SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") dated as of December 20,
2004 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 One Million Dollars
($1,000,000) 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
$500,000 shall be funded within five (5) business days hereof (the "First
Closing"), and $500,000 shall be funded within five (5) business days after the
filing of a registration statement (the "Registration Statement") pursuant to
the Investor Registration Rights Agreement of even date herewith, with the
United States Securities and Exchange Commission (the "SEC") (the "Second
Closing"), for a total purchase price of $1,000,000 (the "Purchase Price") in
the respective amounts set forth opposite each Buyer(s) name on Schedule I (the
"Subscription Amount"); and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement (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; and
WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures
contemplated hereby shall be held in escrow pursuant to the terms of an Escrow
Agreement (the "Escrow Agreement") of even date herewith.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions (the "Irrevocable Transfer Agent Instructions").
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Security Agreement
(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 Company's obligations under this Agreement,
the Convertible Debenture, the Investor Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions, or any other obligations of the Company
to the Buyer.
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.
(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 each Closing and the Company agrees to
sell and issue to each Buyer, severally and not jointly, at each Closing,
Convertible Debentures in amounts corresponding with the Subscription Amount set
forth opposite each Buyer's name on Schedule I hereto. 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 certified check payable to
"Xxxxx Xxxxxxxx, Esq., as Escrow Agent for StrikeForce Technologies,
Inc./Cornell Capital Partners, LP", which Subscription Amount shall be held in
escrow pursuant to the terms of the Escrow Agreement (as hereinafter defined)
and disbursed in accordance therewith.
(b) Closing Date. The First Closing of the purchase and sale of the
Convertible Debentures shall take place on or before 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 6 and 7 below
(or such later date as is mutually agreed to by the Company and the Buyer(s))
(the "First Closing Date"), the Second Closing of the purchase and sale of the
Convertible Debentures shall take place on or before the fifth (5th) business
day after 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 6 and 7 below (or such later date as is mutually agreed
to by the Company and the Buyer(s)) (the "Second Closing Date") (collectively
referred to a the "Closing Dates"). The Closings shall occur on the respective
Closing Dates at the offices of Yorkville Advisors, LLC, 000 Xxxxxx Xxxxxx,
Xxxxx 0000, Xxxxxx Xxxx, Xxx Xxxxxx 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, the aggregate proceeds of the sale of the
Convertible Debentures to Buyer(s) pursuant hereto shall be deposited in a
non-interest bearing escrow account with Xxxxx Xxxxxxxx, Esq., as escrow agent
(the "Escrow Agent"), pursuant to the terms of the Escrow Agreement. 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 to be issued and sold to such Buyer(s), minus a structuring fee of
$10,000 to the Buyer pursuant to Section 4(g) hereof, which shall be paid
directly from the gross proceeds of the First Closing held in escrow, 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.
2
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 and, upon conversion of Convertible Debentures, the Buyer will
acquire the 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 at any
time in accordance with or pursuant to an effective registration statement
covering such Conversion 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 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.
(d) Information. Each Buyer and its advisors (and his or, its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information he deemed
material to making an informed investment decision regarding his purchase of the
Convertible Debentures 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 and have been
afforded an answer for each such question. 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 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 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 or the Conversion Shares, or the fairness or suitability of the
investment in the Convertible Debentures or the Conversion Shares, nor have such
authorities passed upon or endorsed the merits of the offering of the
Convertible Debentures or the Conversion Shares.
3
(f) Transfer or Resale. Each Buyer understands that except as provided
in the Investor Registration Rights Agreement: (i) the Convertible Debentures
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. The Company reserves the right to place stop transfer
instructions against the shares and certificates for the Conversion Shares.
(g) Legends. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures 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):
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 two (2)
business days shall issue a certificate without such legend to the holder of the
Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
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 Conversion Shares may be made without
registration under the Securities Act.
