EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (this “Agreement”),
dated as of July 9, 2009, by and between Suspect Detection Systems Inc., a
Delaware corporation (the “Company”), and NG-The Northern Group LP (the
"Investor").
WHEREAS, upon and as a result of the
consummation of the transactions contemplated by the Investment Agreement dated
as of December 18, 2008 between the Company and Suspect Detection Systems (SDS)
Ltd., a company incorporated in the State of Israel (“SDS”), the Investor was
issued 170,295 Ordinary Shares of SDS (the “SDS Shares”);
WHEREAS, the Investor now desires to
exchange all the SDS Shares for 3,199,891 shares of common stock of the Company
(the “Shares”), and the Company is willing to exchange the SDS Shares for the
Shares and the issuance of warrants to purchase additional shares of common
stock of the Company, on the terms and provisions provided for in this
Agreement;
NOW, THEREFORE, for good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Exchange of SDS Shares for
the Shares. Simultaneous with the execution and deliver of
this Agreement, (a) the Investor shall deliver to the Company (i) a stock
certificate evidencing the SDS Shares, duly endorsed in blank or accompanied by
stock powers duly executed in blank or other instruments of transfer in form and
substance reasonably satisfactory to the Company, and (ii) resolutions
authorizing the transaction contemplated herein and the exchange of the SDS
Shares for the Shares and (b) the Company shall deliver to the Investor (i) a
stock certificate representing the Shares and (ii) a warrant agreement in the
form attached hereto as Exhibit A (the “Warrant”). Within
72 hours of the execution of this Agreement the Investor shall notify the
Israeli Registrar of his transfer of the Shares to the Company.
2. Representations and
Warranties of the Investor. As an inducement to the Company to enter into
this Agreement and to issue the Shares and the Warrant to the Investor, the
Investor hereby represents and warrants to the Company as follows:
(a) The
Investor is the sole record and beneficial owner of the SDS Shares and has good
and marketable title to said shares, free and clear of all liens, encumbrances,
claims, charges, and any rights of third parties. Other than as set forth in
this Agreement, there are no stockholders’ agreements, voting trust, proxies,
options, rights of first refusal, claims or other commitments or rights or any
other agreements or understandings with respect to the SDS Shares subject to
rights of first refusal as to which the Investor shall deliver waivers from all
the other shareholders simultaneous with the execution and delivery of this
Agreement.
(b) The
Investor has the absolute and unrestricted right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement, to
carry out its obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Investor. The execution, delivery and performance of this Agreement have been
duly and validly approved and authorized by all necessary action on the part of
the Investor. The general partner and the partners of the Investor have approved
the execution, delivery and performance of this Agreement.
(c) No
filing with, authorization from or consent or approval of any governmental body,
agency, official or authority or any other third party is necessary or required
to be made or obtained to enable the Investor to enter into, and to perform its
obligations under, this Agreement. Assuming the due authorization, execution and
delivery by the Company, this Agreement, when executed and delivered by the
Company constitutes a valid and binding obligation of the Investor, enforceable
against it in accordance with its terms. The individual executing this Agreement
on behalf of the Investor has been duly authorized by all necessary and
appropriate action on behalf of the Investor.
(d) Neither
the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will conflict with, or (with or without notice
or lapse of time, or both) result in a termination, breach or violation of (a)
any provision of the Partnership Agreement or other charter documents of the
Investor, as currently in effect, (b) any instrument, contract or agreement to
which the Investor is a party or by which it is bound, or (c) any law,
ordinance, judgment, decree, order, statute, or regulation, or that of any other
governmental body or authority, applicable to the Investor or its assets or
properties.
(e) The
Investor is not party to or threatened with, any litigation, suit, action,
investigation, proceeding or controversy before any court, administrative agency
or other governmental authority relating to or affecting the SDS
Shares.
(f) The
Investor is an “accredited investor”, as such term is defined in Rule 501 of the
Securities and Exchange Commission (the “SEC”) promulgated under the Securities
Act of 1933, as amended (the “Securities Act) or is exempt by any other
applicable provision of the applicable securities laws.
(g) The
Investor understands that an investment in the Shares, the Warrant and the
shares of common stock issuable upon due exercise of the Warrant (the “Warrant
Shares’, and together with the Shares and the Warrant, the “Securities”) is a
speculative investment which involves a high degree of risk and the potential
loss of its entire investment.
(h) The
Investor has received all documents, books and other information pertaining to
its exchange of its SDS Shares for the Securities that has been requested by the
Investor, including without limitation, the SEC filings made by the
Company.
(i) At
no time was the Investor presented with or solicited by any leaflet, newspaper
or magazine article, radio or television advertisement, or any other form of
general advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such communicated
offer.
(j) The Investor is (i)
experienced in making investments of the kind described in this Agreement, (ii)
able, by reason of its business and financial experience to protect its own
interests in connection with the investment in the Securities, and (iii) able to
afford the entire loss of its investment in the Shares.
