UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
New Jersey 541511 22-3827597
------------------------------ ----------------------------- -------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
|
Copies to:
Richard A. Friedman, Esq.
Eric A. Pinero, Esq.
Sichenzia Ross Friedman Ference, LLP
1065 Avenue of the Americas, 21st Floor
New York, NY 10018
Approximate date of proposed sale to public: From time to time after the
effective date of this registration statement.
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.[ ]
CALCULATION OF REGISTRATION FEE
Proposed
Maximum
Offering
Price Proposed Maximum
Title of Each Class of Amount to be Per Share Aggregate Amount of
Securities to be Registered Registered (1) Offering Price Registration Fee
---------------------------------------------------------------------------------------------------------------------------
Common Shares, $.0001 par value (2) 15,340,972 0.72 $11,045,500 $1,300.06
Common Shares, $.0001 par value (3) 12,644,842 0.72 $9,104,286 $1,071.87
---------------------------------------------------------------------------------------------------------------------------
Total 27,985,814 $20,149,786 $2,371.93
---------------------------------------------------------------------------------------------------------------------------
|
(1) Estimated solely for the purpose of calculating the registration fee required by Section 6(B) of the Securities Act and computed pursuant to Rule 457 under the Securities Act.
(2) Represents (i) shares of common stock underlying secured convertible debentures issued pursuant to the December 2004 and April 2005 Securities Purchase Agreements; and (ii) 150,000 shares of common stock, par value $.0001 per share, that was issued to Highgate House Funds, Ltd. pursuant to the April 2005 Securities Purchase Agreement. In addition to the shares set forth in the table, the amount to be registered includes an indeterminate number of shares issuable upon conversion of the secured debentures; as such number may be adjusted as a result of stock splits, stock dividends and similar transactions in accordance with Rule 416. The number of shares of common stock registered hereunder represents a good faith estimate by us of the number of shares of common stock issuable upon conversion of the secured debentures. For purposes of estimating the number of shares of common stock to be included in this registration statement, we calculated a good faith estimate of the number of shares of our common stock that we believe will be issuable upon conversion of the secured debentures to account for market fluctuations. Should the conversion ratio result in our having insufficient shares, we will not rely upon Rule 416, but will file a new registration statement to cover the resale of such additional shares should that become necessary. In addition, should a decrease in the exercise price as a result of an issuance or sale of shares below the then current market price, result in our having insufficient shares, we will not rely upon Rule 416, but will file a new registration statement to cover the resale of such additional shares should that become necessary.
(3) Represents the number of prior outstanding shares of common stock to be registered held by existing shareholders of our company. No exchange or over the counter market exists for our common stock. The most recent price paid for our common stock in a private placement was $0.72.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED May 11, 2005
STRIKEFORCE TECHNOLOGIES, INC.
27,985,814 Shares of Common Stock
This prospectus relates to the sale of 27,985,814 shares of our common stock, including up to 15,190,972 shares of common stock underlying secured convertible debentures in the aggregate amount of $1,750,000, including an aggregate of $1,000,000 principal amount secured debentures issued to Cornell Capital Partners, LP and an aggregate of $750,000 principal amount secured debentures issued to Highgate House Funds, Ltd. An additional 150,000 shares of common stock was issued to Highgate House Funds, Ltd. in April 2005 with respect to the Financing Shares, as defined herein the Selling Stockholder Table on page 19. The secured convertible debentures are convertible into our common stock at the lower of 120% of the average closing bid price at which the stock is first listed for quotation on the Over-the-Counter Bulletin Board or 80% of the lowest closing bid price during the five days preceding the conversion date. In addition, this prospectus also relates to the sale of 12,644,842 shares of our common stock held by our existing Shareholders with respect to the Holders Shares, as defined in the Selling Stockholder Table on page 16. This is the initial registration of shares of our common stock. The selling stockholders may sell shares from time to time at $.72 per share. Our common stock is not traded on any national securities exchange and is not quoted on any over-the-counter market. If our shares become quoted on the Over-The-Counter Bulletin Board, sales will be made at prevailing market prices or privately negotiated prices.
We will not receive any proceeds from any sales made by the selling stockholders. We have paid the expenses of preparing this prospectus and the related registration expenses.
The Securities offered hereby involve a high degree of risk.
See "Risk Factors" beginning on page 7.
We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
Page
Prospectus Summary..................................................... 4
Description of Securities Being Registered............................. 5
Risk Factors........................................................... 7
Use Of Proceeds........................................................ 15
Determination of Offering Price........................................ 15
Selling Shareholders................................................... 16
Plan Of Distribution................................................... 22
Directors, Executive Officers and Control Persons...................... 23
Security Ownership Of Certain Beneficial Owners
And Management...................................................... 25
Description Of Securities.............................................. 26
Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 27
Recent Accounting Pronouncements....................................... 31
Business............................................................... 36
Description of Property................................................ 41
Certain Relationships And Related Transactions......................... 41
Market for Common Equity and Related
Stockholder Matters................................................. 43
Executive Compensation................................................. 45
Change in and Disagreements with Accountants
On Accounting & Financial Matters................................... 46
Indemnification of Directors and Officers.............................. 47
Where You Can Find More Information.................................... 47
Legal Matters.......................................................... 47
Experts................................................................ 47
Index To Financial Statements.......................................... F-1
|
You should rely only on the information contained in this prospectus to make your investment decision. We have not authorized anyone to provide you with different information. The selling security holders are not offering these securities in any state where the offer is not permitted. The information in this prospectus is accurate as of the date on the front page of this prospectus, but the information may have changed since that date.
All dealers that effect transactions in these securities whether or not participating in this offering may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
SUMMARY INFORMATION
The following summary highlights selected information contained in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectus carefully, including the "Risk Factors" section, the financial statements and the notes to the financial statements.
The Company
StrikeForce Technologies, Inc. ("StrikeForce" or "SFT") is a corporation that was organized under the laws of the State of New Jersey on August 24, 2001. On December 10, 2002, memorialized on September 11, 2003, we acquired all of the intellectual property of NetLabs.com, Inc., including the rights to develop and sell their principal products.
We are a development stage business and have had nominal revenues since our formation. There is currently no public market for our common stock. Subsequent to this offering, we hope to have our common stock approved for quotation on the Over-The-Counter Bulletin Board.
We have incurred losses since our inception and we expect to incur losses for the foreseeable future. For the year ended December 31, 2004 and the year ended December 31, 2003 we incurred net losses of $2,993,529 and $800,717, respectively. As of December 31, 2004, we had an accumulated deficit of $4,004,237. These conditions raise substantial doubt about our ability to continue as a going concern and our public accounting firm has qualified its opinion as to our financial statements for this reason. We are likely to continue to incur such losses in the foreseeable future and to require additional funding in order to sustain our operations.
Our executive offices are located at 1090 King Georges Post Road, Suite 108, Edison, NJ 08837. Our telephone number is (732) 661-9641. We have 16 employees. Our Company's website is www.sftnj.com.
Our Products
StrikeForce is a software development and services company. We own and are seeking to commercially exploit various identification protection software products that were developed to protect computer networks from unauthorized access and to protect network owners and users from identity theft. Our principal product, ProtectID(TM), is a proprietary authentication technology that is intended to eliminate unauthorized access to computer networks at a reasonable cost to our customers. We are seeking to develop a market for our suite of products in the eCommerce, corporate and government area's. Our products are the subject of various pending patent applications.
o ProtectID(TM) is an authentication platform that uses "Out-of-Band" procedures to authenticate computer network users by a variety of methods including traditional passwords combined with a telephone, PDA or multiple computer secure sessions, biometric identification or encrypted devices such as tokens or smartcards. The authentication procedure separates authentication information such as usernames and passwords or biometric information, which are then provided to the network's host server on separate channels.
o VerifyID(TM) is a software application that verifies the identity of an end user or applicant by asking a series of questions based on publicly available information, e.g., prior addresses or motor vehicles that are unlikely to be known by anyone other than the "true" user.
o TrustedID(TM) is a development-stage software application intended to provide greater security by validating the authenticity of any computer trying to log-in to an enterprise network or web service using a unique device "ID" that is machine specific. TrustedID(TM) also protects networks from malware/spyware and further secures, by personal firewall, end user data being secretly transmitted to spyware servers.
o GuardedID(TM) creates a 128 bit encrypted separate pathway for information delivery from a keyboard to a targeted application at a local computer, preventing the use of spyware/malware being used to collect user information.
o ResetID(TM) provides user authenticated "Out-of-Band" remote technology to reset user credentials through a self-service method. ResetID(TM) provides a secure means of resetting a user's password into Active Directory and LDAP databases. This product solves the problem of numerous calls to a help desk to reset ones password.
A number of the above products include software and hardware solutions that we contractually license from other vendors. We also distribute and resell related technology software and hardware products. These products include Panasonic's Iris Cameras, as well as additional authentication and telecommunication software and hardware devices.
Prospectus Summary
This prospectus relates to the offering of shares by multiple selling shareholders. Our existing shareholders may offer for resale an aggregate of 12,644,842 shares of our common stock through open market transactions or privately negotiated transactions. In addition, shares of our common stock are to be issued in connection with the conversion of a $1,750,000 aggregate value of secured convertible debentures, including (i) an aggregate of $1,000,000 principal amount secured debentures issued to Cornell Capital Partners, LP, (ii) an aggregate of $750,000 principal amount secured debentures issued to Highgate House Funds, Ltd., and (iii) 150,000 shares of our common stock issued to Highgate House Funds, Ltd.
Common stock outstanding before the offering................ 17,288,855 shares.
Common stock outstanding before the offering,
to be registered............................................ 12,644,842 shares.
Common stock to be issued in connection with the
secured convertible debentures.............................. 3,038,194 assuming full conversion of the $1,750,000 secured
debentures into shares of common stock at $0.576, or 80
percent of the estimated market price of $0.72. Under the
terms of the secured convertible debentures, we have agreed
to register five times this estimated amount, or a total of
15,190,972 shares.
Common stock issued at time of closing with
Highgate House Funds, Ltd. on April 27, 2005................ 150,000 shares of common stock.
Common Stock to be outstanding after the offering........... Up to 17,438,855*
Risk Factors................................................ See "Risk Factors," beginning on p.7 for a description of
certain factors you should consider before making an
investment in our common stock.
Use of proceeds............................................. We will not receive any proceeds
from the sale of the shares of
common stock hereunder.
Forward-Looking Statements............................ This prospectus contains forward-looking statements that
address, among other things, our strategy to develop our
business, projected capital expenditures, liquidity, and
our development of additional revenue sources. The
forward-looking statements are based on our current
expectations and are subject to risks, uncertainties and
assumptions. We base these forward-looking statements on
information currently available to us, and we assume no
obligation to update them. Our actual results may differ
materially from the results anticipated in these
forward-looking statements, due to various factors.
|
* The information regarding common stock outstanding assumes the issuance of 8,680,555 shares of common stock upon the full conversion of the Cornell secured convertible debentures and the utilization of the 8,680,555 shares of common stock required to be registered under the terms of our agreement with Cornell, as well as the issuance of 6,660,417 shares upon the full conversion of the Highgate secured convertible debentures including the 150,000 shares of common stock priced at $.0001 a share and the full utilization of the 6,660,417 shares required to be registered under the terms of our Securities Purchase Agreement with Highgate. An additional 2,000,000 shares of common stock, par value $.0001 per share, will be held in reserve at the transfer agent and not registered. Such additional shares of common stock shall be issued to Highgate upon conversion of accrued interest and liquidated damages, if necessary, pursuant to the terms of the Securities Purchase Agreement.
DESCRIPTION OF SECURITIES BEING REGISTERED
SHARES UNDERLYING SECURED CONVERTIBLE DEBENTURES ISSUED IN MAY 2005 AND DECEMBER
2004
May 2005 Securities Purchase Agreement
On April 27, 2005, we entered into a Securities Purchase Agreement with Highgate House Funds, Ltd. ("Highgate") pursuant to which we sold a principal amount $750,000 7% secured convertible debentures, and the 150,000 shares of our common stock, par value $.0001 per share. We received $375,000 from Highgate on the date of the first closing, April 27, 2005, and we held a second closing on May 10, 2005 in which we received the remaining $375,000 in funds from Highgate. We issued the aforementioned securities to the investor pursuant to Rule 506 of Regulation D as promulgated under the Securities Act of 1933, as amended (the "Act"), and/or Section 4(2) of the Act.
The secured debentures bear simple interest at a rate of 7% per annum and expire 2 years after the date of issuance. The secured debentures are convertible into shares of our common stock at a conversion price equal to the lesser of (i) 120% of the average closing bid price for the 5 trading days immediately preceding the closing date; or (ii) 80% of the lowest closing bid price for the 5 trading days immediately preceding the date of conversion. In addition, we have the right to redeem the secured debentures, at any time prior to its maturity, upon 3 business days prior written notice to the holder. In the event that we redeem the secured debentures within 180 days after the date of issuance, the redemption price shall be 110% of the remaining balance of the secured debentures plus accrued interest. After 180 days the secured debentures may be redeemed at 120% of the remaining balance of the secured debentures plus accrued interest.
In addition, we have entered into an Investor Registration Rights Agreement with Highgate dated as of April 27, 2005 pursuant to which we have agreed to file a registration statement no later than 30 calendar days after the closing date registering the 150,000 shares issued to Highgate and 500% of the shares of our common stock issuable upon conversion of the secured debentures. In addition, we have agreed to use our best efforts to ensure that such registration statement is declared effective by the Securities and Exchange Commission within 120 calendar days after the date of filing. In the event that the registration statement is not declared effective within 120 calendar days from the date of filing, we shall make a cash payment to the investor, as liquidated damages and not as a penalty, or shall issue to the investor shares of our common stock, at our sole election, within 3 business days from the end of the month, in an amount equal to 2% (two percent) per month of the outstanding principal amount of the secured debentures.
We entered into an Escrow Shares Escrow Agreement with Highgate and Gottbetter & Partners, LLP, as escrow agent, pursuant to which we issued 6,660,000 shares of our common stock issuable upon conversion of the secured debentures to be held in escrow until such time as Highgate converts all or a portion of the secured debentures.
In addition, we entered into a Security Agreement with Highgate dated as of April 27, 2005 pursuant to which we granted Highgate a secured interest in all of our assets. Such secured interest shall be second in priority to the secured interest which we granted to Cornell Capital Partners, L.P. on December 20, 2004, as further described below.
December 2004 Securities Purchase Agreement
On December 20, 2004, we entered into a Securities Purchase Agreement with Cornell Capital Partners, LP ("Cornell") for the sale of $1,000,000 in secured convertible debentures, of which $500,000 was received by us on December 22, 2004 and $500,000 was received by us on January 25, 2005. The secured debentures issued pursuant to the December 2004 Securities Purchase Agreement bear interest at 8% and mature three years from the date of issuance. The secured debentures are convertible into shares of our common stock at a conversion price equal to the lesser of (i) 120% of the average closing bid price for the 5 trading days immediately preceding the closing date; or (ii) 80% of the lowest weighted average price of the common stock during the five days preceding the conversion date.
On April 27, 2005, we entered into an amendment to the secured debentures with Cornell. Pursuant to said amendment, we revised the conversion price of the secured debentures to an amount equal to the lesser of: (i) 120% of the average closing bid price for the 5 trading days immediately preceding the closing date; or (ii) 80% of the lowest closing bid price of the common stock during the five days preceding the conversion date. In addition, the amended secured debenture was issued to Cornell in a principal amount of $1,024,876, representing $1,000,000 of the original principal amount of the secured debentures issued to Cornell on December 20, 2004, plus $24,876 in accrued interest from the date of original issuance to April 27, 2005.
On December 20, 2004 we also entered into an Investor Registration Rights Agreement with Cornell under which we agreed to file a registration statement no later than 45 days from December 20, 2004. On April 27, 2005 we entered into an amendment and consent with Cornell pursuant to which we agreed to file a registration statement no later than 30 calendar days after the closing date of the amendment and consent, registering the shares of our common stock issuable upon conversion of the secured debentures. In addition, we have agreed to use our best efforts to ensure that such registration statement is declared effective by the Securities and Exchange Commission within 120 calendar days after the date of filing the SB2. In the event that the registration statement is not declared effective within 120 calendar days from the date of filing, we shall make a cash payment to the investor, as liquidated damages and not as a penalty, or shall issue to the investor shares of our common stock, at our sole election, within 3 business days from the end of the month, in an amount equal to 2% (two percent) per month of the outstanding principal amount of the secured debentures. Under the amendment and consent, Cornell also agreed to permit us to register 500% of the shares of common stock issuable upon conversion of the Highgate secured debenture and the 150,000 shares of common stock issued to Highgate on April 27, 2005, on the same registration statement which we are filing covering the share of common stock issuable upon conversion of the Cornell secured debenture.
In addition, we entered into a Security Agreement with Cornell dated as of December 20, 2004 pursuant to which we granted Cornell a secured interest in all of our assets. Such secured interest shall be first in priority to the secured interest which we granted to Highgate on April 27, 2005, as further described above.
In this prospectus, we are registering an aggregate of 15,190,972 shares of common stock underlying the secured debentures issued in April 2005, January 2005 and December 2004. We are also registering 150,000 shares of common stock issued in April 2005 to Highgate. An additional 2,000,000 shares of common stock, par value $.0001 per share, will be held in reserve at the transfer agent and not registered. Such additional shares of common stock shall be issued to Highgate upon conversion of accrued interest and liquidated damages, if necessary, pursuant to the terms of the Securities Purchase Agreement.
Sample Conversion Calculation Of The Secured Convertible Debentures
The number of shares of common stock issuable upon conversion of the secured debentures is determined by dividing that portion of the principal of the secured debentures to be converted and interest, if any, by the conversion price. For example, assuming conversion of $200,000 of secured debentures on May 10, 2005, and a conversion price of $0.576 (80 percent of $0.72), the number of shares issuable upon conversion would be:
$200,000/$.576 = 347,222 shares
ADDITIONAL SHARES BEING REGISTERED
In addition to the Cornell Capital Partners, LP and Highgate House Funds, Ltd secured convertible debentures, we are registering an additional 12,644,842 shares of common stock that may be sold by certain of our existing shareholders.
RISK FACTORS
This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus. Each of the following risks may materially and adversely affect our business, results of operations and financial condition. These risks may cause the market price of our common stock to decline, which may cause you to lose all or a part of the money you paid to buy our common stock.
RISKS RELATED TO OUR APRIL 2005 AND DECEMBER 2004 SECURED DEBENTURE FINANCING AGREEMENTS
As of May 1, 2005, we had 17,438,855 shares of common stock issued and outstanding. The number of shares of common stock issuable upon conversion of the outstanding secured convertible debentures may increase if the market price of our stock declines. All of the shares, including all of the shares issuable upon conversion of the secured debentures may be sold without restriction, except that donees, pledges, transferees or other successors-in-interest of Cornell Capital Partners, LP and Highgate House Funds, Ltd. will not be permitted to sell unrestricted shares pursuant to this prospectus. The sale of these shares may adversely affect the market price of our common stock.
Our obligation to issue a combination of shares or deliver shares through the escrow agent upon conversion of our $1,750,000 principal amount secured convertible debentures is essentially limitless. The following is an example of the amount of shares of our common stock that are issuable upon conversion of our secured convertible debentures (excluding accrued interest), based on market prices 80% below the estimated price of $0.72.
------------------- ---------------------- ------------------ --------------------- --------------------------
.% Below market Price Per Share With Discount Number of Shares Percentage of Stock*
of 20% Issuable
------------------- ---------------------- ------------------ --------------------- --------------------------
25% $0.54 $0.43 4,069,767 19.87%
------------------- ---------------------- ------------------ --------------------- --------------------------
50% $0.36 $0.29 6,034,483 29.47%
------------------- ---------------------- ------------------ --------------------- --------------------------
75% $0.18 $0.14 12,500,000 61.04%
------------------- ---------------------- ------------------ --------------------- --------------------------
|
* Based on 20,477,049 shares of common stock currently outstanding, assuming the issuance of 3,038,194 shares of common stock issuable upon conversion of the secured debentures held by selling stockholders.
The common stock to be issued in connection with the secured convertible debentures is 3,038,194, assuming full conversion of the $1,750,000 secured debentures into common stock at a conversion price equal to the lesser of $0.576, or 80 percent of the estimated market price of $0.72. Under the terms of the Investor Registration Rights Agreements, we have agreed to register five times this estimated amount, or 15,190,972 shares. We are also registering 150,000 shares of common stock issued in April 2005 to Highgate House Funds, Ltd.
As illustrated, the number of shares of common stock issuable upon conversion of our secured convertible debentures will increase if the market price of our stock declines, which will cause dilution to our existing stockholders.
The secured convertible debentures are convertible into shares of our common stock at a conversion price equal to the lesser of (i) 120% percent of our market price at the time that our stock is first approved for quotation on the OTC Bulletin Board or (ii) at a 20% discount to the evaluated price of the common stock prior to the conversion. The method used to price the shares convertible under the secured debentures may be selected by Cornell Capital Partner, LP and Highgate House Funds, Ltd. Our Securities Purchase Agreements with Cornell Capital Partners, LP and Highgate House Funds, Ltd. do not prohibit them from engaging in short sales, or from engaging in sales after delivering a conversion notice to us. In the event that Cornell were to engage in any such sales in accordance with applicable regulations, this may create downward pressure on the price of our common stock and could result in higher levels of volatility. Further, any resulting decline in the price of our stock will result in increased dilution due to the fact that we would be required to issue greater numbers of shares upon receiving future conversion notices. In addition, not only the sale of shares issued upon conversion of secured debentures, but also the mere perception that these sales could occur, may adversely affect the market price of the common stock.
The issuance of shares of our common stock upon conversion of the secured convertible debentures may result in substantial dilution to the interests of other stockholders since the selling stockholders may ultimately convert and sell the full amount issuable on conversion. There is no upper limit on the number of shares that may be issued which will have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock, including investors in this offering.
Based on our current market price and the potential decrease in our market price as a result of the issuance of shares upon conversion of the secured convertible debentures, we have made a good faith estimate as to the amount of shares of common stock that we are required to register and allocate for conversion of the secured convertible debentures. In the event that our stock price decreases, the shares of common stock we have allocated for conversion of the secured convertible debentures and are registering hereunder may not be adequate. If the shares of common stock we have allocated to the registration statement are not adequate and we are required to file an additional registration statement, we may incur substantial costs in connection with the preparation and filing of such registration statement.
In April 2005 and December 20, 2004, we entered into Securities Purchase Agreements for the sale of an aggregate of $1,750,000 principal amount of secured convertible debentures, $1,000,000 to Cornell Capital Partners, LP with an 8% simple interest payable in three years unless sooner converted into shares of our common stock and $750,000 to Highgate House Funds, Ltd, with a 7% simple interest payable in two years from issuance, unless sooner converted into shares of our common stock. Any event of default such as our failure to repay the principal or interest when due, our failure to issue shares of common stock upon conversion by the holder, our failure to timely file a registration statement or have such registration statement declared effective, breach of any covenant, representation or warranty in the Securities Purchase Agreement or related secured convertible debentures, the commencement of a bankruptcy, insolvency, reorganization or liquidation proceeding against us and the delisting of our common stock could require the early repayment of the secured convertible debentures if the default is not cured with the specified grace period. We anticipate that the full amount of the secured convertible debentures, together with accrued interest, will be converted into shares of our common stock, in accordance with the terms of the secured convertible debentures. If we were required to repay the secured convertible debentures, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the secured debentures when required, the debenture holders could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any such action would require us to curtail or cease operations.
RISKS RELATING TO OUR BUSINESS
We have yet to establish any history of profitable operations as shown in our independent certified financial audit for 2004. We have incurred annual operating losses of $800,717 for the year ended December 31, 2003 and $2,993,529 for the year ended December 31, 2004. As of December 31, 2004, we had an accumulated shareholder deficit of $4,004,237. We have financed our operations through loans from our officers, sales of our common stock in a private placement and by the corporation selling stock to investors. Our revenues have not been sufficient to sustain our operations. Our profitability will require the successful marketing and sale of our ProtectID(TM), VerifyID(TM), TrustedID(TM), GuardedID(TM) and ResetID(TM) products and services. We will require additional financing to sustain our operations, without which we may not be able to continue operations. In addition, the terms of the secured convertible debentures issued to certain of the selling stockholders require that we obtain the consent of such selling stockholders prior to our entering into subsequent financing arrangements.
No assurance can be given that we will be able to obtain additional financing, that we will be able to obtain additional financing on terms that are favorable to us or that the holders of the secured debentures will provide their consent to permit us to enter into subsequent financing arrangements. This can lead to the reduction or suspension of our operations and ultimately our going out of business. Should this occur, the value of your investment in the common stock could be adversely affected, and you could even lose your entire investment.
Our inability to raise additional working capital or to raise the required financing in a timely manner would negatively impact our ability to fund our operations, our ability to generate revenues and to otherwise execute our business plan. Should this occur, the value of your investment in the common stock could be adversely affected and you could even lose your entire investment. Therefore, you may be investing in a company that will not have the funds necessary to continue operations. Our inability to obtain financing would have a material adverse effect on our ability to implement our development strategy, and as a result, could require us to diminish or suspend our development strategy and possibly cease our operations.
We have filed four(4) patents to protect the intellectual property rights for ProtectID(TM), including the interfaces and agents. These include a pending patent relating to the ProtectID(TM) "Out-of-Band" security product for computer network applications and one application for the ProtectID(TM) Methods andApparatus for authenticating a user via a Centralized "Out-of-Band" Authentication Platform.To date our patent applications have not been granted. We cannot be certain that these patents will be granted nor can we be certain that other companies have not filed for patent protection for this technology before us. Even if we are granted patent protection for our technology, there is no assurance that we will be in a position to enforce our patent rights. Failure to be granted patent protection for our technology could result in greater competition or in limited royalty payments. This could result in inadequate revenue and cause us to cease operations.
We likely will face competition from alternate security software programs and services. As is typical of a new industry, demand and market acceptance for recently introduced services are subject to a high level of uncertainty and risk. Because the market for our services is new and evolving, it is difficult to predict the future growth rate, if any, and the size of this market. Substantial marketing activities will be required to meet our revenue and profit goals. There can be no assurance we will be successful in such marketing efforts. There can be no assurance either that the market for our services will develop or become sustainable. Further, other companies may decide to provide services similar to ours. These companies may be better capitalized than us and we could face significant competition in pricing and services offered.
We rely upon confidentiality agreements signed by our employees, consultants and third parties to protect our intellectual property. We cannot assure that we can adequately protect our intellectual property or successfully prosecute potential infringement of our intellectual property rights. Also, we cannot assure that others will not assert rights in, or ownership of, trademarks and other proprietary rights of ours or that we will be able to successfully resolve these types of conflicts to our satisfaction. Our failure to protect our intellectual property rights would result in a loss of revenue and could adversely affect our operations and financial condition.
Our success depends, to a critical extent, on the continued efforts and services of our Chief Executive Officer, Mark L. Kay, our Chairman of the Board & President, Robert Denn, our Chief Technical Officer Ramarao Pemmaraju, our Chief Financial Officer Mark Corrao and our Executive Vice President and Head of Marketing, George Waller. Were we to lose one or more of these key executive officers, we would be forced to expend significant time and money in the pursuit of a replacement, which would result in both a delay in the implementation of our business plan and the diversion of limited working capital. We can give you no assurance that we can find satisfactory replacements for these key executive officers at all, or on terms that are not unduly expensive or burdensome to our Company. Only one of our executive officers (CEO) has an employment agreement providing for his continued service to us. We do not currently carry a key-man life insurance policy on any of our employees, which would assist us in recouping our costs in the event of the loss of those officers.
We plan to grow rapidly, which will place strains on our management team and other company resources to both implement more sophisticated managerial, operational and financial systems, procedures and controls and to hire, train and manage the personnel necessary to implement those functions. Our staff is currently comprised of 16 people and we believe that in order for us to achieve our goals, it will be necessary to further expand our personnel, particularly in the area of sales, support services, technology and administrative support. As we grow, we also expect to increase detailed and pertinent internal and administrative controls and procedures, require further product enhancements and customization of our existing products for specific clients, as well as enter new geographic markets. We do not presently have in place the corporate infrastructure common to larger organizations. We do not, for example, have a separate human resources department or purchasing department designed for a larger organization. Some of our key personnel do not have experience managing large numbers of personnel. Substantial expansion of our organization will require the acquisition of additional information systems and equipment, a larger physical space and formal management of human resources. It will require that we expand the number of people within our organization providing additional administrative support (or consider outsourcing) and to develop and implement additional internal controls appropriate for a larger organization. Our experience to date in managing the growth of our company has been positive, without product failures or breakdowns of internal controls.
We will devote substantial resources to our ProtectID(TM), VerifyID(TM), GuardedID(TM), TrustedID(TM) and ResetID(TM) products, focusing on our marketing, sales, administrative, operational, financial and other systems to implement our longer-term business plan and growth strategies. We also plan to grow our distribution and reseller services. This expansion will require us to significantly improve, replace and or acquire managers, operational and financial systems, procedures and controls, to improve the coordination between our various corporate functions, to manage, train, motivate and maintain a growing employee and marketing base. Our performance and profitability will depend on the ability of our officers and key employees to:
o manage our business as a cohesive enterprise;
o manage expansion through the timely implementation and maintenance of
appropriate administrative, operational, financial and management
information systems, controls and procedures;
o add internal capacity, facilities and third-party sourcing
arrangements when needed; maintain service quality controls;
o attract, train, retain, motivate and manage effectively our employees.
The time and costs to effectuate these steps may place a significant strain on our management personnel, systems and resources, particularly given the limited amount of financial resources and skilled employees that may be available at the time. There can be no assurance that we will integrate and manage successfully new systems, controls and procedures for our business, or that our systems, controls, procedures, facilities and personnel, even if successfully integrated, will be adequate to support our projected future operations.
There can be no assurance that any expenditure incurred during this expansion will ever be recouped. Any failure to implement and maintain such changes could have a material adverse effect on our business, financial condition and results of operations.
As a result of our limited operating history, we do not have historical financial data for a significant number of periods in which to base our planned operating expenses. Our expense levels are expected to increase. It is anticipated that as we mature, our sales and operating results will fluctuate from quarter to quarter and from year to year due to a combination of factors, including, amongst others:
o The Demand for Our Products and Services Has Not Been Established
The market for our products is rapidly evolving and is highly competitive. We are attempting to introduce a new suite of products into this market and there can be no assurance that even if our products are effective, that we will establish a broad market for those products. We face competition from other security products which compete with us in the same market channels. Although we believe that our technology offers an innovative security solution, many of our competitors have much longer operating histories, already established customer bases and greater financial, marketing, service, support, technical and other resources than we do. There is a risk that potential customers will prefer to purchase competing products from established manufacturers and developers. Additionally, our industry is one in which new companies enter the market and in which technology evolves rapidly. We expect that we will also compete with new entrants in the market for security products and services as we continue to expand.
o Number, Timing and Significance of Product Enhancements and New Product Introductions by Our Competitors Is Likely to Affect Our Business
The software industry is characterized by frequent innovation. As the market for computer security products evolves, it will be necessary for us to continually enhance our existing products and develop new products. We believe that our competitors will enhance existing product lines and introduce new products. If we are unable to update our software to compete or to meet announced schedules for improvements and enhancements, it is likely that our sales will suffer and that potential customers will be lost to a competing company's product.
o Our Ability to Fulfill a Large Volume of Orders Is Uncertain.
Because we expect to grow rapidly, we will be required to expand the size of our company to service our customers. We expect that we will be required to execute a significant volume of orders for delivery of our products to our customers, and that many of our customers will require our assistance to install and implement our products. We are operating currently with a limited number of employees and it will be necessary to hire and train adequate personnel to fulfill new orders, as well as consider leveraging outsourced services. If we are unable to hire and train adequate staff, our ability to deliver our products and to service existing customers could suffer. This may potentially affect our ability to handle a high volume of sales and will adversely affect our financial results.
o We Will Incur Large Expenses in Marketing Our Product
Our products are not well-known and in order to introduce them effectively, we will have to market them aggressively. We will compete in our marketing efforts with other competitors, many of which are well-established. We think it is likely that in order to compete effectively, we may need to spend more money on marketing our products relative to our sales volume than do the more established companies. These expenses may make it more difficult for us to become a profitable company and reduce our profitability in the short term and are likely to negatively affect our net income.
o Product Defects or Service Quality Problems Could Affect Our Sales
Although we consider our principal products ready for commercial introduction and are actively marketing them to potential customers, we do not have significant experience with the use of our product on a large scale. We have not experienced any product defects that are material to the performance of our products, but there can be no assurance that there will not be product defects in the future. Likewise, we cannot be certain that the security provided by our products cannot be circumvented, now or in the future, although we are unaware of anyone having successfully defeating our technology. Our products are complex and may contain undetected errors or defects or may contain errors or defects in new versions that we attempt to release. Errors and defects that occur in the future could result in adverse product reviews and a loss of, or delay in, market acceptance of our products. One of our products, TrustedID(TM) is still being developed and will not be ready for commercial introduction until the second quarter of 2005, when we will release an initial version.
There is no established public trading market for our securities. Hence, there is no central place, such as a stock exchange or electronic trading system, to resell your common stock. If you want to resell your shares, you will have to locate a buyer and negotiate your own sale. It is our plan to utilize a market maker who will apply to have our common stock quoted on the Over-the-Counter Bulletin Board in the United States. Our shares are not and have not been listed or quoted on any exchange or quotation system. There can be no assurance that a market maker will agree to file the necessary documents with the National Association of Securities Dealers, which operates the Over-the-Counter Bulletin Board, nor can there be any assurance that such an application for quotation will be approved or that a regular trading market will develop or that if developed, will be sustained. In the absence of a trading market, an investor will be unable to liquidate his investment except by private sale.
o that a broker or dealer approve a person's account for transactions in penny stocks; and
o the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
o obtain financial information and investment experience objectives of the person; and
o make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the suitability determination; and
o that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure must also be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
The market for our common stock is likely to be characterized by significant price volatility when compared to seasoned issuers, we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated (securities) class action litigation against a company following periods of volatility in the market price of its securities. We may in the future be the targets of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management's attention and resources.
As of May 1, 2005 we have 17,438,855 shares of our common stock issued and outstanding. We estimate that the Common Stock to be issued and outstanding after the offering may be as much as 17,438,855 shares. The sale in the public market of such shares of common stock may adversely affect prevailing prices of our common stock.
USE OF PROCEEDS
The selling stockholders are selling shares of common stock covered by this Prospectus for their own account. We will not receive any of the proceeds from the resale of these shares. We have agreed to bear the expenses relating to the registration of the shares for the selling security holders. Any transfer taxes payable on these shares and any commissions and discounts payable to underwriters, agents, brokers or dealers will be paid by the selling security holder.
DETERMINATION OF OFFERING PRICE
Since our shares of our common stock are not listed or quoted on any exchange or quotation system, the offering price of the shares of common stock was arbitrarily determined. The facts considered in determining the offering price were our financial condition, prospects, our limited operating history and the general condition of the securities market. The offering price is not an indication of and is not based upon our actual value. The offering price bears no relationship to book value, assets or earnings of the Company or any other recognized criteria of value. The offering price should not be regarded as an indicator of the future market price of the securities.
SELLING SHAREHOLDERS
Securities previously issued.
This prospectus, as it may be amended or supplemented from time to time, is deemed to relate to the 12,644,842 shares of common stock that were previously issued and may be sold by certain of our existing shareholders as further described in this prospectus under the heading "Description of Securities Being Registered" on page 5. (the "Holders Shares"). The table below sets forth information concerning the resale of the Holders Shares by certain of the selling stockholders. We will not receive any proceeds from the resale of the Holders Shares by the selling stockholders. Assuming all the Holders Shares registered below are sold by the selling stockholders, none of the selling stockholders will continue to own any shares of our common stock. For clarity, the Holders Shares and the Financing Shares (as defined below) are presented in two tables.
Holders Shares
-----------------------------------------------------------------------------------------------------------------
Shares of Common Stock Total Shares of Common Shares of Common Stock
Beneficially Owned Prior Stock Offered by this Beneficially Owned After
to the Offering (1) Prospectus (1) the Offering (13)
-----------------------------------------------------------------------------------------------------------------
Name Number Percent Number Percent Number Percent
-----------------------------------------------------------------------------------------------------------------
Al Rosenthal 3,334 * 3,334 0 0
Alan Shoaf 120,000 * 120,000 0 0
Alan Shoaf 41,667 * 41,667 0 0
Alan Shoaf 60,000 * 60,000 0 0
Alfredo Espinel 3,000 * 3,000 0 0
Altavilla Family Trust (4) 560,000 3.21% 560,000 0 0
Angus Burton 50,000 * 50,000 0 0
Anna Farina 6,000 * 6,000 0 0
Anthony Mandrachia 45,000 * 45,000 0 0
Arinx Francois (9) 30,000 * 30,000 0 0
Auto Servicio, S.A (7) 100,000 * 100,000 0 0
Barry Wolfman 50,000 * 50,000 0 0
Bhavani Pemmaraju 100,000 * 100,000 0 0
Bill Demopolis 25,000 * 25,000 0 0
Braun Eye Care, PA EPBP (8) 10,000 * 10,000 0 0
Calagero Farina 4,000 * 4,000 0 0
Charlene M. Peca 1,000 * 1,000 0 0
Christina T. Gatto 6,944 * 6,944 0 0
Cosmos Robles 27,778 * 27,778 0 0
Dara Herskovitz 5,600 * 5,600 0 0
Dave Mehalick 67,361 * 67,361 0 0
Dave Mitchell 333 * 333 0 0
Dave Mitchell 1,000 * 1,000 0 0
Diane Manturi 5,600 * 5,600 0 0
Dr. John M. Pepe 13,889 * 13,889 0 0
Dr. Ken Johnson 124,000 * 124,000 0 0
Elizabeth Striano 6,944 * 6,944 0 0
Ernest & Antoinette Warren 6,944 * 6,944 0 0
Francine Robles 13,889 * 13,889 0 0
Frank Edmonton 13,889 * 13,889 0 0
Frederick Ilardi 25,000 * 25,000 0 0
Fritz Clarival 6,000 * 6,000 0 0
Gary Kotowski 10,000 * 10,000 0 0
Gene Gavin 2,000 * 2,000 0 0
General Teddy Allen 25,000 * 25,000 0 0
George & Mary Brown 20,833 * 20,833 0 0
George Brown lll 6,944 * 6,944 0 0
George Waller (6) 1,125,208 6.45% 1,125,208 0 0
Gerard Eugenio 10,000 * 10,000 0 0
Gerard Eugenio 17,361 * 17,361 0 0
Geraldine F. Ward 27,778 * 27,778 0 0
Giuliano Farina 1,000 * 1,000 0 0
Gloria Cressler 3,125 * 3,125 0 0
16
|
Gregg Ballschmieder 16,667 * 16,667 0 0
Guiliano Farina 2,000 * 2,000 0 0
Hans Fleurival 5,000 * 5,000 0 0
Hara A. Braun 8,000 * 8,000 0 0
Harold Wrobel 138,889 * 138,889 0 0
Hope Valenti 1,000 * 1,000 0 0
Howard Medow 55,000 * 55,000 0 0
Hynes Insurance Agency (9) 10,000 * 10,000 0 0
Ignazio Farina 9,000 * 9,000 0 0
Ingensa Partners (10) 33,333 * 33,333 0 0
Isabel Salinas 1,000 * 1,000 0 0
J. Gale Thomas 27,778 * 27,778 0 0
Jack/Sadie Moskowitz 41,667 * 41,667 0 0
Jeff Mason 3,000 * 3,000 0 0
Jeffrey Ballschmieder 6,944 * 6,944 0 0
Jeffrey Checchio 100 * 100 0 0
Jerry Vaiana 100,000 * 100,000 0 0
Joanne Delio 1,000 * 1,000 0 0
John Brown 6,944 * 6,944 0 0
John Delaney 5,100 * 5,100 0 0
John Gawlik 60,000 * 60,000 0 0
Jose Manuel Rodriguez 11,500 * 11,500 0 0
Joseph Spendley 13,889 * 13,889 0 0
Joseph Teri 3,000 * 3,000 0 0
Julie & Richard Prough 10,000 * 10,000 0 0
Karin Gibson 3,000 * 3,000 0 0
Kathleen & Rich Yeomans 3,000 * 3,000 0 0
Kathleen Yeomans 4,000 * 4,000 0 0
Kevin Hess 1,389 * 1,389 0 0
Kevin McMahon 3,180 * 3,180 0 0
Kurt Jansen 15,000 * 15,000 0 0
Lawrence Sica 10,000 * 10,000 0 0
Lawrence/Bonnie Anlauf 288,203 * 288,203 0 0
Lisa Ravioli 1,000 * 1,000 0 0
Livio Belulovich 2,000 * 2,000 0 0
Louis Gonzalez 4,000 * 4,000 0 0
M Power, LLC (11) 350,000 2.01% 350,000 0 0
Majid Prey 5,000 * 5,000 0 0
Marguerite Braasch 300 * 300 0 0
Maria Rodriguez 78,445 * 78,445 0 0
Marilou Brown Lesch 6,944 * 6,944 0 0
Mark Corrao 1,308,207 7.50% 1,308,207 0 0
Mark Kay 758,332 4.35% 758,332 0 0
Mark Museck - (Gil Rosco) 5,000 * 5,000 0 0
Marlin Molinaro 120,000 * 120,000 0 0
Mary Difiore 1,500 * 1,500 0 0
Mary Hanlon 1,000 * 1,000 0 0
Mathew Peifer 5,000 * 5,000 0 0
Michael A. Peca 1,000 * 1,000 0 0
Michael C. Brenner 10,417 * 10,417 0 0
Mike Tafuri 1,500 * 1,500 0 0
Monty Schwartz 50,000 * 50,000 0 0
NetLabs.com Inc. (2)(3) 1,140,000 6.54% 1,140,000 0 0
OBX Capital Group (5) 376,682 2.16% 376,682 0 0
Padmini Singh 694 * 694 0 0
Pam Eugenio 17,361 * 17,361 0 0
Pamela Eugenio 10,667 * 10,667 0 0
Peter Ortolano 1,200 * 1,200 0 0
Peter Tubolino 13,889 * 13,889 0 0
Ralph Yondola 5,417 * 5,417 0 0
Ramarao Pemmaraju 3,264,465 18.72% 1,761,806 1,502,659 8.62%
Ramashwari Singh 694 * 694 0 0
Rich Roland 3,000 * 3,000 0 0
Richard/Liane McDonald 48,612 * 48,612 0 0
Robert Brown 6,944 * 6,944 0 0
Robert Denn 3,273,742 18.77% 1,761,806 1,511,936 8.67%
Robert Koch 59,850 * 59,850 0 0
Robert Scios 59,850 * 59,850 0 0
Robert Stortz 1,000 * 1,000 0 0
Robert and Susan Schwartzman 10,000 * 10,000 0 0
Robert W. Hansen Jr. 6,944 * 6,944 0 0
Ronald Terchak 150,000 * 150,000 0 0
Sal Girardi 1,500 * 1,500 0 0
Savitri R. Balkaran 1,389 * 1,389 0 0
Scott Ballschmieder 13,889 * 13,889 0 0
Shanmuganathan 120,000 * 120,000 0 0
Shari Kole 10,000 * 10,000 0 0
17
|
Shelley Cohen 50,000 * 50,000 0 0
Shirley Radice 1,000 * 1,000 0 0
Sig Silber 15,000 * 15,000 0 0
Sondra Schneider 25,000 * 25,000 0 0
South Shore Management (12) 60,000 * 60,000 0 0
Steven Minunni 10,000 * 10,000 0 0
Steven Schwartzman 10,000 * 10,000 0 0
Sudhaker Bhagavathula 13,889 * 13,889 0 0
Susan Brown Hansen 6,944 * 6,944 0 0
Teddy Svoronos 312,111 1.79% 312,111 0 0
Thomas Brown Sr. 6,944 * 6,944 0 0
Thomas Catras 10,000 * 10,000 0 0
Thomas Eddy 2,000 * 2,000 0 0
Thomas George 60,000 * 60,000 0 0
Thomas Marrinan 2,778 * 2,778 0 0
Tom Stern 1,500 * 1,500 0 0
Vincent Ballschmieder 13,889 * 13,889 0 0
Vincent Sisto 60,000 * 60,000 0 0
William Fix 6,944 * 6,944 0 0
Yenney Bado 2,000 * 2,000 0 0
TOTAL 15,659,437 12,644,842 3,014,595
* Less than 1 percent
|
The Selling Shareholders named in this Prospectus are offering all or some of their shares of common stock offered through this Prospectus. None of our selling shareholders are broker-dealers or have any affiliation with any broker dealers.
(1) Based on 17,438,855 shares of common stock issued and outstanding
before and after this Offering.
(2) Does not include 7,600,000 options issued to NetLabs.com.
(3) NetLabs.com, Inc. is controlled by Robert Denn and Ramarao Pemmaraju.
(4) Anthony Altavilla has voting and dispostive control over the
securities held by the Altavilla Family Trust.
(5) Dale Scales and Jim Learish have voting and dispostive control over
the securities held by the OBX Capital Group.
(6) Shares are listed in the name of Katherine LaRosa who is a family
member of George Waller.
(7) Grover Matheny has voting and dispositive control over the securities
held by Auto Servicio S.A.
(8) Hara A. Braun has voting and dispositive control over the securities
held by the Braun Eyecare, PA employee Pension and Benefit Plan.
(9) John C. Hynes has voting and dispositive control over the securities
held by Hynes Insurance Agency.
(10) Robert P. Arndt has voting and dispositive control over the securities
held by Ingensa Partners.
(11) David Mehalick has voting and dispositive control over the securities
held by M Power LLC.
(12) Joseph Carnato has voting and dispositive control over the securities
held by South Shore Management.
(13) Assumes all the shares of common stock being registered have been sold
by selling stockholders.
December 2004 and April 2005 Securities Purchase Agreements
This prospectus, as it may be amended or supplemented from time to time, is also deemed to relate to the 15,340,972 shares of common stock that may be sold by certain of our selling shareholders pursuant to our December 2004 and April 2005 Securities Purchase Agreements as further described in this prospectus under the heading "Description of Securities Being Registered" on page 5. (the "Financing Shares"). The table below sets forth information concerning the resale of the Financing Shares by certain of the selling stockholders. We will not receive any proceeds from the resale of the Financing Shares by the selling stockholders. Assuming all the shares registered below are sold by the selling stockholders, none of the selling stockholders will continue to own any shares of our common stock.
Financing Shares
-------------------------------------------------------------------------------------------------------------------------------
Shares to be Acquired
Under Convertible Debentures Shares Beneficially
Owned Shares Beneficially Owned and/or common stock issued After the
Prior to the Offering Offering (2)
--------------------------- --------------------------- --------------------------
Name Number (3) Percent (1) Number (4) Percent (4) Number Percent
-------------------------------------- ------------- -------------- ------------ -------------- ---------- ----------
Cornell Capital Partners, LP 862,714 4.99% 8,680,555(5) 26.60% 0 0%
101 Hudson Street, Suite 3606
Jersey City, NJ 07302(6)
Highgate House Funds, Ltd. 862,714 4.99% 6,660,417(7) 20.41% 0 0%
488 Madison Avenue, 12th fl
New York City, NY 10022(6)
|
(1) Applicable percentage ownership is based on 17,438,855 shares of common stock outstanding as of May 1, 2005, together with securities exercisable or convertible into shares of common stock within 60 days of May 1, 2005 for each stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of May 1, 2005 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Although the terms of the secured debentures contain a limitation that precludes conversion when the amount of shares already owned by Cornell Capital Partners, LP and Highgate House Funds, Ltd., plus the amount of shares still outstanding to be converted, would exceed 4.99 percent, the limit may be waived by Cornell Capital Partners, LP and Highgate House Funds, Ltd. on 61 days notice to us. In addition, on the third anniversary of the date of the Cornell Capital Partners, LP and second anniversary of the date of the Highgate House Funds, Ltd. that the secured debentures were issued, any outstanding principal or interest owed on the secured debentures will be converted into stock without any applicable limitation on the number of shares that may be converted. Depending on the price of our stock, if Cornell Capital Partners, LP and/or Highgate House Funds, Ltd. waive the 4.99 percent limitation or at the time the secured debentures comes due, either company could acquire enough shares to establish control of our Company.
(2) Assumes that all securities registered will be sold and that all shares of common stock underlying the secured convertible debentures will be issued.
(3) Represents shares of common stock that are issuable pursuant to the secured convertible debentures, which represents the maximum permitted ownership that the selling stockholder can own at one time (and therefore, offer for resale at any one time) equal to 4.99% of the outstanding common stock as required by the terms of the secured convertible debentures. The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the stockholders have sole or shared voting power or investment power and also any shares, which the stockholders have the right to acquire within 60 days. The actual number of shares of common stock issuable upon the conversion of the secured convertible debentures is subject to adjustment depending on, among other factors, the future market price of the common stock, and could be materially less or more than the number estimated in the table.
(4) Assumes that all registered shares issuable to Cornell Capital Partners, LP and Highgate House Funds, Ltd., upon conversion of the secured convertible debentures. Based upon outstanding shares of 32,629,827 after such conversions.
(5) Includes shares of common stock underlying our secured convertible debentures issued pursuant to our December 2004 Securities Purchase Agreement.
(6) Cornell Capital Partners, LP and Highgate House Funds, Ltd., are affiliated investment funds. All investment decisions of Cornell Capital Partners, LP and Highgate House Funds, Ltd. are made by its general partner, Yorkville Advisors, LLC. Mark Angelo, the managing member of Yorkville Advisors, LLC makes the investment decisions on behalf of Yorkville Advisors, LLC. Mr. Angelo does not have voting control over the shares beneficially owned by Cornell Capital Partners, LP or Highgate House Funds, Ltd.
(7) Includes (i) 6,510,417 shares issuable upon conversion of our secured convertible debentures; and (ii) 150,000 shares of common stock. The aforementioned securities were issued pursuant to our April 2005 Securities Purchase Agreement.
TERMS OF SECURED CONVERTIBLE DEBENTURES
To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with Cornell Capital Partners, LP on December 20, 2004, as amended on April 27, 2005, for the aggregate sale of $1,000,000 in secured convertible debentures of which $500,000 was received on December 22, 2004 and $500,000 was received on January 25, 2005. These secured debentures carry an 8% simple interest for three years. In addition, we entered into a Securities Purchase Agreement with Highgate House Funds, Ltd. on April 27, 2005 for the sale of $750,000 in secured convertible debentures of which $375,000 was received by us on May 2, 2005 and the balance of $375,000 was received on May 11, 2005, no more than two days prior to the filing of this SB2 registration statement with the Securities and Exchange Commission. The secured debentures bear simple interest at 7% and mature in two years from the date of issuance. The secured debentures are convertible into our common stock, at the holder's option, at a conversion price equal to the lesser of: (i) 120% of the average closing bid price for the 5 trading days immediately preceding the closing date; or (ii) eighty percent 80 percent of the lowest closing bid price during the five days immediately preceding the conversion date. We are registering in this offering 15,190,972 shares of common stock underlying the secured debentures. We are also registering 150,000 shares of common stock, par value $.0001 per share, as part of the Securities Purchase Agreement with Highgate House Funds, Ltd. An additional 2,000,000 shares of common stock, par value $.0001 per share, will be held in reserve at the transfer agent and not registered. Such additional shares of common stock shall be issued to Highgate upon conversion of accrued interest and liquidated damages, if necessary, pursuant to the terms of the Securities Purchase Agreement.
THERE ARE CERTAIN RISKS RELATED TO SALES BY CORNELL CAPITAL PARTNERS, LP, AND HIGHGATE HOUSE FUNDS, Ltd. INCLUDING:
The outstanding shares are issued based on a discount to the market price. As a result, the lower the stock price around the time Cornell Capital Partners, LP and/or Highgate House Funds, Ltd. are issued shares, the greater chance that they will receive more shares. This could result in substantial dilution to the interests of other holders of common stock.
To the extent Cornell Capital Partners, LP and/or Highgate House Funds, Ltd. sell their common stock, the common stock price may decrease due to the additional shares in the market. This could allow Cornell Capital Partners, LP and/or Highgate House Funds, Ltd. to sell greater amounts of common stock, the sales of which would further depress the stock price.
The significant downward pressure on the price of the common stock as Cornell Capital Partners, LP and/or Highgate House Funds, Ltd. sell material amounts of the common stock could encourage short sales by others. This could place further downward pressure on the price of the common stock.
SAMPLE CONVERSION CALCULATION OF THE SECURED CONVERTIBLE DEBENTURES
On December 20, 2004 and April 27, 2005 we entered into Securities Purchase Agreements, whereby we agreed to issue $1,000,000 in secured convertible debentures to Cornell Capital Partners, LP and we agreed to issue $750,000 in secured convertible debentures to Highgate House Funds, Ltd., respectively. In addition we issued 150,000 shares of common stock at a price of $.0001 to Highgate House Funds, Ltd.
The number of shares of common stock issuable upon conversion of the secured debentures is determined by dividing that portion of the principal of the secured debentures to be converted and interest, if any, by the conversion price. For example, assuming conversion of $200,000 of secured debentures on October, 2005, and a conversion price of $0.576 (80% of $0.72), the number of shares issuable upon conversion would be:
$200,000/$.576 = 347,222 shares
The following is an example of the amount of shares of our common stock that are issuable upon conversion of our secured convertible debentures (excluding accrued interest), based on market prices 25%, 50% and 75% below the market price as of our most recent sale at $0.72:
-------------------- -------------------- ---------------- --------------------- ---------------------------
% Below market Price Per Share With Discount Number of Shares Percentage of Stock*
of 20% Issuable
-------------------- -------------------- ---------------- --------------------- ---------------------------
25% $0.54 $0.43 2,314,815 13.39%
-------------------- -------------------- ---------------- --------------------- ---------------------------
50% $0.36 $0.29 3,472,222 20.08%
-------------------- -------------------- ---------------- --------------------- ---------------------------
75% $0.18 $0.14 6,944,444 40.17%
-------------------- -------------------- ---------------- --------------------- ---------------------------
|
* Based on 17,438,855 shares of common stock outstanding
PLAN OF DISTRIBUTION
No market currently exists for our shares. The price reflected in this prospectus of $0.72 per share is the initial offering price of shares upon the effectiveness of this prospectus. The selling stockholders may, from time to time, sell any or all of their shares of common stock covered by this prospectus in private transactions at a price of $0.72 per share or on any stock exchange, market or trading facility on which the shares may then be traded. If our shares are quoted on the Over-the-Counter Bulletin Board ("OTCBB"), the stockholders may sell any or all of their shares at prevailing market prices or privately negotiated prices. The term "selling stockholders" includes donees, pledges, transferees or other successors-in-interest selling shares received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other non-sale related transfer, except that donees, pledges, transferees or other successors in interest of Cornell Capital will not be permitted to sell unrestricted shares pursuant to this prospectus. We will pay the expense incurred to register the shares being offered by the selling stockholders for resale, but the selling stockholders will pay any underwriting discounts and brokerage commissions associated with these sales. The selling stockholders may use any one or more of the following methods when selling shares:
a. ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
b. block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
c. purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
d. privately negotiated transactions; and
e. a combination of any such methods of sale.
In addition, any shares that qualify for sale under Rule 144 may be sold under Rule 144 rather than through this prospectus.
The $0.72 per share offering price of the common stock being sold under this prospectus has been arbitrarily set. The price does not bear any relationship to our assets, book value, earnings or net worth and it is not an indication of actual value. Additionally, the offering price of our shares is higher than the price paid by our founder, and exceeds the per share value of our net tangible assets. Therefore, if you purchase shares in this offering, you will experience immediate and substantial dilution. You may also suffer additional dilution in the future from the sale of additional shares of common stock or other securities, if the need for additional financing forces us to make such sales. Investors should be aware of the risk of judging the real or potential future market value, if any, of our common stock by comparison to the offering price.
In offering the shares covered by this prospectus, the selling stockholders may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. Any broker-dealers who execute sales for the selling stockholders will be deemed to be underwriters within the meaning of the Securities Act. Any profits realized by the selling stockholders and the compensation of any broker-dealer may be deemed to be underwriting discounts and commissions.
Each selling stockholder and any other person participating in a distribution of securities will be subject to applicable provisions of the Exchange Act and the rules and regulations there under, including, without limitation, Regulation M, which may restrict certain activities of, and limit the timing of purchases and sales of securities by, selling stockholders and other persons participating in a distribution of securities. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and certain other activities with respect to such securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of the foregoing may affect the marketability of the securities offered hereby.
Any securities covered by this prospectus that qualify for sale pursuant to Rule 144 under the Securities Act may be sold under that rule rather than pursuant to this prospectus.
DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
Identity
The following table identifies our current executive officers and directors and their respective offices held:
Name Age Position Mark L. Kay 56 Chief Executive Officer Mark Corrao 47 Chief Financial Officer Ramarao Pemmaraju 44 Chief Technical Officer Robert Denn 47 Chairman of the Board of Directors, President George Waller 47 Executive Vice President of Marketing |
Business Experience
All of our directors serve until their successors are elected and qualified by our shareholders, or until their earlier death, retirement, resignation or removal. Officers are appointed by the Board of Directors and their terms of office are, except to the extent governed by the Cornell Capital Partners, LP and Highgate House Funds, Ltd. agreements, at the direction of the Board of Directors. The following is a brief description of the business experience of our executive officers, director and significant employees:
Mark L. Kay, Chief Executive Officer
Mr. Mark Kay joined StrikeForce as our CEO in May 2003 following his retirement at JPMorganChase & Co. Prior to joining StrikeForce Mr. Kay was employed by JPMorganChase & Co. from August of 1977 until his retirement in December 2002, at which time he was a Managing Director of the firm. During his tenure with JPMorganChase & Co. Mr. Kay led strategic and corporate business groups with global teams up to approximately 1,000 people. His responsibilities also included Chief Operations Officer, Chief Information Officer, and Global Technology Auditor. Mr. Kay's business concentrations were in securities (fixed income and equities), proprietary trading and treasury, global custody services, audit, cash management, corporate business services and web services. Prior to his employment with JPMorganChase & Co., Mr. Kay was a systems engineer at Electronic Data Services (EDS) for approximately five years from September 1972 through to August 1977. He holds a B.A. in Mathematics from CUNY.
Mark Corrao, Chief Financial Officer
Mr. Corrao is one of our original founders in August 2001. Mr. Corrao brings to StrikeForce Technologies over twenty-five years of experience in the financial and accounting areas. Mr. Corrao has spent numerous years in the Public Accounting arena specializing in certified auditing, SEC accounting, corporate taxation and financial planning. His tenure in accounting included being a partner in a Connecticut CPA firm for several years. Mr. Corrao's background also includes numerous years on Wall Street with such prestigious firms as Merrill Lynch, Spear Leeds & Kellogg and Greenfield Arbitrage Partners. While on Wall Street Mr. Corrao was involved in several IPO's and has been a guiding influence in several start up companies. Prior to joining StrikeForce, he was the Director of Sales at Applied Digital Solutions from December 2000 through December 2001. Mr. Corrao was the Vice President of Sales at Advanced Communications Sciences from March 1997 though December 2000. Mark has a B.S. from CUNY.
Robert Denn, President, Chairman of the Board of Directors
Mr. Robert Denn joined StrikeForce in July 2002 as a consultant assisting us with a private placement. He joined us as President in December 2002. A former registered representative of Essex Securities, Mr. Denn was a co-founder of Netlabs.com, Inc., a company formed to develop security software products, in May 1999. In February 2001, Mr. Denn left the retail securities industry and joined NetLabs.com as its President. The intellectual property assets of Netlabs.com was subsequently acquired by StrikeForce Technologies in December 2002. In addition, Mr. Denn has over twenty years of sales and management experience in the financial services industry inclusive of such prestigious firms as Citibank, Fleet and Bank of New York. Mr. Denn has a B.A. in Business Administration from William Paterson University.
Ramarao Pemmaraju, Chief Technology Officer
Mr. Ramarao Pemmaraju Joined StrikeForce in July 2002 as our Chief Technology Officer (CTO) and the inventor of the ProtectID(TM) product. In May 1999 Mr. Pemmaraju co-founded Netlabs.com , which developed security software products. Mr. Pemmaraju concentrated his time on Netlabs from July 2001 through to July 2002. From June 2000 to July 2001 Mr. Pemmaraju was a systems architect and project leader for Coreon, an operations service provider in telecommunications. From October 1998 through May 2000, Mr. Pemmaraju was a systems engineer with Nexgen systems, an engineering consulting firm. Mr. Pemmaraju has over eighteen years experience in systems engineering and telecommunications. His specific expertise is in systems architecture, design and product development. Mr. Pemmaraju holds a M.S.E.E. from Rutgers University and a B.E. from Stevens Tech.
George Waller, EVP & Head of Marketing
Mr. Waller joined StrikeForce in June 2002 as a Vice President in charge of sales and marketing. In July 2002 Mr. Waller became the CEO of StrikeForce, a position he held until Mr. Kay joined us in May 2003. From May 2003 to current date Mr. Waller has been the Executive Vice President overseeing Sales, Marketing, Business Development and product development. From 2000 through June 2002 Mr. Waller was Vice President of business development for Infopro, an outsourcing software development firm. From 1999 to 2001 Mr. Waller was Vice President of sales and Marketing for Teachmeit.com-Incubation systems, Inc., a multifaceted computer company and sister company to Infopro. From 1997 through 1999, Mr. Waller was the Vice President of Internet Marketing for RX Remedy, an aggregator of medical content for online services. Previously, Mr. Waller was a Vice President of Connexus Corporation, a software integrator.
Family Relationships
There are no family relationships between any two or more of our directors or executive officers. There is no arrangement or understanding between any of our directors or executive officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current board of directors. There are also no arrangements, agreements or understandings to our knowledge between non-management shareholders that may directly or indirectly participate in or influence the management of our affairs.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past five years, none of the following occurred with respect to a present or former director or executive officer of our company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the commodities futures trading commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Committees
StrikeForce has two committees: the Audit Committee and the Compensation Committee. At this time, there are no members of either Committee and the Board of Directors performs the acts of the Committees. None of our current directors are deemed "independent" directors as that term is used by the national stock exchanges or have the requisite public company accounting background or expertise to be considered an "audit committee financial expert" as that term is defined under regulation S-B promulgated under the Securities Act of 1933, as amended.
It is anticipated that the principal functions of the Audit Committee will be to recommend the annual appointment of StrikeForce's auditors, the scope of the audit and the results of their examination, to review and approve any material accounting policy changes affecting StrikeForce's operating results and to review StrikeForce's internal control procedures.
It is anticipated that the Compensation Committee will develop a Company-wide program covering all employees and that the goals of such program will be to attract, maintain, and motivate our employees. It is further anticipated that one of the aspects of the program will be to link an employee's compensation to his or her performance, and that the grant of stock options or other awards related to the price of the common shares will be used in order to make an employee's compensation consistent with shareholders' gains. It is expected that salaries will be set competitively relative to the technology development industry and that individual experience and performance will be considered in setting salaries.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of the common stock as of May 1, 2005, by (i) each person who is known by us to own beneficially more than 5% of any classes of outstanding common stock, (ii) each director of our company, (iii) each of the Chief Executive Officers and the executive officers (collectively, the "Named Executive Officers") and (iv) all directors and executive officers of our company as a group.
The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 and 13d-5 of the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under securities law, a person is considered a "beneficial owner" of a security if that person has or shares power to vote or direct the voting of such security or the power to dispose of such security. A person is also considered to be a beneficial owner of any securities of which the person has a right to acquire beneficial ownership within 60 days. We believe that each individual or entity named has sole investment and voting power with respect to the securities indicated as beneficially owned by them, subject to community property laws, where applicable, except where otherwise noted. Unless otherwise stated, the address of each person is 1090 King Georges Post Road, Suite 108, Edison, NJ 08837.
This table is based upon information obtained from our stock records. Unless otherwise indicated in the footnotes to the following table and subject to community property laws where applicable, we believe that each shareholder named in the above table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned.
AMOUNT OF PERCENTAGE
NAME AND ADDRES OF BENEFICIAL OWNER OF OWNERSHIP(1) OF CLASS(2)
20,814,521
--------------------------------------- ---------------- -------------
Mark L. Kay 1,603,998 (3) 7.71%
Mark Corrao 1,308,207 6.29%
Robert Denn 3,273,742 15.73%
Ramarao Pemmaraju 3,264,465 15.73%
George Waller 1,125,208 (4) 5.41%
All directors and executive officers as a group (5 persons) 10,575,620 (5) 50.81%
Thomas Yon 1,469,418 7.06%
NetLabs.com, Inc. 3,670,000 (6),(7) 17.63%
|
(1) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date hereof.
(2) Based on 17,438,855 shares of outstanding capital stock plus vested options and potential convertible shares for the beneficial owners for a total of 20,814,521 shares.
(3) Includes 140,000 shares of common stock available upon the conversion of certain convertible loans and 705,666 shares of common stock underlying options.
(4) Shares are listed in the name of Katherine LaRosa who is a family member of George Waller.
(5) Based on 705,666 shares of common stock underlying options.
(6) Robert Denn and Ramarao Pemmaraju control NetLabs.com, Inc.
(7) Includes 2,530,000 shares of common stock underlying options.
Although the terms of the secured debentures issued pursuant to the December 2004 and April 2005 Securities Purchase Agreements contain a limitation that precludes conversion when the amount of shares already owned by Cornell Capital Partners, LP and Highgate House Funds, Ltd., plus the amount of shares still outstanding to be converted, would exceed 4.99 percent, the limit may be waived by Cornell Capital Partners, LP and Highgate House Funds, Ltd. on 61 days notice to us. In addition, on the third anniversary of the date of the Cornell Capital Partners, LP and second anniversary of the date of the Highgate House Funds, Ltd. that the secured debentures were issued, any outstanding principal or interest owed on the secured debentures will be converted into stock without any applicable limitation on the number of shares that may be converted. Depending on the price of our stock, if Cornell Capital Partners, LP and/or Highgate House Funds, Ltd. waive the 4.99 percent limitation or at the time the secured debentures comes due, either company could acquire enough shares to establish control of our Company.
DESCRIPTION OF SECURITIES
General
We are authorized to issue 100,000,000 shares of common stock, par value of $.0001 per share and 10,000,000 of preferred stock, par value $0.10 per share. As of May 1, 2005, there were 17,438,855 shares of common stock issued and outstanding. There are no issued and outstanding shares of our preferred stock.
Common Stock
The holders of common stock are entitled to one vote per share for the election of directors and on all other matters to be voted upon by the stockholders. Subject to preferences that may be applicable to any outstanding securities, the holders of common stock are entitled to receive, when and if declared by the board of directors, out of funds legally available for such purpose, any dividends on a pro rata basis. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock.
Dividend Rights.
In accordance with the Cornell Capital Partners, LP and Highgate House Funds, Ltd. Securities Purchase Agreements, we have limitations and restrictions upon the rights of our Board of Directors to declare dividends, and we may pay limited dividends on our shares of stock in cash, property, or our own shares, except when we are insolvent or when the payment thereof would render us insolvent subject to the provisions of the New Jersey Statutes. We have not paid dividends to date, and we do not anticipate that we will pay any dividends in the foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this registration statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results.
All statements other than statements of historical fact are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. Forward-looking statements reflect management's current expectations and are inherently uncertain. Our actual results may differ significantly from management's expectations. Notwithstanding these forward-looking statements, the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933 do not protect any statements we make in connection with this offering.
General
We are a software development and services company that offers a suite of integrated computer network security solutions using proprietary technology. We were organized in August 2001 under New Jersey law as Strike Force Technical Services, Inc. We initially conducted operations as an integrator and reseller of computer hardware and telecommunications equipment and services. In December 2002 and formally memorialized by an agreement in September 2003, we completed the acquisition of certain assets of another New Jersey corporation, NetLabs.com. We subsequently changed our name to StrikeForce Technologies, Inc., under which we had conducted our business since August 2001. The assets that we acquired from NetLabs.com included the intellectual property rights to their principal products and certain officers of NetLabs.com joined StrikeForce as officers and directors of our company. Our strategy is to develop and exploit our suite of network security products for customers in the corporate, financial, government and e-commerce sectors. We plan to grow our business through internally generated sales, rather than by acquisitions. We have no subsidiaries and we conduct our operations from our office in Edison, New Jersey.
We began our operations in 2001 as a reseller of computer hardware, primarily products manufactured by LG Electronics USA and Panasonic Corporation. We derived the majority of our revenues from our activities as a reseller through the first half of 2003. Beginning with the acquisition of the intellectual property assets of NetLabs.com December 10, 2002, we shifted the focus of our business from the resale of hardware to developing and marketing the suite of security products that we acquired from NetLabs.com. Although we have maintained our relationship with Panasonic as a reseller, we do not expect to generate significant revenues from such sales, which consist primarily of the sale of biometric identification equipment, such as Panasonic's retinal scanner, that can be used with our software products. We generated nominal revenues from our activities as a reseller during 2004.
We expect to generate substantially all of our revenue in the future from sales of our suite of security products and related service contracts. During 2004, we generated $26,047 from the sale of our security services. We seek to locate customers in a variety of ways. These include contracts with Value Added Resellers, direct sales calls initiated by our sales staff, exhibitions at security and technology trade shows, through the media and through word of mouth. Our sales generate revenue either as an Original Equipment Manufacturer (OEM) model, or through a Hosting/License agreement. We price our products for consumer transactions based on the number of transactions in which our software products are utilized and we price our products for business applications based on the number of users. We also expect that we may generate revenue from annual maintenance contracts.
We have incurred substantial operating losses since commencing operations. We believe that our products provide a cost-effective and technologically competitive solution to problems of network security and identity theft. There can be no assurance, however, that our products will gain acceptance in the commercial marketplace or that one of our competitors will not introduce a technically superior solution. The products that we offer to customers are discussed in more detail below.
Management in late 2004 introduced procedures that assess our business performance through a number of financial and non-financial indicators. Since we are in the process of introducing our products in the commercial marketplace, we attempt to assess our performance principally through indications of present and potential sales. These include the following:
o Number of contracts signed, or projected to be signed within 30 and 90
day periods.
o Number of prospects in our sales pipeline.
o Number of Requests for Information and Requests for Proposal in which
we are invited to participate.
o The frequency with which we are mentioned in trade or consumer
publications or other media.
We also assess the number of problems that are reported with each product and over specific time frames, e.g. monthly, quarterly. We review our revenues generated in the aggregate per quarter and the average revenue generated per customer.
Use of Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. When preparing our financial statements, we make estimates and judgments that affect the reported amounts on our balance sheets and income statements, and our related disclosure about contingent assets and liabilities. We continually evaluate our estimates, including those related to revenue, allowance for doubtful accounts, reserves for income taxes, and litigation. We base our estimates on historical experience and on various other assumptions, which we believe to be reasonable in order to form the basis for making judgments about the carrying values of assets and liabilities that are not readily ascertained from other sources. Actual results may deviate from these estimates if alternative assumptions or conditions are used.
Critical Accounting Policies
In accordance with generally accepted accounting principles ("GAAP"), we record certain assets at the lower of cost and/or fair value. In determining the fair value of certain of our assets, we must make judgments, estimates and assumptions regarding circumstances or trends that could affect the value of theses assets, such as economic conditions. Those judgments, estimates and assumptions are made based on current information available to us at that time. Many of those conditions, trends and circumstances are outside our control and if changes were to occur in the events, trends or other circumstances on which our judgments or estimates were based, we may be required under GAAP to adjust those of our earlier estimates that are affected by those changes. Changes in such estimates may require that we reduce the carrying value of the affected assets on our balance sheet (which are commonly referred to as "write downs" of the assets involved.
It is our practice to establish reserves or allowances to record downward adjustments or "write-downs" in the carrying value of assets, such as accounts receivable. Such write-downs are recorded as charges to income or increases in the expense in our statement of operations in the periods when such reserves or allowances are established or increased to take account of changed conditions or events. As a result, our judgments, estimates and assumptions about future events can and will, affect not only the amounts at which we record such assets on our balance sheet, but, also our results of operations.
In making our estimates and assumptions, we follow GAAP and accounting practices applicable to our business and those that we believe will enable us to make fair and consistent estimates of the fair value of assets and establish adequate reserves or allowances. Set forth below is a summary of the accounting policies, that we believe are material to an understanding of our financial condition and results of operations.
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," requires capitalization of software development costs incurred subsequent to establishment of technological feasibility and prior to the availability of the product for general release to customers. Systematic amortization of capitalized costs begins when a product is available for general release to customers and is computed on a product-by-product basis at a rate not less than straight-line basis over the product's remaining estimated economic life. To date, all costs have been accounted for as research and development costs and no software development cost has been capitalized.
Management will evaluate the net realizable value of software costs capitalized by comparing estimated future gross revenues reduced by the estimated future costs of completing, disposing of and maintaining the software. These costs also include the costs of performing maintenance and customer support required by us.
Revenue Recognition
Sales transactions are recorded automatically and posted to the general ledger from the invoice produced when shipment of the product is completed. Invoices and sales returns are reconciled monthly. Each customer completes a credit application and a credit check is completed before credit is granted. Credit terms vary between thirty (30) and forty five (45) days and are dependent on the size of the customer and the agreement with the individual customer. The sales transaction is recorded when the product is delivered to the customer.
We recognize revenue from the sales of software licenses when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable and collection of the resulting receivable is reasonably assured. Delivery generally occurs when the product is delivered to a common carrier.
We assess collection based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. We do not request collateral from our customers. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognize revenue at the time collection becomes reasonably assured, which is generally upon the receipt of cash.
For technology arrangements with multiple obligations (for example, undelivered software, maintenance and support), we allocate revenue to each component of the arrangement using the residual value method based on the fair value or the fixed agreement of the undelivered elements. Accordingly, we defer technology revenue in the amount equivalent to the fair value or the fixed agreement of the undelivered elements.
We recognize revenue for maintenance services ratably over the contract term. Our training and consulting services are billed at hourly rates and we generally recognize revenue as these services are performed. However, upon execution of a contract, we determine whether any services included within the arrangement require us to perform significant work either to alter the underlying software or to build additional complex interfaces so that the software performs as the customer requests. If these services are included as part of an arrangement, we recognize the fee using the percentage of completion method. We determine the percentage of completion based on our estimate of costs incurred to date compared with the total costs budgeted to complete the project.
Impairment of Intangible Assets
We operate in an industry that is rapidly evolving and extremely competitive. It is reasonably possible that our accounting estimates with respect to the useful life and ultimate recoverability of our carrying basis of intangible assets could change in the near term and that the effect of such changes on the financial statements could be material. In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", we complete a test for impairment of certain other intangible assets annually and whenever events or circumstances indicate a potential impairment.
Stock Based Transactions
We have concluded various transactions where we paid the consideration in shares of our common stock and/or warrants or options to purchase shares of our common stock. These transactions include:
- Acquiring the services of various professionals who provided us with a range of corporate consultancy services, including developing business and financial models, financial advisory services, strategic planning, development of business plans, investor presentations and advice and assistance with investment funding.
- Retaining the services of our Advisory Board to promote the business of the Company.
- Settlement of our indebtedness.
- Providing incentives to attract, retain and motivate employees who are Important to our success.
When our stock is used in transactions, the transactions are generally valued using the price of the shares being transferred at the time the shares are issued for the services provided. If the value of the asset or service being acquired is available and is believed to fairly represent its market value, the transaction is valued using the value of the asset or service being provided.
When options or warrants to purchase our stock are used in transactions with third parties, the transaction is valued using the Black-Scholes valuation method. The Black-Scholes valuation method is widely used and accepted as providing the fair market value of an option or warrant to purchase stock at a fixed price for a specified period of time. Black-Scholes uses five (5) variables to establish market value of stock options or warrants:
- strike price (the price to be paid for a share of our stock)
- price of our stock on the day options or warrants are granted
- number of days that the options or warrants can be exercised before
they expire
- trading volatility of our stock, and
- annual interest rate on the day the option or warrant is granted.
The determination of expected volatility requires management to make an estimate and the actual volatility may vary significantly from that estimate. Accordingly, the determination of the resulting expense is based on a management estimate.
When options or warrants to purchase our stock are used as incentives for employees, officers or directors, we use the intrinsic value method in accordance with the recognition and measurement principles of Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees", as permitted by Statement of Financial Accounting Standards "SFAS" No. 123. The intrinsic value method calculates the value of the option or warrant at the difference between the strike price and the price of the stock on the day the option or warrant is granted, except that such value is zero if the strike price is higher than the price of the sock.
When the instruments are provided for past services or are provided fully vested and are not subject to return, the shares are valued at the market price at the time the instrument is delivered. When the instrument is provided for future services, the expense is based on the fair market value of the instruments when the services are provided.
Once the transaction value is determined, GAAP requires us to record the transaction value as an expense or asset as determined by the transaction and to record an increase in our paid in capital.
Recent Accounting Pronouncements
In December 2004, the FASB revised Statement of Financial Accounting Standards No. 123 Accounting for Stock-Based Compensation. This statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and the related implementation guidance. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services. It also addresses transactions in which an entity incurs liabilities in exchange for goods and services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. For public entities that are not small business issuers, the implementation of this statement is required as of the beginning of the first interim or annual reporting period after June 15, 2005. For public entities that are small business issuers, like us, the implementation of this statement, is required as of the beginning of the first interim or annual reporting period after December 15, 2005. Management is required to implement its statements beginning in the fiscal year January 1, 2006 and they are currently evaluating the impact of implementation of this statement on us.
Fiscal Year Ended December 31, 2004 Compared to Fiscal Year Ended December 31, 2003
For the year ended December 31, 2004, our revenue decreased by $145,309 to $57,238 from $202,547 for the year ended December 31, 2003 a decrease of 72%, with a gross profit of $48,209. The decrease is primarily due to the redirection of our sales focus and strategy from the resale of computer equipment (principally iris recognition devices manufactured by Panasonic and LG Electronics) to the development and sale of our own suite of authentication security and identity theft prevention solutions. Commission income for the period decreased by $3,818 from $7,498 in 2003 to $3,680 in 2004, a decrease of 51%, as a result of the termination of our residual commissions agreement received from prior contracts sold when acting as an agent in the resale of telecommunications equipment and services.
The General and Administrative Operating Expenses for the period ended December 31, 2004 increased by $1,872,796, to $2,719,258 from $846,462 for the period ending December 31, 2003, an increase of approximately 221%. These increases are largely attributable to corporate development, our increased payroll expenses due to upsizing, and our increased marketing expenses in order to facilitate growth and our efforts to develop commercial markets for our products during the second half of 2004.
The net loss for the year ended December 31, 2004 was $2,993,529, or a loss of $0.20 per common share, compared to net loss of $800,717, or a loss of $0.07 per common share, for the year ended December 31, 2003, an increased net loss of approximately 274% and an increase in the loss per share of approximately 186%. The primary reasons for the increase in the loss was the additional personnel and marketing costs associated with our efforts to introduce our network security products to the market. Our total operating expenses for the year ended December 31, 2004 were $2,947,669.
Our principal expenses for the year ended December 31, 2004 were payroll expenses and professional services fees. Our professional services fees included legal services, accounting services, public relation firms, and lobbyist consultants and development consultants. The increased level of expenses incurred by us in 2004 as compared to 2003 arises out of our efforts to commercially develop and exploit our suite of network security products. These expenses were additional payroll, marketing and consulting expenses. Some of the specifics include additional sales support, contracting a new public relations firm and contracting a lobbyist group in Washington, D.C. to concentrate on the government sector.
When options or warrants to purchase our stock are used as incentives for employees, officers or directors, we use the intrinsic value method in accordance with the recognition and measurement principles of Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees", as permitted by Statement of Financial Accounting Standards "SFAS" No. 123, to account for its employee incentive stock options. The intrinsic value method calculates the value of the option or warrant at the difference between the strike price and the price of the stock on the day the option or warrant is granted, except that such value is zero if the strike price is higher than the price of the stock. All employee stock options issued as of December 31, 2004, have been accounted for under the intrinsic value method and have been valued at $0 because the strike price of such options were issued at $1.00, which was greater than the fair market price on the dates of grant. Had we determined compensation expense based on the fair value at the grant dates for those awards consistent with the method of SFAS No. 123, the value of the vested employee stock options would be $163,985 and $120,311 for the years ended December 31, 2004 and 2003, respectively, using the Black-Scholes option-pricing model. As of December 31, 2004, using the Black-Scholes option-pricing model, the unvested employee stock options were 784,306 with a value which amounted to $239,369.
On December 2, 2004, the Company and NetLabs.com agreed to terminate the royalty portion of the Asset Purchase Agreement for the issuance to NetLabs of options to purchase 7,600,000 shares of the Company's common stock at a price of $0.36. The options vest as follows: 2,530,000 shares at September 11, 2004, 2,530,000 shares at September 11, 2005 and 2,540,000 shares at September 11, 2006. At December 31, 2004 the fair value of the options are $3,194,274 using the Black-Scholes Option Pricing Model. The options are considered payments in lieu of future royalties and beginning December 2, 2004, $3,194,274 of prepaid royalty expense will be amortized over the remaining term of the royalty provision of the agreement, which expires August 31, 2013. The fair value for these options are to be measured as follows: at the time the options vest the fair value of the options will be fixed. Prior to vesting, the options fair value will be measured at the end of each reporting period.
Liquidity and Capital Resources
Our total current assets at December 31, 2004 were $691,282, including $103,745 in cash as compared with $26,533 in total current assets at the year ended December 2003, with cash of $4,285. Additionally, we had a shareholders equity in the amount $2,288,440 at the year ended December 31, 2004 as compared to a shareholders deficiency of $578,167 at the year ended December 2003. We have historically incurred losses and have financed our operations through
loans, principally from affiliated parties such as our directors, and from the proceeds of the corporation selling shares of our common stock privately. During 2004, we issued 1,187,081 shares in connection with a private placement of our common stock from which we received proceeds of $854,695. Additionally, during the year ended December 31, 2004 the Company privately sold 2,288,975 shares of its common stock for $1,648,068.
The number of common shares outstanding increased from 13,684,257 shares at year end 2003 to 17,160,313 at year end 2004, an increase of 25%. During that period our shareholders' deficit due to the injection of capital, was reversed from a deficit of $578,167 to an equity position of $2,288,440 at year end 2004, an increase of approximately 496%. Our total current assets were $691,282 for the year ended December 31, 2004, compared to total current assets of $26,533 for the year ended December 31, 2003, an increase of approximately 2,505%. We had $103,745 of cash at year end 2004, compared to $4,285 cash at year end 2003 an increase approximately of 2,321%. We financed our operations during 2004 through secured debentures, unsecured loans, principally from related parties and sales by us of our common stock through private transactions.
As of the year ended December 31, 2003, we executed unsecured promissory notes with two employees in the amounts of $12,000 and $8,700 (the employees were subsequently terminated). Additionally, as of December 31, 2003 we executed an unsecured promissory note with an individual in the amount of $10,000 of which $4,000 of the note was repaid.
As of the year ended December 31, 2003, we executed unsecured convertible notes with two of our officers totaling $240,000 and $20,000. Additionally, as of December 31, 2003 we executed an unsecured convertible note with one of our employees of in the amount of $50,000.
For the year ended December 31, 2004, we executed unsecured promissory notes with two of our officers totaling $204,000 and $2,000. Additionally, for the year ended December 31, 2004, we executed unsecured promissory notes with two employees in the amounts of $15,000 (employee has since terminated) and $7,380. For the year ended December 31, 2004, we repaid a $15,000 unsecured promissory note and the $2,000 unsecured promissory note to two of our officers. Additionally, for the year ended December 31, 2004, we repaid to a former employee $21,000 of his unsecured promissory note balance. Additionally, we repaid the remaining balance of the $6,000 unsecured promissory note to the individual by December 31, 2004.
For the year ended December 31, 2004, we executed unsecured convertible notes with one of our officers totaling $200,000, and executed with one of our employee an unsecured convertible note in the amount of $15,000. We also executed unsecured convertible notes with three individuals in the amounts of $25,000, $15,000 and $10,000. Additionally, for the year ended December 31, 2004, $20,000 was repaid to one of our former officers as part of his separation agreement, $300,000 in notes was converted to common stock by one of our officers and $7,500 in notes was converted to common stock by one of our employees.
As of April 30, 2005 the open unsecured promissory note balances are:
o $189,000 to one of our officers
o $6,200 to one of our former employees
As of April 30, 2005, we executed unsecured convertible notes with an individual for $125,000 and an unrelated company for $235,000.
As of April 30, 2005 the open unsecured convertible note balances are:
o $140,000 to one of our officers
o $57,500 to one of our employees
o $175,000 to four individuals
o $235,000 to an unrelated company
For the period January 1, 2005 through April 30, 2005, we repaid $2,500 of the unsecured promissory note to one of our former employees. Additionally, we placed into escrow the outstanding unsecured promissory note balance of $6,000 to be released upon the execution of a former employee separation agreement.
