STANDBY EQUITY DISTRIBUTION AGREEMENT
THIS STANDBY EQUITY DISTRIBUTION AGREEMENT (the "Agreement") is entered
into as of December 20, 2004 between CORNELL CAPITAL PARTNERS, LP, a Delaware
limited partnership (the "Investor"), and STRIKEFORCE TECHNOLOGIES, INC., a
corporation organized and existing under the laws of the State of New Jersey(the
"Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase from the
Company up to Ten Million Dollars ($10,000,000) of the Company's common stock,
par value $ 0.0001 per share (the "Common Stock"); and
WHEREAS, such investments will be made in reliance upon the provisions of
Regulation D ("Regulation D") of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder (the "Securities Act"), and or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder;
and
WHEREAS, the Company has engaged Newbridge Securities Corporation to act as
the Company's exclusive placement agent in connection with the sale of the
Company's Common Stock to the Investor hereunder pursuant to the Placement Agent
Agreement dated the date hereof by and among the Company, the Placement Agent
and the Investor (the "Placement Agent Agreement").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
Certain Definitions
Section 1.1. "Advance" shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.
Section 1.2. "Advance Date" shall mean the date the Xxxxx Xxxxxxxx Attorney
Trust Account is in receipt of the funds from the Investor and Xxxxx Xxxxxxxx,
Esq., is in possession of free trading shares from the Company and therefore an
Advance by the Investor to the Company can be made and Xxxxx Xxxxxxxx, Esq. can
release the free trading shares to the Investor. The Advance Date shall be one
(1) Trading Day after the applicable Pricing Period.
Section 1.3. "Advance Notice" shall mean a written notice to the Investor
setting forth the Advance amount that the Company requests from the Investor and
the Advance Date.
Section 1.4. "Advance Notice Date" shall mean each date the Company
delivers to the Investor an Advance Notice requiring the Investor to advance
funds to the Company, subject to the terms of this Agreement. No Advance Notice
Date shall be less than five (5) Trading Days after the prior Advance Notice
Date.
Section 1.5. "Bid Price" shall mean, on any date, the closing bid price (as
reported by Bloomberg L.P.) of the Common Stock on the Principal Market or if
the Common Stock is not traded on a Principal Market, the highest reported bid
price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc.
Section 1.6. "Closing" shall mean one of the closings of a purchase and
sale of Common Stock pursuant to Section 2.3.
Section 1.7. "Commitment Amount" shall mean the aggregate amount of up to
Ten Million Dollars ($10,000,000), which the Investor has agreed to provide to
the Company in order to purchase the Company's Common Stock pursuant to the
terms and conditions of this Agreement.
Section 1.8. "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have made payment
of Advances pursuant to this Agreement in the aggregate amount of Ten Million
Dollars ($10,000,000), (y) the date this Agreement is terminated pursuant to
Section 2.4, or (z) the date occurring twenty-four (24) months after the
Effective Date.
Section 1.9. "Common Stock" shall mean the Company's common stock, par
value $ 0.0001per share.
Section 1.10. "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.
Section 1.11. "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.12. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(b).
Section 1.13. "Escrow Agreement" shall mean the escrow agreement among the
Company, the Investor, and Xxxxx Xxxxxxxx, Esq., dated the date hereof.
Section 1.14. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.15. "Material Adverse Effect" shall mean any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement or the Registration Rights Agreement in any material
respect.
Section 1.16. "Market Price" shall mean the lowest VWAP of the Common Stock
during the Pricing Period.
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Section 1.17. "Maximum Advance Amount" shall be Five Hundred Thousand
Dollars ($500,000) per Advance Notice.
Section 1.18 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.19 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.20 "Placement Agent" shall mean Newbridge Securities Corporation,
a registered broker-dealer.
Section 1.21 "Pricing Period" shall mean the five (5) consecutive Trading
Days after the Advance Notice Date.
Section 1.22 "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq SmallCap Market, the American Stock Exchange, the OTC Bulletin Board or
the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 1.23 "Purchase Price" shall be set at ninety eight percent (98%) of
the Market Price during the Pricing Period.
Section 1.24 "Registrable Securities" shall mean the shares of Common Stock
to be issued hereunder (i) in respect of which the Registration Statement has
not been declared effective by the SEC, (ii) which have not been sold under
circumstances meeting all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") or (iii)
which have not been otherwise transferred to a holder who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend.
Section 1.25 "Registration Rights Agreement" shall mean the Registration
Rights Agreement dated the date hereof, regarding the filing of the Registration
Statement for the resale of the Registrable Securities, entered into between the
Company and the Investor.
Section 1.26 "Registration Statement" shall mean a registration statement
on Form S-1 or SB-2 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered there under in accordance with the
provisions of this Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act; provided, however, that subsequent to the filing of the
Company's first Registration Statement, if the Company shall be obligated to
file a subsequent Registration Statement, Registration Statement shall include
any form of registration statement then available to the Company under
applicable SEC Rule, including Form S-2 or S-3.
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Section 1.27 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.28 "SEC" shall mean the Securities and Exchange Commission.
Section 1.29 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.30 "SEC Documents" shall mean Annual Reports on Form 10-KSB,
Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and Proxy
Statements of the Company as supplemented to the date hereof, filed by the
Company for a period of at least twelve (12) months immediately preceding the
date hereof or the Advance Date, as the case may be, until such time as the
Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.31 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.32 "VWAP" shall mean the volume weighted average price of the
Company's common stock as quoted by Bloomberg, LP.
ARTICLE II.
Advances
Section 2.1. Investments.
(a) Advances. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII hereof), on any
Advance Notice Date the Company may request an Advance by the Investor by the
delivery of an Advance Notice. The number of shares of Common Stock that the
Investor shall receive for each Advance shall be determined by dividing the
amount of the Advance by the Purchase Price. No fractional shares shall be
issued. Fractional shares shall be rounded to the next higher whole number of
shares. The aggregate maximum amount of all Advances that the Investor shall be
obligated to make under this Agreement shall not exceed the Commitment Amount.
Section 2.2. Mechanics.