4
(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 has
received and read in their entirety: (i) this Agreement and each representation,
warranty and covenant set forth herein, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, and the Irrevocable
transfer Agent Instructions; (ii) all due diligence and other information
necessary to verify the accuracy and completeness of such representations,
warranties and covenants; (iii) 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 not been furnished any other
documents, literature, memorandum or prospectus.
(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 is not prohibited
from doing so.
(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 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 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 as Exhibit "A" 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.
5
(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 Escrow Agreement, the Irrevocable Transfer Agent Instructions,
and any related agreements, and to issue the Convertible Debentures and the
Conversion Shares in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer
Agent Instructions (as defined herein) and any related agreements 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
Conversion Shares and the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion or exercise 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) this Agreement, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer
Agent Instructions and any related agreements have been duly executed and
delivered by the Company, (iv) this Agreement, the Security Agreement, the
Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions and any related agreements constitute the valid 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 this Agreement, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer
Agent Instructions and any related agreements 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. As of the date hereof, the authorized capital
stock of the Company consists of 110,000,000 shares of stock, of which
100,000,000 shares are designated as Common Stock and 10,000,000 shares are
designated as preferred stock, and of which 16,892,47701 are outstanding as
common 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
6
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 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 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 or exercise in accordance with the Convertible
Debentures the 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 this Agreement, the Security Agreement,
the Investors Registration Rights Agreement, the Escrow Agreement and the
Irrevocable Transfer Agent Instructions by the Company 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
7
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 two 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
(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. 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 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 or the Conversion Shares.
8
(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 or the Conversion Shares under the Securities Act or
cause this offering of the Convertible Debentures 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,
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.
9
(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.
(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
10
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) 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. The Company further acknowledges that without such
representations and warranties of the Company made hereunder, the Buyer would
not enter into this Agreement.
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 6
and 7 of this Agreement.
(b) Form D. The Company agrees to file a Form D with respect to the
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 Conversion Shares, or obtain an exemption for 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, or shall
provide a satisfactory opinion of counsel that no such Blue Sky registration is
required, 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 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 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 will use the proceeds from the sale
of the Convertible Debentures for general corporate and working capital
purposes.
11
(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, such number of shares of Common Stock as shall be necessary
to effect the issuance of the Conversion Shares. 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 of the
Company shall call and hold a special meeting of the shareholders within sixty
(60) days of such occurrence, or as soon thereafter as permitted by law, 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) Listings or Quotation. The Company shall, concurrently with the
effectiveness of the registration statement filed with the SEC pursuant to the
Investor Registration Rights Agreement, secure the listing or quotation of its
Common Stock (including, without limitation, the Conversion Shares) upon a
national securities exchange, automated quotation system or the 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 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 this Agreement, the Escrow Agreement, the Investor Registration
Rights Agreement, the Security Agreement and the Irrevocable Transfer Agent
Instructions. The Buyer(s) shall be entitled to a commitment fee of ten percent
(10%) on the Purchase Price.
The Company shall pay to the Buyer a structuring fee of Ten Thousand
Dollars ($10,000) (the "Structuring Fee") in connection with this transaction,
which shall be paid on the First Closing Date directly from the gross proceeds
payable to the Company hereunder. The structuring fee shall be deemed fully
earned on the date hereof.
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
12
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.
(h) 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 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(h) will thereafter be applicable to
the Convertible Debentures.
(i) 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, 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.
(j) 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).
(k) Restriction on Issuance of the Capital Stock. So long as any
Convertible Debentures are outstanding, the Company shall not, except as
provided in the Disclosure Schedule to this Agreement, without the prior written
consent of the Buyer(s), issue or sell shares of Common Stock or Preferred Stock
(i) without consideration or for a consideration per share less than the Bid
Price of the
13
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 it's 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.
(l) 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 for so long as any
portion of the Convertible Debentures is outstanding.
(m) 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 (the "Prohibition Period").
(n) 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.
(o) 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.
(p) No Other Registration Statements. Except as set forth in the
Disclosure Schedule, except for the filing of the registration statements
contemplated in this transaction or the Standby Equity Distribution Agreement of
even date herewith (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, exercise of warrants or issuance under the Standby
Equity Distribution Agreement of even date herewith.