To date, we have not generated significant revenues and we anticipate that we will not generate any significant revenues until the fourth quarter of 2005. We expect that we will rely, at least in the near future, upon a limited number of customers for a substantial percentage of our revenues and may continue to have customer concentrations. Inherently, as time progresses and corporate exposure in the market grows, we will attain greater numbers of customers and the concentrations will diminish. Until this is accomplished, we will continue to secure additional financing through both the public and private market sectors to meet our continuing commitments of capital expenditures and our sales revenue can provide greater liquidity.
We do not expect to sell significant equipment over the next twelve months except within the demands of potential acquisitions that we may pursue or part of our distribution or reseller business.
We have historically incurred losses and expect to continue to incur losses in the foreseeable future. Our operations presently require funding of approximately $240,000 per month. We project to be profitable by the end of year 2005. Our current forecast and pipeline substantiate our becoming profitable by the end of 4th quarter 2005 based on some key potential clients in the financial industry in the United States and in Asia. There can be no assurance, however, that the sales anticipated will materialize or that we will achieve profitability we have as forecasted.
Except for the limitations imposed upon us respective to the secured convertible debentures of Cornell Capital Partners, LP. and Highgate House Fund, Ltd., there are no material or known trends that will restrict either short term or long-term liquidity. The secured debentures require us to obtain approval of Cornell and Highgate prior to concluding and accepting any additional financing and restrict us providing no terms better than what Cornell and Highgate has provided through the secured debentures.
On December 20, 2004, we entered into a Securities Purchase Agreement whereby we agreed to issue $1,000,000 in secured convertible debentures to Cornell. In accordance with our agreement with Cornell, we issued a $500,000 secured debenture on December 20, 2004 and received the net proceeds of the secured debenture on December 22, 2004. We issued a second secured debenture and received $500,000 on January 25, 2005. The secured debentures bear interest at 8%, mature three years from the date of issuance, and are convertible into our common stock, at the holder's option, at the lower of: (i) 120 percent of the market price of our stock at such time as it is quoted on the Over-the-Counter Bulletin Board or (ii) 80 percent of the lowest closing bid price during the five days preceding the conversion date. The issuance of the secured convertible debentures has resulted in the creation of a liability. We believe, although we cannot provide guarantees, that Cornell will convert the secured debentures into shares of our common stock thereby not impacting our cash position. In the event that Cornell does not convert the secured debentures to shares, then we will be required to repay the principal and interest on the secured debentures, which may have a negative impact on our liquidity. However, based on the terms of the secured convertible debentures, we have the ability to prepay any or all of the outstanding secured debentures at any time prior to maturity with no penalty other than a 10%-20% premium on the remaining principal balances. This would eliminate any additional negative impact to our stock price once effective that the conversion of the secured debentures agreements could cause.
At the time that we entered into the agreement to issue $1,000,000 aggregate value of secured debentures to Cornell, we also entered into a Standby Equity Distribution Agreement ("SEDA") with Cornell in the amount of $10,000,000. Effective February 10, 2005, we agreed with Cornell to terminate the SEDA.
It is unlikely that we will be able to generate sufficient funds internally to sustain our operations until the fourth quarter 2005. We will seek to raise additional funds to continue our operation. It is management's plan to seek additional funding through the sale of common stock and the issuance of notes and debentures, including notes and debentures convertible into common stock. If we issue additional shares of common stock, the value of shares of existing stockholders is likely to be diluted.
However, the terms of the secured convertible debentures issued to certain of the selling stockholders require that we obtain the consent of such selling stockholders prior to our entering into subsequent financing arrangements. No assurance can be given that we will be able to obtain additional financing, that we will be able to obtain additional financing on terms that are favorable to us or that the holders of the secured debentures will provide their consent to permit us to enter into subsequent financing arrangements.
Our future revenues and profits, if any, will primarily depend upon our ability to secure sales of our suite of network security products. We do not at present generate significant revenue from the sales of our products. Although management believes that our products provide a competitive solution for customers seeking a high level of network security, we cannot forecast with any reasonable certainty whether our products will gain acceptance in the marketplace and if so by when. In addition, we are a reseller and potential distributor for various security and telecommunications related products, for which we anticipate minimal revenues over the next twelve (12) months.
SUBSEQUENT EVENTS
On April 27, 2005, we entered into an amendment to the secured debentures with Cornell. Pursuant to said amendment, we revised the conversion price of the secured debentures to an amount equal to the lesser of: (i) 120% of the average closing bid price for the 5 trading days immediately preceding the closing date; or (ii) 80% of the lowest closing bid price of the common stock during the five days preceding the conversion date. In addition, the amended secured debenture was issued to Cornell in a principal amount of $1,024,876, representing $1,000,000 of the original principal amount of the secured debentures issued to Cornell on December 20, 2004, plus $24,876 in accrued interest from the date of original issuance to April 27, 2005.
On April 27, 2005, we entered into a Securities Purchase Agreement with Highgate House Funds, Ltd. ("Highgate") pursuant to which we sold a principal amount $750,000 7% secured convertible debentures , and the 150,000 shares of our common stock, par value $.0001 per share. We received $375,000 from Highgate on the date of the first closing, May 2, 2005, and we held a second closing on May 11, 2005 in which we received the remaining $375,000 in funds from Highgate. We issued the aforementioned securities to the investor pursuant to Rule 506 of Regulation D as promulgated under the Securities Act of 1933, as amended (the "Act"), and/or Section 4(2) of the Act.
The secured debentures bear simple interest at a rate of 7% per annum and expire 2 years after the date of issuance. The secured debentures are convertible into shares of our common stock at a conversion price equal to the lesser of (i) 120% of the average closing bid price for the 5 trading days immediately preceding the closing date; or (ii) 80% of the lowest closing bid price for the 5 trading days immediately preceding the date of conversion. In addition, we have the right to redeem the secured debentures, at any time prior to its maturity, upon 3 business days prior written notice to the holder. In the event that we redeem the secured debentures within 180 days after the date of issuance, the redemption price shall be 110% of the remaining balance of the secured debentures plus accrued interest. After 180 days the secured debentures may be redeemed at 120% of the remaining balance of the secured debentures plus accrued interest.
In addition, we have entered into an Investor Registration Rights Agreement with Highgate dated as of April 27, 2005 pursuant to which we have agreed to file a registration statement no later than 30 calendar days after the closing date registering the 150,000 shares issued to Highgate and 500% of the shares of our common stock issuable upon conversion of the secured debentures. In addition, we have agreed to use our best efforts to ensure that such registration statement is declared effective by the Securities and Exchange Commission within 120 calendar days after the date of filing. In the event that the registration statement is not declared effective within 120 calendar days from the date of filing, we shall make a cash payment to the investor, as liquidated damages and not as a penalty, or shall issue to the investor shares of our common stock, at our sole election, within 3 business days from the end of the month, in an amount equal to 2% (two percent) per month of the outstanding principal amount of the secured debentures.
We entered into an Escrow Shares Escrow Agreement with Highgate and Gottbetter & Partners, LLP, as escrow agent, pursuant to which we issued 6,510,000 shares of our common stock issuable upon conversion of the secured debentures to be held in escrow until such time as Highgate converts all or a portion of the secured debentures.
In addition, we entered into a Security Agreement with Highgate dated as of April 27, 2005 pursuant to which we granted Highgate a secured interest in all of our assets. Such secured interest shall be second in priority to the secured interest which we granted to Cornell Capital Partners, L.P. on December 20, 2004.
Going Concern
We are assuming that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred net operating losses of approximately $2,993,529 for the year ended December 31, 2004, compared to $800,717 for the year ended December 31, 2003. The accompanying audited financial statements have been prepared for the year ended December 31, 2004. Additionally, as of December 31, 2004, we had a net working capital deficiency of approximately $595,675 and negative cash flows from operating activities of approximately $2,004,228. Since our inception, we have incurred losses, had an accumulated deficit, and have experienced negative cash flows from operations. The expansion and development of our business may require additional capital. This condition raises substantial doubt about our ability to continue as a going concern. Our management expects cash flows from operating activities to improve in the fourth quarter of fiscal 2005, primarily as a result of an increase in sales, and plans to raise financing through various methods to achieve the business plans, although there can be no assurance thereof. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. If we fail to generate positive cash flows or obtain additional financing when required, we may have to modify, delay or abandon some or all of our business and expansion plans.
BUSINESS
Organization
StrikeForce is a New Jersey corporation that was organized under the laws of the State of New Jersey on August 24, 2001. On December 10, 2002, memorialized on September 11, 2003, we acquired all of the intellectual property of NetLabs.com, Inc., including the rights to develop and sell their principal products.
We were organized in August 2001 under New Jersey law as Strike Force Technical Services, Inc. We initially conducted operations as an integrator and reseller of computer hardware and telecommunications equipment and services. In December 2002 and formally memorialized by an agreement in September 2003, we completed the acquisition of certain assets of another New Jersey corporation, NetLabs.com. We subsequently changed our name to StrikeForce Technologies, Inc., under which we had conducted our business since August 2001. The assets that we acquired from NetLabs.com included the intellectual property rights to their principal products and certain officers of NetLabs.com joined StrikeForce as officers and directors of our company. We are a software development and services company that offers a suite of Integrated computer network security solutions using proprietary technology. Our strategy is to develop and exploit our suite of network security products for customers in the corporate, financial, government and e-commerce sectors.
Our Products
We are actively marketing a suite of proprietary products that provide a method to completely separate a user's name and password over different communications channels, making the possibility of password interception and hacking extremely remote. This separation of the user's credentials is known as "Out-of-Band" authentication, i.e., verification of the user's identity through communication with an independent server. Most computer network security uses a single band of communication in which the user and password are identified in the same communication channel. We acquired these assets in December 2002 from NetLabs.com, Inc., which includes the research and development necessary to introduce these products to the marketplace and completed the development of the core platform (ProtectID(TM)) in mid 2003. Currently, we are selling the latest ProtectID(TM) version 2.0. Additionally, during 2004 we completed and started to market and sell both our VerifyID(TM) (version 1.0)and ResetID(TM) (version 1.0) products. We completed the alpha version of our GuardedID(TM) product in the fourth quarter of 2004 and will be introducing for sale GuardedID(TM) version 1.0 during the second quarter 2005. Our estimated costs to complete the manuals and packaging for GuardedID(TM) are $20,000. Our TrustedID(TM) application is still under development and we expect to incur additional costs of $85,000 on this product. We have targeted the introduction of our initial version of TrustedID(TM) for the second quarter of 2005 and plan to introduce subsequent versions with additional features, if justified by market demand.
We incurred research and development costs for the years ended December 31, 2004 and December 31, 2003, of $228,411 and $80,651, respectfully. All costs of research and development have been borne by us.
Our "Out-of-Band" authentication solution is part of our suite of security products (ProtectID(TM), VerifyID(TM), GuardedID(TM), TrustedID(TM) and ResetID(TM)), which provide a high level of security for computer networks used in eCommerce, corporate, financial services and government. Management believes that the demand for network security products is likely to increase in the immediate future as a result of greater emphasis on the security of computer networks and the global growth incidence of identity theft.
o ProtectID(TM) is an authentication platform that uses our "Out-of-Band" procedures to authenticate computer network users by a variety of methods including traditional passwords combined with a telephone or multiple computer secure sessions, biometric identification or encrypted devices such as tokens or smartcards. The authentication procedure separates authentication information, or utilizes a device across a second network, such as usernames and passwords or biometric information, which are then provided to the network's host server on separate channels.
o VerifyID(TM) is a software application that verifies the identity of an end user or applicant by asking a series of questions based on publicly available information, e.g., prior addresses or motor vehicles that are unlikely to be known by anyone other than the "true" user.
o TrustedID(TM) is a development-phase software application intended to provide greater security by validating the authenticity of any computer trying to login to an enterprise network or web service using a unique device "ID" that is machine specific. TrustedID(TM) also protects networks from the results of malware/spyware and further secures, by personal firewall, end user data being secretly transmitted to spyware servers.
o GuardedID(TM) creates a 128 bit encrypted separate pathway for information delivery from a keyboard to a targeted application at a local computer, preventing the use of spyware/malware being used to collect user information.
o ResetID(TM) provides user authenticated "Out-of-Band" technology to reset user credentials. ResetID(TM) provides a secure means of resetting a user's passwords into Active Directory and LDAP databases.
Additional information about our products is available on our website, www.sftnj.com.
A number of the above products include software and hardware solutions that we contractually license from other vendors. These vendor licenses are specific to Microsoft's Windows Server and Pronexus for their telephony software. In addition, StrikeForce secondarily functions as a distributor and reseller of related data, software and hardware products. These products include aggregated consumer data that we are licensed to access through third-party data base providers as part of our VerifyID(TM) product and biometric scanners such as Panasonic's Iris and Video Cameras. Our ProtectID(TM) requires a hosted service provider if the business prefers not to license the product directly, for which we have a strategic arrangement with Panasonic to provide for us. With the exception of our licenses with Microsoft, none of our contracts for hardware or software are with a sole supplier of that solution.
In addition, StrikeForce secondarily functions as a distributor and reseller of related technology software and hardware products. These products include Panasonic's Iris Cameras, as well as additional authentication and telecommunication software and hardware devices. Because we believe that our solution can provide device manufacturers with increased market opportunities, our strategy includes the distribution and resale of other manufacturers products that utilize our products. An example would be the sale of a biometric device that requires special software and processing to authenticate remote users, for which ProtectID(TM) solves that problem. We intend to seek out such synergistic relationships that will establish StrikeForce as a partner to the device manufacturer and provide opportunities for StrikeForce to distribute and/or resell related hardware and/or software solutions with our products. At the present time, however, the resale of the products of third parties are incidental to our principal business as a provider of security software for various computer applications.
Our products incorporate technology and processes that we consider confidential and proprietary, and we have taken steps to protect our exclusive use of these processes to the extent possible. We have applied for patents to protect a right of exclusive use for certain aspects of our technology and methodology. In addition, our policy is to require our employees, consultants, vendors, suppliers, resellers and our customers execute confidentiality agreements that prohibit disclosure of our confidential and proprietary information. There can be no assurance, however, that all parties executing such agreements will comply with our terms or that we will be able to enforce the agreements in the event of a breach.
Factors that are considered important to our success include, but are not limited to, the following:
o The Size and Growth of the Network Security Market: The United States software market for solutions to thwart identity theft is estimated by the United States Federal Trade Commission to reach $10 billion by 2006. In 2002, the FTC reported losses of $48 billion by 9.9 million victims of identity theft. We believe that our products have the ability to prevent identity theft.
o The Effectiveness of Our Products: Our products have been designed to provide the highest available level of security for computer networks. In particular, we believe that our "Out-of-Band" authentication process is an innovative solution that will prevent unauthorized access to computer networks. We also believe that our other products will substantially reduce or eliminate unauthorized access to the computer networks of our customers and will provide effective security solutions to drastically reduce the incidence of identity fraud for our customers. We have not, however, implemented our products on a large scale and there can be no assurance that they will function in all aspects as intended. Likewise, a high level of innovation characterizes the software industry and there can there be no assurance that our competitors will not develop and introduce a superior product. The effective functioning of our products once deployed is an important factor in our future success.
o Ability to Integrate our Software with Customer Environments: There are numerous operating systems that are used by computer networks. The ability of a software solution to integrate with multiple operating systems is likely to be a significant factor in customer acceptance of particular solutions. StrikeForce's ProtectID(TM) operates on an independent platform and is able to integrate with multiple operating systems and user interfaces. ProtectID(TM) has been designed to use multiple authentication devices on the market (including, but not limited to, biometrics, smart cards and telephones). Our ability to integrate our products with multiple existing and future technologies is likely to be a key factor in the acceptance of our product.
o Relative Cost: We have attempted to design our products to provide a cost-effective solution for commercial and governmental customers. Our ability to offer our product at a competitive price and to add to existing installations is likely to be a key factor in the acceptance of our product.
We have four patent applications pending governing the technology used in our ProtectID(TM) product. These include a patent pending for the ProtectID(TM) "Out-of-Band" security product (for Computer Network Applications) and one application for the ProtectID(TM) Methods and Apparatus for authenticating a user via an "Out-of-Band" Authentication Platform.
We intend to market our products to financial service firms, e-commerce companies, governments and small to medium-sized businesses with virtual private networks, as well as technology service companies that service all the above markets. We intend to seek such sales through our own direct efforts and through distributors and resellers. We are also seeking to license our technology as original equipment with computer hardware and software manufacturers. We are engaged in pilot projects with various resellers and direct customers, as well as having reached reseller agreements with strategic vendors.
Business Model
We operate primarily as a software development company, providing security software products and services, to be sold to enterprises and Internet consumer businesses, both directly and through sales channels comprised of resellers, distributors and OEM relationships. We are also a reseller of biometric security products for both Panasonic and LG Electronics, as well as other security and telecommunications related devices. Initially, SFT is focusing on direct sales of its suite of security products and is also seeking to develop future sales through "channel" relationships in which our products are offered by other manufacturers, distributors or value-added resellers. It is our strategy that these "channel" relationships will provide the greater percentage of our revenues in approximately 2 years. Examples of the channel relationships that we are pursuing include our attempts to establish Original Equipment Manufacturing ("OEM") relationships with other security technology and software providers that would integrate the enhanced security capabilities of ProtectID(TM) into their own product lines. These would include providers of networking software and manufacturers of computer and telecommunications hardware and software that provide managed services.
Our primary target markets include e-commerce based services companies, telecommunications and cellular carriers, financial services, and technology software companies. For the near term, we are narrowly focusing our concentration on short sales-cycle customers and strategic problem areas, such as stolen passwords used to acquire private information illegally. Because we anticipate growing market demand, we are developing a reseller and distribution channel as a strategy to generate, manage and fulfill demand for our products across market segments. We intend to minimize the concentration on our initial direct sales efforts in the future as our reseller channel develops.
We intend to generate revenue through several pricing strategies. These include transaction fees based on volume of usage in the e-commerce markets, one time per person fees in the enterprise markets, set-up fees when the product is hosted, yearly maintenance fees and other one-time fees. We are developing pricing strategies that are intended to make our product highly competitive with other products on the market. We anticipate that a typical user will pay an initial hosting set-up fee as appropriate, periodic fees or usage-based fees for continuing use of the product, as well as yearly maintenance fees. In situations we are successful in having our products incorporated in the products and services of other companies, we intend to collect a per-unit royalty fee. We also provide our clients a choice of operating our software license internally or through our hosting service with Panasonic.
SFT's multi-channel marketing strategy includes:
o Direct sales to enterprise and commercial customers emphasized in early stages.
o Resellers & Distributors, (main sales channel) which distribute our products and services to enterprise and commercial customers (technology and software product distributors, systems integrators, other security technology and software vendors, telecom companies, etc.).
o Application Service Provider (ASP) Partner: Panasonic provides a hosting platform that facilitates faster implementations at a lower cost.
o Original Equipment Manufacturers: SFT products are sold to other security technology vendors that integrate ProtectIDTM into their products and services.
We also have entered into a strategic partnership with Panasonic in which Panasonic is an Authorized Service Provider (ASP) for the StrikeForce products, which require a secondary server used for our "Out-of-Band" authentication technology. As an authorized ASP provider, Panasonic operates our products in their data center for the benefit of clients who contract with StrikeForce for our security products. We believe that this relationship with Panasonic improves the implementation time and reduces cost and training requirements. Our agreement with Panasonic is for a five-year (5) term ending in August, 2008, which commenced August, 2003. The relationship can be terminated by either party on six months notice. Panasonic is compensated by StrikeForce based on contracted percentages of the client's fees to StrikeForce as documented in each additional client amendment to the contract.
Competition
The software development and services market is characterized by innovation and competition. There are several well-established companies within this market that offer network security systems. These include both established companies like RSA, Secure Computing, Authentify, Swivel and ValidSoft and newer companies with emerging technologies. SFT believes that its patents-pending "Out-of-Band" identity authentication system, generally known as ProtectID(TM), is an innovative, secure, adaptable, competitively priced, integrated network authentication system. The main features of ProtectID(TM) include: an open architecture "Out of Band" platform for user authentication; operating system independence; biometric layering; mobile authentication; secure website logon; VPN access; domain authentication and multi-level authentication.
Unlike other techniques for increased network security, ProtectID(TM) does not rely on a specific authentication device (e.g., tokens, smart cards, digital certificates or biometrics, such as a retinal or fingerprint scan). Rather ProtectID(TM) has been developed as an "open platform" that incorporates other authentication devices. For example, once a user has been identified to a computer network, a system deploying the ProtectID(TM) authentication system, our product, permits the "Out-of-Band" authentication of that user by a telephone, SSL client software or biometric device such as a fingerprint scan using a second server, before that user is permitted to access the network. By using "Out-of-Band" authentication methods, management believes that ProtectID(TM) provides a competitive solution for customers with security requirements greater than typical name and password schemes, virtual private networks and computer systems with multiple users at remote locations. We also believe that the other products (VerifyID(TM), TrustedID(TM), GuardedID(TM) and ResetID(TM)) offer competitive solutions for network security and e-commerce applications that should provide greater levels of security.
Although we believe that our suite of products offer competitive solutions, there is no assurance that any of these products will gain acceptance in the marketplace. Our competitors include established software and hardware companies that are likely to be better financed and to have established sales channels. Due to the high level of innovation in the software development industry, it is also possible that a competitor will introduce a product that provides a higher level of security than the ProtectID(TM) products or which can be offered at prices that are more advantageous to the customer.
INTELLECTUAL PROPERTY
We do not have any registered copyrights on any software and even though we have filed trademarks and patent applications, they are all pending completion. A minimal portion of our software is licensed from third parties and the remainder is developed by our own team of developers. We rely upon confidentiality agreements signed by our employees, consultants and third parties to protect our intellectual property.
We license technology from third parties, including software that is integrated with internally developed software and used in our products to perform key functions. We anticipate that we will continue to license technology from third parties in the future. Although we are not substantially dependent on any individual licensed technology, some of the software that we license from third parties could be difficult for us to replace. The effective implementation of our products depends upon the successful operation of third-party licensed products in conjunction with our suite of products, and therefore any undetected errors in these licensed products could create delays in the implementation of our products, impair the functionality of our products, delay new product introductions, and/or damage our reputation.
Business Strategy
We intend to incur significant additional costs before we become profitable. We anticipate that most of the costs that we incur will be related to salaries, wages and sales commissions. We have 16 employees, of which four are involved in sales. We anticipate that we will increase our sales force between two to four full-time employees during the next 12-18 months. At the present time, our monthly burn rate is approximately $240,000 a month, and we expect that our monthly burn rate will increase to $300,000 per month in approximately 12-18 months. We anticipate that the area in which we will experience the greatest increase in expenses is in payroll expenses for our sales, marketing and technology organizations.
Our strategy over the next 12 months is to have our sales force focus on direct sales to network customers and on industries that management believes provides the greatest potential for near-term sales. These include financial services, government and e-commerce businesses. We are also seeking a strategic program to establish successful resellers of our product. It is our intention to ultimately utilize resellers to generate the bulk of its sales. There can be no assurance, however, that we will succeed in implementing our sales strategy. Although management believes that there is a strong market for its products, we have not generated substantial revenue from the sale of our principal products and there is no assurance that the market will be sufficient to permit us to achieve profitability.
In addition, the terms of the secured convertible debentures issued to certain of the selling stockholders require that we obtain the consent of such selling stockholders prior to our entering into subsequent financing arrangements. No assurance can be given that we will be able to obtain additional financing, that we will be able to obtain additional financing on terms that are favorable to us or that the holders of the secured debentures will provide their consent to permit us to enter into subsequent financing arrangements.
We also plan to pursue strategic partnerships with larger companies. In August 2003 we executed such a strategic partnership agreement with Panasonic that provides a hosted service for StrikeForce's suite of products. This permits our clients to implement our solution without having to leverage or develop their own infrastructure.
DESCRIPTION OF PROPERTY
We operate from leased offices located at 1090 King Georges Post Road, Edison, New Jersey 08837. We do not hold any material investments in other real or personal property other than office equipment. We anticipate these facilities will be adequate for the immediate future but that if we are successful in introducing our products, we will need to seek larger office quarters. We have a non-cancelable operating lease for office space that was to expire in February 2005. However, we leased additional adjoining space in November 2004 and the lease was extended for an additional three-year term beginning February 1, 2005. The lease does not contain a renewal option and requires us to pay all executory costs such as maintenance and insurance.
The future minimum rental expense under the non-cancelable operating lease is as follows:
Total
Base Rent Utilities Office Rent
-------- --------- -----------
2005 $ 68,997 $ 5,529 $ 74,526
2006 $ 68,954 $ 5,529 $ 74,483
2007 $ 68,954 $ 5,529 $ 74,483
2008 $ 5,746 $ 461 $ 6,207
Lease total $212,651 $17,048 $229,699
======== ======= ========
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None of the following parties has, since our date of incorporation, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:
o Any of our directors or officers, except for Mark L. Kay, as described
below;
o Any person proposed as a nominee for election as a director;
o Any person who beneficially owns, directly or indirectly, shares
carrying more than 10% of the voting rights attached to our
outstanding shares of common stock;
o Any of our promoters;
o Any relative or spouse of any of the foregoing persons who has the
same house address as such person.
Mark L. Kay, our Chief Executive Officer, loaned us an aggregate of $440,000 during 2003 and 2004, memorialized in the form of convertible loans. These convertible loans mature as follows: December 31, 2004, for $300,000, September 30, 2005, for $60,000, and December 31, 2005, for $80,000, have a variable interest rate payable at 6.375% as of December 31, 2004 and can be converted into common shares before maturity at $1.00 per share. Mr. Kay has converted $300,000 of the principal into common stock at $0.72 per share in December 2004, leaving a balance of $140,000. In addition, warrants attached to the convertible loans, provide Mr. Kay with the ability to purchase up to 39,000 common shares at a price of $1.00 per share.
Convertible notes payable to related parties at December 31, 2004 consisted of convertible promissory notes that we executed with the CEO, the Vice President of Technical Services ("VPTS") and relatives of one of our former officers. The terms of the convertible promissory notes state that principal is payable in full in immediately available funds of $1,000,000 or more through any sales or investment by the end of December 31, 2004 or later if agreed upon by each individual and us. All notes not issued to the CEO bear interest at a rate of prime plus 2% and 4% per year and the remaining notes bear interest equal to the CEO's private banking account monthly lending rate. Interest is payable at such time as the principal on the note is due. At any time prior to repayment of all outstanding principal and accrued interest hereunder, at the election of each individual, the individual shall have the right to convert the then outstanding principal amount of this note, and all outstanding accrued interest thereon, into that number of shares of our common stock, determined by dividing the amount of principal and interest then outstanding hereon by a conversion price of either $0.72 or $1.00, depending on the note.
In January 2004, we terminated our employee relationship with our then CFO. A settlement between us and our former CFO occurred subsequently and included the repayment of a convertible promissory note dated December 2003 in the amount of $20,000 and $36,646 in severance for compensation. These amounts were paid in May 2004 in full settlement and the $36,646 has been recorded as a litigation settlement expense in 2004. As further consideration, the agreement also vested the former CFO options to purchase 50,000 shares of our common stock on a fully converted and fully diluted basis. The options have an exercise price of $1.00 and a term of ten years from the former CFO's hire date. The agreement releases us from any and all prior obligations and claims with the former CFO.
In January 2004, we received $15,000 from the VPTS and executed a convertible note payable with interest at prime plus 4% per annum. We also had an additional $50,000 convertible note payable dated November 2003 with the VPTS, bearing interest at prime plus 2% per annum. In November 2004, the notes maturity dates were extended to June 30, 2005. In December 2004, we amended the conversion price on the convertible notes to $.72 a share. In December 2004, VPTS exercised the conversion feature for the note and received 10,417 shares of our common stock for the conversion of $7,500 of notes.
In January, February, June and September 2004 we received $60,000, $60,000, $50,000 and $30,000, respectively from the CEO and executed four separate convertible notes payable with interest equal to the CEO's private banking account monthly lending rate and were due December 31, 2004. In November 2004, the notes maturity dates were extended to September 30, 2005 for the February 2004 convertible note, and December 31, 2005 for the June 2004 and September 2004 convertible notes. In addition to these notes, we had an additional $240,000 of convertible notes payable dated between August 2003 and December 2003 with the CEO, all notes have the same terms. In December 2004, we amended the conversion price of the convertible notes payable to $.72 per common share. Following the amendment, the CEO elected to exercise the conversion of all of the notes dated 2003 and elected to convert the January 2004 note. The election amounted to the cancellation of $300,000 of notes for 416,665 shares of our common stock to the CEO.
In January 2004, we received $15,000 and executed a promissory note with a founding shareholder of our company. The note is due on December 31, 2004 and bears interest at prime plus 2% per year. The principal balance outstanding on this note is $6,000 at December 31, 2004. The remaining balance of the note is being held in an escrow account with our employment counsel, as we are waiting for a general release from this individual.
In March 2004, we received $105,000 and executed two promissory notes with our Chief Executive Officer ("CEO"). The notes are due June 30, 2005 and bear interest at a rate per annum equal to the CEO's private account monthly lending rate.
In July 2004, we received $2,000 and executed a promissory note with our President. The note is non-interest bearing and is due on December 31, 2004. In December 2004, this note was paid in full.
In August 2004, we received $7,380 and executed a promissory note with an officer of our company. The note was due December 31, 2004 and beared interest at prime plus 2% per year. In December 2004, this note was paid in full.
In November and December 2004, we received $99,000 and executed two promissory notes with our CEO. The notes are due on June 30, 2005 and bear interest at a rate per annum equal to the CEO's private account monthly lending rate. In December 2004, one note for $15,000 was paid in full. The CEO's private account monthly lending rate for the year ended December 31, 2004 ranged between 5.375 and 6.375 per annum.
In November 2004, we received $50,000 from three separate individuals who are relatives of a former officer for convertible promissory notes. The notes are due on April 30, 2006 and bear interest at prime plus 2% per year.
In connection with all the convertible notes payable entered into, we issued to the individuals warrants exercisable in the aggregate into 47,500 shares of our common stock at an exercise price of $1.00 per share. The warrants were issued at the ratio of one warrant for each $10 of convertible notes payable. These warrants are exercisable for a period of ten years from issuance. The fair value of all the warrants issued using the Black-Scholes Option Pricing Model was $12,565. For the years ended December 31, 2004 and 2003, we have recorded $10,734 and $1,831 of interest and financing expense in the accompanying statement of operations, related to the issuance of these warrants.
At December 31, 2004, accrued interest due to the CEO and VPTS for their notes were $7,514 and $63, respectively, and are included in accrued expenses in the accompanying balance sheet. Interest expense for convertible notes payable - related parties for the years ended December 31, 2004 and 2003 was approximately $25,026 and $4,039, respectively.
In December 2003, we received $12,000 and executed a promissory note with a founding shareholder of our company. The note bears interest at prime plus 2% per year. Eight equal principal payments of $1,500 were to commence on June 1, 2004. At December 31, 2004, this note was paid in full.
In July 2002, advances from a former officer were converted into a promissory note in the amount of $8,700. The note is a non-interest bearing demand note.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Lack of Market for Our Common Stock
There is no established public trading market for our securities. We intend to seek a market maker to apply for a listing on the OTC Electronic Bulletin Board in the United States. Our shares are not and have not been listed or quoted on any exchange or quotation system.
Holders of Our Common Stock
As of the date of this prospectus, we had 144 shareholders of record.
Rule 144 Shares
As of the date of this Prospectus, a total of 17,438,855 shares of our common stock are outstanding. Substantially all of these shares are proposed for registration. In addition, approximately 1,700,000 shares of common stock not covered by this registration are eligible for resale under Rule 144 of the Securities Act.
Dividend Policy
We have never paid any cash dividends on our common shares, and we do not anticipate that we will pay any dividends with respect to those securities in the foreseeable future. Our current business plan is to retain any future earnings to finance the expansion and development of our business. Any future determination to pay cash dividends will be at the discretion of our board of directors, and will be dependent upon our financial condition, results of operations, capital requirements and other factors as our board may deem relevant at that time.
Options and Warrants
Securities Authorized for Issuance Under Equity Compensation Plans
The board of directors has from time to time authorized the issuance of options to employees as compensation for services performed or as incentive for future performance of employee duties. Such issuances were issued without a formal compensation plan having been adopted. On September 4, 2004, the board adopted a formal long-term incentive compensation plan. The following table shows information with respect to each equity compensation plan under which the Company's common stock is authorized for issuance as of the fiscal year ended December 31, 2004.
Equity Compensation Plan Information
------------------------------------ ------------------------ ----------------------- ---------------------------
Plan category Number of Weighted average Number of securities
securities exercise price of remaining available
to be issued upon outstanding for future issuance under
exercise of options, equity compensation plans
outstanding warrants and (excluding securities)
options, rights reflected in column (a)
warrants and rights
------------------------------------ ------------------------ ----------------------- ---------------------------
(a) (b) (c)
------------------------------------ ------------------------ ----------------------- ---------------------------
Equity compensation plans approved
by security holders 1,902,500 $1.00 3,097,500
------------------------------------ ------------------------ ----------------------- ---------------------------
------------------------------------ ------------------------ ----------------------- ---------------------------
Equity compensation plans not
approved by security holders
-0- -0- -0-
------------------------------------ ------------------------ ----------------------- ---------------------------
------------------------------------ ------------------------ ----------------------- ---------------------------
Total 1,902,500 $1.00 3,097,500
------------------------------------ ------------------------ ----------------------- ---------------------------
|
In connection with the purchase of certain assets of NetLabs.com, Inc., we issued to NetLabs.com, Inc. options to purchase 7,600,000 shares of our common stock at a price of $0.36. The options expire in 2013.
In connection with the issuance of certain convertible promissory notes to our employees, we have granted to the holder the right to convert the principal and accrued interest into common stock at a price of $1.00 per share and for a period of ten years to purchase common stock in an amount up to 10 percent of the principal amount of the note at a price of $1.00 per share. There are presently convertible notes outstanding in an amount of $247,500. In addition, after conversion by other holders of other notes to common stock, we are obligated to issue approximately 100,000 shares of common stock to former note holders.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows the compensation awarded to, paid to, or earned
by, our Chief Executive Officer and our four other most highly compensated
executive officers whose total compensation during the last fiscal year exceeded
$100,000.
Annual Compensation Long Term Compensation
-------------------------------- ----------------------------------------------------------------------
Awards Payouts
----------------------------------------------------------------------
Securities
Restricted Underlying
Name and Principal Other Annual Stock Options/ LTIP All Other
Position Year Salary Bonus Compensation Award(s) SARs (#) Payouts Compensation
------------------------- ---------- ----------- ----------- ---------------- -------------- -------------- ----------- ------------
Mark L. Kay 2004 $111,000 -- -- -- -- -- --
Chief Executive Officer 2003 $75,000 -- -- -- 1,000,000 -- --
2002 -- -- -- -- -- --
Robert Denn 2004 $111,000 -- -- -- -- -- --
Chairman of the Board of 2003 $78,000 -- -- -- -- -- --
Directors, President
2002 -- -- -- -- -- -- --
Ramarao Pemmaraju Chief 2004 $111,000 -- -- -- -- -- --
Technical Officer 2003 $78,000 -- -- -- -- -- --
2002 -- -- -- -- -- -- --
George Waller 2004 $111,000 -- -- -- -- -- --
Executive Vice President 2003 $78,000 -- -- -- -- -- --
of Marketing 2002 -- -- -- -- -- -- --
Mark Corrao 2004 $111,000 -- -- -- -- -- --
Chief Financial Officer
2003 $78,000 -- -- -- -- -- --
2002 -- -- -- -- -- -- --
OPTIONS GRANT TABLE
The following table sets forth information with respect to the named
executive officers concerning the grant of stock options during the fiscal year
ended December 31, 2004. We did not have during such fiscal year, and currently
do not have, any plans providing for the grant of stock appreciation rights
("SARs").
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-----------------------------------------------------------------------------
INDIVIDUAL GRANTS
------------------------ --------------------------- ------------------------ ------------------------ ------------------------
Name Number of Securities Percent of total Exercise or base price Expiration Date
Underlying Options options granted to ($/Sh)
granted executives in fiscal
years 2003-2004
--------------------------- ------------------------ ------------------------ ------------------------ ------------------------
Mark L. Kay 1,000,000 100 $1.00(1) May 20, 2013
--------------------------- ------------------------ ------------------------ ------------------------ ------------------------
|
(1) Vests in equal thirds on June 1, 2004, June 1, 2005 and June 1, 2006. Aggregated Option Exercises and Fiscal Year end Option Value Table
There were no options or warrants exercised by any of the Named Executive Officers during the most recently completed fiscal year.
We do not have any Long-Term Incentive Plans.
Compensation of Directors
There are no standard arrangements pursuant to which our directors are compensated for their services as directors. No additional amounts are payable to our directors for committee participation or special assignments. We currently do not have any committees.
There are no other arrangements pursuant to which any director was compensated during our last completed fiscal year for any service provided as director.
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
We have entered into an employment agreement with Mark Kay which provides for his employment as our Chief Executive Officer at a base compensation of $75,000 per year, subject to reviews and increases (including an increase to $150,000 upon achieving $2,000,000 in equity funding). The term of Mr. Kay's employment agreement is from May 20, 2003 through June 1, 2006. The agreement also granted Mr. Kay options for the purchase of 1,000,000 shares of our common stock at an exercise price of $1.00 per share, vesting 33.3% each on June 1, 2004, June 1, 2005 and June 1, 2006. If the agreement is terminated as a result of Mr. Kay's death or disability, any unvested options granted under the agreement will immediately become fully vested. If Mr. Kay terminates his employment for good reason or we terminate it without cause, Mr. Kay will be entitled to receive severance benefits. In the event Mr. Kay's employment is terminated at any time as of his six month anniversary and up to the date of his fifth year anniversary with us, we would continue to pay Mr. Kay the per annum rate of salary in effect on the date of termination for a period of six months. In the event Mr. Kay's employment is terminated at any time as of his five year anniversary with us, or thereafter, we would continue to pay Mr. Kay the per annum rate of salary in effect on the date of termination for a period of twelve months. Additionally, we would be obligated to continue Mr. Kay's medical and dental benefits at the level then in effect on the date of such termination for the period of the severance payment. The current severance payment to Mr. Kay based upon the current salary would be six months based on a per annum compensation of $111,000 or $55,500. Currently, Mr. Kay maintains medical and dental insurance independent of us. This agreement was amended as of May 16, 2004. The amendment authorizes an increase in Mr. Kay's compensation to $111,000 per year as of May 16, 2004. The agreement was further amended November 27, 2004 by authorizing the replacement of the clause regarding the salary increase to $150,000 upon achieving $2,000,000 in equity funding to "there will be no raises permitted until we are public".
CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING & FINANCIAL MATTERS
On May 18, 2004, we notified Dischino & Associates, P.C. that they would no longer be engaged as our auditors and appointed Massella & Associates, CPA, PLLC, a local New York firm, which specializes in S.E.C. accounting and auditing services, to be our new auditors. Our Board of Directors on September 3, 2004, approved SFT's change of auditors. Dischino & Associates, P.C. report on our financial statements for the 2002 year contained no adverse opinion or disclaimer of opinion, nor was it qualified or modified as to audit scope or accounting principles. Dischino & Associates, P.C. report on the Company's financial statements were qualified. There were no disagreements between StrikeForce Technologies, Inc. and Dischino & Associates, P.C. on any matters of accounting principles or practices, financial disclosure, auditing scope or procedure, which, if not resolved to the satisfaction of Dischino & Associates, P.C., would have caused Dischino & Associates, P.C., to make a reference to the subject matter thereof in connection with our audit.
From the date of dismissal of Dischino & Associates, P.C. until the date of engagement of Massella & Associates, CPA, PLLC, we had no disagreements with Dischino & Associates, P.C. on accounting and financial matters.
Since the engagement of Massella & Associates, CPA, PLLC there have been no disagreements with Massella & Associates, CPA, PLLC on accounting and financial matters.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 14A: 3-5 of the Business Corporation Law of the State of New Jersey provides that any corporation shall have the power to indemnify a corporate agent against his expenses and liabilities in connection with any proceeding involving the corporate agent by reason of his being or having been a corporate agent if such corporate agent acted in good faith and in the best interest of the corporation and with respect to any criminal proceeding, such corporate agent has no reasonable cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the securities act Of 1933, as amended, may be permitted to directors, officers or persons Controlling us pursuant to the foregoing provisions, it is the opinion Of the Securities and Exchange Commission that such indemnification is against Public policy as expressed in the act and is therefore unenforceable.
No pending material litigation or proceeding involving our directors, executive officers, employees or other agents as to which indemnification is being sought exists, and we are not aware of any pending or threatened material litigation that may result in claims for indemnification by any of our directors or executive officers.
Our certificate of incorporation provides in effect for the elimination of the liability of directors to the extent permitted by the applicable statute and for the indemnification of our officers and directors to the fullest extent permitted by law.
We have agreed to indemnify each of our directors and certain officers against certain liabilities, including liabilities under the Securities Act of 1933. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Where You Can Find More Information
You may read and copy any report, proxy statement or other information we file with the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain further information by calling the Commission at 1-800-SEC-0330. In addition, we file electronic versions of these documents on the Commission's Electronic Data Gathering Analysis and Retrieval, or EDGAR, System. The Commission maintains a web site at http://www.sec.gov that contains reports, proxy statements and other information filed with the Commission.
Transfer Agent
The Transfer Agent and Registrar for our common stock is Continental Stock Transfer & Trust Co., Inc. Its telephone number is (212) 509-4000.
LEGAL MATTERS
Sichenzia Ross Friedman Ference LLP, 1065 Avenue of the Americas, New York, NY 10018, has passed upon the validity of the shares of common stock offered in this prospectus for us.
EXPERTS
The annual financial statements included in this prospectus included elsewhere in the registration statement have been audited by Massella & Associates, CPA, PLLC, as stated in their report appearing herein and elsewhere in the registration statement and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
STRIKEFORCE TECHNOLOGIES, INC.
TABLE OF CONTENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Page Number
Report of Independent Registered Public Accounting Firm F-1
Financial Statements
Balance sheet at December 31, 2004 F-2
Statement of operations for the years ended December 31, 2004 and 2003 F-3
Statement of stockholders' equity for the years ended
December 31, 2004 and 2003 F-4-F-5
Statement of cash flows for the years ended December 31, 2004 and 2003 F-6
Notes to financial statements F-7-F-31
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of:
StrikeForce Technologies, Inc.
Edison, New Jersey
We have audited the accompanying balance sheet of StrikeForce Technologies, Inc. (the "Company") as of December 31, 2004 and the related statements of operations, stockholders' equity and cash flows for the years ended December 31, 2004 and 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and the results of its operations and its cash flows for the years ended December 31, 2004 and 2003 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has experienced recurring losses and has a working capital deficiency, which raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/MASSELLA & ASSOCIATES, CPA, PLLC ----------------------------------- MASSELLA & ASSOCIATES, CPA, PLLC Syosset, New York March 28, 2005, except for Note 20, as to which the date is April 27, 2005 |
STRIKEFORCE TECHNOLOGIES, INC.
BALANCE SHEET
DECEMBER 31, 2004
ASSETS
Current Assets:
Cash and cash equivalents $ 103,745
Accounts receivable, net 12,698
Prepaid expenses 574,839
--------------------
Total current assets 691,282
Property and equipment, net 33,706
Long-term portion of deferred financing costs 79,861
Long-term portion of prepaid royalties 2,798,792
Intangible Assets 13,852
Security deposit 8,684
--------------------
Total Assets $ 3,626,177
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Secured convertible debenture $ 500,000
Convertible notes payable - related parties 247,500
Notes payable - related parties 203,700
Capital leases payable 23,046
Accounts payable 121,731
Accrued expenses 134,057
Payroll taxes payable 52,930
Due to employees 3,993
--------------------
Total current liabilities 1,286,957
Long-term portion of capital leases payable 50,780
--------------------
Total Liabilities 1,337,737
--------------------
Commitments and contingencies
Stockholders' Equity
Preferred stock, par value $0.10 - 10,000,000 shares authorized,
-0- issued and outstanding -
Common stock, par value $0.0001 - 100,000,000 shares
authorized, 17,160,313 issued and outstanding 1,716
Additional paid-in capital 6,290,961
Accumulated deficit (4,004,237)
--------------------
Total Stockholders' Equity 2,288,440
--------------------
Total Liabilities and Stockholders' Equity $ 3,626,177
====================
|
The accompanying notes and independent auditors' report should be read in conjunction with the financial statements.
STRIKEFORCE TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
--------------------- --------------------
Revenues:
Net sales $ 53,558 $ 195,049
Commissions 3,680 7,498
--------------------- --------------------
Total revenues 57,238 202,547
Cost of sales 9,029 33,993
--------------------- --------------------
Gross profit 48,209 168,554
--------------------- --------------------
Operating expenses:
Selling, general and administrative expenses 2,719,258 846,462
Research and development 228,411 80,651
--------------------- --------------------
Total operating expenses 2,947,669 927,113
--------------------- --------------------
Loss from operations before other income (expense) (2,899,460) (758,559)
--------------------- --------------------
Other income (expense):
Interest income - 731
Interest and financing expense (57,423) (42,889)
Litigation settlement (36,646) -
--------------------- --------------------
Total other income (expense) (94,069) (42,158)
--------------------- --------------------
Net loss $ (2,993,529) $ (800,717)
===================== ====================
Basic and diluted loss per common share $ (0.20) $ (0.07)
===================== ====================
Weighted average number of common shares outstanding 15,348,955 11,498,575
===================== ====================
|
The accompanying notes and independent auditors' report should be read in conjunction with the financial statements.
STRIKEFORCE TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Total
Common Stock Additional Stockholders'
----------------------------- Paid-in Accumulated (Deficiency)/
Date Shares Amount Capital Deficit Equity
------- -------------- -------------- -------------- -------------- --------------
Balance at December 31, 2002 1,000,000 $ 500 - (209,991) (209,491)
Issuance of shares for accrued
compensation Mar-03 4,191,655 2,095 - - 2,095
Issuance of shares for intangibles
payment owed in 2002 Mar-03 6,916,998 3,458 - - 3,458
Issuance of shares as additional
payment for intangible Mar-03 1,140,000 570 - - 570
Sale of shares for cash May-03 300,000 150 299,850 - 300,000
Sale of shares for cash Jul-03 1,337 1 999 - 1,000
Sale of shares for cash Aug-03 79,267 40 59,410 - 59,450
Warrants issued in connection with
convertible notes Aug-03 - - 1,044 - 1,044
Sale of shares for cash Sep-03 55,000 28 54,972 - 55,000
Warrants issued in connection with
convertible notes Sep-03 - - 1,014 - 1,014
Warrants issued in connection with
convertible notes Oct-03 - - 3,977 - 3,977
Warrants issued in connection with
convertible notes Nov-03 - - 2,038 - 2,038
Warrants issued in connection with
convertible notes Dec-03 - - 2,395 - 2,395
Net loss - - - (800,717) (800,717)
-------------- -------------- -------------- -------------- --------------
Balance at December 31, 2003 13,684,257 $ 6,842 $ 425,699 $ (1,010,708) $ (578,167)
============== ============== ============== ============== ==============
|
The accompanying notes and independent auditors' report should be read in conjunction with the financial statements.
STRIKEFORCE TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Total
Common Stock Additional Stockholders'
------------------------- Paid-in Accumulated (Deficiency)
Date Shares Amount Capital Deficit /Equity
--------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2003 13,684,257 $ 6,842 $ 425,699 $(1,010,708) $ (578,167)
Warrants issued in connection
with convertible notes Jan-04 - - 942 - 942
Sale of shares for cash Feb-04 27,778 14 19,986 - 20,000
Warrants issued in connection
with convertible notes Feb-04 - - 767 - 767
Issuance of shares for
consulting services Apr-04 800,000 400 575,600 - 576,000
Sale of shares for cash May-04 531,443 266 382,374 - 382,640
Issuance of shares to advisory
board May-04 25,000 12 17,988 - 18,000
Sale of shares for cash Jun-04 334,941 167 240,990 - 241,157
Issuance of shares to advisory
board Jun-04 100,000 50 71,950 - 72,000
Issuance of shares for
consulting services Jun-04 410,000 205 294,995 - 295,200
Contibution of shares by President
to pay consulting services Jun-04 - - 36,000 - 36,000
Sale of shares for cash Jul-04 41,667 21 29,979 - 30,000
Issuance of shares for consulting
services Jul-04 13,889 7 9,993 - 10,000
Sale of shares for cash Aug-04 225,155 113 161,999 - 162,112
Sale of shares for cash Sep-04 268,491 134 193,182 - 193,316
Warrants issued in connection
with convertible notes Sep-04 - - 390 - 390
Change in par value -
$0.0005 to $0.0001 Sep-04 - (6,585) 6,585 - -
Sale of shares for cash Oct-04 106,722 11 76,829 - 76,840
Sale of shares for cash Nov-04 55,556 6 39,994 - 40,000
Sale of shares for cash Dec-04 108,332 10 77,988 - 77,998
Stock options granted for
future royalties Dec-04 - - 3,194,274 - 3,194,274
Conversion of notes to shares Dec-04 427,082 43 307,457 - 307,500
Beneficial conversion value
of secured debenture Dec-04 - - 125,000 - 125,000
Net loss - - - (2,993,529) (2,993,529)
--------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2004 17,160,313 $ 1,716 $ 6,290,961 $(4,004,237) $ 2,288,440
============ =========== ============ ============ ============
|
The accompanying notes and independent auditors' report should be read in conjunction with the financial statements.
STRIKEFORCE TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
--------------- ---------------
Cash flows from operating activities:
Net loss $ (2,993,529) $ (800,717)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 19,936 12,719
Amortization of deferred financing costs 14,209 1,831
Consulting expense through issuance of common stock and stock options 839,200 -
Royalty expense paid through issuance of stock options 30,422 -
Changes in assets and liabilities affecting operations:
Accounts receivable, net 802 20,314
Prepaid expenses (2) 3,492
License for receivable 3,000 (3,000)
Security deposits (4,314) (4,370)
Accounts payable (25,238) 65,098
Accrued expenses 70,819 19,637
Payroll taxes payable 44,610 8,320
Due to factor (3,969) (59,425)
Customer deposits - (18,368)
Due to employees (174) 4,167
--------------- ---------------
Net cash used in operating activities (2,004,228) (750,302)
--------------- ---------------
Cash flows from investing activities:
Investment in website (7,750) (5,676)
Purchases of property and equipment (13,096) (39,175)
--------------- ---------------
Net cash used in investing activities (20,846) (44,851)
--------------- ---------------
Cash flows from financing activities:
Proceeds from sale of common stock 1,224,063 415,450
Proceeds from notes payable - related parties 228,380 310,000
Proceeds from convertible notes payable - related parties 265,000 12,000
Proceeds from convertible notes payable 500,000 -
Payments on note payable (6,000) (4,000)
Payments on note payable - related parties (45,380) -
Payments on convertible note payable - related parties (20,000) -
Resold equipment financed through capital leases - 78,711
Principal payments for capital leases (21,529) (12,723)
--------------- ---------------
Net cash provided by financing activities 2,124,534 799,438
--------------- ---------------
Net increase in cash 99,460 4,285
Cash, beginning of year 4,285 -
--------------- ---------------
Cash, end of year $ 103,745 $ 4,285
=============== ===============
Supplemental disclosure of cash flow information
Interest expense $ 33,557 $ 2,316
=============== ===============
Income taxes $ 750 $ 2,174
=============== ===============
Supplemental schedule of non-cash activities:
Accrued compensation paid through issuance of
common stock $ - $ (2,095)
=============== ===============
Deferred financing cost related to beneficial conversion
value of secured debenture $ 125,000 $ -
=============== ===============
Capital contribution for services $ 36,000 $ -
=============== ===============
Stock options issued for prepaid royalties $ 3,194,274 $ -
=============== ===============
Issuance of common stock for intangibles $ - $ 570
=============== ===============
Warrants issued in connection with convertible notes $ 2,099 $ 10,468
=============== ===============
Accrued payment for intangibles paid through issuance
of common stock $ - $ (3,459)
=============== ===============
Conversion of convertible promissory notes payable
into common stock $ 307,500 $ -
=============== ===============
|
The accompanying notes and independent auditors' report should be read in conjunction with the financial statements.
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 1 - NATURE OF OPERATIONS
StrikeForce Technical Services Corporation was incorporated in the state of New Jersey, in August 2001. On September 3, 2004, the shareholders approved an amendment to the Certificate of Incorporation to change the name from StrikeForce Technical Services Corporation to StrikeForce Technologies, Inc. (the "Company"). Prior to December 2002, the Company was a reseller of computer hardware and software products, and telecommunications equipment and services. In December 2002, the Company purchased intangible technology, as described in Note 6, which upon the consummation changed the direction of the Company's business. The Company is currently a privately held software development and services company. The Company owns and is seeking to commercially exploit various identification protection software products that were developed to protect computer networks from unauthorized access and to protect network owners and users from identity theft. The Company is seeking to develop a market for a suite of products in the areas of eCommerce, corporate and government. The Company's products are the subject of various pending patent applications. The Company's operations are based in Edison, NJ.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Cash and cash equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash and cash equivalents. The Company maintains balances in accounts, which at times, may exceed Federal Deposit Insurance Corporation insured limits. The Company believes that such risk is minimal based on the reputation of the financial institution.
b) Accounts receivable
Accounts receivable are recorded at the outstanding amounts net of each respective allowance for doubtful accounts. The Company utilizes the allowance method for recognizing the collectibility of its accounts receivables. The allowance method recognizes bad debt expense based on review of the individual accounts outstanding as well as the surrounding facts. At December 31, 2004, the allowance for doubtful accounts receivable was $0. During the year ended December 31, 2004 and 2003, the Company had no provision for bad debt.
c) Property and equipment
Property and equipment is recorded at cost. Depreciation and amortization of property and equipment is provided for by the straight-line method over the estimated useful lives of the respective assets. The estimated useful lives of furniture and fixtures are seven years, and office equipment and machinery and equipment are five years. Computer equipment and software are depreciated over three years.
d) Long-lived assets
Reviews are regularly performed to determine whether facts and circumstances exist which indicate that the carrying amount of assets may not be recoverable or the useful life is shorter than originally estimated. The Company assesses the recoverability of its assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. If assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the net book value of the assets is depreciated over the newly determined remaining useful lives.
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont'd)
e) Income taxes
The Company accounts for income taxes in accordance with the "liability method" of accounting for income taxes. Accordingly, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Current income taxes are based on the respective periods' taxable income for federal, state and city income tax reporting purposes.
f) Revenue recognition
The Company's revenues are derived principally from the sale and installation of computer hardware and software, and consulting services. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement that the product has been shipped or the services have been provided to the customer that the sales price is fixed or determinable and collectibility is reasonably assured. The Company reduces revenue for estimated customer returns. In addition to the aforementioned general policy, the following are the specific revenue recognition policies for each major category of revenue:
Hardware - Revenue from hardware sales is recognized when the product is shipped to the customer and there are either no unfulfilled company obligations or any obligations will not affect the customer's final acceptance of the arrangement. Any cost of these obligations is accrued when the corresponding revenue is recognized. For the year ended December 31, 2004 and 2003, total hardware revenues for products shipped or delivered were $20,636 and $43,016, which was 36% and 21% of total revenues, respectively.
Software - Revenue from delivered elements of one-time charge licensed software is recognized at the inception of the license term, provided the Company has vendor-specific objective evidence of the fair value of each delivered element. Revenue is deferred for undelivered elements. The Company recognizes revenue from the sale of software licenses when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable, and collection of the resulting receivable is reasonably assured. Delivery generally occurs when the product is delivered to a common carrier. The Company assesses collection based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. The Company does not request collateral from customers. If the Company determines that collection of a fee is not reasonably assured, the Company defers the fee and recognizes revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash. Revenue from monthly software licenses is recognized on a subscription basis. For the year ended December 31, 2004 and 2003, total software revenues for software shipped or delivered were $6,875 and $40,000, which was 12% and 20% of total revenues, respectively.
Services - Revenue from time and service contracts is recognized as the services are provided. The Company offers an Application Service Provider hosted service whereby customer usage transactions are invoiced monthly on a cost per transaction basis. The service is sold via the execution of a Customer Agreement between the Company and the Company's end user. Initial set-up fees are recognized upon completion of service. For the year ended December 31, 2004 and 2003, total revenues for services provided were $26,047 and $112,033, which was 46% and 55% of total revenues, respectively.
Revenue from fixed price long-term service contracts is recognized over the contract term based on the percentage of services that are provided during the period compared with the total estimated services to be provided over the entire contract. Losses on fixed price contracts are recognized during the period in
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont'd)
f) Revenue recognition - (cont'd)
which the loss first becomes apparent. Revenue from maintenance is recognized over the contractual period or as the services are performed. Revenue in excess of billings on service contracts is recorded as unbilled receivables and is included in trade accounts receivable. Billings in excess of revenue that is recognized on service contracts are recorded as deferred income until the aforementioned revenue recognition criteria are met.
Commissions - In 2001 the Company became a reseller of Nextel and XO Communication cellular services. These sales provided both commissions on the sale of Nextel phones and residual commission income From XO Communications beginning in January 2002. For the years ended December 31, 2004 and 2003, commission income was $3,680 and $7,498, respectively. The commission revenue varies from month to month, dependent on the utilization of the services by the customer and the terms of their contracts. Effective August 2004, the Company will no longer receive these commissions due to the conclusion of the residual terms between the Company and XO Communications. All revenue from commissions was recognized when received.
g) Software development costs
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," requires capitalization of software development costs incurred subsequent to establishment of technological feasibility and prior to the availability of the product for general release to customers. Systematic amortization of capitalized costs begins when a product is available for general release to customers and is computed on a product-by-product basis at a rate not less than straight-line basis over the product's remaining estimated economic life. To date, all costs have been accounted for as research and development costs and no software development cost has been capitalized.
Management will evaluate the net realizable value of software costs capitalized by comparing estimated future gross revenues reduced by the estimated future costs of completing, disposing of and maintaining the software. These costs also include the costs of performing maintenance and customer support required by the Company.
h) Comprehensive income
The Company adopted SFAS No. 130, "Accounting for Comprehensive Income." This statement establishes standards for reporting and disclosing of comprehensive income and its components (including revenues, expenses, gains and losses) in full set of general-purpose financial statements. The items of other comprehensive income that are typically required to be disclosed are foreign currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities. The Company had no items or other comprehensive income for the years ended December 31, 2004 and 2003.
i) Stock-based compensation
In December 2004, the FASB issued Statement No. 123 (revised 2004) ("123R") Share Based Payment. Statement 123R supersedes APB Opinion No. 25, and its related implementation guidance. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services. It also addresses transactions in which an entity incurs liabilities in
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont'd)
i) Stock-based compensation - (cont'd)
exchange for goods and services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The Company will be considered a small business issuer for which the implementation of 123R is required as of the beginning of the first interim or annual reporting period after December 15, 2005. The Company is required to implement 123R beginning in the fiscal year beginning January 1, 2006. The effect of this pronouncement on the Company cannot be determined at this time.
The Company currently accounts for its employee incentive stock option plans using the intrinsic value method in accordance with the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted by SFAS No. 123.
Had the Company determined compensation expense based on the fair value at the grant dates for those awards consistent with the method of SFAS No. 123, the Company's net loss per share would have been increased to the following pro forma amounts for the years ended December 31, 2004 and 2003:
2004 2003
----- -----
Net loss as reported $ (2,993,529) $ (800,717)
Deduct: Total stock based employee
compensation expense determined
under fair value based methods for all awards (163,985) (120,311)
------------- --------------
Pro forma net loss $ (3,157,514) (921,028)
============= ==============
Basic and diluted net loss per share as reported $ (.20) $ (.07)
Pro forma basic and diluted net loss per share $ (.21) $ (.08)
|
The above pro forma disclosure may not be representative of the effects on reported net operations for future years as options vest over three years and the Company may continue to grant options to employees.
The fair market value of each option grant is estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Dividend yield 0.00% Expected volatility 10.00% - 11.00% Risk-free interest rate 4% Expected life 5 -10 years |
j) Loss per common share
Loss per common share is computed pursuant to SFAS No. 128, "Earnings Per Share." Basic loss per share is computed as net income (loss) available to common shareholders divided by the weighted
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont'd)
j) Loss per common share - (cont'd)
average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and convertible debt. As of December 31, 2004 and 2003, options and warrants were excluded from the diluted loss per share computation, as their effect would be anti-dilutive.
k) Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
l) Fair value disclosure
The carrying value for cash, receivables, accounts and notes payable approximate fair values because of the immediate or short-term maturities of these financial instruments. The carrying amounts of the Company's long-term debt also approximate fair values based on current rates for similar debt.
m) New accounting pronouncements
The Company does not believe that any recently issued and adopted, but not yet effective, accounting standards would have a material effect on the accompanying financial statements.
n) Reclassifications
Certain prior years' amounts have been reclassified to conform to the current year presentation. These reclassifications include $75,000 software license revenue originally recorded as commission income, now included in net sales. The Company also has reclassified $60,000 of bad debt expense from selling, general and administrative expense and netted the expense against net sales for the related software license revenue on the statement of operations in accordance with software license revenue recognition pursuant to accounting principles generally accepted in the United States. The net effect on the statement of operations for the year ended December 31, 2003, is the reduction of $60,000 in selling, general and administrative expense, reduction of $75,000in commission income, and increase of $15,000 in net sales, with no effect upon net income for the year.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. At December 31, 2004, the Company's accumulated deficit was $4,004,237 and its working capital deficiency was $595,675. In addition, the Company had net losses of $2,993,529 and $800,717 for the years ended December 31, 2004 and 2003.
Currently, the Company is aggressively attempting to increase revenues and improve profit margins by implementing a revised sales strategy. In principle, the Company is redirecting its sales focus from direct sales to companies using an internal sales force, to selling through a distribution channel of Value Added
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 3 - GOING CONCERN - (cont'd)
Resellers and Original Equipment Manufacturers. The profit margin for this approach is more lucrative then selling direct due to the increase in sales volume. This revised sales approach should increase the Company's sales and revenues in order to mitigate future losses. In addition, management has raised funds through convertible debt instruments and the sale of equity in order to alleviate the working capital deficiency. In January 2005, recognizing the necessity for greater capital requirements, the Company formally began a registration process to bring the Company into the public capital markets. With the commitment to become a publicly traded entity, the Company raised an additional $1,000,000 through two separate Secured Convertible Debentures (see Note 8). Through the utilization of the public capital markets, the Company plans to raise the funds necessary to continue, expand and enhance its growth, however, there can be no assurance that this will be able to increase revenues or raise additional capital.
These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.
NOTE 4 - PREPAID EXPENSES
At December 31, 2004, prepaid expenses consist of the following:
Short term portion of royalties $ 365,060
Consulting services 168,000
Short term portion of deferred financing costs 41,667
Insurance 112
---------
$ 574,839
=========
|
Prepaid royalties of $3,194,274 were derived from an agreement on December 2, 2004 with NetLabs.Com, Inc. (see Note 6). The prepaid royalties are being amortized over the term of the agreement which terminates August 31, 2013. For the year ended December 31, 2004, $30,422 of royalties was expensed, $365,060 was classified as short-term prepaid royalties and the remainder of $2,798,792 was classified as long-term assets on the balance sheet.
Consulting services were derived from an agreement in June 2004 with an advisory firm in which the advisor was compensated with stock (see Note 15). The consulting costs are valued at $252,000 and are being amortized over the term of the agreement which terminates December 31, 2005. For the year ended December 31, 2004, the Company has recorded $84,000 of consulting expense related to this agreement.
Deferred financing costs of $125,000 were derived from the beneficial conversion value of the debenture entered into with Cornell Capital Partners, LP ("Cornell") in December 2004, (see Note 8). The deferred financing costs are being amortized over the three year term of the debenture. For the year ended December 31, 2004, $3,473 of financing costs were expensed and at December 31, 2004, $41,667 was classified as short-term deferred financing costs and the remainder of $79,861 was classified as long-term assets on the balance sheet.
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 5 - PROPERTY AND EQUIPMENT, NET
At December 31, 2004, property and equipment, at cost, consist of the following:
Computer equipment and software $ 49,164
Furniture and fixtures 10,157
Office equipment 5,811
---------
Total property and equipment 65,132
Less: accumulated depreciation (31,426)
---------
Property and equipment, net $ 33,706
=========
|
Depreciation expense for the years ended December 31, 2004 and 2003 amounted to $17,031 and $11,722, respectively.
NOTE 6 - INTANGIBLE ASSETS
Website
Intangible assets consist of the costs associated with website application and infra structure activities. Website costs related to planning, development and acquisition of content and operations of the Company's website are expensed as incurred and included in selling, general and administrative expenses. Costs to acquire or develop both hardware and software needed to operate the site are capitalized and depreciated over estimated useful lives. At December 31, 2004, website costs incurred amounted to $13,426, with related accumulated amortization of $3,903. For the years ended December 31, 2004 and 2003, amortization expense was $2,906 and $997, respectively.
Technology
In July 2002, the Company entered into pending negotiations with NetLabs.Com, Inc. ("NetLabs"), Ram Pemmaraju and Bob Denn, whom are the majority shareholders of NetLabs (collectively "the Sellers"), to purchase NetLabs' Centralized `Out-of-Band' Authentication System ("COBAS") technology product. In December 2002, in accordance with the negotiations, the Sellers and the Company informally agreed to a payment of 7,516,998 shares of the Company's common stock valued at $3,758, to the Sellers for the transfer of NetLabs intellectual property and the COBAS product to the Company, net of subscriptions. Concurrently with the agreement, the Company issued 600,000 shares of its common stock to the Sellers. Upon issuance of these shares, the Sellers became a controlling interest in the Company. The remaining 6,916,998 common shares due, in accordance with the agreement, were issued in March 2003, after approval by the State of New Jersey to increase the Company's authorized shares from 1,000,000 shares to 20,000,000 shares. In February 2003, the Company agreed to issue an additional 1,140,000 shares of its common stock to the Sellers as consideration for the remainder of NetLabs intellectual property rights, technology and the COBAS product which has been valued at $570. These shares were issued in March 2003 after approval by the State of New Jersey to increase the Company's authorized shares from 1,000,000 shares to 20,000,000 shares. In total, 8,656,998 shares of the Company's common stock were issued to the Sellers. The fair value of intangibles was determined to be $4,328 which was based upon the par value of the common stock received, which was market at the time of issuance, and there was no formal value that could be assessed for the intangibles.
On September 11, 2003, the Company signed a formal asset purchase agreement (the "Asset Purchase Agreement") with NetLabs whereby the Company received all of the intellectual property rights to
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 6 - INTANGIBLE ASSETS - (cont'd)
Technology - (cont'd)
COBAS, inclusive of the additional intellectual property received in the December 2002 informal agreement. The Asset Purchase Agreement also required the Company to pay NetLabs a royalty of 10% of the net revenues received by the Company for the sales of its products, as defined in the Asset Purchase Agreement. The royalties would apply to net revenues received during a period of five years beginning September 1, 2003 and continuing through August 31, 2008. The Asset Purchase Agreement was amended on September 2, 2004 and made effective as of September 11, 2003 (the "Effective Date") to extend the royalty period from five years to ten years, through August 31, 2013.
On December 2, 2004, the Company and NetLabs agreed to terminate the
royalty portion of the Asset Purchase Agreement for the issuance to
NetLabs of options to purchase 7,600,000 shares of the Company's
common stock at a price of $0.36. The options will vest as follows:
2,530,000 shares at September 11, 2004, 2,530,000 shares at September
11, 2005 and 2,540,000 shares at September 11, 2006. At December 2,
2004 the fair value of the options are $3,194,274 using the
Black-Scholes Option Pricing Model. The options are considered
payments in lieu of future royalties and beginning December 2, 2004,
$3,194,274 of prepaid royalty expense will be amortized over the
remaining term of the royalty provision of the agreement, which
expires August 31, 2013. The fair value for these options are to be
measured as follows: at the time the options vest the fair value of
the options will be fixed. Prior to vesting, the options fair value
will be measured at the end of each reporting period.
NOTE 7 - ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 2004:
Accrued salaries $ 17,439
Interest 33,960
Commissions 9,590
Legal fees 55,000
Other 18,068
--------
$134,057
========
|
NOTE 8 - SECURED CONVERTIBLE DEBENTURE
In December 2004, the Company entered into a Securities Purchase Agreement for the sale of an aggregate of $1,000,000 principal amount of convertible debentures with Cornell. The terms of the Securities Purchase Agreement provide for the first secured convertible debenture of $500,000 to be issued upon signing of the Securities Purchase Agreement and the second secured convertible debenture to be issued with the same terms as the first secured convertible debenture five business days after a registration statement is filed with the United States Securities and Exchange Commission. The convertible debentures are due and payable, bearing interest at 8% per annum, three years from the date of issuance, unless sooner converted into shares of our common stock. The holder is entitled, at its option, to convert, and sell on the same day, at any time and from time to time, until payment in full of this debenture, all or any part of the principal amount of the debenture, plus accrued interest, into shares of the Company's common stock at the price per share equal to the lesser of an amount equal to 120% of the initial bid price or an amount equal to 80% of the lowest volume weighted average price of the Company's common stock for the last five trading days immediately preceding the conversion date. If not converted at the holder's option, the entire principal amount and all accrued interest shall be due to the holder on the third year anniversary of the debenture. The Company, at its option, may redeem, with
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 8 - SECURED CONVERTIBLE DEBENTURE - (cont'd)
fifteen days advance written notice, a portion or the entire outstanding convertible debenture. The redemption price shall be 110% of the amount redeemed plus accrued interest. The convertible debentures are secured by the assets of the Company and accrued interest payable is due at the end of the term.
In December 2004, in accordance with the Securities Purchase Agreement, upon signing the Security Purchase Agreement the Company issued an 8% secured convertible debenture in the amount of $500,000 with Cornell.
The debenture has included a beneficial conversion value. The beneficial conversion value represents the difference between the fair market value of the common stock on the date the debenture was sold and the price at which the debenture could be converted into common stock. The beneficial conversion value for the December 2004 debenture is $125,000, which will be amortized over the three year term of the debenture. For the year ended December 31, 2004, the Company has recorded $3,472 of interest expense related to the amortization of the beneficial conversion value. At December 31, 2004, there is $121,528 remaining of the beneficial conversion value, of which $41,667 is classified as short-term deferred financing costs in prepaid expenses on the balance sheet.
Additionally, in January 2005 the Company issued the second 8% secured convertible debenture, in accordance with the Securities Purchase Agreement, in the amount of $500,000 with Cornell with the same terms as the first secured convertible debenture within five days of the filing of the registration statement with the United States Securities and Exchange Commission.
NOTE 9 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
Convertible notes payable - related parties at December 31, 2004, consist of convertible promissory notes that the Company executed with the CEO, the Vice President of Technical Services ("VPTS") and relatives of a former officer of the Company.
The terms of the convertible promissory notes state that principal is payable in full in immediately available funds of $1,000,000 or more through any sales or investment by the end of December 31, 2004 or later if agreed upon by each individual and the Company. All notes not issued to the CEO bear interest at a rate of prime plus 2% and 4% per year and the remaining notes bear interest equal to the CEO's private banking account monthly lending rate. Interest is payable at such time as the principal on the note is due. At any time prior to repayment of all outstanding principal and accrued interest hereunder, at the election of each individual, the individual shall have the right to convert the then outstanding principal amount of this note, and all outstanding accrued interest thereon, into that number of shares of the common stock of the Company, determined by dividing the amount of principal and interest then outstanding hereon by a conversion price of either $0.72 or $1.00, depending on the note.
In January 2004, the Company terminated its employee relationship with its then CFO. A settlement between the Company and its former CFO occurred subsequently and included the repayment of a convertible promissory note dated December 2003 in the amount of $20,000 and $36,646 in severance for compensation. These amounts were paid in May 2004 in full settlement and the $36,646 has been recorded as a litigation settlement expense in 2004. As further consideration, the agreement also vested the former CFO options to purchase 50,000 shares of the Company's common stock on a fully converted and fully diluted basis. The options have an exercise price of $1.00 and a term of ten years from the former CFO's hire date. The agreement releases the Company from any and all prior obligations and claims with the former CFO.
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 9 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES - (cont'd)
In January 2004, the Company received $15,000 from the VPTS and executed a convertible note payable with interest at prime plus 4% per annum. The Company also had an additional $50,000 convertible note payable dated November 2003 with the VPTS, bearing interest at prime plus 2% per annum. In November 2004, the notes maturity dates were extended to June 30, 2005. In December 2004, the Company amended the conversion price on the convertible notes to $.72 a share. In December 2004, the VPTS exercised his conversion feature for his note and received 10,417 shares of the Company's common stock for the conversion of $7,500 of notes.
In January, February, June and September 2004 the Company received $60,000, $60,000, $50,000 and $30,000, respectively from the CEO and executed four separate convertible notes payable with interest equal to the CEO's private banking account monthly lending rate and were due December 31, 2004. In November 2004, the notes maturity dates were extended to September 30, 2005 for the February 2004 convertible note, and December 31, 2005 for the June 2004 and September 2004 convertible notes. In addition to these notes, the Company had an additional $240,000 of convertible notes payable dated between August 2003 and December 2003 with the CEO, all notes have the same terms. In December 2004, the Company amended the conversion price of the convertible notes payable to $.72 per common share. Following the amendment the CEO elected to exercise the conversion of all of the notes dated 2003 and elected to convert the January 2004 note. The election amounted to the cancellation of $300,000 of notes for 416,665 shares of the Company's common stock to the CEO.
In November 2004, the Company received $50,000 from three separate individuals who are relatives of a former officer for convertible promissory notes. The notes are due on April 30, 2006 and bear interest at prime plus 2% per year.
In connection with all the convertible notes payable entered into, the Company issued to the individual's warrants exercisable in the aggregate into 47,500 shares of the Company's common stock at an exercise price of $1.00 per share. The warrants were issued at the ratio of one warrant for each $10 of convertible notes payable. These warrants are exercisable for a period of ten years from issuance. The fair value of all the warrants issued using the Black-Scholes Option Pricing Model was $12,565. For the years ended December 31, 2004 and 2003, the Company has recorded $10,734 and $1,831 of interest and financing expense in the accompanying statement of operations, related to the issuance of these warrants.
At December 31, 2004, accrued interest due to the CEO and VPTS for their notes were $7,514 and $63, respectively, and are included in accrued expenses in the accompanying balance sheet. Interest expense for convertible notes payable - related parties for the years ended December 31, 2004 and 2003 was approximately $25,026 and $4,039, respectively.
NOTE 10 - NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties at December 31, 2004 consist of the following:
In July 2002, advances from a former officer were converted into a promissory note in the amount of $8,700. The note is a non-interest bearing demand note.
In December 2003, the Company received $12,000 and executed a promissory note with a founding shareholder of the Company. The note bears interest at prime plus 2% per year. Eight equal principal payments of $1,500 were to commence on June 1, 2004. At December 31, 2004, this note was paid in full.
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 10 - NOTES PAYABLE - RELATED PARTIES - (cont'd)
In January 2004, the Company received $15,000 and executed a promissory note with a founding shareholder of the Company. The note is due on December 31, 2004 and bears interest at prime plus 2% per year. The principal balance outstanding on this note is $6,000 at December 31, 2004. The remaining balance of the note is being held in an escrow account with the Company's employment counsel, as the Company is waiting for a general release from this individual (see Note 19).
In March 2004, the Company received $105,000 and executed two promissory notes with its Chief Executive Officer ("CEO"). The notes are due June 30, 2005 and bear interest at a rate per annum equal to the CEO's private account monthly lending rate.
In July 2004, the Company received $2,000 and executed a promissory note with its President. The note is non-interest bearing and is due on December 31, 2004. In December 2004, this note was paid in full.
In August 2004, the Company received $7,380 and executed a promissory note with an officer of the Company. The note was due December 31, 2004 and beared interest at prime plus 2% per year. In December 2004, this note was paid in full.
In November and December 2004, the Company received $99,000 and executed two promissory notes with its CEO. The notes are due on June 30, 2005 and bear interest at a rate per annum equal to the CEO's private account monthly lending rate. In December 2004, one note for $15,000 was paid in full. The CEO's private account monthly lending rate for the year ended December 31, 2004 ranged between 5.375 and 6.375 per annum.
Interest expense for notes payable - related parties for the years ended December 31, 2004 and 2003 included approximately $6,936 and $60, respectively.
NOTE 11 - NOTE PAYABLE
In July 2002, the Company received $10,000 from an unrelated individual and executed a promissory note. The terms of the promissory note called for a 5% initial finance fee, with no additional interest due and required payments of three equal installments of $3,500 which were to end on October 15, 2002. At December 31, 2004 the Company had repaid the note in full including interest.
NOTE 12 - OBLIGATIONS UNDER CAPITAL LEASES
During the years ended December 31, 2003 and 2002, the Company acquired computer equipment under the provisions of capital leases. Under the leases, the cost of the equipment has been capitalized and is subject to the Company's depreciation policies. The obligations are due in varying monthly installments of principal and interest.
In May 2004, the Company and one of the lessor's signed an amended agreement consolidating all the leases into one monthly payment and restructuring the term of the agreement. This amended agreement cured the default for non-payment. The terms of the agreement called for one payment upon signing of $8,052 and subsequently 43 monthly payments of $2,020. The balance at December 31, 2004, reflects the amended changes to these capital leases.
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 12 - OBLIGATIONS UNDER CAPITAL LEASES - (cont'd)
At December 31, 2004, the aggregate future minimum remaining lease payments under capital leases are as follows:
Year Ending
December 31,
2005 $ 28,702
2006 28,702
2007 26,552
---------------
Total 83,956
Less: amount representing interest (10,130)
---------------
Net present value of capital lease obligations 73,826
Current portion (23,046)
---------------
Long-term portion $ 50,780
===============
|
NOTE 13 - DUE TO FACTOR
On September 4, 2002, the Company entered into an agreement with Prestige Capital Corp. ("Prestige") for the factoring of accounts receivable and purchase order financing services. The agreement stated no limitation on the volume with a total facility available of $100,000. The discount schedule related to the factored receivables was as follows: 0-45 days, 4 points; 46-60 days, an additional 2 points; 61-75 days, an additional 2 points, and an additional 2 points for each succeeding 15 days. The agreement beared an indefinite term and provides for a security interest in the Company's accounts receivables and general intangibles. At December 31, 2002, the Company owed Prestige $63,394. During the year ended December 31, 2003, the Company has not had any factoring services performed by Prestige. In July 2003, the Company entered into a settlement agreement with Prestige, due to a breach of the contract by the Company with Prestige. The Company agreed to pay Prestige $50,460 in six payments of $8,410 per month, commencing August 15, 2003. At December 31, 2003, the Company owed Prestige $3,969 in accordance with the settlement agreement and the final payment was made on January 14, 2004.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company has a non-cancelable operating lease for office space that expires in February 2005. The Company leased additional adjoining space in November 2004 and the lease was extended for an additional three-year term beginning February 1, 2005. The lease does not contain a renewal option and requires the Company to pay all executory costs such as maintenance and insurance. Additionally, the Company leases equipment under non-cancelable operating leases.
The Company is currently in arrears on one of its equipment operating leases. The Company has elected not to pay the lease due to the bankruptcy of a third party supplier who is no longer providing service on the leased equipment. The Company reached a settlement with the lessor regarding the arrears of $8,220 in January 2005. The lessor agreed to reduce the remaining lease commitment of approximately $43,000 by 85%, reaching a settlement balance of $6,467. This balance is to be paid in 24 installments of $270 per month effective March 30, 2005.
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 14 - COMMITMENTS AND CONTINGENCIES - (cont'd)
Lease Commitments - (cont'd)
The approximate future minimum rentals under non-cancelable operating leases in effect on December 31, 2004 are as follows:
Office Space Equipment
------------- ------------
2005 $ 74,526 $ 6,065
2006 74,483 6,604
2007 74,483 3,910
2008 6,207 1,966
------------- ------------
$ 229,699 $ 18,545
============= ============
|
Rent expense charged to operations for office space for the years ended December 31, 2004 and 2003 amounted to approximately $39,751 and $35,175, respectively. The expense charged to operations for equipment rental for the years ended December 31, 2004 and 2003 amounted to approximately $7,997 and $12,934, respectively.
Payroll Taxes
As of December 31, 2004, the Company owes $52,930 of payroll taxes, of which approximately $43,000 are delinquent from the year ended December 31, 2003. The Company has also recorded $24,613 of related estimated penalties and interest on the delinquent payroll taxes, which are included in accrued liabilities on the balance sheet. Although the Company has not entered into any formal repayment agreements with the respective tax authorities, management plans to make payment as funds become available.
Nature of Business
The Company is subject to risks and uncertainties common to growing technology companies, including rapid technological developments, reliance on continued development and acceptance of the Internet, intense competition and a limited operating history.
Significant Customers
Financial instruments, which may expose the Company to concentrations of credit risk, consist primarily of accounts receivable. As of December 31, 2004 and 2003, one customer represented 100% of the total accounts receivable. For the year ended December 31, 2004, the Company had three unrelated customers, which accounted for 21%, 30%, and 31%, respectively, of total revenue. For the year ended December 31, 2003, the Company had 3 unrelated customers, which accounted for 32%, 10% and 10%, respectively, of total revenue.
Employment Agreements
In May 2003, the Company entered into an employment agreement with its CEO. The term of the agreement is from May 20, 2003 through June 1, 2006. As part of the agreement, the CEO committed to making a $300,000 capital investment in the Company. The Company is required to pay the CEO a salary of $75,000 per year until the closing date of the first $2,000,000 in funding, and $150,000 per year
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 14 - COMMITMENTS AND CONTINGENCIES - (cont'd)
Employment Agreements - (cont'd)
thereafter. In April 2004, the agreement was amended to pay the CEO $111,000 as of April 2004. The agreement also granted the CEO options to purchase 1,000,000 shares of the Company's common stock on a fully converted, fully diluted basis after the completion of the funding round. The options have an exercise price of $1.00, a term of 10 years from the vesting date, and shall vest over a three year period beginning June 1, 2004. The agreement also provides the CEO with severance payments in the event the Company terminates his employment for any reason other than for cause, as defined in the agreement, or other than as a result of the CEO's death or disability, or if the CEO terminates his employment with the Company for good reason, as defined in the agreement.
In June 2003, the Company entered into a three-year employment agreement with its former CFO, commencing June 1, 2003. The Company is required to pay the CFO a salary of $50,000 per year until the closing date of the first $2,000,000 in funding, and $125,000 per year thereafter. The agreement also granted the CFO options to purchase 500,000 shares of the Company's common stock on a fully converted, fully diluted basis after the completion of the funding round. The options have an exercise price of $1.00, a term of 10 years from the vesting date, and shall vest over a three year period beginning June 1, 2004. The agreement also provides the CFO with severance payments in the event the Company terminates his employment for any reason other than for cause, as defined in the agreement, or other than as a result of the CFO's death or disability, or if the CFO terminates his employment with the Company for good reason, as defined in the agreement. In February 2004, the Company terminated its former CFO. On May 19, 2004, the Company entered into a settlement agreement with its former CFO, whereas the Company agreed to pay its former CFO $36,646 in severance and $20,000 representing the repayment of a promissory note that was entered into by the Company in December 2003. These amounts were paid in May 2004 in full settlement and the $36,646 has been recorded as a litigation settlement expense in 2004. As further consideration, the agreement also granted the former CFO options to purchase 50,000 shares of the Company's common stock on a fully converted and fully diluted basis. The options have an exercise price of $1.00 and a term of ten-years from the former CFO's hire date. The agreement releases the Company from any and all prior obligations and claims with the former CFO.
During 2003, the Company entered into various three-year employment agreements with employees of the Company, commencing June 16, 2003, and expiring at various dates through October 14, 2006. The Company is required to pay salaries and severance payments, as defined in the individual employment agreements. In addition, two of the agreements each provide options to purchase 100,000 shares of the Company's common stock on a fully converted, fully diluted basis after the completion of the funding round. The options have an exercise price of $1.00, a term of 10 years from the vesting date, and shall vest over a three year period, beginning one year from the anniversary date. One agreement provides options to purchase 130,000 shares of the Company's common stock on a fully converted, fully diluted basis after the completion of the funding round. The options have an exercise price of $1.00, a term of 10 years from the vesting date, and shall vest over a three year period, beginning one year from the anniversary date.