(a) Advance Notice. At any time during the Commitment Period, the
Company may deliver an Advance Notice to the Investor, subject to the conditions
set forth in Section 7.2; provided, however, the amount for each Advance as
designated by the Company in the applicable Advance Notice shall not be more
than the Maximum Advance Amount. The aggregate amount of the Advances pursuant
to this Agreement shall not exceed the Commitment Amount. The Company
acknowledges that the Investor may sell shares of the Company's Common Stock
corresponding with a particular Advance Notice on the day the Advance Notice is
received by the Investor. There will be a minimum of five (5) Trading Days
between each Advance Notice Date.
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(b) Date of Delivery of Advance Notice. An Advance Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 12:00 noon Eastern Time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Advance Notice may be deemed delivered on a day
that is not a Trading Day.
(c) Pre-Closing Share Credit. Within two (2) business days after the
Advance Notice Date, the Company shall credit shares of the Company's Common
Stock to the Investor's balance account with The Depository Trust Company
through its Deposit Withdrawal At Custodian system, in an amount equal to the
amount of the requested Advance divided by the closing Bid Price of the
Company's Common Stock as of the Advance Notice Date multiplied by one point one
(1.1). Any adjustments to the number of shares to be delivered to the Investor
at the Closing as a result of fluctuations in the closing Bid Price of the
Company's Common Stock shall be made as of the date of the Closing. Any excess
shares shall be credited to the next Advance. In no event shall the number of
shares issuable to the Investor pursuant to an Advance cause the Investor to own
in excess of nine and 9/10 percent (9.9%) of the then outstanding Common Stock
of the Company.
(d) Hardship. In the event the Investor sells the Company's Common
Stock pursuant to subsection (c) above and the Company fails to perform its
obligations as mandated in Section 2.5 and 2.2 (c), and specifically fails to
provide the Investor with the shares of Common Stock for the applicable Advance,
the Company acknowledges that the Investor shall suffer financial hardship and
therefore shall be liable for any and all losses, commissions, fees, or
financial hardship caused to the Investor.
Section 2.3. Closings. On each Advance Date, which shall be one (1) Trading
Day after an applicable Pricing Period, (i) the Company shall deliver to the
Xxxxx Xxxxxxxx, Esq. (the "Escrow Agent"), shares of the Company's Common Stock,
representing the amount of the Advance by the Investor pursuant to Section 2.1
herein, registered in the name of the Investor which shall be delivered to the
Investor, or otherwise in accordance with the Escrow Agreement and (ii) the
Investor shall deliver to the Escrow Agent the amount of the Advance specified
in the Advance Notice by wire transfer of immediately available funds which
shall be delivered to the Company, or otherwise in accordance with the Escrow
Agreement. In addition, on or prior to the Advance Date, each of the Company and
the Investor shall deliver to the other through the Investor's Counsel all
documents, instruments and writings required to be delivered by either of them
pursuant to this Agreement in order to implement and effect the transactions
contemplated herein. Payment of funds to the Company and delivery of the
Company's Common Stock to the Investor shall occur in accordance with the
conditions set forth above and those contained in the Escrow Agreement;
provided, however, that to the extent the Company has not paid the fees,
expenses, and disbursements of the Investor, and the Investor's counsel, in
accordance with Section 12.4, the amount of such fees, expenses, and
disbursements may be deducted by the Investor (and shall be paid to the relevant
party) from the amount of the Advance with no reduction in the amount of shares
of the Company's Common Stock to be delivered on such Advance Date.
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Section 2.4. Termination of Investment. The obligation of the Investor to
make an Advance to the Company pursuant to this Agreement shall terminate
permanently (including with respect to an Advance Date that has not yet
occurred) in the event that (i) there shall occur any stop order or suspension
of the effectiveness of the Registration Statement for an aggregate of fifty
(50) Trading Days, other than due to the acts of the Investor, during the
Commitment Period, and (ii) the Company shall at any time fail materially to
comply with the requirements of Article VI and such failure is not cured within
thirty (30) days after receipt of written notice from the Investor, provided,
however, that this termination provision shall not apply to any period
commencing upon the filing of a post-effective amendment to such Registration
Statement and ending upon the date on which such post effective amendment is
declared effective by the SEC.
Section 2.5. Agreement to Advance Funds.
(a) The Investor agrees to advance the amount specified in the Advance
Notice to the Company after the completion of each of the following conditions
and the other conditions set forth in this Agreement:
(i) the execution and delivery by the Company, and the Investor, of
this Agreement, and the Exhibits hereto;
(ii) the Company's Common Stock shall have been authorized for
quotation on the Principal Market.
(iii) Investor's Counsel shall have received the shares of Common
Stock applicable to the Advance in accordance with Section 2.2(c) hereof;
(iv) the Company's Registration Statement with respect to the resale
of the Registrable Securities in accordance with the terms of the Registration
Rights Agreement shall have been declared effective by the SEC;
(v) the Company shall have obtained all material permits and
qualifications required by any applicable state for the offer and sale of the
Registrable Securities, or shall have the availability of exemptions therefrom.
The sale and issuance of the Registrable Securities shall be legally permitted
by all laws and regulations to which the Company is subject;
(vi) the Company shall have filed with the Commission in a timely
manner all reports, notices and other documents required of a "reporting
company" under the Exchange Act and applicable Commission regulations;
(vii) the fees as set forth in Section 12.4 below shall have been paid
or can be withheld as provided in Section 2.3;
(viii) the conditions set forth in Section 7.2 shall have been
satisfied;
(ix) The Company shall have provided to the Investor an
acknowledgement, from its certified public accounting firm, Xxxxxxxx &
Asociates, as to its ability to provide all consents required in order to file a
registration statement in connection with this transaction; and
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(x) The Company's transfer agent shall be DWAC eligible.
Section 2.6. Lock Up Period.
(i) Except as provided in the Disclosure Schedule, during the
Commitment Period, the Company shall not issue or sell, without the prior
written consent of the Investor, (i) any Common Stock or Preferred Stock without
consideration or for a consideration per share less than the Bid Price on the
date of issuance or (ii) issue or sell any warrant, option, right, contract,
call, or other security or instrument granting the holder thereof the right to
acquire Common Stock without consideration or for a consideration per share less
than the Bid Price on the date of issuance.