14
(q) 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.
(r) The Company covenants to the buyer that the net proceeds to be
received by the Company in this transaction shall be used in a manner consistent
with uses described in the Budget attached as Exhibit B hereto. The Company ion
its discretion may deviate up to ten (10) percent for any single line described
in Exhibit B hereto.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing Xxxxx Xxxxxxxx, Esq. 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 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).
Yorkville Advisors Management, 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 not be unreasonably withheld
by the Buyer(s), provided that the successor transfer agent has executed 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, 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.
15
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELLER.
The obligation of the Company hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or
before the Closing Dates, of each of the following 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 this Agreement, the Security
Agreement, the Escrow Agreement and the Investor Registration Rights Agreement
and the Irrevocable Transfer Agent Instructions and delivered the same 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 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).
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer(s) hereunder to purchase the Convertible
Debentures at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Buyer's sole benefit and may be waived by the Buyer(s) at
any time in its sole discretion:
(a) The Company shall have executed this Agreement, the Security
Agreement, the Convertible Debenture, the Escrow Agreement, the Irrevocable
Transfer Instructions and the Investor Registration Rights Agreement, and
delivered the same to the Buyer(s).
(b) With regard to the Second Closing, the Company shall have filed a
registration statement with the SEC as described in the Investor Registration
Rights Agreement.
(c) 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
Closing Dates 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
16
with by the Company at or prior to the Closing Dates. 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 Closing Dates, 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 Closing Dates
regarding the representation contained in Section 3(c) above.
(d) 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.
(e) The Buyer(s) shall have received an opinion of counsel in a form
satisfactory to the Buyer(s).
(f) The Company shall have provided to the Buyer(s) a certificate of
good standing from the Secretary of State of New Jersey.
(g) As of each Closing Date, 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.
(h) 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.
(i) The Company shall have provided to the Buyer an acknowledgement,
to the satisfaction of the Buyer, from Xxxxxxxx & Associates, CPA, PLLC, the
Company's independent certified public accountants, as to its ability to provide
all consents required in order to file a registration statement in connection
with this transaction.
(j) The Company shall have filed a form UCC -1 with regard to the
Pledged Property and Pledged Collateral as detailed in the Security Agreement
and provided proof of such filing to the Buyer(s).
(k) The Company shall have obtained the approval of its board of
directors and a majority of its outstanding shares of capital stock (voting as
separate classes, if required by applicable law) to increase its authorized
common stock to a number mutually acceptable to the Company and the Buyer.
8. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Convertible Debentures 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 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
17
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
Debentures or the status of the Buyer or holder of the Convertible Debentures
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.
18
9. GOVERNING LAW: MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New Jersey without regard to the
principles of conflict of laws. The parties further agree that any action
between them shall be heard exclusively in Xxxxxx County, New Jersey, and
expressly consent to the jurisdiction and venue of the Superior Court of New
Jersey, sitting in Xxxxxx County and the United States District Court for the
District of New Jersey sitting in Newark, New Jersey for the adjudication of any
civil action asserted pursuant to this Paragraph.
(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.
(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:
19
If to the Company, to: StrikeForce Technologies, Inc.
0000 Xxxx Xxxxxx'x Xxxx Xxxx, Xxxxx 000
Xxxxxx, XX 00000
Attention: Xxxx X. Xxx, CEO
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: Xxx X. XxXxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Company, to:
StrikeForce Technologies, Inc.
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
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 9(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 9,
and the indemnification provisions set forth in Section 8, 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).
20
(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 6 and 7 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.