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(k) The
Investor understands that none of the Shares, Warrant or the Warrant
Shares have not been registered under the Securities Act or
registered or qualified under any the securities laws of any state or other
jurisdiction, are “restricted securities,” and cannot be resold or otherwise
transferred unless they are registered under the Securities Act, and registered
or qualified under any other applicable securities laws, or an exemption from
such registration and qualification is available. The certificate for
the Shares shall bear a legend to the foregoing effect.
(l) The
Investor is acquiring the Securities for its own account as principal, not as a
nominee or agent, for investment purposes only, and not with a view to, or for,
resale, distribution or fractionalization thereof in whole or in part and no
other person has a direct or indirect beneficial interest in the Securities the
Investor is acquiring herein. Further, the Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to the Securities the Investor is acquiring.
(m) The
Investor understands that the Company is under no obligation to register any of
the Securities under the Securities Act, or to assist the Investor in complying
with the Securities Act or the securities laws of any state of the United States
or of any foreign jurisdiction. The Investor understands that the Securities can
be sold under Rule 144 or any other exemption, provided such exemption is
applicable and provided that such sale is made pursuant to the terms of the
Lock-Up Agreement attached hereto.
3. Representations and
Warranties of the Company. As an inducement to the Investor to
enter into this Agreement, the Company hereby represents and warrants to the
Investor as follows:
(a) The
Company is duly organized, validly existing and in good standing under the
applicable laws of the state of its incorporation and has full power and
authority to own, lease, use and operate its properties and to carry on its
business as and where now owned, leased, used, operated and
conducted.
(b) The
execution and delivery of this Agreement, and the transaction contemplated
hereby and thereby, have been duly approved by the board of directors of the
Company and does not require the approval of the shareholders of the
Company. This Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
the terms hereof and thereof except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting
the rights of creditors generally and by general principles of
equity.
(c) All consents, approvals,
authorizations and orders, required for the consummation by the Company of any
of the transactions on its part contemplated under this Agreement have been
obtained.
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(d) None
of the execution, delivery, or performance of this Agreement and the
consummation of the transaction contemplated hereby, conflicts or will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach or violation of (i) to the best of the Company’s knowledge,
any instrument, contract or agreement to which the Company is a party or by
which it or its assets is bound; (ii) the certificate of incorporation and
by-laws of the Company, or (iii) to the best of the Company’s knowledge, any
federal, state, local or foreign law, ordinance, judgment, decree, order,
statute, or regulation, or that of any other governmental body or authority,
applicable to the Company.
(e) The
Shares, when issued to the Investor in consideration for the SDS Shares, will
have been duly authorized, fully paid and non-assessable. The Warrant Shares,
when issued to the Investor upon the due exercise of the Warrant, will be duly
authorized, fully paid and non-assessable.
(f) The
Company understands that an investment in the SDS Shares is a speculative
investment which involves a high degree of risk and the potential loss of its
entire investment. The Company made any and all inquiries as to the
business of SDS and is making the investment not relying on any way on any
representations by the Investor as to the business and/or financial affairs of
SDS.
4. Indemnification;
Survival.
4.1 Indemnification. The
Investor shall indemnify and hold harmless the Company, its agents,
beneficiaries, affiliates, representatives and their respective successors and
assigns (collectively, the “Company Indemnified Persons”) from and against any
and all damages, losses, liabilities, taxes, costs and expenses (including,
without limitation, attorneys’ fees and costs) (collectively, “Losses”)
resulting directly or indirectly from (a) any inaccuracy, misrepresentation,
breach of warranty or non-fulfillment of any of the representations and
warranties made by the Investor and contained in this Agreement, or any actions,
omissions or statements of fact inconsistent in any material respect with any
such representation or warranty, (b) any failure on the part of the Investor to
perform or comply with any agreement, covenant or obligation in this Agreement;
provided, however, that the
indemnification pursuant to this Section 4.1 shall terminate on the second
anniversary of the Closing Date, and it shall have no further force or effect
thereafter, notwithstanding anything to the contrary contained in any provision
of this Agreement or applicable law and further provided that in any event the
amount of the indemnification may not exceed US$250,000 in the
aggregate.
The
Company shall indemnify the Investor, its agents, beneficiaries, affiliates,
representatives, shareholders and their respective successors and assigns, and
hold each of them harmless from and against any and all Losses resulting
directly or indirectly from (A) any inaccuracy, misrepresentation, breach of
warranty or non-fulfillment of any of the representations and warranties of the
Company in this Agreement, or any actions, omissions or statements of fact
inconsistent in any material respect with any such representation or warranty,
(B) any failure by the Company to perform or comply with any agreement, covenant
or obligation in this Agreement; provided, however, that the
indemnification provided by the Company pursuant to this Section 3.1 shall
terminate on the second anniversary of the Closing Date, and it shall have no
further force or effect thereafter, notwithstanding anything to the contrary
contained in any provision of this Agreement or applicable law and further
provided that in any event the amount of the indemnification may not exceed
US$250,000 in the aggregate.