(ii) On the date hereof, the Company shall obtain from each
officer and director a lock-up agreement, as defined below, in the form annexed
hereto as Schedule 2.6 agreeing to only sell in compliance with the volume
limitation of Rule 144.
ARTICLE III.
Representations and Warranties of Investor
Investor hereby represents and warrants to, and agrees with, the Company
that the following are true and as of the date hereof and as of each Advance
Date:
Section 3.1. Organization and Authorization. The Investor is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by such Investor, the performance
by such Investor of its obligations hereunder and the consummation by such
Investor of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investor. The undersigned has
the right, power and authority to execute and deliver this Agreement and all
other instruments (including, without limitations, the Registration Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed and
delivered by the Investor and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligations of the Investor, enforceable against the Investor in accordance with
its terms.
Section 3.2. Evaluation of Risks. The Investor has such knowledge and
experience in financial tax and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk.
Section 3.3. No Legal Advice From the Company. The Investor 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. The Investor 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.
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Section 3.4. Investment Purpose. The securities are being purchased by the
Investor for its own account, for investment and without any view to the
distribution, assignment or resale to others or fractionalization in whole or in
part. The Investor agrees not to assign or in any way transfer the Investor's
rights to the securities or any interest therein and acknowledges that the
Company will not recognize any purported assignment or transfer except in
accordance with applicable Federal and state securities laws. No other person
has or will have a direct or indirect beneficial interest in the securities. The
Investor agrees not to sell, hypothecate or otherwise transfer the Investor's
securities unless the securities are registered under Federal and applicable
state securities laws or unless, in the opinion of counsel satisfactory to the
Company, an exemption from such laws is available.
Section 3.5. Accredited Investor. The Investor is an "Accredited Investor"
as that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.
Section 3.6. Information. The Investor and its advisors (and its counsel),
if any, have been furnished with all materials relating to the business,
finances and operations of the Company and information it deemed material to
making an informed investment decision. The Investor and its advisors, if any,
have been afforded the opportunity to ask questions of the Company and its
management. Neither such inquiries nor any other due diligence investigations
conducted by such Investor or its advisors, if any, or its representatives shall
modify, amend or affect the Investor's right to rely on the Company's
representations and warranties contained in this Agreement. The Investor
understands that its investment involves a high degree of risk. The Investor is
in a position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Investor to
obtain information from the Company in order to evaluate the merits and risks of
this investment. The Investor has sought such accounting, legal and tax advice,
as it has considered necessary to make an informed investment decision with
respect to this transaction.
Section 3.7. Receipt of Documents. The Investor and its counsel has
received and read in their entirety: (i) this Agreement and the Exhibits annexed
hereto; (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants; and
(iii) answers to all questions the Investor submitted to the Company regarding
an investment in the Company; and the Investor has relied on the information
contained therein and has not been furnished any other documents, literature,
memorandum or prospectus.
Section 3.8. Registration Rights Agreement and Escrow Agreement. The
parties have entered into the Registration Rights Agreement and the Escrow
Agreement, each dated the date hereof.
Section 3.9. 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 shares of Common Stock offered hereby.
Section 3.10. Not an Affiliate. The Investor is not an officer, director or
a person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with the Company or any
"Affiliate" of the Company (as that term is defined in Rule 405 of the
Securities Act). Neither the Investor nor its Affiliates has an open short
position in the Common Stock of the Company, and the Investor agrees that it
will not, and that it will cause its Affiliates not to, engage in any short
sales of or hedging transactions with respect to the Common Stock, provided that
the Company acknowledges and agrees that upon receipt of an Advance Notice the
Investor will sell the Shares to be issued to the Investor pursuant to the
Advance Notice, even if the Shares have not been delivered to the Investor.
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Section 3.11. Trading Activities. The Investor's trading activities with
respect to the Company's Common Stock shall be in compliance with all applicable
federal and state securities laws, rules and regulations and the rules and
regulations of the Principal Market on which the Company's Common Stock is
listed or traded. Neither the Investor nor its affiliates has an open short
position in the Common Stock of the Company and, except as set forth below, the
Investor shall not and will cause its affiliates not to engage in any short sale
as defined in any applicable SEC or National Association of Securities Dealers
rules on any hedging transactions with respect to the Common Stock. Without
limiting the foregoing, the Investor agrees not to engage in any short
transactions in excess of the amount of shares owned as a result of advances
made under this Agreement during the Commitment Period. The Investor shall be
entitled to sell Common Stock during the applicable Pricing Period, provided
such sales are not short sales.
Section 3.12. No Investor 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.
ARTICLE IV.
Representations and Warranties of the Company
Except as stated below or on the Disclosure Schedule (the "Disclosure
Schedule") attached hereto as Exhibit "B," the Company hereby represents and
warrants to, and covenants with, the Investor that the following are true and
correct as of the date hereof:
Section 4.1. Organization and Qualification. The Company is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority
corporate power to own its properties and to carry on its 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.
Section 4.2. Authorization, Enforcement, Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Placement Agent Agreement and any related agreements, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Placement Agent Agreement and any related agreements by the Company and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by the Company's Board of Directors and no further consent
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or authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Placement Agent Agreement and any related agreements have
been duly executed and delivered by the Company, and (iv) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Placement Agent
Agreement and assuming the execution and delivery thereof and acceptance by the
Investor 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.
Section 4.3. 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
designated as preferred stock, and of which 16,892,477 shares of Common Stock
are outstanding. 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 hereof, (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 (iii) there are no outstanding registration
statements and (iv) except as set forth in the Disclosure Schedule, 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). There are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by this Agreement or any related agreement or the consummation
of the transactions described herein or therein. The Company has furnished to
the Investor true and correct copies of the Company's Certificate of
Incorporation, as amended and as in effect on the date hereof (the "Certificate
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.