(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]
21
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 X. Xxx
Title: CEO
THE BUYER'S(S') SIGNATURES ARE CONTAINED ON SCHEDULE I
HERETO
22
EXHIBIT A
DISCLOSURE SCHEDULE
EXHIBIT A-1
23
SCHEDULE I-1
SCHEDULE I
SCHEDULE OF BUYERS
Address/Facsimile Amount of
Name Signature Number of Buyer Subscription
---------------------------------------------------------------------------------------------------------
Cornell Capital Partners, LP By: Yorkville Advisors, LLC 000 Xxxxxx Xxxxxx - Xxxxx 0000 $1,000,000
Its: General Partner Xxxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
By: /S/ Xxxx X. Xxxxxx With a copy to:
------------------------
Name: Xxxx X. Xxxxxx Xxxxxxx Capital Partners, LP
Its: Portfolio Manager 000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
EXHIBIT A
DISCLOSURE SCHEDULE
This Disclosure and Exception Schedule is made and given pursuant to Articles 3
and 4 of that certain Securities Purchase Agreement dated December __, 2004 by
and among StrikeForce Technologies, Inc. and the parties designated as "Buyers"
therein. The section numbers in this Schedule of Exceptions correspond to the
section numbers in the Securities Purchase Agreement; however, any information
disclosed herein under any section number shall be deemed to be disclosed and
incorporated into any other section number under the Agreement where such
disclosure would otherwise be appropriate. Any terms defined in the Securities
Purchase Agreement shall have the same meaning when used in this Schedule of
Exceptions as when used in the Agreement unless the context otherwise requires.
Nothing herein constitutes an admission of any liability or obligation on the
part of the Company nor an admission against the Company's interest. The
inclusion of any schedule herein or any exhibit hereto should not be interpreted
as indicating that the Company has determined that such an agreement or other
matter is necessarily material to the Company. The Buyer acknowledges that
certain information contained in these schedules may constitute material
confidential information relating to the Company, which may not be used for any
purpose other than that contemplated in the Agreement. Copies of the agreements
described herein are available upon request of the Company for review by the
Buyer.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(c) Capitalization
In connection with the purchase of certain assets and liabilities of
Xxxxxxx.xxx, Inc., the Company issued to Xxxxxxx.xxx, Inc. 1,140,000 shares of
the common stock of the company, which shares are subject to a provision
requiring the parties to enter into a buy-sell agreement granting the Company a
right of first refusal. Pending the execution of such an agreement, such shares
may not be transferred or encumbered in any manner.
(i) The Company has adopted a Stock Option Program and Plan under
which options in the aggregate amount of 1,000,000 shares may be
issued by the Company during 2004. The Company may further, from
time to time, issue shares of common stock pursuant to an
Employee Stock Ownership Plan (ESOP) or as compensation to the
employees, officers, directors or consultants of the Company. Any
options or common stock issued by the Company to its employees,
officers, directors or consultants may be registered on Form S-8,
if such registration is permitted by law. In no event, however,
will the shares that (x) issued pursuant to an ESOP, compensation
plan or to consultants or (y) that the Company is obligated to
issue upon the exercise of options outstanding issued the Stock
Option Program and Plan exceed ten (10) percent of the issued
common stock of the Company, whichever is greater.
1
The Company has issued certain notes, the principal and interest
of which are convertible into shares of common stock of the
Company, as set forth below. The price at which such notes may be
converted is $1.00 per share. In addition, the holders of the
notes were granted rights to purchase additional common stock of
the Company in an amount not exceeding ten (10) percent of the
principal amount of the notes within 10 years of the date of the
note at a price of $1.00 per chare.
-----------------------------------------------------------------------------
Loan Loan Interest Due
Loan Provider Date Amount Rate Date
-----------------------------------------------------------------------------
Xxxxxxx, Xxxxxxx 11/12/03 $50,000.00 Prime + 2% 6/30/05
-----------------------------------------------------------------------------
Xxxxxxx, Xxxxxxx 01/05/04 $7,500.00 Prime + 4% 6/30/05
-----------------------------------------------------------------------------
Xxx, Xxxx 02/04/04 $60,000.00 5.875% 9/30/05
-----------------------------------------------------------------------------
Xxx, Xxxx 06/10/04 $50,000.00 5.875% 12/31/05
-----------------------------------------------------------------------------
Xxx, Xxxx 09/07/04 $30,000.00 5.875% 12/31/05
-----------------------------------------------------------------------------
Total: $197,500.00
===========
The Company is presently engaged in negotiations with Secured
Digital Applications, Inc. ("SDA") to enter into an agreement
whereby SDA will utilize the Company's technology in the
development of a secure on-line payment portal and e-commerce
applications. In connection with this agreement, the Company may
issue common stock to SDA in an amount equal to 10 (ten) percent
of its issued common stock in return for a payment of $2,000,000.