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The
provisions of this Section 4.1 shall be the sole and exclusive remedy for
breaches of the matters set forth in said Section.
4.2 Survival. Unless
otherwise stated in this Agreement, all covenants and agreements of the parties
contained herein or in any other certificate or document delivered pursuant
hereto shall survive the date hereof until the later of the expiration of the
applicable statute of limitations or the second anniversary of the date
hereof.
5.
Miscellaneous.
5.1 Further
Assurances. From time to time, each party shall make
reasonable commercial efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, all things reasonably necessary, proper or advisable,
including as required by applicable laws, to consummate and make effective as
promptly as practicable the transaction contemplated by this
Agreement.
5.2 Notices. All
notices or other communications required or permitted hereunder shall be in
writing and shall be deemed duly given (a) if by personal delivery, when so
delivered, (b) if mailed, three (3) business days after having been sent by
registered or certified mail, return receipt requested, postage prepaid and
addressed to the intended recipient as set forth below (or ten (10) business
days if the address to which such notice is addressed is not in the same country
in which such notice is mailed), or (c) if sent through an overnight delivery
service in circumstances to which such service guarantees next day delivery, the
second day following being so sent to the addresses of the parties as indicated
on the signature page hereto. Any party may change the address to which notices
and other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
5.3 Choice of
Law. This Agreement shall be governed, construed and enforced
in accordance with the laws of the State of New York, without giving effect to
principles of conflicts of law.
5.4
Jurisdiction. The
Parties hereby irrevocably consent to the in personam jurisdiction and venue of
the courts of the State of New York and of any federal court located in such
State in connection with any action or proceeding arising out of or relating to
this Agreement, any document or instrument delivered pursuant to, in connection
with or simultaneously with this Agreement, or a breach of this Agreement or any
such document or instrument. EACH PARTY HERETO WAIVES TRIAL BY
JURY IN ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY
BREACH OR ALLEGED BREACH HEREOF.
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5.5 Entire
Agreement. This Agreement sets forth the entire agreement and
understanding of the Parties in respect of the transaction contemplated hereby
and supersedes all prior and contemporaneous agreements, arrangements
and understandings of the parties relating to the subject matter
hereof. No representation, promise, inducement, waiver of rights,
agreement or statement of intention has been made by any of the parties which is
not expressly embodied in this Agreement.
5.6 Assignment. Each
party's rights and obligations under this Agreement shall not be assigned or
delegated, by operation of law or otherwise, without the other party’s prior
written consent, and any such assignment or attempted assignment without the
other party’s prior written consent shall be void, of no force or effect, and
shall constitute a material default by such party.
5.7 Amendments. This
Agreement may be amended, modified, superseded or cancelled, and any of the
terms, covenants, representations, warranties or conditions hereof may be
waived, only by a written instrument executed by the parties
hereto.
5.8 Waivers. The
failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later time to enforce
the same. No waiver by any party of any condition, or the breach of
any term, covenant, representation or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more instances shall be deemed to
be or construed as a further or continuing waiver of any such condition or
breach or a waiver of any other term, covenant, representation or warranty of
this Agreement.
5.9 Counterparts. This
Agreement may be executed simultaneously in two or more counterparts and by
facsimile, each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
5.10 Severability. If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated so long as the economic or legal
substance of the transaction contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination, the parties shall
negotiate in good faith to modify this Agreement so as to give effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transaction contemplated hereby are consummated as originally
contemplated to the fullest extent possible.
5.11 Interpretation. The
parties agree that this Agreement shall be deemed to have been jointly and
equally drafted by them, and that the provisions of this Agreement therefore
shall not be construed against a party or parties on the ground that such party
or parties drafted or was more responsible for the drafting of any such
provision(s). The parties further agree that they have each carefully read the
terms and conditions of this Agreement, that they know and understand the
contents and effect of this Agreement and that the legal effect of this
Agreement has been fully explained to their satisfaction by counsel of their own
choosing. The various paragraph and/or section headings in this
Agreement are for reference and convenience only and shall not be considered in
the interpretation hereof for any purpose and in no way alter, modify, amend,
limit, or restrict any contractual obligations of the parties.
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IN
WITNESS WHEREOF, the parties have duly executed this Exchange Agreement as of
the date first above written.
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SUSPECT
DETECTION SYSTEMS INC.
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By:
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/s/
Xxxxx Xxxxxxx
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Name:
Xxxxx Xxxxxxx
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Title:
CFO and Interim CEO
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NG
– The Northern Group LP
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By:
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/s/ Xxxxxx Xxxxx | |
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Name:
Xxxxxx
Xxxxx
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Title:
Chief
Executive Officer
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