FORBEARANCE AGREEMENT
FORBEARANCE
AGREEMENT,
dated of
as February 7, 2008, by and between WHERIFY
WIRELESS, INC.,
(“Wherify”),
WHERIFY
CALIFORNIA, INC.
(“Wherify
California”)
YA GLOBAL
INVESTMENTS, L.P.
(formerly, CORNELL CAPITAL PARTNERS, LP) (“YA
Global”).
All
capitalized terms used herein shall have the respective meanings assigned
thereto in the Transaction Documents (as defined below) unless otherwise defined
herein.
W
I T N E S S E T H:
WHEREAS,
Wherify,
Wherify California, and YA Global have entered into certain financing
arrangements set forth on Schedule
A
attached
hereto and referred to herein as the “Transaction
Documents”
pursuant to which, YA Global is the holder of the following secured convertible
debentures (collectively, the “Debentures”)
issued
by Wherify:
Debenture
Description
|
Principal
Outstanding
|
Accrued
and Unpaid Interest
|
Secured
Convertible Debenture
(no.
CCP-1) issued on March 10,
2006
in the original principal
amount
of $2,500,000
|
$2,375,0001
|
$255,377.56
|
Secured
Convertible Debenture
(no.
CCP-2) issued on March 14,
2006
in the original principal
amount
of $2,600,000
|
$2,500,000
|
$353,356.16
|
The
amounts referenced in this chart above are as of February 6, 2008 and do not
include any additional costs, charges, expenses, or liquidated damages.
WHEREAS,
Wherify
has breached the terms of the Transaction Documents as set forth in the notice
of default dated February 1, 2008 (the “Existing
Defaults”)
a copy
of which is attached hereto as Exhibit A.
WHEREAS,
Wherify
has requested that YA Global forbear from exercising its rights as a result
of
the Existing Defaults, which are continuing, and agree not to convert the
Debentures, before March 6 2008; and
WHEREAS,
YA
Global are willing to agree to forbear from exercising certain of its rights
and
remedies and agree not to convert the Debentures before March 6, 2008 on the
terms and conditions specified herein;
NOW,
THEREFORE,
in
consideration of the foregoing, and the respective agreements, warranties and
covenants contained herein, the parties hereto agree, covenant and warrant
as
follows:
1
This
does not include any deduction of principal for the $30,000 conversion notice
dated January 18, 2008.
1. |
ACKNOWLEDGMENTS.
|
a. |
Acknowledgement
of Obligations.
Wherify and Wherify California hereby acknowledge, confirm and agree
that
as of the date hereof, Wherify is indebted to YA Global under the
Debentures and the Transaction Documents in the outstanding principal
amount plus accrued and unpaid interest thereon set forth in the
first
Whereas clause above. In addition to the principal and interest set
forth
herein, all interest accrued and accruing hereafter and all liquidated
damaged, fees, costs, expenses and other charges now or hereafter
payable
by Wherify or Wherify California to YA Global under the Transaction
Documents (collectively, the “Obligations”),
are unconditionally owing by Wherify to YA Global, without offset,
defense
or counterclaim of any kind, nature or description
whatsoever.
|
b. |
Acknowledgement
of Security Interests.
Wherify hereby acknowledges, confirms and agrees that YA Global has
and
shall continue to have valid, enforceable and perfected first-priority
liens upon and security interests in the Pledged Property heretofore
granted to YA Global pursuant to the Security Agreement between Wherify
and YA Global dated March 10, 2006, in the Pledged Shares heretofore
granted to YA Global pursuant to the Pledge and Escrow Agreement
among
Wherify, Xxxxx Xxxxxxxx, Esq. and YA Global dated March 10, 2006,
or
otherwise granted to or held by YA Global. Wherify California, Inc.
hereby
acknowledges, confirms and agrees that YA Global has and shall continue
to
have valid, enforceable and perfected first-priority liens upon and
security interests in the Pledged Property heretofore granted to
YA Global
pursuant to the Security Agreement between Wherify California, Inc.
and YA
Global dated March 10, 2006 or otherwise granted to or held by the
YA
Global.
|
c. |
Binding
Effect of Documents.
Wherify and Wherify California hereto acknowledge, confirm and agree
that:
(a) each of the Transaction Documents to which it is a party has been
duly executed and delivered to YA Global by Wherify or Wherify California,
and each is in full force and effect as of the date hereof, (b) the
agreements and obligations of Wherify or Wherify California contained
in
such documents and in this Agreement constitute the legal, valid
and
binding obligations of Wherify and Wherify California, enforceable
against
each in accordance with their respective terms, and Wherify and Wherify
California have no valid defense to the enforcement of such obligations,
and (c) YA Global is and shall be entitled to the rights, remedies
and benefits provided for in the Transaction Documents and applicable
law,
without setoff, defense or counterclaim of any kind, nature or
descriptions whatsoever.
|
2. |
FORBEARANCE
IN RESPECT OF CERTAIN EVENTS OF
DEFAULT.
|
2
a. |
Acknowledgement
of Default.