The Company has been engaged in a private placement coordinated
by Summit Financial Partners, LLC in the aggregate amount of
$3,500,000. The Company may continue to accept subscriptions in
connection with this private placement through the date on which
a registration statement covering the securities to be issued
upon conversion of the Convertible Debenture is filed.
(ii) The Company has issued certain debt securities noted under (i),
above.
(iii)The Company has granted registration rights to purchasers of the
common stock of the company through a private placement
coordinated by Summit Financial Partners, LLC. The Company shall
be permitted to concurrently register for resale the common stock
held by its existing shareholders, a schedule of which is
attached hereto as Schedule I.
4. COVENANTS
(h) Corporate Existence
The Company may effect such mergers with one or more wholly owned
subsidiaries as are reasonable and necessary to cause the Company
to be reincorporated under Delaware law. Prior to or at the time
of such reincorporation, the Company may amend its Certificate of
Incorporation to adopt such provisions as the board of directors
and, as applicable, the shareholders deem suitable for the
effective management of the Company, provided that no such
reorganization may impair the security granted to Buyer in
connection with the issuance of the Convertible Debentures.
(k) Restriction on the Issuance of the Capital Stock
(i) The Company may issue or sell Common Stock and/or other
securities granting the holder thereof the right to acquire
Common Stock without consideration or for a consideration per
share less than such Common Stock's Bid Price value determined
immediately prior to its issuance:
In satisfaction of its obligations disclosed in item 3(c)(i) of
this schedule;
Up to 10 percent of the issued common stock of the Company,
pursuant to the exercise of options or award of common stock
granted to employees, officers, directors or consultants as
compensation; and
The Company may issue common shares of stock to Secured Digital
Applications, Inc. in an amount not exceeding 10 percent of the
issued common stock of the Company for $2 million.
(iii)The Company may issue options to employees officers or directors
without consideration or for a consideration per share less than
such Common Stock's Bid Price value determined immediately prior
to its issuance, subject to the limitations set forth in 3(c)(i)
and 4(k)(i) above.
(m)(ii)The Company may repay notes owed to members of the Management
Group in an amount not to exceed $100,000 during the Prohibition
Period, provided that the source of funds for the repayment of
such notes is not funds that were raised through the issuance of
the Convertible Secured Debenture.
(iv) The Company may, subject to the limitations set forth in 3(c)(i)
and 4(k)(i) permit the registration of options or common stock
issued to employees or consultants on Form S-8.