Section 4.4. No Conflict. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation or any certificate of designations of any outstanding series of
preferred stock of the Company or 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
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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
Principal Market on which the Common Stock is quoted) applicable to the Company
or any of its subsidiaries or by which any material property or asset of the
Company or any of its subsidiaries is bound or affected and which would cause a
Material Adverse Effect. 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 Certificate of Incorporation or By-laws or their organizational
charter or by-laws, respectively, or any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its subsidiaries. The business
of the Company and its subsidiaries is not being conducted in violation of any
material law, ordinance, 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. 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 fact or circumstance which might
give rise to any of the foregoing.
Section 4.5. 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 Investor 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.
Section 4.6. No Default. Except as disclosed in the Disclosure Schedule,
the Company is not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it is or its property is bound and neither the execution,
nor the delivery by the Company, nor the performance by the Company of its
obligations under this Agreement or any of the exhibits or attachments hereto
will conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under its
Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of
trust or other material agreement applicable to the Company or instrument to
which the Company is a party or by which it is bound, or any statute, or any
decree, judgment, order, rules or regulation of any court or governmental agency
or body having jurisdiction over the Company or its properties, in each case
which default, lien or charge is likely to cause a Material Adverse Effect on
the Company's business or financial condition.
11
Section 4.7. Absence of Events of Default. Except for matters described in
the Disclosure Schedule and/or this Agreement, no Event of Default, as defined
in the respective agreement to which the Company is a party, and no event which,
with the giving of notice or the passage of time or both, would become an Event
of Default (as so defined), has occurred and is continuing, which would have a
Material Adverse Effect on the Company's business, properties, prospects,
financial condition or results of operations.
Section 4.8. Intellectual Property Rights. The Company and its subsidiaries
own or possess adequate rights or licenses to use all material 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.
Section 4.9. 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.
Section 4.10. Environmental Laws. The Company and its subsidiaries are (i)
in compliance with any and all applicable material 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.
Section 4.11. Title. Except as set forth in the Disclosure Schedule, the
Company has good and marketable title to its properties and material assets
owned by it, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest other than such as are not material to the business
of the Company. 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.
12
Section 4.12. 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.
Section 4.13. 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.
Section 4.14. 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, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Section 4.15. 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.
13
Section 4.16. Absence of Litigation. Except as set forth 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 operation of the Company and its
subsidiaries taken as a whole.
Section 4.17. Subsidiaries. Except as disclosed in the Disclosure Schedule,
the Company does not presently own or control, directly or indirectly, any
interest in any other corporation, partnership, association or other business
entity.
Section 4.18. Tax Status. Except as disclosed in the Disclosure Schedule,
the Company and each of its subsidiaries has made or 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.
Section 4.19. Certain Transactions. Except as set forth in the Disclosure
Schedule, none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
Section 4.20. 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.
Section 4.21. Use of Proceeds. The Company represents that the net proceeds
from this offering will be used for general corporate purposes. However, in no
event shall the net proceeds from this offering be used by the Company for the
payment (or loaned to any such person for the payment) of any judgment, or other
liability, incurred by any executive officer, officer, director or employee of
the Company, except for any liability owed to such person for services rendered,
or if any judgment or other liability is incurred by such person originating
from services rendered to the Company, or the Company has indemnified such
person from liability.
14
Section 4.22. Further Representation and Warranties of the Company. For so
long as any securities issuable hereunder held by the Investor remain
outstanding, the Company acknowledges, represents, warrants and agrees that it
will maintain the listing of its Common Stock on the Principal Market
Section 4.23. Opinion of Counsel. Investor shall receive an opinion letter
from counsel acceptable to the Investor on the date hereof.
Section 4.24. Opinion of Counsel. The Company will obtain for the Investor,
at the Company's expense, any and all opinions of counsel which may be
reasonably required in order to sell the securities issuable hereunder without
restriction.
Section 4.25. Dilution. The Company is aware and acknowledges that issuance
of shares of the Company's Common Stock could cause dilution to existing
shareholders and could significantly increase the outstanding number of shares
of Common Stock.
Section 4.26. The Company acknowledges that the Investor is relying on the
representations and warranties made by the Company hereunder and that such
representations and warranties are a material inducement to the Investor
purchasing the Common Stock. The Company further acknowledges that without such
representations and warranties of the Company made hereunder, the Investor would
not enter into this Agreement.
ARTICLE V.
Indemnification
Section 5.1. Indemnification.
(a) In consideration of the Investor's execution and delivery of this
Agreement, and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Investor, and all of its officers, directors, partners, attorneys, employees and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Investor
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Investor 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 Investor 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 or the
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 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 Investor Indemnitee 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 Investor
Indemnitees. 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.
15
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Investor's other obligations under this
Agreement, the Investor shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, shareholders, attorneys, 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 Company 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 Investor in this Agreement, the Registration Rights
Agreement, or any instrument or document contemplated hereby or thereby executed
by the Investor, (b) any breach of any covenant, agreement or obligation of the
Investor(s) contained in this Agreement, the Registration Rights Agreement or
any other certificate, instrument or document contemplated hereby or thereby
executed by the Investor, or (c) any cause of action, suit or claim brought or
made against such Company Indemnitee based on misrepresentations or due to a
breach by the Investor 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 Company
Indemnitees. To the extent that the foregoing undertaking by the Investor may be
unenforceable for any reason, the Investor shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(c) The obligations of the parties to indemnify or make contribution
under this Section 5.1 shall survive termination.
ARTICLE VI.
Covenants of the Company
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2. Listing of Common Stock. The Company shall obtain and maintain
the Common Stock's authorization for quotation on the National Association of
Securities Dealers Inc.'s Over the Counter Bulletin Board. In its discretion,
the Company may causes its shares to be listed on any NASDAQ market or a
National Securities Exchange.
Section 6.3. Exchange Act Registration. The Company will file in a timely
manner, including any extensions permitted by the Exchange Act, all reports and
other documents required of it as a reporting company under the Exchange Act and
will not take any action or file any document (whether or not permitted by
Exchange Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said
Exchange Act.
16
Section 6.4. Transfer Agent Instructions. Not later than two (2) business
days after each Advance Notice Date and prior to each Closing and resale of the
Common Stock by the Investor, the Company will deliver instructions to its
transfer agent to issue shares of Common Stock free of restrictive legends.