Panasonic
In August 2003, the Company entered into a five year agreement with Panasonic in which Panasonic is an Authorized Service Provider ("ASP") for the Company's products. As an authorized ASP provider, Panasonic operates the Company's products in their data center for the benefit of clients who contract with Company for their security products. The relationship can be terminated by either party on six
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 14 - COMMITMENTS AND CONTINGENCIES - (cont'd)
Panasonic - (cont'd)
months notice. Panasonic is compensated by the Company based on contracted percentages of the client's fees to the Company as to be documented in each client contract.
As of December 31, 2004, the contract requires yearly minimum commitment fees from the Company beginning in 2005 as follows:
Year ending
December 31,
2005 $ 25,000
2006 50,000
2007 50,000
2008 50,000
-----------
Total $ 175,000
===========
|
As of December 31, 2004 there are no outstanding payments due.
NOTE 15 - STOCKHOLDERS' EQUITY
Common Stock
In March 2003, the Company was granted approval by the State of New Jersey to increase the authorized shares from 1,000,000 to 20,000,000 shares of common stock.
In September 2004, the Company resolved to increase the authorized common shares from 20,000,000 to 100,000,000 and to change the par value from $.0005 to $.0001.
Preferred Stock
In December 2004, the Company filed a restated certificate of incorporation authorizing the issuance of 10,000,000 shares of preferred stock at a par value of $0.10 per share.
Issuance of Stock for Services
In December 2002, the Company agreed to pay 4,591,655 shares of the Company's common stock to officers of the Company as compensation for the year ended December 31, 2002. Those common shares were valued at $2,235 and recorded as compensation expense in the year ended December 31, 2002. Due to the limit in authorized common stock at the time, 400,000 shares were issued in December 2002. The remaining 4,191,655 shares were included in accrued expenses for $2,095 at December 31, 2002 and were issued in March 2003, when the Company was granted approval by the State of New Jersey to increase the authorized shares from 1,000,000 to 20,000,000 shares of common stock.
In April 2004, the Company retained a financial advisory firm as a business consultant to assist in a variety of areas relating to financing, strategic and related development growth of the Company. The term of the engagement is fourteen months and can be terminated by either party prior to June 30, 2005. Transactions consummated within the subsequent period following the termination of this agreement may have fees due and payable to the financial advisory firm. Under the terms of the agreement the Company has issued 800,000 shares of the Company's common stock as a commencement bonus. The value of the
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 15 - STOCKHOLDERS' EQUITY - (cont'd)
Issuance of Stock for Services - (cont'd)
services is not stated in the agreement, therefore the Company has determined the services shall be measured based upon the fair value of the shares issued, which was $576,000 and has been recorded as a consulting expense for the year ended December 31, 2004. This commencement bonus is fully paid for, non-assessable, non-refundable, non-apportionable and non-ratable and is not a repayment for future services. The Company will include all shares issued to the consultant in the next registration statement filed by the Company with the SEC on Forms SB-2, SB-3 or any other appropriate form relating to the resale of restricted shares. Additionally, if the consultant introduces the Company to a lender, equity purchaser or merger/acquisition candidate, not already having a preexisting relationship with the Company, the Company agrees to pay the consultant a finder's fee of 5% of the total gross funding, in payment for the consultant's services to help secure the financing. Also, if the consultant, through an intermediary, establishes a financing arrangement for the Company, then the consultant will be entitled to a 2.5% finder's fee.
In June 2004, the Company entered into a consulting agreement with an advisory firm, whereas the services include a review and advice concerning the technical design of existing and planned products or services, business development, sales assistance, financing advice, market development and public relations, advising on issues regarding corporate structure, stock option plans and introducing the Company to potential investors. The term of this agreement is 18 months, ending December 31, 2005. The agreement calls for compensation in the amount of 350,000 shares of the Company's common stock. The value of the services is not stated in the agreement, therefore the Company has determined the services shall be measured based upon the fair value of the shares issued, which has been valued at $252,000 and has been recorded as deferred consulting services to be expensed over the term of the agreement. Such shares shall be deemed for all purposes to be earned by the consultant upon its receipt thereof and shall be non-refundable and non-returnable.
In May and June 2004, the Company issued 125,000 shares of the Company's common stock, 25,000 shares each, to five individuals as a signing bonus for joining the Company's newly formed Advisory Board. There is no formal agreement with the Advisors, therefore the Company has determined the services shall be measured based upon the fair value of the shares issued, which has been valued at $90,000 and is recorded as an administrative expense in the year ended December 31, 2004.
In June 2004, the Company issued 50,000 shares of the Company's common stock to an individual for consulting services. The value of the services is not stated in the agreement, therefore the Company has determined the value of the shares issued based on the fair market value of the common stock, which has been valued at $36,000 and is recorded as consulting expense in the year ended December 31, 2004.
In June 2004, the Company issued 10,000 shares of the Company's common stock to one individual for consulting services. The value of the services is not stated in the agreement, therefore the Company has determined the value of the shares issued based on the fair market value of the common stock, which has been valued at $7,200 and is recorded as consulting expense in the year ended December 31, 2004.
In June 2004, the Company entered into an agreement with an individual for consulting services in exchange for 50,000 shares of the Company's common stock. The President of the Company issued this individual 50,000 of his own shares of the Company's common stock on behalf of the Company. The value of the services is not stated in the agreement, therefore the Company has determined the value of the shares issued based on the fair market value of the common stock, which has been valued at $36,000 and is recorded as consulting expense in the year ended December 31, 2004. The issuance of the shares
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 15 - STOCKHOLDERS' EQUITY - (cont'd)
Issuance of Stock for Services - (cont'd)
by the President to the individual has been recorded as a contribution of capital.
In July 2004, the Company issued 13,889 shares of the Company's common stock to one individual as compensation for consulting services. The value of the services is not stated in the agreement, therefore the Company has determined the value of the shares issued based on the fair market value of the common stock, which has been valued at $10,000 and is recorded as consulting services in the year ended December 31, 2004.
Issuance of Options for Services
In May 2004, the Company entered into a consulting agreement with an individual whose services include consulting on the development of the Company's product lines. The individual's annual fee is $45,000 and was increased in October 2004 to $51,000. The agreement included the granting of 50,000 nonqualified stock options on a fully converted and diluted basis. The options are exercisable at $1.00 per share and have a term of ten years vesting equally over a three year period beginning May 2005. The term of the agreement is thirty six months until the completion of the product lines as determined by both the Company and the consultant. In November 2004, the Company terminated the consulting agreement, thus canceling the 50,000 options issued.
Sales of Common Stock
In May 2003, the Company's current CEO purchased 300,000 shares of the Company's common stock for $300,000.
In July and August 2003, eight individuals each purchased common stock of the Company for $.75 per share. The Company received total proceeds of $60,450 and the Company issued a total of 80,600 shares of its common stock.
In September 2003, two individuals each purchased common stock of the Company for $1.00 per share. The Company received total proceeds of $55,000 from the individuals and the Company issued 55,000 shares of its common stock.
During the year ended December 31, 2004, forty individuals and one company purchased common stock of the Company for $0.72 per share. The Company received total proceeds of $1,224,063 and the Company issued a total of 1,700,085 shares of common stock.
In April 2004, the Company executed a Private Placement Memorandum, Form D, filed under Rule 506 with the Securities and Exchange Commission. Of the common stock sold during the year ended December 31, 2004, the Company issued 1,187,081 shares of common stock and received proceeds of $854,695 under the Private Placement Memorandum. The Private Placement Memorandum was closed in December 2004.
Conversions
In December 2004, the Company amended the conversion price on $307,500 of the convertible notes to $.72 a share. In December 2004, the CEO and VPTS exercised their conversion feature for their notes and received 427,082 shares of the Company's common stock for the conversion of $307,500 of notes.
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 15 - STOCKHOLDERS' EQUITY - (cont'd)
Asset Purchase Agreement
In July 2002, the Company entered into pending negotiations with NetLabs, and the Sellers, to purchase NetLabs' COBAS technology product. In December 2002, in accordance with the negotiations, the Sellers and the Company informally agreed to a payment of 7,516,998 shares of the Company's common stock, valued at $3,758, to the Sellers for the transfer of NetLabs intellectual property and the COBAS product to the Company, net of subscriptions. Concurrently with the agreement, the Company issued 600,000 shares of its common stock to the Sellers. Upon issuance of these shares, the Sellers became a controlling interest in the Company. The remaining 6,916,998 common shares due, in accordance with the agreement, were issued in March 2003, after approval by the State of New Jersey to increase the Company's authorized shares from 1,000,000 shares to 20,000,000 shares. In February 2003, the Company agreed to issue an additional 1,140,000 shares of its common stock to the Sellers as consideration for all of NetLabs intellectual property rights, technology and the COBAS product which has been valued at $570. These shares were issued in March 2003 after approval by the State of New Jersey to increase the Company's authorized shares from 1,000,000 shares to 20,000,000 shares. In total, 8,656,998 shares of the Company's common stock were issued to the Sellers.
On September 11, 2003, the Company signed the Asset Purchase Agreement with NetLabs whereby the Company received all of the intellectual property rights to COBAS inclusive of the additional intellectual property received in the December 2002 informal agreement. The Asset Purchase Agreement also required the Company to pay NetLabs a royalty of 10% of the net revenues received by the Company for the sales of its products, as defined in the Asset Purchase Agreement. The royalties would apply to net revenues received during a period of five years beginning September 1, 2003 and continuing through August 31, 2008. The Asset Purchase Agreement was amended on September 2, 2004 and made effective as of the Effective Date to extend the royalty period from five years to ten years, through August 31, 2013.
On December 2, 2004, the Company and NetLabs agreed to terminate the
royalty portion of the Asset Purchase Agreement for the issuance to
NetLabs of options to purchase 7,600,000 shares of the Company's
common stock at a price of $0.36. The options vest as follows:
2,530,000 shares at September 11, 2004, 2,530,000 shares at September
11, 2005 and 2,540,000 shares at September 11, 2006. At December 31,
2004 the fair value of the options are $3,194,274 using the
Black-Scholes Option Pricing Model. The options are considered
payments in lieu of future royalties and beginning December 2, 2004,
$3,194,274 of prepaid royalty expense will be amortized over the
remaining term of the royalty provision of the agreement, which
expires August 31, 2013. The fair value for these options are to be
measured as follows: at the time the options vest the fair value of
the options will be fixed. Prior to vesting, the options fair value
will be measured at the end of each reporting period.
Warrant Agreements
During the year ended December 31, 2003, the Company issued warrants in connection with the convertible notes payable - related parties. The warrants entitle the noteholders to purchase 31,000 shares of the Company's common stock at a per share purchase price of $1.00. Warrants to purchase 5,000 shares of the Company's common stock expire August 20, 2013, September 5, 2013, October 7, 2013, October 28, 2013 and November 10, 2013, respectively, warrants to purchase 4,000 shares of the Company's common stock expire December 8, 2013 and warrants to purchase 2,000 shares of the Company's common stock expire December 29, 2013. In the event that any portion of the warrants remains unexercised as of the expiration date, and the market price of the Company's common stock, as
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 15 - STOCKHOLDERS' EQUITY - (cont'd)
Warrant Agreements - (cont'd)
of the expiration date, is greater than the exercise price as of the expiration date, then the warrant will be deemed to have been exercised automatically for the maximum number of shares then purchasable.
During the year ended December 31, 2004, the Company issued warrants in connection with the convertible notes payable - related parties. The warrants entitle the holders to purchase 16,500 shares of Company's common stock at a per share price of $1.00. Warrants to purchase 1,500, 6,000, 6,000 and 3,000 shares of the Company's common stock expire on January 5, 2014, January 13, 2014, February 4, 2014, and September 7, 2014, respectively. In the event that any portion of the warrants remain unexercised as of the expiration date, and the market price of the Company's common stock as of the expiration date is greater than the exercise price as of the expiration date, then the warrant will be deemed to have been exercised automatically for the maximum number of shares then purchasable.
Based on Black-Scholes Option Pricing Model, the fair value of the warrants issued during the year ended December 31, 2004 and 2003 was $2,099 and $10,468.
Standby Equity Distribution Agreement
On December 20, 2004, the Company entered into a Standby Equity Distribution Agreement with Cornell. Pursuant to the Standby Equity Distribution Agreement, the Company may, at its discretion, periodically sell shares of common stock, for a maximum draw down of $500,000, per advance, once registration is determined effective by the SEC, for a total purchase price of up to $10,000,000. For each share of common stock purchased under the Standby Equity Distribution Agreement, the Investor will pay 98% of the lowest volume weighted average price of the common stock during the five consecutive trading days immediately following the notice date. In addition, Cornell will retain 5% of each advance under the Standby Equity Distribution Agreement. The Company's obligation to issue shares is essentially limitless. Cornell received 540,000 shares of common stock as a commitment fee.
In February 2005, the Company and Cornell terminated the Standby Equity Distribution Agreement, the Registration Rights Agreement, the Placement Agent Agreement (See Note: "Subsequent Events - Placement Agent") and the Escrow Agreement. As a result of the terminations, all respective rights or obligations granted to the Company and Cornell under or with respect to the Agreements are also terminated. Cornell has returned the 540,000 shares of common stock to the Company. The Company has recorded the termination of this transaction in the year ended December 31, 2004.
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 16 - INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the financial statements, and consist of taxes currently due plus deferred taxes related to differences between the financial statement and tax bases of assets and liabilities for financial statement and income tax reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences of these temporary differences, which will either be taxable or deductible in the year when the assets or liabilities are recovered or settled. Accordingly, measurement of the deferred tax assets and liabilities attributable to the book-tax basis differentials are computed at a rate of 34% federal and 7% state.
As of December 31, 2004, the Company had deferred tax assets of approximately $1,500,000 resulting from temporary differences and net operating loss carry-forwards of approximately $3,798,000, which are available to offset future taxable income, if any, through 2024. As utilization of the net operating loss carry-forwards and temporary difference is not assured, the deferred tax asset has been fully reserved through the recording of a 100% valuation allowance.
The tax effects of temporary differences, loss carry-forwards and the valuation allowance that give rise to deferred income tax assets at December 31, 2004 are as follows:
Temporary differences:
Fair value of warrants and options $ 20,000
Net operating losses 1,480,000
Less valuation allowance (1,500,000)
--------------
Deferred tax assets $ -
==============
|
The reconciliation of the effective income tax rate to the federal statutory rate for the year ended December 31, 2004 is as follows:
Federal income tax rate 39.0%
Change in valuation allowance on net operating
loss carry-forwards (39.0)
--------------
Effective income tax rate 0.0%
==============
|
NOTE 17 - RELATED PARTY TRANSACTIONS
Agreements
In September 2003, the Company entered into a consulting agreement with the spouse of the Company's Chief Technology Officer ("CTO"). The consulting agreement calls for payments every two weeks in the amount of $1,500 in consideration of services to be rendered to the Company. The term of the agreement is predicated upon a determination by the Company as to when certain product lines are completed. For the years ended December 31, 2004 and 2003, $36,000 and $8,250 was recorded as consulting expense and is included in selling, general and administrative expenses on the statement of operations.
In April 2003, the Company entered into an agreement with another firm, which is owned by a relative of the Company's CTO. This firm is an outsourcing company providing software engineering services. The agreement is informal and establishes a charge of $40 per hour for software development. The services were concluded November 2003. For the years ending December 31, 2004 and 2003, $0 and $17,500 was recorded as consulting expense and is included in selling, general and administrative expenses on the statement of operations.
NOTE 18 - STOCK OPTIONS
2004 Equity Incentive Plan
The shareholders approved the 2004 Equity Incentive Plan ("Incentive Plan") in September 2004. The Incentive Plan is effective April 1, 2003. Officers, key employees and non-employees, who in the judgment of the Company render significant service to the Company, are eligible to participate. The Incentive Plan provides for the award of a broad variety of stock-based compensation alternatives such as non-qualified stock options, incentive stock options, restricted stock, performance awards and stock
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 18 - STOCK OPTIONS - (cont'd)
2004 Equity Incentive Plan - (cont'd)
appreciation rights. The Incentive Plan provides 5,000,000 shares of common stock to be offered from either authorized and unissued shares or issued shares, which have been reacquired by the Company. All options vest equally over a three year period beginning one-year from the grant.
As of December 31, 2004 and 2003, an aggregate of 1,605,000 and 1,380,000 options were outstanding under the Incentive Plan. The exercise price for all these options is $1.00.
Non-Incentive Plan Stock Option Grants
As of December 31, 2004 and 2003, the Company had outstanding an aggregate of 7,600,000 and no options outside of the Incentive Plan. The exercise price for all these options is $0.36.
The table below summaries the Company's stock option activity for the year ended December 31, 2004 and 2003:
Non-Plan
Incentive Non-Qualified Non-Qualified
Options Options Options Total
------------------ ------------------ ------------------ ------------------
Outstanding at December 31, 2002
Granted - 1,830,000 1,830,000
Exercised - - - -
Forfeited - (450,000) - (450,000)
------------------ ------------------ ------------------ ------------------
Outstanding at December 31, 2003 1,380,000 1,380,000
Granted - 225,000 7,600,000 7,825,000
Exercised - - - -
Forfeited - - - -
------------------ ------------------ ------------------ ------------------
Outstanding at December 31, 2004 - 1,605,000 7,600,000 9,205,000
================== ================== ================== ==================
Vesting for the year ended:
December 31, 2005 - 518,333 2,897,143 3,415,476
December 31, 2006 - 231,944 1,931,429 2,163,373
December 31, 2007 - 34,028 - 34,028
|
As of December 31, 2004, there were outstanding an aggregate of 3,592,123 of exercisable plan and non-plan options with exercise prices ranging from $0.36 to $1.00.
The weighted average fair value of options granted during the year ended December 31, 2004 amounted to $0.72.
For the year ended December 31, 2004 and 2003, the Company recorded $3,194,274 and $0 of royalties, and no compensation expense for either year, in connection with granting of options.
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 19 - SUBSEQUENT EVENTS
Settlement Agreement
In January 2005, the Company became a third party beneficiary of a settlement in a bankruptcy suit between the lessor and supplier of the Company's telephony equipment and carrier services. The settlement between the lessor and supplier reduced the remaining lease commitment of approximately $43,000 by 85%, to a balance of $6,467. This balance is to be paid in 24 installments of $270 per month effective March 30, 2005. The settlement has been reflected in the lease commitment schedule in Note 14.
Secured Convertible Debenture
In January 2005, the Company executed an 8% secured convertible
debenture in the amount of $500,000 with Cornell (See Note:
"Subsequent Events - Standby Equity Distribution Agreement"). The
holder is entitled, at its option, to convert, and sell on the same
day, at any time and from time to time, until payment in full of this
debenture, all or any part of the principal amount of the debenture,
plus accrued interest, convertible into shares of the Company's common
stock at the price per share equal to the lesser of an amount equal to
120% of the initial bid price or an amount equal to 80% of the lowest
volume weighted average price of the Company's common stock for the
last five trading days immediately preceding the conversion date. If
not converted at the holder's option, the entire principal amount and
all accrued interest shall be due to the holder on the third year
anniversary of the debenture. The Company, at its option, may redeem,
with fifteen days advance written notice, a portion or all outstanding
convertible debenture. The redemption price shall be 110% of the
amount redeemed plus accrued interest.
Registration Statement
On January 18, 2005, the Company filed a Form SB-2 Registration Statement with the Securities and Exchange Commission ("SEC"), in order to register shares for trading on the OTC Bulletin Board. On February 2, 2005, the Company withdrew the Form SB-2 filing as a result of the termination of the Standby Equity Distribution Agreement (see note below). On February 11, 2005, the Company re-filed the Form SB-2 Registration Statement with the SEC omitting the Standby Equity Distribution Agreement.
Convertible Debentures
In January 2005, the Company executed an 8% convertible debenture in the amount of $125,000 with an Investor. At any time after the effective date of the Company's registration statement, the holder is entitled, at its option, to convert, and sell on the same day, at any time and from time to time, until payment in full of the debenture, all or any part of the principal amount of the debenture, plus accrued interest, into shares of the Company's common stock at the price of $0.90 per share. If not converted at the holder's option, the entire principal amount and all accrued interest shall be due to the holder on the first year anniversary of the debenture.
In March 2005, the Company executed an 8% convertible debenture in the amount of $235,000 with an investor group. At any time after the Form SB-2 is deemed effective, the holder is entitled, at its option, to convert, and sell on the same day, at any time and from time to time, until payment in full of the debenture, all or any part of the principal amount of the debenture, plus accrued interest, into shares of the Company's common stock at the price of $0.90 per share. If not converted at the holder's option, the
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 19 - SUBSEQUENT EVENTS - (cont'd)
Convertible Debentures - (cont'd)
entire principal amount and all accrued interest shall be due to the holder on the third year anniversary of the debenture.
Standby Equity Distribution Agreement
In February 2005, the Company and Cornell terminated the Standby Equity Distribution Agreement, the Registration Rights Agreement, the Placement Agent Agreement (see note below) and the Escrow Agreement. As a result of the terminations, all respective rights or obligations granted to the Company and Cornell under or with respect to the Agreements are also terminated. Cornell has returned 540,000 shares of common stock to the Company. The Company has recorded the cancellation of this stock transaction in the year ended December 31, 2004.
Placement Agent
In February 2005, the Company's Agreement with its unaffiliated registered broker-dealer was terminated in conjunction with the termination of the Standby Equity Distribution Agreement. The Placement Agent Agreement was co-terminus with the Standby Equity Distribution Agreement.
Consulting Agreements
In January 2005, the Company entered into a consulting agreement with an unrelated corporation that will provide financial advisory services. The consultant was paid an engagement fee of $5,000 in February, 2005 and issued 33,333 shares of common stock. The value of the services is not stated in the agreement, therefore the Company has determined the services shall be measured based upon the fair value of the shares issued, which is a per share price of $0.90 in March 2005. In addition to the engagement fee, the consultant shall be paid a cash success fee equal to 7% of the total funds raised in each round of investments and warrants in the Company (priced at the current round which is set at $0.90 per share) and equal to 7% of the total funds raised in each round. The warrants shall have an expiration of five years from the closing of the warrants in the Company. Out-of-pocket expenses regarding travel and incidentals shall be reimbursed to the consultant by the Company at a cost not to exceed $2,000 per month unless approved previously by the Company.
In February 2005, the Company entered into a consulting agreement with an unrelated corporation that will provide recruitment services. The consultant will conduct a search for two account executives for a fee equal to 20% of the first year salary. The fee will be paid upon the starting date of the two new employees as follows: $5,000 cash and the remainder of $17,000 in Company warrants totaling 18,889 warrants at $0.90 each. The warrants are to be issued at a 70%/30% split among two representative parties of the consultant. If any hired candidate does not stay employed with the Company for sixty days, the consultant will replace the candidate at no additional charge.
Common Stock
In January 2005, the Company issued 95,209 shares of common stock to eleven individuals at a price of $0.72 per share for a total of $68,550. This issuance was exempt from registration requirements pursuant to Regulation D.
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 19 - SUBSEQUENT EVENTS - (cont'd)
Common Stock - (cont'd)
In January 2005, the Company issued stock options to purchase 25,000 shares of common stock to a new employee pursuant to his terms of employment as a Software Developer. These options are exercisable at $1.00 per share and expire on January 11, 2015. The shares vest annually over a three year period. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In February 2005, the Company issued stock options to purchase 25,000 shares of common stock to a new employee pursuant to his terms of employment as a Software Developer. These options are exercisable at $1.00 per share and expire on February 8, 2015. The shares vest annually over a three year period. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In March 2005, the Company cancelled 500 shares of common stock issued in November 2004 to a consultant. The consultant did not provide the service, therefore negating the reciprocity of consideration. The Company recorded the cancellation of this stock transaction in the year ended December 31, 2004
Notes Payable - Related Parties
In January 2005, the Company placed $6,000 in an escrow account with the Company's employment liability counsel as final payment due on a promissory note with a founding shareholder who is no longer employed with the Company. The payment will be released upon execution of the pending separation agreement and general release by the former employee.
NOTE 20 - SUBSEQUENT EVENTS - APRIL 27, 2005
Securities Purchase Agreement
On April 27, 2005, the Company entered into a Securities Purchase Agreement with Highgate House Funds, Ltd. pursuant to which the Company is to receive $750,000 in exchange for two $375,000 7% secured convertible debentures that mature in 2 years, and 150,000 shares of the Company's common stock. The Securities Purchase Agreement provides for the execution of funding under these two secured convertible debentures. The first debenture funding will transpire upon the signing of the aforementioned Securities Purchase Agreement and the second debenture and funding will transpire upon the filing of the Form SB-2. With the SEC, the Company issued the aforementioned securities to the investor pursuant to Rule 506 of Regulation D as promulgated under the Securities Act of 1933, as amended (the "Act"), and/or Section 4 (2) of the Act. In addition, the Company has agreed to reserve for issuance an aggregate of 2,000,000 shares of the Company's common stock, which may be adjusted from time to time as agreed upon by the parties, to be issued to the debenture holder upon conversion of accrued interest and liquidated damages into common stock and additional shares of common stock required to be issued to the debenture holder in accordance with the Securities Purchase Agreement. The 2,000,000 shares are not being registered in the Form SB-2.
The aforementioned debentures bear simple interest at a rate of 7% per annum and expire 2 years after the date of issuance. The debentures are convertible into shares of our common stock at a conversion price equal to the lesser of (i) 120% of the average closing bid price for the 5 trading days immediately preceding the closing date; or (ii) 80% of the lowest closing bid price for the 5 trading days immediately
STRIKEFORCE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 20 - SUBSEQUENT EVENTS - APRIL 27, 2005 - (cont'd)
Securities Purchase Agreement - (cont'd)
preceding the date of conversion. In addition, the Company has the right to redeem the debentures, at any time prior to its maturity, upon 3 business days prior written notice to the holder. The redemption price is equal to 120% of the face amount redeemed plus accrued interest. In the event that the Company redeems the debentures within 180 days after the date of issuance, the redemption price shall be 110% of the face amount redeemed plus accrued interest. If the Form SB-2 registration is not effective within 120 days from the filing date, the Company defaults and thereby is required to pay 2% of the remaining debenture and accrued interest monthly as a fee until which time the registration is declared effective by the SEC.
Amendment to Cornell Debentures
On April 27, 2005, the Company entered into an amended and restated 8% secured convertible debenture with Cornell in the amount of $1,024,876, which terminated the two $500,000 debentures entered into with Cornell in December 2004 and January 2005. The new debenture entitles Cornell, at its option, to convert, and sell on the same day, at any time and from time to time, until payment in full of this debenture, all or any part of the principal amount of the debenture, plus accrued interest, convertible into shares of the Company's common stock at the price per share equal to the lesser of an amount equal to 120% of the initial bid price or an amount equal to 80% of the lowest volume weighted average price of the Company's common stock for the last five trading days immediately preceding the conversion date. If not converted at Cornell's option, the entire principal amount and all accrued interest shall be due to the Cornell on the third year anniversary of the debenture. The Company, at its option, may redeem, with fifteen days advance written notice, a portion or all outstanding convertible debenture. The redemption shall be 110% of the amount redeemed plus accrued interest remaining for the first six months of the executed debenture and after that time the redemption is 120% of the amount redeemed plus accrued interest remaining. The Company defaults if the current Form SB-2 registration is not declared effective by the SEC within 120 days of the new filing in April 2005, at which time a 2% monthly fee is applied, to the remaining debenture plus accrued interest to be paid until which time the registration is effective.
Prospectus
STRIKEFORCE TECHNOLOGIES, INC.
27,985,814 Shares of Common Stock
No person is authorized to give any information or to make any representation other than those contained in this prospectus, and if made such information or representation must not be relied upon as having been given or authorized. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities offered by this prospectus or an offer to sell or a solicitation of an offer to buy the securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.
The delivery of this prospectus shall not, under any circumstances, create any implication that there have been no changes in our affairs of the company since the date of this prospectus. However, in the event of a material change, this prospectus will be amended or supplemented accordingly.
May 11, 2005
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Section 14A:3-5 of the Business Corporation Law of the State of New Jersey provides that any corporation shall have the power to indemnify a corporate agent against his expenses and liabilities in connection with any proceeding involving the corporate agent by reason of his being or having been a corporate agent if such corporate agent acted in good faith and in the best interest of the corporation and with respect to any criminal proceeding, such corporate agent has no reasonable cause to believe his conduct was unlawful.
Our Certificate of Incorporation provides that we shall indemnify any and all persons whom we shall have power to indemnify to the fullest extent permitted by the NJBCL. Our by-laws provide that we shall indemnify our authorized representatives to the fullest extent permitted by the NJBCL. Our by-laws also permit us to purchase insurance on behalf of any such person against any liability asserted against such person and incurred by such person in any capacity, or out of such person's status as such, whether or not we would have the power to indemnify such person against such liability under the foregoing provision of the by-laws.
No pending material litigation or proceeding involving our directors, executive officers, employees or other agents as to which indemnification is being sought exists, and we are not aware of any pending or threatened material litigation that may result in claims for indemnification by any of our directors or executive officers.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, which we expect to incur with respect to the offering and sale or distribution of common shares under this registration statement. We have agreed to pay all of these expenses.
SEC registration fee $2,371.93
Financial printer fees to EDGARize and print registration statement $450*
Transfer Agent Fees, including Printing and Engraving Stock Certificates $1,000*
Legal fees and expenses $55,000*
Accounting fees and expenses $30,000*
Miscellaneous $10,000*
--------------------
Total $98,821.93*
--------------------
* estimated
|
II-1
Item 26. RECENT SALES OF UNREGISTERED SECURITIES
We have sold or issued the following securities not registered under the Securities Act by reason of the exemption afforded under Section 4(2) of the Securities Act of 1933, during the three year period ending on the date of filing of this registration statement. No underwriting discounts or commissions were payable with respect to any of the following transactions. The offer and sale of the following securities was exempt from the registration requirements of the Securities Act under Rule 506 insofar as (1) except as stated below, each of the investors was accredited within the meaning of Rule 501(a); (2) the transfer of the securities were restricted by the company in accordance with Rule 502(d); (3) there were no more than 35 non-accredited investors in any transaction within the meaning of Rule 506(b), after taking into consideration all prior investors under Section 4(2) of the Securities Act within the twelve months preceding the transaction; and (4) none of the offers and sales were effected through any general solicitation or general advertising within the meaning of Rule 502(c).
Since we were formed on August 24, 2001, we issued the following securities pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and/or Regulation D, promulgated pursuant to the Securities Act.
We were incorporated in August 2001 with one hundred shares authorized common stock at no par value. Stock certificates were subscribed for, but the shares were never issued. Stock certificates were subsequently issued to the founders in December 2002.
In August 2002, we resolved to increase the authorized common shares to one million shares, with no par value.
In December 2002, we resolved to increase the authorized common shares to twenty million shares and change the par value to $.0005. Also, in December 2002, we agreed to pay 4,591,655 shares of common stock to certain of our officers of as compensation for the year ended December 31, 2002, the common shares were valued at $2,235 and recorded as compensation in the year ended December 31, 2002. Due to the limit in authorized common stock at the time, 400,000 shares were issued in December 2002 as compensation for certain officers, the common shares were valued at $200. The remaining 4,191,655 shares were included in accrued expenses of $2,035 at December 31, 2002 and were issued in March, 2003, when we were granted approval by the State of New Jersey to increase the authorized shares from one million to twenty million shares. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In December 2002, in accordance with the negotiations of the purchase of the NetLabs.com, Inc. (the "Sellers") intellectual property, we informally agreed to a payment of 7,516,998 shares of our common stock, concurrently with the agreement, we issued 600,000 shares of our common stock to the Sellers. The common shares were valued at $300. The remaining 6,916,998 common shares due in accordance with the agreement were issued in March, 2003, after approval by the State of New Jersey to increase our authorized shares from one million to twenty million shares and were valued at $3,458. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In February 2003, we agreed to issue an additional 1,140,000 shares of common stock to the Sellers as consideration for the remainder of the intellectual property received from the Sellers in December of 2002. The common shares were valued at $570. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In May 2003, we issued options to purchase 1,000,000 shares of our common
stock to Mark L. Kay, our current Chief Executive Officer, pursuant to his
employment agreement. These options are exercisable at $1.00 per share and
expire on June 1, 2014. The shares vest in increments of one-third each on June
1, 2004, June 1, 2005 and June 1, 2006. This issuance was exempt from
registration requirements pursuant to Section 4(2) of the Securities Act of
1933.
II-2
In May 2003, our current Chief Executive Officer, Mark L. Kay,
purchased 300,000 shares of our common stock at $1.00 per share for a total of
$300,000. This issuance was exempt from registration requirements pursuant to
Section 4(2) of the Securities Act of 1933.
In June 2003, we issued options to purchase 500,000 shares of our common stock to Constantine Pavlides, our former Chief Financial Officer, which vest one-third each year on his anniversary. These options are exercisable at $1.00 per share and expire on June 1, 2013. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933. The employment agreement was terminated on March 5, 2004. In further consideration for Pavlides' execution of this Agreement and agreement to be bound by its terms, including but not limited to the full and complete Release of any and all claims or potential claims, we hereby granted Mr. Pavlides options to purchase Fifty Thousand (50,000) shares of our common stock on a fully converted and fully diluted basis at a price of $1.00 per share with a term of ten (10) years from his hire date. Based on the terms of Mr. Pavlides employment agreement, the 500,000 options to purchase our common stock were not vested, therefore no longer outstanding.
In June 2003, we issued options to purchase 130,000 shares of our common stock to Michael Brenner, our current Technical Services Director, pursuant to his employment agreement. These options are exercisable at $1.00 per share and expire on June 16, 2013. The shares vest in increments of one-third each on June 16, 2004, June 16, 2005 and June 16, 2006. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In June 2003, we issued options to purchase 100,000 shares of our common stock to Vinod Thadimari, our current Software Development Engineer, pursuant to his employment agreement. These options are exercisable at $1.00 per share and expire on June 18, 2013. The shares vest in increments of one-third each on June 18, 2004, June 18, 2005 and June 18, 2006. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In June 2003, we issued options to purchase 100,000 shares of our common stock to Dawn Rodriguez, our current Office Manager, pursuant to her employment agreement. These options are exercisable at $1.00 per share and expire on June 13, 2013. The shares vest in increments of one-third each on June 13, 2004, June 13, 2005 and June 13, 2006. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In July 2003, we issued 1,333 shares of common stock to David Mitchell at $0.75 per share for a total of $1,000. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In August 2003, we issued 79,267 shares of common stock to seven individual investors at $0.75 per share for a total of $59,450. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In August 2003, we issued warrants to purchase 5,000 shares of our common stock to Mark L. Kay, our current Chief Executive Officer, pursuant to his warrant agreement. These shares are exercisable at $1.00 per share and expire on August 20, 2013. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In September 2003, we issued 50,000 shares of common stock to Barry Wolfman at $1.00 per share and 5,000 shares of common stock to Mark Museck at $1.00 per share for a total of $55,000. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In September 2003, we issued warrants to purchase 5,000 shares of our common stock to Mark L. Kay, our current Chief Executive Officer, pursuant to his warrant agreement. These shares are exercisable at $1.00 per share and expire on September 5, 2013. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In October 2003, we issued warrants to purchase 5,000 shares of our common stock to Mark L. Kay, our current Chief Executive Officer, pursuant to his warrant agreement. These shares are exercisable at $1.00 per share and expire on October 7, 2013. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
II-3
In October 2003, we issued warrants to purchase 5,000 shares of our common stock to Mark L. Kay, our current Chief Executive Officer, pursuant to his warrant agreement. These shares are exercisable at $1.00 per share and expire on October 28, 2013. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In November 2003, we issued warrants to purchase 5,000 shares of our common stock to Michael Brenner, our current Technical Services Director, pursuant to his warrant agreement. These shares are exercisable at $1.00 per share and expire on November 10, 2013. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In December 2003, we issued warrants to purchase 4,000 shares of our common stock to Mark L. Kay, our current Chief Executive Officer, pursuant to his warrant agreement. These shares are exercisable at $1.00 per share and expire on December 8, 2013. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In December 2003, we issued warrants to purchase 2,000 shares of our common stock to Constantine Pavlides, our former Chief Financial Officer, pursuant to his warrant agreement. These shares are exercisable at $1.00 per share and expire on December 17, 2013. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In January 2004, we issued warrants to purchase 1,500 shares of our common stock to Michael Brenner, our current Technical Services Director, pursuant to his warrant agreement. These shares are exercisable at $1.00 per share and expire on January 5, 2014. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In January 2004, we issued warrants to purchase 6,000 shares of our common stock to Mark L. Kay, our current Chief Executive Officer, pursuant to his warrant agreement. These shares are exercisable at $1.00 per share and expire on January 13, 2014. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In January 2004, we issued options to purchase 50,000 shares of our common stock to Suresh K. Varaghur, our current Software Development Engineer, pursuant to his employment agreement. These options are exercisable at $1.00 per share and expire on January 15, 2014. The shares vest in increments of one-third each on January 15, 2005, January 15, 2006 and January 15, 2007. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In February 2004, we issued 27,778 shares of common stock to Ms. Maria Rodriguez at $0.72 per share for a total of $20,000. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In February 2004, we issued warrants to purchase 6,000 shares of our common stock to Mark L. Kay, our current Chief Executive Officer, pursuant to his warrant agreement. These shares are exercisable at $1.00 per share and expire on February 21, 2014. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In April 2004, we issued 560,000 shares of our common stock to Altavilla Family Trust, 120,000 shares of our common stock to Alan C. Shoaf and 120,000 shares of our common stock to Marlin G. Molinaro in consideration for investment advisory services rendered pursuant to the Independent Consulting Agreement with Summit Financial Partners, LLC dated May 1, 2004. These shares were valued at $0.72 per share for a total of $576,000. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In April 2004, we issued 300,000 shares of our common stock and 50,000 shares of our common stock to M Power, LLC in consideration for investment advisory services rendered pursuant to their Consulting Agreement dated June 24, 2004. These shares were valued at $0.72 per share for a total of $252,000. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In May 2004, we issued 208,330 shares of common stock to OBX Capital Group
in consideration for advisory services at a price of $0.72 per share for a total
of $150,000. This issuance was exempt from registration requirements pursuant to
Section 4(2) of the Securities Act of 1933.
II-4
In May 2004, we issued 48,612 shares of common stock to Mr. Richard McDonald at $0.72 per share for a total of $ $35,000. This issuance was exempt from registration requirements pursuant to Regulation D. Additionally, we issued 191,167 shares of common stock to three individual investors at $0.72 per share for a total of $137,640 and 83,334 shares to OBX Capital Group at $0.72 per share for a total of $60,000. These issuances were exempt from registration requirements pursuant to Regulation D.
In May 2004, we issued options to purchase 50,000 shares of our common stock to Joe Park, our former Product Development Consultant, per his consultant agreement. These options are exercisable at $1.00 per share and expire on May 4, 2014. The shares vest in increments of one-third each on May 4, 2005, May 4, 2006 and May 4, 2007. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933. The consultant agreement was terminated on November 19, 2004. Said options were subsequently returned to us.
In May 2004, we issued 25,000 shares of our common stock to General Teddy Allen in consideration for serving on our Advisory Board. These shares were valued at $0.72 per share for a total of $18,000. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In June 2004, we issued 57,163 shares of common stock to Mr. Lawrence and Bonnie Anlauf at $0.72 per share for a total of $41,157. This issuance was exempt from registration requirements pursuant to Regulation D.
In June 2004, we issued 277,778 shares of common stock to OBX Capital Group an investment advisory group at $0.72 per share for a total of $200,000. This issuance was exempt from registration requirements pursuant to Regulation D.
In June 2004, we issued 25,000 shares of our common stock to Sondra Schneider in consideration for serving on our Advisory Board. These shares were valued at $0.72 per share for a total of $18,000. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In June 2004, we issued 25,000 shares of our common stock to Howard Medow in consideration for serving on our Advisory Board. These shares were valued at $0.72 per share for a total of $18,000. This issuance was exempt from registration requirements pursuant to Regulation S.
In June 2004, we issued 25,000 shares of our common stock to Bill Demopolis in consideration for serving on our Advisory Board. These shares were valued at $0.72 per share for a total of $18,000. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In June 2004, we issued 25,000 shares of our common stock to Frederick Ilardi in consideration for serving on our Advisory Board. These shares were valued at $0.72 per share for a total of $18,000. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In June 2004, we issued options to purchase 100,000 shares of our common stock to Jordan Byk, our current Channel Sales Director, pursuant to his employment agreement. These options are exercisable at $1.00 per share and expire on June 21, 2014. The shares vest in increments of one-third each on June 21, 2005, June 21, 2006 and June 21, 2007. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In June 2004, we issued 10,000 shares of our common stock to Gary Kotowsky for consulting services performed on our behalf valued at $0.72 per share for a total of $7,200. The issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In June 2004, we issued 50,000 shares of our common stock to Shelly Cohen for consulting services performed on our behalf valued at $0.72 per share for a total of $36,000. The issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
II-5
In July 2004, we issued 13,889 Shares of common stock to Sudhaker Bhagavathula in lieu of compensation for recruiting services valued $0.72 per share against consulting expense of $10,000. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In July 2004, we issued 41,667 shares of common stock to Mr. Alan C. Shoaf at $0.72 per share for a total of $30,000. This issuance was exempt from registration requirements pursuant to Regulation D.
In August 2004, we issued 225,155 shares of common stock to twelve individual investors at $0.72 per share for a total of $162,112. This issuance was exempt from registration requirements pursuant to Regulation D.
In August 2004, we issued options to purchase 25,000 shares of our common stock to George Stout, Jr., our current Controller, pursuant to his employment agreement. These options are exercisable at $1.00 per share and expire on August 10, 2014. The shares vest in increments of one-third each on August 10, 2005, August 10, 2006 and August 10, 2007. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In August 2004, we issued options to purchase 150,000 shares of our common stock to David Morris, our former Vice President of Sales, pursuant to his employment agreement. These options are exercisable at $1.00 per share and expire on August 13, 2014. The shares vest in increments of one-third each on August 13, 2005, August 13, 2006 and August 13, 2007. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933. The employment agreement was terminated on December 28, 2004, therefore the 150,000 options to purchase shares of our common stock were not vested, therefore no longer outstanding.
In September 2004, we issued 268,491 shares of common stock to thirteen individual investors at $.72 per share for a total of $193,316. This issuance was exempt from registration requirements pursuant to Regulation D.
In September 2004, we issued warrants to purchase 3,000 shares of our common stock to Mark L. Kay, our current Chief Executive Officer, pursuant to his warrant agreement. These shares are exercisable at $1.00 per share and expire on September 9, 2014. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In October 2004, we issued 106,722 shares of common stock to five individual investors at $0.72 per share for a total of $76,840. This issuance was exempt from registration requirements pursuant to Regulation D.
In November 2004, we issued 41,667 shares of common stock to our CEO Mark L. Kay at $0.72 per share for a total of $30,000. This issuance was exempt from registration requirements pursuant to Regulation D.
In November 2004, we issued 13,889 shares of common stock to Dr. John Pepe at $0.72 per share for a total of $10,000. This issuance was exempt from registration requirements pursuant to Regulation D.
In December 2004, we issued 108,332 shares of stock to five individual investors at $0.72 per share for a total of $77,998. This issuance was exempt from registration requirements pursuant to Regulation D.
In December 2004, we issued 416,665 shares of our common stock to Mark L. Kay, our current Chief Executive Officer, as repayment of a convertible loan of $300,000 granted between August 20, 2003 and January 15, 2004. These shares were valued at $0.72 per share. This issuance was exempt from registration requirements pursuant to Regulation D.
In December 2004, we issued 10,417 shares of our common stock to Michael Brenner, our current Technical Services Director, as a partial repayment of $7,500 of a convertible loan of $15,000 granted on January 5, 2004. These shares were valued at $0.72 per share. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In December 2004, we issued options to purchase 50,000 shares of our common stock to David Martinez, our Director of West Coast Sales, pursuant to his employment agreement. These options are exercisable at $1.00 per share and expire on December 20, 2014. The shares vest in increments of one-third each on December 20, 2005, December 20, 2006 and December 20, 2007. The issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In December 2004, we issued 540,000 shares of our common stock to Cornell
Capital Partners, LP, a selling shareholder, valued at $0.72 a share, as a
commitment fee for entering into an equity line (Standby Equity Distribution
Agreement-SEDA) which was subsequently terminated and the shares have been
cancelled. The issuance was exempt from registration requirements pursuant to
Section 4(2) of the Securities Act of 1933.
In December 2004, we and NetLabs.com, Inc. agreed to terminate the royalty portion of the Asset Purchase Agreement which we previously entered into with NetLabs under which we agreed to issue NetLabs options to purchase 7,600,000 shares of our common stock at an exercise price of $0.36. One-third of such options shall vest each year on September 11, 2004, September 11, 2005 and September 11, 2006. The options expire on August 31, 2013. The issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In January 2005, we issued options to purchase 25,000 shares of our common stock to Rishikesh Pande, our Software Engineer, pursuant to his employment agreement. These options are exercisable at $1.00 per share and expire on January 11, 2015. The shares vest in increments of one-third each on January 11, 2006, January 11, 2007 and January 11, 2008. The issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In January 2005, we issued 95,209 shares of common stock to eleven individual investors at a price of $0.72 per share for a total of $68,550. This issuance was exempt from registration requirements pursuant to Regulation D.
II-6
In February 2005, we issued 33,333 shares of common stock to Ingensa Partners in lieu of compensation for financial advisory services rendered. These shares were issued at par value. This issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In February 2005, we issued options to purchase 25,000 shares of our common stock to Mateus Boyington, our Software Engineer, pursuant to his employment agreement. These options are exercisable at $1.00 per share and expire on February 8, 2015. The shares vest in increments of one-third each on February 8, 2006, February 8, 2007 and February 8, 2008. The issuance was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933.
In February 2005, we entered into a consulting agreement with an unrelated corporation that will provide recruitment services. The consultant will conduct a search for two account executives for a fee equal to 20% of the first year salary. The fee will be paid upon the starting date of the two new employees as follows: $5,000 cash and the remainder of $17,000 in Company warrants totaling 18,889 warrants at $0.90 each. The warrants are to be issued at a 70%/30% split between two representative parties of the consultant. If any hired candidate does not stay employed with us for sixty days, the consultant will replace the candidate at no additional charge.
In March 2005, we cancelled 500 shares of common stock issued in November 2004 to a consultant. The consultant did not provide the service, therefore negating the reciprocity of consideration. We recorded the cancellation of this stock transaction in the year ended December 31, 2004.
In April 2005, in accordance with an executed Security Purchase Agreement between us and Highgate House Funds, Ltd. we issued 150,000 shares of our common stock to Highgate House Funds Ltd. valued at par $0.0001 per share pursuant to the terms of the Securities Purchase Agreement.
II-7
Item 27. EXHIBITS
EXHIBIT DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation of StrikeForce
Technologies, Inc.
3.2 By-laws of StrikeForce Technologies, Inc.
5.1 Opinion of Sichenzia Ross Friedman Ference LLP.
10.1 2004 Stock Option Plan.
10.2 Securities Purchase Agreement dated December 20, 2004, by and among
StrikeForce Technologies, Inc. and Cornell Capital Partners, LP.
10.3 Secured Convertible Debenture with Cornell Capital Partners, LP.
10.4 Investor Registration Rights Agreement dated December 20, 2004, by and
between StrikeForce Technologies, Inc. and Cornell Capital Partners,
LP in connection with the Securities Purchase Agreement.
10.5 Escrow Agreement, dated December 20, 2004, by and between StrikeForce
Technologies, Inc. and Cornell Capital Partners, LP in connection with
the Securities Purchase Agreement.
10.6 Security Agreement dated December 20, 2004, by and between StrikeForce
Technologies, Inc. and Cornell Capital Partners, LP in connection with
the Securities Purchase Agreement.
10.7 Secured Convertible Debenture with Cornell Capital Partners, LP dated
January 18, 2005.
10.8 Asset Purchase agreement With NetLabs.com, Inc. and Amendments.
10.9 Employment Agreement dated as of May 20, 2003, by and between
StrikeForce Technologies, Inc. and Mark L. Kay.
10.10 Amended and Restated Secured Convertible Debenture with Cornell
Capital Partners, LP dated April 27, 2005.
10.11 Amendment and Consent dated as of April 27, 2005, by and between
StrikeForce Technologies, Inc. and Cornell Capital Partners, LP.
10.12 Securities Purchase Agreement dated as of April 27, 2005 by and
between StrikeForce Technologies, Inc. and Highgate House Funds, Ltd.
10.13 Investor Registration Rights Agreement dated as of April 27, 2005 by
and between StrikeForce Technologies, Inc. and Highgate House Funds,
Ltd.
10.14 Secured Convertible Debenture with Highgate House Funds, Ltd. dated
April 27, 2005.
10.15 Escrow Agreement dated as of April 27, 2005 by and between StrikeForce
Technologies, Inc., Highgate House Funds, Ltd. and Gottbetter &
Partners, LLP.
10.16 Escrow Shares Escrow Agreement dated as of April 27, 2005 by and
between StrikeForce Technologies, Inc., Highgate House Funds, Ltd. and
Gottbetter & Partners, LLP.
10.17 Security Agreement dated as of April 27, 2005 by and between
StrikeForce Technologies, Inc. and Highgate House Funds, Ltd.
10.18 Network Service Agreement with Panasonic Management Information
Technology Service Company dated August 1, 2003 (and amendment).
10.19 Client Non-Disclosure Agreement.
10.20 Employee Non-Disclosure Agreement.
10.21 Secured Convertible Debenture with Highgate House Funds, Ltd. dated
May 6, 2005.
10.22 Termination Agreement with Cornell Capital Partners, LP dated February
19, 2005.
23.1 Consent of Massella & Associates, CPA, PLLC.
23.2 Consent of Sichenzia Ross Friedman Ference LPLP (included in Exhibit
5.1).
|
II-8
Item 28. UNDERTAKINGS
We hereby undertake to:
1. File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:
i. Include any prospectus required by Section 10(a)(3) of the Securities Act;
ii. Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and Notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation From the low or high end of the estimated maximum offering range may be reflected in the form of prospects filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.
iii. Include any additional or changed material information on the plan of distribution.
2. For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.
3. File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
4. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
5. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
II-9
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, on the 11th day of May, 2005.
/s/ Mark L. Kay
------------------
By: Mark L. Kay, Chief Executive Officer
/s/ Mark Joseph Corrao
-------------------
Mark Joseph Corrao, Chief Financial Officer
and Principal Accounting Officer
|
In accordance with the requirements of the Securities Act of 1933, the following persons in the capacities and on the dates stated signed this registration statement:
Signatures Title Date
/S/ Mark L. Kay
-------------------------
Mark L. Kay Chief Executive Officer May 11, 2005
/S/ Mark Corrao
-------------------------
Mark Corrao Chief Financial Officer May 11, 2005
/S/ Ramarao Pemmaraju
-------------------------
Ramarao Pemmaraju Chief Technical Officer May 11, 2005
/S/ Robert Denn
-------------------------
Robert Denn Chairman of the May 11, 2005
Board of Directors,
President
/S/ George Waller
-------------------------
George Waller Executive Vice President May 11, 2005
of Marketing
|
II-10
Exhibit 3.1
Pursuant to the provisions of Section 14A:9-5, Corporations, General, of the New Jersey Statutes, the undersigned corporation hereby executes the following Restated Certificate of Incorporation:
1. Name of Corporation: Strike Force Technologies
2. The purpose(s) for which the corporation is organized is (are): any lawful
purpose.00
(Use the following if the shares are to consist of one class only.)
3. The aggregate number of shares which the corporation shall have authority to
issue is
110,000,000
4. The aggregate number of shares which the corporation shall have authority to
issue is
Common Stock 100,000,000 Par Value $.0001
Preferred Stock 10,000,000 Par Value $0.10
|
The relative rights, preferences and limitations of the shares of each class and series (if any), are as follows:
The Preferred Stock, or any series thereof, shall have such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as shall be expressed in the reosolution or resolutions providi9ng for the issue of such stock adopted by the Board of Directors and may be made dependent upon facts asc ertainable outside such resolutions or resolutions of the Board of Directors, provided that the matter in which such facts shall operate upon such designations, preferences rights and qualifications; limitations or restrictions of such class or series of stock is clearly and expressly set forth in the resolution or resolutions providing for the issuance of such stock by the Board of Directors.
5. The address of the corporation's current registered office is:
1090 King George's Post Road, Edison, NJ 08837
The name of the corporation's current current registered agent at such address is:
Robert Denn, President
6. The number of directors constituting the current board of directors is: 5
Mark L. Kay C/O Strike Force Technologies, Inc
1090 King Georges Post Road
Edison, NJ 08837
Robert Denn C/O Strike Force Technologies, Inc
1090 King Georges Post Road
Edison, NJ 08837
Mark Corrao C/O Strike Force Technologies, Inc
1090 King Georges Post Road
Edison, NJ 08837
Ram Pemmaraju C/O Strike Force Technologies, Inc
1090 King Georges Post Road
Edison, NJ 08837
George Waller C/O Strike Force Technologies, Inc
1090 King Georges Post Road
Edison, NJ 08837
|
6. The duration of the corporation is perpetual 7. Other Provisions:
(a) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
(b) The number of directors of the Corporation and the classes thereof shall be as from time to time fixed by, or in the manner provided in, the Bylaws of the Corporation. Election of directors need not be by written ballot unless the Bylaws so provide.
(c) A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office.
(d) Subject to the terms of any one or more classes or series of Preferred Stock, any vacancy on the Board of Directors that is the result of a resolution adopted by the stockholders of the Corporation to increase the number of directors on the Board of Directors may be filled by the stockholders of the Corporation, and any other vacancy occurring on the Board of Directors may be filled by a majority of the Board of Directors then in office, even if less than a quorum, or by a sole remaining director. Any director of any class elected to fill a vacancy resulting from an increase in the number of directors of such class shall hold office for a term that shall coincide with the remaining term of that class. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that
of his predecessor. Subject to the rights, if any, of the holders of shares of Preferred Stock then outstanding, any or all of the directors of the Corporation may be removed from office at any time, with or without cause and only by the affirmative vote of the holders of at least a majority of the voting power of the Corporation's then outstanding capital stock entitled to vote generally in the election of directors. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article unless expressly provided by such terms.
(e) In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of Chapter 14A of the New Jersey Statutes (the "New Jersey Corporations Code"), this Certificate of Incorporation, and any Bylaws adopted by the stockholders; provided, however, that no Bylaws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such Bylaws had not been adopted.
(f) No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under applicable law as the as the same exists or may hereafter be amended. Any repeal or modification of this Article by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.
(g) The Corporation shall indemnify its directors and officers to the fullest extent authorized or permitted by law, as now or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of his or her heirs, executors and personal and legal representatives; provided, however, that, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors. The right to indemnification conferred by this Article shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise
participating in any proceeding in advance of its final disposition. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article to directors and officers of the Corporation.
(i) The rights to indemnification and to the advance of expenses conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under this Certificate of Incorporation, the Bylaws of the Corporation, any statute, agreement, vote of stockholders or disinterested directors or otherwise.
(ii) Any repeal or modification of this Article by the stockholders of the Corporation shall not adversely affect any rights to indemnification and to the advancement of expenses of a director or officer of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification.
(iii) Any action required or permitted to be taken by the stockholders of the Corporation may be effected at a duly called annual or special meeting of stockholders of the Corporation, notice of which shall be provided pursuant to the DGCL or as may be required by the Bylaws of the Corporation. The stockholders may consent in writing to the taking of any action that might have been effected at an annual or special meeting to the extent such consent is permitted by DGCL Section 228 and authorized by the Bylaws of the Corporation.
(h) Meetings of stockholders may be held within or without the State of New Jersey or utilizing such electronic means as the Bylaws may provide. The books of the Corporation may be kept at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
(i) In furtherance and not in limitation of the powers conferred upon it by the laws of the State of New Jersey, the Board of Directors shall have the power to adopt, amend, alter or repeal the Corporation's Bylaws. The affirmative vote of at least a majority of the entire Board of Directors shall be required to adopt, amend, alter or repeal the Corporation's Bylaws. The Corporation's Bylaws also may be adopted, amended, altered or repealed by the affirmative vote of the holders of at least eighty percent (80%) of the voting power of the shares entitled to vote at an election of directors.
(j) The Corporation shall have authority, to the fullest extent now or hereafter permitted by the New Jersey Corporations Code, or by any other applicable law, to enter into any contract or transaction with one or more of its directors or officers, or with any corporation, partnership, joint venture, trust, association or other entity in which one or more of its directors or officers are directors or officers or have a financial interest, notwithstanding such relationships and notwithstanding the fact that the director or officer is present at or participates in the meeting of the board of directors or committee thereof which authorizes the contract or transaction.
Certificate Required to be filed with the
RESTATED CERTIFICATE of INCORPORATION
(For Use by Domestic Corporations)
Pursuant to N.J.S.A.14A:9-5 (5), the undersigned corporation hereby Executes the following certificate:
1. Name of Corporation: StrikeForce Technologies, Inc.
2. Restated Certificate of Incorporation was adopted by written consent of a
majority of the shareholders of the corporation on the 8th day of December,
2004.
3. At the time of the adoption of the Restated Certificate of Incorporation, the number of shares outstanding was:
The total of such shares entitled to vote thereon, and the vote of such shares was:
--------------------------- ----------------------- ---------------------- Shares Entitled to Vote Shares Voted For Shares Voted Against --------------------------- ----------------------- ---------------------- 16,892,477 8,605,746 0 --------------------------- ----------------------- ---------------------- |
4. This Restated Certificate of Incorporation restates and integrates and further amends the Certificate of Incorporation of this corporation by, inter alia, authorizing 10,000,000 shares of preferred stock and providing certain additions or modifications concerning the rights and obligations of the board of directors, to limit the liability of the officers and directors to the corporation to the extent permitted by law and to provide for the indemnification of officers and directors to the full extent permitted by law.
/s/ Robert Denn ----------------------- Robert Denn Chairman of the Board of Directors |
Exhibit 3.2
BY-LAWS
OF
STRIKE FORCE TECHNICAL SERVICES CORPORATION
ARTICLE I OFFICES
1. Registered Office and Agent. The registered office of the Corporation in the State of New Jersey is at 743 Northfield Avenue West Orange, New Jersey 07052
14A:4-1 The registered agent of the Corporation at such office is
Robert Denn
2. Principal Place of Business. The principal place of business of the Corporation is
1090 King Georges Post Road Edison, New Jersey 08837
3. Other Places of Business. Branch or subordinate places of business or offices may be established at any time by the Board at any place or places where the Corporation is qualified to do business.
ARTICLE II
SHAREHOLDERS
14A:5-2
14A:5-4(1) 1. Annual Meeting of Shareholders. The annual meeting of
shareholders shall be held upon not less than ten nor more
than sixty days written notice of the time, place, and
purposes of the meeting at 9:00 a. M. on the 15th day of the
month of January of each year at the principal place of
business of the Corporation.
14A:5-1 or at such other time and place within or without the State
of New Jersey as shall be specified in the notice of
meeting, in order to elect directors of the Corporation and
transact such other business as shall come before the
meeting. If that date is a legal holiday, the meeting shall
be held at the same hour on the next succeeding business
day.
14A:5-3 2. Special Meetings of Shareholders. A special meeting of
shareholders may be called for any purpose by the President
or the Board. Special meetings shall be held at the
principal place of business of the Corporation or at such
place, within or without the State of New Jersey, as shall
be specified in the notice of meeting. A special meeting
shall be held upon not less than ten nor more than sixty
days written notice of the time, place, and purposes of the
meeting.
14A:5-6 3. Action Without Meeting of Shareholders. The shareholders may
act without a meeting by written consent in accordance with
N.J.S.A. 14A:5-6. Such consents may be executed together, or
in counterparts, and shall be filed in the Minute Book,
Special rules apply to the annual election of directors,
mergers, consolidations, acquisitions of shares or the sales
of assets. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written
consent shall be given to those shareholders who have not
consented in writing.
14A:5-9(l) 4. Quorum. The presence at a meeting in person or by proxy of
the holders of shares entitled to cast majority of the votes
shall constitute a quorum.
|
ARTICLE III
BOARD OF DIRECTORS
14A:6-2 1. Number and Term of Office. The Board shall consist of no
more than 7 and no less than 1 members. The precise number
shall be set by the directors
14A:6-3 or by the shareholders at each annual meeting before the
election of directors. Each director shall be elected by the
shareholders at each annual meeting and shall hold office
until that director's successor shall have been elected and
qualified.
14A:6-10(2) 2. Regular Meetings. A regular meeting of the Board shall be
held with or without notice immediately following and at the
same place as the annual shareholders' meeting for the
purposes of electing officers and conducting such other
business as may come before the meeting. The Board, by
resolution, may provide for additional regular meetings
which may be held without notice, except to members not
present at the time of the adoption of the resolution.
14A:6-10(2) 3. Special Meeting. A special meeting of the Board may be
called at any time by the President or by the directors for
any purpose. Such meetings shall be held upon 1 days notice
if given orally (either by telephone or in person), or by
fax or electronic mail, or by 3 days notice if given by
depositing the notice in the United States mails, postage
prepaid. Such notice shall specify the time and place of the
meeting.
14A:6-7.1(5) 4. Action Without Meeting. The Board may act without a meeting
if, prior or subsequent to such action, each member of the
Board shall consent in writing to such action. Such written
consent or consents shall be filed in the Minute Book.
14A:6-7.1(3) 5. Quorum. Majority of the entire Board shall constitute a
quorum for the transaction of business
14A:6-7.1(4) 6. Manner of Acting. The act of a majority of the directors
present at a meeting at which a quorum is present shall be
the act of the Board.
|
14A:6-5 7. Vacancies in Board of Directors. Any vacancy in the Board
may be filled by the affirmative vote of a majority of the
remaining directors, even though less than a quorum of the
Board, or by a sole remaining director. A director so
elected by the Board shall hold office until the next
succeeding annual meeting of shareholders and until his
successor shall have been elected and qualified.
14A:6-6(l) 8. Removal of Directors. Any director may be removed for cause,
or without cause unless otherwise provided in the
certificate of incorporation, by a majority vote of
shareholders entitled to vote for the election of directors.
14A:6-9 9. Committees. The Board, by resolution adopted by a majority
of the entire Board, may appoint from among its members an
executive committee and one or more other committees. To the
extent provided in such resolution, each such committee
shall have and may exercise all the authority of the Board,
subject to the limitations on the permissible scope of the
power of any such committees allowed by law. The Board, by
resolution adopted by a majority of the entire Board, may
fill any vacancy in any committee; abolish any committee at
any time; and remove any director from membership on any
committee at any time, with or without cause.
14A:6-14(3) 10. Presence at Meetings. Where appropriate communication
facilities are reasonably available, any or all directors
shall have the right to participate in all or any part of a
meeting of the Board or a committee of the Board by means of
conference telephone or any means of communication by which
all persons participating in the meeting are able to hear
each other.
|
ARTICLE IV
WAIVERS OF NOTICE
14A:5-5(1)
14A:6-10(2) Any notice required by these by-laws, by the certificate of
incorporation, or by the New Jersey Business Corporation Act
may be waived in writing (and, in the case of shareholders,
by written proxy) by any person entitled to notice. The
waiver or waivers may be executed either before or after the
event with respect to which notice is waived. Each director
or shareholder attending a meeting without protesting, prior
to its conclusion, the lack of proper notice shall be deemed
conclusively to have waived notice of the meeting.
|
ARTICLE V
OFFICERS
14A:6-15(1) 1. Election. At its regular meeting following the annual
meeting of shareholders, 14A:6-15(2) the Board shall elect a
President, a Treasurer, a Secretary, and it may elect such
other officers, including one or more Vice Presidents, as it
shall. deem necessary. One person may hold two or more
offices, but no officer shall execute, acknowledge, or
verify any instrument in more than one capacity if such
instrument is required by law or these bylaws to be
executed, acknowledged or verified by two or more officers.
14A:6-15(4) 2. Duties and Authority of President. The President shall be
chief executive officer of the Corporation. Subject only to
the authority of the Board, he shall have general charge and
supervision over, and responsibility for, the business and
affairs of the Corporation. Unless otherwise directed by the
Board, all other officers shall be subject to the authority
and supervision of the President. The President may enter
into and execute in the name of the Corporation contracts or
other instruments in the regular course of business or
contracts or other instruments not in the regular course of
business which are authorized, either generally or
specifically, by the Board. He shall have the general powers
and duties of management usually vested in the office of
President of a corporation.
14A:6-15(4) 3. Duties and Authority of Vice President. The Vice President
shall perform such duties and have such authority as from
time to time may be delegated to him by the President or by
the Board. In the absence of the President or in the event
of his death, inability, or refusal to act, the Vice
President shall perform the duties and be vested with the
authority of the President.
14A:6-15(4) 4. Duties and Authority of Treasurer. The Treasurer shall have
the custody of the funds and securities of the Corporation
and shall keep or cause to be kept regular books of account
for the Corporation. The Treasurer shall perform such other
duties and possess such other powers as are incident to that
office or as shall be assigned by the President or the
Board.
|
14A:6-15(4) 5. Duties and Authority of Secretary. The Secretary shall cause
notices of all meetings to be served as prescribed in these
by-laws and shall keep or cause to be kept the minutes of
all meetings of the shareholders and the Board. The
Secretary shall have charge of the seal off the Corporation.
The Secretary shall perform such other duties and possess
such other powers as are incident to that office or as are
assigned by the President of the Board.
14A:6-16 6. Removal and Resignation of Officers: Filling of Vacancies.
A. Any officer elected by the Board may be removed
by the Board with or without cause. An officer
elected by the shareholders may be removed, with
or without cause, only by vote of the
shareholders but his authority to act as an
officer may be suspended by the Board for cause.
The removal of an officer shall be without
prejudice to his contract rights, if any.
Election of an officer shall not of itself
create contract rights.
B. An officer may resign by written notice to the
Corporation. The resignation shall be effective
upon receipt thereof by the Corporation or at
such subsequent time as shall be specified in
the notice of resignation.
C. Any vacancy occurring among the officers,
however caused, shall be filled by the Board,
|
ARTICLE VI
AMENDMENTS TO AND EFFECT OF BY-LAWS;
FISCAL YEAR
1. Force and Effect of By-Laws. These by-laws are subject to
the provisions of the New Jersey Business Corporation Act
and the Corporation's certificate of incorporation, as it
may be amended from time to time. If any provision in these
bylaws is inconsistent with a provision in the Act or the
certificate of incorporation, the provision of that. Act or
the certificate of incorporation shall govern. Wherever in
these by-laws references are made to more than one
incorporator, director, or shareholder, they shall, if this
is a sole incorporator, director, shareholder corporation,
be construed to mean the solitary person; and all provisions
dealing with the quantum of majorities of quorums shall be
deemed to mean the action by the one person constituting the
corporation.
14A:2-9(l) 2. Amendments to By-Laws. These by-laws may be altered,
amended, or repealed by the shareholders or the Board. Any
by law adopted, amended, or repealed by the shareholders may
be amended or repealed by the Board, unless the resolution
of the shareholders adopting such by-law expressly reserves
to the shareholders the right to amend or repeal it.
3. Fiscal Year. The fiscal year of the corporation shall begin
on the first day of January of each year.
|
Exhibit 5.1
SICHENZIA ROSS FRIEDMAN FERENCE LLP
1065 Avenue of the Americas, 21st Flr.
New York, NY 10018
Telephone: (212) 930-9700
Facsimile: (212) 930-9725
May 11, 2005
VIA ELECTRONIC TRANSMISSION
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: STRIKEFORCE TECHNOLOGIES, INC.
FORM SB-2 REGISTRATION STATEMENT (FILE NO. 333-________)
Ladies and Gentlemen:
We refer to the above-captioned registration statement on Form SB-2 (the "Registration Statement"), under the Securities Act of 1933, as amended (the "Act"), filed by StrikeForce Techologies, Inc., a New Jersey corporation (the "Company"), with the Securities and Exchange Commission.
We have examined the originals, photocopies, certified copies or other evidence of such records of the Company, certificates of officers of the Company and public officials, and other documents as we have deemed relevant and necessary as a basis for the opinion hereinafter expressed. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as certified copies or photocopies and the authenticity of the originals of such latter documents.
Based on our examination mentioned above, we are of the opinion that the securities being sold pursuant to the Registration Statement are duly authorized and will be, when issued in the manner described in the Registration Statement, legally and validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to our firm under "Legal Matters" in the related Prospectus. In giving the foregoing consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Act, or the rules and regulations of the Securities and Exchange Commission.
Very truly yours,
/s/Sichenzia Ross Friedman Ference LLP -------------------------------------- Sichenzia Ross Friedman Ference LLP |
Exhibit 10.1
STRIKE FORCE TECHNICAL SERVICES CORPORATION
2004 Stock Option Plan
(Adopted as of July 6th, 2004)
Section 1. Purpose; Definitions.
1.1 Purpose. The purpose of the Strike Force Technical Services Corporation (the "Company") 2003 Stock Option Plan (the "Plan") is to enable the Company to offer to its key employees, officers, directors and consultants whose past, present and/or potential contributions to the Company and its subsidiaries, if any, have been, are or will be important to the success of the Company, an opportunity to acquire a proprietary interest in the Company. The various types of long-term incentive awards which may be provided under the Plan will enable the Company to respond to changes in compensation practices, tax laws, accounting regulations and the size and diversity of its businesses.
1.2 Definitions. For purposes of the Plan, the following terms shall be defined as set forth below:
(a) "Agreement" means the Stock Option Agreement between the Company and the Holder setting forth the terms and conditions of an award under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto and the regulations promulgated thereunder.
(d) "Committee" means the Compensation Committee of the Board or any other committee of the Board, which the Board may designate to administer the Plan or any portion thereof. Since no Committee is designated, then all references in this Plan to "Committee" shall mean the Board.
(e) "Common Stock" means the Common Stock of the Company, no par value.
(f) "Company" means Strike Force Technical Services Corporation, a corporation organized under the laws of the State of New Jersey.
(g) "Continuous Status as an Employee" means the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence approved by the Board,
(h) "Deferred Stock" means Stock to be received, under an award made pursuant to Section 8 below, at the end of a specified deferral period.
(i) "Disability" means disability as determined under procedures established by the Committee for purposes of the Plan.
(j) "Effective Date" means the date set forth in Section 13.
(k) "Employee" shall mean any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company and for whom a withholding obligation exists under Section 3401 of the Code by the employing corporation, as applicable. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company.
(1) "Fair Market Value", unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, means, as of any given date; (i) if the Common Stock is listed on a national securities exchange or quoted on the NASDAQ National Market or NASDAQ SmallCap Market, the last sale price of the Common Stock in the principal trading market for the Common Stock on the last trading day preceding the date of grant of an award hereunder, as reported by the exchange or NASDAQ, as the case may be; (ii) if the Common Stock is not listed on a national securities exchange or quoted on the NASDAQ National Market or NASDAQ SmallCap Market, but is traded in the over-the-counter market, the closing bid price for the Common Stock on the last trading day preceding the date of grant of an award hereunder for which such quotations are reported by the National Quotation Bureau, Incorporated or similar publisher of such quotations; and (iii)if the fair market value of the Common. Stock cannot be determined pursuant to clause (i) or (ii) above, such price as the Committee shall determine in good faith.
(m) "Holder" means a person who has received an award under the Plan.
(n) "Incentive Stock Option" means any Stock Option intended to be and designated as an "incentive stock option" within the meaning of Section 422 of the Code.
(o) "Non-Qualified Stock Option" means any Stock Option that is not an Incentive Stock Option.
(p) "Normal Retirement" means retirement from active employment with the Company or any Subsidiary on or after age 65.
(q) "Other Stock-Based Award" means an award under Section 9 below that is valued in whole or in part by reference to, or is otherwise based upon, Stock.
(r) "Parent" means any present or future parent corporation of the Company, as such term is defined in Section 424(e) of the Code.
(s) "Plan" means the Strike Force Technical Services Corporation 2003 Stock Option Plan, as hereinafter amended from time to time,
(t) "Restricted Stock" means Stock, received under an award made pursuant to Section 7 below, that is subject to restrictions under said Section 7.
(u) "Stock"' means the Common Stock of the Company, no par value.
(v) "Stock Option" or "Option" means any option to purchase shares of Stock which is granted pursuant to the Plan.
(w) "Stock Reload Option" means any option granted under Section 5.3 as a result of the payment of the exercise price of a Stock Option and/or the withholding tax related thereto in the form of Stock owned by the Holder or the withholding of Stock by the Company.
(x) "Subsidiary" means any present or future subsidiary corporation of the Company, as such term is defined in Section 424(f) of the Code.
Section 2. Administration.
2.1 Compensation Committee. The Plan shall be administered by the Compensation Committee (the "Committee") of the Company' a Board of Directors.
2.2 Powers of Committee. The Committee shall have full authority, subject to Section 42 hereof, to award, pursuant to the terms of the Plan: (i) Stock Options, (ii) Restricted Stock; (iii) Deferred Stock; (iv) Stock Reload Options; and/or (v) Other Stock-Based Awards. For purposes of illustration and, not of limitation, the Committee shall have the authority (subject to the express provisions of this Plan):
(a) to select the officers, key employees, directors and consultants of the Company or any Subsidiary to whom Stock Options, Restricted Stock, Deferred Stock, Stock Reload Options and/or Other Stock-Based Awards may from time to time be awarded hereunder;
(b) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder (including, but not limited to, number of shares, share price, any restrictions or limitations, and any vesting, exchange, surrender, cancellation, acceleration, termination, exercise or forfeiture provisions, as the Committee shall determine);
(c) to determine any specified performance goals or such other factors or criteria which need to be attained for the vesting of an award granted hereunder;
(d) to determine the terms and conditions under which awards granted hereunder are to operate on a tandem basis and/or in conjunction with or apart from other equity awarded under this Plan and cash awards made by the Company or any Subsidiary outside of this Plan;
(e) to permit a Holder to elect to defer a payment under the Plan under such rules and procedures as the Committee may establish, including the crediting of interest on deferred amounts denominated in cash and of dividend equivalents on deferred, amounts denominated in Stock;
(f) to determine the extent and circumstances under which Stock and other amounts payable with respect to an award hereunder shall be deferred which may be either automatic or at the election of the Holder; and
(g) to substitute (i) new Stock Options for previously granted Stock Options, which previously granted Stock Options have higher option exercise prices and/or contain other less favorable terms, and (ii) new awards of any other type for previously granted awards of the same type, which previously granted awards are upon less favorable terms.
(h) to determine the ultimate number of shares of Common Stock to be reserved and available for distribution under the Plan in accordance with the amended Section 3.1 and the attached Schedule 3.1.
2.3 Interpretation of Plan.
(a) Committee Authority, Subject to Section 12 hereof, the Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable, to interpret the terms and provisions of the Plan, and any award issued under the Plan (and to determine the form and substance of all Agreements relating thereto), and to otherwise supervise the administration of the Plan. Subject to Section 12 hereof, all decisions made by the Committee pursuant to the provisions of the Plan shall be made in the Committee's sole discretion and shall be final and binding upon all persons, including the Company, its Subsidiaries and Holders.
(b) Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term or provision of the Plan relating to Incentive Stock
Options (including but limited to Stock Reload Options rights granted in
conjunction with an Incentive Stock Option) or any Agreement providing for
Incentive Stock Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be so exercised, so as to
disqualify the Plan under Section 422 of the Code, or, without the consent of
the Holder(s) affected, to disqualify any Incentive Stock Option under such
Section 422.
2.4 Indemnification. Any member of the Committee or the Board who is made, or threatened to be made, a party to any action or proceeding, whether civil or criminal, by reason of the fact that the member is or was a member of the Committee or the Board insofar as relates to the Plan shall be indemnified by the Company, and the Company may advance his or her related expenses, to the full extent permitted by law or to any greater extent as provided in the Company's Articles of Incorporation or By-Laws or in any agreement between the Company and the member.
Section 3. Stock Subject to Plan.
3.1 Number of Shares. The total number of shares of Common Stock reserved and available for distribution under the Plan shall be 1,000,000 (one million.) Shares of Stock under the Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares. If any shares of Stock that have been optioned cease to be subject to a Stock Option, or any shares of Stock that are subject to any Restricted Stock award, Deferred Stock award, Stock Reload Option or Other Stock-Based Award granted hereunder, are forfeited, or any such award otherwise terminates without a payment being made to the Holder in the form of Stock, such shares shall again be available for distribution in connection with future grants and awards under the Plan. Only net shares issued upon a cashless option exercise (including stock used for withholding taxes) shall be counted against the number of shares available under the Plan.
3.2 Adjustment Upon Changes in Capitalization, Etc. In the event of any merger, reorganization, consolidation, recapitalization, dividend (other than a cash dividend), stock split, reverse stock split, or other change in corporate structure affecting the Stock, such substitution or adjustment shall be made in the aggregate number of shares reserved for issuance under the Plan, in the number and exercise price of shares subject to outstanding Options, in the number of shares and in the number of shares subject to, and in the related terms of, other outstanding awards (including but not limited to awards of Restricted Stock, Deferred Stock, Stock Reload Options and Other Stock-Based Awards) granted, under the Plan as may be determined to be appropriate by the Committee in order to prevent dilution or enlargement of rights, provided that any fractional shares resulting from such adjustment shall be eliminated by rounding to the next lower whole number of shares.
Section 4. Eligibility.
4.1 General. Awards may be made or granted to key employees, officers, directors and consultants who are deemed to have rendered or to be able to render significant services to the Company or its Subsidiaries and who are deemed to have contributed or to have the potential to contribute to the success of the Company. No Incentive Stock Option shall be granted to any person who is not an employee of the Company or a Subsidiary at the time of grant.
Section 5. Stock Options.
5.1 Grant and Exercise. Stock Options granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options. Any Stock Option granted under the Plan shall contain such terms, not inconsistent with this Plan, or with respect to Incentive Stock Options, the Code, as the Committee may from time to time approve. The Committee shall have the authority to grant Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock Options and may be granted alone or in addition to other awards granted under the Plan. To the extent that any Stock Option intended to qualify as an Incentive Stock Option does not so qualify, it shall constitute a separate Non-Qualified Stock Option. An Incentive Stock Option may only be granted within the ten year period commencing from the Effective Date and may only be exercised within ten years of the date of grant (or five years in the case of an Incentive Stock Option granted to an optionee ("10% Stockholder") who, at the time of grant, owns Stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or a Parent or Subsidiary.
5.2 Terms and Conditions. Stock Options granted under the Plan shall be subject to the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock purchasable under a Stock Option shall be determined by the Committee at the time of grant and may be less than 100% of the Fair Market Value of the Stock as defined above; provided, however, that (i) the exercise price of an Incentive Stock Option shall not be less than 100% of the Fair Market Value of the Stock (110% of the Fair Market Value of the Stock in the case of a 10% Stockholder); and (ii) the exercise price of a Non-Qualified Stock Option shall not be less than 85% of the Fair Market Value of the Stock as defined above.
(b) Option Term. Subject to the limitations in Section 5.1, the term of each Stock Option shall be fixed by the Committee.
(c) Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee, If the Committee provides, in its discretion, that any Stock Option is exercisable only in installments, i.e., that it vests over time, the Committee may waive such installment exercise provisions at any time at or after the time of grant in whole or in part, based upon such factors as the Committee shall determine.
(d) Method of Exercise. Subject to whatever installment, exercise and waiting period provisions are applicable in a particular case, Stock Options may be exercised in whole or in part at any time during the term of the Option, by giving written notice of exercise to the Company specifying the number of shares of Stock to be purchased. Such notice shall be accompanied by payment in full of the purchase price, which shall be in cash or, unless otherwise provided in the Agreement, in shares of Stock (including Restricted Stock and other contingent awards under this Plan) or, partly in cash, and partly in such Stock, or such other means which the Committee determines are consistent with the Plan's purpose and applicable law. Cash payments shall be made by wire transfer, certified or bank check or personal check, in each case payable to the order of the Company; provided, however, that the Company shall not be required to deliver certificates for shares of Stock with respect to which an Option is exercised until the Company has confirmed the receipt of good and available funds in payment of the purchase price thereof. To the extent any portion of the purchase price is paid in shares of Stock, such shares of Stock must have been held by the Holder for at least six months in order to be eligible for the Stock Reload Option described in Section 5.3 below. Payments in the form of Stock shall be valued at the Fair Market Value of a share of Stock on the date prior to the date of exercise. Such payments shall be made by delivery of stock certificates in negotiable form which are effective to transfer good and valid title thereto to the Company, free of any liens or encumbrances. Subject to the terms of the Agreement, the Committee may, in its sole discretion, at the request of the Holder, deliver upon the exercise of a Non-Qualified Stock Option a combination of shares of Deferred Stock and Common Stock; provided that, notwithstanding the provisions of Section 8 of the Plan, such Deferred Stock shall be fully vested and not subject to forfeiture. In all events, a Holder shall have none of the rights of a stockholder with respect to the shares subject to the Option until such shares shall be transferred to the Holder upon the exercise of the Option.
(e) Transferability. No Stock Option shall be transferable by the Holder otherwise than by will or by the laws of descent and distribution, and all Stock, Options shall be exercisable, during the Holder's lifetime, only by the Holder.
(f) Termination by Reason of Death. If a Holder's employment by the Company or a Subsidiary terminates by reason of death, any Stock Option held by such Holder, unless otherwise determined by the Committee at the time of grant and set forth in the Agreement, shall be fully vested and may thereafter be exercised by the legal representative of the estate or by the legatee of the Holder under the will of the Holder for a period of six months (or such other greater or lesser period as the Committee may specify at grant) from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter.
(g) Termination by Reason of Disability. If a Holder's employment by the Company or any Subsidiary terminates by reason of Disability, any Stock Option held by such Holder, unless otherwise determined by the Committee at the time of grant and set forth in the Agreement, shall be fully vested and may thereafter be exercised by the Holder for a period of six months (or such other greater or lesser period as the Committee may specify at the time of grant) from the date of such termination of employment or until, the expiration of the stated, term of such Stock Option, whichever period is the shorter.
(h) Other Termination. Subject to the provisions of Section 143 below and unless otherwise determined by the Committee at the time of grant and set forth in the Agreement, if a Holder is an employee of the Company or a Subsidiary at the time of grant and if such Holder's employment by the Company or any Subsidiary terminates for any reason other than death or Disability, the Stock Option shall thereupon automatically terminate, except that if the Holder's employment is terminated by the Company or a Subsidiary without cause or due to Normal Retirement, then the portion of such Stock Option which has vested on the date of termination of employment may be exercised for the lesser of three months after termination of employment or the balance of such Stock Option' s term.
(i) Buyout and Settlement Provisions. The Committee may at any time offer to buy out a Stock Option previously granted, based upon such terms and conditions as the Committee shall establish and communicate to the Holder at the time that such offer is made.
(j) Stock Option Agreement. Each grant of a Stock Option shall be confirmed by, and shall be subject to the terms of, the Agreement executed, by the Company and the Holder.
5.3 Stock Reload Option. The Committee may also grant to the Holder (concurrently with the grant of an Incentive Stock Option and at or after the time of grant in the case of a Non-Incentive Stock Option) a Stock Reload Option up to the amount of shares of Stock held by the Holder for at least six months and used by the Holder to pay all or part of the exercise price of an Option and, if any, withheld by the Company as payment for withholding taxes. Such Stock Reload Option shall have an exercise price of the Fair Market Value as of the date of the Stock Reload Option grant. Unless the Committee determines otherwise, a Stock Reload Option may be exercised commencing one year after it is granted and shall expire on the date of expiration of the Option to which the Reload Option is related.
Section 6. [Intentionally omitted.]
Section 7. Restricted Stock.
7.1 Grant. Shares of Restricted Stock may be awarded either alone or in addition to other awards granted under the plan. The Committee shall determine the eligible persons to whom, and the time or times at which, grants of Restricted Stock will be awarded the number of shares to be awarded, the price (if any) to be paid by the Holder, the time or times within which such awards may be subject to forfeiture (the "Restriction Period"), the vesting schedule and rights to acceleration thereof, and all other terms and conditions of the awards,
7.2 Terms and Conditions. Each Restricted Stock award shall be subject to the following terms and conditions:
(a) Certificates. Restricted Stock, when issued, will be represented by a stock certificate or certificates registered in the name of the Holder to whom such Restricted. Stock shall have been awarded. During the Restriction Period, certificates representing the Restricted Stock and any securities constituting Retained Distributions (as defined below) shall bear a legend to the effect that ownership of the Restricted Stock (and such Retained Distributions), and the enjoyment of all rights appurtenant thereto, are subject to the restrictions, terms and conditions provided in the Plan and the Agreement. Such certificates shall be deposited by the Holder with the Company, together with stock powers or other instruments of assignment, each endorsed in blank, which will permit transfer to the Company of all or any portion of the Restricted Stock and any securities constituting Retained Distributions that shall be forfeited, or that shall not become vested in accordance with the Plan and the Agreement.