Wherify and Wherify California hereby acknowledge and agree that
the
Existing Defaults have occurred and are continuing, and each constitutes
an Event of Default and entitles YA Global to exercise their rights
and
remedies under the Transaction Documents, applicable law or otherwise.
Wherify further represents and warrants that as of the date hereof
no
other Event of Default under the Transaction Documents exist. YA
Global
has not waived, presently do not intend to waive and may never waive
such
Existing Defaults and nothing contained herein or the transactions
contemplated hereby shall be deemed to constitute any such waiver.
Wherify
hereby acknowledges and agrees that YA Global have the presently
exercisable right to declare the Obligations to be immediately due
and
payable under the terms of the Transaction
Documents.
|
b. |
Forbearance.
|
i. |
In
reliance upon the representations, warranties and covenants of Wherify
and
Wherify California contained in this Agreement, and subject to the
terms
and conditions of this Agreement and any documents or instruments
executed
in connection herewith, YA Global agrees to forbear from exercising
its
rights and remedies under the Transaction Documents or applicable
law in
respect of or arising out of the Existing Defaults, subject to the
conditions, amendments and modifications contained herein for the
period
(the “Forbearance
Period”)
commencing on the date hereof and ending on March 6, 2008, so long
as the
following conditions are met: (i) Wherify strictly complies with
the terms
of this Agreement, and (ii) there is no occurrence or existence of any
Event of Default, other than the Existing
Defaults.
|
ii. |
Upon
the termination or expiration of the Forbearance Period, the agreement
of
YA Global to forbear shall automatically and without further action
terminate and be of no force and effect, it being expressly agreed
that
the effect of such termination will be to permit YA Global to exercise
such rights and remedies immediately, including, but not limited
to, the
acceleration of all of the Obligations without any further notice,
passage
of time or forbearance of any kind. This Agreement shall be deemed
to
satisfy any and all requirements by YA Global to notify Wherify and
Wherify California of the occurrence of the Existing Defaults and
satisfies any obligation by YA Global to give Wherify or Wherify
California an opportunity to cure the Existing Defaults.
|
c. |
No
Other Waivers; Reservation of Rights.
|
i. |
YA
Global has not waived, is not by this Agreement waiving, and has
no
intentions of waiving, any Events of Default which may be continuing
on
the date hereof or any Events of Default which may occur after the
date
hereof (whether the same or similar to the Existing Defaults or
otherwise), and YA Global has not agreed to forbear with respect
to any of
its rights or remedies concerning any Events of Default (other than,
during the Forbearance Period, the Existing Defaults to the extent
expressly set forth herein), which may have occurred or are continuing
as
of the date hereof or which may occur after the date
hereof.
|
3
ii. |
Subject
to Section 2(b) above (solely with respect to the Existing Defaults),
YA Global reserves the right, in its discretion, to exercise any
or all of
its rights and remedies under the Transaction Documents as a result
of any
Events of Default which may be continuing on the date hereof or any
Event
of Default which may occur after the date hereof, and YA Global has
not
waived any of such rights or remedies, and nothing in this Agreement,
and
no delay on its part in exercising any such rights or remedies, should
be
construed as a waiver of any such rights or
remedies.
|
3. |
COVENANTS
OF WHERIFY AND WHERIFY
CALIFORNIA
|
a. |
DEFAULT
CONVERSION PRICE.
From and after the date hereof, the Default Conversion Price as set
forth
in the Debentures shall be equal to the lesser of (a) the Fixed Conversion
Price, or (b) seventy percent (70%) of the lowest Closing Bid Price
of the
Common Stock as quoted by Bloomberg, LP during the fifteen (15) trading
days immediately preceding the Conversion Date.
|
b. |
CONVERSION
LIMITATION.
YA Global agrees that for the 30 day period beginning on the date
hereof,
it shall not convert in excess of $80,000 under the Debentures while
the
market price of the Common Stock is less than 12 cents. YA further
agrees
that following the expiration of the first 30 day period, it will
not
convert in excess of $120,000 under the Debentures in each of the
next two
30 day periods while the market price of the Common Stock is less
than 12
cents. There shall be no conversion limitations while the market
price is
greater than 12 cents.
|
c. |
FURTHER
ASSURANCES.
Wherify and Wherify California shall, from and after the execution
of this
Agreement, execute and deliver to YA Global whatever additional documents,
instruments, and agreements that YA Global may require in order to
correct
any document deficiencies, or to vest or perfect the Transaction
Documents
and the collateral granted therein more securely in YA Global and/or
to
otherwise give effect to the terms and conditions of this Agreement,
and
hereby authorize YA Global to file any financing statements (including
financing statements with a generic description of the collateral
such as
“all assets”), and take any other normal and customary steps, YA Global
deems necessary to perfect or evidence YA Global’s security interests and
liens in any such collateral.
|
d. |
NON-INTERFERENCE.
From and after the termination of the Forbearance Period, Wherify
and
Wherify California agree not to interfere with the exercise by YA
Global
of any of its rights and remedies. Wherify and Wherify California
further agree that they shall not seek to distrain or otherwise hinder,
delay, or impair YA Global’s efforts to realize upon any collateral
granted to YA Global, or otherwise to enforce its rights and remedies
pursuant to the Transaction Documents. The provisions of this
Paragraph shall be specifically enforceable by YA
Global.
|
e. |
CROSS
DEFAULT.