Xxxxxxxxx XxXxxx 1,125,208
Xxxx Xxxxxx 1,308,207
Xxxxxxx Xxxxxxxxx 3,264,465
Xxxxx Xxxxxxxx 326,000
Xxxxxx Xxx 1,469,418
Xxxxxx Xxxx 3,273,742
---------
Total Founders 10,767,040
Xx Xxxxxxxxx 3,334
Xxxxxxx Xxxxxxxxxx 105,000
Arinx Francois 30,000
Xxxxxxx Xxxxxxxxx 100,000
Xxxxx Xxxxxxxx 6,000
Xxxx Xxxxx 2,000
Xxxxxx Xxxxx 1,000
Xxxx Xxxxxxx 5,100
Xxxx Xxxxxx 60,000
Xxxxx XxXxxxx 3,180
Xxxxx Xxxxxxxxxx 2,000
Xxxx Xxxxxxx 1,500
Xxxx Xxxxxx 1,500
Xxxxx Xxxxxxxx 1,200
Xxxx Xxxxxx 3,000
Xxxxxx Xxxx 59,850
Xxxxxxxx Xxxx 5,000
Xxxxxx Xxxxx 59,850
Xxxxxx Xxxxxx 1,000
Xxxxxx Terchak 150,000
Xxx Xxxxxxx 1,500
Xxxxxxxxxxxxxx 120,000
Xxxxxxx Xxxxxx 1,000
Sig Xxxxxx 15,000
Xxxxxx Xxxxxxx 10,000
Xxxxxx Xxxxxx 60,000
Xxx Xxxxx 1,500
Xxxxxxx Xxxxx 60,000
------
Total NL Investors 869,514
Year 2002 Transactions 11,636,554
Xxxx Xxx 300,000
Xxxx Xxxxxxxx 333
Xxxx Xxxxxxxx 1,000
Xxxxx Xxxxxxx 5,600
Xxxxxxx Xxxxxxxx 100
Xxxx Xxxxxx Xxxxxxxxx 11,500
Xxxx Ravioli 1,000
Xxxxx Xxxxxxxxx 50,667
Xxxxxx Xxxxxxx 10,667
Xxxxxx Xxxxxx 10,000
Xxxxxx Xxxx 2,000
Xxxx Xxxxxxxxx 5,000
Xxxxx Xxxxxx 3,000
Xxxxxxxx Xxxxxxx 4,000
Xxxxxxxx & Xxxx Xxxxxxx 3,000
Xxxx Xxxxxx 15,000
Majid Prey 5,000
Xxxx Xxxxxx 1,000
Xxxxx Xxxxxxx 50,000
Xxxxxxx.xxx Inc. 1,140,000
Xxxx Xxxxxx - (Xxx Xxxxx) 5,000
Xxxxxxxx Xxxxxx 4,000
Xxxx Xxxxxx 6,000
Xxxxxx Xxxxxxx 10,000
Xxxxxxxx Xxxxxx 1,000
Xxxxxxx Xxxxxx 9,000
Xxxxxxxx Xxxx 5,000
Xxxx Xxxxxxx 1,000
Year 2003 Transactions 1,659,867
Xxxx Xxxxx 120,000
Xxxxxxxxx Family Trust 560,000
Xxxxx Xxxxxxxx 4,000
Xxxx Xxxxx 3,000
Xxxxxx Xxxxxxxx 120,000
Xxxxx Xxxxxxxxx 27,778
Xxxxxx Xxxxxxxxx 25,000
General Xxxxx Xxxxx 25,000
Xxxxxx Xxxxx 25,000
Xxxx Xxxxxxxxx 25,000
Xxxxxxxxx Xxxxxx 25,000
M Power, LLC 300,000
M Power, LLC 50,000
Xxxxxxxx Xxxxxxxxxxxx 13,889
Xxxxx Xxxxxxxx 50,000
Xxxxxxx Xxxxx 50,000
Xxxx Xxxxxxxx 10,000
Xxxxxxx X. Xxxx 1,000
Xxxxxxxx X. Xxxx 1,000
Xxx Xxxxxxx 17,361
Xxxxxx Xxxxxxx 17,361
Xxxxxx Xxxxxx 5,000
Xxxxx & Xxxxxxx Xxxxxx 10,000
Xxxxxx & Xxxxxxxxxx Xxxxxx 6,944
Xxxxx Insurance Agency 10,000
Xxxxxxxx Xxxxxx 2,000
Xxxx Xxxxxxxxxx 5,600
Xxxxxxxxx Xxxxxxx 6,944
Xxxxx Xxxx 1,389
Xxxxxxx Xxxxxxxxxxxxx 6,944
Xxxxxx Xxxxxxxx 2,778
Xxxxxxx X. Xxxxxxxx 1,389
Xxxxx Xxxxxxxxxxxxx 16,667
Xxxxxx X. Xxxxxx Xx. 6,944
Xxxxx Xxxxxxxxxxxxx 13,889
Xxxxxxxxx X. Xxxxx 6,944
Xxxxxxx Xxxxxxxxxxxxx 13,889
Ramashwari Singh 694
Xxxxxxx Xxxxx 694
Xxxxx Xxxxxx 100,000
Auto Servicio, S.A 100,000
Xxxxxxxxxx Xxxxxxx 300
