the Escrow Agent shall
notify the Company and the Holder in writing of the balance of the Debentures
remaining and the Company and the Holder shall acknowledge such notice in
writing, in lieu of issuance of a new Debenture for the balance.
5. If the Company will be issuing a new Debenture, it will send such new
Debenture to the Escrow Agent by overnight courier within five (5) business days
of its receipt of the original Debentures and Conversion Notice. The Escrow
Agent shall send the Conversion Shares to the Holder in accordance with Holder's
instructions within one (1) business day of receipt of the Conversion Notice and
will send the new Debenture (if any) to the Holder upon receipt.
6. The Escrow Agent agrees to notify the Company in writing by facsimile or
e-mail each time the Escrow Agent releases the Escrow Shares to the Holder, such
notice to be given at least one (1) business day prior to such release.
7. Subject to the provisions of and any limitations set forth in the
Purchase Agreement or the Debentures, the Company agrees that, at any time the
conversion price of the Debentures are such that the number of Escrow Shares
with respect to the Debentures is less than five (5) times the number of shares
of Common Stock that would be needed to satisfy full conversion of all of the
Debentures given the then current conversion price (the "Full Conversion
Shares"), upon five (5) business days written notice of such circumstance to the
Company by a Holder and/or Escrow Agent, it will issue additional share
certificates, in the names of all Holders and deliver same to the Escrow Agent,
such that the new number of Escrow Shares with respect to the Debentures is
equal to five (5) times the Full Conversion Shares.
32
SCHEDULE I
SCHEDULE OF BUYERS
Address/Facsimile Amount of
Name Signature Number of Buyer Subscription
------------------------------ ------------------------------------ --------------------------------- ------------------
Highgate House Funds, Ltd. By: Yorkville Advisors, LLC 000 Xxxxxxx Xxxxxx $750,000
Its: General Partner Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
By:/s/ Xxxx X. Xxxxxxxxxx
----------------------
Name: Xxxx X. Xxxxxxxxxx
Its: Portfolio Manager
With a copy to: Xxxxx Xxxxxxx, Esq. Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
SCHEDULE II
SHARE DENOMINATIONS
Name of Investor
Highgate House Funds, Ltd.
Stock Certificate Denominations for the Escrow Shares in the name of Highgate
House Funds, Ltd.:
8 certificates each for 500 shares
6 certificate each for 1,000 shares
8 certificate each for 2,500 shares
8 certificate each for 5,000 shares
9 certificate each for 10,000 shares
5 certificate each for 50,000 shares
5 certificates each for 100,000 shares
7 certificates each for 250,000 shares
2 certificates each for 500,000 shares
3 certificates each for 1,000,000 shares
33
SCHEDULE III
April 27, 2005
USE OF PROCEEDS
for $750,000 Capital Raise
Use of Funds: The funds to be received through this Capital Raise will be used
for the projected monthly burn of $242,162 which comprises of the following:
o Cover our current monthly burn rate during the filing period.
o Hiring 1-2 additional junior sales and several low cost interns
or equivalents.
o Purchasing related technology equipment in order to meet SFT's
current and potential client requirements.
o Increasing our marketing program for the purpose of increasing
our sales pipeline and revenues.
o Working capital dedicated to increasing the sales and revenues
of StrikeForce.
Some Specifics Include:
o $15,000 monthly for our PR/IR firms
o $10,000 monthly for Blank Rome's Government Lobbyist Group
headed by Xxxx Xxxxxx, prior Chief of Staff for Xxx Xxxxx, which
is getting us into pilot reviews with DHS, Mitre and Unisys.
o Stress testing our software overseas for volume certification at
various volume and configuration levels for approximately
$15,000 remaining.
o Continue as a client of Gartner who has provided us leads for
client opportunities (e.g. Key Bank) and favorable research
papers about StrikeForce @ $10,000 a quarter.
o Purchase strategic cold call listings.
o Pay for all the costs relating to the SEC filing, 2004 audit,
first and second quarter reviews and related public registration
regarding our accountants, lawyers, Edgarizer, etc.
o Continue marketing events, shows, travel and entertainment as we
grow the business and spread the word about StrikeForce.
34