(b) Rights of Holder. Restricted Stock shall constitute issued and outstanding shares of Common Stock for all corporate purposes. The Holder will have the tight to vote such Restricted Stock, to receive and retain all regular cash dividends and other cash equivalent distributions as the Board may in its sole discretion designate, pay or distribute on such Restricted Stock and to exercise all other rights, powers and privileges of a holder of Common Stock with respect to such Restricted Stock, with the exceptions that (i) the Holder will not be entitled to delivery of the stock certificate or certificates representing such Restricted Stock until the Restriction Period shall have expired and unless all other vesting requirements with respect thereto shall have been fulfilled; (ii) the Company will retain custody of the stock certificate or certificates representing the Restricted Stock during the Restriction Period; (iii) other than regular cash dividends and other cash equivalent distributions as the Board may in its sole discretion designate, pay or distribute, the Company will retain custody of all distributions ("Retained Distributions") made or declared with respect to the Restricted Stock (and such. Retained Distributions will be subject to the same restrictions, terms and conditions as are applicable to the Restricted Stock) until such time, if ever, as the Restricted Stock with respect to which such Retained Distributions shall have been made, paid or declared shall have become vested and with respect to which the Restriction Period shall have expired; (iv) a breach of any of the restrictions, terms or conditions contained in this Plan or the Agreement or otherwise established by the Committee with respect to any Restricted Stock or Retained Distributions will cause a forfeiture of such Restricted Stock and any Retained Distributions with respect thereto.
(c) Vesting; Forfeiture. Upon the expiration of the Restriction Period with respect to each award of Restricted Stock and the satisfaction of any other applicable restrictions, terms and conditions (i) all or part of such Restricted Stock shall become vested in accordance with the terms of the Agreement, and (ii) any Retained Distributions with respect to such Restricted Stock shall become vested to the extent that the Restricted Stock related thereto shall have become vested. Any such Restricted Stock and Retained Distributions that do not vest shall be forfeited to the Company and the Holder shall not thereafter have any rights with respect to such Restricted Stock and Retained Distributions that shall have been so forfeited.
Section 8. Deferred Stock.
8.1 Grant. Shares of Deferred Stock may be awarded either alone or in addition to other awards granted under the Plan. The Committee shall determine the eligible persons to whom and the time or times at which grants of Deferred Stock shall be awarded, the number of shares of Deferred Stock to be awarded to any person, the duration of the period (the "Deferral Period") during which, and the conditions under which receipt of the shares will be deferred, and all other terms and conditions of the awards.
8.2 Terms and Conditions. Each Deferred Stock award shall be subject to the following terms and conditions:
(a) Certificates. At the expiration of the Deferral Period (or the Additional Deferral Period referred to in Section 8.2(c) below, where applicable), share certificates shall be delivered to the Holder, or his legal representative, representing the number equal to the shares covered by the Deferred Stock award.
(b) Vesting; Forfeiture. Upon the expiration of the Deferral Period (or the Additional Deferral Period, where applicable) with respect to each award of Deferred Stock and the satisfaction of any other applicable limitations, terms or conditions, such Deferred Stock shall become vested in accordance with the terms of the Agreement, Any Deferred Stock that does not vest shall be forfeited to the Company and, the Holder shall not thereafter have any rights with respect to such Deferred Stock that has been so forfeited.
(c) Additional Deferral Period. A Holder may request to, and the Committee may at any time, defer the receipt of an award (or an installment of an award) for an additional specified period or until a specified event (the "Additional Deferral Period"). Subject to any exceptions adopted by the Committee, such request must generally be made at least one year prior to expiration of the Deferral Period for such Deferred Stock award (or such installment).
Section 9. Other Stock-Based Awards.
9.1 Grant and Exercise. Other Stock-Based Awards may be awarded, subject to limitations under applicable law, that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of Common Stock, as deemed by the Committee to be consistent with the purposes of the Plan including, without limitation, purchase rights, shares of Common Stock awarded which are not subject to any restrictions or conditions, convertible or exchangeable debentures, or other rights convertible into shares of Common Stock and awards valued by reference to the value of securities of or the performance of specified. Subsidiaries. Other Stock-Based Awards may be awarded either alone or in addition to or in tandem with any other awards under this Plan or any other plan of the Company.
9.2 Eligibility. The Committee shall determine the eligible persons to whom and the time or times at which grants of such awards shall be made, the number of shares of Common Stock to be awarded pursuant to such awards, and all other terms and conditions of the awards.
9.3 Terms and Conditions. Each Other Stock-Based Award shall be subject to such terms and conditions as may be determined by the Committee.
Section 10. Repurchase by the Company.
10.1 Termination of Employment. Unless otherwise determined by the Board at or after the date of grant of an award hereunder, notwithstanding the provisions of Section 13,3 below, in the event of a Holder's termination of employment with the Company, the Company shall have the right to repurchase all shares of stock acquired or to be acquired by the Holder at Fair Market Value on the date of termination. Notwithstanding the foregoing, if (i) the Holder's employment is terminated by the Company for cause, (ii) the Board finds, after full consideration of the facts presented on behalf of both the Company and the Holder, that the Holder has been engaged in disloyalty to the Company, including, without limitation, fraud, embezzlement, theft, commission of a felony or proven dishonesty in the course of the Holder's employment, or has disclosed trade secrets or confidential information of the Company, or (iii) the Board determines in good faith that the Holder has materially breached the Employee Nondisclosure and Developments Agreement or Non-Competition Agreement after termination of services to the Company as an employee, consultant, advisor or member of the Board, then the price at which the Company shall have the right to repurchase such shares of stock shall be equal to the Exercise Price paid by the Holder or such price determined by the Board. Any repurchase shall be made in accordance with accounting rules to avoid adverse accounting treatment.
10.2 Procedure. The Company's right to repurchase shall be exercisable at any time within one (1) year after the date of Holder's termination of employment by the delivery of written notice by the Company to such effect to the Holder, or its executor, administrator or beneficiaries. Within thirty (30) days after receipt of such notice, the Holder, or its executor, administrator or beneficiaries shall deliver a certificate or certificates for the Stock being repurchased, together with appropriate duly signed stock powers transferring such Stock to the Company, and the Company shall deliver to the Holder, or its executor, administrator or beneficiaries the Company's check in the amount of this purchase price for the Stock being repurchased.
10.3 Waiver. The Board, in its sole discretion, may waive the Company's repurchase right pursuant to this Section 10 and the Company's right of first refusal pursuant to Section 11.1 below. If the Company's repurchase right or right of first refusal is so waived, the Board may, in. its sole discretion, pass through such right to the remaining stockholders of the Company in the same proportion that each stockholder's Share ownership bears to the Share ownership of all the stockholders of the Company, as determined by the Board. To the extent that a stockholder has been given such right and does not purchase its allotment, the other stockholders shall have the right to purchase such allotment on the same basis.
10.4 Termination of Right. This Section 10 shall not apply to any Holder from and after the date of an underwritten initial public offering of the Company's Common Stock.
Section 11. Restriction on Transfer of Stock.
11.1 Right of First Refusal. Unless otherwise determined by the Board at or after the date of grant of an award hereunder, the Agreement as to any award hereunder shall provide that if at any time a Holder desires to sell, transfer by any means, or otherwise dispose of Stock acquired by it upon the exercise of any award made hereunder, Holder shall first offer the Stock to the Company by giving the Company written notice disclosing: (i) the name of the proposed transferee of the Stock; (ii) the certificate number and number of Stock proposed to be sold or transferred; (iii) the proposed price; (iv) all other terms of the proposed transfer; and (v) a written copy of the proposed offer. Within thirty (30) days after receipt of such notice, the Company shall have the option to purchase all or part of the such Stock at the same price and on the same terms as contained in such notice,
11.2 Right to Sell. If the Company (or a stockholder, as
described in Section 10.3 above) does not exercise the option to purchase Stock,
as provided above, the Holder shall have the right to sell, transfer, or
otherwise dispose of its Stock on the terms of the transfer set forth in the
written notice to the Company, provided such transfer is effected within thirty
(30) days after the expiration of the option period. If the transfer is not
effected within such, period, the Company must again be given the option to
purchase, as provided above,
11.3 Stockholder's Agreement. Notwithstanding the foregoing, the Board may require that a Holder execute a stockholder's agreement, with such terms as the Board deems appropriate, as a condition of the exercise of any Option granted pursuant to this Agreement. Such agreement may provide that the provisions of this Section 11 and Section 1.0 above shall not apply to such Stock.
11.4 Termination of Right. This Section 11 shall not apply to any Holder from and after the date of an underwritten initial public offering of the Company's Common Stock.
Section 12. Amendment and Termination.
The Board may at any time, and from time to time, amend, alter, suspend or discontinue any of the provisions of the Plan, but no amendment, alteration, suspension or discontinuance shall be made which would impair the rights of a Holder under any Agreement theretofore entered into hereunder, without his consent.
Section 13. Term of Plan.
13.1 Effective Date. The Plan shall be effective as of April 1st , 2003 ("Effective Date"). Any awards granted under the Plan prior to such approval shall be effective when made (unless otherwise specified by the Committee at the time of grant), but shall be conditioned upon, and subject to, such approval of the Plan by the Company's stockholders and no awards shall vest or otherwise become free of restrictions prior to such approval.
13.2 Termination Date. Unless otherwise terminated by the Board, pursuant to Section 1.0 above, this Plan shall continue to remain effective until such time no further awards may be granted and all awards granted under the Plan are no longer outstanding. Notwithstanding the foregoing, grants of Incentive Stock Options may only be made during the ten year period following the Effective Date.
13.3 Sale of Company Assets; Merger. Anything herein to the contrary notwithstanding, in. the event that the Board shall at any time declare it advisable to do so in connection with any proposed sale or conveyance of a significant amount of the assets of the Company or any proposed consolidation or merger of the Company wherein the Company is not the surviving entity, or a sale by the Company of shares of stock of the Company equivalent to thirty (30%) percent or more of all or the Company's issued and outstanding shares of stock on a fully diluted basis, the Company may give written notice to the Holder of any award hereunder that his Stock Option or other award shall automatically be deemed fully vested and exercisable in accordance with the terms and, conditions of the respective Agreement between the Company and the Holder, and the terms of this Section 13.3. In such event, the Stock Option or other award may be exercised only within thirty (30) days after the date of such notice but not thereafter, and all rights under said Stock Option or other award which shall not have been so exercised shall terminate at the expiration of such thirty (30) days, provided that the proposed sale, conveyance, consolidation or merger to which such notice shall relate shall be consummated within six (6) months after the date of such notice. For the purposes of this Section 13.3, the Company shall be deemed to have sold or conveyed a significant amount of its assets if the amount received by the Company for such assets exceeds ten (10%) percent of the Company's total assets. In the event such notice shall have been given, any such Stock Option or other award may be exercised either in whole or in part notwithstanding the vesting period required under the terms of the Stock Option or other award for the exercise thereof. If such proposed sale, conveyance, consolidation or merger shall not be consummated within said time period, no unexercised rights under any Stock Option or other award shall be affected by such notice except that such Stock Option or other award may not be exercised between the date of expiration of such thirty (30) days and the date of the expiration of such six (6) months.
Notwithstanding the Company's right to accelerate the vesting of
any Stock Option or other award as provided above, in the event of any
anticipated Change in Control, the Board, in its sole discretion and without the
consent of the Holder of any award hereunder, may take any of the following
actions with respect to outstanding awards: (i) cancel a Stock Option or other
award under the Plan in exchange for options to purchase Common Stock in a
successor corporation; (ii) cancel any shares of Restricted Stock in exchange
for shares of Restricted Stock of any successor corporation; (iii) redeem any
shares of Restricted Stock for an amount in cash equal to the Fair Market Value
of such shares of Restricted Stock on the date of such Change in Control; and/or
(iv) cancel a Stock Option or other award under the Plan in exchange for cash
and/or substitute consideration with a value equal to the difference between the
exercise price of the Stock Option or other award and the Fair Market Value on
the date of such Change in Control.
Section 14. General Provisions.
14.1 Written Agreements. Each award granted under the Plan shall be confirmed by, and shall be subject to the terms of the Agreement executed by the Company and the Holder. The Committee may terminate any award made under the Plan if the Agreement relating thereto is not executed and returned to the Company within sixty (60) days after the Agreement has been delivered to the Holder for his or her execution.
14.2 Unfunded Status of Plan. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Holder by the Company, nothing contained herein shall give any such Holder any rights that are greater than those of a general creditor of the Company.
14.3 Employees.
(a) Breach of Employee of Nondisclosure and Developments Agreement or Non-Competition Agreement. In the event that an employee Holder breaches any of the material terms and conditions of the Employee Nondisclosure and Developments Agreement or Non-Competition Agreement (or any equivalent agreement) to which the employee Holder is a party to as of the date of an award hereunder or becomes a party to thereafter, the Committee, in its sole discretion, may require such Holder to return to the Company the economic value of any award which was realized or obtained (measured at the date of exercise, vesting or payment) by such Holder at any time during the period beginning on that date which is six months prior to the date of such Holder' s breach of any such agreement.
(b) Termination for Cause. The Committee may, in the event an employee is terminated for cause, annul any award granted under this Plan to such employee and, in such event, the Committee, in its sole discretion, may require such Holder to return to the Company the economic value of any award which was realized or obtained (measured at the date of exercise, vesting or payment) by such Holder at any time during the period beginning on that date which is six months prior to the date of such Holder's termination of employment with the Company.
(c) No Right of Employment. Nothing contained in the Plan or in any award hereunder shall be deemed to confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or any Subsidiary, nor shall it interfere in any way with the right of the Company or any Subsidiary to terminate the employment of any of its employees at any time.
14.4 Investment Representations. The Committee may require each person acquiring shares of Stock pursuant to a Stock Option or other award under the Plan to represent to and agree with the Company in writing that the Holder is acquiring the shares for investment without a view to distribution thereof
14.5 Additional Incentive Arrangements. Nothing contained in the Plan shall prevent the Board from adopting such other or additional incentive arrangements as it may deem desirable, including, but not limited to, the granting of stock options and the awarding of stock and cash otherwise than under the Plan; and such arrangements may be either generally applicable or applicable only in specific cases.
14.6 Withholding Taxes. Not later than the date as of which an amount first becomes includable in the gross income of the Holder for Federal income tax purposes with respect to any Option or other award under the Plan, the Holder shall pay to the Company, or make arrangements satisfactory to the Committee regarding the payment of, any Federal, state and local taxes of any kind required by law to be withheld or paid with respect to such amount. If permitted by the Committee, tax withholding or payment obligations may be settled with Common Stock, including Common Stock that is part of the award that gives rise to the withholding requirement. The obligations of the Company under the Plan shall be conditional upon such payment or arrangements satisfactory to the Company and the Company or the Holder's employer (if not the Company) shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Holder from the Company or any Subsidiary.
14.7 Governing Law. The Plan and all awards made and actions taken thereunder shall be governed by and construed in accordance with the laws of the State of New Jersey (without regard to choice of law provisions).
14.8 Other Benefit Plans. Any award granted under the Plan shall not be deemed compensation for purposes of computing benefits under any retirement plan of the Company or any Subsidiary and shall not affect any benefits under any other benefit plan no or subsequently in effect under which the availability or amount of benefits is related to the level of compensation (unless required by specific reference in any such, other plan to awards under this Plan).
14.9 Non-Transferability. Except as otherwise expressly provided in the Plan, no right or benefit under the Plan may be alienated, sold, assigned, hypothecated, pledged, exchanged, transferred, encumbranced or charged, and any attempt to alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge the same shall be void,
14.10 Applicable Laws. The obligations of the Company with respect to all Stock Options and awards under the Plan shall be subject to (i) all applicable laws, rules and regulations and such approvals by any governmental agencies as may be required, including, without limitation, the effectiveness of a registration statement under the Securities Act of 1933, as amended, and (ii) the rules and regulations of any securities exchange on which the Stock may be listed.
14.11 Conflicts. If any of the terms or provisions of the Plan
conflict with the requirements of (with respect to Incentive Stock Options),
Section 422 of the Code, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of said Section
422 of the Code. Additionally, if this Plan does not contain any provision
required to be included herein under Section 422 of the Code, such provision
shall be deemed to be incorporated herein with the same force and effect as if
such provision had been set out at length herein.
14.12 Non-Registered Stock. The shares of Stock being distributed under this Plan have not been registered under the Securities Act of 1933, as amended (the "1933 Act"), or any applicable state or foreign securities laws and the Company has no obligation to any Holder to register the Stock or to assist Holder in obtaining an exemption from the various registration requirements, or to list the Stock on a national securities exchange or inter-dealer quotation, system.
Accepted by the Board of Directors STRIKE FORCE TECHNICAL SERVICES
CORPORATION
July 6* ,2004 By: /s/ Robert Denn
-----------
Robert Denn
President
|
STRIKEFORCE TECHNICAL SERVICES CORPORATION, INC.
UNANIMOUS WRITTEN CONSENT IN LIEU OF
MEETING OF THE BOARD OF DIRECTORS
(Pursuant to Section 14A:6-71 of the New Jersey Business Corporation Act)
JULY 6th, 2004
The undersigned, constituting all of the Directors of STRIKEFORCE TECHNICAL SERVICES CORPORATION, a New Jersey corporation (the "Corporation'1), do hereby adopt by unanimous written consent the following resolution with the same force and effect as if such resolutions had been adopted at a duly noticed and held meeting of the Board of Directors of the Corporation:
WHEREAS, the Directors deem it advisable and in the best interests of the Corporation, its shareholders and employees to execute a Stock Option Plan for 2004 for $1,000,000 shares; and
NOW THEREFORE, BE IT HEREBY RESOLVED, that the Chief Executive Officer, the President and the Chief Financial Officer of the Corporation (the "Authorized Officers") be, and each of them hereby is, authorized, empowered and directed, in the name of and on behalf of the Corporation, to proceed with any and all steps that any such Authorized Officer or Authorized Officers may deem necessary, appropriate or advisable to execute and implement a Stock Option Program and Plan for 2004 as described in the specific Stock Option Plan attached, including, but not necessarily limited to, the preparation, execution and filing with the appropriate legal parties, with such changes therein and additions thereto as shall be approved by the Authorized Officers executing the same, their approval to be evidenced conclusively by their execution thereof; and it is
RESOLVED FURTHER, that all actions taken and expenses incurred by any Authorized Officer or director heretofore in furtherance of any of the actions authorized by the foregoing resolutions hereby expressly are ratified, confirmed, adopted and approved; and it is
RESOLVED FURTHER, that the Authorized Officers be, and each of them hereby is, authorized, empowered and directed, in the name of and on behalf of the Corporation, to do and perform, or cause to be done and performed, all such acts, deeds and things to make, execute and deliver, or cause to be done and performed, all such acts, deeds and things to make, execute and deliver, or cause to be made, executed and delivered, all such agreements, undertakings, documents, instruments or certificates as each such officer or officers may deem necessary or appropriate to effectuate or carry out fully the purpose and intent of the foregoing resolutions; and it is
IN WITNESS WHEREOF, each of the undersigned has hereunto affixed his signature as of the date first above written.
The undersigned Secretary of
StrikeForce Technical Services Corporation
certifies that the above Consent
has been, duly filed with him.
Exhibit 10.2
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") dated as of December 20, 2004 by and among STRIKEFORCE TECHNOLOGIES, INC., a New Jersey corporation (the "Company") and the Buyers listed on Schedule I attached hereto (individually, a "Buyer" or collectively "Buyers").
WITNESSETH:
WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act");
WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Buyer(s), as provided herein, and the Buyer(s) shall purchase One Million Dollars ($1,000,000) of secured convertible debentures (the "Convertible Debentures"), which shall be convertible into shares of the Company's common stock, par value $ 0.0001 (the "Common Stock") (as converted, the "Conversion Shares"), of which $500,000 shall be funded within five (5) business days hereof (the "First Closing"), and $500,000 shall be funded within five (5) business days after the filing of a registration statement (the "Registration Statement") pursuant to the Investor Registration Rights Agreement of even date herewith, with the United States Securities and Exchange Commission (the "SEC") (the "Second Closing"), for a total purchase price of $1,000,000 (the "Purchase Price") in the respective amounts set forth opposite each Buyer(s) name on Schedule I (the "Subscription Amount"); and
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement (the "Investor Registration Rights Agreement") pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated there under, and applicable state securities laws; and
WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures contemplated hereby shall be held in escrow pursuant to the terms of an Escrow Agreement (the "Escrow Agreement") of even date herewith.
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering Irrevocable Transfer Agent Instructions (the "Irrevocable Transfer Agent Instructions").
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Security Agreement (the "Security Agreement") pursuant to which the Company has agreed to provide the Buyer a security interest in Pledged Collateral (as this term is defined in the Security Agreement) to secure Company's obligations under this Agreement, the Convertible Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer Agent Instructions, or any other obligations of the Company to the Buyer.
NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in this Agreement the Company and the Buyer(s) hereby agree as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
(a) Purchase of Convertible Debentures. Subject to the satisfaction (or waiver) of the terms and conditions of this Agreement, each Buyer agrees, severally and not jointly, to purchase at each Closing and the Company agrees to sell and issue to each Buyer, severally and not jointly, at each Closing, Convertible Debentures in amounts corresponding with the Subscription Amount set forth opposite each Buyer's name on Schedule I hereto. Upon execution hereof by a Buyer, the Buyer shall wire transfer the Subscription Amount set forth opposite his name on Schedule I in same-day funds or certified check payable to "David Gonzalez, Esq., as Escrow Agent for StrikeForce Technologies, Inc./Cornell Capital Partners, LP", which Subscription Amount shall be held in escrow pursuant to the terms of the Escrow Agreement (as hereinafter defined) and disbursed in accordance therewith.
(b) Closing Date. The First Closing of the purchase and sale of the
Convertible Debentures shall take place on or before the fifth (5th) business
day following the date hereof, subject to notification of satisfaction of the
conditions to the First Closing set forth herein and in Sections 6 and 7 below
(or such later date as is mutually agreed to by the Company and the Buyer(s))
(the "First Closing Date"), the Second Closing of the purchase and sale of the
Convertible Debentures shall take place on or before the fifth (5th) business
day after the Registration Statement is filed with the SEC, subject to
notification of satisfaction of the conditions to the Second Closing set forth
herein and in Sections 6 and 7 below (or such later date as is mutually agreed
to by the Company and the Buyer(s)) (the "Second Closing Date") (collectively
referred to a the "Closing Dates"). The Closings shall occur on the respective
Closing Dates at the offices of Yorkville Advisors, LLC, 101 Hudson Street,
Suite 3700, Jersey City, New Jersey 07302 (or such other place as is mutually
agreed to by the Company and the Buyer(s)).
(c) Escrow Arrangements; Form of Payment. Upon execution hereof by Buyer(s) and pending the Closings, the aggregate proceeds of the sale of the Convertible Debentures to Buyer(s) pursuant hereto shall be deposited in a non-interest bearing escrow account with David Gonzalez, Esq., as escrow agent (the "Escrow Agent"), pursuant to the terms of the Escrow Agreement. Subject to the satisfaction of the terms and conditions of this Agreement, on the Closing Dates, (i) the Escrow Agent shall deliver to the Company in accordance with the terms of the Escrow Agreement such aggregate proceeds for the Convertible Debentures to be issued and sold to such Buyer(s), minus a structuring fee of $10,000 to the Buyer pursuant to Section 4(g) hereof, which shall be paid directly from the gross proceeds of the First Closing held in escrow, by wire transfer of immediately available funds in accordance with the Company's written wire instructions, and (ii) the Company shall deliver to each Buyer, Convertible Debentures which such Buyer(s) is purchasing in amounts indicated opposite such Buyer's name on Schedule I, duly executed on behalf of the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) Investment Purpose. Each Buyer is acquiring the Convertible Debentures and, upon conversion of Convertible Debentures, the Buyer will acquire the Conversion Shares then issuable, for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, such Buyer reserves the right to dispose of the Conversion Shares at any time in accordance with or pursuant to an effective registration statement covering such Conversion Shares or an available exemption under the Securities Act.
(b) Accredited Investor Status. Each Buyer is an "Accredited Investor" as that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. Each Buyer understands that the Convertible Debentures are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire such securities.
(d) Information. Each Buyer and its advisors (and his or, its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information he deemed material to making an informed investment decision regarding his purchase of the Convertible Debentures and the Conversion Shares, which have been requested by such Buyer. Each Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management and have been afforded an answer for each such question. Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer's right to rely on the Company's representations and warranties contained in Section 3 below. Each Buyer understands that its investment in the Convertible Debentures and the Conversion Shares involves a high degree of risk. Each Buyer is in a position regarding the Company, which, based upon employment, family relationship or economic bargaining power, enabled and enables such Buyer to obtain information from the Company in order to evaluate the merits and risks of this investment. Each Buyer has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to its acquisition of the Convertible Debentures and the Conversion Shares.
(e) No Governmental Review. Each Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Convertible Debentures or the Conversion Shares, or the fairness or suitability of the investment in the Convertible Debentures or the Conversion Shares, nor have such authorities passed upon or endorsed the merits of the offering of the Convertible Debentures or the Conversion Shares.
(f) Transfer or Resale. Each Buyer understands that except as provided in the Investor Registration Rights Agreement: (i) the Convertible Debentures have not been and are not being registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, or (B) such Buyer shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that such securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration requirements; (ii) any sale of such securities made in reliance on Rule 144 under the Securities Act (or a successor rule thereto) ("Rule 144") may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of such securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. The Company reserves the right to place stop transfer instructions against the shares and certificates for the Conversion Shares.
(g) Legends. Each Buyer understands that the certificates or other instruments representing the Convertible Debentures and or the Conversion Shares shall bear a restrictive legend in substantially the following form (and a stop transfer order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed and the Company within two (2) business days shall issue a certificate without such legend to the holder of the Conversion Shares upon which it is stamped, if, unless otherwise required by state securities laws, (i) in connection with a sale transaction, provided the Conversion Shares are registered under the Securities Act, or (ii) in connection with a sale transaction, after such holder provides the Company with an opinion of counsel, which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale, assignment or transfer of the Conversion Shares may be made without registration under the Securities Act.
(h) Authorization, Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and is a valid and binding agreement of such Buyer enforceable in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies.
(i) Receipt of Documents. Each Buyer and his or its counsel has received and read in their entirety: (i) this Agreement and each representation, warranty and covenant set forth herein, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, and the Irrevocable transfer Agent Instructions; (ii) all due diligence and other information necessary to verify the accuracy and completeness of such representations, warranties and covenants; (iii) answers to all questions each Buyer submitted to the Company regarding an investment in the Company; and each Buyer has relied on the information contained therein and has not been furnished any other documents, literature, memorandum or prospectus.
(j) Due Formation of Corporate and Other Buyers. If the Buyer(s) is a corporation, trust, partnership or other entity that is not an individual person, it has been formed and validly exists and has not been organized for the specific purpose of purchasing the Convertible Debentures and is not prohibited from doing so.
(k) No Legal Advice From the Company. Each Buyer acknowledges that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his or its own legal counsel and investment and tax advisors. Each Buyer is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction.
(l) No Buyer makes any representation or warranty regarding the Company's ability to successfully become a public company or to have any registration statement filed by the Company pursuant to the Registration Rights Agreement or otherwise declared effective by the SEC. The Company has the sole obligation to make any and all such filings as may be necessary to become a public company and to have any registration statement declared effective by the SEC.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as set forth in the Disclosure Schedule attached as Exhibit "A" hereto:
(a) Organization and Qualification. The Company and its subsidiaries are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted. Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole.
(b) Authorization, Enforcement, Compliance with Other Instruments. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions, and any related agreements, and to issue the Convertible Debentures and the Conversion Shares in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions (as defined herein) and any related agreements by the Company and the consummation by it of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Convertible Debentures the Conversion Shares and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion or exercise thereof, have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) this Agreement, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions and any related agreements have been duly executed and delivered by the Company, (iv) this Agreement, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions and any related agreements constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. The authorized officer of the Company executing this Agreement, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions and any related agreements knows of no reason why the Company cannot file the registration statement as required under the Investor Registration Rights Agreement or perform any of the Company's other obligations under such documents.
(c) Capitalization. As of the date hereof, the authorized capital stock of the Company consists of 110,000,000 shares of stock, of which 100,000,000 shares are designated as Common Stock and 10,000,000 shares are designated as preferred stock, and of which 16,892,47701 are outstanding as common stock. All of such outstanding shares have been validly issued and are fully paid and nonassessable. Except as disclosed in the Disclosure Schedule, no shares of Common Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company. Except as disclosed in the Disclosure Schedule, as of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding debt securities and (iii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to the Registration Rights Agreement) and (iv) there are no outstanding
registration statements and there are no outstanding comment letters from the SEC or any other regulatory agency. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Convertible Debentures as described in this Agreement. The Company has furnished to the Buyer true and correct copies of the Company's Articles of Incorporation, as amended and as in effect on the date hereof (the "Articles of Incorporation"), and the Company's By-laws, as in effect on the date hereof (the "By-laws"), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto other than stock options issued to employees and consultants.
(d) Issuance of Securities. The Convertible Debentures are duly authorized and, upon issuance in accordance with the terms hereof, shall be duly issued, fully paid and nonassessable, are free from all taxes, liens and charges with respect to the issue thereof. The Conversion Shares issuable upon conversion of the Convertible Debentures have been duly authorized and reserved for issuance. Upon conversion or exercise in accordance with the Convertible Debentures the Conversion Shares will be duly issued, fully paid and nonassessable.
(e) No Conflicts. Except as disclosed in the Disclosure Schedule, the execution, delivery and performance of this Agreement, the Security Agreement, the Investors Registration Rights Agreement, the Escrow Agreement and the Irrevocable Transfer Agent Instructions by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Articles of Incorporation, any certificate of designations of any outstanding series of preferred stock of the Company or the By-laws or (ii) conflict with or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of The National Association of Securities Dealers Inc.'s OTC Bulletin Board on which the Common Stock is quoted) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected. Except as disclosed in the Disclosure Schedule, neither the Company nor its subsidiaries is in violation of any term of or in default under its Articles of Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is
not being conducted, and shall not be conducted in violation of any material law, ordinance, or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement or the Registration Rights Agreement in accordance with the terms hereof or thereof. Except as disclosed in the Disclosure Schedule, all consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its subsidiaries are unaware of any facts or circumstance, which might give rise to any of the foregoing.
(f) Financial Statements. As of their respective dates, the financial statements of the Company (the "Financial Statements") for the two most recently completed fiscal years and any subsequent interim period complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such Financial Statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and, fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Buyer, including, without limitation, information referred to in this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(g) Absence of Litigation. Except as disclosed in the Disclosure
Schedule, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a material adverse effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the
Disclosure Schedule, have a material adverse effect on the business, operations,
properties, financial condition or results of operations of the Company and its
subsidiaries taken as a whole.
(h) Acknowledgment Regarding Buyer's Purchase of the Convertible Debentures. The Company acknowledges and agrees that the Buyer(s) is acting solely in the capacity of an arm's length purchaser with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by the Buyer(s) or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Buyer's purchase of the Convertible Debentures or the Conversion Shares. The Company further represents to the Buyer that the Company's decision to enter into this Agreement has been based solely on the independent evaluation by the Company and its representatives.
(i) No General Solicitation. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Convertible Debentures or the Conversion Shares.
(j) No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the Convertible Debentures or the Conversion Shares under the Securities Act or cause this offering of the Convertible Debentures or the Conversion Shares to be integrated with prior offerings by the Company for purposes of the Securities Act.
(k) Employee Relations. Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened. None of the Company's or its subsidiaries' employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good.
(l) Intellectual Property Rights. The Company and its subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark 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 mark 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 mark registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
(m) Environmental Laws. The Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval.
(n) Title. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries.
(o) Insurance. The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole.
(p) Regulatory Permits. The Company and its subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.
(q) Internal Accounting Controls. The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, and (iii) the recorded amounts for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(r) No Material Adverse Breaches, etc. Except as set forth in the Disclosure Schedule, neither the Company nor any of its subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company's officers has or is expected in the future to have a material adverse effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries. Except as set forth in the Disclosure Schedule, neither the Company nor any of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the Company's officers, has or is expected to have a material adverse effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries.
(s) Tax Status. Except as set forth in the Disclosure Schedule, the Company and each of its subsidiaries has made and filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.
(t) Certain Transactions. Except as set forth in the Disclosure Schedule, and except for arm's length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed in the Disclosure Schedule, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
(u) Fees and Rights of First Refusal. The Company is not obligated to offer the securities offered hereunder on a right of first refusal basis or otherwise to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties.
(v) The Company acknowledges that the Buyer is relying on the representations and warranties made by the Company hereunder and that such representations and warranties are a material inducement to the Buyer purchasing the Convertible Debentures. The Company further acknowledges that without such representations and warranties of the Company made hereunder, the Buyer would not enter into this Agreement.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement.
(b) Form D. The Company agrees to file a Form D with respect to the Conversion Shares as required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Conversion Shares, or obtain an exemption for the Conversion Shares for sale to the Buyers at the Closing pursuant to this Agreement under applicable securities or "Blue Sky" laws of the states of the United States, and shall provide evidence of any such action so taken, or shall provide a satisfactory opinion of counsel that no such Blue Sky registration is required, to the Buyers on or prior to the Closing Date.
(c) Reporting Status. Commencing on the effectiveness of the registration statement filed with the SEC pursuant to the Investor Registration Rights Agreement and until the earlier of (i) the date as of which the Buyer(s) may sell all of the Conversion Shares without restriction pursuant to Rule 144(k) promulgated under the Securities Act (or successor thereto), or (ii) the date on which (A) the Buyer(s) shall have sold all the Conversion Shares and (B) none of the Convertible Debentures are outstanding (the "Registration Period"), the Company shall file in a timely manner all reports required to be filed with the SEC pursuant to the Exchange Act and the regulations of the SEC thereunder, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale of the Convertible Debentures for general corporate and working capital purposes.
(e) Reservation of Shares. The Company shall take all action
reasonably necessary to at all times have authorized, and reserved for the
purpose of issuance, such number of shares of Common Stock as shall be necessary
to effect the issuance of the Conversion Shares. If at any time the Company does
not have available such shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all of the Conversion Shares of the
Company shall call and hold a special meeting of the shareholders within sixty
(60) days of such occurrence, or as soon thereafter as permitted by law, for the
sole purpose of increasing the number of shares authorized. The Company's
management shall recommend to the shareholders to vote in favor of increasing
the number of shares of Common Stock authorized. Management shall also vote all
of its shares in favor of increasing the number of authorized shares of Common
Stock.
(f) Listings or Quotation. The Company shall, concurrently with the effectiveness of the registration statement filed with the SEC pursuant to the Investor Registration Rights Agreement, secure the listing or quotation of its Common Stock (including, without limitation, the Conversion Shares) upon a national securities exchange, automated quotation system or the Over-The-Counter Bulletin Board ("OTCBB") maintained by the National Association of Securities Dealers, Inc. The Company shall maintain the listing or quotation of the Common Stock for so long as the Buyer is the beneficial owner of any Common Stock or Conversion Shares (whether obtained or to be obtained under this Agreement), the Convertible Debentures or any other agreement between the Company and the Buyer. The Company shall maintain the Common Stock's authorization for quotation on the OTCBB. It shall be an event of default hereunder if the Company fails to strictly comply with its obligations under this Section 4(f).
(g) Fees and Expenses. Except as set forth below, each of the Company and the Buyer(s) shall pay all costs and expenses incurred by such party in connection with the negotiation, investigation, preparation, execution and delivery of this Agreement, the Escrow Agreement, the Investor Registration Rights Agreement, the Security Agreement and the Irrevocable Transfer Agent Instructions. The Buyer(s) shall be entitled to a commitment fee of ten percent (10%) on the Purchase Price.
The Company shall pay to the Buyer a structuring fee of Ten Thousand Dollars ($10,000) (the "Structuring Fee") in connection with this transaction, which shall be paid on the First Closing Date directly from the gross proceeds payable to the Company hereunder. The structuring fee shall be deemed fully earned on the date hereof.
The Company shall be solely responsible for the contents of any such registration statement, prospectus or other filing made with the SEC or otherwise used in the offering of the Company's securities (except as such disclosure relates solely to the Buyer and then only to the extent that such disclosure conforms with information furnished in writing by the Buyer to the Company), even if the Buyer or its agents as an accommodation to the Company participate or assist in the preparation of such registration statement, prospectus or other SEC filing. The Company shall retain its own legal counsel
to review, edit, confirm and do all things such counsel deems necessary or desirable to such registration statement, prospectus or other SEC filing to ensure that it does not contain an untrue statement or alleged untrue statement of material fact or omit or alleged to omit a material fact necessary to make the statements made therein, in light of the circumstances under which the statements were made, not misleading.
(h) Corporate Existence. So long as any of the Convertible Debentures remain outstanding, the Company shall not directly or indirectly consummate any merger, reorganization, restructuring, reverse stock split consolidation, sale of all or substantially all of the Company's assets or any similar transaction or related transactions (each such transaction, an "Organizational Change") unless, prior to the consummation an Organizational Change, the Company obtains the written consent of each Buyer. In any such case, the Company will make appropriate provision with respect to such holders' rights and interests to insure that the provisions of this Section 4(h) will thereafter be applicable to the Convertible Debentures.
(i) Transactions With Affiliates. So long as any Convertible
Debentures are outstanding, the Company shall not, and shall cause each of its
subsidiaries not to, enter into, amend, modify or supplement, or permit any
subsidiary to enter into, amend, modify or supplement any agreement,
transaction, commitment, or arrangement with any of its or any subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two (2) years, stockholders who beneficially own five percent (5%)
or more of the Common Stock, or Affiliates (as defined below) or with any
individual related by blood, marriage, or adoption to any such individual or
with any entity in which any such entity or individual owns a five percent (5%)
or more beneficial interest (each a "Related Party"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
investment in an Affiliate of the Company, (c) any agreement, transaction,
commitment, or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a person other than such
Related Party, (d) any agreement transaction, commitment, or arrangement which
is approved by a majority of the disinterested directors of the Company, for
purposes hereof, any director who is also an officer of the Company or any
subsidiary of the Company shall not be a disinterested director with respect to
any such agreement, transaction, commitment, or arrangement. "Affiliate" for
purposes hereof means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common
ownership with that person or entity, (iii) controls that person or entity, or
(iv) shares common control with that person or entity. "Control" or "controls"
for purposes hereof means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.
(j) Transfer Agent. The Company covenants and agrees that, in the event that the Company's agency relationship with the transfer agent should be terminated for any reason prior to a date which is two (2) years after the Closing Date, the Company shall immediately appoint a new transfer agent and shall require that the new transfer agent execute and agree to be bound by the terms of the Irrevocable Transfer Agent Instructions (as defined herein).
(k) Restriction on Issuance of the Capital Stock. So long as any
Convertible Debentures are outstanding, the Company shall not, except as
provided in the Disclosure Schedule to this Agreement, without the prior written
consent of the Buyer(s), issue or sell shares of Common Stock or Preferred Stock
(i) without consideration or for a consideration per share less than the Bid
Price of the
Common Stock determined immediately prior to its issuance, (ii) issue any
warrant, option, right, contract, call, or other security instrument granting
the holder thereof, the right to acquire Common Stock without consideration or
for a consideration less than such Common Stock's Bid Price value determined
immediately prior to it's issuance, (iii) enter into any security instrument
granting the holder a security interest in any and all assets of the Company, or
(iv) file any registration statement on Form S-8.
(l) Lock-up Agreement. On the date hereof, the Company shall obtain from each officer and director of the Company a lock-up agreement. Such lock-up agreement shall prohibit sales of the Company's Common Stock for so long as any portion of the Convertible Debentures is outstanding.
(m) No Payment of Management Fees. Except as set forth in the Disclosure Schedule, the Company shall not make any payments of (i) accrued and unpaid salaries, management fees, commissions or any other remuneration to officers or directors of the Company or any person or entity that is an "affiliate" of any such person or entity (the "Management Group") or (ii) except for reimbursement of ordinary travel and entertainment expenses, on any notes, accounts payable or other obligations or liabilities owed to any member of Management Group until the Registration Statement has been effective (as declared by the Securities and Exchange Commission) for a period of at least 90 days (the "Prohibition Period").
(n) No Merger or Sale of Business. For so long as the Convertible Debenture is outstanding, the Company hereby agrees that it will not merge or consolidate with any person or entity, or sell, lease or otherwise dispose of its assets other than in the ordinary course of business involving an aggregate consideration of more than ten percent (10%) of the book value of its assets on a consolidated basis in any 12 month period, or liquidate, dissolve, recapitalize or reorganize.
(o) No Indebtedness. For so long as the Convertible Debenture is outstanding, except as provided in the Disclosure Schedule, the Company shall not incur any indebtedness for borrowed money or become a guarantor or otherwise contingently liable for any such indebtedness except for trade payables or purchase money obligations incurred in the ordinary course of business.
(p) No Other Registration Statements. Except as set forth in the Disclosure Schedule, except for the filing of the registration statements contemplated in this transaction or the Standby Equity Distribution Agreement of even date herewith (the "Permitted Registration Statements"), for so long as the Convertible Debenture is outstanding, the Company shall not file any other registration statements on any form (including but not limited to forms S-1, SB-2, S-3 and S-8) without the prior written consent of the Buyer. Further, the Company shall not register for sale or resale of any shares of capital stock in the Permitted Registration Statements other than the capital stock beneficially owned by the Buyer or to be issued to the Buyer upon conversion of the Convertible Debentures, exercise of warrants or issuance under the Standby Equity Distribution Agreement of even date herewith.
(q) Capital Structure of the Company. The Company agrees to change or modify its capital structure as necessary to comply with this agreement at the Buyer's request, which request may be made by the Buyer at any time or from time to time so long as such modification is permitted by laws of the State in which the Company is incorporated.
(r) The Company covenants to the buyer that the net proceeds to be received by the Company in this transaction shall be used in a manner consistent with uses described in the Budget attached as Exhibit B hereto. The Company ion its discretion may deviate up to ten (10) percent for any single line described in Exhibit B hereto.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue the Irrevocable Transfer Agent Instructions to its transfer agent irrevocably appointing David Gonzalez, Esq. as its agent for purpose of having certificates issued, registered in the name of the Buyer(s) or its respective nominee(s), for the Conversion Shares representing such amounts of Convertible Debentures as specified from time to time by the Buyer(s) to the Company upon conversion of the Convertible Debentures, for interest owed pursuant to the Convertible Debenture, and for any and all Liquidated Damages (as this term is defined in the Investor Registration Rights Agreement). Yorkville Advisors Management, LLC shall be paid a cash fee of Fifty Dollars ($50) for every occasion they act pursuant to the Irrevocable Transfer Agent Instructions. The Company shall not change its transfer agent without the express written consent of the Buyer(s), which may not be unreasonably withheld by the Buyer(s), provided that the successor transfer agent has executed the irrevocable transfer agent instructions Prior to registration of the Conversion Shares under the Securities Act, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(g) hereof (in the case of the Conversion Shares prior to registration of such shares under the Securities Act) will be given by the Company to its transfer agent and that the Conversion Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Investor Registration Rights Agreement. Nothing in this Section 5 shall affect in any way the Buyer's obligations and agreement to comply with all applicable securities laws upon resale of Conversion Shares. If the Buyer(s) provides the Company with an opinion of counsel, in form, scope and substance customary for opinions of counsel in comparable transactions to the effect that registration of a resale by the Buyer(s) of any of the Conversion Shares is not required under the Securities Act, the Company shall within two (2) business days instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by the Buyer. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5, that the Buyer(s) shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELLER.
The obligation of the Company hereunder to issue and sell the Convertible Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or before the Closing Dates, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion:
(a) Each Buyer shall have executed this Agreement, the Security Agreement, the Escrow Agreement and the Investor Registration Rights Agreement and the Irrevocable Transfer Agent Instructions and delivered the same to the Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the Purchase Price for Convertible Debentures in respective amounts as set forth next to each Buyer as outlined on Schedule I attached hereto and the Escrow Agent shall have delivered the net proceeds to the Company by wire transfer of immediately available U.S. funds pursuant to the wire instructions provided by the Company.
(c) The representations and warranties of the Buyer(s) shall be true and correct in all material respects as of the date when made and as of the Closing Dates as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer(s) shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer(s) at or prior to the Closing Dates.
(d) The Company shall have filed a form UCC -1 with regard to the Pledged Property and Pledged Collateral as detailed in the Security Agreement dated the date hereof and provided proof of such filing to the Buyer(s).
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer(s) hereunder to purchase the Convertible Debentures at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Buyer's sole benefit and may be waived by the Buyer(s) at any time in its sole discretion:
(a) The Company shall have executed this Agreement, the Security Agreement, the Convertible Debenture, the Escrow Agreement, the Irrevocable Transfer Instructions and the Investor Registration Rights Agreement, and delivered the same to the Buyer(s).
(b) With regard to the Second Closing, the Company shall have filed a registration statement with the SEC as described in the Investor Registration Rights Agreement.
(c) The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the Closing Dates as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Dates. If requested by the Buyer, the Buyer shall have received a certificate, executed by the President or Chief Executive Officer of the Company, dated as of the Closing Dates, to the foregoing effect and as to such other matters as may be reasonably requested by the Buyer including, without limitation an update as of the Closing Dates regarding the representation contained in Section 3(c) above.
(d) The Company shall have executed and delivered to the Buyer(s) the Convertible Debentures in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached hereto.
(e) The Buyer(s) shall have received an opinion of counsel in a form satisfactory to the Buyer(s).
(f) The Company shall have provided to the Buyer(s) a certificate of good standing from the Secretary of State of New Jersey.
(g) As of each Closing Date, the Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Convertible Debentures, shares of Common Stock to effect the conversion of all of the Conversion Shares then outstanding.
(h) The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Buyer, shall have been delivered to and acknowledged in writing by the Company's transfer agent.
(i) The Company shall have provided to the Buyer an acknowledgement, to the satisfaction of the Buyer, from Massella & Associates, CPA, PLLC, the Company's independent certified public accountants, as to its ability to provide all consents required in order to file a registration statement in connection with this transaction.
(j) The Company shall have filed a form UCC -1 with regard to the Pledged Property and Pledged Collateral as detailed in the Security Agreement and provided proof of such filing to the Buyer(s).
(k) The Company shall have obtained the approval of its board of directors and a majority of its outstanding shares of capital stock (voting as separate classes, if required by applicable law) to increase its authorized common stock to a number mutually acceptable to the Company and the Buyer.
8. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this Agreement and acquiring the Convertible Debentures and the Conversion Shares hereunder, and in addition to all of the Company's other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Buyer(s) and each other holder of the Convertible Debentures and the Conversion Shares, and all of their officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Buyer Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Buyer Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by the Buyer Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement, the Convertible Debentures or the Investor Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement, or the Investor Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made against such Indemnitee and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Indemnities, any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Convertible Debentures or the status of the Buyer or holder of the Convertible Debentures the Conversion Shares, as a Buyer of Convertible Debentures in the Company. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.
(b) In consideration of the Company's execution and delivery of this Agreement, and in addition to all of the Buyer's other obligations under this Agreement, the Buyer shall defend, protect, indemnify and hold harmless the Company and all of its officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Company Indemnitees") from and against any and all Indemnified Liabilities incurred by the Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Buyer(s) in this Agreement, instrument or document contemplated hereby or thereby executed by the Buyer, (b) any breach of any covenant, agreement or obligation of the Buyer(s) contained in this Agreement, the Investor Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby executed by the Buyer, or (c) any cause of action, suit or claim brought or made against such Company Indemnitee based on material misrepresentations or due to a material breach and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement, the Investor Registration Rights Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Company Indemnities. To the extent that the foregoing undertaking by each Buyer may be unenforceable for any reason, each Buyer shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.
9. GOVERNING LAW: MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard exclusively in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph.
(b) Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause four (4) additional original executed signature pages to be physically delivered to the other party within five (5) days of the execution and delivery hereof.
(c) Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement, Amendments. This Agreement supersedes all other prior oral or written agreements between the Buyer(s), the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.
(f) Notices. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company, to: StrikeForce Technologies, Inc.
1090 King George's Post Road, Suite 108
Edison, NJ 08837
Attention: Mark L. Kay, CEO
Telephone: (732) 661-9641
Facsimile: (732) 661-9647
With a copy to: Sichenzia, Ross, Friedman and Ference, LLP
1065 Avenue of the Americas
New York, New York 10018
|
Attn: Jay R. McDaniel Telephone: (212) 930-9700 Facsimile: (212) 930-9725 If to the Company, to:
StrikeForce Technologies, Inc.
If to the Transfer Agent, to: Continental Stock Transfer & Trust Co.
17 Battery Place
New York, NY 10004
Attention: Steven Nelson
Telephone: (212) 509-2000
Facsimile: (212) 509-5150
|
If to the Buyer(s), to its address and facsimile number on Schedule I, with copies to the Buyer's counsel as set forth on Schedule I. Each party shall provide five (5) days' prior written notice to the other party of any change in address or facsimile number.
(g) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Neither the Company nor any Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party hereto.
(h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
(i) Survival. Unless this Agreement is terminated under Section 9(l), the representations and warranties of the Company and the Buyer(s) contained in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8, shall survive the Closing for a period of two (2) years following the date on which the Convertible Debentures are converted in full. The Buyer(s) shall be responsible only for its own representations, warranties, agreements and covenants hereunder.
(j) Publicity. The Company and the Buyer(s) shall have the right to approve, before issuance any press release or any other public statement with respect to the transactions contemplated hereby made by any party; provided, however, that the Company shall be entitled, without the prior approval of the Buyer(s), to issue any press release or other public disclosure with respect to such transactions required under applicable securities or other laws or regulations (the Company shall use its best efforts to consult the Buyer(s) in connection with any such press release or other public disclosure prior to its release and Buyer(s) shall be provided with a copy thereof upon release thereof).
(k) Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
(l) Termination. In the event that the Closing shall not have occurred with respect to the Buyers on or before five (5) business days from the date hereof due to the Company's or the Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above (and the non-breaching party's failure to waive such unsatisfied condition(s)), the non-breaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party.
(m) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above.
COMPANY:
STRIKEFORCE TECHNOLOGIES, INC.
By: /S/ Mark L. Kay
---------------
Name Mark L. Kay
Title: CEO
|
THE BUYER'S(S') SIGNATURES ARE CONTAINED ON SCHEDULE I
HERETO
EXHIBIT A
DISCLOSURE SCHEDULE
EXHIBIT A-1
SCHEDULE I-1
SCHEDULE I
SCHEDULE OF BUYERS
Address/Facsimile Amount of
Name Signature Number of Buyer Subscription
---------------------------------------------------------------------------------------------------------
Cornell Capital Partners, LP By: Yorkville Advisors, LLC 101 Hudson Street - Suite 3700 $1,000,000
Its: General Partner Jersey City, NJ 07303
Facsimile: (201) 985-8266
By: /S/ Mark A. Angelo With a copy to:
------------------------
Name: Mark A. Angelo Cornell Capital Partners, LP
Its: Portfolio Manager 101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Attention: Troy J. Rillo, Esq.
Facsimile: (201) 985-8266
|
EXHIBIT A
DISCLOSURE SCHEDULE
This Disclosure and Exception Schedule is made and given pursuant to Articles 3 and 4 of that certain Securities Purchase Agreement dated December __, 2004 by and among StrikeForce Technologies, Inc. and the parties designated as "Buyers" therein. The section numbers in this Schedule of Exceptions correspond to the section numbers in the Securities Purchase Agreement; however, any information disclosed herein under any section number shall be deemed to be disclosed and incorporated into any other section number under the Agreement where such disclosure would otherwise be appropriate. Any terms defined in the Securities Purchase Agreement shall have the same meaning when used in this Schedule of Exceptions as when used in the Agreement unless the context otherwise requires.
Nothing herein constitutes an admission of any liability or obligation on the part of the Company nor an admission against the Company's interest. The inclusion of any schedule herein or any exhibit hereto should not be interpreted as indicating that the Company has determined that such an agreement or other matter is necessarily material to the Company. The Buyer acknowledges that certain information contained in these schedules may constitute material confidential information relating to the Company, which may not be used for any purpose other than that contemplated in the Agreement. Copies of the agreements described herein are available upon request of the Company for review by the Buyer.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(c) Capitalization
In connection with the purchase of certain assets and liabilities of Netlabs.com, Inc., the Company issued to Netlabs.com, Inc. 1,140,000 shares of the common stock of the company, which shares are subject to a provision requiring the parties to enter into a buy-sell agreement granting the Company a right of first refusal. Pending the execution of such an agreement, such shares may not be transferred or encumbered in any manner.
(i) The Company has adopted a Stock Option Program and Plan under which options in the aggregate amount of 1,000,000 shares may be issued by the Company during 2004. The Company may further, from time to time, issue shares of common stock pursuant to an Employee Stock Ownership Plan (ESOP) or as compensation to the employees, officers, directors or consultants of the Company. Any options or common stock issued by the Company to its employees, officers, directors or consultants may be registered on Form S-8, if such registration is permitted by law. In no event, however, will the shares that (x) issued pursuant to an ESOP, compensation plan or to consultants or (y) that the Company is obligated to issue upon the exercise of options outstanding issued the Stock Option Program and Plan exceed ten (10) percent of the issued common stock of the Company, whichever is greater.
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
-----------------------------------------------------------------------------
Brenner, Michael 11/12/03 $50,000.00 Prime + 2% 6/30/05
-----------------------------------------------------------------------------
Brenner, Michael 01/05/04 $7,500.00 Prime + 4% 6/30/05
-----------------------------------------------------------------------------
Kay, Mark 02/04/04 $60,000.00 5.875% 9/30/05
-----------------------------------------------------------------------------
Kay, Mark 06/10/04 $50,000.00 5.875% 12/31/05
-----------------------------------------------------------------------------
Kay, Mark 09/07/04 $30,000.00 5.875% 12/31/05
-----------------------------------------------------------------------------
|
The Company is presently engaged in negotiations with Secured Digital Applications, Inc. ("SDA") to enter into an agreement whereby SDA will utilize the Company's technology in the development of a secure on-line payment portal and e-commerce applications. In connection with this agreement, the Company may issue common stock to SDA in an amount equal to 10 (ten) percent of its issued common stock in return for a payment of $2,000,000.
The Company has been engaged in a private placement coordinated by Summit Financial Partners, LLC in the aggregate amount of $3,500,000. The Company may continue to accept subscriptions in connection with this private placement through the date on which a registration statement covering the securities to be issued upon conversion of the Convertible Debenture is filed.
(ii) The Company has issued certain debt securities noted under (i), above.
(iii)The Company has granted registration rights to purchasers of the common stock of the company through a private placement coordinated by Summit Financial Partners, LLC. The Company shall be permitted to concurrently register for resale the common stock held by its existing shareholders, a schedule of which is attached hereto as Schedule I.
4. COVENANTS
(h) Corporate Existence
The Company may effect such mergers with one or more wholly owned subsidiaries as are reasonable and necessary to cause the Company to be reincorporated under Delaware law. Prior to or at the time of such reincorporation, the Company may amend its Certificate of Incorporation to adopt such provisions as the board of directors and, as applicable, the shareholders deem suitable for the effective management of the Company, provided that no such reorganization may impair the security granted to Buyer in connection with the issuance of the Convertible Debentures.
(k) Restriction on the Issuance of the Capital Stock
(i) The Company may issue or sell Common Stock and/or other securities granting the holder thereof the right to acquire Common Stock without consideration or for a consideration per share less than such Common Stock's Bid Price value determined immediately prior to its issuance:
In satisfaction of its obligations disclosed in item 3(c)(i) of this schedule;
Up to 10 percent of the issued common stock of the Company, pursuant to the exercise of options or award of common stock granted to employees, officers, directors or consultants as compensation; and
The Company may issue common shares of stock to Secured Digital Applications, Inc. in an amount not exceeding 10 percent of the issued common stock of the Company for $2 million.
(iii)The Company may issue options to employees officers or directors without consideration or for a consideration per share less than such Common Stock's Bid Price value determined immediately prior to its issuance, subject to the limitations set forth in 3(c)(i) and 4(k)(i) above.
(m)(ii)The Company may repay notes owed to members of the Management Group in an amount not to exceed $100,000 during the Prohibition Period, provided that the source of funds for the repayment of such notes is not funds that were raised through the issuance of the Convertible Secured Debenture.
(iv) The Company may, subject to the limitations set forth in 3(c)(i) and 4(k)(i) permit the registration of options or common stock issued to employees or consultants on Form S-8.
Katherine LaRosa 1,125,208
Mark Corrao 1,308,207
Ramarao Pemmaraju 3,264,465
Teddy Svoronos 326,000
Thomas Yon 1,469,418
Robert Denn 3,273,742
---------
Total Founders 10,767,040
Al Rosenthal 3,334
Anthony Mandrachia 105,000
Arinx Francois 30,000
Bhavani Pemmaraju 100,000
Fritz Clarival 6,000
Gene Gavin 2,000
Joanne Delio 1,000
John Delaney 5,100
John Gawlik 60,000
Kevin McMahon 3,180
Livio Belulovich 2,000
Mary Difiore 1,500
Mike Tafuri 1,500
Peter Ortolano 1,200
Rich Roland 3,000
Robert Koch 59,850
Lawrence Sica 5,000
Robert Scios 59,850
Robert Stortz 1,000
Ronald Terchak 150,000
Sal Girardi 1,500
Shanmuganathan 120,000
Shirley Radice 1,000
Sig Silber 15,000
Steven Minunni 10,000
Thomas George 60,000
Tom Stern 1,500
Vincent Sisto 60,000
------
Total NL Investors 869,514
Year 2002 Transactions 11,636,554
Mark Kay 300,000
Dave Mitchell 333
Dave Mitchell 1,000
Diane Manturi 5,600
Jeffrey Checchio 100
Jose Manuel Rodriguez 11,500
Lisa Ravioli 1,000
Maria Rodriguez 50,667
Pamela Eugenio 10,667
Thomas Catras 10,000
Yenney Bado 2,000
Hans Fleurival 5,000
Karin Gibson 3,000
Kathleen Yeomans 4,000
Kathleen & Rich Yeomans 3,000
Kurt Jansen 15,000
Majid Prey 5,000
Mary Hanlon 1,000
Barry Wolfman 50,000
Netlabs.com Inc. 1,140,000
Mark Museck - (Gil Rosco) 5,000
Calagero Farina 4,000
Anna Farina 6,000
Gerard Eugenio 10,000
Giuliano Farina 1,000
Ignazio Farina 9,000
Lawrence Sica 5,000
Hope Valenti 1,000
Year 2003 Transactions 1,659,867
Alan Shoaf 120,000
Altavilla Family Trust 560,000
Louis Gonzalez 4,000
Jeff Mason 3,000
Marlin Molinaro 120,000
Maria Rodriguez 27,778
Sondra Schneider 25,000
General Teddy Allen 25,000
Howard Medow 25,000
Bill Demopolis 25,000
Frederick Ilardi 25,000
M Power, LLC 300,000
M Power, LLC 50,000
Sudhaker Bhagavathula 13,889
Monty Schwartz 50,000
Shelley Cohen 50,000
Gary Kotowski 10,000
Michael A. Peca 1,000
Charlene M. Peca 1,000
Pam Eugenio 17,361
Gerard Eugenio 17,361
Mathew Peifer 5,000
Julie & Richard Prough 10,000
Ernest & Antoinette Warren 6,944
Hynes Insurance Agency 10,000
Guiliano Farina 2,000
Dara Herskovitz 5,600
Elizabeth Striano 6,944
Kevin Hess 1,389
Jeffrey Ballschmieder 6,944
Thomas Marrinan 2,778
Savitri R. Balkaran 1,389
Gregg Ballschmieder 16,667
Robert W. Hansen Jr. 6,944
Scott Ballschmieder 13,889
Christina T. Gatto 6,944
Vincent Ballschmieder 13,889
Ramashwari Singh 694
Padmini Singh 694
Jerry Vaiana 100,000
Auto Servicio, S.A 100,000
Marguerite Braasch 300
George Brown lll 6,944
Marilou Brown Lesch 6,944
Susan Brown Hansen 6,944
Thomas Brown Sr. 6,944
John Brown 6,944
Robert Brown 6,944
George & Mary Brown 20,833
Howard Medow 30,000
J. Gale Thomas 27,778
Shari Kole 10,000
William Fix 6,944
Thomas Eddy 2,000
Mark L. Kay 41,667
Jae Park 500
Dr. John M. Pepe 13,889
Mark L. Kay 69,444
Mark L. Kay 69,444
Mark L. Kay 55,556
Mark L. Kay 83,333
Mark L. Kay 69,444
Mark L. Kay 69,444
Michael C. Brenner 10,417
Total Other 2,411,755
OBX Capital Group 69,444
Richard/Liane McDonald 48,612
OBX Capital Group 69,443
OBX Capital Group 69,443
Lawrence/Bonnie Anlauf 25,500
Dr. Ken Johnson 124,000
Jack/Sadie Moskowitz 41,667
OBX Capital Group 83,334
OBX Capital Group 277,778
Lawrence/Bonnie Anlauf 57,163
Alan Shoaf 41,667
Harold Wrobel 138,889
Lawrence/Bonnie Anlauf 10,000
OBX Capital Group 67,361
Alan Shoaf 60,000
------
Grand Total 16,892,477
|
EXHIBIT B
StrikeForce Technologies, Inc.
Monthly Cash Burn Rate
Monthly
---------------------
Salaries $114,500.00
Payroll Taxes $17,175.00
Consultants $10,500.00
Rent $6,225.00
Health Insurance $6,000.00
Liability Insurance $112.75
Workers Comp Ins $191.25
Telephone $2,195.00
FEDEX/UPS $500.00
Postage $100.00
Global Crossing Internet T1 $810.00
Dell Financial Computer Lease $398.56
Ikon Financial Computer Lease $2,020.42
GE Capital Copier Lease $280.90
Printing and Reproduction $1,000.00
Rosica Public Rel. $10,000.00
Blank Rome Government Rel. $10,000.00
Braithwaite Public Rel. $5,000.00
Accounting $5,000.00
Legal $7,500.00
Supplies $500.00
T&E $2,000.00
Marketing & Trade Shows $5,500.00
Loans & Interest $7,633.33
Web Site Development $1,000.00
Furniture, Fixtures & Equipment $2,365.00
---------------------
$218,507.21
=====================
Use of Proceeds for Capital Raised
Blank Rome Public Relations PR $30,000.00
Copy Dynamics Office $3,865.00
Crossroads Strategy Consulting $7,500.00
Dell Computers Equipment $1,224.00
Gartner Consulting $58,087.50
GE Capital Lease $8,501.53
IOS Capital Lease $25,819.00
Infopro Website $1,600.00
Massella & Associates Accounting $52,000.00
Matsushita Electric Corp ASP host $31,000.00
NGM Consulting $7,483.50
Pepper Hamilton Legal $19,283.73
Rosica PR $22,515.91
RSA Partner Program $7,950.00
Szaferman Lakind Legal $7,174.98
United Health Care Health Ins. $10,523.69
WB Mason Office $1,521.33
Employee reimbursements Office $25,028.42
S. Pemmaraju Consulting $18,000.00
----------
$339,078.59
=====================
|
Exhibit 10.3
THIS SECURED DEBENTURE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT.
SECURED DEBENTURE
STRIKEFORCE TECHNOLOGIES, INC.
8% Secured Convertible Debenture
Due December 20, 2007
No. CCP-1 $500,000
This Secured Debenture is issued by StrikeForce Technologies, Inc., a New Jersey corporation (the "Company"), to Cornell Capital Partners L.P. (together with its permitted successors and assigns, the "Holder") pursuant to exemptions from registration under the Securities Act of 1933, as amended.
ARTICLE I.
Section 1.01 Principal and Interest. For value received, on December 20, 2007, the Company hereby promises to pay to the order of the Holder in lawful money of the United States of America and in immediately available funds the principal sum of Five Hundred Thousand Dollars ($500,000), together with interest on the unpaid principal of this Debenture at the rate of eight percent (8%) per year (computed on the basis of a 365-day year and the actual days elapsed) from the date of this Debenture until paid. At the Company's option, the entire principal amount and all accrued interest shall be either (a) paid to the Holder on the third (3rd) year anniversary from the date hereof or (b) converted in accordance with Section 1.02 herein provided, however, that in no event shall the Holder be entitled to convert this Debenture for a number of shares of Common Stock in excess of that number of shares of Common Stock which, upon giving effect to such conversion, would cause the aggregate number of shares of Common Stock beneficially owned by the Holder and its affiliates to exceed 4.99% of the outstanding shares of the Common Stock following such conversion (which provision may be waived by the Investor by written notice from the Investor to the Company, which notice shall be effective 61 days after the date of such notice). This limitation shall not apply to an automatic conversion pursuant to Section 4.03 hereof.
Section 1.02 Optional Conversion. The Holder is entitled, at its option, to convert, and sell on the same day, at any time and from time to time, until payment in full of this Debenture, all or any part of the principal amount of the Debenture, plus accrued interest, into shares (the "Conversion Shares") of the Company's common stock, par value $ 0.0001per share ("Common Stock"), at the price per share (the "Conversion Price") equal to the lesser of (a) an amount equal to one hundred twenty percent (120%) of the initial bid price of the Common Stock (the "Fixed Price") submitted on Form 211 by a registered market maker to and approved by the NASD, or (b) an amount equal to eighty percent (80%) of the lowest volume weighted average price of the Company's Common Stock, as quoted by Bloomberg, LP, for the five (5) trading days immediately preceding the Conversion Date (as defined herein). Subparagraphs (a) and (b) above are individually referred to as a "Conversion Price". As used herein, "Principal Market" shall mean The National Association of Securities Dealers Inc.'s Over-The-Counter Bulletin Board, Nasdaq SmallCap Market, or American Stock Exchange. If the Common Stock is not traded on a Principal Market, the Closing Bid Price shall mean the reported Closing Bid Price for the Common Stock, as furnished by the National Association of Securities Dealers, Inc., for the applicable periods. No fraction of shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. To convert this Debenture, the Holder hereof shall deliver written notice thereof, substantially in the form of Exhibit "A" to this Debenture, with appropriate insertions (the "Conversion Notice"), to the Company at its address as set forth herein. The date upon which the conversion shall be effective (the "Conversion Date") shall be deemed to be the date set forth in the Conversion Notice.
Section 1.03 Reservation of Common Stock. The Company shall reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of this Debenture, such number of shares of Common Stock as shall from time to time be sufficient to effect such conversion, based upon the Conversion Price. If at any time the Company does not have a sufficient number of Conversion Shares authorized and available, then the Company shall call and hold a special meeting of its stockholders within sixty (60) days of that time, or as soon thereafter as permitted by applicable law, for the sole purpose of increasing the number of authorized shares of Common Stock.
Section 1.04 Right of Redemption. The Company at its option shall have the right to redeem, with fifteen (15) days advance written notice (the "Redemption Notice"), a portion or all outstanding convertible debenture. The redemption price shall be one hundred ten percent (110%) of the amount redeemed plus accrued interest.
Section 1.05 Registration Rights. The Company is obligated to register the resale of the Conversion Shares under the Securities Act of 1933, as amended, pursuant to the terms of a Registration Rights Agreement of even date herewith between the Company and the Holder (the "Investor Registration Rights Agreement").
Section 1.06 Interest Payments. Accrued interest shall be paid at the time of maturity or conversion to the person in whose name this Debenture is registered. At the time such interest is payable, the Holder, in its sole discretion, may elect to receive the interest in cash (via wire transfer or certified funds) or in the form of Common Stock. In the event of default, as described in Article III Section 3.01 hereunder, the Holder may elect that the interest be paid in cash (via wire transfer or certified funds) or in the form of Common Stock. If paid in the form of Common Stock, the amount of stock to be issued will be calculated as follows: the value of the stock shall be the Conversion Price on: (i) the date the interest payment is due; or (ii) if the interest payment is not made when due, the date the interest payment is made. A number of shares of Common Stock with a value equal to the amount of interest due shall be issued. No fractional shares will be issued; therefore, in the event that the value of the Common Stock per share does not equal the total interest due, the Company will pay the balance in cash.
Section 1.07 Paying Agent and Registrar. Initially, the Company will act as paying agent and registrar. The Company may change any paying agent, registrar, or Company-registrar by giving the Holder not less than ten (10) business days' written notice of its election to do so, specifying the name, address, telephone number and facsimile number of the paying agent or registrar. The Company may act in any such capacity.
Section 1.08 Secured Nature of Debenture. This Debenture is secured by certain assets and property of the Company, as more fully described in the Security Agreement of even date herewith between the Company and the Holder.
ARTICLE II.
Section 2.01 Amendments and Waiver of Default. The Debenture may not be amended without the consent of the Holder. Notwithstanding the above, without the consent of the Holder, the Debenture may be amended to cure any ambiguity, defect or inconsistency, to provide for assumption of the Company obligations to the Holder or to make any change that does not adversely affect the rights of the Holder.
ARTICLE III.
Section 3.01 Events of Default. An Event of Default is defined as
follows: (a) failure by the Company to pay amounts due hereunder within fifteen
(15) days of the date of maturity of this Debenture; (b) failure by the Company
to comply with the terms of the Irrevocable Transfer Agent Instructions; (c)
failure by the Company's transfer agent to issue freely tradeable Common Stock
to the Holder within five (5) days of the Company's receipt of the attached
Notice of Conversion from Holder; (d) failure by the Company for twenty (20)
days after notice to it to comply with any of its other agreements in the
Debenture; (e) if the Company files for relief under the United States
Bankruptcy Code (the "Bankruptcy Code") or under any other state or federal
bankruptcy or insolvency law, or files an assignment for the benefit of
creditors, or if an involuntary proceeding under the Bankruptcy Code or under
any other federal or state bankruptcy or insolvency law is commenced against the
Company; (f) a breach by the Company of its obligations under the Securities
Purchase Agreement, the Escrow Agreement, the Security Agreement, the Investor
Registration Rights Agreement or any other agreement entered into on the date
hereof between the Company and the Holder which is not cured by the Company within twenty (20) days after receipt of written notice thereof. Upon the occurrence of an Event of Default, the Holder may, in its sole discretion, accelerate full repayment of all debentures outstanding and accrued interest thereon or may, notwithstanding any limitations contained in this Debenture and/or the Securities Purchase Agreement of even date herewith between the Company and Cornell Capital Partners, L.P. (the "Securities Purchase Agreement"), convert all debentures outstanding and accrued interest thereon into shares of Common Stock pursuant to Section 1.02 herein.
Section 3.02 Failure to Issue Unrestricted Common Stock. As indicated in Article III Section 3.01, a breach by the Company of its obligations under the Investor Registration Rights Agreement shall be deemed an Event of Default, which if not cured within ten (10) days, shall entitle the Holder to accelerate full repayment of all debentures outstanding and accrued interest thereon or, notwithstanding any limitations contained in this Debenture and/or the Securities Purchase Agreement, to convert all debentures outstanding and accrued interest thereon into shares of Common Stock pursuant to Section 1.02 herein. The Company acknowledges that failure to honor a Notice of Conversion shall cause irreparable harm to the Holder.
ARTICLE IV.
Section 4.01 Rights and Terms of Conversion. This Debenture, in whole
or in part, may be converted at any time following the date of closing into
shares of Common Stock at a price equal to the Conversion Price as described in
Section 1.02 above.
Section 4.02 Re-issuance of Debenture. When the Holder elects to convert a part of the Debenture, then the Company shall reissue a new Debenture in the same form as this Debenture to reflect the new principal amount.
Section 4.03 Termination of Conversion Rights. The Holder's right to convert the Debenture into the Common Stock in accordance with paragraph 4.01 shall terminate on the date that is the third (3rd) year anniversary from the date hereof and this Debenture shall be automatically converted on that date in accordance with the formula set forth in Section 4.01 hereof, and the appropriate shares of Common Stock and amount of interest shall be issued to the Holder.
ARTICLE V.
Section 5.01 Anti-dilution. In the event that the Company shall at any time subdivide the outstanding shares of Common Stock, or shall issue a stock dividend on the outstanding Common Stock, the Conversion Price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of such subdivision, dividend or combination as the case may be.
Section 5.02 Consent of Holder to Sell Capital Stock or Grant Security Interests. Except for the Standby Equity Distribution Agreement dated the date hereof between the Company and Cornell Capital Partners, LP. so long as any of the principal of or interest on this Note remains unpaid and unconverted, the Company shall not, except as provided in the Disclosure Schedule to the Securities Purchase Agreement, without the prior consent of the Holder, issue or sell (i) any Common Stock or Preferred Stock without consideration or for a consideration per share less than its fair market value 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 fair market value determined immediately prior to its issuance, (iii) enter into any security instrument granting the holder a security interest in any of the assets of the Company, or (iv) file any registration statement on Form S-8.
ARTICLE VI.
Section 6.01 Notice. Notices regarding this Debenture shall be sent to the parties at the following addresses, unless a party notifies the other parties, in writing, of a change of address:
If to the Company, to: StrikeForce Technologies, Inc.
1090 King George's Post Road, Suite 108
Edison, NJ 08837
Attention: Mark L. Kay, CEO
Telephone: (732) 661-9641
Facsimile: (732) 661-9647
With a copy to: Sichenzia, Ross, Friedman and Ference, LLP
1065 Avenue of the Americas
New York, New York 10018
|
Attn: Jay R. McDaniel Telephone: (212) 930-9700 Facsimile: (212) 930-9725
If to the Holder: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Attention: Mark Angelo
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
With a copy to: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Attention: Troy J. Rillo, Esq.
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
|
Section 6.02 Governing Law. This Debenture shall be deemed to be made under and shall be construed in accordance with the laws of the State of New Jersey without giving effect to the principals of conflict of laws thereof. Each of the parties consents to the exclusive jurisdiction of the U.S. District Court sitting in the District of the State of New Jersey or the state courts of the State of New Jersey sitting in Hudson County, New Jersey in connection with any dispute arising under this Debenture and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens to the bringing of any such proceeding in such jurisdictions.
Section 6.03 Severability. The invalidity of any of the provisions of this Debenture shall not invalidate or otherwise affect any of the other provisions of this Debenture, which shall remain in full force and effect.
Section 6.04 Entire Agreement and Amendments. This Debenture represents the entire agreement between the parties hereto with respect to the subject matter hereof and there are no representations, warranties or commitments, except as set forth herein. This Debenture may be amended only by an instrument in writing executed by the parties hereto.
Section 6.05 Counterparts. This Debenture may be executed in multiple counterparts, each of which shall be an original, but all of which shall be deemed to constitute on instrument.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company as executed this Debenture as of the date first written above.
STRIKEFORCE TECHNOLOGIES, INC.
By:/s/Mark L. Kay --------------- Name: Mark L. Kay Title:CEO |
EXHIBIT "A"
NOTICE OF CONVERSION
(To be executed by the Holder in order to Convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $ of the principal amount of the above Debenture into Shares of Common Stock of StrikeForce Technologies, Inc., according to the conditions stated therein, as of the Conversion Date written below.
Conversion Date:________________________________
Applicable Conversion Price:____________________
Signature:______________________________________
Name:___________________________________________
Address:________________________________________
Amount to be converted:$________________________
Amount of Debenture unconverted:$_______________
Conversion Price per share:$____________________
Number of shares of Common Stock to be
issued:_________________________________________
Please issue the shares of Common Stock
in the following name and to the
following address:______________________________
Issue to:_______________________________________
Authorized Signature:___________________________
Name:___________________________________________
Title:__________________________________________
Phone Number:___________________________________
Broker DTC Participant Code:____________________
Account Number:_________________________________
Exhibit 10.4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of December 20, 2004 by and between STRIKEFORCE TECHNOLOGIES, INC., a New Jersey corporation (the "Company"), and CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the "Investor").
WHEREAS:
A. In connection with the Standby Equity Distribution Agreement by and between the parties hereto of even date herewith (the "Standby Equity Distribution Agreement"), the Company has agreed, upon the terms and subject to the conditions of the Standby Equity Distribution Agreement, to issue and sell to the Investor that number of shares of the Company's common stock, par value $0.0001 per share (the "Common Stock"), which can be purchased pursuant to the terms of the Standby Equity Distribution Agreement for an aggregate purchase price of up to Ten Million Dollars ($10,000,000). Capitalized terms not defined herein shall have the meaning ascribed to them in the Standby Equity Distribution Agreement.
B. To induce the Investor to execute and deliver the Standby Equity Distribution Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "Securities Act"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following meanings:
a. "Person" means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.
b. "Register," "registered," and "registration" refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous or delayed basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the "SEC").
c. "Registrable Securities" means the shares of Common Stock issuable to Investor pursuant to the Standby Equity Distribution Agreement, including, without limitation, the Investor's Shares (as defined in Section 12.4 of the Standby Equity Distribution Agreement).
d. "Registration Statement" means a registration statement under the Securities Act which covers the Registrable Securities.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare and file with the SEC a Registration Statement on Form S-1, SB-2 or on such other form as is available. The Company shall cause such Registration Statement to be declared effective by the SEC prior to the first sale to the Investor of the Company's Common Stock pursuant to the Standby Equity Distribution Agreement.
b. Sufficient Number of Shares Registered. In the event the number of shares available under a Registration Statement filed pursuant to Section 2(a) is insufficient to cover all of the Registrable Securities which the Investor has purchased pursuant to the Standby Equity Distribution Agreement, the Company shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefore, if applicable), or both, so as to cover all of such Registrable Securities which the Investor has purchased pursuant to the Standby Equity Distribution Agreement as soon as practicable, but in any event not later than fifteen (15) days after the necessity therefore arises. The Company shall use it best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. For purposes of the foregoing provision, the number of shares available under a Registration Statement shall be deemed "insufficient to cover all of the Registrable Securities" if at any time the number of Registrable Securities issuable on an Advance Notice Date is greater than the number of shares available for resale under such Registration Statement.
3. RELATED OBLIGATIONS.
a. The Company shall keep the Registration Statement effective pursuant to Rule 415 at all times until either the earlier of (i) the Registrable Securities are eligible to be sold pursuant to Rule 144(k) under the 1933 Act, or (ii) the date on which the Investor shall have sold all the Registrable Securities covered by such Registration Statement (the "Registration Period"), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading.
b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company's filing a report on Form 10-KSB, Form 10-QSB or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company shall have incorporated such report by reference into the Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the Exchange Act report is filed which created the requirement for the Company to amend or supplement the Registration Statement.
c. The Company shall furnish to the Investor without charge, (i) at least one copy of such Registration Statement as declared effective by the SEC and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, all exhibits and each preliminary prospectus, (ii) ten (10) copies of the final prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor.
d. The Company shall use its best efforts to (i) register and qualify
the Registrable Securities covered by a Registration Statement under such other
securities or "blue sky" laws of such jurisdictions in the United States when
required to do so by law and as the Investor reasonably requests, (ii) prepare
and file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (w) make any change to its articles of incorporation or by-laws, (x)
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify the Investor
of the receipt by the Company of any notification with respect to the suspension
of the registration or qualification of any of the Registrable Securities for
sale under the securities or "blue sky" laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threat of any
proceeding for such purpose.
e. As promptly as practicable after becoming aware of such event or development, the Company shall notify the Investor in writing of the happening of any event as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to each Investor. The Company shall also promptly notify the Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to the Investor by facsimile on the same day of such effectiveness), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.
f. The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction within the United States of America and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify the Investor of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.
g. At the reasonable request of the Investor, the Company shall furnish to the Investor, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as the Investor may reasonably request (i) a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Investor.
h. The Company shall make available for inspection by (i) the Investor and (ii) one firm of accountants or other agents retained by the Investor (collectively, the "Inspectors") all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably deemed necessary by each Inspector, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall agree, and the Investor hereby agrees, to hold in strict confidence and shall not make any disclosure (except to an Investor) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the Securities Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector and the Investor has knowledge. The Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential.
i. The Company shall hold in confidence and not make any disclosure of information concerning the Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning the Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to the Investor and allow the Investor, at the Investor's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.
j. The Company shall use its best efforts either to cause all the
Registrable Securities covered by a Registration Statement (i) to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or (ii) to secure
the inclusion for quotation on the National Association of Securities Dealers,
Inc. OTC Bulletin Board for such Registrable Securities. The Company shall pay
all fees and expenses in connection with satisfying its obligation under this
Section 3(j).
k. The Company shall cooperate with the Investor to the extent applicable, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investor may reasonably request and registered in such names as the Investor may request.
l. The Company shall use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.
m. The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the Securities Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement.
n. The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.
o. Within two (2) business days after a Registration Statement which covers Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investor) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A.
p. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investor of Registrable Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTOR.
The Investor agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(f) or the first
sentence of 3(e), the Investor will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until the Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or receipt of
notice that no supplement or amendment is required. Notwithstanding anything to
the contrary, the Company shall cause its transfer agent to deliver unlegended
certificates for shares of Common Stock to a transferee of the Investor in
accordance with the terms of the Standby Equity Distribution Agreement in
connection with any sale of Registrable Securities with respect to which the
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(f) or the first sentence of 3(e) and for which the Investor has not
yet settled.
5. EXPENSES OF REGISTRATION.
All expenses incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers, legal and accounting fees shall be paid by the Company.
6. INDEMNIFICATION.
With respect to Registrable Securities which are included in a Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend the Investor, the directors,
officers, partners, attorneys, employees, agents, representatives of, and each
Person, if any, who controls the Investor within the meaning of the Securities
Act or the Exchange Act (each, an "Indemnified Person"), against any losses,
claims, damages, liabilities, judgments, fines, penalties, charges, costs,
reasonable attorneys' fees, amounts paid in settlement or expenses, joint or
several (collectively, "Claims") incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation or appeal
taken from the foregoing by or before any court or governmental, administrative
or other regulatory agency, body or the SEC, whether pending or threatened,
whether or not an indemnified party is or may be a party thereto ("Indemnified
Damages"), to which any of them may become subject insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other "blue sky" laws of any jurisdiction
in which Registrable Securities are offered ("Blue Sky Filing"), or the omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in any final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation there under
relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). The Company shall reimburse each Indemnified
Person and each such controlling person promptly as such expenses are incurred
and are due and payable, for any legal fees or disbursements or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (x) shall not apply to
a Claim by an Indemnified Person arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in writing
to the Company by such Indemnified Person solely as it relates to such
Indemnified person if expressly for use in connection with the preparation of
the Registration Statement or any such amendment thereof or supplement thereto;
(y) shall not be available to the extent such Claim is based on a failure of the
Investor to deliver or to cause to be delivered the prospectus made available by
the Company, if such prospectus was timely made available by the Company
pursuant to Section 3(e); and (z) shall not apply to amounts paid in settlement
of any Claim if such settlement is effected without the prior written consent of
the Company, which consent shall not be unreasonably withheld. Notwithstanding
anything to the contrary herein or in any other agreement entered into between
the Company and the Investor, the Company acknowledges and agrees that it is
solely responsible and shall indemnify each Indemnified Person for the contents
of any registration statement, prospectus or other filing made with the SEC or
otherwise used in the offering of the Company's securities (except as such
disclosure relates solely to the Investor and then only to the extent that such
disclosure conforms with information furnished in writing by the Investor to the
Company), even if the Investor or its agents as an accommodation to the Company
participate or assist in the preparation of such registration statement,
prospectus or other SEC filing. The Company shall retain its own legal counsel
to review, edit, confirm and do all things such counsel deems necessary or
desirable to such registration statement, prospectus or other SEC filing to
ensure that it does not contain an untrue statement or alleged untrue statement
of material fact or omit or alleged to omit a material fact necessary to make
the statements made therein, in light of the circumstances under which the
statements were made, not misleading. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Person.
b. In connection with a Registration Statement, the Investor agrees to indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement and each Person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (each an "Indemnified Party"), against any Claim or Indemnified Damages to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or is based upon any Violation, in each case to the extent, and only to the extent, that such Violation solely relates to the Investor and occurs in reliance upon and in conformity with written information furnished to the Company by the Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(d), the Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section
6(b) and the agreement with respect to contribution contained in
Section 7 shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Investor, which
consent shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Section 6(b) for only that amount of a Claim
or Indemnified Damages as does not exceed the net proceeds to the Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any prospectus shall
not inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the prospectus was corrected and such new
prospectus was delivered to the Investor prior to the Investor's use of the
prospectus to which the Claim relates.
c. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.
d. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.
e. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investor the benefits of Rule 144 promulgated under the Securities Act or any similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration ("Rule 144") the Company agrees to:
a. make and keep public information available, as those terms are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company's obligations under Section 6.3 of the Standby Equity Distribution Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and
c. furnish to the Investor so long as the Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested to permit the
Investor to sell such securities pursuant to Rule 144 without registration.
9. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by a written agreement between the Company and the Investor. Any amendment or waiver effected in accordance with this Section 9 shall be binding upon the Investor and the Company. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.
10. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.
b. 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 confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:
If to the Company, to: StrikeForce Technologies, Inc.