Wherify and Wherify California hereby acknowledge and agree that
any
default or Event of Default under this Agreement or under any Transaction
Document shall constitute an Event of Default under each other Transaction
Document.
|
4
4. |
RELEASE.
In
exchange for the accommodations made by YA Global herein, Wherify
and
Wherify California do hereby, on behalf of themselves and their agents,
representatives, attorneys, assigns, heirs, subsidiaries, executors
and
administrators (collectively, “Company Parties”) RELEASE AND FOREVER
DISCHARGE YA Global and its subsidiaries and its respective affiliates,
parents, joint ventures, officers, directors, shareholders, interest
holders, members, managers, employees, consultants, representatives,
successors and assigns, heirs, executors and administrators (collectively,
“Buyer Parties”) from all causes of action, suits, debts, claims and
demands whatsoever known or unknown, at law, in equity or otherwise,
which
the Company Parties ever had, now has, or hereafter may have on or
prior
to the date hereof, and any claims for reasonable attorneys’ fees and
costs, and including, without limitation, any claims relating to
fees,
penalties, liquidated damages, and indemnification for losses, liabilities
and expenses. The release contained in this Section is effective
without
regard to the legal nature of the claims raised and without regard
to
whether any such claims are based upon tort, equity, or implied or
express
contract. It is expressly understood and agreed that this release
shall
operate as a clear and unequivocal waiver by the Company Parties
of any
such claim whatsoever.
|
5. |
PROVISIONS
OF GENERAL APPLICATION
|
a. |
Correction.
The parties hereto agree that the reference to the date October 2,
2007 in
the first sentence of the notice of default attached hereto as Exhibit
A
was an error and should be December 12, 2007.
|
b. |
Effect
of this Agreement.
Except as modified pursuant hereto, no other changes or modifications
to
the Transaction Documents are intended or implied and in all other
respects the Transaction Documents are hereby specifically ratified,
restated and confirmed by all parties hereto as of the effective
date
hereof. To the extent of conflict between the terms of this Agreement
and
the other Transaction Documents, the terms of this Agreement shall
control. The Transaction Documents and this Agreement shall be read
and
construed as one agreement.
|
c. |
Governing
Law.
This Agreement shall be interpreted according to the laws of the
State of
New Jersey and shall inure to the benefit of and be binding upon
the
parties hereto and their respective successors and assigns. Any notices,
demands, consents, other writings or communications permitted or
required
by this Agreement shall be given in the manner and to the address
as set
forth in the Transaction Documents.
|
d. |
Mutual
Waiver of Jury Trial.
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS
ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT
PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO
APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES
BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE
THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY
IN ANY
ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
ARISING
IN CONTRACT, TORT OR OTHERWISE BETWEEN FACTOR AND CLIENT ARISING
OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER
FACTORING DOCUMENTS OR THE TRANSACTIONS RELATED
THERETO.
|
[SIGNATURE
PAGE IMMEDIATELY TO FOLLOW
5
IN
WITNESS WHEREOF,
this
Agreement is executed and delivered as of the day and year first above
written.
WHERIFY
WIRELESS, INC.
|
|
By:
|
|
Name:
|
|
Title: Chief
Executive Officer
|
|
WHERIFY
CALIFORNIA, INC.
|
|
By:
|
|
Name:
|
|
Title:
|
|
YA
GLOBAL INVESTMENTS, L.P.
|
|
By:
Yorkville
Advisors, LLC
|
|
Its:
Investment
Manager
|
|
By:
|
|
Name:
|
|
Title:
|
6
SCHEDULE
A
TRANSACTION
DOCUMENTS
Securities
Purchase Agreement dated March 10, 2006 between Wherify and YA Global.
Debenture
No.CCP-1 issued to YA Global on March 10, 2006 in the original principal amount
of $2,500,000.
Debenture
No.CCP-2 issued to YA Global on March 14, 2006 in the original principal amount
of $2,500,000.
Warrant
No.CCP-001a issued to YA Global on March 10, 2006 to purchase 7,000,000 shares
of common stock.
Investor
Registration Rights Agreement dated March 10, 2006 between Wherify and YA
Global.
Security
Agreement dated March 10, 2006 between Wherify and YA Global.
Security
Agreement dated March 10, 2006 between Wherify California and YA Global.
Pledge
and Escrow Agreement dated March 10, 2006 among Wherify, Xxxxx Xxxxxxxx, and
YA
Global.
Irrevocable
Transfer Agent Instructions dated March 10, 2006 among Wherify, Xxxxx Xxxxxxxx,
American Stock Transfer and Trust, and YA Global.
Letter
Agreement dated November 3, 2006 between YA Global and Wherify regarding the
Debentures and Warrants.
Letter
Agreement dated April 21, 2006 between YA Global and Wherify regarding
amendments to the Debentures.
Letter
Agreement dated February 2, 2007 between YA Global and Wherify concerning
certain amendments.
7
EXHIBIT
A
DEFAULT
NOTICE
8