Section 6.5. Corporate Existence. The Company will take all steps necessary
to preserve and continue the corporate existence of the Company.
Section 6.6. Notice of Certain Events Affecting Registration; Suspension of
Right to Make an Advance. The Company will immediately notify the Investor upon
its becoming aware of the occurrence of any of the following events in respect
of a registration statement or related prospectus relating to an offering of
Registrable Securities: (i) receipt of any request for additional information by
the SEC or any other Federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
the registration statement or related prospectus; (ii) the issuance by the SEC
or any other Federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in the Registration Statement or related
prospectus of any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Advance Notice during the
continuation of any of the foregoing events.
Section 6.7. Expectations Regarding Advance Notices. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Advance
Notices. Such notification shall constitute only the Company's good faith
estimate and shall in no way obligate the Company to raise such amount, or any
amount, or otherwise limit its ability to deliver Advance Notices. The failure
by the Company to comply with this provision can be cured by the Company's
notifying the Investor, in writing, at any time as to its reasonable
expectations with respect to the current calendar quarter.
Section 6.8. Restriction on Sale of Capital Stock. Except as provided in
the Disclosure Schedule, during the Commitment Period, the Company shall not
issue or sell, without the prior written consent of the Investor, (i) any Common
Stock or Preferred Stock without consideration or for a consideration per share
less than the bid price of the Common Stock determined immediately prior to its
issuance, (ii) issue or sell any Preferred Stock warrant, option, right,
contract, call, or other security or instrument 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 determined immediately prior to
its issuance, or (iii) file any registration statement on Form S-8.
17
Section 6.9. Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all the assets of the Company to
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.
Section 6.10. Issuance of the Company's Common Stock. The sale of the
shares of Common Stock shall be made in accordance with the provisions and
requirements of Regulation D and any applicable state securities law.
ARTICLE VII.
Conditions for Advance and Conditions to Closing
Section 7.1. Conditions Precedent to the Obligations of the Company. The
obligation hereunder of the Company to issue and sell the shares of Common Stock
to the Investor incident to each Closing is subject to the satisfaction, or
waiver by the Company, at or before each such Closing, of each of the conditions
set forth below.
(a) Accuracy of the Investor's Representations and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects.
(b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement and the Registration Rights Agreement to
be performed, satisfied or complied with by the Investor at or prior to such
Closing.
Section 7.2. Conditions Precedent to the Right of the Company to Deliver an
Advance Notice and the Obligation of the Investor to Purchase Shares of Common
Stock. The right of the Company to deliver an Advance Notice and the obligation
of the Investor hereunder to acquire and pay for shares of the Company's Common
Stock incident to a Closing is subject to the fulfillment by the Company, on (i)
the date of delivery of such Advance Notice and (ii) the applicable Advance Date
(each a "Condition Satisfaction Date"), of each of the following conditions:
(a) Listing of the Company's Common Stock. The Company's Common Stock
shall have been authorized for quotation on the National Association of
Securities Dealers Inc.'s Over the Counter Bulletin Board.
18
(b) Registration of the Common Stock with the SEC. The Company shall
have filed with the SEC a Registration Statement with respect to the resale of
the Registrable Securities in accordance with the terms of the Registration
Rights Agreement. As set forth in the Registration Rights Agreement, the
Registration Statement shall have previously become effective and shall remain
effective on each Condition Satisfaction Date and (i) neither the Company nor
the Investor shall have received notice that the SEC has issued or intends to
issue a stop order with respect to the Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC's concerns have been addressed and the Investor is reasonably
satisfied that the SEC no longer is considering or intends to take such action),
and (ii) no other suspension of the use or withdrawal of the effectiveness of
the Registration Statement or related prospectus shall exist. The Registration
Statement must have been declared effective by the SEC prior to the first
Advance Notice Date.
(c) Authority. The Company shall have obtained all permits and
qualifications required by any applicable state in accordance with the
Registration Rights Agreement for the offer and sale of the shares of Common
Stock, or shall have the availability of exemptions therefrom. The sale and
issuance of the shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.
(d) Fundamental Changes. There shall not exist any fundamental changes
to the information set forth in the Registration Statement which would require
the Company to file a post-effective amendment to the Registration Statement.
(e) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement (including, without limitation, the
conditions specified in Section 2.5 hereof) and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
(f) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced that may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
(g) No Suspension of Trading in or Delisting of Common Stock. The
trading of the Common Stock has commenced on the Principal Market and has not
been suspended by the SEC or the Principal Market. The issuance of shares of
Common Stock with respect to the applicable Closing, if any, shall not violate
the shareholder approval requirements of the Principal Market (if any). The
Company shall not have received any notice threatening the continued listing of
the Common Stock on the Principal Market.
(h) Maximum Advance Amount. The amount of any Advance requested by the
Company shall not exceed the Maximum Advance Amount. In addition, in no event
shall the number of shares issuable to the Investor pursuant to an Advance cause
the Investor to beneficially own in excess of nine and 9/10 percent (9.9%) of
the then outstanding Common Stock of the Company.
19
(i) No Knowledge. The Company shall have no knowledge of any event
which would be more likely than not to have the effect of causing such
Registration Statement to be suspended or otherwise ineffective.
(j) Other. On each Condition Satisfaction Date, the Investor shall
have received the certificate executed by an officer of the Company in the form
of Exhibit A attached hereto.
ARTICLE VIII.
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 8.1. Due Diligence Review. Prior to the filing of the Registration
Statement the Company shall make available for inspection and review by the
Investor, advisors to and representatives of the Investor, any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investor pursuant to the Registration Statement, any such registration statement
or amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to the
Investor, advisors to or representatives of the Investor unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(b) Nothing herein shall require the Company to disclose non-public
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 8.2 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
20
diligence by such persons or entities, that the Registration Statement contains
an untrue statement of material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE IX.
Choice of Law/Jurisdiction
Section 9.1. 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, New Jersey and the United States District
Court of New Jersey, sitting in Newark, New Jersey, for the adjudication of any
civil action asserted pursuant to this paragraph.