1090 King George's Post Road, Suite 108
Edison, NJ 08837
Attention: Mark L. Kay, CEO
Telephone: (732) 661-9641
Facsimile: (732) 661-9647
With a copy to: Sichenzia, Ross, Friedman and Ference, LLP
1065 Avenue of the Americas
New York, New York 10018
Attn: Jay R. McDaniel
Telephone: (212) 930-9700
Facsimile: (212) 930-9725
If to the Investor, to: Cornell Capital Partners, LP
101 Hudson Street - Suite 3700
Jersey City, New Jersey 07302
Attention: Mark Angelo
Portfolio Manager
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
|
With a copy to: Cornell Capital Partners, LP
101 Hudson Street - Suite 3700
Jersey City, New Jersey 07302
Attention: Troy J. Rillo, Esq.
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
|
Any party may change its address by providing written notice to the other
parties hereto at least five days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by a courier or overnight courier service shall be rebuttable evidence
of personal service, receipt by facsimile or receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.
c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.
d. The corporate laws of the State of New Jersey shall govern all issues concerning the relative rights of the Company and the Investor. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New Jersey, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New Jersey or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New Jersey. Each party hereby irrevocably submits to the exclusive jurisdiction of the Superior Courts of the State of New Jersey, sitting in Hudson County, New Jersey and the Federal District Court for the District of New Jersey sitting in Newark, New Jersey, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
e. This Agreement, the Standby Equity Distribution Agreement, the Escrow Agreement, and the Placement Agent Agreement constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Standby Equity Distribution Agreement, the Escrow Agreement, and the Placement Agent Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.
f. This Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
j. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.
k. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of day and year first above written.
COMPANY:
STRIKEFORCE TECHNOLOGIES, INC.
By: /s/ Mark L. Kay
---------------
Name: Mark. L. Kay
Title: CEO
|
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Mark Angelo
----------------
Name: Mark Angelo
Title: Portfolio Manager
|
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
INSERT
Attention:
Re: STRIKEFORCE TECHNOLOGIES, INC.
Ladies and Gentlemen:
We are counsel to StrikeForce Technologies, Inc., a New Jersey corporation (the "Company"), and have represented the Company in connection with that certain Standby Equity Distribution Agreement (the "Standby Equity Distribution Agreement") entered into by and between the Company and Cornell Capital Partners, LP (the "Investor") pursuant to which the Company issued to the Investor shares of its Common Stock, par value $0.001 per share (the "Common Stock"). Pursuant to the Standby Equity Distribution Agreement, the Company also has entered into a Registration Rights Agreement with the Investor (the "Registration Rights Agreement") pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement) under the Securities Act of 1933, as amended (the "Securities Act"). In connection with the Company's obligations under the Registration Rights Agreement, on ____________ ____, the Company filed a Registration Statement on Form ________ (File No. 333-_____________) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities which names the Investor as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the Securities Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the Securities Act pursuant to the Registration Statement.
Very truly yours,
By:______________
cc: Cornell Capital Partners, LP
Exhibit 10.5
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of December 20, 2004 by STRIKEFORCE TECHNOLOGIES, INC., a New Jersey corporation (the "Company"); CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the "Investor"); and DAVID GONZALEZ, ESQ. (the "Escrow Agent").
BACKGROUND
WHEREAS, the Company and the Investor have entered into a Standby Equity Distribution Agreement (the "Standby Equity Distribution Agreement") of even date herewith, pursuant to which the Investor will purchase the Company's Common Stock, par value $ 0.0001 per share (the "Common Stock"), at a price per share equal to the Purchase Price, as that term is defined in the Standby Equity Distribution Agreement, for an aggregate price of up to Ten Million Dollars ($10,000,000). The Standby Equity Distribution Agreement provides that on each Advance Date the Investor, as that term is defined in the Standby Equity Distribution Agreement, shall deposit the Advance pursuant to the Advance Notice in a segregated escrow account to be held by Escrow Agent and the Company shall deposit shares of the Company's Common Stock, which shall be purchased by the Investor as set forth in the Standby Equity Distribution Agreement, with the Escrow Agent, in order to effectuate a disbursement to the Company of the Advance by the Escrow Agent and a disbursement to the Investor of the shares of the Company's Common Stock by Escrow Agent at a closing to be held as set forth in the Standby Equity Distribution Agreement (the "Closing").
WHEREAS, Escrow Agent has agreed to accept, hold, and disburse the funds and the shares of the Company's Common Stock deposited with it in accordance with the terms of this Agreement.
WHEREAS, in order to establish the escrow of funds and shares to effect the provisions of the Standby Equity Distribution Agreement, the parties hereto have entered into this Agreement.
NOW THEREFORE, in consideration of the foregoing, it is hereby agreed as follows:
1. Definitions. The following terms shall have the following meanings when used herein:
a. "Escrow Funds" shall mean the Advance funds deposited with the Escrow Agent pursuant to this Agreement.
b. "Joint Written Direction" shall mean a written direction executed by the Investor and the Company directing Escrow Agent to disburse all or a portion of the Escrow Funds or to take or refrain from taking any action pursuant to this Agreement.
c. "Common Stock Joint Written Direction" shall mean a written direction executed by the Investor and the Company directing Investor's Counsel to disburse all or a portion of the shares of the Company's Common Stock or to refrain from taking any action pursuant to this Agreement.
2. Appointment of and Acceptance by Escrow Agent.
a. The Investor and the Company hereby appoint Escrow Agent to serve as Escrow Agent hereunder. Escrow Agent hereby accepts such appointment and, upon receipt by wire transfer of the Escrow Funds in accordance with Section 3 below, agrees to hold, invest and disburse the Escrow Funds in accordance with this Agreement.
b. The Investor and the Company hereby appoint the Escrow Agent to serve as the holder of the shares of the Company's Common Stock which shall be purchased by the Investor. The Escrow Agent hereby accepts such appointment and, upon receipt via D.W.A.C or the certificates representing of the shares of the Company's Common Stock in accordance with Section 3 below, agrees to hold and disburse the shares of the Company's Common Stock in accordance with this Agreement.
c. The Company hereby acknowledges that the Escrow Agent is general counsel to the Investor, a partner in the general partner of the Investor and counsel to the Investor in connection with the transactions contemplated and referenced herein and will be acting as the escrow agent for shares of the Company's Common Stock as outlined herein. The Company agrees that in the event of any dispute arising in connection with this Escrow Agreement or otherwise in connection with any transaction or agreement contemplated and referenced herein, the Escrow Agent shall be permitted to continue to represent the Investor and the Company will not seek to disqualify such counsel.
3. Creation of Escrow Account/Common Stock Account.
a. On or prior to the date of this Agreement the Escrow Agent shall establish an escrow account for the deposit of the Escrow Funds entitled as follows: StrikeForce Technologies, Inc./Cornell Capital Partners, LP. The Investor will wire funds to the account of the Escrow Agent as follows:
Bank: Wachovia Bank, N.A.
Routing #: 031201467
Account #: 2000014931134
Name on Account: David Gonzalez, Esq. Attorney Trust Account
Name on Sub-Account: StrikeForce Technologies, Inc./
Cornell Capital Partners, LP Escrow account
|
b. On or prior to the date of this Agreement the Escrow Agent shall establish an account for the D.W.A.C. of the shares of Common Stock. The Company will D.W.A.C. shares of the Company's Common Stock to the account of the Escrow Agent as follows:
Brokerage Firm: Sloan Securities Corp. Clearing House: Fiserv Account #: 56887298 DTC #: 0632 Name on Account: David Gonzalez Escrow Account |
4. Deposits into the Escrow Account. The Investor agrees that it shall promptly deliver all monies for the payment of the Common Stock to the Escrow Agent for deposit in the Escrow Account.
5. Disbursements from the Escrow Account.
a. At such time as Escrow Agent has collected and deposited instruments of payment in the total amount of the Advance and has received such Common Stock via D.W.A.C from the Company which are to be issued to the Investor pursuant to the Standby Equity Distribution Agreement, the Escrow Agent shall notify the Company and the Investor. The Escrow Agent will continue to hold such funds until the Investor and Company execute and deliver a Joint Written Direction directing the Escrow Agent to disburse the Escrow Funds pursuant to Joint Written Direction at which time the Escrow Agent shall wire the Escrow Funds to the Company. In disbursing such funds, Escrow Agent is authorized to rely upon such Joint Written Direction from Company and may accept any signatory from the Company listed on the signature page to this Agreement and any signature from the Investor that Escrow Agent already has on file. Simultaneous with delivery of the executed Joint Written Direction to the Escrow Agent the Investor and Company shall execute and deliver a Common Stock Joint Written Direction to the Escrow Agent directing the Escrow Agent to release via D.W.A.C to the Investor the shares of the Company's Common Stock. In releasing such shares of Common Stock the Escrow Agent is authorized to rely upon such Common Stock Joint Written Direction from Company and may accept any signatory from the Company listed on the signature page to this Agreement and any signature from the Escrow Agent has on file.
In the event the Escrow Agent does not receive the amount of the Advance from the Investor or the shares of Common Stock to be purchased by the Investor from the Company, the Escrow Agent shall notify the Company and the Investor.
In the event that the Escrow Agent has not received the Common Stock to be purchased by the Investor from the Company, in no event will the Escrow Funds be released to the Company until such shares are received by the Escrow Agreement. For purposes of this Agreement, the term "Common Stock certificates" shall mean Common Stock certificates to be purchased pursuant to the respective Advance Notice pursuant to the Standby Equity Distribution Agreement.
6. Deposit of Funds. The Escrow Agent is hereby authorized to deposit the wire transfer proceeds in the Escrow Account.
7. Suspension of Performance: Disbursement Into Court.
a. Escrow Agent. If at any time, there shall exist any dispute between the Company and the Investor with respect to holding or disposition of any portion of the Escrow Funds or the Common Stock or any other obligations of Escrow Agent hereunder, or if at any time Escrow Agent is unable to determine, to Escrow Agent's sole satisfaction, the proper disposition of any portion of the Escrow Funds or Escrow Agent's proper actions with respect to its obligations hereunder, or if the parties have not within thirty (30) days of the furnishing by Escrow Agent of a notice of resignation pursuant to Section 9 hereof, appointed a successor Escrow Agent to act hereunder, then Escrow Agent may, in its sole discretion, take either or both of the following actions:
i. Suspend the performance of any of its obligations (including without limitation any disbursement obligations) under this Escrow Agreement until such dispute or uncertainty shall be resolved to the sole satisfaction of Escrow Agent or until a successor Escrow Agent shall be appointed (as the case may be); provided however, Escrow Agent shall continue to invest the Escrow Funds in accordance with Section 8 hereof; and/or
ii. Petition (by means of an interpleader action or any other appropriate method) any court of competent jurisdiction in any venue convenient to Escrow Agent, for instructions with respect to such dispute or uncertainty, and to the extent required by law, pay into such court, for holding and disposition in accordance with the instructions of such court, all funds held by it in the Escrow Funds, after deduction and payment to Escrow Agent of all fees and expenses (including court costs and attorneys' fees) payable to, incurred by, or expected to be incurred by Escrow Agent in connection with performance of its duties and the exercise of its rights hereunder.
iii. Escrow Agent shall have no liability to the Company, the Investor, or any person with respect to any such suspension of performance or disbursement into court, specifically including any liability or claimed liability that may arise, or be alleged to have arisen, out of or as a result of any delay in the disbursement of funds held in the Escrow Funds or any delay in with respect to any other action required or requested of Escrow Agent.
8. Investment of Escrow Funds. The Escrow Agent shall deposit the Escrow Funds in a non-interest bearing money market account.
If Escrow Agent has not received a Joint Written Direction at any time that an investment decision must be made, Escrow Agent may retain the Escrow Fund, or such portion thereof, as to which no Joint Written Direction has been received, in a non-interest bearing money market account.
9. Resignation and Removal of Escrow Agent. Escrow Agent may resign from the performance of its duties hereunder at any time by giving thirty (30) days' prior written notice to the parties or may be removed, with or without cause, by the parties, acting jointly, by furnishing a Joint Written Direction to Escrow Agent, at any time by the giving of ten (10) days' prior written notice to Escrow Agent as provided herein below. Upon any such notice of resignation or removal, the representatives of the Investor and the Company identified in Sections 13a.(iv) and 13b.(iv), below, jointly shall appoint a successor Escrow Agent hereunder, which shall be a commercial bank, trust company or other financial institution with a combined capital and surplus in excess of $10,000,000.00. Upon the acceptance in writing of any appointment of Escrow
Agent hereunder by a successor Escrow Agent, such successor Escrow Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Escrow Agent, and the retiring Escrow Agent shall be discharged from its duties and obligations under this Escrow Agreement, but shall not be discharged from any liability for actions taken as Escrow Agent hereunder prior to such succession. After any retiring Escrow Agent's resignation or removal, the provisions of this Escrow Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Escrow Agent under this Escrow Agreement. The retiring Escrow Agent shall transmit all records pertaining to the Escrow Funds and shall pay all funds held by it in the Escrow Funds to the successor Escrow Agent, after making copies of such records as the retiring Escrow Agent deems advisable and after deduction and payment to the retiring Escrow Agent of all fees and expenses (including court costs and attorneys' fees) payable to, incurred by, or expected to be incurred by the retiring Escrow Agent in connection with the performance of its duties and the exercise of its rights hereunder.
10. Liability of Escrow Agent.
a. Escrow Agent shall have no liability or obligation with respect to the Escrow Funds except for Escrow Agent's willful misconduct or gross negligence. Escrow Agent's sole responsibility shall be for the safekeeping, investment, and disbursement of the Escrow Funds in accordance with the terms of this Agreement. Escrow Agent shall have no implied duties or obligations and shall not be charged with knowledge or notice or any fact or circumstance not specifically set forth herein. Escrow Agent may rely upon any instrument, not only as to its due execution, validity and effectiveness, but also as to the truth and accuracy of any information contained therein, which Escrow Agent shall in good faith believe to be genuine, to have been signed or presented by the person or parties purporting to sign the same and conform to the provisions of this Agreement. In no event shall Escrow Agent be liable for incidental, indirect, special, and consequential or punitive damages. Escrow Agent shall not be obligated to take any legal action or commence any proceeding in connection with the Escrow Funds, any account in which Escrow Funds are deposited, this Agreement or the Standby Equity Distribution Agreement, or to appear in, prosecute or defend any such legal action or proceeding. Escrow Agent may consult legal counsel selected by it in the event of any dispute or question as to construction of any of the provisions hereof or of any other agreement or its duties hereunder, or relating to any dispute involving any party hereto, and shall incur no liability and shall be fully indemnified from any liability whatsoever in acting in accordance with the opinion or instructions of such counsel. The Company and the Investor jointly and severally shall promptly pay, upon demand, the reasonable fees and expenses of any such counsel and Escrow Agent is hereby authorized to pay such fees and expenses from funds held in escrow.
b. The Escrow Agent is hereby authorized, in its sole discretion, to comply with orders issued or process entered by any court with respect to the Escrow Funds, without determination by the Escrow Agent of such court's jurisdiction in the matter. If any portion of the Escrow Funds is at any time attached, garnished or levied upon under any court order, or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in any case any order judgment or decree shall be made or entered by any court affecting such property or any part thereof, then and in
any such event, the Escrow Agent is authorized, in its sole discretion, to rely upon and comply with any such order, writ judgment or decree which it is advised by legal counsel selected by it, binding upon it, without the need for appeal or other action; and if the Escrow Agent complies with any such order, writ, judgment or decree, it shall not be liable to any of the parties hereto or to any other person or entity by reason of such compliance even though such order, writ judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated.
11. Indemnification of Escrow Agent. From and at all times after the date of this Agreement, the parties jointly and severally, shall, to the fullest extent permitted by law and to the extent provided herein, indemnify and hold harmless Escrow Agent and each director, officer, employee, attorney, agent and affiliate of Escrow Agent (collectively, the "Indemnified Parties") against any and all actions, claims (whether or not valid), losses, damages, liabilities, costs and expenses of any kind or nature whatsoever (including without limitation reasonable attorney's fees, costs and expenses) incurred by or asserted against any of the Indemnified Parties from and after the date hereof, whether direct, indirect or consequential, as a result of or arising from or in any way relating to any claim, demand, suit, action, or proceeding (including any inquiry or investigation) by any person, including without limitation the parties to this Agreement, whether threatened or initiated, asserting a claim for any legal or equitable remedy against any person under any statute or regulation, including, but not limited to, any federal or state securities laws, or under any common law or equitable cause or otherwise, arising from or in connection with the negotiation, preparation, execution, performance or failure of performance of this Agreement or any transaction contemplated herein, whether or not any such Indemnified Party is a party to any such action or proceeding, suit or the target of any such inquiry or investigation; provided, however, that no Indemnified Party shall have the right to be indemnified hereunder for liability finally determined by a court of competent jurisdiction, subject to no further appeal, to have resulted solely from the gross negligence or willful misconduct of such Indemnified Party. If any such action or claim shall be brought or asserted against any Indemnified Party, such Indemnified Party shall promptly notify the Company and the Investor hereunder in writing, and the Investor(s) and the Company shall assume the defense thereof, including the employment of counsel and the payment of all expenses. Such Indemnified Party shall, in its sole discretion, have the right to employ separate counsel (who may be selected by such Indemnified Party in its sole discretion) in any such action and to participate and to participate in the defense thereof, and the fees and expenses of such counsel shall be paid by such Indemnified Party, except that the Investor and/or the Company shall be required to pay such fees and expense if (a) the Investor or the Company agree to pay such fees and expenses, or (b) the Investor and/or the Company shall fail to assume the defense of such action or proceeding or shall fail, in the sole discretion of such Indemnified Party, to employ counsel reasonably satisfactory to the Indemnified Party in any such action or proceeding, (c) the Investor and the Company are the plaintiff in any such action or proceeding or (d) the named or potential parties to any such action or proceeding (including any potentially impleaded parties) include both Indemnified Party the Company and/or the Investor and Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Company or the Investor. The Investor and the Company shall be jointly and severally liable to pay fees and expenses of counsel pursuant to the preceding sentence, except that any obligation to pay under clause (a) shall apply only to the party so agreeing. All such fees and expenses payable by the Company and/or the Investor pursuant to the foregoing sentence shall be paid from time to time as incurred, both in advance of and after the final disposition of such action or claim. The obligations of the parties under this section shall survive any termination of this Agreement, and resignation or removal of the Escrow Agent shall be independent of any obligation of Escrow Agent.
12. Expenses of Escrow Agent. Except as set forth in Section 11 the Company
shall reimburse Escrow Agent for all of its reasonable out-of-pocket expenses,
including attorneys' fees, travel expenses, telephone and facsimile transmission
costs, postage (including express mail and overnight delivery charges), copying
charges and the like as outlined in Section 12.4 of the Standby Equity
Distribution Agreement dated the date hereof. All of the compensation and
reimbursement obligations set forth in this Section shall be payable by the
Company, upon demand by Escrow Agent. The obligations of the Company under this
Section shall survive any termination of this Agreement and the resignation or
removal of Escrow Agent.
13. Warranties.
a. The Investor makes the following representations and warranties to the Escrow Agent and Investor's Counsel:
i. The Investor has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder.
ii. This Agreement has been duly approved by all necessary action of the Investor, including any necessary approval of the limited partner of the Investor, has been executed by duly authorized officers of the Investor's general partner, enforceable in accordance with its terms.
iii. The execution, delivery, and performance of the Investor of this Agreement will not violate, conflict with, or cause a default under the agreement of limited partnership of the Investor, any applicable law or regulation, any court order or administrative ruling or degree to which the Investor is a party or any of its property is subject, or any agreement, contract, indenture, or other binding arrangement.
iv. Mark A. Angelo has been duly appointed to act as the representative of Investor hereunder and has full power and authority to execute, deliver, and perform this Agreement, to execute and deliver any Joint Written Direction, to amend, modify, or waive any provision of this Agreement, and to take any and all other actions as the Investor's representative under this Agreement, all without further consent or direction form, or notice to, the Investor or any other party.
v. No party other than the parties hereto have, or shall have, any lien, claim or security interest in the Escrow Funds or any part thereof. No financing statement under the Uniform Commercial Code is on file in any jurisdiction claiming a security interest in or describing (whether specifically or generally) the Escrow Funds or any part thereof.
vi. All of the representations and warranties of the Investor contained herein are true and complete as of the date hereof and will be true and complete at the time of any disbursement from the Escrow Funds.
b. The Company makes the following representations and warranties to Escrow Agent and, the Investor:
i. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of New Jersey, and has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder.
ii. This Agreement has been duly approved by all necessary corporate action of the Company, including any necessary shareholder approval, has been executed by duly authorized officers of the Company, enforceable in accordance with its terms.
iii. The execution, delivery, and performance by the Company of this Escrow Agreement is in accordance with the Standby Equity Distribution Agreement and will not violate, conflict with, or cause a default under the articles of incorporation or bylaws of the Company, any applicable law or regulation, any court order or administrative ruling or decree to which the Company is a party or any of its property is subject, or any agreement, contract, indenture, or other binding arrangement.
iv. Mark L. Kay has been duly appointed to act as the representative of the Company hereunder and has full power and authority to execute, deliver, and perform this Agreement, to execute and deliver any Joint Written Direction, to amend, modify or waive any provision of this Agreement and to take all other actions as the Company's Representative under this Agreement, all without further consent or direction from, or notice to, the Company or any other party.
v. No party other than the parties hereto shall have, any lien, claim or security interest in the Escrow Funds or any part thereof. No financing statement under the Uniform Commercial Code is on file in any jurisdiction claiming a security interest in or describing (whether specifically or generally) the Escrow Funds or any part thereof.
vi. All of the representations and warranties of the Company contained herein are true and complete as of the date hereof and will be true and complete at the time of any disbursement from the Escrow Funds.
14. Consent to Jurisdiction and Venue. In the event that any party hereto commences a lawsuit or other proceeding relating to or arising from this Agreement, the parties hereto agree that the United States District Court for the District of New Jersey shall have the sole and exclusive jurisdiction over any such proceeding. If all such courts lack federal subject matter jurisdiction, the parties agree that the Superior Court Division of New Jersey, Chancery Division of Hudson County shall have sole and exclusive jurisdiction. Any of these courts shall be proper venue for any such lawsuit or judicial proceeding and the parties hereto waive any objection to such venue. The parties hereto consent to and agree to submit to the jurisdiction of any of the courts specified herein and agree to accept the service of process to vest personal jurisdiction over them in any of these courts.
15. Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been validly served, given or delivered five
(5) days after deposit in the United States mail, by certified mail with return
receipt requested and postage prepaid, when delivered personally, one (1) day
delivery to any overnight courier, or when transmitted by facsimile transmission
and addressed to the party to be notified as follows:
If to Investor, to: Cornell Capital Partners, LP
101 Hudson Street - Suite 3700
Jersey City, New Jersey 07302
Attention: Mark Angelo
Facsimile: (201) 985-8266
If to Escrow Agent, to: David Gonzalez, Esq.
101 Hudson Street - Suite 3700
Jersey City, New Jersey 07302
Facsimile: (201) 985-8266
If to the Company, to: StrikeForce Technologies, Inc.
1090 King George's Post Road, Suite 108
Edison, NJ 08837
Attention: Mark L. Kay, CEO
Telephone: (732) 661-9641
Facsimile: (732) 661-9647
With a copy to: Sichenzia, Ross, Friedman and Ference, LLP
1065 Avenue of the Americas
New York, New York 10018
|
Attn: Jay R. McDaniel Telephone: (212) 930-9700 Facsimile: (212) 930-9725
Or to such other address as each party may designate for itself by like notice.
16. Amendments or Waiver. This Agreement may be changed, waived, discharged or terminated only by a writing signed by the parties of the Escrow Agent. No delay or omission by any party in exercising any right with respect hereto shall operate as waiver. A waiver on any one occasion shall not be construed as a bar to, or waiver of, any right or remedy on any future occasion.
17. Severability. To the extent any provision of this Agreement is prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition, or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
18. Governing Law. This Agreement shall be construed and interpreted in accordance with the internal laws of the State of New Jersey without giving effect to the conflict of laws principles thereof.
19. Entire Agreement. This Agreement constitutes the entire Agreement between the parties relating to the holding, investment, and disbursement of the Escrow Funds and sets forth in their entirety the obligations and duties of the Escrow Agent with respect to the Escrow Funds.
20. Binding Effect. All of the terms of this Agreement, as amended from time to time, shall be binding upon, inure to the benefit of and be enforceable by the respective heirs, successors and assigns of the Investor, the Company, or the Escrow Agent.
21. Execution of Counterparts. This Agreement and any Joint Written Direction may be executed in counter parts, which when so executed shall constitute one and same agreement or direction.
22. Termination. Upon the first to occur of the termination of the Standby Equity Distribution Agreement dated the date hereof or the disbursement of all amounts in the Escrow Funds and Common Stock into court pursuant to Section 7 hereof, this Agreement shall terminate and Escrow Agent shall have no further obligation or liability whatsoever with respect to this Agreement or the Escrow Funds or Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF the parties have hereunto set their hands and seals the day and year above set forth.
STRIKEFORCE TECHNOLOGIES, INC.
By: /s/ Mark L. Kay
---------------
Name: Mark L. Kay
Title: CEO
|
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: _________________
Name: Mark A. Angelo
Title:Portfolio Manager
By: /s/ David Gonzalez
-------------------
Name: David Gonzalez, Esq.
|
Exhibit 10.6
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement"), is entered into and made effective as of December 20, 2004, by and between STRIKEFORCE TECHNOLOGIES, INC., a New Jersey corporation (the "Company"), and the BUYER(S) listed on Schedule I attached to the Securities Purchase Agreement dated the date hereof (the "Secured Party").
WHEREAS, the Company shall issue and sell to the Secured Party, as provided in the Securities Purchase Agreement dated the date hereof, and the Secured Party shall purchase a minimum of One Million Dollars ($1,000,000) of eight percent (8%) secured convertible debentures (the "Convertible Debentures"), which shall be convertible into shares of the Company's common stock, par value $0.0001 (the "Common Stock") (as converted, the "Conversion Shares"), in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached to the Securities Purchase Agreement;
WHEREAS, to induce the Secured Party to enter into the transaction contemplated by the Securities Purchase Agreement, the Secured Convertible Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer Agent Instructions, and the Escrow Agreement (collectively referred to as the "Transaction Documents"), the Company hereby grants to the Secured Party a security interest in and to the pledged property identified on Exhibit "A" hereto (collectively referred to as the "Pledged Property") until the satisfaction of the Obligations, as defined herein below; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATIONS
Section 1.1. Recitals.
The above recitals are true and correct and are incorporated herein, in their entirety, by this reference.
Section 1.2. Interpretations.
Nothing herein expressed or implied is intended or shall be construed to confer upon any person other than the Secured Party any right, remedy or claim under or by reason hereof.
Section 1.3. Obligations Secured.
The obligations secured hereby are any and all obligations of the Company now existing or hereinafter incurred to the Secured Party, whether oral or written and whether arising before, on or after the date hereof including, without limitation, those obligations of the Company to the Secured Party under the Securities Purchase Agreement, the Secured Convertible Debenture, the Investor Registration Rights Agreement and Irrevocable Transfer Agent Instructions, and any other amounts now or hereafter owed to the Secured Party by the Company thereunder or hereunder (collectively, the "Obligations").
ARTICLE 2.
Pledged Collateral, administration of collateral
AND TERMINATION OF SECURITY INTEREST
Section 2.1. Pledged Property.
(a) Company hereby pledges to the Secured Party, and creates in the Secured Party for its benefit, a security interest for such time until the Obligations are paid in full, in and to all of the property of the Company as set forth in Exhibit "A" attached hereto (collectively, the "Pledged Property"); provided, however, that Secured Party agrees that it will subordinate its security interest to the Pledged Property in the event that the Company requests such subordination to establish a line of credit with a bank or other financial institution.
The Pledged Property, as set forth in Exhibit "A" attached hereto, and the products thereof and the proceeds of all such items are hereinafter collectively referred to as the "Pledged Collateral."
(b) Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute, acknowledge, file, record and deliver to the Secured Party any documents reasonably requested by the Secured Party to perfect its security interest in the Pledged Property. Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute, acknowledge and deliver to the Secured Party such documents and instruments, including, without limitation, financing statements, certificates, affidavits and forms as may, in the Secured Party's reasonable judgment, be necessary to effectuate, complete or perfect, or to continue and preserve, the security interest of the Secured Party in the Pledged Property, and the Secured Party shall hold such documents and instruments as secured party, subject to the terms and conditions contained herein.
Section 2.2. Rights; Interests; Etc.
(a) So long as no Event of Default (as hereinafter defined) shall have occurred and be continuing:
(i) the Company shall be entitled to exercise any and all rights pertaining to the Pledged Property or any part thereof for any purpose not inconsistent with the terms hereof; and
(ii) the Company shall be entitled to receive and retain any and all payments paid or made in respect of the Pledged Property.
(b) Upon the occurrence and during the continuance of an Event of Default:
(i) All rights of the Company to exercise the rights which it would otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and to receive payments which it would otherwise be authorized to receive and retain pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights shall thereupon become vested in the Secured Party who shall thereupon have the sole right to exercise such rights and to receive and hold as Pledged Collateral such payments; provided, however, that if the Secured Party shall become entitled and shall elect to exercise its right to realize on the Pledged Collateral pursuant to Article 5 hereof, then all cash sums received by the Secured Party, or held by Company for the benefit of the Secured Party and paid over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any outstanding Obligations; and
(ii) All interest, dividends, income and other payments and
distributions which are received by the Company contrary to the provisions of
Section 2.2(b)(i) hereof shall be received in trust for the benefit of the
Secured Party, shall be segregated from other property of the Company and shall
be forthwith paid over to the Secured Party; or
(iii) The Secured Party in its sole discretion shall be authorized to sell any or all of the Pledged Property at public or private sale in order to recoup all of the outstanding principal plus accrued interest owed pursuant to the Convertible Debenture as described herein
(c) Each of the following events shall constitute a default under this Agreement (each an "Event of Default"):
(i) any default, following notice and a 20-day opportunity to cure, whether in whole or in part, shall occur in the payment to the Secured Party of principal, interest or other item comprising the Obligations as and when due or with respect to any other debt or obligation of the Company to a party other than the Secured Party;
(ii) any default, following notice and a 20-day opportunity to cure, whether in whole or in part, shall occur in the due observance or performance of any obligations or other covenants, terms or provisions to be performed under this Agreement or the Transaction Documents;
(iii) the Company shall: (1) make a general assignment for the benefit of its creditors; (2) apply for or consent to the appointment of a receiver, trustee, assignee, custodian, sequestrator, liquidator or similar official for itself or any of its assets and properties; (3) commence a voluntary case for relief as a debtor under the United States Bankruptcy Code; (4) file with or otherwise submit to any governmental authority any petition, answer or other document seeking: (A) reorganization, (B) an arrangement with creditors or (C) to take advantage of any other present or future applicable law respecting bankruptcy, reorganization, insolvency, readjustment of debts, relief of debtors, dissolution or liquidation; (5) file or otherwise submit any answer or other document admitting or failing to contest the material allegations of a petition or other document filed or otherwise submitted against it in any proceeding under any such applicable law, or (6) be adjudicated a bankrupt or insolvent by a court of competent jurisdiction; or
(iv) any case, proceeding or other action shall be commenced against the Company for the purpose of effecting, or an order, judgment or decree shall be entered by any court of competent jurisdiction approving (in whole or in part) anything specified in Section 2.2(c)(iii) hereof, or any receiver, trustee, assignee, custodian, sequestrator, liquidator or other official shall be appointed with respect to the Company, or shall be appointed to take or shall otherwise acquire possession or control of all or a substantial part of the assets and properties of the Company, and any of the foregoing shall continue unstayed and in effect for any period of thirty (30) days.
(v) Any material obligation of Company (other than its Obligations under this Agreement) for the payment of borrowed money is not paid when due or within any applicable grace period, or such obligation becomes or is declared to be due and payable before the expressed maturity of the obligation, or there shall have occurred an event that, with the giving of notice or lapse of time, or both, would cause any such obligation to become, or allow any such obligation to be declared to be, due and payable before the expressed maturity date of the obligation.
(vi) A breach by the Company of any material contract that would have a material adverse affect upon the business of the Company.
ARTICLE 3.
ATTORNEY-IN-FACT; PERFORMANCE
Section 3.1. Secured Party Appointed Attorney-In-Fact.
Upon the occurrence of an Event of Default, and upon the expiration of any applicable period of time to cure, the Company hereby appoints the Secured Party as its attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company or otherwise, from time to time in the Secured Party's discretion to take any action and to execute any instrument which the Secured Party may reasonably deem necessary to accomplish the purposes of this Agreement, including, without limitation, to receive and collect all instruments made payable to the Company representing any payments in respect of the Pledged Collateral or any part thereof and to give full discharge for the same. The Secured Party may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Pledged Property as and when the Secured Party may determine. To facilitate collection, the Secured Party may notify account debtors and obligors on any Pledged Property or Pledged Collateral to make payments directly to the Secured Party.
Section 3.2. Secured Party May Perform.
If the Company fails to perform any agreement contained herein, the Secured Party, at its option, may itself perform, or cause performance of, such agreement, and the expenses of the Secured Party incurred in connection therewith shall be included in the Obligations secured hereby and payable by the Company under Section 8.3.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Section 4.1. Authorization; Enforceability.
Each of the parties hereto represents and warrants that it has taken all action necessary to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby; and upon execution and delivery, this Agreement shall constitute a valid and binding obligation of the respective party, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights or by the principles governing the availability of equitable remedies.
Section 4.2. Ownership of Pledged Property.
The Company warrants and represents that it is the legal and beneficial owner of the Pledged Property free and clear of any lien, security interest, option or other charge or encumbrance except for the security interest created by this Agreement.
ARTICLE 5.
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
Section 5.1. Default and Remedies.
(a) If an Event of Default described in Section 2.2(c)(i) and (ii) occurs, then in each such case the Secured Party may declare the Obligations to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration, the Obligations shall become immediately due and payable. If an Event of Default described in Sections 2.2(c)(iii) or (iv) occurs and is continuing for the period set forth therein, then the Obligations shall automatically become immediately due and payable without declaration or other act on the part of the Secured Party.
(b) Upon the occurrence of an Event of Default, the Secured Party shall,:
(i) be entitled to receive all distributions with respect to the Pledged
Collateral, (ii) to cause the Pledged Property to be transferred into the name
of the Secured Party or its nominee, (iii) to dispose of the Pledged Property,
and (iv) to realize upon any and all rights in the Pledged Property then held by
the Secured Party.
Section 5.2. Method of Realizing Upon the Pledged Property : Other Remedies.
Upon the occurrence of an Event of Default, in addition to any rights and remedies available at law or in equity, the following provisions shall govern the Secured Party's right to realize upon the Pledged Property:
(a) Any item of the Pledged Property may be sold for cash or other value in any number of lots at brokers board, public auction or private sale and may be sold without demand, advertisement or notice (except that the Secured Party shall give the Company seven (7) business days' prior written notice of the time and place or of the time after which a private sale may be made (the "Sale Notice")), which notice period is hereby agreed to be commercially reasonable. At any sale or sales of the Pledged Property, the Company may bid for and purchase the whole or any part of the Pledged Property and, upon compliance with the terms of such sale, may hold, exploit and dispose of the same without further accountability to the Secured Party. The Company will execute and deliver, or cause to be executed and delivered, such instruments, documents, assignments, waivers, certificates, and affidavits and supply or cause to be supplied such further information and take such further action as the Secured Party reasonably shall require in connection with any such sale.
(b) Any cash being held by the Secured Party as Pledged Collateral and all cash proceeds received by the Secured Party in respect of, sale of, collection from, or other realization upon all or any part of the Pledged Collateral shall be applied as follows:
(i) to the payment of all amounts due the Secured Party for the expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3 hereof;
(ii) to the payment of the Obligations then due and unpaid.
(iii) the balance, if any, to the person or persons entitled thereto, including, without limitation, the Company.
(c) In addition to all of the rights and remedies which the Secured Party may have pursuant to this Agreement, the Secured Party shall have all of the rights and remedies provided by law, including, without limitation, those under the Uniform Commercial Code.
(i) If the Company fails to pay such amounts due upon the occurrence of an Event of Default which is continuing, then the Secured Party may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of Company, wherever situated.
(ii) The Company agrees that it shall be liable for any reasonable fees, expenses and costs incurred by the Secured Party in connection with enforcement, collection and preservation of the Transaction Documents, including, without limitation, reasonable legal fees and expenses, and such amounts shall be deemed included as Obligations secured hereby and payable as set forth in Section 8.3 hereof.
Section 5.3. Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relating to the Company or the property of the Company or of such other obligor or its creditors, the Secured Party (irrespective of whether the Obligations shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Secured Party shall have made any demand on the Company for the payment of the Obligations), subject to the rights of Previous Security Holders, shall be entitled and empowered, by intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of the Obligations and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Secured Party (including any claim for the reasonable legal fees and expenses and other expenses paid or incurred by the Secured Party permitted hereunder and of the Secured Party allowed in such judicial proceeding), and
(ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by the Secured Party to make such payments to the Secured Party and, in the event that the Secured Party shall consent to the making of such payments directed to the Secured Party, to pay to the Secured Party any amounts for expenses due it hereunder.
Section 5.4. Duties Regarding Pledged Collateral.
The Secured Party shall have no duty as to the collection or protection of the Pledged Property or any income thereon or as to the preservation of any rights pertaining thereto, beyond the safe custody and reasonable care of any of the Pledged Property actually in the Secured Party's possession.
ARTICLE 6.
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, from the date hereof and until the Obligations have been fully paid and satisfied, unless the Secured Party shall consent otherwise in writing (as provided in Section 8.4 hereof):
Section 6.1. Existence, Properties, Etc.
(a) The Company shall do, or cause to be done, all things, or proceed with due diligence with any actions or courses of action, that may be reasonably necessary (i) to maintain Company's due organization, valid existence and good standing under the laws of its state of incorporation, and (ii) to preserve and keep in full force and effect all qualifications, licenses and registrations in those jurisdictions in which the failure to do so could have a Material Adverse Effect (as defined below); and (b) the Company shall not do, or cause to be done, any act impairing the Company's corporate power or authority (i) to carry on the Company's business as now conducted, and (ii) to execute or deliver this Agreement or any other document delivered in connection herewith, including, without limitation, any UCC-1 Financing Statements required by the Secured Party (which other loan instruments collectively shall be referred to as the "Loan Instruments") to which it is or will be a party, or perform any of its obligations hereunder or thereunder. For purpose of this Agreement, the term "Material Adverse Effect" shall mean any material and adverse affect as determined by Secured Party in its reasonable discretion, whether individually or in the aggregate, upon (a) the Company's assets, business, operations, properties or condition, financial or otherwise; (b) the Company's to make payment as and when due of all or any part of the Obligations; or (c) the Pledged Property.
Section 6.2. Financial Statements and Reports.
The Company shall furnish to the Secured Party such financial data as the Secured Party may reasonably request. Without limiting the foregoing, the Company shall furnish to the Secured Party (or cause to be furnished to the Secured Party) the following:
(a) as soon as practicable and in any event within ninety (90) days after the end of each fiscal year of the Company, the balance sheet of the Company as of the close of such fiscal year, the statement of earnings and retained earnings of the Company as of the close of such fiscal year, and statement of cash flows for the Company for such fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles consistently applied, certified by the chief executive and chief financial officers of the Company as being true and correct and accompanied by a certificate of the chief executive and chief financial officers of the Company, stating that the Company has kept, observed, performed and fulfilled each covenant, term and condition of this Agreement and the other Loan Instruments during such fiscal year and that no Event of Default hereunder has occurred and is continuing, or if an Event of Default has occurred and is continuing, specifying the nature of same, the period of existence of same and the action the Company proposes to take in connection therewith;
(b) within thirty (30) days of the end of each calendar month, a balance sheet of the Company as of the close of such month, and statement of earnings and retained earnings of the Company as of the close of such month, all in reasonable detail, and prepared substantially in accordance with generally accepted accounting principles consistently applied, certified by the chief executive and chief financial officers of the Company as being true and correct; and
(c) promptly upon receipt thereof, copies of all accountants' reports and accompanying financial reports submitted to the Company by independent accountants in connection with each annual examination of the Company.
Section 6.3. Accounts and Reports.
The Company shall maintain a standard system of accounting in accordance with generally accepted accounting principles consistently applied and provide, at its sole expense, to the Secured Party the following:
(a) as soon as available, a copy of any notice or other communication alleging any nonpayment or other material breach or default, or any foreclosure or other action respecting any material portion of its assets and properties, received respecting any of the indebtedness of the Company in excess of $50,000 (other than the Obligations), or any demand or other request for payment under any guaranty, assumption, purchase agreement or similar agreement or arrangement respecting the indebtedness or obligations of others in excess of $50,000, including any received from any person acting on behalf of the Secured Party or beneficiary thereof; and
(b) within fifteen (15) days after the making of each submission or filing, a copy of any report, financial statement, notice or other document, whether periodic or otherwise, submitted to the shareholders of the Company, or submitted to or filed by the Company with any governmental authority involving or affecting (i) the Company that could have a Material Adverse Effect; (ii) the Obligations; (iii) any part of the Pledged Collateral; or (iv) any of the transactions contemplated in this Agreement or the Loan Instruments.
Section 6.4. Maintenance of Books and Records; Inspection.
The Company shall maintain its books, accounts and records in accordance with generally accepted accounting principles consistently applied, and permit the Secured Party, its officers and employees and any professionals designated by the Secured Party in writing, at any time to visit and inspect any of its properties (including but not limited to the collateral security described in the Transaction Documents and/or the Loan Instruments), corporate books and financial records, and to discuss its accounts, affairs and finances with any employee, officer or director thereof.
Section 6.5. Maintenance and Insurance.
(a) The Company shall maintain or cause to be maintained, at its own expense, all of its assets and properties in good working order and condition, subject to ordinary wear and tear, making all necessary repairs thereto and renewals and replacements thereof.
(b) The Company shall maintain or cause to be maintained, at its own expense, insurance in form, substance and amounts (including deductibles), which the Company deems reasonably necessary to the Company's business, (i) adequate to insure all assets and properties of the Company, which assets and properties are of a character usually insured by persons engaged in the same or similar business against loss or damage resulting from fire or other risks included in an extended coverage policy; (ii) against public liability and other tort claims that may be incurred by the Company; (iii) as may be required by the Transaction Documents and/or the Loan Instruments or applicable law and (iv) as may be reasonably requested by Secured Party, all with adequate, financially sound and reputable insurers.
Section 6.6. Contracts and Other Collateral.
The Company shall perform all of its obligations under or with respect to each instrument, receivable, contract and other intangible included in the Pledged Property to which the Company is now or hereafter will be party on a timely basis and in the manner therein required, including, without limitation, this Agreement.
Section 6.7. Defense of Collateral, Etc.
The Company shall defend and enforce its right, title and interest in and to any part of: (a) the Pledged Property; and (b) if not included within the Pledged Property, those assets and properties whose loss could have a Material Adverse Effect, the Company shall defend the Secured Party's right, title and interest in and to each and every part of the Pledged Property, each against all manner of claims and demands on a timely basis to the full extent permitted by applicable law.
Section 6.8. Payment of Debts, Taxes, Etc.
The Company shall pay, or cause to be paid, all of its indebtedness and other liabilities and perform, or cause to be performed, all of its obligations in accordance with the respective terms thereof, and pay and discharge, or cause to be paid or discharged, all taxes, assessments and other governmental charges and levies imposed upon it, upon any of its assets and properties on or before the last day on which the same may be paid without penalty, as well as pay all other lawful claims (whether for services, labor, materials, supplies or otherwise) as and when due
Section 6.9. Taxes and Assessments; Tax Indemnity.
The Company shall (a) file all tax returns and appropriate schedules thereto that are required to be filed under applicable law, prior to the date of delinquency, (b) pay and discharge all taxes, assessments and governmental charges or levies imposed upon the Company, upon its income and profits or upon any properties belonging to it, prior to the date on which penalties attach thereto, and (c) pay all taxes, assessments and governmental charges or levies that, if unpaid, might become a lien or charge upon any of its properties; provided, however, that the Company in good faith may contest any such tax, assessment, governmental charge or levy described in the foregoing clauses (b) and (c) so long as appropriate reserves are maintained with respect thereto.
Section 6.10. Compliance with Law and Other Agreements.
The Company shall maintain its business operations and property owned or used in connection therewith in compliance with (a) all applicable federal, state and local laws, regulations and ordinances governing such business operations and the use and ownership of such property, and (b) all agreements, licenses, franchises, indentures and mortgages to which the Company is a party or by which the Company or any of its properties is bound. Without limiting the foregoing, the Company shall pay all of its indebtedness promptly in accordance with the terms thereof.
Section 6.11. Notice of Default.
The Company shall give written notice to the Secured Party of the occurrence of any default or Event of Default under this Agreement, the Transaction Documents or any other Loan Instrument or any other agreement of Company for the payment of money, promptly upon the occurrence thereof.
Section 6.12. Notice of Litigation.
The Company shall give notice, in writing, to the Secured Party of (a) any actions, suits or proceedings wherein the amount at issue is in excess of $50,000, instituted by any persons against the Company, or affecting any of the assets of the Company, and (b) any dispute, not resolved within fifteen (15) days of the commencement thereof, between the Company on the one hand and any governmental or regulatory body on the other hand, which might reasonably be expected to have a Material Adverse Effect on the business operations or financial condition of the Company.
ARTICLE 7.
NEGATIVE COVENANTS
The Company covenants and agrees that, from the date hereof until the Obligations have been fully paid and satisfied, the Company shall not, unless the Secured Party shall consent otherwise in writing:
Section 7.1. Liens and Encumbrances.
The Company shall not directly or indirectly make, create, incur, assume or permit to exist any assignment, transfer, pledge, mortgage, security interest or other lien or encumbrance of any nature in, to or against any part of the Pledged Property or of the Company's capital stock, or offer or agree to do so, or own or acquire or agree to acquire any asset or property of any character subject to any of the foregoing encumbrances (including any conditional sale contract or other title retention agreement), or assign, pledge or in any way transfer or encumber its right to receive any income or other distribution or proceeds from any part of the Pledged Property or the Company's capital stock; or enter into any sale-leaseback financing respecting any part of the Pledged Property as lessee, or cause or assist the inception or continuation of any of the foregoing.
Section 7.1. Articles, By-Laws, Mergers, Consolidations, Acquisitions and Sales.
Except as set foth in the Disclosure Schedule to the Securities Purchase Agreement, without the prior express written consent of the Secured Party, which consent shall not be unreasonably withheld, the Company shall not: (a) Amend its Articles of Incorporation or By-Laws; (b) be a party to any merger, consolidation or corporate reorganization; (c) purchase or otherwise acquire all or substantially all of the assets or stock of, or any partnership or joint venture interest in, any other person, firm or entity; (d) sell, transfer, convey, grant a security interest in or lease all or any substantial part of its assets; nor (e) create any subsidiaries nor convey any of its assets to any subsidiary in excess of $200,000 in the aggregate.
Section 7.2. Management, Ownership.
Mark L. Kay and Mark Carreo shall remain employed by the Company in his current capacity. This provision is a material factor in the Secured Party's willingness to institute and maintain a lending relationship with the Company.
Section 7.3. Dividends, Etc.
Except with respect to the Series A Preferred Stock, the Company shall not declare or pay any dividend of any kind, in cash, on any class of its capital stock, nor purchase, redeem, retire or otherwise acquire for value any shares of such stock, nor make any distribution of any kind in respect thereof, nor make any return of capital to shareholders, nor make any payments in respect of any pension, profit sharing, retirement, stock option, stock bonus, incentive compensation or similar plan (except as required or permitted hereunder), without the prior written consent of the Secured Party, which consent shall not be unreasonably withheld.
Section 7.4. Conduct of Business.
The Company will continue to engage, in an efficient and economical manner, in a business of the same general type as conducted by it on the date of this Agreement.
Section 7.5. Places of Business.
The location of the Company's chief place of business is 1090 King Georges Post Road, Edison, New Jersey 08837. The Company shall not change the location of its chief place of business, chief executive office or any place of business disclosed to the Secured Party or move any of the Pledged Property from its current location without thirty (30) days prior written notice to the Secured Party in each instance.
ARTICLE 8.
MISCELLANEOUS
Section 8.1. Notices.
All notices or other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be considered as duly given on: (a) the date of delivery, if delivered in person, by nationally recognized overnight delivery service or (b) five (5) days after mailing if mailed from within the continental United States by certified mail, return receipt requested to the party entitled to receive the same:
If to the Secured Party: Cornell Capital Partners, LP
101 Hudson Street-Suite 3700
Jersey City, New Jersey 07302
Attention: Mark Angelo
Portfolio Manager
Telephone: (201) 986-8300
Facsimile: (201) 985-8266
With a copy to: Cornell Capital Partners, LP
101 Hudson Street-Suite 3700
Jersey City, New Jersey 07302
Attention: Troy J. Rillo, Esquire
Senior Vice President
Capital Markets
Telephone: (201) 986-8300
Facsimile: (201) 985-8266
|
If to the Company, to: StrikeForce Technologies, Inc.
1090 King George's Post Road, Suite 108
Edison, NJ 08837
Attention: Mark L. Kay, CEO
Telephone: (732) 661-9641
Facsimile: (732) 661-9647
With a copy to: Sichenzia, Ross, Friedman and Ference, LLP
1065 Avenue of the Americas
New York, New York 10018
|
Attn: Jay R. McDaniel Telephone: (212) 930-9700 Facsimile: (212) 930-9725
Any party may change its address by giving notice to the other party stating its new address. Commencing on the tenth (10th) day after the giving of such notice, such newly designated address shall be such party's address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement.
Section 8.2. Severability.
If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein.
Section 8.3. Expenses.
In the event of an Event of Default, the Company will pay to the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel, which the Secured Party may incur in connection with: (i) the custody or preservation of, or the sale, collection from, or other realization upon, any of the Pledged Property; (ii) the exercise or enforcement of any of the rights of the Secured Party hereunder or (iii) the failure by the Company to perform or observe any of the provisions hereof.
Section 8.4. Waivers, Amendments, Etc.
The Secured Party's delay or failure at any time or times hereafter to require strict performance by Company of any undertakings, agreements or covenants shall not waiver, affect, or diminish any right of the Secured Party under this Agreement to demand strict compliance and performance herewith. Any waiver by the Secured Party of any Event of Default shall not waive or affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and whether of the same or a different type. None of the undertakings, agreements and covenants of the Company contained in this Agreement, and no Event of Default, shall be deemed to have been waived by the Secured Party, nor may this Agreement be amended, changed or modified, unless such waiver, amendment, change or modification is evidenced by an instrument in writing specifying such waiver, amendment, change or modification and signed by the Secured Party.
Section 8.5. Continuing Security Interest.
This Agreement shall create a continuing security interest in the Pledged Property and shall: (i) remain in full force and effect until payment in full of the Obligations; and (ii) be binding upon the Company and its successors and heirs and (iii) inure to the benefit of the Secured Party and its successors and assigns. Upon the payment or satisfaction in full of the Obligations, the Company shall be entitled to the return, at its expense, of such of the Pledged Property as shall not have been sold in accordance with Section 5.2 hereof or otherwise applied pursuant to the terms hereof.
Section 8.6. Independent Representation.
Each party hereto acknowledges and agrees that it has received or has had the opportunity to receive independent legal counsel of its own choice and that it has been sufficiently apprised of its rights and responsibilities with regard to the substance of this Agreement.
Section 8.7. Applicable Law: Jurisdiction.
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 in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph.
Section 8.8. Waiver of Jury Trial.
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.
Section 8.9. Entire Agreement.
This Agreement constitutes the entire agreement among the parties and supersedes any prior agreement or understanding among them with respect to the subject matter hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Signature Page for Security Agreement
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
COMPANY:
STRIKEFORCE TECHNOLOGIES, INC.
By: /s/ Mark L. Kay
----------------
Name: Mark L. Kay
Title: CEO
|
SECURED PARTY:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Mark Angelo
-----------------
Name: Mark Angelo
Title: Portfolio Manager
|
EXHIBIT A
DEFINITION OF PLEDGED PROPERTY
For the purpose of securing prompt and complete payment and performance by the Company of all of the Obligations, the Company unconditionally and irrevocably hereby grants to the Secured Party a continuing security interest in and to, and lien upon, the following Pledged Property of the Company:
(a) all goods of the Company, including, without limitation, machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools, parts, supplies and motor vehicles of every kind and description, now or hereafter owned by the Company or in which the Company may have or may hereafter acquire any interest, and all replacements, additions, accessions, substitutions and proceeds thereof, arising from the sale or disposition thereof, and where applicable, the proceeds of insurance and of any tort claims involving any of the foregoing;
(b) all inventory of the Company, including, but not limited to, all goods, wares, merchandise, parts, supplies, finished products, other tangible personal property, including such inventory as is temporarily out of Company's custody or possession and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing;
(c) all contract rights and general intangibles of the Company, including, without limitation, goodwill, trademarks, trade styles, trade names, leasehold interests, partnership or joint venture interests, patents and patent applications, copyrights, deposit accounts whether now owned or hereafter created;
(d) all documents, warehouse receipts, instruments and chattel paper of the Company whether now owned or hereafter created;
(e) all accounts and other receivables, instruments or other forms of obligations and rights to payment of the Company (herein collectively referred to as "Accounts"), together with the proceeds thereof, all goods represented by such Accounts and all such goods that may be returned by the Company's customers, and all proceeds of any insurance thereon, and all guarantees, securities and liens which the Company may hold for the payment of any such Accounts including, without limitation, all rights of stoppage in transit, replevin and reclamation and as an unpaid vendor and/or lienor, all of which the Company represents and warrants will be bona fide and existing obligations of its respective customers, arising out of the sale of goods by the Company in the ordinary course of business;
(f) to the extent assignable, all of the Company's rights under all present and future authorizations, permits, licenses and franchises issued or granted in connection with the operations of any of its facilities;
(g) all products and proceeds (including, without limitation, insurance proceeds) from the above-described Pledged Property.
Exhibit 10.7
THIS SECURED DEBENTURE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT.
SECURED DEBENTURE
STRIKEFORCE TECHNOLOGIES, INC.
8% Secured Convertible Debenture
Due January 18, 2008
No. CCP-1 $500,000
This Secured Debenture is issued by StrikeForce Technologies, Inc., a New Jersey corporation (the "Company"), to Cornell Capital Partners L.P. (together with its permitted successors and assigns, the "Holder") pursuant to exemptions from registration under the Securities Act of 1933, as amended.
ARTICLE I.
Section 1.01 Principal and Interest. For value received, on January 18, 2004, the Company hereby promises to pay to the order of the Holder in lawful money of the United States of America and in immediately available funds the principal sum of Five Hundred Thousand Dollars ($500,000), together with interest on the unpaid principal of this Debenture at the rate of eight percent (8%) per year (computed on the basis of a 365-day year and the actual days elapsed) from the date of this Debenture until paid. At the Company's option, the entire principal amount and all accrued interest shall be either (a) paid to the Holder on the third (3rd) year anniversary from the date hereof or (b) converted in accordance with Section 1.02 herein provided, however, that in no event shall the Holder be entitled to convert this Debenture for a number of shares of Common Stock in excess of that number of shares of Common Stock which, upon giving effect to such conversion, would cause the aggregate number of shares of Common Stock beneficially owned by the Holder and its affiliates to exceed 4.99% of the outstanding shares of the Common Stock following such conversion (which provision may be waived by the Investor by written notice from the Investor to the Company, which notice shall be effective 61 days after the date of such notice). This limitation shall not apply to an automatic conversion pursuant to Section 4.03 hereof.
Section 1.02 Optional Conversion. The Holder is entitled, at its option, to convert, and sell on the same day, at any time and from time to time, until payment in full of this Debenture, all or any part of the principal amount of the Debenture, plus accrued interest, into shares (the "Conversion Shares") of the Company's common stock, par value $ 0.0001per share ("Common Stock"), at the price per share (the "Conversion Price") equal to the lesser of (a) an amount equal to one hundred twenty percent (120%) of the initial bid price of the Common Stock (the "Fixed Price") submitted on Form 211 by a registered market maker to and approved by the NASD, or (b) an amount equal to eighty percent (80%) of the lowest volume weighted average price of the Company's Common Stock, as quoted by Bloomberg, LP, for the five (5) trading days immediately preceding the Conversion Date (as defined herein). Subparagraphs (a) and (b) above are individually referred to as a "Conversion Price". As used herein, "Principal Market" shall mean The National Association of Securities Dealers Inc.'s Over-The-Counter Bulletin Board, Nasdaq SmallCap Market, or American Stock Exchange. If the Common Stock is not traded on a Principal Market, the Closing Bid Price shall mean the reported Closing Bid Price for the Common Stock, as furnished by the National Association of Securities Dealers, Inc., for the applicable periods. No fraction of shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. To convert this Debenture, the Holder hereof shall deliver written notice thereof, substantially in the form of Exhibit "A" to this Debenture, with appropriate insertions (the "Conversion Notice"), to the Company at its address as set forth herein. The date upon which the conversion shall be effective (the "Conversion Date") shall be deemed to be the date set forth in the Conversion Notice.
Section 1.03 Reservation of Common Stock. The Company shall reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of this Debenture, such number of
shares of Common Stock as shall from time to time be sufficient to effect such
conversion, based upon the Conversion Price. If at any time the Company does not
have a sufficient number of Conversion Shares authorized and available, then the
Company shall call and hold a special meeting of its stockholders within sixty
(60) days of that time, or as soon thereafter as permitted by applicable law,
for the sole purpose of increasing the number of authorized shares of Common
Stock.
Section 1.04 Right of Redemption. The Company at its option shall have the right to redeem, with fifteen (15) days advance written notice (the "Redemption Notice"), a portion or all outstanding convertible debenture. The redemption price shall be one hundred ten percent (110%) of the amount redeemed plus accrued interest.
Section 1.05 Registration Rights. The Company is obligated to register the resale of the Conversion Shares under the Securities Act of 1933, as amended, pursuant to the terms of a Registration Rights Agreement of even date herewith between the Company and the Holder (the "Investor Registration Rights Agreement").
Section 1.06 Interest Payments. Accrued interest shall be paid at the time of maturity or conversion to the person in whose name this Debenture is registered. At the time such interest is payable, the Holder, in its sole discretion, may elect to receive the interest in cash (via wire transfer or certified funds) or in the form of Common Stock. In the event of default, as described in Article III Section 3.01 hereunder, the Holder may elect that the interest be paid in cash (via wire transfer or certified funds) or in the form of Common Stock. If paid in the form of Common Stock, the amount of stock to be issued will be calculated as follows: the value of the stock shall be the Conversion Price on: (i) the date the interest payment is due; or (ii) if the interest payment is not made when due, the date the interest payment is made. A number of shares of Common Stock with a value equal to the amount of interest due shall be issued. No fractional shares will be issued; therefore, in the event that the value of the Common Stock per share does not equal the total interest due, the Company will pay the balance in cash.
Section 1.07 Paying Agent and Registrar. Initially, the Company will act as paying agent and registrar. The Company may change any paying agent, registrar, or Company-registrar by giving the Holder not less than ten (10) business days' written notice of its election to do so, specifying the name, address, telephone number and facsimile number of the paying agent or registrar. The Company may act in any such capacity.
Section 1.08 Secured Nature of Debenture. This Debenture is secured by certain assets and property of the Company, as more fully described in the Security Agreement of even date herewith between the Company and the Holder.
ARTICLE II.
Section 2.01 Amendments and Waiver of Default. The Debenture may not be amended without the consent of the Holder. Notwithstanding the above, without the consent of the Holder, the Debenture may be amended to cure any ambiguity, defect or inconsistency, to provide for assumption of the Company obligations to the Holder or to make any change that does not adversely affect the rights of the Holder.
ARTICLE III.
Section 3.01 Events of Default. An Event of Default is defined as follows:
(a) failure by the Company to pay amounts due hereunder within fifteen (15) days
of the date of maturity of this Debenture; (b) failure by the Company to comply
with the terms of the Irrevocable Transfer Agent Instructions; (c) failure by
the Company's transfer agent to issue freely tradeable Common Stock to the
Holder within five (5) days of the Company's receipt of the attached Notice of
Conversion from Holder; (d) failure by the Company for twenty (20) days after
notice to it to comply with any of its other agreements in the Debenture; (e) if
the Company files for relief under the United States Bankruptcy Code (the
"Bankruptcy Code") or under any other state or federal bankruptcy or insolvency
law, or files an assignment for the benefit of creditors, or if an involuntary
proceeding under the Bankruptcy Code or under any other federal or state
bankruptcy or insolvency law is commenced against the Company; (f) a breach by
the Company of its obligations under the Securities Purchase Agreement, the
Escrow Agreement, the Security Agreement, the Investor Registration Rights
Agreement or any other agreement entered into on the date hereof between the
Company and the Holder which is not cured by the Company within twenty (20) days
after receipt of written notice thereof. Upon the occurrence of an Event of
Default, the Holder may, in its sole discretion, accelerate full repayment of
all debentures outstanding and accrued interest thereon or may, notwithstanding
any limitations contained in this Debenture and/or the Securities Purchase
Agreement of even date herewith between the Company and Cornell Capital
Partners, L.P. (the "Securities Purchase Agreement"), convert all debentures
outstanding and accrued interest thereon into shares of Common Stock pursuant to
Section 1.02 herein.
Section 3.02 Failure to Issue Unrestricted Common Stock. As indicated in Article III Section 3.01, a breach by the Company of its obligations under the Investor Registration Rights Agreement shall be deemed an Event of Default, which if not cured within ten (10) days, shall entitle the Holder to accelerate full repayment of all debentures outstanding and accrued interest thereon or, notwithstanding any limitations contained in this Debenture and/or the Securities Purchase Agreement, to convert all debentures outstanding and accrued interest thereon into shares of Common Stock pursuant to Section 1.02 herein. The Company acknowledges that failure to honor a Notice of Conversion shall cause irreparable harm to the Holder.
ARTICLE IV.
Section 4.01 Rights and Terms of Conversion. This Debenture, in whole or in part, may be converted at any time following the date of closing into shares of Common Stock at a price equal to the Conversion Price as described in Section 1.02 above.
Section 4.02 Re-issuance of Debenture. When the Holder elects to convert a part of the Debenture, then the Company shall reissue a new Debenture in the same form as this Debenture to reflect the new principal amount.
Section 4.03 Termination of Conversion Rights. The Holder's right to convert the Debenture into the Common Stock in accordance with paragraph 4.01 shall terminate on the date that is the third (3rd) year anniversary from the date hereof and this Debenture shall be automatically converted on that date in accordance with the formula set forth in Section 4.01 hereof, and the appropriate shares of Common Stock and amount of interest shall be issued to the Holder.
ARTICLE V.
Section 5.01 Anti-dilution. In the event that the Company shall at any time subdivide the outstanding shares of Common Stock, or shall issue a stock dividend on the outstanding Common Stock, the Conversion Price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of such subdivision, dividend or combination as the case may be.
Section 5.02 Consent of Holder to Sell Capital Stock or Grant Security Interests. Except for the Standby Equity Distribution Agreement dated the date hereof between the Company and Cornell Capital Partners, LP. so long as any of the principal of or interest on this Note remains unpaid and unconverted, the Company shall not, except as provided in the Disclosure Schedule to the Securities Purchase Agreement, without the prior consent of the Holder, issue or sell (i) any Common Stock or Preferred Stock without consideration or for a consideration per share less than its fair market value 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 fair market value determined immediately prior to its issuance, (iii) enter into any security instrument granting the holder a security interest in any of the assets of the Company, or (iv) file any registration statement on Form S-8.
ARTICLE VI.
Section 6.01 Notice. Notices regarding this Debenture shall be sent to the parties at the following addresses, unless a party notifies the other parties, in writing, of a change of address:
If to the Company, to: StrikeForce Technologies, Inc.
1090 King George's Post Road, Suite 108
Edison, NJ 08837
Attention: Mark L. Kay, CEO
Telephone: (732) 661-9641
Facsimile: (732) 661-9647
With a copy to: Sichenzia, Ross, Friedman and Ference, LLP
1065 Avenue of the Americas
New York, New York 10018
|
Attn: Jay R. McDaniel Telephone: (212) 930-9700 Facsimile: (212) 930-9725
If to the Holder: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Attention: Mark Angelo
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
With a copy to: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Attention: Troy J. Rillo, Esq.
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
|
Section 6.02 Governing Law. This Debenture shall be deemed to be made under and shall be construed in accordance with the laws of the State of New Jersey without giving effect to the principals of conflict of laws thereof. Each of the parties consents to the exclusive jurisdiction of the U.S. District Court sitting in the District of the State of New Jersey or the state courts of the State of New Jersey sitting in Hudson County, New Jersey in connection with any dispute arising under this Debenture and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens to the bringing of any such proceeding in such jurisdictions.
Section 6.03 Severability. The invalidity of any of the provisions of this Debenture shall not invalidate or otherwise affect any of the other provisions of this Debenture, which shall remain in full force and effect.
Section 6.04 Entire Agreement and Amendments. This Debenture represents the entire agreement between the parties hereto with respect to the subject matter hereof and there are no representations, warranties or commitments, except as set forth herein. This Debenture may be amended only by an instrument in writing executed by the parties hereto.
Section 6.05 Counterparts. This Debenture may be executed in multiple counterparts, each of which shall be an original, but all of which shall be deemed to constitute on instrument.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company as executed this Debenture as of the date first written above.
STRIKEFORCE TECHNOLOGIES, INC.
By: /s/ Mark L. Kay
---------------
Name: Mark L. Kay
Title:CEO
|
EXHIBIT "A"
NOTICE OF CONVERSION
(To be executed by the Holder in order to Convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $ of the principal amount of the above Debenture into Shares of Common Stock of StrikeForce Technologies, Inc., according to the conditions stated therein, as of the Conversion Date written below.
Conversion Date:____________________________________
Applicable Conversion Price:________________________
Signature:__________________________________________
Name:_______________________________________________
Address:____________________________________________
Amount to be converted:$____________________________
Amount of Debenture unconverted:$___________________
Conversion Price per share:$________________________
Number of shares of Common Stock to be
issued:_____________________________________________
Please issue the shares of Common Stock
in the following name and to the
following address:__________________________________
Issue to:___________________________________________
Authorized Signature:_______________________________
Name:_______________________________________________
Title:______________________________________________
Phone Number:_______________________________________
Broker DTC Participant Code:________________________
Account Number:_____________________________________
Exhibits 10.8
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (along all of the documents, schedules and exhibits made a part hereof, the "Agreement") dated as of September 1 lth, 2003 (the "Effective Date"), is by and among StrikeForce Technical Services Corporation d/b/a StrikePorce Technologies, Inc ., a New Jersey corporation ("Buyer"), NetLabs .com Inc., a New Jersey corporation ("Seller"), and Ramarao Pemmaraju (the "Developer").
ARTICLE 1. THE ASSETS
1.1 Background. Seller desires to sell, and Buyer desires to purchase, all of Seller's technology, products and related assets on the terms and conditions described in this Agreement. The Developer developed the Seller's assets and Intellectual Property (as defined below) therein, and the Developer is entering into' this Agreement to give to Buyer, among other things, the benefit of certain representations, warranties, covenants and contractual rights upon which Buyer is relying in consummating the transactions described herein .
1.2 Definitions. For purposes of this Agreement, and in addition to the terms defined elsewhere in this Agreement, the following terms shall have the respective meanings set forth below:
"Copyrights" means all copyrights in both published and unpublished works and any registrations or applications for registration of copyrights in any jurisdiction throughout the world.
"Intellectual Property Rights" means all forms of legal rights and protections in any country of the world, including all right, title and interest arising under common and statutory law to all Patents, Copyrights, Trademarks, Trade Secrets, any similar, corresponding ding or equivalent rights relating to intangible intellectual property, and all applications, registrations, issuances, divisions, continuations, renewals, reissuances and extensions of the foregoing.
"Net Revenues" means any monies actually received by Buyer and recognized as revenues on a cash. basis during a particular calendar month for the licensing or other provision (e.g., on an application service provider basis) of specific Products to a third party licensee, or the maintenance or support of such Products, less any (a) fees or commissions paid to sales persons, brokers, agents, distributors and other sales personnel, and (b) any third party out-ofpocket fees, costs and taxes associated with the licensing or provision, maintenance or support of such Programs, including without limitation ASP hosting fees, telecommunication fees, sales and use tax, shipping and handling. The term "Net Revenues" excludes fees or monies received by Buyer for consulting services, or for any Programs or products other than the Buyer's Products.
"Object Code" means the Programs in a form capable of direct execution by a computer. The term Object Code generally connotes the compiled, assembled or translated form of source code.
"Patents" means all letters patents, provisional patents, design patents, PCT filings and other rights to inventions or designs, together with any extensions, reexaminations I-PH/1876327 .3 09/05/03 1 and reissues of such letters patent, patents of addition, patent applications, disclosure documents, divisions, continuations, continuations-in-part, and any subsequent filings in any country or jurisdiction claiming priority therefrom.
"Person" means any individual, partnership,limited liability company, limited liability partnership, corporation, association, joint stock company, trust, joint venture, unincorporated organization or Governmental Authority.
"Product" means a Program or technology developed by Seller and/or Developer that is transferred and assigned over to Buyer pursuant to this Agreement.
"Program" means a computer program in Object Code or Source Code.
"Source Code" means the Programs as written in a programming language such as, for example, C++.
"Trademarks" means registered trademarks, registered service marks, trademark and service mark applications and unregistered trademarks and service marks, brand names, trade names, logos, certification marks, trade dress, and all goodwill associated with the foregoing throughout the world, and registrations in any jurisdictions of, and applications in any jurisdiction to register, the foregoing, including any extension, modification or renewal of any such registration or application.
"Trade Secrets" means all know-how, trade secrets, confidential information, customer lists, technical information, data, process technology, plans, drawings, innovations, designs, ideas, proprietary information, blue prints, and all documentation related to the foregoing, except for any such item that is generally available to the public.
1 .3 Purchase and Sale . Subject to the terms and conditions of this Agreement, Seller and the Developer each hereby sells, transfers, delegates, assigns, conveys and delivers to Buyer, all of Seller's and the Developer's respective rights, duties, obligations, titles and interests in and to the following (collectively, the "Assets"):
1.3.1 All of Seller's and Developer's Programs and other software, in both Source Code form and Object Code form, all documentation and information regarding the same, together with all prior versions and releases thereto, and together with all Intellectual Property Rights inherent therein or appurtenant thereto (each, a "Product" as defined above, and collectively, the "Products"). The Products fall in to two categories:
(a) All Products used in connection with the centralized out-of-band authorization systems often referred to as "COBAS" (collectively, the "COBAS Products").
(b) All other Products (collectively, the "Non-COB AS Products"), including without limitation the "NetFirewall" firewall program, the "MailSecure" anti-virus program, and the "Security Central" enterprise security management program.
1.3.2 All of the oral, written or other agreements between Seller and a third party, or between the Developer and a third party, (collectively, the "Assumed Contracts"), including without limitation any licenses for third-party software applications embedded into the architecture and necessary for the operation of the Programs, and all original media and license keys related to the Assumed Contracts.
1.3.3 Seller's and Developer's Trademarks, including without limitation the terms CENTRALIZED OUT-OF-BAND-AUTHENTICATION SYSTEM, C.O.B.A.S., COBAS, NETFIREWALL, MAILSECURE, and SECURITY CENTRAL, and the goodwill represented thereby.
1.3.4 Seller's Patents and Developer's Patents, including without limitation :
(a) U.S. Application No. 09/655,297 by Ram, Pemmaraju, "Out-ofband security networks for computer network applications" (filed Sep. 5, 2000).
(b) U.S. Disclosure Document No. 499,547 by Ram Pemmaraju, "NetCard - Method and apparatus for securing credit card transactions for e-commerce" (filed Sep. 7, 2001) (since abandoned).
(c) U.S. Application No. 60/367,223 by Ram Pemmaraju, " .Methods and apparatus for a computer network firewall which can be configured dynamically via an authentication mechanism" (provisional application filed April 9, 2002).
(d) U.S. Application No. 101406,228 by Ram Pemmaraju, "Methods and apparatus for a computer network firewall which can be configured dynamically via an authentication mechanism" (filed April 4, 2003) (claims priority under provisional application No. 60/367,223 filed April 9, 2002).
(e) U.S. Application by Ram Pemmaraju, "Methods and apparatus for authenticating a user via a centralized out-of-band platform." (provisional filed July 2002, full application filed July 19, 2003).
1.3.5 All other hardware, software and other information technology of Seller and Developer.
1.3.6 All other Intellectual Property Rights of Seller and Developer .
1.4 Encumbrances. The Assets are transferred by Seller and the Developer to Buyer free of any lien, charge, security interest, mortgage, pledge or other encumbrance of any nature whatsoever ("Encumbrance").
1.5 Excluded Assets. Buyer is not purchasing or assuming obligations with respect to any of the following assets of Seller or Developer (collectively, the "Excluded Assets"):
1.5.1 Any rights of Seller or Developer under this Agreement.
1.5.2 Any computer hardware of Seller or Developer.
1.5.3 Any of Seller's or Developer's accounts receivable.
1.5.4 Any cash of Seller or Developer .
1.5.5 Any of Seller's or Developer's corporate and financial records.
1.6 No Liabilities Assumed . Buyer assumes no liability other than as expressly provided by this Agreement. Buyer shall not assume any Liabilities arising out of any breach by Seller of any provision of any Assumed Contract or any infringement or other action of Buyer .
ARTICLE 2 . FINANCIAL PROVISIONS
2.1 Purchase Price . As noted, herein, in consideration of the grant, sale, conveyance, assignment, transfer and delivery of the Assets to the Buyer by Seller and the Developer, the Buyer has paid, and the Seller and the Developer have each received from the Buyer the amount of One Dollar ($1 .00) (the "Purchase Price"), the receipt and sufficiency of which is hereby acknowledged. The Purchase Price does not include (i) any expenses reimbursed to the Buyer under the Assumed Contracts, (ii) any fees paid prior to the Effective Date under the Assumed Contracts, or (iii) any revenue generated under the terms of any other contract or agreement .
2.2 Royalties) Buyer will also pay Seller ten percent (10%) of the Net Revenues received by Buyer for th~ Products (collectively, the "Royalties"). The Royalties will apply to Net Revenues received during a period of five (5) years period beginning September 1, 2003, and continuing through August 31, 2008 (the "Royalty Period") . i 2.3 Calculatidn and Payment of Royalties . During the Royalty Period : 2.3 .1. Within thirty (30) days of the end of each calendar month, Buyer will prepare and provide repo'r'ts (by email, in hard copy, or via a secure web site), detailing the Net Revenues for each of the!Products .
2.3.2 Buyer will promptly thereafter mail or wire transfer any Royalties due to Seller as stated in the Reports .
2.3.3 The parties acknowledge and agree that in any month when Buyer is unable to pay all off its overhead and other expenses and the Royalties then accrued and due to Seller, the Buyer shall pay all of Buyer's overhead first (including without limitation all of Buyer's office and equipment lease and rent expenses, all hosting and other expenses to provide services to Buyer's customers, third-party sales and marketing commissions and fees, expenses related to obtaining additional. customers, employee payroll, and independent contractor and consulting fees), and then pay the Royalties due to Seller . Any of Buyer's late payments of Royalties or other fees to Seller shall not be a default under this Agreement . Jn the event any Royalty payment or other amount due under this Agreement is more than four months overdue, such payment or overdue amount shall be assessed simple interest at the Prime Rate, as published in The Wall Street Journal, eastern edition .
2.4 Stock. In addition to the Purchase Price, Royalties and other consideration set forth in this Agreement, Buyer agrees to issue 1,140,000 shares of its Common Stock (the "Shares") to Seller as additional consideration for the Assets. 1-PW1876327.3 09105143
2.5 Audit. For the duration of the Royalty Period, and for six months thereafter, Seller shall have the right to audit the records of Buyer used to calculate Royalties due Seller by Buyer under this Agreement. Upon reasonable prior notice to the Buyer, and upon the Seller's auditors signing appropriate confidentiality agreements that protect the Buyer no less than the confidentiality provisions of this Agreement, the Seller's auditors shall have access to the relevant books and records of the Buyer necessary to conduct a review or audit thereof . Such limited access shall be available not more than once each calendar year, during Buyer's normal business hours . Upon completion of the audit, the parties agree that any overpayment determined by the audit will be promptly refunded, and that any underpayment determined by the audit will be promptly invoiced and paid .
ARTICLE 3 . REPRESENTATIONS AND WARRANTIES
3.1 Mutual Warranties . Each party to this Agreement represents and warrants to each other party to this Agreement as follows :
3.1.1 Each party has the full right, power and authority to execute, deliver and carry out the terms of this Agreement and all documents and agreements necessary to give effect to the provisions off this Agreement and to consummate the transactions contemplated on the part of such party hereunder .
3.1.2 This Agreement and all other agreements and documents executed in connection, herewith by each party, upon due execution and delivery thereof, shall constitute the valid and binding obligations of each such party, enforceable in accordance with, its respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and by general principles of equity .
3.2 Seller and Developer Warranties . As a material inducement to Buyer to enter into this Agreement and to consummate the transactions contemplated herein, Seller and Developer, jointly and severally, represent, warrant and covenant to Buyer as follows :
3.2.1 Seller is a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation, and is in good standing and duly qualified to do business as a . foreign corporation in all jurisdictions where the operation, of its business or the ownership of its properties make such qualification necessary.
3.2.2 Except for Seller and the Developer, no other person or entity owns or holds, has any interest in, the Programs .
3.2.3 Except for Developer's rights transferred to Buyer under this Agreement, Seller has good, valid and marketable title to all of the Assets, free and clear of any Encumbrances.
3.2.4 Seller and Developer have each advised Buyer of all Program and documentation errors and defects known to Seller and Developer as of the Effective Date of this Agreement which can or do materially affect performance of the Programs . t-PR'1876327 .3 09/0 5 /03 5
3.2.5 In the event of any alleged breach of this Agreement, or arising out ofthe transactions contemplated hereunder, neither Seller nor Developer will seek injunctive or other equitable relief, but will only seek monetary damages, which, if awarded, shall serve to make Seller and/or Developer whole.
3.2.6 The Products do not contain any lock, clock, timer, counter, copy
protection feature, replication device or defect ("virus" or "worm" as such
terms are commonly used in the computer industry), CPU serial number reference,
or other device which : (i) might lock, disable or erase the Programs ; (ii)
prevent Buyer or any user from fully using the Programs; or (iii) require action
or intervention by Seller or any other Person or entity to allow Buyer to use
the Programs (collectively, "Locks"). UNDER NO CIRCUMSTANCES SHALL SELLER OR ANY
DEVELOPER INSERT, ACTIVATE OR OPERATE, NOR ATTEMPT TO INSERT, ACTIVATE OR
OPERATE, ANY DEVICE DESCRIBED IN THIS SECTION, NOR SHALL IT DEACTIVATE OR
REPOSSESS THE PRODUCTS OR OTHER PROGRAMS (NOR ATTEMPT TO DO SO) BY ELECTRONIC
MEANS OR OTHERWISE .
3.3 Further Representations and Warranties of Seller and Developer Regarding the Shares. Seller and Developer each represents and warrants to Buyer as follows :
3.3.1 It is acquiring the Shares for its own account for investment only and not with a view to or for sale in connection with the distribution thereof.
3.3.2 It has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the transactions contemplated by this Agreement, including, without limitation, the acquisition of the Shares, and making an informed investment decision with respect thereto . Seller understands that it must bear the economic risk of an investment in the Shares indefinitely unless the Shares are registered pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or an exemption from registration is available.
3.3.3 It is an "Accredited Investor" as such term is defined in Rule 501 under the Securities Act .
3.3.4 It has had the opportunity to ask questions and receive answers concerning the Company, as well as the opportunity to obtain additional information necessary to verify the accuracy of information furnished by the Company.
3.3.5 It understands that the Shares have not been registered under the Securities Act or any state securities laws, and may not be transferred unless subsequently registered thereunder or pursuant to an exemption from registration, and that a legend indicating such restrictions will be placed on the certificates representing such Shares . Seller understands that the Company has no present intention of registering any of the Shares . Seller also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow Seller to transfer all or any portion of, the Shares in the amounts or at the times Seller might propose .
3.4 Further Assurances. Seller and each Developer agrees and covenants that on the Effective Date or promptly thereafter: 1 oPH/1876327 . 3 09105103 6
3.4.1 Seller and each Developer shall deliver to Buyer such bills of sale, endorsements, assignments and other good and sufficient instruments of assignment, transfer and conveyance, in form and substance reasonably satisfactory to Buyer, as shall be effective to vest in Buyer all, of Seller's and Developer's title to the Assets.
3.4.2 Seller and Developer shall each execute, acknowledge and deliver all such further assignments, transfers, conveyances and other instruments as may be necessary to assign, transfer and convey to and vest in Buyer and more fully protect its right, title and interest in the Assets, and as otherwise may be appropriate to carry out the transactions contemplated by this Agreement, including complete schedules or lists of COBAS Products, Non-COBAS Products, Patents, Trademarks, Copyrights and Trade Secrets.
3.4.3 Each of Seller and Developer agrees to enter into a stockholders agreement with the Buyer which shall contain, among others, provisions restricting the transferability of the Shares and a right of first refusal in favor of the Buyer . Unless and until such a stockholders agreement has been executed, after which time the Shares shall become subject to the provisions of such stockholders agreement, each of Seller and Developer agrees that it shall not sell, assign, mortgage, hypothecate, transfer or pledge, create a security interest in, or lien or encumbrance on (each a "Transfer"), the Shares or any interest therein .
3.4.4 If requested by the managing underwriter of a public offering involving the Buyer, each of Seller and Developer agrees not to Transfer any of the Shares (other than shares of Common Stock registered in such offering) during the period requested. by the managing underwriter, if any, not to exceed 180 days, following the effective date of the registration statement covering such a public offering.
ARTICLE 4. MISCELLANEOUS PROVISIONS
4.1 Entire Agreement. This Agreement and the exhibits, schedules and other documents signed by the parties in connection herewith constitute the entire agreement of the parties with respect to the subject matter hereof, and except as specifically provided herein, no change, modification, amendment, addition or termination of this Agreement or any part thereof shall be valid unless in writing and signed by or on behalf of the party to be charged therewith.
4.2 Confidential Information . Each party ("recipient") agrees to keep confidential indefinitely all proprietary and confidential information of the other party ("disclosing party"), including without limitation all Products, Patents, Copyrights, Trade Secrets, Royalty reports and related information, this Agreement, technical information, business information, sales information, customer and potential customer lists and identities, product sales plans, sublicense agreements, inventions, developments, discoveries, software, know-how, methods, techniques, formulae, data, processes and other trade secrets and proprietary ideas, whether or not protectable under patent, trademark, copyright or other areas of law, that the recipient has access to or receives (collectively, "Confidential Information") . Confidential Information does not include information as evidenced by written records that (a) is or becomes publicly available through no fault of the recipient, (b) was already known to the recipient at the time it was received by the recipient, (c) is independently developed by or on behalf off the recipient I-PH/1870327 . 3 09/03/03 7 receiving party without reference or access to such information, or (d) is received from a third party who is under no obligation of confidentiality to the disclosing party .
4.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be given or made pursuant to any of the provisions of
this Agreement shall be deemed to have been duly given or made for all purposes
if (i) hand delivered, (ii) sent by a nationally recognized overnight courier or
(iii) sent by telephone facsimile transmission (with prompt oral confirmation of
receipt) to the addresses listed below, or at such other address as any party
may specify by notice given to the other party in accordance with this Section .
The date off giving of any such notice shall be the date of hand delivery, the
date sent by telephone facsimile, and the day after delivery to the overnight
courier service .
If to Seller with a copy to -------------------------------------------------------------------------------- NetLabs.com, Inc. 8 Ponderosa Lane Old Bridge, New Jersey 08857 Attention: Robert Dean Phone No.:(732) 360-1535 If to Buyer with a copy to -------------------------------------------------------------------------------- StrikeForce Technologies, Inc. Morgan, Lewis & Bockius, LLP 1090 King Georges Post Road, 1701 Market Street Suite 108 Edison, New Jersey 08837 Philadelphia, Pennsylvania 19103 Attention: Chief Executive Officer Attention: Andrew Hamilton Facsimile No.: (732) 321-6562 Telecopy No. (215) 963-5001 If to the Developer --------------------------------------- Ramarao Pemmaraju 8 Ponderosa Lane Old Bridge, NJ 08857 Phone No.: (732) 360-1535 |
4.4 Bankruptcy. During the Royalty Period, in the event StrikeForce seeks reorganization under any bankruptcy act, or consents to the filing of a petition seeking such reorganization, or has a decree entered against it by a court of competent jurisdiction appointing a receiver, liquidator, trustee, or assignee in bankruptcy or in insolvency covering all or substantially all of StrikeForce's property or providing for the liquidation of StrikeForce's property or business affairs, then, as may be permitted by the United States Bankruptcy Code or other applicable state and federal laws, StrikeForce shall assign the Products back to NetLabs and, in return for such assignment, NetLabs shall issue or otherwise transfer to StrikeForce shares of NetLabs stock and/or cash or other assets that shall have a fair market value equal to the fair market value of the Products as of the date of the assignment of the Products.