Xxxxxx Xxxxx lll 6,944
Xxxxxxx Xxxxx Xxxxx 6,944
Xxxxx Xxxxx Xxxxxx 6,944
Xxxxxx Xxxxx Xx. 6,944
Xxxx Xxxxx 6,944
Xxxxxx Xxxxx 6,944
Xxxxxx & Xxxx Xxxxx 20,833
Xxxxxx Xxxxx 30,000
J. Xxxx Xxxxxx 27,778
Xxxxx Xxxx 10,000
Xxxxxxx Fix 6,944
Xxxxxx Xxxx 2,000
Xxxx X. Xxx 41,667
Xxx Xxxx 500
Xx. Xxxx X. Xxxx 13,889
Xxxx X. Xxx 69,444
Xxxx X. Xxx 69,444
Xxxx X. Xxx 55,556
Xxxx X. Xxx 83,333
Xxxx X. Xxx 69,444
Xxxx X. Xxx 69,444
Xxxxxxx X. Xxxxxxx 10,417
Total Other 2,411,755
OBX Capital Group 69,444
Xxxxxxx/Xxxxx XxXxxxxx 48,612
OBX Capital Group 69,443
OBX Capital Group 69,443
Xxxxxxxx/Xxxxxx Xxxxxx 25,500
Dr. Xxx Xxxxxxx 124,000
Xxxx/Xxxxx Xxxxxxxxx 41,667
OBX Capital Group 83,334
OBX Capital Group 277,778
Xxxxxxxx/Xxxxxx Xxxxxx 57,163
Xxxx Xxxxx 41,667
Xxxxxx Xxxxxx 138,889
Xxxxxxxx/Xxxxxx Xxxxxx 10,000
OBX Capital Group 67,361
Xxxx Xxxxx 60,000
------
Grand Total 16,892,477
EXHIBIT B
StrikeForce Technologies, Inc.
Monthly Cash Burn Rate
Monthly
---------------------
Salaries $114,500.00
Payroll Taxes $17,175.00
Consultants $10,500.00
Rent $6,225.00
Health Insurance $6,000.00
Liability Insurance $112.75
Workers Comp Ins $191.25
Telephone $2,195.00
FEDEX/UPS $500.00
Postage $100.00
Global Crossing Internet T1 $810.00
Dell Financial Computer Lease $398.56
Ikon Financial Computer Lease $2,020.42
GE Capital Copier Lease $280.90
Printing and Reproduction $1,000.00
Xxxxxx Public Rel. $10,000.00
Blank Rome Government Rel. $10,000.00
Xxxxxxxxxxx Public Rel. $5,000.00
Accounting $5,000.00
Legal $7,500.00
Supplies $500.00
T&E $2,000.00
Marketing & Trade Shows $5,500.00
Loans & Interest $7,633.33
Web Site Development $1,000.00
Furniture, Fixtures & Equipment $2,365.00
---------------------
$218,507.21
=====================
Use of Proceeds for Capital Raised
Blank Rome Public Relations PR $30,000.00
Copy Dynamics Office $3,865.00
Crossroads Strategy Consulting $7,500.00
Dell Computers Equipment $1,224.00
Gartner Consulting $58,087.50
GE Capital Lease $8,501.53
IOS Capital Lease $25,819.00
Infopro Website $1,600.00
Xxxxxxxx & Associates Accounting $52,000.00
Matsushita Electric Corp ASP host $31,000.00
NGM Consulting $7,483.50
Xxxxxx Xxxxxxxx Legal $19,283.73
Xxxxxx XX $22,515.91
RSA Partner Program $7,950.00
Szaferman Lakind Legal $7,174.98
United Health Care Health Ins. $10,523.69
XX Xxxxx Office $1,521.33
Employee reimbursements Office $25,028.42
X. Xxxxxxxxx Consulting $18,000.00
----------
$339,078.59
=====================