ARTICLE X.
Assignment/Termination
Section 10.1. Assignment. Neither this Agreement nor any rights of the
Company hereunder may be assigned to any other Person.
Section 10.2. Termination. The obligations of the Investor to make Advances
under Article II hereof shall terminate twenty-four (24) months after the
Effective Date.
ARTICLE XI.
Notices
Section 11.1. 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 receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(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:
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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 Investor(s): Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx -Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx -Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxx, Esq.
Senior Vice-President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Each party shall provide five (5) days' prior written notice to the other
party of any change in address or facsimile number.
ARTICLE XII.
Miscellaneous
Section 12.1. 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, though failure to deliver such copies shall not affect the
validity of this Agreement.
22
Section 12.2. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Investor, 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 the Investor 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.
Section 12.3. Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
Section 12.4. Fees and Expenses. The Company hereby agrees to pay the
following fees:
(a) Structuring Fees. Each of the parties shall pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or others
engaged by such party) in connection with this Agreement and the transactions
contemplated hereby, except that the Company will pay the Investor the fee of
Fifteen Thousand Dollars ($15,000) for structuring fees associated with this
Agreement. The Company has advanced $10,000 Dollars to the Investor and the
balance shall be paid directly from the gross proceeds of the First Closing, as
such terms are defined in the Securities Purchase Agreement of even date hereof.
This structuring fee shall be deemed fully earned on the date hereof.
Subsequently on each Advance Date, the Company shall pay Yorkville Advisors
Management, LLC a structuring fee of Five Hundred Dollars ($500).
(b) Due Diligence Fees. Upon submission of the due diligence documents
to the Investor, the Company paid to the Investor a non-refundable due diligence
fee of Five Thousand Dollars ($5,000).
(c) Commitment Fees.
(i) On each Advance Date the Company shall pay to the Investor,
directly from the gross proceeds held in escrow, an amount equal to five percent
(5%) of the amount of each Advance. The Company hereby agrees that if such
payment, as is described above, is not made by the Company on the Advance Date,
such payment will be made at the direction of the Investor as outlined and
mandated by Section 2.3 of this Agreement.
(ii) Upon the execution of this Agreement the Company shall issue
to the Investor Five Hundred Forty Thousand (540,000) shares of Common Stock as
a commitment fee (the "Investor's Shares").
(iii) Fully Earned. The Investor's Shares shall be deemed fully
earned as of the date hereof.
(iv) Registration Rights. The Investor's Shares will have
"piggy-back" registration rights.
23
Section 12.5. Brokerage. Except as provided in the Disclosure Schedule,
each of the parties hereto represents that it has had no dealings in connection
with this transaction with any finder or broker who will demand payment of any
fee or commission from the other party. The Company on the one hand, and the
Investor, on the other hand, agree to indemnify the other against and hold the
other harmless from any and all liabilities to any person claiming brokerage
commissions or finder's fees on account of services purported to have been
rendered on behalf of the indemnifying party in connection with this Agreement
or the transactions contemplated hereby.
Section 12.6. Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
24
IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity
Distribution Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
COMPANY:
STRIKEFORCE TECHNOLOGIES, INC.
By:/S/ Xxxx X. Xxx
---------------
Name: Xxxx X. Xxx
Title: CEO
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /S/Xxxx Xxxxxx
-----------------
Name: Xxxx Xxxxxx
Title: Portfolio Manager
25
EXHIBIT A-1
EXHIBIT A
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
STRIKEFORCE TECHNOLOGIES, INC.
The undersigned, _______________________ hereby certifies, with respect to
the sale of shares of Common Stock of StrikeForce Technologies, Inc. (the
"Company"), issuable in connection with this Advance Notice and Compliance
Certificate dated ___________________ (the "Notice"), delivered pursuant to the
Standby Equity Distribution Agreement (the "Agreement"), as follows:
1. The undersigned is the duly elected President or Chief Executive Officer
of the Company.
2. There are no fundamental changes to the information set forth in the
Registration Statement which would require the Company to file a post effective
amendment to the Registration Statement.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Advance Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The undersigned hereby represents, warrants and covenants that it has
made all filings ("SEC Filings") required to be made by it pursuant to
applicable securities laws (including, without limitation, all filings required
under the Securities Exchange Act of 1934, which include Forms 00-X, 00-X, 0-X,
xxx.). All SEC Filings and other public disclosures made by the Company,
including, without limitation, all press releases, analysts meetings and calls,
etc. (collectively, the "Public Disclosures"), have been reviewed and approved
for release by the Company's attorneys and, if containing financial information,
the Company's independent certified public accountants. None of the Company's
Public Disclosures contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
5. The Advance requested is _____________________.
The undersigned has executed this Certificate this ____ day of
_________________.
STRIKEFORCE TECHNOLOGIES, INC.
By:__________________
Name:________________
Title:_______________
26
EXHIBIT B
DISCLOSURE STATEMENT
EXHIBIT B-1
STRIKEFORCE TECHNOLOGIES, INC
The undersigned hereby agrees that for a period commencing on the date
hereof and so long as Cornell Capital Partners, LP (the "Investor"), or any
successors or assignee, is a beneficiary owner of the Buyers Stock pursuant to
thInvestment Agreement between StrikeForce Technologies, Inc. (the "Company")
and the Investor dated December 20, 2004 (the "Initial Lock-up Period"), he, she
or it, or any successors or assignee will not, directly or indirectly, without
the prior written consent of the Investor, issue, offer, agree or offer to sell,
sell, grant an option for the purchase or sale of, transfer, pledge, assign,
hypothecate, distribute or otherwise encumber or dispose of any securities of
the Company, including common stock or options, rights, warrants or other
securities underlying, convertible into, exchangeable or exercisable for or
evidencing any right to purchase or subscribe for any common stock (whether or
not beneficially owned by the undersigned), or any beneficial interest therein
(collectively, the "Securities").