4.5 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument,
4.6 Governing Law, Severability . This Agreement shall be governed by and construed in accordance with the internal laws of the State of New Jersey without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New Jersey or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New Jersey . Should any clause, section or part of this Agreement be held or declared to be void or illegal for any reason, all other clauses, sections or parts of this Agreement shall nevertheless continue in full force and effect.
4.7 Arbitration. All controversies or claims arising out of or relating to this Agreement or the interpretation, performance, breach, termination or validity thereof (collectively, "Disputes") shall be submitted to binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association in Princeton, New Jersey . Any Dispute that in the aggregate is valued at less than $500,000 shall be heard by one independent arbitrator; otherwise, by three independent arbitrators . Each party's discovery shall be limited to 25 interrogatories, 25 requests for production, and 3 depositions . Any award rendered by the arbitrator(s) shall be final and binding upon the parties . Judgment upon the award may be entered in any court of competent jurisdiction. Requests for injunctive relief and emergency measures may be submitted at any time in accordance with the Optional Rules for Emergency Measures of Protection of the Commercial Arbitration Rules . Each party hereto consents to binding arbitration as the sole means of dispute resolution and agrees that service of process in any such proceeding shall be sufficient if accomplished in accordance with the notice provisions set forth in the Agreement.
4.8 Assignment. This Agreement shall be binding upon, and inure to the benefit of, the parties and their respective successors and permitted assigns . Neither this Agreement nor any rights or obligations hereunder shall be assignable by any party.
4.9 Expenses. Each of Buyer, Seller and Developer shall bear all of their own expenses in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby, including all fees and expenses of its agents, representatives, counsel and accountants.
4.10 No Third Party Beneficiaries. Nothing in this Agreement is intended to confer benefits, rights or remedies unto any person or entity other than. the parties and their permitted successors and assigns.
4.11 Benefit of Counsel. This Agreement has been negotiated between unrelated parties who are sophisticated and knowledgeable in the matters contained in this Agreement and who have acted in their own self interest . In addition, each party has been represented by legal counsel, or has had the opportunity to retain legal counsel to review this Agreement . The provisions of this Agreement shall be interpreted in a reasonable manner to effect the purposes of the parties, and this Agreement shall not be .interpreted or construed against any party to this Agreement because that party or any attorney or representative for that party drafted this Agreement or participated in the drafting of this Agreement.
Whereof, and intending to be legally bound hereby, the parties have executed this Agreement as of the Effective Date .
Seller NetLabs.com Inc. Buyer StriikeForce Technical Services
Corporation d/b/a StrikeForce
Technologies, Inc.
Type New Jersey Corporation Type New Jersey Corporation
Signature /s/ Robert Denn Signature /s/Mark L. Kay
--------------- -------------
Name Robert Denn Name Mark L. Kay
Title President Title CEO
Developer Ramarao Pemmaraja Developer
Signature/s/Ramarao Pemmaraja Signature
-------------------
|
Name Ramarao Pemmaraja Name Date September 11, 2003 Date
AMENDMENT TO
ASSET PURCHASE AGREEMENT
Between
STRIKE FORCE TECHNOLOGIES, INC. & NETLABS.COM, INC.
WHEREAS StrikeForce Technologies, Inc and NetLabs .com, Inc. have entered into an asset purchase agreement on September 11, 2003.
WHEREAS StrikeForce Technologies has yet to perform. in accordance with the intent and the purpose of this agreement (the generation of revenue).
NOW THEREFORE, be it known, the agreed resolution is the change of the royalty period as stated in Article 2. Financial Provisions, subsection 2.2, which is 5 years is to be extended to 1 .0 years. This change is effective as of September 11, 2003 and is to run till 8/31/2013.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed this Addendum as of the date September 2, 2004.
For StrikeForce Technologies, Inc. For Netlabs.com, Inc. Mark L. Kay Robert Denn -------------- -------------- Print Name Print Name /s/Mark L. Kay /s/Robert Denn -------------- -------------- Signature Signature CEO President -------------- -------------- Title Title |
AMENDMENT NO. 2 TO
ASSET PURCHASE AGREEMENT
Between
STRIKEFORCE TECHNOLOGIES, INC. & NETLABS.COM, INC.
WHEREAS StrikeForce Technologies, Inc and NetLabs.com, Inc. are parties to that certain Asset Purchase Agreement (the "Agreement") of September 11, 2003, as amended from time to time; and
WHEREAS StrikeForce Technologies has attempted without success to secure additional capital investment to continue for its operations and has requested NetLabs.com to waive the royalty agreements provided for by Sections 2.2 and 2.3 of the Agreement; and
WHEREAS without immediate additional capital investment, StrikeForce Technologies will be unable to continue operations or to develop commercial applications for the assets purchased from NetLabs.com; and
WHEREAS the royalty payments provided for in the Agreement are unacceptable to Cornell Capital Partners LLP, a private equity investor that has executed a term sheet with StrikeForce Technologies to provide funding of as much as $11, 000,000; and
WHEREAS StrikeForce Technologies and Netlabs.com believe that it is in their mutual interest that StrikeForce Technologies proceed with the capital investment offered by Cornell Capital Partners; and
WHEREAS StrikeForce Technologies and NetLabs.com desire to amend the Agreement to modify the consideration to be paid to NetLabs pursuant to the Agreement so as to eliminate the royalty payments and to provide for the issuance of options to purchase the common stock of StrikeForce Technologies in order to facilitate the capital investment offered by Cornell Capital Partners;
NOW THEREFORE, in consideration of the mutual covenants and for other good and valuable consideration, the adequacy of which is hereby acknowledged,
1. Sections 2.2 and 2.3 of the Agreement are deleted in their entirety.
2. In lieu of the royalty payments provided for by Sections 2.2 and 2.3, StrikeForce Technologies will issue to Netlabs.com options to purchase seven million six hundred thousand shares (7,600,000) shares of the common stock of StrikeForce Technologies at a price of thirty-six cents ($0.36) per share. The options shall vest according to the schedule attached as Schedule A and shall expire on August 31st, 2013. The options shall be issued under a form of option agreement attached hereto as Schedule B.
3. It is understood and agreed (a) that neither the options nor the common
stock to be issued upon exercise of the options have been registered
with the Securities and Exchange Commission or any state securities
regulatory agency and that, accordingly, such options may not be resold
except in one or more transactions that are exempt from any state or
federal registration requirements or pursuant to an effective
registration statement and (b) that no registration rights are being
granted as part of the issuance of the options. StrikeForce Technologies
shall provide its reasonable cooperation in the event that Netlabs.com
seeks to resell such securities pursuant to an exemption available under
Section 4(2) of the Securities Act of 1933 or Rule 144 thereunder,
provided that such resale complies with all applicable law and
Netlabs.com pays all costs and fees incurred by StrikeForce
Technologies. Netlabs.com covenants that it will not resell any
securities issued by StrikeForce Technologies pursuant to this amendment
in such a manner that StrikeForce Technologies will be deemed an
underwriter of the transaction.
4. This Amendment No. 2 to the Asset Purchase Agreement shall be effective as of the date of September 11,2003.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed this Amendment as of December 2nd, 2004.
StrikeForce Technologies, Inc. Netlabs.com, Inc. By: Mark L. Kay By: Robert Denn -------------- -------------- Print Name Print Name /s/Mark L. Kay /s/Robert Denn -------------- -------------- Signature Signature CEO President -------------- -------------- Title Title |
NEITHER THIS OPTION NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND NEITHER MAY BE SOLD OR OTHERWISE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) THE COMPANY SHALL HAVE RECEIVED A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER. STRIKEFORCE TECHNOLOGIES, INC.
STOCK OPTION
7,600,000 shares
Original Issue Date: As of September 11, 2003
THIS CERTIFIES THAT, FOR VALUE RECEIVED, NETLABS.COM, INC. or its registered assigns ("Holder") is entitled to purchase from STRIKEFORCE TECHNOLOGIES, INC. (the "Company"), on the terms and conditions hereinafter set forth, at any time or from time to time from the date hereof until 5:00 p.m., Eastern Time, on August 11, 2013, or if such date is not a day on which the Company is open for business, then the next succeeding day on which the Company is open for business (such date is the "Expiration Date"), but not thereafter, to purchase up to SEVEN MILLION SIX HUNDRED THOUSAND (7,600,000) shares of the Common Stock, par value $.0005 per share, (the "Common Stock"), of the Company, at $0.36 per share (the "Exercise Price"), which such shares shall vest according to Schedule I attached hereto, and such number of shares and Exercise Price being subject to adjustment upon the occurrence of the contingencies set forth in this Option. Each share of Common Stock as to which this Option is exercisable is an "Option Share" and all such shares are collectively referred to as the "Option Shares."
Section 1. Exercise of Option; Conversion of Option.
(a) This Option may, at the option of Holder, be exercised in
whole or in part from time to time by delivery to the Company at its office at
1090 King George's Post Road, Edison, NJ 08837 FAX: (732) 661-9647, Attention:
Secretary, on or before 5:00 p.m., Eastern Time, on the Expiration Date, (i) a
written notice of such Holder's election to exercise this Option (the "Exercise
Notice"), which notice may be in the form of the Notice of Exercise attached
hereto, properly executed and completed by Holder or an authorized officer
thereof, (ii) a check payable to the order of the Company, in an amount equal to
the product of the Exercise Price multiplied by the number of Option Shares
specified in the Exercise Notice, and (iii) this Option (the items specified in
(i), (ii), and (iii) are collectively the "Exercise Materials").
(b) This Option may, at the option of Holder, be converted into
Common Stock, if and only if the Average Market Price of one share of Common
Stock on the Effective Date (as defined in Section 1(d) hereof) is greater than
the Exercise Price, by delivery to the Company at the address designated in
Section 1(a) above or to any transfer agent for the Common Stock, on or before
5:00 p.m. Eastern Time on the Expiration Date, (i) a written notice of Holder's
election to convert this Option (the "Conversion Notice"), properly executed and
completed by Holder or an authorized officer thereof, and (ii) this Option (the
items specified in (i) and (ii) are collectively the "Conversion Materials").
The number of shares of Common Stock issuable upon conversion of this Option is
equal to the quotient of (x) the product of the number of Option Shares then
issuable upon exercise of this Option (assuming an exercise for cash, however
cashless is allowed) multiplied by the difference between (A) the Average Market
Price on the Effective Date minus (B) the then effective Exercise Price divided
by (y) the Average Market Price on the Effective Date. As used herein, "Average
Market Price" on any particular date means the arithmetic mean of the Closing
Bid Prices (as defined below) for the Common Stock for each trading day in the
five (5) trading day period ending on the trading day immediately preceding the
date on which the calculation is to be made. As used herein, "Closing Bid Price" means, the last closing bid price of the Common Stock during regular trading hours on the OTC Bulletin Board (the "OTCBB") or the Nasdaq Stock Market ("Nasdaq") as reported by Bloomberg Financial Markets ("Bloomberg"), or, if the OTCBB or Nasdaq is not the principal trading market for the Common Stock, the last closing bid price during regular trading hours of the Common Stock on the principal securities exchange or trading market where the Common Stock is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price of the Common Stock in the over-the-counter market on the pink sheets or bulletin board for the Common Stock as reported by Bloomberg, or, if no closing bid price is reported for the Common Stock by Bloomberg, the last closing trade price of the Common Stock as reported by Bloomberg. If the Closing Bid Price cannot be calculated for the Common Stock on such date on any of the foregoing bases, the Closing Bid Price of the Common Stock on such date shall be the fair market value as reasonably determined in good faith by the Board of Directors of the Company (all as appropriately adjusted for any stock dividend, stock split, or other similar transaction during such period).
(c) As promptly as practicable, and in any event within two (2) business days after its receipt of the Exercise Materials or the Conversion Materials, Company shall execute or cause to be executed and delivered to Holder a certificate or certificates representing the number of Option Shares specified in the Exercise Notice or Conversion Notice, together with cash in lieu of any fraction of a share, and if this Option is partially exercised, a new option on the same terms for the unexercised balance of the Option Shares. The stock certificate or certificates shall be registered in the name of Holder or such other name or names as shall be designated in the Exercise Notice. The date on which the Option shall be deemed to have been exercised (the "Effective Date"), and the date the person in whose name any certificate evidencing the Common Stock issued upon the exercise hereof is issued shall be deemed to have become the holder of record of such shares, shall be the date the Company receives the Exercise Materials or Conversion Materials, irrespective of the date of delivery of a certificate or certificates evidencing the Common Stock issued upon the exercise or conversion hereof, provided, however, that if the Exercise Materials or Conversion Materials are received by the Company on a date on which the stock transfer books of the Company are closed, the Effective Date shall be the next succeeding date on which the stock transfer books are open. All shares of Common Stock issued upon the exercise or conversion of this Option will, upon issuance, be fully paid and non-assessable and free from all taxes, liens, and charges with respect thereto.
Section 2. Adjustments to Option Shares. The number of Option Shares issuable upon the exercise hereof shall be subject to adjustment as follows:
(a) In the event the Company is a party to a consolidation, share exchange, or merger, or the sale of all or substantially all of the assets of the Company to, any person, or in the case of any consolidation or merger of another corporation into the Company in which the Company is the surviving corporation, and in which there is a reclassification or change of the shares of Common Stock of the Company, this Option shall after such consolidation, share exchange, merger, or sale be exercisable for the kind and number of securities or amount and kind of property of the Company or the corporation or other entity resulting from such share exchange, merger, or consolidation, or to which such sale shall be made, as the case may be (the "Successor Company"), to which a holder of the number of shares of Common Stock deliverable upon the exercise (immediately prior to the time of such consolidation, share exchange, merger, or sale) of this Option would have been entitled upon such consolidation, share exchange, merger, or sale; and in any such case appropriate adjustments shall be made in the application of the provisions set forth herein with respect to the rights and interests of Holder, such that the provisions set forth herein shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to the number and kind of securities or the type and amount of property thereafter deliverable upon the exercise of this Option. The above provisions shall similarly apply to successive consolidations, share exchanges,
mergers, and sales. Any adjustment required by this Section 2 (a) because of a consolidation, share exchange, merger, or sale shall be set forth in an undertaking delivered to Holder and executed by the Successor Company which provides that Holder shall have the right to exercise this Option for the kind and number of securities or amount and kind of property of the Successor Company or to which the holder of a number of shares of Common Stock deliverable upon exercise (immediately prior to the time of such consolidation, share exchange, merger, or sale) of this Option would have been entitled upon such consolidation, share exchange, merger, or sale. Such undertaking shall also provide for future adjustments to the number of Option Shares and the Exercise Price in accordance with the provisions set forth in Section 2 hereof.
(b) In the event the Company should at any time, or from time to time after the Original Issue Date, fix a record date for the effectuation of a stock split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock, or securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration (Cashless Exercise) by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon exercise or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split, or subdivision if no record date is fixed), the number of Option Shares issuable upon the exercise hereof shall be proportionately increased and the Exercise Price shall be appropriately decreased by the same proportion as the increase in the number of outstanding Common Stock Equivalents of the Company resulting from the dividend, distribution, split, or subdivision. Notwithstanding the preceding sentence, no adjustment shall be made to decrease the Exercise Price below $.001 per Share.
(c) In the event the Company should at any time or from time to time after the Original Issue Date, fix a record date for the effectuation of a reverse stock split, or a transaction having a similar effect on the number of outstanding shares of Common Stock of the Company, then, as of such record date (or the date of such reverse stock split or similar transaction if no record date is fixed), the number of Option Shares issuable upon the exercise hereof shall be proportionately decreased and the Exercise Price shall be appropriately increased by the same proportion as the decrease of the number of outstanding Common Stock Equivalents resulting from the reverse stock split or similar transaction.
(d) In the event the Company should at any time or from time to time after the Original Issue Date, fix a record date for a reclassification of its Common Stock, then, as of such record date (or the date of the reclassification if no record date is set), this Option shall thereafter be convertible into such number and kind of securities as would have been issuable as the result of such reclassification to a holder of a number of shares of Common Stock equal to the number of Option Shares issuable upon exercise of this Option immediately prior to such reclassification, and the Exercise Price shall be unchanged.
(e) The Company will not, by amendment of its Certificate of Incorporation or through reorganization, consolidation, merger, dissolution, issue, or sale of securities, sale of assets or any other voluntary action, void or seek to avoid the observance or performance of any of the terms of the Option, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of Holder against dilution or other impairment. Without limiting the generality of the foregoing, the Company (x) will not create a par value of any share of stock receivable upon the exercise of the Option above the amount payable therefor upon such exercise, and (y) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares upon the exercise of the Option.
(f) When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of the Option, or in the Exercise Price, the Company shall promptly notify Holder of such event and of the number of shares of Common Stock or other securities or property thereafter purchasable upon exercise of the Options and of the Exercise Price, together with the computation resulting in such adjustment.
(g) The Company covenants and agrees that all Option Shares which may be issued will, upon issuance, be validly issued, fully paid, and non-assessable. The Company further covenants and agrees that the Company will at all times have authorized and reserved, free from preemptive rights, a sufficient number of shares of its Common Stock to provide for the exercise of the Option in full.
Section 3. No Stockholder Rights. This Option shall not entitle Holder hereof to any voting rights or other rights as a stockholder of the Company.
Section 4. Transfer of Securities.
(a) This Option and the Option Shares and any shares of capital stock received in respect thereof, whether by reason of a stock split or share reclassification thereof, a stock dividend thereon, or otherwise, shall not be transferable except upon compliance with the provisions of the Securities Act of 1933, as amended (the "Securities Act") and applicable state securities laws with respect to the transfer of such securities. The Holder, by acceptance of this Option, agrees to be bound by the provisions of Section 4 hereof and to indemnify and hold harmless the Company against any loss or liability arising from the disposition of this Option or the Option Shares issuable upon exercise hereof or any interest in either thereof in violation of the provisions of this Option.
(b) Each certificate for the Option Shares and any shares of capital stock received in respect thereof, whether by reason of a stock split or share reclassification thereof, a stock dividend thereon or otherwise, and each certificate for any such securities issued to subsequent transferees of any such certificate shall (unless otherwise permitted by the provisions hereof) be stamped or otherwise imprinted with a legend in substantially the following form:
"NEITHER THIS OPTION NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND NEITHER MAY BE SOLD OR OTHERWISE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) THE COMPANY SHALL HAVE RECEIVED A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER."
Section 5. Miscellaneous.
(a) The terms of this Option shall be binding upon and shall inure to the benefit of any successors or permitted assigns of the Company and Holder.
(b) Except as otherwise provided herein, this Option and all rights hereunder are transferable by the registered holder hereof in person or by duly authorized attorney on the books of the Company upon surrender of this Option, properly endorsed, to the Company. The Company may deem and treat the registered holder of this Option at any time as the absolute owner hereof for all purposes and shall not be affected by any notice to the contrary.
(c) Notwithstanding any provision herein to the contrary, Holder may not exercise, sell, transfer, or otherwise assign this Option unless the Company is provided with an opinion of counsel satisfactory in form and substance to the Company, to the effect that such exercise, sale, transfer, or assignment would not violate the Securities Act or applicable state securities laws.
(d) This Option may be divided into separate options covering one share of Common Stock or any whole multiple thereof, for the total number of shares of Common Stock then subject to this Option at any time, or from time to time, upon the request of the registered holder of this Option and the surrender of the same to the Company for such purpose. Such subdivided Options shall be issued promptly by the Company following any such request and shall be of the same form and tenor as this Option, except for any requested change in the name of the registered holder stated herein.
(e) Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Option must be in
writing and will be deemed to have been delivered (a) upon receipt, when
delivered personally, (b) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested, (c) three (3) days
after being sent by U.S. certified mail, return receipt requested, or (d) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be: If to Company:
StrikeForce Technologies, Inc. 1090 King George's Post Road Edison, NJ 08837
Facsimile: (732) 661-9647
If to Holder, to the registered address of Holder appearing on the books of the Company. Each party shall provide five (5) days prior written notice to the other party of any change in address, which change shall not be effective until actual receipt thereof
(f) The corporate laws of the state under which the Company, or any successor of the Company, is organized shall govern all issues concerning the relative rights of the Company and its stockholders. If any provision of this Option shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Option in that jurisdiction or the validity or enforceability of any provision of this Option in any other jurisdiction.
[Signatures on the following page]
SIGNATURE PAGE
TO
COMPANY
STOCK OPTION
IN WITNESS WHEREOF, the Company, has caused this Option to be executed in its name by its duly authorized officers under seal, and to be dated as of the date first above written.
STRIKEFORCE TECHNOLOGIES, INC.
By:/S/ Mark L. Kay
--------------------------
Name: Mark L. Kay
Title: CEO
ATTEST:
|
Secretary/Assistant Secretary
SCHEDULE I
------------------------------------ ------------------------------------------- Number of Shares Date of Vest ------------------------------------ ------------------------------------------- 2,530,000 September 11th, 2004 ------------------------------------ ------------------------------------------- 2,530,000 September 11th, 2005 ------------------------------------ ------------------------------------------- 2,540,000 September 11th, 2006 ------------------------------------ ------------------------------------------- |
ASSIGNMENT
(To be Executed by the Registered Holder to affect a Transfer of the foregoing Option)
FOR VALUE RECEIVED, the undersigned hereby sells, and assigns and transfers unto ___________________________________________________________________________ the foregoing Option and the rights represented thereto to purchase shares of Common Stock of StrikeForce Technologies, Inc. in accordance with terms and conditions thereof, and does hereby irrevocably constitute and appoint ________________ Attorney to transfer the said Option on the books of the Company, with full power of substitution.
Holder:
Address
Dated: __________________, 2___
In the presence of:
EXERCISE or conversion notice
[To be signed only upon exercise of Option]
To: STRIKEFORCE TECHNOLOGIES, INC.
The undersigned Holder of the attached Option hereby irrevocably elects to exercise the Option for, and to purchase thereunder, _____ shares of Common Stock of STRIKEFORCE TECHNOLOGIES, INC., issuable upon exercise of said Option and hereby surrenders said Option.
Choose One:
The Holder herewith delivers to STRIKEFORCE TECHNOLOGIES, INC., a
check in the amount of $______ representing the Exercise Price for
such shares.
or
The Holder elects a cashless exercise pursuant to Section 2(b) of the Option. The Average Market Price as of _______ was $-----.
The undersigned herewith requests that the certificates for such shares be issued in the name of, and delivered to the undersigned, whose address is ________________________________.
If electronic book entry transfer, complete the following:
Dated: ___________________
Holder:
Title:
NOTICE
The signature above must correspond to the name as written upon the face of the within Option in every particular, without alteration or enlargement or any change whatsoever.
COMPANY ACKNOWLEDGEMENT
TO
CONVERSION OR EXERCISE NOTICE
ACKNOWLEDGED AND AGREED:
STRIKEFORCE TECHNOLOGIES, INC.
Exhibit 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of May 20, 2003, is entered into by and between MARK L. KAY, an individual ("Employee"), and STRIKEFORCE TECHNOLOGIES, INC., a New Jersey C-corporation (the "Company").
A. The Company is in the business of providing primarily authentication security software and related consulting services to individuals and companies (the "Business"); and
B. Employee is committed to making a $300,000 capital investment in the Business of Employer this month as part of Employer's initial funding instrument; and
C. The Company desires to employ Employee and Employee desires to accept such employment upon the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the covenants contained herein, Employee and the Company hereby agree as follows:
1. Definitions. The following terms, when capitalized, shall have the meanings set forth below:
"Board" shall mean the Board of Directors of the Company or any applicable committee thereof.
"Business" shall mean authentication security software and related consulting services to individuals and companies.
"Company Business" shall mean the Business and all other businesses in which the Company or any of its affiliates is engaged and in which Employee participates or is otherwise involved during Employee's employment with the Company.
"Cause" shall mean (a) the commission by Employee of an act or series
of acts which in any case results in material injury to the business or
reputation of the Company; or (b) Employee's gross misconduct, fraud,
misappropriation of funds, or commission of a felony; or (c) Employee's willful
failure to perform his duties or the directions given to him as provided in
Section 3 of this Agreement, which failure has not been cured in all material
respects within twenty (20) days after the Company gives written notice thereof
to Employee; or (d) Employee's material breach of any provision of this
Agreement, which breach has not been cured in all material respects within
twenty (20) days after the Company gives written notice thereof to Employee.
"Confidential Information" shall mean information that is not generally known and includes, but is not limited to, sales and marketing information, customer account records, training and operations materials and memoranda, personnel records, pricing and financial information relating to the
business, accounts, customers, employees and affairs of the Company or any of its affiliates; any other similar information; and any and all other information that may be marked "Confidential" by the Company. All inventions, discoveries, techniques, technologies, methodologies, software, improvements, and other similar works developed, conceived or created by Employee, either alone or in conjunction with others, during Employees' employment with the Company shall be considered "Confidential Information".
"Disability" shall mean that Employee is disabled so as to be unable to perform his material duties hereunder, with or without accommodation, as established pursuant to policies of the Company in effect from time to time.
"Earned Salary" shall mean base salary earned, but unpaid, for services rendered to the Company by Employee prior to the date of a termination.
"Good Reason" shall mean any of the following: (a) a material
diminution of the duties or employment position of Employee as described in
Section 3; (b) a reduction in Employee's base salary or incentive compensation;
(c) a material breach by the Company of its obligations under this Agreement; or
(d) any change in Employee's principal place of work which would increase
Employee's commute by 35 miles or more. "Good Reason" shall not be effective
until the expiration of ten (10) business days following written notice to the
Company of Employee's grounds for claiming "Good Reason". Any action or inaction
which is remedied by the Company within ten (10) business days following such
written notice shall not constitute "Good Reason".
"Vested Benefits" shall mean vested benefits under, and payable in
accordance with the terms of, the Company's employee benefit plans as they may
exist from time to time (excluding, however, any Severance Payments described in
Section 7 hereof).
2. Initial Term of Agreement. The Company hereby employs Employee, and Employee hereby accepts such employment and agrees to serve the Company, as its Chief Executive Officer, for an initial term from May 20, 2003, through June 1, 2006.
3. Duties. Employee hereby agrees to perform such duties as are customarily associated with and incidental to the position described in Section 2 and as may be assigned to him from time to time by the Board of Directors, to whom Employee is responsible. Employee shall also serve as a voting member of the Board of Company. Employee shall devote his full business time and efforts solely to the business and interest of the Company. During the term of this Agreement, Employee shall not engage in any activity which would be inconsistent with such duties or with the objectives and business of the Company and shall diligently perform his obligations and discharge his duties under this Agreement. Employee shall adhere to all ethical practices and other policies, rules and regulations established by the Company from time to time.
4. Compensation. The Company shall pay to Employee salary at a per annum rate of $75,000 until the closing date of the first $2 million in funding, and $150,000 per annum thereafter. Such payments shall be made in accordance with the Company's customary practices for the payment of salaries to full-time salaried employees. Employee's base salary hereunder shall be reviewed in accordance with normal compensation review practices of the Company for
employees with positions similar to the position of Employee hereunder. All payments made to Employee pursuant to this Section 4 shall be subject to withholding on account of applicable federal, state and local taxes. During his employment, Employee shall be entitled to participate in a market-competitive incentive bonus plan that shall be developed by Employee for this and each forthcoming fiscal year of the Company and submitted to the Board of Directors for approval and implementation. The plan shall be designed to reward performance that increases shareholder value by increasing the before tax earnings of the Company. Unless otherwise agreed, it is expected that the Bonus Plan will provide incentives to senior level employees in amounts ranging from 10% to 200% of their base Compensation.
5. Benefits. While Employee is employed pursuant to this Agreement, Employee shall be entitled to benefits from the Company which are substantially comparable to the benefits which may be provided from time to time to other full-time employees of the Company with positions similar to the position of Employee hereunder.
(a) Beginning in 2003, Employee shall have four (4) weeks of Paid Time Off (PTO) per calendar year, two weeks of which is bankable if not used by the end of that calendar year.
(b) Company shall reimburse Employee for reasonable expenses incurred by him or paid by Employee in performing his duties, responsibilities, or services under this Agreement, including travel and business development/entertainment expenses.
(c) Company shall pay costs of overnight accommodations for Employee when, in Employee's reasonable judgment, it is in the best interests of conducting the Company's business for Employee to remain in New Jersey overnight instead of commuting to his home.
6. Equity. The Board hereby grants Employee options (the "Options") to purchase 1,000,000 shares of the Company's common stock (the "Common Stock") on a fully converted, fully diluted basis after completion of the funding round that is in progress. The Options shall be at $1.00, have a term of 10 years from vesting date in which to be exercised, and shall vest over a three (3) year period, with 33-1/3% vesting on June 1, 2004, 33-1/3% vesting on June 1, 2005, and the remainder vesting on June 1, 2006. The other terms of the Options shall be governed by the Company's option plan as it may be in effect from time to time however, no changes in the amount, term, price or vesting schedule shall be made without Employee's prior written consent.
7. Severance Payment. If the Company terminates Employee's employment with the Company for any reason other than for Cause, or other than as a result of Employee's death or Disability, or if Employee terminates Employee's employment with the Company for Good Reason, the Company shall pay Employee the following:
(a) In the event Employee's employment is terminated at any time prior to his six-month anniversary with Company, continue to pay Employee the per annum rate of salary in effect for Employee on the date of such termination for a period of three (3) months thereafter (the "Severance Payment");
(b) In the event Employee's employment is terminated at any time as of his six-month anniversary and up to the date of his fifth year anniversary with the Company, continue to pay Employee the per annum rate of salary in effect for Employee on the date of such termination for a period of six (6) months thereafter (the "Severance Payment");
(c) In the event Employee's employment is terminated at any time as of his five-year anniversary with the Company, or thereafter, continue to pay Employee the per annum rate of salary in effect for Employee on the date of such termination for a period of twelve (12) months thereafter (the "Severance Payment");
(d) Continue Employee's medical and dental benefits at the level then in effect on the date of such termination for a period of the Severance Payment; provided, however, that if Employee secures other employment during such period that provides similar coverage, the Company's obligation under this subsection (d) shall terminate; and
(e) pay to Employee such bonus compensation under the Company's short-term incentive plan, if any, that is in proportion to the number of days Employee was employed in the fiscal year for which the bonus is calculated and paid, payable at the time such bonus is paid generally under the plan. (eg. If Employee was employed for 182 days in the fiscal year of employment termination, then Employee would receive 50% of the bonus payable for that fiscal year, less any partial payments already received by Employee.);
(f) Permit Employee to retain and exercise all Options as set forth in Section 6 of this Agreement for the full duration of their term; and
(g) At Employee's request, the Company shall repurchase all or part of any Company stock distributed to Employee, at its then current Fair Market Value as may be established by an independent appraiser (as mutually agreed upon by Employee and Company, and paid for by the Company) if the stock is not publicly traded. Any such repurchase shall be in accordance with applicable accounting rules to avoid adverse accounting treatment.
In the event that:
(x) The Company terminates Employee's employment with the Company for Cause;
(y) Employee voluntarily terminates his employment with the Company (other than for Good Reason); or
(z) Employee's employment with the Company is terminated due to Death or Disability,
the Company shall not be obligated to make any Severance Payments or bonus payments to Employee and Employee shall only be entitled to receive payment of his Earned Salary and Vested Benefits up to and including the date of any such termination. Upon the payments of the aforesaid sums by the Company, all of the Company's obligations to make any further payments to Employee pursuant to this Agreement shall be terminated. The foregoing provisions of this Section 6 set forth the sole liability and obligation of the Company in the event of a
termination, other than any obligations of the Company that may be required by law with respect to employee benefit plans (e.g., COBRA requirements).
8. Termination In Connection With A Change in Control. If, during the term of this Agreement, the Company undergoes a Change in Control (as defined below), and Employee is Terminated (as defined below), then, in place of the Company's obligations under Section 6, the Company shall:
(a) pay Employee the compensation and benefits otherwise payable to Employee under Section 4, through the date of termination;
(b) pay Employee, for twelve (12) months after the date of termination, his Base Salary under Section 4 above, at Employee's then-current salary, plus a bonus equal to 75% of Base Salary, less applicable deductions and withholding taxes, payable on the Company's normal payroll/bonus payment dates during that period;
(c) continue Employee's coverage under the Company's benefit plans of general application, or similar plans, at the Company's expense, for twelve (12) months after the date of termination, provided, however, that if Employee secures other employment during such period that provides similar coverage, the Company's obligation under this subsection (c) shall terminate;
(d) accelerate the vesting of all of Employee's Stock Options; and
(e) at Employee's request, the Company shall repurchase all or part of Employee's stock/vested options in the Company at the then-current Fair Market Value as may be established by an independent appraiser (mutually agreed upon by Employee and Company and paid for by the Company) if the stock is not publicly traded. Any such repurchase shall be in accordance with applicable accounting rules to avoid adverse accounting treatment.
For purposes of this Section 8:
(a) a "Change in Control" shall mean a transaction or series of related transactions (such as a merger, consolidation, sale of assets or tender offer) whereby the Company's stockholders immediately prior to the transaction or series of related transactions own less than a majority of the Company's voting stock, or the voting stock of the surviving entity of any such transaction or series of related transactions, after such transaction, on account of shares held by such stockholders in the Company immediately prior to such transaction or series of related transactions; and
(b) "Terminated" shall mean that Employee is not offered a position in the surviving entity in the Change in Control, or an affiliate of such company, including the Company, that is of the same title, responsibility and compensation as the
position Employee held in the Company prior to the Change in Control, within 50 miles of the Company's executive office prior to the Change in Control, and maintained in that position for at least twelve (12) months after the Change in Control, except for Cause. For the avoidance of doubt, if Employee is offered and maintained in a position where he continues to be the chief executive of the primary portion of the business that was operated by the Company prior to the Change in Control, at the same compensation and within 50 miles of the previous executive office, then he will not be deemed to have been "Terminated", even if he is not called the President or Chief Executive Officer of the surviving company.
9. Confidential Information. Employee shall not use, reveal, divulge or disclose, or permit or assist any other person, firm, partnership, limited liability company, corporation, or unincorporated association to use, any Confidential Information. Notwithstanding the foregoing, Employee shall not be subject to the restrictions set forth in this Section 9 with respect to information which:
(a) becomes generally available to the public other than as a result of disclosure by Employee or his agents or representatives;
(b) becomes available to Employee on a non-confidential basis from a source other than the Company or its agents, provided that such source lawfully obtained such information and is not bound by a confidentiality obligation not to disclose such information; or
(c) is required to be disclosed by law.
The provisions of this Section 9 shall survive indefinitely and remain in full force and effect regardless of any termination of this Agreement and the termination of Employee's employment with the Company for any reason.
10. Restriction Against Competition. In recognition of the product and industry knowledge, training, and client information Employer shall provide to Employee as part of his new employment with Employer, as well as the agreed-upon compensation, Employee agrees that throughout the term of his employment with the Employer and for a period of one (1) year thereafter, regardless of the reason for termination of employment, he will not, individually or in conjunction with any other person, or as an employee, consultant, agent, representative, partner or holder of any interest in any other person, firm, corporation or other association:
(a) Solicit, entice or induce, or authorize or direct any person, firm or corporation to solicit, entice or induce any person, firm or corporation, with whom Employee had direct business contact during the last year prior to his termination date, to reduce the amount of, or cease doing, business with the Employer;
(b) Solicit, entice or induce any person who is presently employed with the Employer to become employed by any other person, firm or corporation, and Employee shall not approach any such employee for such purpose or authorize or direct the taking of such actions by any other person; and
(c) Solicit, be employed by, consult for, participate in, directly or indirectly, or accept business in any area of Business that is competitive with Employer's.
11. Remedies. Employee acknowledges and agrees that the Company would suffer irreparable harm from a breach by Employee of the restrictive covenants set forth in Section 9 and/or 10. Therefore, in the event of the actual or threatened breach by Employee under Section 9 and/or 10, the Company may, in addition and supplementary to any other rights and remedies existing in its favor (including, without limitation, its right to terminate Employee's employment), apply to any court of law or equity of competent jurisdiction for specific performance or injunctive or other relief in order to enforce or prevent any violation of the provisions of Sections 9 and/or 10.
12. Dispute Resolution. Any controversy relating to the existence of Cause or Good Reason shall be settled by arbitration in the city in which the Company's headquarters is located, in accordance with the laws of the State of New Jersey by an arbitrator that is mutually acceptable to the Company and Employee. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, before a panel of three (3) arbitrators, to be selected by mutual agreement of the parties. Any and all fees charged by any arbitrator or panel of arbitrators shall be borne by the Company. The award of the arbitrators shall be binding upon the parties. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.
13. Litigation/Arbitration Expenses. In the event that any dispute arises between Employee and the Company as to the terms or interpretation of this Agreement, whether instituted by formal legal proceedings, arbitration or otherwise, including any action that either party takes to enforce the terms of this Agreement or to defend against any action taken by the other, the prevailing party shall be reimbursed for all costs and expenses (except as provided in Section12 hereof regarding arbitration costs), including reasonable attorney's fees, arising from such dispute, proceedings or actions, provided that the prevailing party shall obtain a final judgment by a court of competent jurisdiction in favor of the prevailing party. Such reimbursement shall be paid within ten (10) days of furnishing written evidence, which may be in the form, among other things, of a cancelled check or receipt, of any costs or expenses incurred.
14. Notice. All notices and other communications required or permitted
under this Agreement shall be deemed to have been duly given and made if in
writing and if served either by personal delivery to the party for whom intended
(which shall include delivery by Federal Express or similar service) or three
(3) business days after being deposited, postage prepaid, certified or
registered mail, return receipt requested, in the United States mail bearing the
address shown in this Agreement for, or such other address as may be designated
in writing hereafter by, such party:
If to Employee: Mark L. Kay
205 East Laurier Place
Bryn Mawr, PA 19010
|
If to the Company: StrikeForce Technologies, Inc.
1090 King Georges Post Road
Suite 108
Edison, NJ 08837
15. Reformation; Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is finally determined by a court of competent jurisdiction to be unenforceable or invalid under applicable law, such provision shall be effective only to the extent of its enforceability or validity, without affecting the enforceability or validity of the remainder of this Agreement, and such court shall have jurisdiction to reform this Agreement to the maximum extent permitted by law. In the event that any such provision of this Agreement cannot be reformed, such provision shall be deemed severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect.
16. Binding Effect; Waiver. The terms and provisions of this Agreement shall be binding on and inure to the benefit of Employee, his heirs, executors, administrators, and other legal representatives and shall be binding on and inure to the benefit of the Company, its affiliates, successors or assigns. The failure of the either party at any time or from time to time to require performance of any of the breaching party's obligations under this Agreement shall in no manner affect the other party's right to enforce any provision of this Agreement at a subsequent time, and the waiver of any rights arising out of any breach shall not be construed as a waiver of any rights arising out of any subsequent or prior breach.
17. Entire Agreement. This Agreement constitutes the entire agreement and understanding between Employee and the Company with respect to the subject matter hereof, and supersedes all prior agreements and understandings relating to the subject matter hereof.
18. Amendment. No amendment, modification, or waiver of any provision of this Agreement, or consent to any departure by Employee therefrom, shall be effective unless the same shall be in writing and signed by the parties hereto.
19. Assignment. This Agreement is for personal services to be performed by Employee and may not be assigned or transferred by Employee, or the obligations of Employee performed by any other party. All of the rights and obligations of the Company under this Agreement are fully assignable and transferable by the Company.
20. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
21. Headings. The various headings of this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof.
22. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed this instrument as of the date first above written.
EMPLOYEE:
/S/ Mark L. Kay
--------------------------------
Mark L. Kay
|
COMPANY:
StrikeForce Technologies, Inc.
By: /S/ Robert Denn
--------------------------
Name: Robert Denn
--------------------------
Title: President
--------------------------
|
AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN
StrikeForcc Technologies, Inc & Mark L. Kay
WHEREAS Mark L. Kay, an individual (Employee) and StrikeForce Technologies, Inc. Have entered into an Employment Agreement May 20, 2003: and
WHEREAS the Employment Agreement has made several recitals: and
WHEREAS the Employment Agreement specifically makes mention to and outlines the form and facts of compensation to be paid.
NOW, THEREFORE, be it known that as of this date November 27, 2004, Mr. Kay has consented to amend his Employment Agreement, specifically the compensation section (4) of the employment agreement. This amendment is to authorize the change, regarding the salary increase, based upon StrikeForce Technologies, Inc. receiving two million ($2,000,000) dollars of funding. This clause is to be replaced with the agreed upon wording "there will be no raises permitted until the Company is public". This change is agreed to by both parties (Mark L. Kay & StrikeForce Technologies, Inc.) as evidenced by the respective signatures of the parties below.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed this amendment as of the date November 27, 2004.
EMPLOYEE;
/S/ Mark L. Kay
------------
Mark L. Kay
|
COMPANY:
StrikeForce Technologies, Inc.
By:/S/Robert Denn -------------- Name: Robert Denn Title:President |
ADDENDUM TO EMPLOYMENT AGREEMENT
Between StrikeForce Technologies, Inc &
Mark L. Kay
WHEREAS Mart L. Kay, an individual (Employee) and StrikeForce Technologies, Inc, Have entered into an Employment Agreement May 20,2003; and
WAEEREAS the Employment Agreement has made several recitals: and
WHEREAS the Employment Agreement specifically makes mention to and outlines the form and facts of compensation to be paid.
NOW, THEREFORE, be it known that as of this date April 16, 2004 the executive management team (in an informal discussion) has unanimously consented to amend Mr. Kay'a Employment Agreement, specifically the compensation section (4) of the employment agreement This Addendum is to authorize the increase in Mr, Kay's compensation (Section 4 of the original Employment Agreement) to one hundred eleven thousand (S111,000) dollars,
IN WITNESS WHEREOF, me parties hereto have executed or caused to be executed this Addendum as of the date April 16, 2004.
EMPLOYEE:
By:/S/ Mark L. Kay
----------------
Mark L, Kay
|
COMPANY:
StrikeForce Technologies, Inc.
By:/S/Robert Denn -------------- Name: Robert Denn Title:President |
Exhibit 10.10
THIS SECURED DEBENTURE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT.
AMENDED AND RESTATED SECURED DEBENTURE
STRIKEFORCE TECHNOLOGIES, INC.
8% Secured Convertible Debenture
Due April 27, 2007
No. CCP-3 $1,024,876
This Amended and Restated Secured Debenture (the "Debenture") is issued on April 27, 2005 (the "Closing Date") by StrikeForce Technologies, Inc., a New Jersey corporation (the "Company"), to Cornell Capital Partners, LP (together with its permitted successors and assigns, the "Holder") pursuant to exemptions from registration under the Securities Act of 1933, as amended.
WHEREAS, The parties desire that this Debenture amend and replace the secured convertible debenture dated December 20, 2004 between the Company and Cornell Capital Partners, LP in the principal sum of Five Hundred Thousand Dollars ($500,000) (the "December Debenture") and the secured convertible debenture dated January 18, 2005 between the Company and Cornell Capital Partners, LP in the principal sum of Five Hundred Thousand Dollars ($500,000) (the "January Debenture"); and
WHEREAS, the principal amount of this Debenture shall include the entire outstanding principal sum of the December Debenture of Five Hundred Thousand Dollars ($500,000) plus the accrued and unpaid interest of Fourteen Thousand Twenty Seven Dollars ($14,027) on the December Debenture from December 20, 2004 through the date hereof and the entire outstanding principal sum of the January Debenture of Five Hundred Thousand Dollars ($500,000) plus the accrued and unpaid interest of Ten Thousand Eight Hundred Forty Nine Dollars ($10,849) on the January Debenture from January 18, 2005 through the date hereof.
ARTICLE I.
Section 1.01 Principal and Interest. For value received, the Company hereby promises to pay to the order of the Holder on April 26, 2007 ("Maturity Date"), in lawful money of the United States of America and in immediately available funds the principal sum of One Million Twenty Four Thousand Eight Hundred Seventy Six Dollars ($1,024,876), together with interest on the unpaid principal of this Debenture at the rate of eight percent (8%) per year (compounded monthly) from the date of this Debenture until paid.
Section 1.02 Optional Conversion. The Holder is entitled, at its option, to convert, and sell on the same day, at any time and from time to time, until payment in full of this Debenture, all or any part of the principal amount of the Debenture, plus accrued interest, into shares (the "Conversion Shares") of the Company's common stock, par value $0.0001 per share ("Common Stock"), at the lesser of: (i) the greater of (a) Twenty Five Cents ($0.25) or (b) One Hundred and Twenty Percent (120%) of the initial bid price of the Common Stock submitted on Form 211 by a registered market maker to and approved by the NASD (the "Fixed Price"); or (ii) Eighty Percent (80%) of the lowest Closing Bid Price during the five (5) trading days immediately preceding the date of conversion (the "Future Price") (the "Conversion Price") provided, however, that in no event shall the Holder be entitled to convert this Debenture for a number of shares of Common Stock in excess of that number of shares of Common Stock which, upon giving effect to such conversion, would cause the aggregate number of shares of Common Stock beneficially owned by the Holder and its affiliates to exceed 4.99% of the outstanding shares of the Common Stock following such conversion (which provision may be waived by the Investor by written notice from the Investor to the Company, which notice shall be effective 61 days after the date of such notice). For purposes of determining the "Closing Bid Price" on any day, reference shall be to the closing bid price for a share of Common Stock on such date on the OTCBB (or such other exchange, market, or other system that the Common Stock is then traded on), as reported on Bloomberg, L.P. (or similar organization or agency succeeding to its functions of reporting prices). No fraction of shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. To convert this Debenture, the Holder hereof shall deliver written notice thereof, substantially in the form of Exhibit A to this Debenture, with appropriate insertions (the "Conversion Notice"), to the Company at its address as set forth herein. The date upon which the conversion shall be effective (the "Conversion Date") shall be deemed to be the date set forth in the Conversion Notice. The Holder has the right to convert this Debenture after the Maturity Date.
Section 1.03 Reservation of Common Stock. The Company shall reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of this Debenture, such number of shares of Common Stock as shall from time to time be sufficient to effect such conversion, based upon the Conversion Price. If at any time the Company does not have a sufficient number of Conversion Shares authorized and available, then the
Company shall call and hold a special meeting of its stockholders within thirty
(30) days of that time, or as soon thereafter as permitted by applicable law,
for the sole purpose of increasing the number of authorized shares of Common
Stock.
Section 1.04 Right of Redemption. The Company at its option shall have the right to redeem, with three (3) business days advance written notice (the "Redemption Notice"), a portion or all outstanding convertible debenture. The redemption price shall be One Hundred Twenty Percent (120%) (the "Redemption Price") of the face amount redeemed plus accrued interest subject to the maximum amount of interest allowed to be charged by law. In the event the Company redeems the Debenture within One Hundred and Eighty (180) days of Closing Date, then the Redemption Price shall be One Hundred Ten Percent (110%). The Company shall pay the Redemption Price on all payments made pursuant to the Debenture, including payments made before, on, or after the Maturity Date. For all payments under this Debenture, the payment of the Redemption Price by the Company shall be in addition to any accrued interest due.
Section 1.05 Registration Rights. The Company is obligated to register the resale of the Conversion Shares under the Securities Act of 1933, as amended, pursuant to the terms of an Investor Registration Rights Agreement dated December 20, 2004 and amended April 27, 2005 between the Company and the Holder (the "Investor Registration Rights Agreement").
Section 1.06 Interest Payments. The interest so payable will be paid at the
time of maturity or conversion to the person in whose name this Debenture is
registered. Interest shall be paid in cash (via wire transfer or certified
funds). In the event of default, as described in Article III Section 3.01
hereunder, the Holder may elect that the interest be paid in cash (via wire
transfer or certified funds) or in the form of Common Stock. If paid in the form
of Common Stock, the amount of stock to be issued will be calculated as follows:
the value of the stock shall be the Closing Bid Price on: (i) the date the
interest payment is due; or (ii) if the interest payment is not made when due,
the date the interest payment is made. A number of shares of Common Stock with a
value equal to the amount of interest due shall be issued. No fractional shares
will be issued; therefore, in the event that the value of the Common Stock per
share does not equal the total interest due, the Company will pay the balance in
cash.
Section 1.07 Paying Agent and Registrar. Initially, the Company will act as paying agent and registrar. The Company may change any paying agent, registrar, or Company-registrar by giving the Holder not less than ten (10) business days' written notice of its election to do so, specifying the name, address, telephone number and facsimile number of the paying agent or registrar. The Company may act in any such capacity.
Section 1.08 Secured Nature of Debenture. This Debenture is secured by all of the assets and property of the Company as set forth on Exhibit A to the Security Agreement, dated December 20, 2004, between the Company and the Holder (the "Security Agreement").
ARTICLE II.
Section 2.01 Amendments and Waiver of Default. The Debenture may not be amended without the consent of the Holder. Notwithstanding the above, without the consent of the Holder, the Debenture may be amended to cure any ambiguity, defect or inconsistency, or to provide for assumption of the Company obligations to the Holder.
ARTICLE III.
Section 3.01 Events of Default. An Event of Default is defined as follows:
(a) failure by the Company to pay amounts due hereunder on the Maturity Date;
(b) failure by the Company's transfer agent to issue freely tradeable Common
Stock to the Holder within five (5) days of the Company's receipt of the
attached Conversion Notice from Holder; (c) failure by the Company for ten (10)
days after notice to it to comply with any of its other agreements in the
Debenture; (d) failure to comply with the terms of the Irrevocable Transfer
Agent Instructions (as defined in the Securities Purchase Agreement dated
December 20, 2004 between the Company and the Holder (the "Securities Purchase
Agreement") and amended on April 27, 2005); (e) if the Company files for relief
under the United States Bankruptcy Code (the "Bankruptcy Code") or under any
other state or federal bankruptcy or insolvency law, or files an assignment for
the benefit of creditors, or if an involuntary proceeding under the Bankruptcy
Code or under any other federal or state bankruptcy or insolvency law is
commenced against the company; and (f) a breach by the Company of its
obligations under any of the Securities Purchase Agreement, the Escrow
Agreement, the Security Agreement, the Investor Registration Rights Agreement or
any other related agreement between the Company and the Holder which is not
cured by the Company within any allocated cure period therein. Upon the
occurrence of an Event of Default, the Holder may, in its sole discretion, (i)
accelerate full repayment of all debentures outstanding and accrued interest
thereon or (ii) may, notwithstanding any limitations contained in this Debenture
and/or the Securities Purchase Agreement convert all debentures outstanding and
accrued interest thereon into shares of Common Stock in accordance with Section
1.02 hereof.
Section 3.02 Failure to Issue Unrestricted Common Stock. As indicated in Article III Section 3.01, a breach by the Company of its obligations under the Investor Registration Rights Agreement shall be deemed an Event of Default, which if not cured within ten (10) days, shall entitle the Holder to accelerate full repayment of all debentures outstanding and accrued interest thereon or, notwithstanding any limitations contained in this Debenture and/or the Securities Purchase Agreement, to convert all debentures outstanding and accrued interest thereon into shares of Common Stock pursuant to Section 1.02 herein. The Company acknowledges that failure to honor a Conversion Notice shall cause irreparable harm to the Holder.
ARTICLE IV.
Section 4.01 Rights and Terms of Conversion. This Debenture, in whole or in part, may be converted at any time following the Closing Date into shares of Common Stock at a price equal to the Conversion Price as described in Section 1.02 above.
Section 4.02 Re-issuance of Debenture. When the Holder elects to convert a part of the Debenture, then the Company shall reissue a new Debenture in the same form as this Debenture to reflect the new principal amount.
ARTICLE V.
Section 5.01 Anti-dilution. Adjustment of Fixed Price. The Fixed Price shall be adjusted from time to time as follows:
(a) Adjustment of Fixed Price and Number of Shares upon Issuance of Common Stock. If and whenever on or after the Closing Date of this Debenture, the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (other than (i) Excluded Securities (as defined herein) and (ii) shares of Common Stock which are issued or deemed to have been issued by the Company in connection with an Approved Stock Plan (as defined herein) or upon issuance, exercise or conversion of the Other Securities (as defined herein)) for a consideration per share less than a price (the "Applicable Price") equal to the Fixed Price in effect immediately prior to such issuance or sale, then immediately after such issue or sale the Fixed Price then in effect shall be reduced to an amount equal to such consideration per share, provided that in no event shall the Fixed Price be reduced below $0.0001.
(b) Effect on Fixed Price of Certain Events. For purposes of determining the adjusted Fixed Price under Section 5.01(a) above, the following shall be applicable:
(i) Issuance of Options. If after the date hereof, the Company in any manner grants any rights, warrants or options to subscribe for or purchase Common Stock or convertible securities ("Options") and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange of any convertible securities issuable upon exercise of any such Option is less than the Fixed Price then in effect, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 5.01(b)(i), the lowest price per share for which one share of Common Stock is issuable upon exercise of such Options or upon conversion or exchange of such convertible securities shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option or upon conversion or exchange of any other convertible security other than this Debenture issuable upon exercise of such Option. No further adjustment of the Fixed Price shall be made upon the actual issuance of such Common Stock or of such convertible securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such convertible securities.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any convertible securities after the Closing Date and the lowest
price per share for which one share of Common Stock is issuable upon the
conversion or exchange thereof is less than the Fixed Price then in effect, then
such share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or sale of such
convertible securities for such price per share. For the purposes of this
Section 5.01(b)(ii), the lowest price per share for which one share of Common
Stock is issuable upon such conversion or exchange shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon the issuance or sale of
the convertible security and upon conversion or exchange of such convertible
security. No further adjustment of the Fixed Price shall be made upon the actual
issuance of such Common Stock upon conversion or exchange of such convertible
securities, and if any such issue or sale of such convertible securities is made
upon exercise of any Options for which adjustment of the Fixed Price had been or
are to be made pursuant to other provisions of this Section 5.01(b), no further
adjustment of the Fixed Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or exchange of any convertible securities, or the rate at which any convertible securities are convertible into or exchangeable for Common Stock changes at any time, the Fixed Price in effect at the time of such change shall be adjusted to the Fixed Price which would have been in effect at such time had such Options or convertible securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of shares of Common Stock issuable upon conversion of this Debenture shall be correspondingly readjusted. For purposes of this Section 5.01(b)(iii), if the terms of any Option or convertible security that was outstanding as of the Closing Date of this Debenture are changed in the manner described in the immediately preceding sentence, then such Option or convertible security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment pursuant to this Section 5.01(b) shall be made if such adjustment would result in an increase of the Fixed Price then in effect.
(c) Effect on Fixed Price of Certain Events. For purposes of determining the adjusted Fixed Price under Sections 5.01(a) and 5.01(b), the following shall be applicable:
(i) Calculation of Consideration Received. If any Common Stock, Options or convertible securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefore will be deemed to be the net amount received by the Company therefore. If any Common Stock, Options or convertible securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the market price of such securities on the date of receipt of such securities. If any Common Stock, Options or convertible securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefore will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or convertible securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of the Debenture representing at least two-thirds of the shares of Common Stock issuable upon conversion of the Debenture then outstanding. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of the Debenture representing at least two-thirds of the shares of Common Stock issuable upon conversion of the Debenture then outstanding. The determination of such appraiser shall be final and binding upon all parties and the fees and expenses of such appraiser shall be borne by the Company.
(ii) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $0.001.
(iii) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held will be considered an issue or sale of Common Stock.
(iv) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in convertible securities or (2) to subscribe for or purchase Common Stock, Options or convertible securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.
(d) Adjustment of Fixed Price upon Subdivision or Combination of Common Stock. If the Company at any time after the date of issuance of this Debenture subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, any Fixed Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time after the date of issuance of this Debenture combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, any Fixed Price in effect immediately prior to such combination will be proportionately increased. Any adjustment under this Section 5.01(d) shall become effective at the close of business on the date the subdivision or combination becomes effective.
(e) Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Debenture, then, in each such case any Fixed Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Fixed Price by a fraction of which (A) the numerator shall be the closing bid price of the Common Stock on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's Board of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the closing bid price of the Common Stock on the trading day immediately preceding such record date.
(f) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 5.01 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Fixed
Price so as to protect the rights of the holders of the Debenture; provided,
except as set forth in Section 5.01(d), that no such adjustment pursuant to this
Section 5.01(f) will increase the Fixed Price as otherwise determined pursuant
to this Section 5.01.
(g) Notices.
(i) Immediately upon any adjustment of the Fixed Price, the Company will give written notice thereof to the holder of this Debenture, setting forth in reasonable detail, and certifying, the calculation of such adjustment.
(ii) The Company will give written notice to the holder of this Debenture at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder.
(h) Definitions.
(i) "Approved Stock Plan" means any employee benefit plan which has been approved by the Board of Directors of the Company, pursuant to which the Company's securities may be issued to any employee, officer or director for services provided to the Company.
(ii) "Excluded Securities" means, provided such security is issued at a price which is greater than or equal to the arithmetic average of the Closing Bid Prices of the Common Stock for the ten (10) consecutive trading days immediately preceding the date of issuance, any of the following: (a) any issuance by the Company of securities in connection with a strategic partnership or a joint venture (the primary purpose of which is not to raise equity capital), (b) any issuance by the Company of securities as consideration for a merger or consolidation or the acquisition of a business, product, license, or other assets of another person or entity and (c) options to purchase shares of Common Stock, provided (I) the issuance of such options are issued after the date of this Debenture to employees of the Company and is limited to 100,000 shares of the Company's common stock, and (II) the exercise price of such options is not less than the closing bid price of the Common Stock on the date of issuance of such option.
(iii) "Other Securities" means (i) those options and warrants of the Company issued prior to, and outstanding on, the Closing Date, (ii) the shares of Common Stock issuable on exercise of such options and warrants, provided such options and warrants are not amended after the Closing Date and (iii) the shares of Common Stock issuable upon conversion of this Debenture, or otherwise in connection with this Debenture or in connection with the Cornell Debentures (as defined in the Securities Purchase Agreement).
(i) Nothing in this Section 5.01 shall be deemed to authorize the issuance of any securities by the Company in violation of Section 5.02.
Section 5.02 Consent of Holder to Sell Capital Stock or Grant Security Interests. So long as any of the principal of or interest on this Debenture remains unpaid and unconverted, the Company shall not, except as provided in the Disclosure Schedule to the Securities Purchase Agreement, without the prior consent of the Holder, (i) issue or sell any Common Stock or Preferred Stock without consideration or for a consideration per share less than its fair market value 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 fair market value determined immediately prior to its issuance, (iii) enter into any security instrument granting the holder a security interest in any of the assets of the Company, or (iv) file any registration statement on Form S-8.
ARTICLE VI.
Section 6.01 Notice. Notices regarding this Debenture shall be sent to the parties at the following addresses, unless a party notifies the other parties, in writing, of a change of address:
If to the Company, to: StrikeForce Technologies, Inc.
1090 King Georges Post Road
Suite 108 Edison, NJ 08837
Attention: Mark Kay
Telephone: (732) 661-9641
Facsimile: (732) 661-9647
With a copy to: Sichenzia, Ross, Friedman and Ference, LLP
1065 Avenue of the Americas
New York, New York 10018
Attn: Eric Pinero, Esq.
Telephone: (212) 930-9700
Facsimile: (212) 930-9725
If to the Holder: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
With a copy to: Troy Rillo, Esq.
|
101 Hudson Street, Suite 3700 Jersey City, NJ 07302 Telephone: (201) 985-8300 Facsimile: (201) 985-8266
Section 6.02 Governing Law. The parties hereto acknowledge that the transactions contemplated by this Agreement and the exhibits hereto bear a reasonable relation to the State of New York. The parties hereto agree that the internal laws of the State of New York shall govern this Agreement and the
exhibits hereto, including, but not limited to, all issues related to usury. Any action to enforce the terms of this Agreement or any of its exhibits shall be brought exclusively in the state and/or federal courts situated in the County and State of New York. Service of process in any action by the Buyers to enforce the terms of this Agreement may be made by serving a copy of the summons and complaint, in addition to any other relevant documents, by commercial overnight courier to the Company at its principal address set forth in this Agreement.
Section 6.03 Severability. The invalidity of any of the provisions of this Debenture shall not invalidate or otherwise affect any of the other provisions of this Debenture, which shall remain in full force and effect.
Section 6.04 Entire Agreement and Amendments. This Debenture represents the entire agreement between the parties hereto with respect to the subject matter hereof and there are no representations, warranties or commitments, except as set forth herein. This Debenture may be amended only by an instrument in writing executed by the parties hereto.
Section 6.05 Counterparts. This Debenture may be executed in multiple counterparts, each of which shall be an original, but all of which shall be deemed to constitute on instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company as executed this Debenture as of the date first written above.
STRIKEFORCE TECHNOLOGIES, INC.
By: /s/ Mark Kay
-------------
Name: Mark Kay
Title: Chief Executive Officer
|
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to Convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $ of the principal amount of the above Debenture into Shares of Common Stock of StrikeForce Technologies, Inc., according to the conditions stated therein, as of the Conversion Date written below.
Conversion Date: _______________________________________ Applicable Conversion Price: _______________________________________ Signature: _______________________________________ Name: _______________________________________ Address: _______________________________________ Amount to be converted: $_______________________________________ Amount of Debenture unconverted: $_______________________________________ Conversion Price per share: $_______________________________________ Number of shares of Common Stock to be issued: _______________________________________ Please issue the shares of Common Stock in the following name and to the following address: _______________________________________ Issue to: Authorized Signature: _______________________________________ Name: _______________________________________ Title: Phone Number: _______________________________________ Broker DTC Participant Code: _______________________________________ Account Number: _______________________________________ |
Exhibit 10.11
AMENDMENT AND CONSENT
This Amendment and Consent ("Amendment") dated April 27, 2005, is made to the certain Investor Registration Rights Agreement (the "Registration Rights Agreement") dated as of December 20, 2004, by and between StrikeForce Technologies, Inc., a corporation incorporated under the laws of the State of New Jersey (the "Company"), and Cornell Capital Partners, L.P. (the "Investor") entered into in connection with the Securities Purchase Agreement (the "Purchase Agreement") dated as of December 20, 2004, between the Investor and the Company, and the Amended and Restated Secured Convertible Debenture issued there under and dated the date hereof (the "Debenture").
WHEREAS, the Company withdrew the Initial Registration Statement filed on January 18, 2005 registering shares of Common Stock issuable upon conversion of the Debentures and issuable pursuant to the Standby Equity Distribution Agreement dated as of December 20, 2004, and refiled the Initial Registration Statement with the SEC on February 11, 2005 to register the shares issuable under the Debenture;
WHEREAS, the Company withdrew the Initial Registration Statement filed on February 11, 2005 to prepare and file a new Registration Statement to include approximately 6,660,000 additional shares of the Company's Common Stock to be issued in connection with the Highgate Issuance (as defined below) (the "Amended Registration Statement"); and
WHEREAS, the parties desire to extend the Company's deadlines for the effectiveness of the Amended Registration Statement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. REGISTRATION. Section 2(a) of the Registration Rights Agreement shall be amended and restated as follows:
(a) Subject to the terms and conditions of this Agreement, the Company shall prepare and file, no later than thirty (30) days from the date hereof (the "Scheduled Filing Deadline"), a registration statement with the SEC on Form S-1 or SB-2 (or, if the Company is then eligible, on Form S-3) under the Securities Act (the "Amended Registration Statement") for the resale of the Registrable Securities by the Investors, which includes at least 6,660,000 shares of Common Stock to be issued upon conversion of the Convertible Debentures. The Company shall cause the Registration Statement to remain effective until all of the Registrable Securities have been sold. Prior to the filing of the Registration Statement with the SEC, the Company shall furnish a copy of the Initial Registration Statement to the Investors for their review and comment. The Investors shall furnish comments to the Initial Registration Statement to the Company within twenty four (24) hours of the receipt thereof from the Company.
2. Section 2(b) of the Registration Rights Agreement shall be amended and restated as follows:
(b) Effectiveness of the Amended Registration Statement. The Company shall use its best efforts (i) to have the Amended Registration Statement declared effective by the SEC no later than one hundred twenty (120) days after the filing thereof (the "Scheduled Effective Deadline") and (ii) to insure that the Amended Registration Statement and any subsequent Registration Statement remains in effect until all of the Registrable Securities have been sold, subject to the terms and conditions of this Agreement. It shall be an event of default hereunder if the Amended Registration Statement is not declared effective by the SEC within one hundred twenty (120) days after the filing thereof.
3. CONSENT. Notwithstanding Sections 4(k) and 4(p) of the Purchase Agreement and Section 5.02 of the Debenture, the Investor hereby consents to the issuance of convertible debentures in the aggregate principal amount of $750,000, convertible into Common Stock of the Company and 150,000 shares of the Common Stock of the Company to Highgate House Funds, Ltd, in accordance with the terms of the term sheet attached hereto as Exhibit A ("Highgate Issuance") and to register approximately 6,660,000 additional shares of the Company's Common Stock on the Registration Statement, including approximately 6,510,000 shares of Common Stock underlying a certain convertible debenture in the principal amount of $750,000 and 150,000 shares of Common Stock. The parties agree that the Investor's consent is a one time consent specific to the Highgate Issuance and the related registration of such shares of Common Stock in connection with the Highgate Issuance only and the Investor retains the right to enforce Sections 4(k) and 4(p) of the Purchase Agreement and Section 5.02 of the Debenture with respect to any future issuances.
4. Effect on Purchase Agreement and the Transaction Documents. Except as
expressly set forth above, all of the terms and conditions of the Purchase
Agreement, the Debenture and the transaction documents with respect thereto
shall continue in full force and effect after the execution of this Amendment,
and shall not be in any way changed, modified or superseded by the terms set
forth herein, including Sections 4(k) and 4(p) of the Purchase Agreement and
Section 5.02 of the Debenture.
5. Effect on the Registration Rights Agreement. Except as expressly set forth above, all of the terms and conditions of the Registration Rights Agreement, shall continue in full force and effect after the execution of this Amendment, and shall not be in any way changed, modified or superseded by the terms set forth herein.
6. Definitions. Capitalized terms not otherwise defined herein have the meanings given to such terms in the Purchase Agreement, the Registration Rights Agreement and the Debenture.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
Executed as of April 27, 2005 by the undersigned duly authorized representatives of the Company and Investor:
STRIKEFORCE TECHNOLOGIES, INC. CORNELL CAPITAL PARTNERS, L.P.
By: Yorkville Advisors, LLC
By: /s/ Mark L. Kay Its: General Partner
-----------------------
Name: Mark L. Kay
Title: Chief Executive Officer
By: /s/ Mark A. Angelo
-------------------
Name: Mark A. Angelo
Title: Portfolio Manager
|
EXHIBIT "A"
CONFIDENTIAL TERM SHEET
CONVERTIBLE DEBENTURE
Issuer: StrikeForce Technologies, Inc.
Investor: Highgate House Funds, Ltd.
Securities: Seven Hundred Fifty Thousand Dollars ($750,000) (the
"Gross Proceeds") of securities in the form of a
promissory note convertible (the "Convertible"), into
shares of the Issuer's common stock ("Common Stock").
Term: Two (2) years from the date of closing ("Maturity').
Common Stock: Issuer shall issue to the Investor 150,000 shares of
Common Stock. These shares of Common Stock shall be
included on the registration statement to be filed by
the Issuer as described below.
Conversion: The Investor may at its sole option convert any or all
of the face amount of the Convertible plus a premium on
that amount accruing at a rate of seven percent (7%) per
annum, compounded monthly, from the date of closing to
the date of conversion ("Conversion Amount"). The number
of shares of Common Stock of the Issuer to be received
upon conversion will be determined by dividing the
Conversion Amount by the Conversion Price, as defined
below.
Conversion Price: At the Investor's sole option, the Convertible is
convertible into Common Stock at the lower of: (i) one
hundred twenty percent (120%) of the average closing bid
price for the five (5) trading days immediately
preceding the Closing Date (the "Fixed Price"); or
eighty percent (80%) of the lowest closing bid price for
the five (5) trading days immediately preceding the date
of conversion (the "Future Price").
Security: The Issuer will grant to the Investor a perfected
security interest in the assets of the Issuer as
evidenced by a UCC-1 filing. The Issuer will also
deposit into escrow shares of Common Stock equal to five
(5) times the Gross Proceeds ("Escrow Shares").
5
|
Closing Date: The closing date will be the date on which
definitive documents are signed by and between the
Issuer and Investor ("Closing Date"). It is estimated
that the Closing Date shall take place within a
reasonable amount of time from the execution of this
term sheet, notwithstanding any and all due diligence
and documentation issues that can arise.
Disbursement: The Gross Proceeds shall be disbursed, subject to the
deduction of any and all fees, in equal installments as
follows: one half (1/2) on the Closing Date and one half
(1/2) upon the filing of a registration statement as
described herein.
Redemption: The Issuer must redeem the Convertible upon Maturity.
The Issuer shall have the right to redeem the
Convertible at any time prior to Maturity, upon three
(3) business days prior written notice, any or
all-outstanding Convertible remaining in its sole
discretion. The redemption price shall be one hundred
twenty percent (120%) of the face amount redeemed plus
accrued interest, subject to the maximum amount of
interest allowed to be charged by law. In the event the
Issuer redeems the Convertible within one hundred eighty
(180) days of Closing, then the redemption price shall
be one hundred ten percent (110%).
Registration: Promptly, but no later than thirty (30) calendar days
from the Closing Date, the Issuer shall file a
registration statement (on Form SB-2, or similar form)
with the United States Securities & Exchange Commission
("SEC") covering the shares of Common Stock and the
shares of Common
Stock underlying the Convertible (the "Registration
Statement"). The Issuer shall use its best
efforts to ensure that such Registration Statement is
declared effective within ninety (90) calendar days of
the date of filing with the SEC. In the event the
Registration Statement is not declared effective within
ninety (90) calendar days, then the Issuer shall pay to
the Investor in cash or shall issue to the Investor
shares of the Issuer's common stock, at the Issuer's
sole election, within three (3) business days from the
end of the month, an amount equal to two percent (2%)
per month of the outstanding principal amount of the
Convertible as liquidated damages and not as a penalty.
The Issuer shall keep the Registration Statement
"Evergreen" for the life of the Convertible or until
Rule 144(k) of the Securities Act of 1933, as amended,
is available to the Investor, whichever is later. The
Issuer shall retain, and pay at its sole expense, a law
firm to file the Registration Statement from a list of
approved law firms provided by the Investor.
Share Issuance: At all times, the Issuer shall keep available Common
Stock duly authorized for issuance against the
Convertible including the Escrow Shares. If at any time,
the Issuer does not have available an amount of
authorized and non-issued Common Stock necessary to
satisfy issuance of the Escrow Shares, the Issuer shall
call and hold a special meeting within thirty (30) days
of such occurrence, for the sole purpose of increasing
the number of shares of Common Stock authorized.
6
|
Management of the Issuer shall recommend to shareholders
to vote in favor of increasing the number of Common
Stock authorized. Management shall also vote all of its
shares in favor of increasing the number of Common Stock
authorized.
No Shorting: Neither the Investor nor its affiliates has an open
short position in the Common Stock of the Issuer, 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.
Banker's Fees: The Investor shall receive cash compensation equal
to ten percent (10%) of the Gross Proceeds of the
Convertible to be paid directly from escrow from
Disbursement as described above.
Legal Fee: The Issuer agrees to pay a structuring fee of
$10,000 in connection with this transaction upon
execution of the Term Sheet. The Issuer shall bear all
of its own legal and professional fees and expenses,
including but not limited to those associated with the
filing of its Registration Statement as contemplated
herein.
Expenses: The Issuer agrees to pay to a non-refundable due
diligence fee of $5,000 upon execution of the Term
Sheet.
[SIGNATURE PAGE TO IMMEDIATELY FOLLOW]
|
If the terms and conditions contained herein in this four (4) page Term Sheet as of the date first written above are satisfactory, then please sign as indicated below. We appreciate this opportunity to work with you on this investment.
HIGHGATE HOUSE FUNDS, LTD.
By:___________________________
Name: Adam S. Gottbetter
Its: Portfolio Manager
StrikeForce Technologies, Inc.
By:___________________________
Name: Mark Kay
Title:Chief Executive Officer
Exhibit 10.12
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of April 27, 2005, by and among STRIKEFORCE TECHNOLOGIES, INC., a New Jersey corporation (the "Company"), and the Buyers listed on Schedule I attached hereto (individually, a "Buyer" or collectively "Buyers").
WITNESSETH:
WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act");
WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Buyer(s), as provided herein, and the Buyer(s) shall purchase (i) up to Seven Hundred and Fifty Thousand Dollars ($750,000) of secured convertible debentures (the "Convertible Debentures"), which shall be convertible into shares of the Company's common stock, par value $0.0001 (the "Common Stock") (as converted, the "Conversion Shares") of which, subject to the deduction of any and all fees, Three Hundred and Seventy Five Thousand Dollars ($375,000) shall be funded on the Closing Date (the "First Closing") and Three Hundred and Seventy Five Thousand Dollars ($375,000) shall be funded upon the filing of the registration statement (the "Registration Statement"), pursuant to the Investor Registration Rights Agreement dated the date hereof, with the United States Securities and Exchange Commission (the "SEC") (the "Second Closing") (individually referred to as a "Closing" collectively referred to as the "Closings"), and (ii) 150,000 shares of Common Stock (the "Shares") at the First Closing, for a total purchase price of up to Seven Hundred and Fifty Thousand Dollars ($750,000), (the "Purchase Price") subject to the deduction of any and all fees, in the respective amounts set forth opposite each Buyer(s) name on Schedule I (the "Subscription Amount");
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering an Investor Registration Rights Agreement substantially in the form attached hereto as Exhibit A (the "Investor Registration Rights Agreement") pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated there under, and applicable state securities laws;
WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures and Shares contemplated hereby shall be held in escrow pursuant to the terms of an escrow agreement substantially in the form of the Escrow Agreement among the Company, the Buyer and the Escrow Agent (as defined below) attached hereto as Exhibit B (the "Escrow Agreement");
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Security Agreement substantially in the form attached hereto as Exhibit C (the "Security
Agreement") pursuant to which the Company has agreed to provide the Buyer a security interest in Pledged Collateral (as this term is defined in the Security Agreement) to secure the Company's obligations under this Agreement, the Convertible Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined below), the Escrow Shares Escrow Agreement, the Security Agreement or any other obligations of the Company to the Buyer;
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering an Escrow Shares Escrow Agreement substantially in the form attached hereto as Exhibit D (the "Escrow Shares Escrow Agreement") pursuant to which the Company shall issue and deliver to the Escrow Agent 6,660,000 shares of Common Stock or "security stock" (the "Escrow Shares") and the Escrow Agent shall distribute the Escrow Shares to the Buyer(s) upon receipt of a Conversion Notice (as defined herein);
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering Irrevocable Transfer Agent Instructions substantially in the form attached hereto as Exhibit E (the "Irrevocable Transfer Agent Instructions");
WHEREAS, the Company entered into a Securities Purchase Agreement with Cornell Capital Partners, LLP on December 20, 2004 (the "Cornell Agreement") in which the Company issued a certain $1,000,000 Convertible Debenture (the "Cornell Debenture"); and
NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in this Agreement the Company and the Buyer(s) hereby agree as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES and Shares.
(a) Purchase of Convertible Debentures. Subject to the satisfaction (or waiver) of the terms and conditions of this Agreement, each Buyer agrees, severally and not jointly, to purchase at Closing (as defined herein below) and the Company agrees to sell and issue to each Buyer, severally and not jointly, at Closing, Convertible Debentures in amounts corresponding with the Subscription Amount set forth opposite each Buyer's name on Schedule I hereto and the Shares. Upon execution hereof by a Buyer, the Buyer shall wire transfer the Subscription Amount set forth opposite his name on Schedule I in same-day funds or a check payable to Gottbetter & Partners, LLP as Escrow Agent for StrikeForce Technologies, Inc., which Subscription Amount shall be held in escrow pursuant to the terms of the Escrow Agreement and disbursed in accordance therewith.
(b) Closing Date. The First Closing of the purchase and sale of the
Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time on
the fifth (5th) business day following the date hereof, subject to notification
of satisfaction of the conditions to the First Closing set forth herein and in
Sections 7 and 8 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the "First Closing Date") and the Second Closing of
the purchase and sale of the Convertible Debentures shall take place at 10:00
a.m. Eastern Standard Time two (2) business days prior to the date the
Registration Statement is filed with the SEC, subject to notification of
satisfaction of the conditions to the Second Closing set forth herein and in
Sections 7 and 8 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the "Second Closing Date") (collectively referred to a the "Closing Dates"). The Closing shall occur on the respective Closing Dates at the offices of Gottbetter & Partners, LLP, 488 Madison Avenue, New York, New York 10022 (or such other place as is mutually agreed to by the Company and the Buyer(s)).
(c) Escrow Arrangements; Form of Payment. Upon execution hereof by
Buyer(s) and pending the Closings, $375,000 shall be deposited in a non-interest
bearing escrow account with Gottbetter & Partners, LLP, as escrow agent (the
"Escrow Agent"), pursuant to the terms of the Escrow Agreement. If the
conditions in Sections 7 and 8 and as set forth herein for the Second Closing
are satisfied, an additional $375,000 shall be deposited in a non-interest
bearing account with the Escrow Agent one business day prior to the Second
Closing Date. Subject to the satisfaction of the terms and conditions of this
Agreement, on the Closing Dates, (i) the Escrow Agent shall deliver to the
Company in accordance with the terms of the Escrow Agreement such aggregate
proceeds for the Convertible Debentures and Shares to be issued and sold to such
Buyer(s), minus if unpaid, structuring fees and expenses of Yorkville Advisors
Management, LLC of Seventy Five Thousand Dollars ($75,000) and the commitment
fee of Five Thousand ($5,000) which shall be paid directly from the gross
proceeds held in escrow of the First Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions and
(ii) the Company shall deliver to each Buyer, Convertible Debentures which such
Buyer(s) is purchasing in amounts indicated opposite such Buyer's name on
Schedule I, duly executed on behalf of the Company, and the Shares.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) Investment Purpose. Each Buyer is acquiring the Convertible Debentures, Shares and, upon conversion of Convertible Debentures, the Buyer will acquire the Escrow Shares and/or Conversion Shares then issuable, for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, such Buyer reserves the right to dispose of the Conversion Shares, the Shares and the Escrow Shares at any time in accordance with or pursuant to an effective registration statement covering such Conversion Shares, Shares and Escrow Shares or an available exemption under the Securities Act.
(b) Accredited Investor Status. Each Buyer is an "Accredited Investor" as that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. Each Buyer understands that the Convertible Debentures and Shares are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire such securities.
(d) Information. Each Buyer and its advisors (and its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information deemed material to making an informed investment decision regarding the purchase of the Convertible Debentures, the Escrow Shares, the Shares and the Conversion Shares, which have been requested by such Buyer. Each Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management. Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer's right to rely on the Company's representations and warranties contained in Section 3 below. Each Buyer understands that its investment in the Convertible Debentures, the Escrow Shares, the Shares and the Conversion Shares involves a high degree of risk. Each Buyer is in a position regarding the Company, which, based upon employment, family relationship or economic bargaining power, enabled and enables such Buyer to obtain information from the Company in order to evaluate the merits and risks of this investment. Each Buyer has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to its acquisition of the Convertible Debentures, the Escrow Shares, the Shares and the Conversion Shares.
(e) No Governmental Review. Each Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Convertible Debentures, the Escrow Shares, the Shares or the Conversion Shares, or the fairness or suitability of the investment in the Convertible Debentures, the Escrow Shares, the Shares or the Conversion Shares, nor have such authorities passed upon or endorsed the merits of the offering of the Convertible Debentures, the Escrow Shares, the Shares or the Conversion Shares.
(f) Transfer or Resale. Each Buyer understands that except as provided in the Investor Registration Rights Agreement: (i) the Convertible Debentures and Shares have not been and are not being registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, or (B) such Buyer shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that such securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration requirements; (ii) any sale of such securities made in reliance on Rule 144 under the Securities Act (or a successor rule thereto) ("Rule 144") may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of such securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.
(g) Legends. Each Buyer understands that the certificates or other instruments representing the Convertible Debentures, the Escrow Shares, the Shares and/or the Conversion Shares shall bear a restrictive legend in substantially the following form (and a stop transfer order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed and the Company within three (3) business days shall issue a certificate without such legend to the holder of the Escrow Shares, Shares or Conversion Shares upon which it is stamped, if, unless otherwise required by state securities laws, (i) in connection with a sale transaction, provided the Escrow Shares, Shares or Conversion Shares are registered under the Securities Act or (ii) in connection with a sale transaction, after such holder provides the Company with an opinion of counsel, which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale, assignment or transfer of the Escrow Shares, Shares or Conversion Shares may be made without registration under the Securities Act.
(h) Authorization, Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and is a valid and binding agreement of such Buyer enforceable in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies.
(i) Receipt of Documents. Each Buyer and his or its counsel (i) has received and read in their entirety: (A) this Agreement and each representation, warranty and covenant set forth herein, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the Escrow Shares Escrow Agreement and the Irrevocable Transfer Agent Instructions; and (B) all due diligence and other information necessary to verify the accuracy and completeness of such representations, warranties and covenants; and (ii) has received answers to all questions each Buyer submitted to the Company regarding an investment in the Company; and each Buyer has relied on the information contained therein and has been furnished with any other documents, literature, memorandum or prospectus requested.
(j) Due Formation of Corporate and Other Buyers. If the Buyer(s) is a corporation, trust, partnership or other entity that is not an individual person, it has been formed and validly exists and has not been organized for the specific purpose of purchasing the Convertible Debentures and Shares and is not prohibited from doing so.
(k) No Legal Advice From the Company. Each Buyer acknowledges, that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his or its own legal counsel and investment and tax advisors. Each Buyer is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction.
(l) No Group Participation. Each Buyer and its affiliates is not a member of any group, nor is any Buyer acting in concert with any other person, including any other Buyer, with respect to its acquisition of the Convertible Debentures, Escrow Shares, Shares or Conversion Shares.
(m) Company Registration Statement. No Buyer makes any representation or warranty regarding the Company's ability to successfully become a public company or to have any registration statement filed by the Company pursuant to the Investor Registration Rights Agreement or otherwise declared effective by the SEC. The Company has the sole obligation to make any and all such filings as may be necessary to become a public company and to have any registration statement declared effective by the SEC.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as set forth in the Disclosure Schedule attached hereto:
(a) Organization and Qualification. The Company and its subsidiaries are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted. Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole.
(b) Authorization, Enforcement, Compliance with Other Instruments. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Security Agreement, the Investor Registration Rights Agreement, the Irrevocable Transfer Agent Instructions, the Escrow Agreement, the Escrow Shares Escrow Agreement and any related agreements (collectively the "Transaction Documents") and to issue the Convertible Debentures, the Escrow Shares, the Shares and the Conversion Shares in accordance with the terms hereof and thereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Convertible Debentures, the Shares and the Escrow Shares, and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion thereof, have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) the Transaction Documents have been duly executed and delivered by the Company, (iv) the Transaction Documents constitute the valid
and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. The authorized officer of the Company executing the Transaction Documents knows of no reason why the Company cannot file the registration statement as required under the Investor Registration Rights Agreement or perform any of the Company's other obligations under such documents.
(c) Capitalization. The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock, par value $0.0001 per share and 10,000,000 shares of Preferred Stock of which 17,288,855 shares of Common Stock and are issued and outstanding. There are no issued and outstanding shares of Preferred Stock. All of such outstanding shares have been validly issued and are fully paid and nonassessable. Except as disclosed in the Disclosure Schedule, no shares of Common Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company. Except as disclosed in the Disclosure Schedule, as of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding debt securities and (iii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to the Registration Rights Agreement) and (iv) there are no outstanding registration statements and there are no outstanding comment letters from the SEC or any other regulatory agency. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Convertible Debentures and Shares as described in this Agreement. The Company has furnished to the Buyer true and correct copies of the Company's Articles of Incorporation, as amended and as in effect on the date hereof (the "Articles of Incorporation"), and the Company's By-laws, as in effect on the date hereof (the "By-laws"), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto other than stock options issued to employees and consultants.