In addition, the undersigned hereby agrees that for a period commencing on
the termination of the Initial Lock-up Period and expiring on the termination of
the Standby Equity Distribution Agreement dated November __, 2004 between the
Company and the Investor (the "Lock-up Period"), he, she or it will not,
directly or indirectly, without the prior written consent of the Investor,
issue, offer, agree or offer to sell, sell, grant an option for the purchase or
sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber
or dispose of except pursuant to Rule 144 of the General Rules and Regulations
under the Securities Act of 1933, any Securities. In order to enable the
aforesaid covenants to be enforced, the undersigned hereby consents to the
placing of legends and/or stop-transfer orders with the transfer agent of the
Company's securities with respect to any of the Securities registered in the
name of the undersigned or beneficially owned by the undersigned.
Dated: December 20, 2004
Signature
Address:____________________________
City, State, Zip Code:______________
____________________________________
Print Social Security Number
or Taxpayer I.D. Number
STRIKEFORCE TECHNOLOGIES, INC
The undersigned hereby agrees that for a period commencing on the date
hereof and so long as Cornell Capital Partners, LP (the "Investor"), or any
successors or assignee, is a beneficiary owner of the Buyers Stock pursuant to
thInvestment Agreement between StrikeForce Technologies, Inc. (the "Company")
and the Investor dated December 20, 2004 (the "Initial Lock-up Period"), he, she
or it, or any successors or assignee will not, directly or indirectly, without
the prior written consent of the Investor, issue, offer, agree or offer to sell,
sell, grant an option for the purchase or sale of, transfer, pledge, assign,
hypothecate, distribute or otherwise encumber or dispose of any securities of
the Company, including common stock or options, rights, warrants or other
securities underlying, convertible into, exchangeable or exercisable for or
evidencing any right to purchase or subscribe for any common stock (whether or
not beneficially owned by the undersigned), or any beneficial interest therein
(collectively, the "Securities").
In addition, the undersigned hereby agrees that for a period commencing on
the termination of the Initial Lock-up Period and expiring on the termination of
the Standby Equity Distribution Agreement dated November __, 2004 between the
Company and the Investor (the "Lock-up Period"), he, she or it will not,
directly or indirectly, without the prior written consent of the Investor,
issue, offer, agree or offer to sell, sell, grant an option for the purchase or
sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber
or dispose of except pursuant to Rule 144 of the General Rules and Regulations
under the Securities Act of 1933, any Securities. In order to enable the
aforesaid covenants to be enforced, the undersigned hereby consents to the
placing of legends and/or stop-transfer orders with the transfer agent of the
Company's securities with respect to any of the Securities registered in the
name of the undersigned or beneficially owned by the undersigned.
Dated: December 20, 2004
Signature
Address:____________________________
City, State, Zip Code:______________
____________________________________
Print Social Security Number
or Taxpayer I.D. Number
STRIKEFORCE TECHNOLOGIES, INC
The undersigned hereby agrees that for a period commencing on the date
hereof and so long as Cornell Capital Partners, LP (the "Investor"), or any
successors or assignee, is a beneficiary owner of the Buyers Stock pursuant to
thInvestment Agreement between StrikeForce Technologies, Inc. (the "Company")
and the Investor dated December 20, 2004 (the "Initial Lock-up Period"), he, she
or it, or any successors or assignee will not, directly or indirectly, without
the prior written consent of the Investor, issue, offer, agree or offer to sell,
sell, grant an option for the purchase or sale of, transfer, pledge, assign,
hypothecate, distribute or otherwise encumber or dispose of any securities of
the Company, including common stock or options, rights, warrants or other
securities underlying, convertible into, exchangeable or exercisable for or
evidencing any right to purchase or subscribe for any common stock (whether or
not beneficially owned by the undersigned), or any beneficial interest therein
(collectively, the "Securities").
In addition, the undersigned hereby agrees that for a period commencing on
the termination of the Initial Lock-up Period and expiring on the termination of
the Standby Equity Distribution Agreement dated November __, 2004 between the
Company and the Investor (the "Lock-up Period"), he, she or it will not,
directly or indirectly, without the prior written consent of the Investor,
issue, offer, agree or offer to sell, sell, grant an option for the purchase or
sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber
or dispose of except pursuant to Rule 144 of the General Rules and Regulations
under the Securities Act of 1933, any Securities. In order to enable the
aforesaid covenants to be enforced, the undersigned hereby consents to the
placing of legends and/or stop-transfer orders with the transfer agent of the
Company's securities with respect to any of the Securities registered in the
name of the undersigned or beneficially owned by the undersigned.
Dated: December 20, 2004
Signature
Address:____________________________
City, State, Zip Code:______________
____________________________________
Print Social Security Number
or Taxpayer I.D. Number
STRIKEFORCE TECHNOLOGIES, INC
The undersigned hereby agrees that for a period commencing on the date
hereof and so long as Cornell Capital Partners, LP (the "Investor"), or any
successors or assignee, is a beneficiary owner of the Buyers Stock pursuant to
thInvestment Agreement between StrikeForce Technologies, Inc. (the "Company")
and the Investor dated December 20, 2004 (the "Initial Lock-up Period"), he, she
or it, or any successors or assignee will not, directly or indirectly, without
the prior written consent of the Investor, issue, offer, agree or offer to sell,
sell, grant an option for the purchase or sale of, transfer, pledge, assign,
hypothecate, distribute or otherwise encumber or dispose of any securities of
the Company, including common stock or options, rights, warrants or other
securities underlying, convertible into, exchangeable or exercisable for or
evidencing any right to purchase or subscribe for any common stock (whether or
not beneficially owned by the undersigned), or any beneficial interest therein
(collectively, the "Securities").
In addition, the undersigned hereby agrees that for a period commencing on
the termination of the Initial Lock-up Period and expiring on the termination of
the Standby Equity Distribution Agreement dated November __, 2004 between the
Company and the Investor (the "Lock-up Period"), he, she or it will not,
directly or indirectly, without the prior written consent of the Investor,
issue, offer, agree or offer to sell, sell, grant an option for the purchase or
sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber
or dispose of except pursuant to Rule 144 of the General Rules and Regulations
under the Securities Act of 1933, any Securities. In order to enable the
aforesaid covenants to be enforced, the undersigned hereby consents to the
placing of legends and/or stop-transfer orders with the transfer agent of the
Company's securities with respect to any of the Securities registered in the
name of the undersigned or beneficially owned by the undersigned.
Dated: December 20, 2004
Signature
Address:____________________________
City, State, Zip Code:______________
____________________________________
Print Social Security Number
or Taxpayer I.D. Number
STRIKEFORCE TECHNOLOGIES, INC
The undersigned hereby agrees that for a period commencing on the date
hereof and so long as Cornell Capital Partners, LP (the "Investor"), or any
successors or assignee, is a beneficiary owner of the Buyers Stock pursuant to
thInvestment Agreement between StrikeForce Technologies, Inc. (the "Company")
and the Investor dated December 20, 2004 (the "Initial Lock-up Period"), he, she
or it, or any successors or assignee will not, directly or indirectly, without
the prior written consent of the Investor, issue, offer, agree or offer to sell,
sell, grant an option for the purchase or sale of, transfer, pledge, assign,
hypothecate, distribute or otherwise encumber or dispose of any securities of
the Company, including common stock or options, rights, warrants or other
securities underlying, convertible into, exchangeable or exercisable for or
evidencing any right to purchase or subscribe for any common stock (whether or
not beneficially owned by the undersigned), or any beneficial interest therein
(collectively, the "Securities").
In addition, the undersigned hereby agrees that for a period commencing on
the termination of the Initial Lock-up Period and expiring on the termination of
the Standby Equity Distribution Agreement dated November __, 2004 between the
Company and the Investor (the "Lock-up Period"), he, she or it will not,
directly or indirectly, without the prior written consent of the Investor,
issue, offer, agree or offer to sell, sell, grant an option for the purchase or
sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber
or dispose of except pursuant to Rule 144 of the General Rules and Regulations
under the Securities Act of 1933, any Securities. In order to enable the
aforesaid covenants to be enforced, the undersigned hereby consents to the
placing of legends and/or stop-transfer orders with the transfer agent of the
Company's securities with respect to any of the Securities registered in the
name of the undersigned or beneficially owned by the undersigned.
Dated: December 20, 2004
Signature
Address:____________________________
City, State, Zip Code:______________
____________________________________
Print Social Security Number
or Taxpayer I.D. Number
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
DISCLOSURE SCHEDULE
This Disclosure and Exception Schedule is made and given pursuant to Articles 4
and 6 of that certain Standby Equity Distribution Agreement ("SEDA") dated
December --, 2004 by and among StrikeForce Technologies, Inc. and Cornell
Capital Partners, LP (the "Investor"). The section numbers in this Schedule
correspond to the section numbers in the SEDA; however, any information
disclosed herein under any section number shall be deemed to be disclosed and
incorporated into any other section number under the SEDA where such disclosure
would otherwise be appropriate. Any terms defined in the SEDA 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 Investor 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
Investor.
Section 1.6. Lock Up Period.
(i) The Company may issues stock or preferred stock for no
consideration or a consideration per share less than the Bid
Price on the date of issuance to employees, officers, directors
or consultants pursuant to an option or employee stock ownership
plan approved by the board of directors, an employee stock
ownership plan or as compensation for services; provided that in
no event shall the shares a) to be issued on conversion of
options and b) the shares issued pursuant to an employee stock
ownership plan or as compensation exceed 10 percent of the issued
common stock of the Company.
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 share.
1
-----------------------------------------------------------------------------
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 may issue common stock to consultants at such
discount as the Company deems reasonable and necessary, giving
due consideration to market conditions and liquidity, to permit
the consultant to realize the agreed upon amount for the services
rendered
(ii) The Company may issue options pursuant to its Stock Option
Program and Plan for no consideration or a consideration per
share less than the Bid Price on the date of issuance subject to
the limitation that the shares a) to be issued on conversion of
options and b) the shares issued pursuant to an employee stock
ownership plan or as compensationshall not exceed 10 percent of
the issued common stock of the Company.
The Company has issued options to Xxxxxxx.xxx, Inc. in exchange
for the waiver of royalty payments that were to be made under an
asset purchase agreement whereby StrikeForce Technologies, Inc.
acquired certain assets and liabilities of Netlabs.
------------------ -------------- ------------- --------------- --------------
Number of Options Granted Date Vesting Date Expiration Date Exercise Price
------------------ -------------- ------------- --------------- --------------
2,530,000 As of Immediate August 31, 2013 $0.36
September 11,
2003
------------------ -------------- ------------- --------------- -------------
2,530,000 As of December 1, August 31, 2013 $0.36
September 11, 2005
2003
------------------ -------------- ------------- --------------- -------------
2,540,000 As of December 1, August 31, 2013 $0.36
September 11, 2006
2003
------------------ -------------- ------------- --------------- --------------
2
Section 4.3. Capitalization
(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 or directors of the Company. The Company may
further issue share of common stock to consultants.
Notwithstanding the foregoing, the Company shall not issue common
stock or options to its employees, officers, directors or
consultants in an amount exceeding ten (10) percent of the issued
common stock of the Company.
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.
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(ii) The Company has issued certain debt securities noted under (i), above.
(iv) 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 the existing
shareholders of the Company are listed on Schedule I hereto.
Section 4.17. Subsidiaries.
The Company owns the following subsidiaries: StrikeForce, Inc., a
Delaware corporation. The Company intends to reincorporate under
Delaware law by merging with and into StrikeForce, Inc., a
Delaware corporation.
Section 6.8 Restriction on Sale of 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 awards of common stock to
employees, officers, directors or consultants as compensation or
incentive awards;
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.
(ii) 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.
(iii)The Company may, subject to other applicable limitations, permit
the registration of options or common stock issued to employees
or consultants on Form S-8.
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Section 6.9. Consolidation; Merger
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 Investor in
connection with the issuance of the SEDA. The Company may
authorize "blank-check" preferred stock not to exceed 10,000,000
shares that shall be subject to the rights and preferences as the
Company's board of directors may later determine. The Company
shall not file a Certificate of Designation without the written
consent of Cornell Capital Partners, LLP, which consent shall not
be unreasonably withheld