(d) Issuance of Securities. The Convertible Debentures, the Shares and the Escrow Shares are duly authorized and, upon issuance in accordance with the terms hereof, shall be duly issued, fully paid and nonassessable, are free from all taxes, liens and charges with respect to the issue thereof. The Conversion Shares issuable upon conversion of the Convertible Debentures have been duly authorized and reserved for issuance. Upon conversion in accordance with the Convertible Debentures, Conversion Shares will be duly issued, fully paid and nonassessable.
(e) No Conflicts. Except as disclosed in the Disclosure Schedule, the execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Articles of Incorporation, any certificate of designations of any outstanding series of preferred stock of the Company or the By-laws or (ii) conflict with or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of The National Association of Securities Dealers Inc.'s OTC Bulletin Board on which the Common Stock is quoted) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected. Except as disclosed in the Disclosure Schedule, neither the Company nor its subsidiaries is in violation of any term of or in default under its Articles of Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is not being conducted, and shall not be conducted in violation of any material law, ordinance, or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement or the Registration Rights Agreement in accordance with the terms hereof or thereof. Except as disclosed in the Disclosure Schedule, all consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its subsidiaries are unaware of any facts or circumstance, which might give rise to any of the foregoing.
(f) Financial Statements. As of their respective dates, the financial
statements of the Company (the "Financial Statements") for the three most
recently completed fiscal years and any subsequent interim period complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such Financial Statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer, including, without limitation, information referred to in this
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(g) Absence of Litigation. Except as disclosed in the Disclosure Schedule, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company, the Common Stock or any of the Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a material adverse effect on the transactions contemplated hereby (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement or any of the documents contemplated herein, or (iii) except as expressly disclosed in the Disclosure Schedule, have a material adverse effect on the business, operations, properties, financial condition or results of operations of the Company and its subsidiaries taken as a whole.
(h) Acknowledgment Regarding Buyer's Purchase of the Convertible Debentures and Shares. The Company acknowledges and agrees that the Buyer(s) is acting solely in the capacity of an arm's length purchaser with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by the Buyer(s) or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Buyer's purchase of the Convertible Debentures, the Escrow Shares, the Shares or the Conversion Shares. The Company further represents to the Buyer that the Company's decision to enter into this Agreement has been based solely on the independent evaluation by the Company and its representatives.
(i) No General Solicitation. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Convertible Debentures, the Escrow Shares, the Shares or the Conversion Shares.
(j) No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the Convertible Debentures, the Escrow Shares, the Shares or the Conversion Shares under the Securities Act or cause this offering of the Convertible Debentures, the Escrow Shares, the Shares or the Conversion Shares to be integrated with prior offerings by the Company for purposes of the Securities Act.
(k) Employee Relations. Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened. None of the Company's or its subsidiaries' employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good.
(l) Intellectual Property Rights. The Company and its subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark 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 mark 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 mark registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
(m) Environmental Laws. The Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval.
(n) Title. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries.
(o) Insurance. The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole.
(p) Regulatory Permits. The Company and its subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.
(q) Internal Accounting Controls. The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, and (iii) the recorded amounts for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(r) No Material Adverse Breaches, etc. Except as set forth in the Disclosure Schedule, neither the Company nor any of its subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company's officers has or is expected in the future to have a material adverse effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries. Except as set forth in the Disclosure Schedule, neither the Company nor any of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the Company's officers, has or is expected to have a material adverse effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries.
(s) Tax Status. Except as set forth in the Disclosure Schedule, the Company and each of its subsidiaries has made and filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.
(t) Certain Transactions. Except as set forth in the Disclosure Schedule, and except for arm's length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed in the Disclosure Schedule, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
(u) Fees and Rights of First Refusal. The Company is not obligated to offer the securities offered hereunder on a right of first refusal basis or otherwise to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties.
(v) Reliance. The Company acknowledges that the Buyer is relying on the representations and warranties made by the Company hereunder and that such representations and warranties are a material inducement to the Buyer purchasing the Convertible Debentures and Shares. The Company further acknowledges that without such representations and warranties of the Company made hereunder, the Buyer would not enter into this Agreement.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 7 and 8 of this Agreement.
(b) Form D. The Company agrees to file a Form D with respect to the Escrow Shares, Shares and Conversion Shares as required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Escrow Shares, the Shares and the Conversion Shares, or obtain an exemption for the Escrow Shares, the Shares and the Conversion Shares for sale to the Buyers at the Closing pursuant to this Agreement under applicable securities or "Blue Sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date.
(c) Reporting Status. Commencing on the effectiveness of the registration statement filed with the SEC pursuant to the Investor Registration Rights Agreement and until the earlier of (i) the date as of which the Buyer(s) may sell all of the Escrow Shares, the Shares or Conversion Shares without restriction pursuant to Rule 144(k) promulgated under the Securities Act (or successor thereto), or (ii) the date on which (A) the Buyer(s) shall have sold all the Conversion Shares and (B) none of the Convertible Debentures are outstanding (the "Registration Period"), the Company shall file in a timely manner all reports required to be filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the regulations of the SEC thereunder, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would otherwise permit such termination.
(d) Use of Proceeds. The Company covenants to the Buyers that the use the proceeds from the sale of the Convertible Debentures and the Shares shall be used for purposes detailed in Schedule III attached hereto, but in no event shall the Company use the proceeds to repay any indebtedness of any Company insiders.
(e) Reservation of Shares. The Company shall take all action reasonably necessary to at all times have authorized, and reserved for the purpose of issuance, that number of shares of Common Stock equal to a multiple of five (5) times the number of shares of Common Stock into which the Convertible Debentures are from time to time convertible unless a change in such multiple is agreed to in writing by the Buyer(s) and the Company. If at any time the Company does not have available such shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Conversion Shares, including the Escrow Shares, of the Company shall call and hold a special meeting of the shareholders within thirty (30) days of such occurrence, for the sole purpose of increasing the number of shares authorized. The Company's management shall recommend to the shareholders to vote in favor of increasing the number of shares of Common Stock authorized. Management shall also vote all of its shares in favor of increasing the number of authorized shares of Common Stock.
(f) Listing or Quotation. The Company shall use its best efforts, after the effectiveness of the registration statement filed with the SEC pursuant to the Investor Registration Rights Agreement, to secure the listing or quotation
of its Common Stock (including, without limitation, the Escrow Shares, the Shares and Conversion Shares) upon a national securities exchange, automated quotation system or Over-The-Counter Bulletin Board ("OTCBB") maintained by the National Association of Securities Dealers, Inc. The Company shall maintain the listing or quotation of the Common Stock for so long as the Buyer is the beneficial owner of any Common Stock, Escrow Shares, Shares or Conversion Shares (whether obtained or to be obtained under this Agreement), the Convertible Debentures or any other agreement between the Company and the Buyer. The Company shall maintain the Common Stock's authorization for quotation on the OTCBB. It shall be an event of default hereunder if the Company fails to strictly comply with its obligations under this Section 4(f).
(g) Fees and Expenses. Except as set forth below, each of the Company and the Buyer(s) shall pay all costs and expenses incurred by such party in connection with the negotiation, investigation, preparation, execution and delivery of the Transaction Documents. The Company shall pay Yorkville Advisors Management LLC a structuring fee equal to ten percent (10%) of the Purchase Price.
(h) Commitment Fee. The Company has paid a commitment fee to Yorkville Advisors Management, LLC of Five Thousand Dollars ($5,000) at the time of the execution of the term sheet.
The Company shall be solely responsible for the contents of any such registration statement, prospectus or other filing made with the SEC or otherwise used in the offering of the Company's securities (except as such disclosure relates solely to the Buyer and then only to the extent that such disclosure conforms with information furnished in writing by the Buyer to the Company), even if the Buyer or its agents as an accommodation to the Company participate or assist in the preparation of such registration statement, prospectus or other SEC filing. The Company shall retain its own legal counsel to review, edit, confirm and do all things such counsel deems necessary or desirable to such registration statement, prospectus or other SEC filing to ensure that it does not contain an untrue statement or alleged untrue statement of material fact or omit or alleged to omit a material fact necessary to make the statements made therein, in light of the circumstances under which the statements were made, not misleading.
(i) Corporate Existence. So long as any of the Convertible Debentures remain outstanding, the Company shall not directly or indirectly consummate any merger, reorganization, restructuring, reverse stock split consolidation, sale of all or substantially all of the Company's assets or any similar transaction or related transactions (each such transaction, an "Organizational Change") unless, prior to the consummation of an Organizational Change, the Company obtains the written consent of each Buyer. In any such case, the Company will make appropriate provision with respect to such holders' rights and interests to insure that the provisions of this Section 4(i) will thereafter be applicable to the Convertible Debentures.
(j) Transactions With Affiliates. So long as any Convertible Debentures are outstanding, the Company shall not, and shall cause each of its subsidiaries not to, enter into, amend, modify or supplement, or permit any subsidiary to enter into, amend, modify or supplement any agreement, transaction, commitment, or arrangement with any of its or any subsidiary's officers, directors, person who were officers or directors at any time during the previous two (2) years,
stockholders who beneficially own five percent (5%) or more of the Common Stock,
or Affiliates (as defined below) or with any individual related by blood,
marriage, or adoption to any such individual or with any entity in which any
such entity or individual owns a five percent (5%) or more beneficial interest
(each a "Related Party"), except for (a) customary employment arrangements and
benefit programs on reasonable terms, (b) any investment in an Affiliate of the
Company, (c) any agreement, transaction, commitment, or arrangement on an
arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, (d) any agreement
transaction, commitment, or arrangement which is approved by a majority of the
disinterested directors of the Company, for purposes hereof, any director who is
also an officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a ten percent (10%) or more equity interest in that person or entity,
(ii) has ten percent (10%) or more common ownership with that person or entity,
(iii) controls that person or entity, or (iv) shares common control with that
person or entity. "Control" or "controls" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
(k) Transfer Agent. The Company covenants and agrees that, in the event that the Company's agency relationship with the transfer agent should be terminated for any reason prior to a date which is two (2) years after the Closing Date, the Company shall immediately appoint a new transfer agent and shall require that the new transfer agent execute and agree to be bound by the terms of the Irrevocable Transfer Agent Instructions (as defined herein).
(l) Restriction on Issuance of the Capital Stock. So long as any Convertible Debentures are outstanding, other than securities issued in connection with the Cornell Debentures, the Company shall not, without the prior written consent of the Buyer(s), (i) issue or sell shares of Common Stock or Preferred Stock without consideration or for a consideration per share less than the Closing Bid Price of the Common Stock determined immediately prior to its issuance, (ii) issue any warrant, option, right, contract, call, or other security instrument granting the holder thereof, the right to acquire Common Stock without consideration or for a consideration less than such Common Stock's Bid Price value determined immediately prior to its issuance, (iii) enter into any security instrument granting the holder a security interest in any and all assets of the Company, or (iv) file any registration statement on Form S-8.
(m) Resales Absent Effective Registration Statement. Each of the Buyers
understand and acknowledge that (i) this Agreement and the agreements
contemplated hereby requires the Company to issue and deliver Escrow Shares and
may require the Company to issue and deliver Conversion Shares and Shares to the
Buyers without legend restricting their transferability under the 1933 Act, and
(ii) it is aware that resales of such Escrow Shares and Conversion Shares may
not be made unless, at the time of resale, there is an effective registration
statement under the 1933 Act covering such Buyer's resale(s) or an applicable
exemption from registration.
(n) Lock-up Agreement. On the date hereof, the Company shall obtain from each officer and director of the Company a lock-up agreement. Such lock-up agreement shall prohibit sales of the Company's Common Stock, without the prior
written consent of the Buyer, for so long as any portion of the Convertible Debentures is outstanding, except pursuant to Rule 144 of the General Rules and Regulations under the Securities Act of 1933, as amended.
(o) No Payment of Management Fees. Except as set forth in the Disclosure Schedule, the Company shall not make any payments of (i) accrued and unpaid salaries, management fees, commissions or any other remuneration to officers or directors of the Company or any person or entity that is an "affiliate" of any such person or entity (the "Management Group") or (ii) except for reimbursement of ordinary travel and entertainment expenses, on any notes, accounts payable or other obligations or liabilities owed to any member of Management Group until the Registration Statement has been effective (as declared by the Securities and Exchange Commission) for a period of at least 90 days from the effective date of the Registration Statement (the "Prohibition Period").
(p) No Merger or Sale of Business. For so long as the Convertible Debenture is outstanding, the Company hereby agrees that it will not merge or consolidate with any person or entity, or sell, lease or otherwise dispose of its assets other than in the ordinary course of business involving an aggregate consideration of more than ten percent (10%) of the book value of its assets on a consolidated basis in any 12 month period, or liquidate, dissolve, recapitalize or reorganize.
(q) No Indebtedness. For so long as the Convertible Debenture is outstanding, except as provided in the Disclosure Schedule, the Company shall not incur any indebtedness for borrowed money or become a guarantor or otherwise contingently liable for any such indebtedness except for trade payables or purchase money obligations incurred in the ordinary course of business.
(r) No Other Registration Statements. Except as set forth in the Disclosure Schedule and filing of the registration statements contemplated in the Cornell Agreement (the "Permitted Registration Statements"), for so long as the Convertible Debenture is outstanding, the Company shall not file any other registration statements on any form (including but not limited to forms S-1, SB-2, S-3 and S-8) without the prior written consent of the Buyer. Further, the Company shall not register for sale or resale of any shares of capital stock in the Permitted Registration Statements other than the capital stock beneficially owned by the Buyer or to be issued to the Buyer upon conversion of the Convertible Debentures.
(s) Capital Structure of the Company. The Company agrees to change or modify its capital structure as necessary to comply with this agreement at the Buyer's request, which request may be made by the Buyer at any time or from time to time so long as such modification is permitted by laws of the State in which the Company is incorporated.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue the Irrevocable Transfer Agent Instructions to its transfer agent irrevocably appointing Gottbetter & Partners, LLC as its agent for purpose of having certificates issued, registered in the name of the Buyer(s) or its respective nominee(s), for the Conversion Shares representing such amounts of Convertible Debentures as specified from time to time by the
Buyer(s) to the Company upon conversion of the Convertible Debentures, for interest owed pursuant to the Convertible Debenture, and for any and all Liquidated Damages (as this term is defined in the Investor Registration Rights Agreement). Gottbetter & Partners, LLC shall be paid a cash fee of Fifty Dollars ($50) for every occasion they act pursuant to the Irrevocable Transfer Agent Instructions. The Company shall not change its transfer agent without the express written consent of the Buyer(s), which may be withheld by the Buyer(s) in its sole discretion. The successor transfer agent shall be required to execute the irrevocable transfer agent instructions. Prior to registration of the Conversion Shares under the Securities Act, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(g) hereof (in the case of the Conversion Shares prior to registration of such shares under the Securities Act) will be given by the Company to its transfer agent and that the Conversion Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Investor Registration Rights Agreement. Nothing in this Section 5 shall affect in any way the Buyer's obligations and agreement to comply with all applicable securities laws upon resale of Conversion Shares. If the Buyer(s) provides the Company with an opinion of counsel, in form, scope and substance customary for opinions of counsel in comparable transactions to the effect that registration of a resale by the Buyer(s) of any of the Conversion Shares is not required under the Securities Act, and absent manifest error in such opinion, the Company shall within two (2) business days instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by the Buyer. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5, that the Buyer(s) shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.
6. THE ESCROW SHARES; LIMITATION ON CONVERSION.
(a) Share Denominations. The Escrow Agent shall retain and hold the Escrow Shares which shall be held in accordance with the terms of this Agreement and the Escrow Shares Escrow Agreement. The Escrow Shares shall be in the share denominations specified in Schedule II attached hereto, registered in the name of the Buyer(s) specified in Schedule II.
(b) Conversion Notice. Exhibit F attached hereto and made a part hereof sets forth the procedures with respect to the conversion of the Convertible Debentures, including the forms of Conversion Notice to be provided upon conversion, instructions as to the procedures for conversion and such other information and instructions as may be reasonably necessary to enable the Buyer(s) or its permitted transferee(s) to exercise the right of conversion smoothly and expeditiously.
(c) The Company agrees that, at any time the conversion price of the Convertible Debentures is such that the number of Escrow Shares for the Convertible Debentures is less than five (5) times the number of shares of
Common Stock that would be needed to satisfy full conversion of all of such Convertible Debentures then outstanding, given the then current conversion price (the "Full Conversion Shares"), upon five (5) business days written notice of such circumstance to the Company by the Buyer and the Escrow Agent, the Company shall issue additional share certificates in the name of the Buyer(s) and/or its assigns in denominations specified by the Buyer(s), and deliver same to the Escrow Agent, such that the new number of Escrow Shares with respect to the Convertible Debentures is equal to five (5) times the Full Conversion Shares. The Company shall ensure that the number of Escrow Shares on the day immediately prior to the Second Closing Date shall equal five (5) times the Full Subscription Conversion Shares on the day immediately following the Second Closing Date.
(d) Buyer's Ownership of Common Stock. In addition to and not in lieu of the limitations on conversion set forth in the Convertible Debentures, the conversion rights of the Buyer set forth in the Convertible Debentures shall be limited, solely to the extent required, from time to time, such that, unless the Buyer gives written notice 65 days in advance to the Company of the Buyer's intention to exceed the Limitation on Conversion as defined herein, with respect to all or a specified amount of the Convertible Debentures and the corresponding number of the Conversion Shares in no instance the Buyer (singularly, together with any Persons who in the determination of the Buyer, together with the Buyer, constitute a group as defined in Rule 13d-5 of the Exchange Act) be entitled to convert the Convertible Debentures to the extent such conversion would result in the Buyer beneficially owning four point nine nine percent (4.99%) of the outstanding shares of Common Stock of the Company. For these purposes, beneficial ownership shall be defined and calculated in accordance with Rule 13d-3, promulgated under the Exchange Act (the foregoing being herein referred to as the "Limitation on Conversion"); provided, however, that the Limitation on Conversion shall not apply to any forced or automatic conversion pursuant to this Agreement or the Convertible Debentures; and provided, further that if the Company shall have breached any of the Transaction Documents, the provisions of this Section 4.19 shall be null and void from and after such date. The Company shall, promptly upon its receipt of a Conversion Notice tendered by the Buyer (or its sole designee) for the Convertible Debentures, as applicable, notify the Buyer by telephone and by facsimile (the "Limitation Notice") of the number of shares of Common Stock outstanding on such date and the number of Conversion Shares, which would be issuable to the Buyer (or its sole designee, as the case may be) if the conversion requested in such Conversion Notice were effected in full and the number of shares of Common Stock outstanding giving full effect to such conversion whereupon, in accordance with the Convertible Debentures, notwithstanding anything to the contrary set forth in the Convertible Debentures, the Buyer may, by notice to the Company within one (1) business day of its receipt of the Limitation Notice by facsimile, revoke such conversion to the extent (in whole or in part) that the Buyer determines that such conversion would result in the ownership by the Buyer of shares of Common Stock in excess of the Limitation on Conversion. The Limitation Notice shall begin the 65 day advance notice required in this Section 7(d).
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Convertible Debentures and the Shares to the Buyer(s) at the Closings is subject to the satisfaction, at or before the Closing Dates, of each of the following
conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion:
(a) Each Buyer shall have executed the Transaction Documents and delivered them to the Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the Purchase Price for Convertible Debentures in respective amounts as set forth next to each Buyer as outlined on Schedule I attached hereto and the Shares and the Escrow Agent shall have delivered the net proceeds to the Company by wire transfer of immediately available U.S. funds pursuant to the wire instructions provided by the Company.
(c) The representations and warranties of the Buyer(s) shall be true and correct in all material respects as of the date when made and as of the Closing Dates as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer(s) shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer(s) at or prior to the Closing Dates.
(d) The Company shall have filed a form UCC -1 with regard to the Pledged Property and Pledged Collateral as detailed in the Security Agreement dated the date hereof and provided proof of such filing to the Buyer(s).
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
(a) The obligation of the Buyer(s) hereunder to Purchase the Convertible Debentures and Shares at the First Closing is subject to the satisfaction, at or before the First Closing Date, of each of the following conditions, provided that the conditions are for the sole benefit of Buyer and may be waived by the Buyer at any time in its sole discretion:
(i) The Company shall have executed the Transaction Documents and delivered the same to the Buyer(s).
(ii) The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the First Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the First Closing Date. If requested by the Buyer, the Buyer shall have received a certificate, executed by the President or Chief Executive Officer of the Company, dated as of the First Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Buyer including, without limitation an update as of the First Closing Date regarding the representation contained in Section 3(c) above.
(iii) The Company shall have executed and delivered to the Buyer(s) the Convertible Debentures in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached hereto.
(iv) The Buyer(s) shall have received an opinion of counsel from Sichenzia, Ross, Friedman and Ference LLP in a form satisfactory to the Buyer(s).
(v) The Company shall have provided to the Buyer(s) a certificate of good standing from the secretary of state from the state in which the company is incorporated.
(vi) The Company shall have delivered to the Escrow Agent the Escrow Shares.
(vii) The Company shall have provided to the Buyer an acknowledgement, to the satisfaction of the Buyer, from the Company's certified public accountant as to its ability to provide all consents required in order to file a registration statement in connection with this transaction.
(viii) The Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Convertible Debentures, shares of Common Stock to effect the conversion of all of the Conversion Shares then outstanding.
(ix) The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Buyer, shall have been delivered to and acknowledged in writing by the Company's transfer agent.
(b) The obligation of the Buyer(s) hereunder to accept the Convertible Debentures at the Second Closing is subject to the satisfaction, at or before the Second Closing Date, of each of the following conditions:
(i) The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the Second Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Second Closing Date. If requested by the Buyer, the Buyer shall have received a certificate, executed by two officers of the Company, dated as of the Second Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Buyer including, without limitation an update as of the Second Closing Date regarding the representation contained in Section 3(c) above.
(ii) The Company shall have executed and delivered to the Buyer(s) the Convertible Debentures in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached hereto.
(iii) The Company shall have certified that all conditions to the Second Closing have been satisfied and that the Company will file the Registration Statement with the SEC in compliance with the rules and regulations promulgated by the SEC for filing thereof two (2) business days after the Second Closing. If requested by the Buyer, the Buyer shall have received a certificate, executed by the two officers of the Company, dated as of the Second Closing Date, to the foregoing effect. The Buyers have no obligation to fund at the Second Closing if the Company has filed the Registration Statement.
(iv) The Company shall have provided to the Buyer(s) a certificate of good standing from the secretary of the state in which the Company is incorporated.
(v) The Company shall have delivered to the Escrow Agent the additional Escrow Shares pursuant to 6(c) hereof, if necessary.
(vi) The Company shall have provided to the Buyer an acknowledgement, to the satisfaction of the Buyer, from the Company's certified public accountant as to its ability to provide all consents required in order to file a registration statement in connection with this transaction.
9. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this Agreement and acquiring the Convertible Debentures, the Escrow Shares, the Shares and the Conversion Shares hereunder, and in addition to all of the Company's other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Buyer(s) and each other holder of the Convertible Debentures, the Escrow Shares, the Shares and the Conversion Shares, and all of their officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Buyer Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Buyer Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by the Buyer Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement, the Convertible Debentures or the Investor Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement, or the Investor Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made against such Indemnitee and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Indemnities, any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Convertible
Debentures or the status of the Buyer or holder of the Convertible Debentures, the Escrow Shares, the Shares and the Conversion Shares, as a Buyer of Convertible Debentures in the Company. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.
(b) In consideration of the Company's execution and delivery of this Agreement, and in addition to all of the Buyer's other obligations under this Agreement, the Buyer shall defend, protect, indemnify and hold harmless the Company and all of its officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Company Indemnitees") from and against any and all Indemnified Liabilities incurred by the Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Buyer(s) in this Agreement, instrument or document contemplated hereby or thereby executed by the Buyer, (b) any breach of any covenant, agreement or obligation of the Buyer(s) contained in this Agreement, the Investor Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby executed by the Buyer, or (c) any cause of action, suit or claim brought or made against such Company Indemnitee based on material misrepresentations or due to a material breach and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement, the Investor Registration Rights Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Company Indemnities. To the extent that the foregoing undertaking by each Buyer may be unenforceable for any reason, each Buyer shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.
10. GOVERNING LAW: MISCELLANEOUS.
(a) Governing Law. The parties hereto acknowledge that the transactions contemplated by this Agreement and the exhibits hereto bear a reasonable relation to the State of New York. The parties hereto agree that the internal laws of the State of New York shall govern this Agreement and the exhibits hereto, including, but not limited to, all issues related to usury. Any action to enforce the terms of this Agreement or any of its exhibits shall be brought exclusively in the state and/or federal courts situated in the County and State of New York. Service of process in any action by the Buyers to enforce the terms of this Agreement may be made by serving a copy of the summons and complaint, in addition to any other relevant documents, by commercial overnight courier to the Company at its principal address set forth in this Agreement.
(b) Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause four (4) additional original executed signature pages to be physically delivered to the other party within five (5) days of the execution and delivery hereof.
(c) Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement, Amendments. This Agreement supersedes all other prior oral or written agreements between the Buyer(s), the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.
(f) Notices. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company, to: StrikeForce Technologies, Inc.
1090 King Georges Post Road
Edison, NJ, 08837
Attention: Mark Kay
Telephone: (732) 661-9641
Facsimile: (732) 661-9647
With a copy to: Sichenzia, Ross, Friedman and Ference, LLP
1065 Avenue of the Americas
New York, New York 10018
Attn: Richard A. Friedman
Telephone: (212) 930-9700
Facsimile: (212) 930-9725
If to the Transfer Agent, to: Continental Stock Transfer & Trust Co.
17 Battery Place
New York, NY 10004
Attention: Steven Nelson
Telephone: (212) 509-2000
Facsimile: (212) 509-5150
|
If to the Buyer(s), to its address and facsimile number on Schedule I, with copies to the Buyer's counsel as set forth on Schedule I. Each party shall provide five (5) days' prior written notice to the other party of any change in address or facsimile number.
(g) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Neither the Company nor any Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party hereto.
(h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
(i) Survival. Unless this Agreement is terminated under Section 10(l), the representations and warranties of the Company and the Buyer(s) contained in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 10, and the indemnification provisions set forth in Section 9, shall survive the Closing for a period of two (2) years following the date on which the Convertible Debentures are converted in full. The Buyer(s) shall be responsible only for its own representations, warranties, agreements and covenants hereunder.
(j) Publicity. The Company and the Buyer(s) shall have the right to approve, before issuance any press release or any other public statement with respect to the transactions contemplated hereby made by any party; provided, however, that the Company shall be entitled, without the prior approval of the Buyer(s), to issue any press release or other public disclosure with respect to such transactions required under applicable securities or other laws or regulations (the Company shall use its best efforts to consult the Buyer(s) in connection with any such press release or other public disclosure prior to its release and Buyer(s) shall be provided with a copy thereof upon release thereof).
(k) Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
(l) Termination. In the event that the Closing shall not have occurred with respect to the Buyers on or before five (5) business days from the date hereof due to the Company's or the Buyer's failure to satisfy the conditions set forth in Sections 7 and 8 above (and the non-breaching party's failure to waive such unsatisfied condition(s)), the non-breaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party; provided, however, that if this Agreement is terminated by the Company pursuant to this Section 10(l), the Company shall remain obligated to reimburse the Buyer(s) for the fees and expenses of Yorkville Advisors Management, LLC described in Section 4(g) above.
(m) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above.
COMPANY:
STRIKEFORCE TECHNOLOGIES, INC.
By:/s/ Mark L. Kay --------------- Name: Mark Kay Title: Chief Executive Officer |
EXHIBIT A
FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT
EXHIBIT B
FORM OF ESCROW AGREEMENT
EXHIBIT C
SECURITY AGREEMENT
EXHIBIT D
ESCROW SHARES ESCROW AGREEMENT
EXHIBIT E
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
EXHIBIT F
CONVERSION PROCEDURES
1. At any time and from time to time during the term of the Convertible Debentures, the Holder may deliver to the Escrow Agent written notice (a "Conversion Notice") that it has elected to convert the Company Convertible Debentures (the "Debentures") registered in the name of such Holder in whole or in part in accordance with the terms of the Debentures and the Conversion Notice shall be in the form annexed as Exhibit A to the Debentures. A fee of $50, payable by the Holder, shall accompany every Conversion Notice delivered to the Escrow Agent.
2. The Holder shall send by fax or e-mail the executed Conversion Notice to the Escrow Agent (with a copy to the Company) by 4:00 p.m. New York time at least one business day prior to the Conversion Date (as defined in the Debentures). The Escrow Agent shall send the Conversion Notice by facsimile or e-mail address to the Company by the end of the business day on the day received, assuming received by 6:00 p.m. New York time and if thereafter on the next business day, at the facsimile telephone number or e-mail address, as the case may be, of the principal place of business of the Company. Each Company Conversion Notice price adjustment under Article V of the Debentures shall be given by facsimile addressed to the Holder of Debentures at the facsimile telephone number of such Holder appearing on the books of the Company as provided to the Company by such Holder for the purpose of such Company Conversion Notice price adjustment, with a copy to the Escrow Agent. Any such notice shall be deemed given and effective upon the transmission of such facsimile or e-mail at the facsimile telephone number or e-mail address, as the case may be, specified in this paragraph 2 (with printed confirmation of transmission). In the event that the Escrow Agent receives the Conversion Notice after 4:00 p.m. New York time, the Conversion Notice shall be deemed to have been received on the next business day. In the event that the Company receives the Conversion Notice after the end of the business day, notice will be deemed to have been given the next business day.
3. The Company shall have one (1) business day from transmission of the Conversion Notice by the Escrow Agent to object only to the calculation of the number of Company Escrow Shares to be released. If the Company fails to object to the calculation of the number of Escrow Shares to be released within said time, then the Company shall be deemed to have waived any objections to said calculation. The Company's only basis for any objection hereunder shall be to the calculation of the number of Escrow Shares to be released. If the Escrow Agent does not receive said objection notice within the time period set forth above from the Company, and provided that the Purchaser does not revoke such conversion, the Escrow Agent shall release from escrow and deliver to the Holder certificates or instruments representing the number of Escrow Shares issuable to the Holder in accordance with such conversion on the second business day from the receipt by the Company of the Conversion Notice. In the event that the certificates evidencing the Escrow Shares held by the Escrow Agent are not in denominations appropriate for such delivery to the Holder, the Escrow Agent shall request the Company to cause its transfer agent and registrar to reissue certificates in smaller denominations. The Escrow Agent shall, however, immediately release to the requesting Holder certificates representing such
lesser number of shares as the denominations in its possession will allow that is closest to but no more than the actual number to be released to such Holder. Upon receipt of the reissued shares in lesser denominations from the Company's transfer agent, the Escrow Agent shall release to such Holder the balance of the shares due to such Holder.
4. The Holder shall send the original Debentures and Conversion Notice to the Escrow Agent via FedEx or other commercial overnight courier, along with a fee of $50, instructions regarding names and amount of certificates for the issuance of the Conversion Shares, and, if conversion is not in full, instructions as to the re-issuance of the balance of the Debentures; provided, however, that if the Escrow Agent is holding the Debentures, then the Conversion Notice may be faxed or e-mailed and the fee may be transmitted via wire transfer to the Escrow Agent. The Escrow Agent shall deliver the foregoing to the Company within one (1) business day of the Escrow Agent's receipt thereof. In the event that the Escrow Agent has custody of the Debentures, the Escrow Agent shall notify the Company and the Holder in writing of the balance of the Debentures remaining and the Company and the Holder shall acknowledge such notice in writing, in lieu of issuance of a new Debenture for the balance.
5. If the Company will be issuing a new Debenture, it will send such new Debenture to the Escrow Agent by overnight courier within five (5) business days of its receipt of the original Debentures and Conversion Notice. The Escrow Agent shall send the Conversion Shares to the Holder in accordance with Holder's instructions within one (1) business day of receipt of the Conversion Notice and will send the new Debenture (if any) to the Holder upon receipt.
6. The Escrow Agent agrees to notify the Company in writing by facsimile or e-mail each time the Escrow Agent releases the Escrow Shares to the Holder, such notice to be given at least one (1) business day prior to such release.
7. Subject to the provisions of and any limitations set forth in the Purchase Agreement or the Debentures, the Company agrees that, at any time the conversion price of the Debentures are such that the number of Escrow Shares with respect to the Debentures is less than five (5) times the number of shares of Common Stock that would be needed to satisfy full conversion of all of the Debentures given the then current conversion price (the "Full Conversion Shares"), upon five (5) business days written notice of such circumstance to the Company by a Holder and/or Escrow Agent, it will issue additional share certificates, in the names of all Holders and deliver same to the Escrow Agent, such that the new number of Escrow Shares with respect to the Debentures is equal to five (5) times the Full Conversion Shares.
SCHEDULE I
SCHEDULE OF BUYERS
Address/Facsimile Amount of
Name Signature Number of Buyer Subscription
------------------------------ ------------------------------------ --------------------------------- ------------------
Highgate House Funds, Ltd. By: Yorkville Advisors, LLC 488 Madison Avenue $750,000
Its: General Partner New York, NY 10022
Telephone: (212) 400-6990
Facsimile: (212) 400-6901
By:/s/ Adam S. Gottbetter
----------------------
Name: Adam S. Gottbetter
Its: Portfolio Manager
With a copy to: Jason Rimland, Esq. Gottbetter & Partners, LLP
488 Madison Avenue
New York, NY 10022
Telephone: (212) 400-6900
Facsimile: (212) 400-6901
|
SCHEDULE II
SHARE DENOMINATIONS
Name of Investor
Highgate House Funds, Ltd.
Stock Certificate Denominations for the Escrow Shares in the name of Highgate House Funds, Ltd.:
8 certificates each for 500 shares
6 certificate each for 1,000 shares
8 certificate each for 2,500 shares
8 certificate each for 5,000 shares
9 certificate each for 10,000 shares
5 certificate each for 50,000 shares
5 certificates each for 100,000 shares
7 certificates each for 250,000 shares
2 certificates each for 500,000 shares
3 certificates each for 1,000,000 shares
SCHEDULE III
April 27, 2005
USE OF PROCEEDS
for $750,000 Capital Raise
Use of Funds: The funds to be received through this Capital Raise will be used for the projected monthly burn of $242,162 which comprises of the following:
o Cover our current monthly burn rate during the filing period.
o Hiring 1-2 additional junior sales and several low cost interns or equivalents.
o Purchasing related technology equipment in order to meet SFT's current and potential client requirements.
o Increasing our marketing program for the purpose of increasing our sales pipeline and revenues.
o Working capital dedicated to increasing the sales and revenues of StrikeForce.
Some Specifics Include:
o $15,000 monthly for our PR/IR firms
o $10,000 monthly for Blank Rome's Government Lobbyist Group headed by Mark Holman, prior Chief of Staff for Tom Ridge, which is getting us into pilot reviews with DHS, Mitre and Unisys.
o Stress testing our software overseas for volume certification at various volume and configuration levels for approximately $15,000 remaining.
o Continue as a client of Gartner who has provided us leads for client opportunities (e.g. Key Bank) and favorable research papers about StrikeForce @ $10,000 a quarter.
o Purchase strategic cold call listings.
o Pay for all the costs relating to the SEC filing, 2004 audit, first and second quarter reviews and related public registration regarding our accountants, lawyers, Edgarizer, etc.
o Continue marketing events, shows, travel and entertainment as we grow the business and spread the word about StrikeForce.
Exhibit 10.13
INVESTOR REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of April 27, 2005, by and among STRIKEFORCE TECHNOLOGIES, INC., a New Jersey corporation (the "Company"), and the undersigned investors listed on Schedule I attached hereto (each, an "Investor" and collectively, the "Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the parties hereto of even date herewith (the "Securities Purchase Agreement"), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to the Investors (i) secured convertible debentures (the "Convertible Debentures") which shall be convertible into that number of shares of the Company's common stock, par value $0.0001 per share (the "Common Stock"), and (ii) 150,000 shares of Common Stock, pursuant to the terms of the Securities Purchase Agreement for an aggregate purchase price of up to Seven Hundred Fifty Thousand Dollars ($750,000). Capitalized terms not defined herein shall have the meaning ascribed to them in the Securities Purchase Agreement.
B. To induce the Investors to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations there under, or any similar successor statute (collectively, the "Securities Act"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investors hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following meanings:
(a) "Person" means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.
(b) "Register," "registered," and "registration" refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous or delayed basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the "SEC").
(c) "Registrable Securities" means the shares of Common Stock issuable to the Investors upon conversion of the Convertible Debentures pursuant to the Securities Purchase Agreement and the Shares, as this term is defined in the Securities Purchase Agreement dated the date hereof.
(d) "Registration Statement" means a registration statement under the Securities Act which covers the Registrable Securities.
2. REGISTRATION.
(a) Subject to the terms and conditions of this Agreement, the Company shall prepare and file, no later than thirty (30) days from the date hereof (the "Scheduled Filing Deadline"), with the SEC a registration statement on Form S-1 or SB-2 (or, if the Company is then eligible, on Form S-3) under the Securities Act (the "Initial Registration Statement") for the resale by the Investors of the Registrable Securities, which includes at least 6,660,000 shares of Common Stock to be issued upon conversion of the Convertible Debentures. The Company shall cause the Registration Statement to remain effective until all of the Registrable Securities have been sold. Prior to the filing of the Registration Statement with the SEC, the Company shall furnish a copy of the Initial Registration Statement to the Investors for their review and comment. The Investors shall furnish comments on the Initial Registration Statement to the Company within twenty-four (24) hours of the receipt thereof from the Company. The Company shall retain, and pay at its sole expense, a law firm to file the Registration Statement from a list of approved law firms provided by the Investors.
(b) Effectiveness of the Initial Registration Statement. The Company shall use its best efforts (i) to have the Initial Registration Statement declared effective by the SEC no later than one hundred twenty (120) days after the date filed (the "Scheduled Effective Deadline") and (ii) to insure that the Initial Registration Statement and any subsequent Registration Statement remains "Evergreen" for the life of the Convertible or until Rule 144(k) of the Securities Act of 1933, as amended, is available to the Investors, whichever is later, subject to the terms and conditions of this Agreement. It shall be an event of default hereunder if the Initial Registration Statement is not declared effective by the SEC within one hundred twenty (120) days after filing thereof.
(c) Failure to File or Obtain Effectiveness of the Registration Statement. In the event the Registration Statement is not filed by the Scheduled Filing Deadline or is not declared effective by the SEC on or before the Scheduled Effective Date, or if after the Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to the Registration Statement (whether because of a failure to keep the Registration Statement effective, failure to disclose such information as is necessary for sales to be made pursuant to the Registration Statement, failure to register sufficient shares of Common Stock or otherwise) then as partial relief for the damages to any holder of Registrable Securities by reason of any such delay in or reduction of its ability to sell the underlying shares of Common Stock (which remedy shall not be exclusive of any other remedies at law or in equity), the Company will pay as liquidated damages (the "Liquidated Damages") to the holder, at the holder's option, either a cash amount or shares of the Company's Common Stock, at the Company's sole discretion, within three (3) business days from the end of the month, equal to two percent (2%) of the liquidated value of the Convertible Debentures outstanding as Liquidated Damages for each thirty (30) day period after the Scheduled Filing Deadline or the Scheduled Effective Date as the case may be.
(d) Liquidated Damages. The Company and the Investor hereto acknowledge
and agree that the sums payable under subsection 2(c) above shall constitute
liquidated damages and not penalties and are in addition to all other rights of
the Investor, including the right to call a default. The parties further
acknowledge that (i) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (ii) the amounts specified in
such subsections bear a reasonable relationship to, and are not plainly or
grossly disproportionate to, the probable loss likely to be incurred in
connection with any failure by the Company to obtain or maintain the
effectiveness of a Registration Statement, (iii) one of the reasons for the
Company and the Investor reaching an agreement as to such amounts was the
uncertainty and cost of litigation regarding the question of actual damages, and
(iv) the Company and the Investor are sophisticated business parties and have
been represented by sophisticated and able legal counsel and negotiated this
Agreement at arm's length.
3. RELATED OBLIGATIONS.
(a) The Company shall keep the Registration Statement effective pursuant to Rule 415 at all times until the date on which the Investor shall have sold all the Registrable Securities covered by such Registration Statement (the "Registration Period"), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading.
(b) The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company's filing a report on Form 10-KSB, Form 10-QSB or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company shall incorporate such report by reference into the Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the Exchange Act report is filed which created the requirement for the Company to amend or supplement the Registration Statement.
(c) The Company shall furnish to each Investor whose Registrable Securities are included in any Registration Statement, without charge, (i) at least one (1) copy of such Registration Statement as declared effective by the SEC and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, all exhibits and each preliminary prospectus, (ii) ten (10) copies of the final prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor.
(d) The Company shall use its best efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under such other securities or "blue sky" laws of such jurisdictions in the United States as any Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (w) make any change to its articles of incorporation or by-laws, (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify each Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.
(e) As promptly as practicable after becoming aware of such event or development, the Company shall notify each Investor in writing of the happening of any event as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to each Investor. The Company shall also promptly notify each Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to each Investor by facsimile on the same day of such effectiveness), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.
(f) The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction within the United States of America and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify each Investor who holds Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.
(g) At the reasonable request of any Investor, the Company shall furnish to such Investor, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as an Investor may reasonably request (i) a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Investors.
(h) The Company shall make available for inspection by (i) any Investor
and (ii) one (1) firm of accountants or other agents retained by the Investors
(collectively, the "Inspectors") all pertinent financial and other records, and
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably deemed necessary by each Inspector, and cause
the Company's officers, directors and employees to supply all information which
any Inspector may reasonably request; provided, however, that each Inspector
shall agree, and each Investor hereby agrees, to hold in strict confidence and
shall not make any disclosure (except to an Investor) or use any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement or is otherwise required under the Securities Act,
(b) the release of such Records is ordered pursuant to a final, non-appealable
subpoena or order from a court or government body of competent jurisdiction, or
(c) the information in such Records has been made generally available to the
public other than by disclosure in violation of this or any other agreement of
which the Inspector and the Investor has knowledge. Each Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential.
(i) The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at the Investor's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.
(j) The Company shall use its best efforts either to cause all the
Registrable Securities covered by a Registration Statement (i) to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or (ii) the
inclusion for quotation on the National Association of Securities Dealers, Inc.
OTC Bulletin Board for such Registrable Securities. The Company shall pay all
fees and expenses in connection with satisfying its obligation under this
Section 3(j).
(k) The Company shall cooperate with the Investors who hold Registrable Securities being offered and, to the extent applicable, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investors may reasonably request and registered in such names as the Investors may request.
(l) The Company shall use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.
(m) The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the Securities Act) covering a twelve (12) month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement.
n) The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.
(o) Within two (2) business days after a Registration Statement which covers Registrable Securities is declared effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A.
(p) The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e), such Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(e) or receipt of notice that no supplement or amendment is required. Notwithstanding anything to the contrary, the
Company shall cause its transfer agent to deliver unlegended certificates for shares of Common Stock to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale prior to the Investor's receipt of a notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e) and for which the Investor has not yet settled.
5. EXPENSES OF REGISTRATION.
All expenses incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers, legal and accounting fees shall be paid by the Company.
6. INDEMNIFICATION.
With respect to Registrable Securities which are included in a Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls any Investor within the meaning of the Securities Act or the Exchange Act (each, an "Indemnified Person"), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts paid in settlement or expenses, joint or several (collectively, "Claims") incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("Indemnified Damages"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other "blue sky" laws of any jurisdiction in which Registrable Securities are offered ("Blue Sky Filing"), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation there under relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations"). The Company shall reimburse the Investors and each such controlling person promptly as such expenses are incurred and are due and payable, for any legal fees or disbursements or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (x) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (y) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(c); and (z) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9 hereof.
(b) In connection with a Registration Statement, each Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers, employees, representatives, or agents and each Person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (each an "Indemnified Party"), against any Claim or Indemnified Damages to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or is based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(d), such Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the prospectus was corrected and such new prospectus was delivered to each Investor prior to such Investor's use of the prospectus to which the Claim relates.
(c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one (1) counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent; provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.
(d) The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.
(e) The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXHANGE ACT.
With a view to making available to the Investors the benefits of Rule 144 promulgated under the Securities Act or any similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration ("Rule 144") the Company agrees to:
(a) make and keep public information available, as those terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company's obligations under Section 4(c) of the Securities Purchase Agreement) and the filing of such reports and other documents as are required by the applicable provisions of Rule 144; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors who then hold at least two-thirds (2/3) of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 9 shall be binding upon each Investor and the Company. No such amendment shall be effective to the extent that it applies to fewer than all of the holders of the Registrable Securities. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.
10. MISCELLANEOUS.
(a) A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two (2) or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.
(b) 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 confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:
If to the Company, to: StrikeForce Technologies Inc.
1090 King Georges Post Road,
Edison, NJ 08837
Attention: Mark Kay
Telephone: (732) 661 9641
Facsimile: (732) 661-9647
With Copy to: Sichenzia, Ross, Friedman and Ference, LLP
1065 Avenue of the Americas
New York, New York 10018
|
Attn: Richard A. Friedman Telephone: (212) 930-9700 Facsimile: (212) 930-9725
If to an Investor, to its address and facsimile number on the Schedule of Investors attached hereto, with copies to such Investor's representatives as set forth on the Schedule of Investors or to such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.
(c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.
(d) The parties hereto acknowledge that the transactions contemplated by this Agreement and the exhibits hereto bear a reasonable relation to the State of New York. The parties hereto agree that the internal laws of the State of New York shall govern this Agreement and the exhibits hereto, including, but not limited to, all issues related to usury. Any action to enforce the terms of this Agreement or any of its exhibits shall be brought exclusively in the state and/or federal courts situated in the County and State of New York. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
(e) This Agreement, the Irrevocable Transfer Agent Instructions, the Securities Purchase Agreement and related documents including the Convertible Debenture and the Escrow Agreement dated the date hereof by and among the Company, the Investors set forth on the Schedule of Investors attached hereto, and Gottbetter & Partners, LLP (the "Escrow Agreement") and the Security Agreement dated the date hereof (the "Security Agreement") constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Irrevocable Transfer Agent Instructions, the Securities Purchase Agreement and related documents including the Convertible Debenture, the Escrow Agreement and the Security Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.
(f) This Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.
(g) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
(i) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.
(j) This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have caused this Investor Registration Rights Agreement to be duly executed as of day and year first above written.
COMPANY:
STRIKEFORCE TECHNOLOGIES, INC.
By: /s/ Mark Kay
-------------
Name: Mark Kay
Title: Chief Executive Officer
|
SCHEDULE I
SCHEDULE OF INVESTORS
Address/Facsimile
Name Signature Number of Investors
Highgate House Funds, Ltd. By: Yorkville Advisors, LLC 488 Madison Avenue
Its: General Partner New York, NY 10022
Facsimile: (212) 400-6901
By: /s/ Adam S. Gottbetter
----------------------
Name: Adam S. Gottbetter
Its: Portfolio Manager
With a copy to: Jason M. Rimland, Esq. Gottbetter & Partners, LLP
---------------------------
488 Madison Avenue
New York, NY 10022
Facsimile: (212) 400-6901
|
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Attention:
Re: STRIKEFORCE TECHNOLOGIES, INC.
Ladies and Gentlemen:
We are counsel to StrikeForce Technologies, Inc., a New Jersey corporation (the "Company"), and have represented the Company in connection with that certain Securities Purchase Agreement (the "Securities Purchase Agreement") entered into by and among the Company and the investors named therein (collectively, the "Investors") pursuant to which the Company issued to the Investors shares of its Common Stock, par value $0.0001 per share (the "Common Stock"). Pursuant to the Purchase Agreement, the Company also has entered into a Registration Rights Agreement with the Investors (the "Investor Registration Rights Agreement") pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement) under the Securities Act of 1933, as amended (the "Securities Act"). In connection with the Company's obligations under the Registration Rights Agreement, on ____________ ____, the Company filed a Registration Statement on Form ________ (File No. 333-_____________) (the "Registration Statement") with the Securities and Exchange SEC (the "SEC") relating to the Registrable Securities which names each of the Investors as a selling stockholder there under.
In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the Securities Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the Securities Act pursuant to the Registration Statement.
Very truly yours,
[Law Firm]
By_____________________________
cc: [LIST NAMES OF INVESTORS]
Exhibit 10.14
THIS SECURED DEBENTURE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT.
SECURED DEBENTURE
STRIKEFORCE TECHNOLOGIES, INC.
7% Secured Convertible Debenture
April 27, 2007
No. HHF-001 US $375,000
This Secured Debenture (the "Debenture") is issued on April 27, 2005 (the "Closing Date") by StrikeForce Technologies, Inc., a New Jersey corporation (the "Company"), to Highgate House Funds, Ltd. (together with its permitted successors and assigns, the "Holder") pursuant to exemptions from registration under the Securities Act of 1933, as amended.
ARTICLE I.
Section 1.01 Principal and Interest. For value received, the Company hereby promises to pay to the order of the Holder on the date April 27, 2007 ("Maturity Date"), in lawful money of the United States of America and in immediately available funds the principal sum of Three Hundred Seventy Five Thousand Dollars ($375,000), together with interest on the unpaid principal of this Debenture at the rate of seven percent (7%) per year (compounded monthly) from the date of this Debenture until paid. At the Company's option, the entire principal amount and all accrued interest and the redemption premium specified in Section 1.04 hereof shall be either (a) paid to the Holder on the Maturity Date or (b) converted in accordance with Section 1.02 herein.
Section 1.02 Optional Conversion. The Holder is entitled, at its option, to convert, and sell on the same day, at any time and from time to time, until payment in full of this Debenture, all or any part of the principal amount of the Debenture, plus accrued interest, into shares (the "Conversion Shares") of the Company's common stock, par value $0.0001 per share ("Common Stock"), at the lesser of: (i) One Hundred and Twenty Percent (120%) of the average Closing Bid Price during the five (5) trading days immediately preceding the Closing Date (the "Fixed Price"); or (ii) Eighty Percent (80%) of the lowest Closing Bid Price during the five (5) trading days immediately preceding the date of conversion (the "Future Price") (the "Conversion Price"). For purposes of determining the "Closing Bid Price" on any day, reference shall be to the closing bid price for a share of Common Stock on such date on the OTCBB (or such other exchange, market, or other system that the Common Stock is then traded on), as reported on Bloomberg, L.P. (or similar organization or agency succeeding to its functions of reporting prices). No fraction of shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. To convert this Debenture, the Holder hereof shall deliver written notice thereof, substantially in the form of Exhibit A to this Debenture, with appropriate insertions (the "Conversion Notice"), to the Company at its address as set forth herein. The date upon which the conversion shall be effective (the "Conversion Date") shall be deemed to be the date set forth in the Conversion Notice. The Holder has the right to convert this Debenture after the Maturity Date. Except as otherwise provided herein, the Company shall not have the right to object the conversion or the calculation of the applicable conversion price, absent manifest error and the Escrow Agent shall release the shares of Common Stock from escrow upon notifying the Company of the conversion.
Section 1.03 Reservation of Common Stock. The Company shall reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of this Debenture, that number of
shares of Common Stock equal to a multiple of five (5) times the number of
shares of Common Stock into which this Debenture is convertible from time to
time, based upon the Conversion Price. If at any time the Company does not have
a sufficient number of Conversion Shares authorized and available, then the
Company shall call and hold a special meeting of its stockholders within thirty
(30) days of that time for the sole purpose of increasing the number of
authorized shares of Common Stock.
Section 1.04 Right of Redemption. The Company at its option shall have the right to redeem, with three (3) business days advance written notice (the "Redemption Notice"), a portion or all outstanding convertible debenture. The redemption price shall be One Hundred Twenty Percent (120%) (the "Redemption Price") of the face amount redeemed plus accrued interest subject to the maximum amount of interest allowed to be charged by law. In the event the Company redeems the Debenture within One Hundred and Eighty (180) days of Closing, then the Redemption Price shall be One Hundred Ten Percent (110%). The Company shall pay the Redemption Price on all payments made pursuant to the Debenture, including payments made before, on, or after the Maturity Date. For all payments under this Debenture, the payment of the Redemption Price by the Company shall be in addition to any accrued interest due.
Section 1.05 Registration Rights. The Company is obligated to register the resale of the Conversion Shares under the Securities Act of 1933, as amended,
pursuant to the terms of an Investor Registration Rights Agreement, between the Company and Highgate House Funds, Ltd. of even date herewith (the "Investor Registration Rights Agreement").
Section 1.06 Interest Payments. The interest so payable will be paid at the
time of maturity or conversion to the person in whose name this Debenture is
registered. Interest shall be paid in cash (via wire transfer or certified
funds). In the event of default, as described in Article III Section 3.01
hereunder, the Holder may elect that the interest be paid in cash (via wire
transfer or certified funds) or in the form of Common Stock. If paid in the form
of Common Stock, the amount of stock to be issued will be calculated as follows:
the value of the stock shall be the Closing Bid Price on: (i) the date the
interest payment is due; or (ii) if the interest payment is not made when due,
the date the interest payment is made. A number of shares of Common Stock with a
value equal to the amount of interest due shall be issued. No fractional shares
will be issued; therefore, in the event that the value of the Common Stock per
share does not equal the total interest due, the Company will pay the balance in
cash.
Section 1.07 Paying Agent and Registrar. Initially, the Company will act as paying agent and registrar. The Company may change any paying agent, registrar, or Company-registrar by giving the Holder not less than ten (10) business days' written notice of its election to do so, specifying the name, address, telephone number and facsimile number of the paying agent or registrar. The Company may act in any such capacity.
Section 1.08 Secured Nature of Debenture. This Debenture is secured by all of the assets and property of the Company as set forth on Exhibit A to the Security Agreement dated the date hereof between the Company and Highgate House Funds, Ltd. (the "Security Agreement").
Section 1.09 The Escrow Shares. The Company shall deposit 6,510,000 shares of Common Stock with the Escrow Agent as "Escrow Shares." Upon receipt of the Conversion Notice from the Holder, the Escrow Agent shall distribute the Conversion Shares to Holder pursuant to this Debenture and the Securities Purchase Agreement including Exhibit F thereto.
ARTICLE II.
Section 2.01 Amendments and Waiver of Default. The Debenture may not be amended. Notwithstanding the above, without the consent of the Holder, the Debenture may be amended to cure any ambiguity, defect or inconsistency, or to provide for assumption of the Company obligations to the Holder.
ARTICLE III.
Section 3.01 Events of Default. An Event of Default is defined as follows:
(a) failure by the Company to pay amounts due hereunder on the Maturity Date;
(b) failure by the Company's transfer agent to issue freely tradeable Common
Stock to the Holder within five (5) days of the Company's receipt of the
attached Conversion Notice from Holder; (c) failure by the Company for ten (10)
days after notice to it to comply with any of its other agreements in the
Debenture; (d) failure to comply with the terms of the Irrevocable Transfer
Agent Instructions (as defined in the Securities Purchase Agreement dated the
date hereof between Highgate House Funds, Ltd. and the Company (the "Securities
Purchase Agreement")); (e) if the Company files for relief under the United
States Bankruptcy Code (the "Bankruptcy Code") or under any other state or
federal bankruptcy or insolvency law, or files an assignment for the benefit of
creditors, or if an involuntary proceeding under the Bankruptcy Code or under
any other federal or state bankruptcy or insolvency law is commenced against the
company; and (f) a breach by the Company of its obligations under any of the
Transaction Documents (as defined in the Securities Purchase Agreement) which is
not cured by the Company within any allocated cure period therein. Upon the
occurrence of an Event of Default, the Holder may, in its sole discretion, (i)
accelerate full repayment of all debentures outstanding and accrued interest
thereon at the Redemption Price and/or (ii) may, notwithstanding any limitations
contained in this Debenture and/or the Securities Purchase Agreement take
possession of all of the Escrow Shares and convert all debentures outstanding
and accrued interest thereon into the number of shares of Common Stock equal to
the number of Escrow Shares, notwithstanding the Conversion Price specified in
Section 1.02 hereof. Upon an Even of Default, the Escrow Agent is authorized and
directed to release the Escrow Shares to the Buyer if requested by the Buyer,
without approval of the Company. Upon an Event of Default, the Holder, in
addition to any other remedies, shall have the right (but not the obligation) to
convert this Debenture at any time after an Event of Default and require the
issuance of additional Escrow Shares pursuant to the Securities Purchase
Agreement and this Debenture.
Section 3.02 Failure to Issue Unrestricted Common Stock. As indicated in Article III Section 3.01, a breach by the Company of its obligations under the Investor Registration Rights Agreement shall be deemed an Event of Default, which if not cured within ten (10) days, shall entitle the Holder to accelerate full repayment of all debentures outstanding and accrued interest thereon or, notwithstanding any limitations contained in this Debenture and/or the Securities Purchase Agreement, to convert all debentures outstanding and accrued interest thereon into shares of Common Stock pursuant to Section 1.02 herein. The Company acknowledges that failure to honor a Conversion Notice shall cause irreparable harm to the Holder.
ARTICLE IV.
Section 4.01 Rights and Terms of Conversion. This Debenture, in whole or in part, may be converted at any time following the Closing Date (as defined in the Securities Purchase Agreement), into shares of Common Stock at a price equal to the Conversion Price as described in Section 1.02 above.
Section 4.02 Re-issuance of Debenture. When the Holder elects to convert a part of the Debenture, then the Company shall reissue a new Debenture in the same form as this Debenture to reflect the new principal amount.
ARTICLE V.
Section 5.01 Anti-dilution. Adjustment of Conversion Price. The Conversion Price shall be adjusted from time to time as follows:
(a) Adjustment of Conversion Price and Number of Shares upon Issuance of Common Stock. If and whenever on or after the Closing Date of this Debenture, the Company issues or sells, or is deemed to have issued or sold, any shares of
Common Stock (other than (i) Excluded Securities (as defined herein) and (ii) shares of Common Stock which are issued or deemed to have been issued by the Company in connection with an Approved Stock Plan (as defined herein) or upon issuance, exercise or conversion of the Other Securities (as defined herein)) for a consideration per share less than a price (the "Applicable Price") equal to the Conversion Price in effect immediately prior to such issuance or sale, then immediately after such issue or sale the Conversion Price then in effect shall be reduced to an amount equal to such consideration per share, provided that in no event shall the Conversion Price be reduced below $0.0001.
(b) Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under Section 5.01(a) above, the following shall be applicable:
(i) Issuance of Options. If after the date hereof, the Company in any manner grants any rights, warrants or options to subscribe for or purchase Common Stock or convertible securities ("Options") and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange of any convertible securities issuable upon exercise of any such Option is less than the Conversion Price then in effect, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 5.01(b)(i), the lowest price per share for which one share of Common Stock is issuable upon exercise of such Options or upon conversion or exchange of such convertible securities shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option or upon conversion or exchange of any other convertible security other than this Debenture issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock or of such convertible securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such convertible securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any convertible securities after the Closing Date and the
lowest price per share for which one share of Common Stock is issuable upon the
conversion or exchange thereof is less than the Conversion Price then in effect,
then such share of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the issuance or sale of such
convertible securities for such price per share. For the purposes of this
Section 5.01(b)(ii), the lowest price per share for which one share of Common
Stock is issuable upon such conversion or exchange shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon the issuance or sale of
the convertible security and upon conversion or exchange of such convertible
security. No further adjustment of the Conversion Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
convertible securities, and if any such issue or sale of such convertible
securities is made upon exercise of any Options for which adjustment of the
Conversion Price had been or are to be made pursuant to other provisions of this
Section 5.01(b), no further adjustment of the Conversion Price shall be made by
reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any convertible
securities, or the rate at which any convertible securities are convertible into
or exchangeable for Common Stock changes at any time, the Conversion Price in
effect at the time of such change shall be adjusted to the Conversion Price
which would have been in effect at such time had such Options or convertible
securities provided for such changed purchase price, additional consideration or
changed conversion rate, as the case may be, at the time initially granted,
issued or sold and the number of shares of Common Stock issuable upon conversion
of this Debenture shall be correspondingly readjusted. For purposes of this
Section 5.01(b)(iii), if the terms of any Option or convertible security that
was outstanding as of the Closing Date of this Debenture are changed in the
manner described in the immediately preceding sentence, then such Option or
convertible security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change. No adjustment pursuant to this Section 5.01(b) shall be
made if such adjustment would result in an increase of the Conversion Price then
in effect.
(c) Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under Sections 5.01(a) and 5.01(b), the following shall be applicable:
(i) Calculation of Consideration Received. If any Common Stock, Options or convertible securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefore will be deemed to be the net amount received by the Company therefore. If any Common Stock, Options or convertible securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the market price of such securities on the date of receipt of such securities. If any Common Stock, Options or convertible securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefore will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or convertible securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of the Debenture representing at least two-thirds of the shares of Common Stock issuable upon conversion of the Debenture then outstanding. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of the Debenture representing at least two-thirds of the shares of Common Stock issuable upon conversion of the Debenture then outstanding. The determination of such appraiser shall be final and binding upon all parties and the fees and expenses of such appraiser shall be borne by the Company.
(ii) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $0.001.
(iii) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held will be considered an issue or sale of Common Stock.
(iv) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in convertible securities or (2) to subscribe for or purchase Common Stock, Options or convertible securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.
(d) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time after the date of issuance of this Debenture subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, any Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time after the date of issuance of this Debenture combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, any Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment under this Section 5.01(d) shall become effective at the close of business on the date the subdivision or combination becomes effective.
(e) Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Debenture, then, in each such case any Conversion Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Conversion Price by a fraction of which (A) the numerator shall be the closing bid price of the Common Stock on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's Board of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the closing bid price of the Common Stock on the trading day immediately preceding such record date.
(f) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 5.01 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the holders of the Debenture; provided, except as set forth in Section 5.01(d), that no such adjustment pursuant to this Section 5.01(f) will increase the Conversion Price as otherwise determined pursuant to this Section 5.01.
(g) Notices.
(i) Immediately upon any adjustment of the Conversion Price, the Company will give written notice thereof to the holder of this Debenture, setting forth in reasonable detail, and certifying, the calculation of such adjustment.
(ii) The Company will give written notice to the holder of this Debenture at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder.
(h) Definitions.
(i) "Approved Stock Plan" means any employee benefit plan which has been approved by the Board of Directors of the Company, pursuant to which the Company's securities may be issued to any employee, officer or director for services provided to the Company.
(ii) "Excluded Securities" means, provided such security is issued at a price which is greater than or equal to the arithmetic average of the Closing Bid Prices of the Common Stock for the ten (10) consecutive trading days immediately preceding the date of issuance, any of the following: (a) any issuance by the Company of securities in connection with a strategic partnership or a joint venture (the primary purpose of which is not to raise equity capital), (b) any issuance by the Company of securities as consideration for a merger or consolidation or the acquisition of a business, product, license, or other assets of another person or entity and (c) options to purchase shares of Common Stock, provided (I) the issuance of such options are issued after the date of this Debenture to employees of the Company and is limited to 50,000 shares of the Company's common stock, and (II) the exercise price of such options is not less than the closing bid price of the Common Stock on the date of issuance of such option.
(iii) "Other Securities" means (i) those options and warrants of
the Company issued prior to, and outstanding on, the Closing Date, (ii) the
shares of Common Stock issuable on exercise of such options and warrants,
provided such options and warrants are not amended after the Closing Date and
(iii) the shares of Common Stock issuable upon conversion of this Debenture, or
otherwise in connection with this Debenture or in connection with the Cornell
Debentures (as defined in the Securities Purchase Agreement).
(i) Nothing in this Section 5.01 shall be deemed to authorize the issuance of any securities by the Company in violation of Section 5.02.
Section 5.02 Consent of Holder to Sell Capital Stock or Grant Security Interests. So long as any of the principal of or interest on this Debenture remains unpaid and unconverted, the Company shall not, without the prior consent of the Holder, (i) issue or sell any Common Stock or Preferred Stock without consideration or for a consideration per share less than its fair market value 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 fair market value determined immediately prior to its issuance, (iii) enter into any security instrument granting the holder a security interest in any of the assets of the Company, or (iv) file any registration statement on Form S-8.
ARTICLE VI.
Section 6.01 Notice. Notices regarding this Debenture shall be sent to the parties at the following addresses, unless a party notifies the other parties, in writing, of a change of address:
If to the Company, to: StrikeForce Technologies, Inc.
1090 King Georges Post Road
Suite 108 Edison, NJ 08837
Attention: Mark Kay
Telephone: (732) 661-9641
Facsimile: (732) 661-9647
With a copy to: Sichenzia, Ross, Friedman and Ference, LLP
1065 Avenue of the Americas
New York, New York 10018
Attn: Jay R. McDaniel
Telephone: (212) 930-9700
Facsimile: (212) 930-9725
If to the Holder: Highgate House Funds, Ltd
488 Madison Avenue
New York, New York 10022
Telephone: (212) 400-6990
Facsimile: (212) 400-6901
With a copy to: Jason M. Rimland, Esq.
488 Madison Avenue
New York, New York 10022
|
Telephone: (212) 400-6990 Facsimile: (212) 400-6901
Section 6.02 Governing Law. The parties hereto acknowledge that the transactions contemplated by this Agreement and the exhibits hereto bear a reasonable relation to the State of New York. The parties hereto agree that the internal laws of the State of New York shall govern this Agreement and the exhibits hereto, including, but not limited to, all issues related to usury. Any action to enforce the terms of this Agreement or any of its exhibits shall be brought exclusively in the state and/or federal courts situated in the County and State of New York. Service of process in any action by the Buyers to enforce the terms of this Agreement may be made by serving a copy of the summons and complaint, in addition to any other relevant documents, by commercial overnight courier to the Company at its principal address set forth in this Agreement.
Section 6.03 Severability. The invalidity of any of the provisions of this Debenture shall not invalidate or otherwise affect any of the other provisions of this Debenture, which shall remain in full force and effect.
Section 6.04 Entire Agreement and Amendments. This Debenture represents the entire agreement between the parties hereto with respect to the subject matter hereof and there are no representations, warranties or commitments, except as set forth herein. This Debenture may be amended only by an instrument in writing executed by the parties hereto.
Section 6.05 Counterparts. This Debenture may be executed in multiple counterparts, each of which shall be an original, but all of which shall be deemed to constitute on instrument.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company as executed this Debenture as of the date first written above.
STRIKEFORCE TECHNOLOGIES, INC.
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to Convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $ of the principal amount of the above Debenture into Shares of Common Stock of StrikeForce Technologies, Inc., according to the conditions stated therein, as of the Conversion Date written below.
Conversion Date: Applicable Conversion Price: ______________________________________ Signature: ______________________________________ Name: ______________________________________ Address: Amount to be converted: $ ______________________________________ Amount of Debenture unconverted: $ ______________________________________ Conversion Price per share: $ ______________________________________ Number of shares of Common Stock to be issued: ______________________________________ Please issue the shares of Common Stock in the following name and to the following address: ______________________________________ Issue to: Authorized Signature: ______________________________________ Name: Title: ______________________________________ Phone Number: Broker DTC Participant Code: ______________________________________ Account Number: ______________________________________ |
Exhibit 10.15
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of April 27, 2005 STRIKEFORCE TECHNOLOGIES, INC., a New Jersey corporation (the "Company"); the Buyer(s) listed on the Securities Purchase Agreement, dated the date hereof (also referred to as the "Investor(s)"), and Gottbetter & Partners, LLP, as Escrow Agent hereunder ("Escrow Agent").
BACKGROUND
WHEREAS, the Company and the Investor(s) have entered into a Securities Purchase Agreement (the "Securities Purchase Agreement"), dated as of the date hereof, pursuant to which the Company proposes to sell secured convertible debentures (the "Convertible Debentures") which shall be convertible into the Company's Common Stock, par value $0.0001 per share (the "Common Stock"), for the Purchase Price, as that term is defined in the Securities Purchase Agreement. The Securities Purchase Agreement provides that the Investor(s) shall deposit the purchase amount in a segregated escrow account to be held by Escrow Agent in order to effectuate a disbursement to the Company at a closing to be held as set forth in the Securities Purchase Agreement (the "Closing").
WHEREAS, the Company intends to sell Convertible Securities (the "Offering").
WHEREAS, Escrow Agent has agreed to accept, hold, and disburse the funds deposited with it in accordance with the terms of this Agreement.
WHEREAS, in order to establish the escrow of funds and to effect the provisions of the Securities Purchase Agreement, the parties hereto have entered into this Agreement.
NOW THEREFORE, in consideration of the foregoing, it is hereby agreed as follows:
1. Definitions. The following terms shall have the following meanings when used herein:
a. "Escrow Funds" shall mean the funds deposited with Escrow Agent pursuant to this Agreement.
b. "Joint Written Direction" shall mean a written direction executed by the Investor(s) and the Company directing Escrow Agent to disburse all or a portion of the Escrow Funds or to take or refrain from taking any action pursuant to this Agreement.
c. "Escrow Period" shall begin with the commencement of the Offering and shall terminate upon the earlier to occur of the following dates:
(i) The date upon which Escrow Agent confirms that it has received in the Escrow Account all of the proceeds of the sale of the Convertible Debentures;
(ii) The expiration of twenty (20) days from the date of commencement of the Offering (unless extended by mutual written agreement between the Company and the Investor(s) with a copy of such extension to Escrow Agent); or
(iii) The date upon which a determination is made by the Company and the Investor(s) to terminate the Offering prior to the sale of all the Convertible Debentures.
During the Escrow Period, the Company and the Investor(s) are aware that they are not entitled to any funds received into escrow and no amounts deposited in the Escrow Account shall become the property of the Company or the Investor(s) or any other entity, or be subject to the debts of the Company or the Investor(s) or any other entity.
2. Appointment of and Acceptance by Escrow Agent. The Investor(s) and the Company hereby appoint Escrow Agent to serve as Escrow Agent hereunder. Escrow Agent hereby accepts such appointment and, upon receipt by wire transfer of the Escrow Funds in accordance with Section 3 below, agrees to hold, invest and disburse the Escrow Funds in accordance with this Agreement.
a. The Company hereby acknowledges that Escrow Agent is general counsel to the Investor(s), the managing partner of the Escrow Agent is a director of the Investor(s), and counsel to the Investor(s) in connection with the transactions contemplated and referred herein. The Company agrees that in the event of any dispute arising in connection with this Escrow Agreement or otherwise in connection with any transaction or agreement contemplated and referred herein, Escrow Agent shall be permitted to continue to represent the Investor(s) and the Company will not seek to disqualify such counsel.
3. Creation of Escrow Funds. On or prior to the date of the commencement of the Offering, the parties shall establish an escrow account with Escrow Agent, which escrow account shall be entitled as follows: StrikeForce Technologies, Inc./Highgate House Funds, Ltd. Escrow Account for the deposit of the Escrow Funds. The Investor(s) will instruct subscribers to wire funds to the account of Escrow Agent as follows:
Bank: Citibank, N.A
Routing #: 021000089
Account #: 49061322
Name on Account: Gottbetter & Partners, LLP Trust Account
Name on Sub-Account: StrikeForce Technologies, Inc./Highgate House Funds,
Ltd. Escrow account
|
4. Deposits into the Escrow Account. The Investor(s) agree(s) that they shall promptly deliver funds for the payment of the Convertible Debentures to Escrow Agent for deposit in the Escrow Account.
5. Disbursements from the Escrow Account.
a. Escrow Agent will continue to hold such funds until Highgate House Funds, Ltd. on behalf of the Investor(s) and Company execute a Joint Written Direction directing Escrow Agent to disburse the Escrow Funds pursuant to Joint Written Direction signed by the Company and the Investor(s). In disbursing such funds, Escrow Agent is authorized to rely upon such Joint Written Direction from the Company and the Investor(s) and may accept any signatory from the Company listed on the signature page to this Agreement and any signature from the Investor(s) that Escrow Agent already has on file.
b. In the event Escrow Agent does not receive the amount of the Escrow Funds from the Investor(s), Escrow Agent shall notify the Company and the Investor(s). Upon receipt of payment instructions from the Company, Escrow Agent shall refund to each subscriber without interest the amount received from each Investor(s), without deduction, penalty, or expense to the subscriber. The purchase money returned to each subscriber shall be free and clear of any and all claims of the Company, the Investor(s) or any of their creditors.
c. In the event Escrow Agent does receive the amount of the Escrow Funds prior to expiration of the Escrow Period, in no event will the Escrow Funds be released to the Company until such amount is received by Escrow Agent in collected funds. For purposes of this Agreement, the term "collected funds" shall mean all funds received by Escrow Agent which have cleared normal banking channels and are in the form of cash.
6. Collection Procedure. Escrow Agent is hereby authorized to deposit the proceeds of each wire in the Escrow Account.
7. Suspension of Performance: Disbursement Into Court. If at any time, there shall exist any dispute between the Company and the Investor(s) with respect to holding or disposition of any portion of the Escrow Funds or any other obligations of Escrow Agent hereunder, or if at any time Escrow Agent is unable to determine, to Escrow Agent's sole satisfaction, the proper disposition of any portion of the Escrow Funds or Escrow Agent's proper actions with respect to its obligations hereunder, or if the parties have not within thirty (30) days of the furnishing by Escrow Agent of a notice of resignation pursuant to Section 9 hereof, appointed a successor Escrow Agent to act hereunder, then Escrow Agent may, in its sole discretion, take either or both of the following actions:
a. suspend the performance of any of its obligations (including without limitation any disbursement obligations) under this Escrow Agreement until such dispute or uncertainty shall be resolved to the sole satisfaction of Escrow Agent or until a successor Escrow Agent shall be appointed (as the case may be); provided however, Escrow Agent shall continue to invest the Escrow Funds in accordance with Section 8 hereof; and/or
b. petition (by means of an interpleader action or any other appropriate method) any court of competent jurisdiction in any venue convenient to Escrow Agent, for instructions with respect to such dispute or uncertainty, and to the extent required by law, pay into such court, for holding and disposition in accordance with the instructions of such court, all funds held by it in the Escrow Funds, after deduction and payment to Escrow Agent of all fees and
expenses (including court costs and attorneys' fees) payable to, incurred by, or expected to be incurred by Escrow Agent in connection with performance of its duties and the exercise of its rights hereunder.
c. Escrow Agent shall have no liability to the Company, the Investor(s), or any person with respect to any such suspension of performance or disbursement into court, specifically including any liability or claimed liability that may arise, or be alleged to have arisen, out of or as a result of any delay in the disbursement of funds held in the Escrow Funds or any delay in with respect to any other action required or requested of Escrow Agent.
8. Investment of Escrow Funds. Escrow Agent shall deposit the Escrow Funds in a non-interest bearing account.
If Escrow Agent has not received a Joint Written Direction at any time that an investment decision must be made, Escrow Agent shall maintain the Escrow Funds, or such portion thereof, as to which no Joint Written Direction has been received, in a non-interest bearing account.
9. Resignation and Removal of Escrow Agent. Escrow Agent may resign from the performance of its duties hereunder at any time by giving thirty (30) days' prior written notice to the parties or may be removed, with or without cause, by the parties, acting jointly, by furnishing a Joint Written Direction to Escrow Agent, at any time by the giving of ten (10) days' prior written notice to Escrow Agent as provided herein below. Upon any such notice of resignation or removal, the representatives of the Investor(s) and the Company identified in Sections 13a.(iv) and 13b.(iv), below, jointly shall appoint a successor Escrow Agent hereunder, which shall be a commercial bank, trust company or other financial institution with a combined capital and surplus in excess of $10,000,000.00. Upon the acceptance in writing of any appointment of Escrow Agent hereunder by a successor Escrow Agent, such successor Escrow Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Escrow Agent, and the retiring Escrow Agent shall be discharged from its duties and obligations under this Escrow Agreement, but shall not be discharged from any liability for actions taken as Escrow Agent hereunder prior to such succession. After any retiring Escrow Agent's resignation or removal, the provisions of this Escrow Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Escrow Agent under this Escrow Agreement. The retiring Escrow Agent shall transmit all records pertaining to the Escrow Funds and shall pay all funds held by it in the Escrow Funds to the successor Escrow Agent, after making copies of such records as the retiring Escrow Agent deems advisable and after deduction and payment to the retiring Escrow Agent of all fees and expenses (including court costs and attorneys' fees) payable to, incurred by, or expected to be incurred by the retiring Escrow Agent in connection with the performance of its duties and the exercise of its rights hereunder.
10. Liability of Escrow Agent.
a. Escrow Agent shall have no liability or obligation with respect to the Escrow Funds except for Escrow Agent's willful misconduct or gross negligence. Escrow Agent's sole responsibility shall be for the safekeeping, investment, and disbursement of the Escrow Funds in accordance with the terms of
this Agreement. Escrow Agent shall have no implied duties or obligations and shall not be charged with knowledge or notice or any fact or circumstance not specifically set forth herein. Escrow Agent may rely upon any instrument, not only as to its due execution, validity and effectiveness, but also as to the truth and accuracy of any information contained herein, which Escrow Agent shall in good faith believe to be genuine, to have been signed or presented by the person or parties purporting to sign the same and conform to the provisions of this Agreement. In no event shall Escrow Agent be liable for incidental, indirect, special, and consequential or punitive damages. Escrow Agent shall not be obligated to take any legal action or commence any proceeding in connection with the Escrow Funds, any account in which Escrow Funds are deposited, this Agreement or the Purchase Agreement, or to appear in, prosecute or defend any such legal action or proceeding. Escrow Agent may consult legal counsel selected by it in any event of any dispute or question as to construction of any of the provisions hereof or of any other agreement or its duties hereunder, or relating to any dispute involving any party hereto, and shall incur no liability and shall be fully indemnified from any liability whatsoever in acting in accordance with the opinion or instructions of such counsel. The Company and the Investor(s) jointly and severally shall promptly pay, upon demand, the reasonable fees and expenses of any such counsel.
b. Escrow Agent is hereby authorized, in its sole discretion, to comply with orders issued or process entered by any court with respect to the Escrow Funds, without determination by Escrow Agent of such court's jurisdiction in the matter. If any portion of the Escrow Funds is at any time attached, garnished or levied upon under any court order, or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in any case any order judgment or decree shall be made or entered by any court affecting such property or any part thereof, then and in any such event, Escrow Agent is authorized, in its sole discretion, to rely upon and comply with any such order, writ judgment or decree which it is advised by legal counsel selected by it, binding upon it, without the need for appeal or other action; and if Escrow Agent complies with any such order, writ, judgment or decree, it shall not be liable to any of the parties hereto or to any other person or entity by reason of such compliance even though such order, writ judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated.
11. Indemnification of Escrow Agent. From and at all times after the date of this Agreement, the parties jointly and severally, shall, to the fullest extent permitted by law and to the extent provided herein, indemnify and hold harmless Escrow Agent and each director, officer, employee, attorney, agent and affiliate of Escrow Agent (collectively, the "Indemnified Parties") against any and all actions, claims (whether or not valid), losses, damages, liabilities, costs and expenses of any kind or nature whatsoever (including without limitation reasonable attorney's fees, costs and expenses) incurred by or asserted against any of the Indemnified Parties from and after the date hereof, whether direct, indirect or consequential, as a result of or arising from or in any way relating to any claim, demand, suit, action, or proceeding (including any inquiry or investigation) by any person, including without limitation the parties to this Agreement, whether threatened or initiated, asserting a claim for any legal or equitable remedy against any person under any statute or regulation, including, but not limited to, any federal or state securities laws, or under any common law or equitable cause or otherwise, arising from or in connection with the negotiation, preparation, execution, performance or failure of performance of this Agreement or any transaction contemplated herein, whether
or not any such Indemnified Party is a party to any such action or proceeding,
suit or the target of any such inquiry or investigation; provided, however, that
no Indemnified Party shall have the right to be indemnified hereunder for
liability finally determined by a court of competent jurisdiction, subject to no
further appeal, to have resulted from the gross negligence or willful misconduct
of such Indemnified Party. If any such action or claim shall be brought or
asserted against any Indemnified Party, such Indemnified Party shall promptly
notify the Company and the Investor(s) hereunder in writing, and the Investor(s)
and the Company shall assume the defense thereof, including the employment of
counsel and the payment of all expenses. Such Indemnified Party shall, in its
sole discretion, have the right to employ separate counsel (who may be selected
by such Indemnified Party in its sole discretion) in any such action and to
participate and to participate in the defense thereof, and the fees and expenses
of such counsel shall be paid by such Indemnified Party, except that the
Investor(s) and/or the Company shall be required to pay such fees and expense if
(a) the Investor(s) or the Company agree to pay such fees and expenses, or (b)
the Investor(s) and/or the Company shall fail to assume the defense of such
action or proceeding or shall fail, in the sole discretion of such Indemnified
Party, to employ counsel reasonably satisfactory to the Indemnified Party in any
such action or proceeding, (c) the Investor(s) and the Company are the plaintiff
in any such action or proceeding or (d) the named or potential parties to any
such action or proceeding (including any potentially impleaded parties) include
both the Indemnified Party, the Company and/or the Investor(s) and the
Indemnified Party shall have been advised by counsel that there may be one or
more legal defenses available to it which are different from or additional to
those available to the Company or the Investor(s). The Investor(s) and the
Company shall be jointly and severally liable to pay fees and expenses of
counsel pursuant to the preceding sentence, except that any obligation to pay
under clause (a) shall apply only to the party so agreeing. All such fees and
expenses payable by the Company and/or the Investor(s) pursuant to the foregoing
sentence shall be paid from time to time as incurred, both in advance of and
after the final disposition of such action or claim. The obligations of the
parties under this section shall survive any termination of this Agreement, and
resignation or removal of Escrow Agent shall be independent of any obligation of
Escrow Agent.
The parties agree that neither payment by the Company or the Investor(s) of any claim by Escrow Agent for indemnification hereunder shall impair, limit, modify, or affect, as between the Investor(s) and the Company, the respective rights and obligations of Investor(s), on the one hand, and the Company, on the other hand.
12. Expenses of Escrow Agent. Except as set forth in Section 11 the Company shall reimburse Escrow Agent for all of its reasonable out-of-pocket expenses, including attorneys' fees, travel expenses, telephone and facsimile transmission costs, postage (including express mail and overnight delivery charges), copying charges and the like. All of the compensation and reimbursement obligations set forth in this Section shall be payable by the Company, upon demand by Escrow Agent. The obligations of the Company under this Section shall survive any termination of this Agreement and the resignation or removal of Escrow Agent.
13. Warranties.
a. The Investor(s) makes the following representations and warranties to Escrow Agent:
(i) The Investor(s) has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder.
(ii) This Agreement has been duly approved by all necessary action of the Investor(s), including any necessary approval of the limited partner of the Investor(s) or necessary corporate approval, as applicable, has been executed by duly authorized officers of the Investor(s), enforceable in accordance with its terms.
(iii) The execution, delivery, and performance of the Investor(s) of this Agreement will not violate, conflict with, or cause a default under any agreement of limited partnership of Investor(s) or the articles of incorporation or bylaws of the Investor(s) (as applicable), any applicable law or regulation,
any court order or administrative ruling or degree to which the Investor(s) is a party or any of its property is subject, or any agreement, contract, indenture, or other binding arrangement.
(iv) Adam S. Gottbetter has been duly appointed to act as the representative of the Investor(s) hereunder and has full power and authority to execute, deliver, and perform this Escrow Agreement, to execute and deliver any Joint Written Direction, to amend, modify, or waive any provision of this Agreement, and to take any and all other actions as the Investor(s)'s representative under this Agreement, all without further consent or direction form, or notice to, the Investor(s) or any other party.
(v) No party other than the parties hereto and the Investor(s) has/have, or shall have, any lien, claim or security interest in the Escrow Funds or any part thereof. No financing statement under the Uniform Commercial Code is on file in any jurisdiction claiming a security interest in or describing (whether specifically or generally) the Escrow Funds or any part thereof.
(vi) All of the representations and warranties of the Investor(s) contained herein are true and complete as of the date hereof and will be true and complete at the time of any disbursement from the Escrow Funds.
b. The Company makes the following representations and warranties to Escrow Agent:
(i) The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of New Jersey and has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder.
(ii) This Agreement has been duly approved by all necessary corporate action of the Company, including any necessary shareholder approval, has been executed by duly authorized officers of the Company, enforceable in accordance with its terms.
(iii) The execution, delivery, and performance by the Company of this Agreement is in accordance with the Securities Purchase Agreement and will not violate, conflict with, or cause a default under the certificate of incorporation or bylaws of the Company, any applicable law or regulation, any court order or administrative ruling or decree to which the Company is a party or any of its property is subject, or any agreement, contract, indenture, or other binding arrangement, including without limitation to the Securities Purchase Agreement, to which the Company is a party.
(iv) Mark L. Kay has been duly appointed to act as the representative of the Company hereunder and has full power and authority to execute, deliver, and perform this Agreement, to execute and deliver any Joint Written Direction, to amend, modify or waive any provision of this Agreement and to take all other actions as the Company's Representative under this Agreement, all without further consent or direction from, or notice to, the Company or any other party.
(v) No party other than the parties hereto and the Investor(s)s have, or shall have, any lien, claim or security interest in the Escrow Funds or any part thereof. No financing statement under the Uniform Commercial Code is on file in any jurisdiction claiming a security interest in or describing (whether specifically or generally) the Escrow Funds or any part thereof.
(vi) All of the representations and warranties of the Company contained herein are true and complete as of the date hereof and will be true and complete at the time of any disbursement from the Escrow Funds.
14. Consent to Jurisdiction and Venue; Governing Law. The parties hereto acknowledge that the transactions contemplated by this Agreement and the exhibits hereto bear a reasonable relation to the State of New York. The parties hereto agree that the internal laws of the State of New York shall govern this Agreement and the exhibits hereto, including, but not limited to, all issues related to usury. Any action to enforce the terms of this Agreement or any of its exhibits shall be brought exclusively in the state and/or federal courts situated in the County and State of New York. Service of process in any action by any of the parties to enforce the terms of this Agreement may be made by serving a copy of the summons and complaint, in addition to any other relevant documents, by commercial overnight courier to the Company at its principal address set forth in this Agreement.
15. Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been validly served, given or delivered five
(5) days after deposit in the United States mails, by certified mail with return
receipt requested and postage prepaid, when delivered personally, one (1) day
delivered to any overnight courier, or when transmitted by facsimile
transmission and upon confirmation of receipt and addressed to the party to be
notified as follows:
If to Investor(s), to: Highgate House Funds, Ltd.
488 Madison Avenue
New York, NY 10022
Attention: Adam S. Gottbetter
Portfolio Manager
Telephone: (212) 400-6990
Facsimile: (212) 400-6901
If to Escrow Agent, to: Gottbetter & Partners, LLP
488 Madison Avenue,
New York, NY 10022
Telephone: (212) 400-6900
Facsimile: (212) 400-6901
If to the Company, to: StrikeForce Technologies Inc.,
1090 King Georges Post Road,
Edison, NJ, 08837.
Attention: Mark L. Kay
Telephone: (732) 661 9641
Facsimile: (732) 661-9647
With a copy to: Sichenzia, Ross, Friedman and Ference, LLP
1065 Avenue of the Americas
New York, New York 10018
|
Attn: Jay R. McDaniel Telephone: (212) 930-9700
Or to such other address as each party may designate for itself by like notice.
16. Amendments or Waiver. This Agreement may be changed, waived, discharged or terminated only by a writing signed by the parties hereto. No delay or omission by any party in exercising any right with respect hereto shall operate as waiver. A waiver on any one occasion shall not be construed as a bar to, or waiver of, any right or remedy on any future occasion.
17. Severability. To the extent any provision of this Agreement is prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition, or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
18. Entire Agreement. This Agreement constitutes the entire Agreement between the parties relating to the holding, investment, and disbursement of the Escrow Funds and sets forth in their entirety the obligations and duties of Escrow Agent with respect to the Escrow Funds.
19. Binding Effect. All of the terms of this Agreement, as amended from time to time, shall be binding upon, inure to the benefit of and be enforceable by the respective heirs, successors and assigns of the Investor(s), the Company, or Escrow Agent.
20. Execution of Counterparts. This Agreement and any Joint Written Direction may be executed in counter parts, which when so executed shall constitute one and same agreement or direction.
21. Termination. Upon the first to occur of the disbursement of all amounts in the Escrow Funds pursuant to Joint Written Directions or the disbursement of all amounts in the Escrow Funds into court pursuant to Section 7 hereof, this Agreement shall terminate and Escrow Agent shall have no further obligation or liability whatsoever with respect to this Agreement or the Escrow Funds.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF the parties have hereunto set their hands and seals the day and year above set forth.
STRIKEFORCE TECHNOLOGIES, INC.
By: /s/ Mark Kay
------------
Name: Mark Kay
Title: Chief Executive Officer
|
HIGHGATE HOUSE FUNDS, LTD.
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Adam S. Gottbetter
----------------------
Name: Adam S. Gottbetter
Title: Portfolio Manager
|
GOTTBETTER & PARNTERS, LLP
By: /s/ Adam S. Gottbetter
----------------------
Name: Adam S. Gottbetter
Title: Managing Partner
|
Exhibit 10.16
ESCROW SHARES ESCROW AGREEMENT
THIS ESCROW SHARES ESCROW AGREEMENT (the "Agreement") is made and entered into as of April 27, 2005 (the "Effective Date") by and among HIGHGATE HOUSE FUNDS, LTD. (the "Highgate"), STRIKEFORCE TECHNOLOGIES, INC., a corporation organized and existing under the laws of the State of New Jersey (the "Company"), and GOTTBETTER & PARTNERS, LLP, as escrow agent ("Escrow Agent").
RECITALS:
WHEREAS, the Company and Highgate have entered into a Securities Purchase Agreement (the "Securities Purchase Agreement"), dated as of the date hereof, pursuant to which the Company proposes to sell secured convertible debentures (the "Convertible Debentures") which shall be convertible into the Company's Common Stock, par value $0.0001 per share (the "Common Stock") and in connection therewith the Company has agreed to issue 150,000 shares of Common Stock (the "Shares"; and, together with the Convertible Debentures, the "Securities");
WHEREAS, the Securities Purchase Agreement provides that Highgate shall deposit the Escrow Shares in a segregated escrow account to be held by Escrow Agent in order to effectuate the conversions of the Convertible Debentures;
WHEREAS, The Escrow Agent is willing to act as escrow agent pursuant to the terms of this Agreement with respect to the Escrow Shares.
NOW, THEREFORE, in consideration of the mutual covenants, agreements, warranties, and representations herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
TERMS AND CONDITIONS
1. Procedure for Escrow. The procedures of the escrow shall be governed by the provisions of Exhibit F of the Securities Purchase Agreement and the Convertible Debentures, all of which are incorporated herein by reference as if set forth fully herein.
2. Terms of Escrow. The terms of the escrow shall be governed by Article 4 of the Purchase Agreement and the Convertible Debenture, all of which are incorporated herein by reference as if set forth fully herein.
3. Concerning the Escrow Agent.
3.1. The Escrow Agent undertakes to perform only such duties as are expressly set forth herein and no implied duties or obligations shall be read into this Agreement against the Escrow Agent.
3.2. The Escrow Agent may act in reliance upon any writing or instrument or signature which it, in good faith, believes to be genuine, may assume the validity and accuracy of any statement or assertion contained in such a writing or instrument, and may assume that any person purporting to give any writing, notice, advice or instructions in connection with the provisions hereof has been duly authorized to do so. The Escrow Agent shall not be liable in any manner for the sufficiency or correctness as to form, manner, and execution, or validity of any instrument deposited in this escrow, nor as to the identity, authority, or right of any person executing the same; and its duties hereunder shall be limited to the safekeeping of such certificates, monies, instruments, or other document received by it as such escrow holder, and for the disposition of the same in accordance with the written instruments accepted by it in the escrow.
3.3. Highgate and the Company hereby agree, to defend and indemnify the Escrow Agent and hold it harmless from any and all claims, liabilities, losses, actions, suits, or proceedings at law or in equity, or any other expenses, fees, or charges of any character or nature which it may incur or with which it may be threatened by reason of its acting as Escrow Agent under this Agreement; and in connection therewith, to indemnify the Escrow Agent against any and all expenses, including attorneys' fees and costs of defending any action, suit, or proceeding or resisting any claim (and any costs incurred by the Escrow Agent pursuant to Sections 6.4 or 6.5 hereof). The Escrow Agent shall be vested with a lien on all property deposited hereunder, for indemnification of attorneys' fees and court costs regarding any suit, proceeding or otherwise, or any other expenses, fees, or charges of any character or nature, which may be incurred by the Escrow Agent by reason of disputes arising between the makers of this escrow as to the correct interpretation of this Agreement and instructions given to the Escrow Agent hereunder, or otherwise, with the right of the Escrow Agent, regardless of the instructions aforesaid, to hold said property until and unless said additional expenses, fees, and charges shall be fully paid. Any fees and costs charged by the Escrow Agent for serving hereunder shall be paid by the Company.
3.4. If any of the parties shall be in disagreement about the interpretation of this Agreement, or about the rights and obligations, or the propriety of any action contemplated by the Escrow Agent hereunder, the Escrow Agent may, at its sole discretion deposit the Escrow Shares with the Clerk of the United States District Court of New York, sitting in Manhattan, New York, and, upon notifying all parties concerned of such action, all liability on the part of the Escrow Agent shall fully cease and terminate. The Escrow Agent shall be indemnified by the Company, the Company and Highgate for all costs, including reasonable attorneys' fees in connection with the aforesaid proceeding, and shall be fully protected in suspending all or a part of its activities under this Agreement until a final decision or other settlement in the proceeding is received.
3.5. The Escrow Agent may consult with counsel of its own choice (and the costs of such counsel shall be paid by the Company and Highgate) and shall have full and complete authorization and protection for any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. The Escrow Agent shall not be liable for any mistakes of fact or error of judgment, or for any actions or omissions of any kind, unless caused by its willful misconduct or gross negligence.
3.6. The Escrow Agent may resign upon ten (10) days' written notice to the parties in this Agreement. If a successor Escrow Agent is not appointed within this ten (10) day period, the Escrow Agent may petition a court of competent jurisdiction to name a successor.
6.7 Conflict Waiver. The Company hereby acknowledges that the Escrow Agent is general counsel to Highgate, a partner in the general partner of Highgate, and counsel to Highgate in connection with the transactions contemplated and referred herein. The Company agrees that in the event of any dispute arising in connection with this Agreement or otherwise in connection with any transaction or agreement contemplated and referred herein, the Escrow Agent shall be permitted to continue to represent Highgate and the Company will not seek to disqualify such counsel and waives any objection Company might have with respect to the Escrow Agent acting as the Escrow Agent pursuant to this Agreement.
6.8 Notices. Unless otherwise provided herein, all demands, notices, consents, service of process, requests and other communications hereunder shall be in writing and shall be delivered in person or by overnight courier service, or mailed by certified mail, return receipt requested, addressed:
If to the Company, to: StrikeForce Technologies, Inc.
1090 King Georges Post Road
Suite 108, Edison, NJ 08837
Attention: Mark Kay
Telephone: (732) 661-9641
Facsimile: (732) 661-9647
With a copy to: Sichenzia, Ross, Friedman and Ference, LLP
1065 Avenue of the Americas
New York, New York 10018
Attn: Richard A. Friedman
Telephone: (212) 930-9700
Facsimile: (212) 930-9725
If to Highgate: Highgate House Funds, Ltd.
488 Madison Avenue
New York, New York 10022
Attention: Adam S. Gottbetter
Telephone: (212) 400-6990
Facsimile: (212) 400 6901
With copy to: Jason Rimland, Esq.
Gottbetter & Partners, LLP
488 Madison Avenue
New York, New York 10022
|
Telephone: (212) 400-6900 Facsimile: (212) 400 6901
Any such notice shall be effective (a) when delivered, if delivered by hand delivery or overnight courier service, or (b) five (5) days after deposit in the United States mail, as applicable.
4. Binding Effect. All of the covenants and obligations contained herein shall be binding upon and shall inure to the benefit of the respective parties, their successors and assigns.
5. Governing Law; Venue; Service of Process. The parties hereto acknowledge that the transactions contemplated by this Agreement and the exhibits hereto bear a reasonable relation to the State of New York. The parties hereto agree that the internal laws of the State of New York shall govern this Agreement and the exhibits hereto, including, but not limited to, all issues related to usury. Any action to enforce the terms of this Agreement or any of its exhibits shall be brought exclusively in the state and/or federal courts situated in the County and State of New York. Service of process in any action by Highgate to enforce the terms of this Agreement may be made by serving a copy of the summons and complaint, in addition to any other relevant documents, by commercial overnight courier to the Company at its principal address set forth in this Agreement.
6. Enforcement Costs. If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees, court costs and all expenses even if not taxable as court costs (including, without limitation, all such fees, costs and expenses incident to appeals), incurred in that action or proceeding, in addition to any other relief to which such party or parties may be entitled.
7. Remedies Cumulative. No remedy herein conferred upon any party is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law, in equity, by statute, or otherwise. No single or partial exercise by any party of any right, power or remedy hereunder shall preclude any other or further exercise thereof.
8. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute the same instrument.
9. No Penalties. No provision of this Agreement is to be interpreted as a penalty upon any party to this Agreement.
10. JURY TRIAL. EACH OF HIGHGATE AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT WHICH IT MAY HAVE TO A TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED HEREON, OR ARISING OUT OF, UNDER OR IN ANY WAY CONNECTED WITH THE DEALINGS BETWEEN HIGHGATE AND COMPANY, THIS ESCROW SHARES ESCROW AGREEMENT OR ANY DOCUMENT EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.
IN WITNESS WHEREOF, the parties hereto have duly executed this Escrow Shares Escrow Agreement as of the date first above written.
HIGHGATE HOUSE FUNDS, LTD
By: Yorkville Advisors , LLC
Its: General Partners
By: /s/ Adam S. Gottbetter, Esq.
----------------------------
Name: Adam S. Gottbetter, Esq.
Its: Portfolio Manager
|
STRIKEFORCE TECHNOLOGIES, INC.
By: /s/ Mark Kay
------------
Name: Mark Kay
Title: Chief Executive Officer
|
GOTTBETTER & PARTNERS, LLP
By: /s/ Adam S. Gottbetter, Esq.
----------------------------
Name: Adam S. Gottbetter
Title: Managing Partner
|
Exhibit 10.17
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement"), is entered into and made effective as of April 27, 2005, by and between STRIKEFORCE TECHNOLOGIES, INC., a New Jersey corporation (the "Company"), and the BUYER(S) listed on Schedule I attached to the Securities Purchase Agreement dated the date hereof (the "Secured Party").
WHEREAS, the Company shall issue and sell to the Secured Party, as provided in the Securities Purchase Agreement dated the date hereof, and the Secured Party shall purchase (i) Seven Hundred Fifty Thousand Dollars ($750,000) of seven percent (7%) per annum secured convertible debentures, compounded monthly (the "Convertible Debentures"), which shall be convertible into shares of the Company's common stock, par value $0.0001 (the "Common Stock") (as converted, the "Conversion Shares"), and (ii) 150,000 shares of Common Stock, in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached to the Securities Purchase Agreement;
WHEREAS, to induce the Secured Party to enter into the transaction contemplated by the Securities Purchase Agreement, the Secured Convertible Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer Agent Instructions, the Escrow Shares Escrow Agreement and the Escrow Agreement (collectively referred to as the "Transaction Documents"), the Company hereby grants to the Secured Party a security interest in and to the pledged property identified on Exhibit "A" hereto (collectively referred to as the "Pledged Property") until the satisfaction of the Obligations, as defined herein below; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATIONS
Section 1.1. Recitals.
The above recitals are true and correct and are incorporated herein, in their entirety, by this reference.
Section 1.2. Interpretations.
Nothing herein expressed or implied is intended or shall be construed to confer upon any person other than the Secured Party any right, remedy or claim under or by reason hereof.
Section 1.3. Obligations Secured.
The obligations secured hereby are any and all obligations of the Company now existing or hereinafter incurred to the Secured Party, whether oral or written and whether arising before, on or after the date hereof including,
without limitation, those obligations of the Company to the Secured Party under the Securities Purchase Agreement, the Secured Convertible Debenture, the Investor Registration Rights Agreement and Irrevocable Transfer Agent Instructions, and any other amounts now or hereafter owed to the Secured Party by the Company thereunder or hereunder (collectively, the "Obligations").
ARTICLE 2.
Pledged Collateral, administration of collateral
AND TERMINATION OF SECURITY INTEREST
Section 2.1. Pledged Property.
(a) The Company hereby pledges to the Secured Party, and creates in the Secured Party for its benefit, a security interest for such time until the Obligations are paid in full, in and to all of the property of the Company as set forth in Exhibit "A" attached hereto (collectively, the "Pledged Property"):
The Pledged Property, as set forth in Exhibit "A" attached hereto, and the products thereof and the proceeds of all such items are hereinafter collectively referred to as the "Pledged Collateral."
(b) Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute, acknowledge, file, record and deliver to the Secured Party any documents reasonably requested by the Secured Party to perfect its security interest in the Pledged Property. Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute, acknowledge and deliver to the Secured Party such documents and instruments, including, without limitation, financing statements, certificates, affidavits and forms as may, in the Secured Party's reasonable judgment, be necessary to effectuate, complete or perfect, or to continue and preserve, the security interest of the Secured Party in the Pledged Property, and the Secured Party shall hold such documents and instruments as secured party, subject to the terms and conditions contained herein.
Section 2.2. Rights; Interests; Etc.
(a) So long as no Event of Default (as hereinafter defined) shall have occurred and be continuing:
(i) the Company shall be entitled to exercise any and all rights pertaining to the Pledged Property or any part thereof for any purpose not inconsistent with the terms hereof; and
(ii) the Company shall be entitled to receive and retain any and all payments paid or made in respect of the Pledged Property.
(b) Upon the occurrence and during the continuance of an Event of Default:
(i) All rights of the Company to exercise the rights which it would otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and to receive payments which it would otherwise be authorized to receive and retain
pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights shall thereupon become vested in the Secured Party who shall thereupon have the sole right to exercise such rights and to receive and hold as Pledged Collateral such payments; provided, however, that if the Secured Party shall become entitled and shall elect to exercise its right to realize on the Pledged Collateral pursuant to Article 5 hereof, then all cash sums received by the Secured Party, or held by Company for the benefit of the Secured Party and paid over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any outstanding Obligations; and
(ii) All interest, dividends, income and other payments and
distributions which are received by the Company contrary to the provisions of
Section 2.2(b)(i) hereof shall be received in trust for the benefit of the
Secured Party, shall be segregated from other property of the Company and shall
be forthwith paid over to the Secured Party; or
(iii) The Secured Party in its sole discretion shall be authorized to sell any or all of the Pledged Property at public or private sale in order to recoup all of the outstanding principal plus accrued interest owed pursuant to the Convertible Debenture as described herein
(c) Each of the following events shall constitute a default under this Agreement (each an "Event of Default"):
(i) any default, whether in whole or in part, shall occur in the payment to the Secured Party of principal, interest or other item comprising the Obligations as and when due or with respect to any other debt or obligation of the Company to a party other than the Secured Party;
(ii) any default, whether in whole or in part, shall occur in the due observance or performance of any obligations or other covenants, terms or provisions to be performed under this Agreement or the Transaction Documents;
(iii) the Company shall: (1) make a general assignment for the benefit of its creditors; (2) apply for or consent to the appointment of a receiver, trustee, assignee, custodian, sequestrator, liquidator or similar official for itself or any of its assets and properties; (3) commence a voluntary case for relief as a debtor under the United States Bankruptcy Code; (4) file with or otherwise submit to any governmental authority any petition, answer or other document seeking: (A) reorganization, (B) an arrangement with creditors or (C) to take advantage of any other present or future applicable law respecting bankruptcy, reorganization, insolvency, readjustment of debts, relief of debtors, dissolution or liquidation; (5) file or otherwise submit any answer or other document admitting or failing to contest the material allegations of a petition or other document filed or otherwise submitted against it in any proceeding under any such applicable law, or (6) be adjudicated a bankrupt or insolvent by a court of competent jurisdiction; or
(iv) any case, proceeding or other action shall be commenced against the Company for the purpose of effecting, or an order, judgment or decree shall be entered by any court of competent jurisdiction approving (in whole or in part) anything specified in Section 2.2(c)(iii) hereof, or any receiver,
trustee, assignee, custodian, sequestrator, liquidator or other official shall be appointed with respect to the Company, or shall be appointed to take or shall otherwise acquire possession or control of all or a substantial part of the assets and properties of the Company, and any of the foregoing shall continue unstayed and in effect for any period of thirty (30) days.
(v) Any material obligation of Company (other than its Obligations under this Agreement) for the payment of borrowed money is not paid when due or within any applicable grace period, or such obligation becomes or is declared to be due and payable before the expressed maturity of the obligation, or there shall have occurred an event that, with the giving of notice or lapse of time, or both, would cause any such obligation to become, or allow any such obligation to be declared to be, due and payable before the expressed maturity date of the obligation.
(vi) A breach by the Company of any material contract that would have a material adverse affect upon the business of the Company.
ARTICLE 3.
attorney-in-fact; performance
Section 3.1. Secured Party Appointed Attorney-In-Fact.
Upon the occurrence of an Event of Default, the Company hereby appoints the Secured Party as its attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company or otherwise, from time to time in the Secured Party's discretion to take any action and to execute any instrument which the Secured Party may reasonably deem necessary to accomplish the purposes of this Agreement, including, without limitation, to receive and collect all instruments made payable to the Company representing any payments in respect of the Pledged Collateral or any part thereof and to give full discharge for the same. The Secured Party may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Pledged Property as and when the Secured Party may determine. To facilitate collection, the Secured Party may notify account debtors and obligors on any Pledged Property or Pledged Collateral to make payments directly to the Secured Party.
Section 3.2. Secured Party May Perform.
If the Company fails to perform any agreement contained herein, the Secured Party, at its option, may itself perform, or cause performance of, such agreement, and the expenses of the Secured Party incurred in connection therewith shall be included in the Obligations secured hereby and payable by the Company under Section 8.3.
ARTICLE 4.
representations and warranties
Section 4.1. Authorization; Enforceability.
Each of the parties hereto represents and warrants that it has taken all action necessary to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby; and upon execution and delivery, this Agreement shall constitute a valid and binding obligation of the respective party, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights or by the principles governing the availability of equitable remedies.
Section 4.2. Ownership of Pledged Property.
The Company warrants and represents that it is the legal and beneficial owner of the Pledged Property free and clear of any lien, security interest, option or other charge or encumbrance except for (i) the security interest created by this Agreement and (ii) the security interest resulting from the Cornell Agreement and Cornell Debentures (each as defined in the Securities Purchase Agreement).
ARTICLE 5.
default; remedies; substitute collateral
Section 5.1. Default and Remedies.
(a) If an Event of Default described in Section 2.2(c)(i) and (ii) occurs, then in each such case the Secured Party may declare the Obligations to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration, the Obligations shall become immediately due and payable. If an Event of Default described in Sections 2.2(c)(iii) or (iv) occurs and is continuing for the period set forth therein, then the Obligations shall automatically become immediately due and payable without declaration or other act on the part of the Secured Party.
(b) Upon the occurrence of an Event of Default, the Secured Party shall:
(i) be entitled to receive all distributions with respect to the Pledged
Collateral, (ii) to cause the Pledged Property to be transferred into the name
of the Secured Party or its nominee, (iii) to dispose of the Pledged Property,
and (iv) to realize upon any and all rights in the Pledged Property then held by
the Secured Party.
Section 5.2. Method of Realizing Upon the Pledged Property: Other Remedies.
Upon the occurrence of an Event of Default, in addition to any rights and remedies available at law or in equity, the following provisions shall govern the Secured Party's right to realize upon the Pledged Property:
(a) Any item of the Pledged Property may be sold for cash or other value in any number of lots at brokers board, public auction or private sale and may be sold without demand, advertisement or notice (except that the Secured Party shall give the Company seven (7) days' prior written notice of the time and place or of the time after which a private sale may be made (the "Sale Notice")), which notice period is hereby agreed to be commercially reasonable. At any sale or sales of the Pledged Property, the Company may bid for and
purchase the whole or any part of the Pledged Property and, upon compliance with the terms of such sale, may hold, exploit and dispose of the same without further accountability to the Secured Party. The Company will execute and deliver, or cause to be executed and delivered, such instruments, documents, assignments, waivers, certificates, and affidavits and supply or cause to be supplied such further information and take such further action as the Secured Party reasonably shall require in connection with any such sale.
(b) Any cash being held by the Secured Party as Pledged Collateral and all cash proceeds received by the Secured Party in respect of, sale of, collection from, or other realization upon all or any part of the Pledged Collateral shall be applied as follows:
(i) to the payment of all amounts due the Secured Party for the expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3 hereof;
(ii) to the payment of the Obligations then due and unpaid.
(iii) the balance, if any, to the person or persons entitled thereto, including, without limitation, the Company.
(c) In addition to all of the rights and remedies which the Secured Party may have pursuant to this Agreement, the Secured Party shall have all of the rights and remedies provided by law, including, without limitation, those under the Uniform Commercial Code.
(i) If the Company fails to pay such amounts due upon the occurrence of an Event of Default which is continuing, then the Secured Party may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of Company, wherever situated.
(ii) The Company agrees that it shall be liable for any reasonable fees, expenses and costs incurred by the Secured Party in connection with enforcement, collection and preservation of the Transaction Documents, including, without limitation, reasonable legal fees and expenses, and such amounts shall be deemed included as Obligations secured hereby and payable as set forth in Section 8.3 hereof.
Section 5.3. Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relating to the Company or the property of the Company or of such other obligor or its creditors, the Secured Party (irrespective of whether the Obligations shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Secured Party shall have made any demand on the Company for the payment of the Obligations), subject to the rights of Previous Security Holders, shall be entitled and empowered, by intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of the Obligations and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Secured Party (including any claim for the reasonable legal fees and expenses and other expenses paid or incurred by the Secured Party permitted hereunder and of the Secured Party allowed in such judicial proceeding), and
(ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by the Secured Party to make such payments to the Secured Party and, in the event that the Secured Party shall consent to the making of such payments directed to the Secured Party, to pay to the Secured Party any amounts for expenses due it hereunder.
Section 5.4. Duties Regarding Pledged Collateral.
The Secured Party shall have no duty as to the collection or protection of the Pledged Property or any income thereon or as to the preservation of any rights pertaining thereto, beyond the safe custody and reasonable care of any of the Pledged Property actually in the Secured Party's possession.
ARTICLE 6.
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, from the date hereof and until the Obligations have been fully paid and satisfied, unless the Secured Party shall consent otherwise in writing (as provided in Section 8.4 hereof):
Section 6.1. Existence, Properties, Etc.
(a) The Company shall do, or cause to be done, all things, or proceed with due diligence with any actions or courses of action, that may be reasonably necessary (i) to maintain Company's due organization, valid existence and good standing under the laws of its state of incorporation, and (ii) to preserve and keep in full force and effect all qualifications, licenses and registrations in those jurisdictions in which the failure to do so could have a Material Adverse Effect (as defined below); and (b) the Company shall not do, or cause to be done, any act impairing the Company's corporate power or authority (i) to carry on the Company's business as now conducted, and (ii) to execute or deliver this Agreement or any other document delivered in connection herewith, including, without limitation, any UCC-1 Financing Statements required by the Secured Party (which other loan instruments collectively shall be referred to as "Loan Instruments") to which it is or will be a party, or perform any of its obligations hereunder or thereunder. For purpose of this Agreement, the term "Material Adverse Effect" shall mean any material and adverse affect as determined by Secured Party in its sole discretion, whether individually or in the aggregate, upon (a) the Company's assets, business, operations, properties or condition, financial or otherwise; (b) the Company's to make payment as and when due of all or any part of the Obligations; or (c) the Pledged Property.
Section 6.2. Financial Statements and Reports.
The Company shall furnish to the Secured Party within a reasonable time such financial data as the Secured Party may reasonably request, including, without limitation, the following:
(a) Within ninety (90) days after the end of each fiscal year of the Company, the balance sheet of the Company as of the close of such fiscal year, the statement of earnings and retained earnings of the Company as of the close of such fiscal year, and statement of cash flows for the Company for such fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles consistently applied, certified by the chief executive and chief financial officers of the Company as being true and correct and accompanied by a certificate of the chief executive and chief financial officers of the Company, stating that the Company has kept, observed, performed and fulfilled each covenant, term and condition of this Agreement and the other Loan Instruments during such fiscal year and that no Event of Default hereunder has occurred and is continuing, or if an Event of Default has occurred and is continuing, specifying the nature of same, the period of existence of same and the action the Company proposes to take in connection therewith;
(b) Within thirty (30) days at the end of each calendar month, a balance sheet of the Company as of the close of such month, and statement of earnings and retained earnings of the Company as of the close of such month, all in reasonable detail, and prepared substantially in accordance with generally accepted accounting principles consistently applied, certified by the chief executive and chief financial officers of the Company as being true and correct; and
(c) Promptly upon receipt thereof, copies of all accountants' reports and accompanying financial reports submitted to the Company by independent accountants in connection with each annual examination of the Company.
Section 6.3. Accounts and Reports.
The Company shall maintain a standard system of accounting in accordance with generally accepted accounting principles consistently applied and provide, at its sole expense, to the Secured Party the following:
(a) as soon as available, a copy of any notice or other communication alleging any nonpayment or other material breach or default, or any foreclosure or other action respecting any material portion of its assets and properties, received respecting any of the indebtedness of the Company in excess of $15,000 (other than the Obligations), or any demand or other request for payment under any guaranty, assumption, purchase agreement or similar agreement or arrangement respecting the indebtedness or obligations of others in excess of $15,000, including any received from any person acting on behalf of the Secured Party or beneficiary thereof; and
(b) within fifteen (15) days after the making of each submission or filing, a copy of any report, financial statement, notice or other document, whether periodic or otherwise, submitted to the shareholders of the Company, or submitted to or filed by the Company with any governmental authority involving
or affecting (i) the Company that could have a Material Adverse Effect; (ii) the Obligations; (iii) any part of the Pledged Collateral; or (iv) any of the transactions contemplated in this Agreement or the Loan Instruments.
Section 6.4. Maintenance of Books and Records; Inspection.
The Company shall maintain its books, accounts and records in accordance with generally accepted accounting principles consistently applied, and permit the Secured Party, its officers and employees and any professionals designated by the Secured Party in writing, at any time to visit and inspect any of its properties (including but not limited to the collateral security described in the Transaction Documents and/or the Loan Instruments), corporate books and financial records, and to discuss its accounts, affairs and finances with any employee, officer or director thereof.
Section 6.5. Maintenance and Insurance.
(a) The Company shall maintain or cause to be maintained, at its own expense, all of its assets and properties in good working order and condition, making all necessary repairs thereto and renewals and replacements thereof.
(b) The Company shall maintain or cause to be maintained, at its own expense, insurance in form, substance and amounts (including deductibles), which the Company deems reasonably necessary to the Company's business, (i) adequate to insure all assets and properties of the Company, which assets and properties are of a character usually insured by persons engaged in the same or similar business against loss or damage resulting from fire or other risks included in an extended coverage policy; (ii) against public liability and other tort claims that may be incurred by the Company; (iii) as may be required by the Transaction Documents and/or the Loan Instruments or applicable law and (iv) as may be reasonably requested by Secured Party, all with adequate, financially sound and reputable insurers.
Section 6.6. Contracts and Other Collateral.
The Company shall perform all of its obligations under or with respect to each instrument, receivable, contract and other intangible included in the Pledged Property to which the Company is now or hereafter will be party on a timely basis and in the manner therein required, including, without limitation, this Agreement.
Section 6.7. Defense of Collateral, Etc.
The Company shall defend and enforce its right, title and interest in and to any part of: (a) the Pledged Property; and (b) if not included within the Pledged Property, those assets and properties whose loss could have a Material Adverse Effect, the Company shall defend the Secured Party's right, title and interest in and to each and every part of the Pledged Property, each against all manner of claims and demands on a timely basis to the full extent permitted by applicable law.
Section 6.8. Payment of Debts, Taxes, Etc.
The Company shall pay, or cause to be paid, all of its indebtedness and other liabilities and perform, or cause to be performed, all of its obligations in accordance with the respective terms thereof, and pay and discharge, or cause to be paid or discharged, all taxes, assessments and other governmental charges and levies imposed upon it, upon any of its assets and properties on or before the last day on which the same may be paid without penalty, as well as pay all other lawful claims (whether for services, labor, materials, supplies or otherwise) as and when due
Section 6.9. Taxes and Assessments; Tax Indemnity.
The Company shall (a) file all tax returns and appropriate schedules thereto that are required to be filed under applicable law, prior to the date of delinquency, (b) pay and discharge all taxes, assessments and governmental charges or levies imposed upon the Company, upon its income and profits or upon any properties belonging to it, prior to the date on which penalties attach thereto, and (c) pay all taxes, assessments and governmental charges or levies that, if unpaid, might become a lien or charge upon any of its properties; provided, however, that the Company in good faith may contest any such tax, assessment, governmental charge or levy described in the foregoing clauses (b) and (c) so long as appropriate reserves are maintained with respect thereto.
Section 6.10. Compliance with Law and Other Agreements.
The Company shall maintain its business operations and property owned or used in connection therewith in compliance with (a) all applicable federal, state and local laws, regulations and ordinances governing such business operations and the use and ownership of such property, and (b) all agreements, licenses, franchises, indentures and mortgages to which the Company is a party or by which the Company or any of its properties is bound. Without limiting the foregoing, the Company shall pay all of its indebtedness promptly in accordance with the terms thereof.
Section 6.11. Notice of Default.
The Company shall give written notice to the Secured Party of the occurrence of any default or Event of Default under this Agreement, the Transaction Documents or any other Loan Instrument or any other agreement of Company for the payment of money, promptly upon the occurrence thereof.
Section 6.12. Notice of Litigation.
The Company shall give notice, in writing, to the Secured Party of (a) any actions, suits or proceedings wherein the amount at issue is in excess of $50,000, instituted by any persons against the Company, or affecting any of the assets of the Company, and (b) any dispute, not resolved within fifteen (15) days of the commencement thereof, between the Company on the one hand and any governmental or regulatory body on the other hand, which might reasonably be expected to have a Material Adverse Effect on the business operations or financial condition of the Company.
ARTICLE 7.
NEGATIVE COVENANTS
The Company covenants and agrees that, from the date hereof until the Obligations have been fully paid and satisfied, the Company shall not, unless the Secured Party shall consent otherwise in writing:
Section 7.1. Liens and Encumbrances.
Except for the security interest resulting from the Cornell Agreement and Cornell Debentures, the Company shall not directly or indirectly make, create, incur, assume or permit to exist any assignment, transfer, pledge, mortgage, security interest or other lien or encumbrance of any nature in, to or against any part of the Pledged Property or of the Company's capital stock, or offer or agree to do so, or own or acquire or agree to acquire any asset or property of any character subject to any of the foregoing encumbrances (including any conditional sale contract or other title retention agreement), or assign, pledge or in any way transfer or encumber its right to receive any income or other distribution or proceeds from any part of the Pledged Property or the Company's capital stock; or enter into any sale-leaseback financing respecting any part of the Pledged Property as lessee, or cause or assist the inception or continuation of any of the foregoing.
Section 7.2. Articles of Incorporation, By-Laws, Mergers, Consolidations, Acquisitions and Sales.
Without the prior express written consent of the Secured Party, the Company shall not: (a) Amend its Articles of Incorporation or By-Laws; (b) except for the Common Stock convertible from the Cornell Debentures (as defined in the Securities Purchase Agreement) issue or sell its stock, stock options, bonds, notes or other corporate securities or obligations; (c) be a party to any merger, consolidation or corporate reorganization, (d) purchase or otherwise acquire all or substantially all of the assets or stock of, or any partnership or joint venture interest in, any other person, firm or entity, (e) sell, transfer, convey, grant a security interest in or lease all or any substantial part of its assets, nor (f) create any subsidiaries nor convey any of its assets to any subsidiary.
Section 7.3. Management, Ownership.
The Company shall not materially change its ownership, executive staff or management, including Mark L. Kay and Mark Corrao, without the prior written consent of the Secured Party. The ownership, executive staff and management of the Company are material factors in the Secured Party's willingness to institute and maintain a lending relationship with the Company.
Section 7.4. Dividends, Etc.
The Company shall not declare or pay any dividend of any kind, in cash or in property, on any class of its capital stock, nor purchase, redeem, retire or otherwise acquire for value any shares of such stock, nor make any distribution of any kind in respect thereof, nor make any return of capital to shareholders, nor make any payments in respect of any pension, profit sharing, retirement, stock option, stock bonus, incentive compensation or similar plan (except as required or permitted hereunder), without the prior written consent of the Secured Party.
Section 7.5. Guaranties; Loans.
The Company shall not guarantee nor be liable in any manner, whether directly or indirectly, or become contingently liable after the date of this Agreement in connection with the obligations or indebtedness of any person or persons, except for (i) the indebtedness currently secured by the liens identified on the Pledged Property identified on Exhibit A hereto and (ii) the endorsement of negotiable instruments payable to the Company for deposit or collection in the ordinary course of business. The Company shall not make any loan, advance or extension of credit to any person other than in the normal course of its business.
Section 7.6. Debt.
The Company shall not create, incur, assume or suffer to exist any additional indebtedness of any description whatsoever in an aggregate amount in excess of $25,000 (excluding any indebtedness of the Company to the Secured Party, trade accounts payable and accrued expenses incurred in the ordinary course of business and the endorsement of negotiable instruments payable to the Company, respectively for deposit or collection in the ordinary course of business).
Section 7.7. Conduct of Business.
The Company will continue to engage, in an efficient and economical manner, in a business of the same general type as conducted by it on the date of this Agreement.
Section 7.8. Places of Business.
The location of the Company's chief place of business is 1090 King Georges Post Road, Edison, NJ, 08837. The Company shall not change the location of its chief place of business, chief executive office or any place of business disclosed to the Secured Party or move any of the Pledged Property from its current location without thirty (30) days' prior written notice to the Secured Party in each instance.
ARTICLE 8.
MISCELLANEOUS
Section 8.1. Notices.
All notices or other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be considered as duly given on: (a) the date of delivery, if delivered in person, by nationally recognized overnight delivery service or (b) five (5) days after mailing if mailed from within the continental United States by certified mail, return receipt requested to the party entitled to receive the same:
If to the Secured Party: Highgate House Funds, Ltd.
488 Madison Avenue
New York, NY 10022
Attention: Adam S. Gottbetter
Portfolio Manager
Telephone: (212) 400-6990
Facsimile: (212) 400-6901
With a copy to: Jason Rimland, Esq.
Gottbetter & Partners, LLP
488 Madison Avenue
New York, NY 10022
Telephone: (212) 400-6900
Facsimile: (212) 400-6901
And if to the Company: StrikeForce Technologies Inc.,
1090 King Georges Post Road,
Edison, NJ, 08837
Attention: Mark Kay
Telephone: (732) 661 9641
Facsimile: (732) 661-9647
With a copy to: Sichenzia, Ross, Friedman and Ference, LLP
1065 Avenue of the Americas
New York, New York 10018
|
Attn: Richard Friedman Telephone: (212) 930-9700 Facsimile: (212) 930-9725
Any party may change its address by giving notice to the other party stating its new address. Commencing on the tenth (10th) day after the giving of such notice, such newly designated address shall be such party's address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement.
Section 8.2. Severability.
If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein.
Section 8.3. Expenses.
In the event of an Event of Default, the Company will pay to the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel, which the Secured Party may incur in connection with: (i) the custody or preservation of, or the sale, collection
from, or other realization upon, any of the Pledged Property; (ii) the exercise or enforcement of any of the rights of the Secured Party hereunder or (iii) the failure by the Company to perform or observe any of the provisions hereof.
Section 8.4. Waivers, Amendments, Etc.
The Secured Party's delay or failure at any time or times hereafter to require strict performance by Company of any undertakings, agreements or covenants shall not waiver, affect, or diminish any right of the Secured Party under this Agreement to demand strict compliance and performance herewith. Any waiver by the Secured Party of any Event of Default shall not waive or affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and whether of the same or a different type. None of the undertakings, agreements and covenants of the Company contained in this Agreement, and no Event of Default, shall be deemed to have been waived by the Secured Party, nor may this Agreement be amended, changed or modified, unless such waiver, amendment, change or modification is evidenced by an instrument in writing specifying such waiver, amendment, change or modification and signed by the Secured Party.
Section 8.5. Continuing Security Interest.
This Agreement shall create a continuing security interest in the Pledged Property and shall: (i) remain in full force and effect until payment in full of the Obligations; and (ii) be binding upon the Company and its successors and heirs and (iii) inure to the benefit of the Secured Party and its successors and assigns. Upon the payment or satisfaction in full of the Obligations, the Company shall be entitled to the return, at its expense, of such of the Pledged Property as shall not have been sold in accordance with Section 5.2 hereof or otherwise applied pursuant to the terms hereof.
Section 8.6. Independent Representation.
Each party hereto acknowledges and agrees that it has received or has had the opportunity to receive independent legal counsel of its own choice and that it has been sufficiently apprised of its rights and responsibilities with regard to the substance of this Agreement.
Section 8.7. Applicable Law: Jurisdiction.
The parties hereto acknowledge that the transactions contemplated by this Agreement and the exhibits hereto bear a reasonable relation to the State of New York. The parties hereto agree that the internal laws of the State of New York shall govern this Agreement and the exhibits hereto, including, but not limited to, all issues related to usury. Any action to enforce the terms of this Agreement or any of its exhibits shall be brought exclusively in the state and/or federal courts situated in the County and State of New York. Service of process in any action by the Secured Party to enforce the terms of this Agreement may be made by serving a copy of the summons and complaint, in addition to any other relevant documents, by commercial overnight courier to the Company at its principal address set forth in this Agreement.
Section 8.8. Waiver of Jury Trial.
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.
Section 8.9. Entire Agreement.
This Agreement constitutes the entire agreement among the parties and supersedes any prior agreement or understanding among them with respect to the subject matter hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
COMPANY:
STRIKEFORCE TECHNOLOGIES INC.
By: /s/ Mark Kay
-------------
Name: Mark Kay
Title: Chief Executive Officer
|
SECURED PARTY:
HIGHGATE HOUSE FUNDS, LTD.
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Adam S. Gottbetter
-----------------------
Name: Adam S. Gottbetter
Title: Portfolio Manager
|
exhibit A
DEFINITION OF PLEDGED PROPERTY
For the purpose of securing prompt and complete payment and performance by the Company of all of the Obligations, the Company unconditionally and irrevocably hereby grants to the Secured Party a continuing security interest in and to, and lien upon, the following Pledged Property of the Company:
(a) all goods of the Company, including, without limitation, machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools, parts, supplies and motor vehicles of every kind and description, now or hereafter owned by the Company or in which the Company may have or may hereafter acquire any interest, and all replacements, additions, accessions, substitutions and proceeds thereof, arising from the sale or disposition thereof, and where applicable, the proceeds of insurance and of any tort claims involving any of the foregoing;
(b) all inventory of the Company, including, but not limited to, all goods, wares, merchandise, parts, supplies, finished products, other tangible personal property, including such inventory as is temporarily out of Company's custody or possession and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing;
(c) all contract rights and general intangibles of the Company, including, without limitation, goodwill, trademarks, trade styles, trade names, leasehold interests, partnership or joint venture interests, patents and patent applications, copyrights, deposit accounts whether now owned or hereafter created;
(d) all documents, warehouse receipts, instruments and chattel paper of the Company whether now owned or hereafter created;
(e) all accounts and other receivables, instruments or other forms of obligations and rights to payment of the Company (herein collectively referred to as "Accounts"), together with the proceeds thereof, all goods represented by such Accounts and all such goods that may be returned by the Company's customers, and all proceeds of any insurance thereon, and all guarantees, securities and liens which the Company may hold for the payment of any such Accounts including, without limitation, all rights of stoppage in transit, replevin and reclamation and as an unpaid vendor and/or lienor, all of which the Company represents and warrants will be bona fide and existing obligations of its respective customers, arising out of the sale of goods by the Company in the ordinary course of business;
(f) to the extent assignable, all of the Company's rights under all present and future authorizations, permits, licenses and franchises issued or granted in connection with the operations of any of its facilities;
(g) all products and proceeds (including, without limitation, insurance proceeds) from the above-described Pledged Property.
Exhibit 10.18
NETWORK SERVICES AGREEMENT
THIS NETWORK SERVICES AGREEMENT (this "Agreement") made as of August 1, 2003 (the "Effective Date") by and between StrikeForce Technologies Inc., a ___________ corporation with offices at 1090 King Georges Post Road, Suite 108, Edison, New Jersey 08837 ("StrikeForce"), and Panasonic Management Information Technology Service Company ("PMIT"), Unit of Matsushita Electric Corporation of America, a Delaware corporation with offices at One Panasonic Way, Secaucus, New Jersey 07094,
WITNESSETH:
WHEREAS, StrikeForce is an Authentication Solution Provider and offers to its customers, among other technologies, its proprietary C.O.B.A.S.TM system;
WHEREAS, C.O.B.A.S. requires certain networking and telephone equipment and Internet access to operate properly; and
WHEREAS, PMIT is willing to make available for use by StrikeForce certain of its networking and telephone equipment and Internet access in order that StrikeForce may provide its C.O.B.A.S. system to its customers,
NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, the parties, intending to be legally bound hereby, agree as follows:
ARTICLE I -SERVICES
1.1 General. PMIT will, during the term of this Agreement, operate a server or servers (the "Server"), using C.O.B.A.S. software as uploaded by StrikeForce, for use with Authentication Solutions sold by StrikeForce. The Server shall have sufficient storage capacity to hold the database(s) containing customer and user information which will be created by C.O.B.A.S.
1.2 Data Center. PMIT will provide secure data center facilities as described in
Exhibit A hereto. PMIT will construct or expand infrastructure requirements and
support to meet future growth and maintain service levels. The Server equipment
will also be installed in secured racks in order to provide additional physical
security access controls. Specifications for the equipment and software to be
initially used for the purposes set forth herein are also described in Exhibit
A.
1.3 Internet Infrastructure. As described in Exhibit B hereto, PMIT will provide Internet infrastructure support with multiple carriers.
1.4 Data Security and Backup. As described in Exhibit C attached hereto, PMIT will utilize in providing the services hereunder the same security policies and procedures that are standard in the industry to protect client data. Daily incremental and weekly full backups will be performed nightly and will be stored offsite if so requested by StrikeForce. Antivirus software (Trend Micro or equivalent) will be utilized and will be automatically updated with new pattern versions as they become available.
1.5 Service Levels. Based on the priority levels described in Exhibit D hereto, PMIT and StrikeForce will develop service-level requirements and metrics to identify key indicators that are focused on the business needs. Service levels will be determined based on a combination of situations, such as physical location, adherence to PMIT standards and external vendor response time, as described in Exhibit D. Service level requirements can be adjusted to meet StrikeForce's business requirements, but increased service level requirements may result in an increase in PMIT's charges to StrikeForce.
1.6 System Availability. Access to the Server will be available twenty-four hours a day, every day of the year, including holidays, except as follows. PMIT may take down the Server to conduct routine maintenance checks during established maintenance windows, as agreed to by the parties. All routine maintenance shall be scheduled at least two weeks in advance and shall occur outside of normal U.S. business hours. PMIT will exercise commercially reasonable efforts to minimize the period of such maintenance. If PMIT determines that emergency maintenance is required during business hours and PMIT anticipates that the Server will be down for more than five minutes during such time, PMIT will advise StrikeForce prior to any such maintenance. PMIT will use commercially reasonable efforts to operate its back-up systems during any maintenance period in order to limit Server downtime.
1.7 Maintenance and Support. PMIT will provide all maintenance and support services for the Server necessary to ensure that it functions in accordance with its specifications. PMIT will designate one Technical Manager to provide a single point of contact to StrikeForce. The Technical Manager's responsibilities shall include the management of services levels, provision of advanced technical support and the coordination all PMIT activities.
ARTICLE II -- STRIKEFORCE'S RESPONSIBILITIES
2.1 Database Reports. StrikeForce shall create one or more reports with agreed-upon metrics (including, but not limited to, number of authentication transactions per month) to be run against the C.O.B.A.S. database(s) residing on the Server. StrikeForce shall give PMIT sufficient user privileges with respect to such database(s) in order that such reports may be run by PMIT at such times as it desires.
2.2 Customer Support. StrikeForce shall be responsible for all contact with its customers, configuration of the C.O.B.A.S. software, enrollment and first level technical support to customers.
2.3 User Authorizations. StrikeForce shall be responsible for obtaining and shall obtain, all necessary user consents and authorizations, whether under, state law, or any other applicable law, regulation, permit, order, award, injunction, decree or judgment of any governmental entity for PMIT to perform its obligations under this Agreement, including, but not limited to, any and all
authorizations necessary to collect, transmit, maintain, store, use and disclose data obtained through C.O.B.A.S. StrikeForce shall hold PMIT harmless from and against any claim, suit or proceeding insofar as it is based on an alleged failure of StrikeForce to obtain any such consent or authorization.
2.4 Customer Training. StrikeForce shall be solely responsible for training its customers and authentication providers in the use of the C.O.B.A.S. system.
ARTICLE III -- REPRESENTATIONS AND WARRANTIES
3.1 Freedom to Enter into Agreement. Each of StrikeForce and PMIT represent and warrant that the execution and delivery of this Agreement, and the rights and obligations being conferred hereunder, does not or will not (i) conflict with, or result in the breach of any provision of the certificate of incorporation, by-laws or other constituent documents of such party, (ii) violate any applicable law or any permit, order, award, injunction, decree or judgment of any governmental entity applicable to or binding upon such party or to which any of such party's properties or assets is subject or (iii) violate, conflict with or result in the breach or termination of, or otherwise give any other person the right to terminate, or constitute a default, event of default or an event that with notice, lapse of time or both, would constitute a default or event of default under the term of any material instrument, material contract or other material agreement to which such party is a party.
3.2 Compliance With Laws. PMIT represents and warrants that its operations relating to the Server, any component thereof and the services to be provided hereunder, exclusive of those responsibilities assigned to StrikeForce hereunder, materially comply with all applicable laws, rules, orders, ordinances, decrees and regulations.
3.3 Malicious Code. PMIT represents and warrants that it will exercise commercially reasonable efforts to assure that the Server, and each component thereof (excluding the C.O.B.A.S. software as provided by StrikeForce), does not contain any virus or any other contaminant, including but not limited to codes, commands or instructions that may be used to access, alter, delete, damage, disable, cause disruption of or otherwise interfere with use of the System.
3.4 Services. PMIT represents and warrants that all services hereunder will be performed in a competent and workmanlike manner in accordance with industry standards.
3.5 Limitations. THE EXPRESS WARRANTIES SET FORTH HEREIN ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE IV - PRICE; PAYMENT TERMS; RIGHTS OF FIRST REFUSAL AND LAST MATCH
4.1 Price. The price for services provided hereunder by PMIT shall be specific to the StrikeForce customer involved and shall be detailed in a separate Customer Schedule to be prepared and executed by the parties with respect to each such customer.
4.2 Invoicing and Payment Terms. Invoicing procedures for the services provided hereunder by PMIT shall be specific to the StrikeForce customer involved and shall be detailed in the Customer Schedule for such customer. Payment terms for all invoices shall be Net 15 Days.
4.3 Minimum Payment Guarantees. If PMIT's actual billings to StrikeForce for services rendered with respect to all of StrikeForce's customers during the first nine (9) months of the term of this Agreement are less than Sixty Thousand Dollars ($60,000), StrikeForce shall promptly pay the difference to PMIT. If PMIT's actual billings to StrikeForce [including, for purposes of the first year, any payment made by StrikeForce to PMIT pursuant to the prior sentence] for services rendered with respect to all of StrikeForce's customers during each year of the term of this Agreement are less than One Hundred Thousand Dollars ($100,000), StrikeForce shall promptly pay the difference to PMIT.
4.4 Rights of First Refusal and Last Match. During the term of this Agreement, for each new customer which StrikeForce takes on, StrikeForce shall offer to PMIT the opportunity to host the Authentication Solution which StrikeForce will provide to such customer before StrikeForce offers such opportunity to another hosting company. StrikeForce and PMIT shall thereupon commence good faith negotiations concerning the terms and conditions, including pricing, of such opportunity. If StrikeForce and PMIT are able to reach agreement on such terms and conditions, a new Customer Schedule will be prepared and executed by the parties. If StrikeForce and PMIT are unable to reach such an agreement within thirty (30) days after StrikeForce first advises PMIT of such opportunity, StrikeForce shall have the right to offer such opportunity to another hosting company; provided, however, before StrikeForce accepts an offer from another company with respect to such hosting opportunity, StrikeForce shall first allow
PMIT to match the offer of the other company, and if PMIT is willing to match such offer, StrikeForce shall accept PMIT's offer rather than the offer of the other company. For purposes of the prior sentence, in evaluating whether an offer from PMIT matches an offer from another company, both pricing and service level agreements shall be taken into account. The provisions of this Section 4.4 shall not apply with respect to any customer of StrikeForce who intends to host the Authentication Solution provided by StrikeForce on server equipment which is owned or operated by such customer.
ARTICLE V -- CONFIDENTIALITY
Each party hereby agrees to use all reasonable efforts to cause its and its affiliates' directors, officers, employees, advisors and affiliates to keep the Confidential Information (as hereinafter defined) confidential, except that any Confidential Information required by law or legal or administrative process to be disclosed may be disclosed without violating the provisions of this Article V, provided that the disclosing party shall give the non-disclosing party prior notice of any such required disclosure so that the non-disclosing party is able to seek a protective order or similar relief in respect of such disclosure. For the purposes hereof, the term "Confidential Information" means, with respect to each party, any and all information concerning the other party and its affiliates, furnished to it by the other party or its affiliates, representatives or agents, or obtained by it in connection with the transactions contemplated by this Agreement, other than any such information that (i) is available to the public or becomes available to the public other than as a result of a breach of this Article V, (ii) is independently developed by the non-disclosing party without reference to the Confidential Information, (iii) is already known to the non-disclosing party prior to its disclosure hereunder other than as a result of a breach of a confidentiality obligation, or (iv) is obtained from a third party not subject to a confidentiality obligation.
ARTICLE VI --TERM AND TERMINATION
6.1 Unless sooner terminated as set forth below, the term of this Agreement
shall commence as of the Effective Date and shall continue for a period of five
(5) years thereafter (the "Initial Term"). After the Initial Term, this
Agreement shall continue in effect in perpetuity until terminated in accordance
with this Article V. The Initial Term as extended shall constitute the "Term".
6.2 This Agreement shall terminate immediately upon mutual written consent of PMIT and StrikeForce.
6.3 After the expiration of the Initial Term, either party may terminate this Agreement without cause upon ninety (90) days' written notice to the other party.
6.4 StrikeForce may terminate this Agreement without cause at any time during years 4 and 5 of the Initial Term upon sixty (60) days' written notice to PMIT, provided that such notice by StrikeForce shall be accompanied by payment of an early termination fee equal to fifty percent (50%) of PMIT's billings hereunder to StrikeForce with respect to the twelve (12) month period immediately preceding the month during which StrikeForce gives such termination notice to PMIT.
6.5 StrikeForce may terminate this Agreement upon thirty (30) days' written notice as a result of repeated failures by PMIT to meet the service level requirements and metrics and other performance parameters set forth in the exhibits hereto over any six (6) month period.
6.6 If any of the parties is in material breach of any of the provisions of this Agreement, this Agreement may be terminated by the non-breaching party if the breach is not remedied within sixty (60) days of receipt of written notification of such breach by the non-breaching party to the breaching party.
6.7 A party may terminate this Agreement, immediately and at any time, after the other party becomes subject to voluntary liquidation, winding up or any similar insolvency proceeding or involuntary proceeding which is not dismissed within sixty (60) days of the commencement thereof, becomes insolvent, applies for protection under any bankruptcy, suspension of payments or similar insolvency laws of any jurisdiction or has a receiver appointed.
6.8 Upon the termination or expiration of this Agreement for any reason, each party shall promptly return to the other (or, at the other party's instruction, destroy) all Confidential Information of the other party, and all copies thereof, and certify its completion of same; provided that each party's legal counsel may keep one copy of such Confidential Information for its records.
6.9 Upon the termination or expiration of this Agreement for any reason, PMIT will cooperate with StrikeForce during StrikeForce's transition to another service provider and will work with StrikeForce to minimize any interruptions in service to StrikeForce's customers.
ARTICLE VII -- INDEMNIFICATION
7.1 StrikeForce hereby agrees to indemnify, defend, and hold harmless PMIT and its subsidiaries, affiliates, shareholders, directors, employees and agents (each, a "PMIT Indemnified Party") from and against any and all claims, actions, liabilities, judgments, losses, costs, fees and expenses (including without limitation reasonable attorneys' fees) (collectively, "Losses") to the extent such Losses are incurred in the defense or settlement of a third party lawsuit or other action (or in satisfaction of a judgment or order arising therefrom), which lawsuit or other action seeks damages that are attributable or allegedly attributable to any StrikeForce Authentication Solution that operates on the Server provided by PMIT hereunder, or StrikeForce's breach of this Agreement, except to the extent such Losses are directly attributable to gross negligence or willful misconduct on the part of a PMIT Indemnified Party.
7.2 Subject to the following two sentences, PMIT and each PMIT Indemnified Party shall (i) provide StrikeForce with prompt written notice of any claim, suit, demand or other action for which any PMIT Indemnified Party seeks to be reimbursed, indemnified, defended or held harmless under this Agreement; (ii) grant StrikeForce full authority and control over the defense and settlement of any such claim, suit, demand or other action; and (iii) reasonably cooperate with StrikeForce and its agents in defense of any such claim, suit, demand or other action. Each PMIT Indemnified Party shall have the right to participate in the defense of any claim, suit, demand or other action for which such PMIT Indemnified Party seeks to be reimbursed, indemnified, defended or held harmless under this Agreement, by using attorneys of its, his or her choice, at its, his or her own expense. Any proposed settlement of any claim, suit, demand or other action for which any PMIT Indemnified Party seeks to be reimbursed, indemnified, defended or held harmless under this Agreement shall be subject to the prior written approval of all involved PMIT Indemnified Parties, such approval not to be unreasonably withheld.
7.3 PMIT hereby agrees to indemnify, defend, and hold harmless StrikeForce and its subsidiaries, affiliates, shareholders, directors, employees and agents (each, an "StrikeForce Indemnified Party") from and against any and all Losses to the extent such Losses are incurred in the defense or settlement of a third party lawsuit or other action (or in satisfaction of a judgment or order arising therefrom), which lawsuit or other action seeks damages that are attributable or allegedly attributable to any StrikeForce Authentication Solution that operates on the Server provided by PMIT hereunder, but only to the extent such Losses are directly attributable to gross negligence or willful misconduct on the part of a PMIT Indemnified Party.
7.4 Subject to the following two sentences, StrikeForce and each StrikeForce Indemnified Party shall (i) provide PMIT with prompt written notice of any claim, suit, demand or other action for which any StrikeForce Indemnified Party seeks to be reimbursed, indemnified, defended or held harmless under this Agreement; (ii) grant PMIT full authority and control over the defense and settlement of any such claim, suit, demand or other action; and (iii) reasonably cooperate with PMIT and its agents in defense of any such claim, suit, demand or other action. Each StrikeForce Indemnified Party shall have the right to participate in the defense of any claim, suit, demand or other action for which such StrikeForce Indemnified Party seeks to be reimbursed, indemnified, defended or held harmless under this Agreement, by using attorneys of its, his or her
choice, at its, his or her own expense. Any proposed settlement of any claim, suit, demand or other action for which any StrikeForce Indemnified Party seeks to be reimbursed, indemnified, defended or held harmless under this Agreement shall be subject to the prior written approval of all involved StrikeForce Indemnified Parties, such approval not to be unreasonably withheld.
ARTICLE VIII -- FORCE MAJEURE
8.1 Performance Excused. Continued performance of any obligation under this Agreement may be suspended immediately to the extent made impossible by any event or condition beyond the reasonable control of the party suspending such performance, including acts of God, fire, labor or trade disturbance, war, civil commotion, change in laws and regulations, unavailability of materials, inability to access bank accounts due to the actions of a governmental entity or other such event or condition whether similar or dissimilar to the foregoing (a "Force Majeure Event").
8.2 Notice. The party claiming suspension due to a Force Majeure Event will give prompt notice to the other party of the occurrence of the Force Majeure Event giving rise to the suspension and of its nature and anticipated duration.
8.3 Cooperation. The parties shall cooperate with each other to find alternative means and methods for the provision of the suspended services and Server. The party subject to the Force Majeure Event shall use commercially reasonable efforts to minimize the impact of the Force Majeure Event, but in any event efforts at least as great as it uses for its own operations separate from this Agreement.
ARTICLE IX -- DISPUTES
The parties hereby agree that all controversies or claims arising out of or relating to this Agreement or the interpretation, performance, breach, termination or validity thereof shall be referred to senior executives of StrikeForce and PMIT. If these individuals are unable to agree upon a resolution within sixty (60) days after referral of the matter to them, then each party shall be free to pursue all remedies available to it.
ARTICLE X -- MISCELLANEOUS
10.1 Notices. All notices, requests, demands and other communications made in connection with this Agreement shall be in writing and shall be deemed to have been duly given on the date delivered, if delivered personally, by reputable overnight delivery service that requires a signature on delivery or sent by facsimile machine with telephonic confirmation of receipt to the persons identified below, or three days after mailing in the US Mail if mailed by certified or registered mail, postage prepaid, return receipt requested, addressed as follows:
If to PMIT, to:
Panasonic Management Information Technology Service Company
Two Panasonic Way
Secaucus, New Jersey 07094
Facsimile No.: (201) 348-7040
Attention: President
With a copy to:
Matsushita Electric Corporation of America
One Panasonic Way
Secaucus, New Jersey 07094
Facsimile No.: (201) 348-7619
Attention: General Counsel
If to StrikeForce, to:
StrikeForce Technologies, Inc.
1090 King Georges Post Road, Suite 108
Edison, New Jersey 08837
Facsimile No.: (732) 321-6562 Attention: Chief Executive Officer
or to such other address of which such party has provided notice in accordance with the provisions of this Section 10.1
10.2 Assignment. Except as permitted under this Agreement, (a) any of the rights, interests and obligations created herein shall not be transferred or assigned to any third party and such rights and interests shall not inure to the benefit of any other person, including any trustee in bankruptcy, receiver or other successor of either of the parties, whether by operation of law, sub-license, transfer of the assets, merger, liquidation or otherwise, without the prior written consent of the other party, and (b) any purported or actual transfer or assignment of any such rights, interests or obligations without the prior written consent of the other party is and shall be null and void ab initio; provided, however, that either of the parties may, without the consent of the other party, assign its respective rights and obligations under this Agreement to a successor company of such party as the result of a corporate reorganization or to a majority-owned affiliate of such party.
10.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one agreement binding on the parties hereto, notwithstanding that all parties are not signatories to the original or the same counterpart.
10.4 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without giving effect to the conflicts of law principles thereof.
10.5 Relationship of Parties. This Agreement does not create a fiduciary relationship, partnership, joint venture or relationship of trust or agency between the parties.
10.6 Compliance with Laws. The parties shall use all reasonable efforts to comply fully with all applicable laws.
10.7 Survival. The parties agree that Articles V, VII, IX and X will survive indefinitely the termination of this Agreement.
10.8 Limitation of Liability. In no event shall either party be liable for any special, incidental, indirect or consequential damages, even if such party shall have been advised of the possibility of such damages.
10.9 Additional Remedies. In addition to any other remedies set forth in this Agreement, the remedies for any breach of any of the provisions of this Agreement may include damages and injunctive relief.
IN WITNESS WHEREOF, duly authorized representative of StrikeForce and PMIT have executed this Agreement as of the date first set forth above.
Panasonic Management Information
Technology Service Company, Unit of
Matsushita Electric Corporation of America StrikeForce Technologies, Inc.
By: By: /s/ Mark L. Kay
--------------------------------- -------------------------------
Printed Name: Printed Name: Mark L. Kay
------------------------ ----------------------
Title: Title: CEO
------------------------------- ----------------------------
Date: Date:
------------------------------- -----------------------------
|
Exhibit A
The electrical power in the data center offers two types of power protection to computer equipment: power surge protection and uninterruptible power supply systems (UPS).
o The surge protection maintains a constant power flow going to the computer and avoids electrical spikes that could potentially harm the system. The second component is to prevent a computer from crashing if the power at the utility company fails.
o UPS is configured with line-interactive, and constantly monitors the integrity of the utility power, increasing or reducing voltage and automatically switches to battery power if the deviation becomes too great.
o In the event a power failure occurs, the UPS switches directions and converts the battery DC power to AC and signals the generator to start and switches to generator within 5 minutes.
o In addition, the UPS contains a full redundant set of batteries and has the capability to sustain full power for approximately one hour. Power faults are automatically switched to the generator which is capable of sustaining power for 24 hours on a single fuel tank, but becomes unlimited with refueling.
o UPS and Generator maintenance are performed monthly to assure functionality and availability.
o Power Distribution Units (PDU's) are strategically located in the data center to accommodate power sources from different PDU's to support the equipment that supports N+1 power supplies. This ensures the proper distributed of electrical power distribution.
The data center is protected against fire by a Halon system, which offers physical protection in the event of a fire by extinguishing the fire without destroying the data. The data center has water sensors installed throughout the perimeter of the outside walls and around A/C units to signal if water is present below the raised floor.
Physical security to the data center is monitored by PMIT employees and with security cameras located throughout the data center. Access is limited to authorized and approved employees with proper card key access.
PMIT's data center is located at: One Panasonic Way, Secaucus, NJ.
Server Specifications
PMIT will maintain the Server infrastructure (as defined in Exhibit B - Figure
1) necessary to satisfy the service level agreement specified in Exhibit D. PMIT
will take reasonable measures to expand the Server infrastructure and internet
bandwidth as needed to satisfy sustained growth in transaction activity.
Server Specifications - continued
There are four functional units in the COBAS ASP server environment.
1) SQL Database
2) COBAS Authentication Servers
3) COBAS Agent servers
4) COBAS Management console
1) SQL Database
Microsoft SQL Server 2000 databases provide the data repository for all COBAS authentication information. The server platform is implemented in a multi-server cluster using the Microsoft SQL Server 2000 cluster blueprint.
Overall: --------------------------- ----------------------------------------------------------------------- Servers: 2 (or more) --------------------------- ----------------------------------------------------------------------- Technology: Intel Pentium 4 or better --------------------------- ----------------------------------------------------------------------- OS: Microsoft Windows 2000 Advanced Server w/Service Pack 3 or later --------------------------- ----------------------------------------------------------------------- Database: Microsoft SQL Server 2000 --------------------------- ----------------------------------------------------------------------- Additional: Network hardware to support Microsoft SQL Cluster configuration --------------------------- ----------------------------------------------------------------------- Disk Storage: ---------------------------- ---------------------------------------------------------------------- Organization: RAID 1+0 ---------------------------- ---------------------------------------------------------------------- Controllers: Dual redundant ---------------------------- ---------------------------------------------------------------------- Server Interfaces: 2 per server (per Microsoft SQL Cluster specification) ---------------------------- ---------------------------------------------------------------------- Capacity: 80 GB minimum expandable to 1 TB minimum ---------------------------- ---------------------------------------------------------------------- Per server: --------------------------- ----------------------------------------------------------------------- CPUs: 2 (or more) Pentium 4 or better --------------------------- ----------------------------------------------------------------------- CPU Speed: 1 GHz minimum --------------------------- ----------------------------------------------------------------------- RAM: 2 GB --------------------------- ----------------------------------------------------------------------- OS: Microsoft Windows 2000 Advanced Server w/Service Pack 3 or later --------------------------- ----------------------------------------------------------------------- Boot Storage: dual mirrored boot drives --------------------------- ----------------------------------------------------------------------- Storage interfaces: 2 --------------------------- ----------------------------------------------------------------------- Network Interfaces: 3 @ 1Gb Ethernet (2 if backups are via main network) --------------------------- ----------------------------------------------------------------------- Monitoring: Hardware / firmware / software supporting "lights out" 24x7 operation --------------------------- ----------------------------------------------------------------------- |
2) COBAS Authentication Servers The COBAS Authentication Servers operate independently in a load-balanced configuration. Each authentication server has 1 or 2 "T1" telephony interfaces for placing calls to authenticate users. Servers can support 1 or 2 telephony cards as needed for handling authentication traffic. Per server: --------------------------- ---------------------------------------------------------------------------- PCI Slots: One 5 volt PCI slot for each Telephony Interface --------------------------- ---------------------------------------------------------------------------- CPUs: 1 (or more) Pentium 4 or better --------------------------- ---------------------------------------------------------------------------- CPU Speed: 1 GHz minimum --------------------------- ---------------------------------------------------------------------------- RAM: 2 GB --------------------------- ---------------------------------------------------------------------------- OS: Microsoft Windows 2000 Server w/Service Pack 4 or later --------------------------- ---------------------------------------------------------------------------- Telephony Interface: Intel Dialogics Voice Processor, /T1 interface for 5 Volt PCI backplane slot --------------------------- ---------------------------------------------------------------------------- Boot Storage: dual mirrored boot drives --------------------------- ---------------------------------------------------------------------------- Storage interfaces: As needed per site configuration --------------------------- ---------------------------------------------------------------------------- Network Interfaces: 3 @ 1Gb Ethernet (2 if backups are via main network) --------------------------- ---------------------------------------------------------------------------- Monitoring: Hardware / firmware / software supporting "lights out" 24x7 operation --------------------------- ---------------------------------------------------------------------------- 3) COBAS Agent servers COBAS Agent Servers are standard web servers running Microsoft IIS. Each server operates independently in a load-balanced "farm" configuration. Per server: --------------------------- ---------------------------------------------------------------------------- CPUs: 2 (or more) Pentium 4 or better --------------------------- ---------------------------------------------------------------------------- CPU Speed: 1 GHz minimum --------------------------- ---------------------------------------------------------------------------- RAM: 768 MB minimum --------------------------- ---------------------------------------------------------------------------- OS: Microsoft Windows 2000 Server w/Service Pack 4 or later --------------------------- ---------------------------------------------------------------------------- Web server: Microsoft Internet Information Server Version 5 with SMTP --------------------------- ---------------------------------------------------------------------------- COM+ User "MTSuser" created with access rights in the local web sandbox --------------------------- ---------------------------------------------------------------------------- Boot Storage: dual mirrored boot drives --------------------------- ---------------------------------------------------------------------------- Storage interfaces: As needed per site configuration --------------------------- ---------------------------------------------------------------------------- Network Interfaces 3 @ 1Gb Ethernet (2 if backups are via main network) --------------------------- ---------------------------------------------------------------------------- Monitoring: Hardware / firmware / software supporting "lights out" 24x7 operation --------------------------- ---------------------------------------------------------------------------- 4) COBAS Management console The COBAS Management console server is a single computer in the target environment that can communicate with all other COBAS servers. The management server monitors the other servers, performs report generation, and can assist in alert generation. Single server: --------------------------- ---------------------------------------------------------------------------- CPUs: 1 (or more) Pentium 4 or better --------------------------- ---------------------------------------------------------------------------- CPU Speed: 1 GHz minimum --------------------------- ---------------------------------------------------------------------------- RAM: 768MB minimum --------------------------- ---------------------------------------------------------------------------- OS: Microsoft Windows 2000 Server w/Service Pack 4 or later --------------------------- ---------------------------------------------------------------------------- Boot Storage: dual mirrored boot drives --------------------------- ---------------------------------------------------------------------------- Storage interfaces: As needed per site configuration --------------------------- ---------------------------------------------------------------------------- Network Interfaces 3 @ 1Gb Ethernet (2 if backups are via main network) --------------------------- ---------------------------------------------------------------------------- Monitoring: Hardware / firmware / software supporting "lights out" 24x7 operation --------------------------- ---------------------------------------------------------------------------- |
Exhibit B
PMIT's Internet infrastructure provides redundancy, load balancing, and multiple access points to the Internet, eliminating single points of failure without compromising performance:
o Internet access is supplied by different carriers.
o PMIT will provide 1.5 MB of internet bandwidth.
o Redundant switches, routers and firewalls are used to provide Web
services activities.
o Dialup services are supplied by multiple PRIs through the Panasonic's
Public Branch Exchange (PBX)."
StrikeForce data under this Agreement is configured in its own Internet (DMZ) segment and it is physically and logically separated from the Panasonic infrastructure.
Figure 1
[Diagram to be inserted prior to signing]
PMIT "SERVER" INFRASTRUCTURE DIAGRAM FOR C.O.B.A.S AUTHENTICATION SERVICES
[OBJECT OMITTED]
Exhibit C
Security and Backup
PMIT will establish network security policies and procedures appropriate to the protection and backup of sensitive information and will be responsible for securing access to the application servers and for appropriate backup of the Server and of StrikeForce data, and will review the same with StrikeForce. Such backup and security measures will include:
a) PMIT continuing to execute daily incremental and weekly full backups of all databases and all software modifications and updates for the purpose of creating backup copies for disaster recovery or other purposes. In the event that the parties agree a disaster has occurred (e.g., in the event the Server crashes), PMIT will provide point-in-time recovery to the last PMIT backup as soon as practicable after the disaster is declared.
b) Hosting StrikeForce data on a Server with controlled, monitored and tracked access and with the current security patches and anti-virus protections installed and operating to minimize unauthorized access to the information residing on such servers.
c) Creation and enforcement of firewall performance standards and firewall rules that restrict access to the Server and StrikeForce data consistent with the standards and rules that Panasonic implements for its own highly sensitive data.
PMIT shall notify StrikeForce promptly of detected security breaches or any known compromises of data.
Exhibit D
Service-Level Agreement: This service level agreement sets out the contracted measures that PMIT will use to accomplish StrikeForce's key objectives. This agreement establishes PMIT's and StrikeForce's expectations, describes the services delivered, identifies contacts for end-user-problems, and specifies metrics by which the effectiveness of PMIT service activities, functions and processes will be measured and controlled.
Service-Level Management: PMIT will, on an ongoing process, maintain a high quality of service, to ensure that service-level performance meets StrikeForce's needs, through continuous improvement of service activities, functions and processes.
Overview
PMIT's service-level responsibility is based on required human and system
resources, network performance, and the standards, policies, procedures and
management practices that must be followed.
StrikeForce agrees to identify additional service-level requirements, processes, and or standard procedures that need to be followed.
PMIT agrees to meet the service-levels as listed in this Appendix D1. Additional requirements, not included in this agreement, may result in a higher cost to StrikeForce. Additional requirements will be evaluated on a per request basis.
PMIT will provide call back services to StrikeForce's customers within the United States and Canada sufficient to meet the service requirements of this Agreement.
Infrastructure Availability
PMIT Server infrastructure will include redundant firewalls, redundant access
points, and includes primary Server, backup Server and test Server configured
with Raid-5 configuration. In addition, disk images of the production Server
will be stored in a secure locked cabinet.
Network Availability 99.00%
PMIT agrees that the Server(s) and network will be available 99.00% of the time,
24 hours per day, Sunday through Saturday, excluding scheduled maintenance.
Performance
PMIT agrees that Packet Loss to the PMIT router will be no greater than 1%
within the U.S.
For Internet access that PMIT maintains and controls, it guarantees that, on the average, the Internet response time will be equal to or less than 85 milliseconds for round-trip transmission (for a 100-Byte ping packet) to PMIT's Router within the U.S.
Database will have a response time of less than 120 milliseconds.
For Internet access that PMIT maintains and controls - Internet response time will be less than 2 seconds (with "response time" defined as the time it takes for all characters to appear on the end-user's screen following the initial inquiry).
Security
PMIT agrees to house Servers in secure cabinets where a PIN or other security
method is used to restrict physical access.
Quality
PMIT will examine measured results for problem determination and root-cause
analysis and take appropriate action to correct failed activities, functions and
processes.
PMIT will measure service activity results against defined service levels
PMIT agrees to continuously review and improve processes to improve availability, system performance and customer satisfaction.
StrikeForce agrees to educate and or train its customers on issues where the root cause was determined to be related to the customer and or customer's operations.
Change Management
Changes and upgrades will be tracked using PMIT's change management processes.
StrikeForce must approve any non-emergency changes that may result in a customer
outage prior to implementation. All changes must be successfully applied and
back out procedures tested, on the test server and backup server prior to
implementing on the production server. No changes will be made to the Server
Software provided by StrikeForce to PMIT without the prior written consent of
StrikeForce, such consent not to be unreasonably withheld.
Problem Management
All problems reported to PMIT will be recorded and updated on the PMIT Call
Management System. Call management guidelines as described in "Appendix D" will
be followed.
PMIT will manage network related problems and work with 3rd party voice and data network providers to resolve and escalate network problems.
All PMIT Technical resources will escalate failures to PMIT Management within two (2) hours if failure remains unresolved or no work-around has been identified.
Critical Component Failure Analysis
All Priority 1, Critical Components Failures will be escalated to StrikeForce
and PMIT management immediately. Based on the situation the best and quickest
plan of recovery will be implemented.
Contingency Planning
In the event of a major disaster, PMIT will set in motion the best recovery plan
to assure quick recovery. Safety measures were taken to assure that systems can
be quickly recovered at the Secaucus facility.
Infrastructure at a second facility is not included in this Agreement.
Service Hours PMIT will support the infrastructure 7x24x365, with onsite support from 7:00am to 7:00pm Monday through Friday. |
Appendix D1
As soon as PMIT becomes aware of a possible malfunction of its Server and/or network components supplied by PMIT, not caused by a failure of third party telecommunication services, PMIT will respond according to the priority of the problem as described below. All trouble reports will be categorized in three different priority levels:
A. Priority 1 - Critical Problems: PMIT's Server is experiencing problems that cause it to stop completely, significantly impair the Server's functionality or can lead to data corruption. PMIT will begin diagnostic and corrective action immediately after it is notified or otherwise becomes aware of a critical problem and will work continuously (i.e., 24 hours a day, seven days a week) on a best- efforts basis to restore the Server to operation through work-arounds or resolution of the problem. PMIT shall notify StrikeForce immediately by telephone of any critical problem and thereafter shall give status reports at such intervals as the parties determine appropriate and continue to work on trouble around the clock until the problem has been corrected. PMIT's support desk will advise technical resources within 15 minutes after the support desk is notified and a technical resource will begin diagnostics and take corrective actions within one hour. All Priority 1 problems automatically escalate to StrikeForce management within 15 minutes after they are logged in the call management system.
B. Priority 2 - High Impact: The Server is experiencing problems that cause a major function or feature to fail to operate and no reasonable (i.e., low resource-consuming and inexpensive) work-around is available. PMIT will begin diagnostic and corrective action immediately after it is notified or otherwise becomes aware of a high impact problem and will dedicate appropriate resources continuously during daytime hours (including weekends) to resolve it. PMIT shall notify StrikeForce immediately by telephone of any high impact problem and thereafter shall give status reports at such intervals as the parties determine appropriate and continue to work on trouble during working hours until it is resolved. PMIT Support Desk will advise technical resources within 30 minutes after the support desk is notified and a technical resource will begin diagnostics and take corrective action within two hours. PMIT resources will continue to work on the problem during normal business hours of 7:00AM to 7:00PM. All priority 2 problems automatically escalate to StrikeForce management within 1 hour after they have been logged in the call management system.
C. Priority 3 - Low Impact Problems: The Server is experiencing problems that cause minor features to fail or operate, or cause minor delays, and a reasonable work-around is available. These problems may limit the usefulness of an effective part of the Server, but do not limit the usefulness of the entire Server. PMIT must begin diagnostics and corrective action immediately after it is notified or otherwise becomes aware of a low impact problem and use commercially reasonable efforts to resolve the problem promptly. Status reports shall be given to StrikeForce at least once every weekday, or otherwise agreed by the parties. PMIT's support desk will advise technical resources within 1 hour and a technical resource will begin diagnostics and take corrective action within 24 hours. All priority 3 problems are escalated to StrikeForce management within 8 hours after they are logged in the call management system.
In the event PMIT identifies a failure related to the StrikeForce COBAS Software: application files, data files, data base structure or data base content, PMIT will take appropriate steps to notify StrikeForce of such failures, prioritizing the failures in accordance with the above reference hereto as Appendix D1.
Exhibit 10.19
MUTUAL NON-DISCLOSURE AGREEMENT
This Mutual Non-Disclosure Agreement (the "Agreement") is by and between StrikeForce Technologies, Inc. ("StrikeForce"), and the person, company or entity listed below (the "Company").
1. StrikeForce and Company are interested in disclosing to each other certain information relating to their respective business plans and proprietary technology (hereinafter "Information") for the purposes of evaluation and consultation. For the purposes of this Agreement, each party shall be in the position of "Disclosing Party" for the Information it discloses to the other party, and each party shall be in the position of "Recipient" for the Information it receives from the other party. Such Information is a commercial asset of considerable value to Disclosing Party, and Disclosing Party is willing to disclose such Information only under the terms and conditions set forth below. This Agreement, when signed by authorized representatives of each party, will confirm that the Recipient is willing to receive such Information of Disclosing Party subject to the following terms and conditions, which the parties intend to be legally binding.
2. The Information shall include such proprietary and confidential information disclosed orally, by demonstration, or in writing at any time, and may include without limitation business plans, know-how, source code, algorithms, flow-charts, blueprints, and other information not readily available to the general public, whether or not protectable by patent, copyright or other forms of intellectual property law. The Information does not need to be identified as or marked "confidential" or "proprietary" or any similar terms.
3. The Recipient shall hold the Information in confidence, and shall use reasonable efforts to prevent any unauthorized use or disclosure of the Information. Except as expressly provided in this Agreement, the Recipient shall not disclose or divulge the Information, in whole or in part, to any third party, including licensees or customers anywhere in the world. The Recipient may not use the Information for any purpose other than the aforesaid without the prior written consent of a duly authorized representative of Disclosing Party. The Recipient may disclose the Information only to its officers, employees and independent contractors who are necessary for the purpose of evaluating such Information, and Recipient shall be responsible for any disclosure by them in violation of this Agreement.
4. Nothing contained in this Agreement shall be construed by implication or otherwise, as an obligation to enter into any further agreement relating to the Information or as grant of a license to use the Information or any intellectual property rights therein other than for evaluation and consultation purposes. Disclosing Party retains any and all proprietary and ownership rights it has in and to the Information it discloses.
5. This Agreement shall be effective as of the Effective Date and may be terminated by either party upon thirty (30) day's prior written notice to the other party. In any event, this Agreement shall automatically terminate two (2) years after the Effective Date. The confidentiality and use restrictions with respect to Proprietary and Confidential Information disclosed prior to termination shall survive for a period of two (2) years after the termination.
6. Upon completion of the aforesaid evaluation and in the absence of further agreement of the parties, the Recipient shall cease all use and make no further use of the Information. At Disclosing Party's request, the Recipient shall promptly return or destroy all Information disclosed by Disclosing Party and shall retain no copies.
7. The parties hereby acknowledge and agree that in the event of any violation or a threatened violation of this Agreement by the Recipient, the Disclosing Party shall be authorized and entitled to seek from any court of competent jurisdiction preliminary and permanent injunctive relief. This Agreement shall be governed by the law of the United States of America and the State of New Jersey without regard to conflicts of laws principles. Sections 3-7 shall survive any termination or expiration of this Agreement.
Whereof, the parties execute this Agreement as of the Effective Date: April 5, 2005
--------------------------------------
StrikeForce StrikeForce Technologies, Inc. Company
--------------------------------------
Signature Signature
----------------------------------------- --------------------------------------
Name Mark L. Kay Name
----------------------------------------- --------------------------------------
Title CEO Title
----------------------------------------- --------------------------------------
Email marklkay@sftnj.com Email
----------------------------------------- --------------------------------------
Telephone 1-732-661-9641 Telephone
----------------------------------------- --------------------------------------
Fax 1-732-661-9647 Fax
----------------------------------------- --------------------------------------
Address 1090 King Georges Post Road Address
----------------------------------------- --------------------------------------
Address Address
----------------------------------------- --------------------------------------
City Edison City
----------------------------------------- --------------------------------------
State/Prov NJ State/Prov
----------------------------------------- --------------------------------------
Zip/Postal 08837 Zip/Postal
----------------------------------------- --------------------------------------
Country USA Country
----------------------------------------- --------------------------------------
|
Exhibit 10.20
STRIKEFORCE TECHNOLOGIES INC
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
THIS NON-COMPETITION AND NON-DISCLOSURE AGREEMENT (this "Agreement") is
made as of the 10th day of August, 2004, by and between STRIKE FORCE TECHNICAL
SERVICES CORPORATION d/b/a STRIKEFORCE TECHNOLOGIES INC., a New Jersey
corporation having offices at 1090 King George's Post Road, Suite 108, Edison,
New Jersey 08837 (the "Employer") and (employee name), an individual resident of
[New Jersey] (the "Employee").
WHEREAS, Employee [has accepted an offer of employment with] [is currently employed by] and the Employer desires the Employee's [continued] employment with the Employer, provided that the Employee agrees not to compete with Employer in the Business (as defined below) and agrees to maintain the confidentiality of the Employer's Confidential Information (as defined below);
WHEREAS, Employee wishes to accept such [continued] employment, upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in further consideration of the mutual covenants, agreements, representations and warranties contained herein, the parties hereto, intending to be legally bound hereby, agree as follows:
Article 1
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified or referred to in this ARTICLE 1:
Section 1.1. "Business" shall mean the current and planned activities of Employer as they exist on the date of this Agreement and will exist during the term of the employment of Employee.
Section 1.2. "directly or indirectly" means to act personally or through an associate, affiliate, family member or otherwise, as proprietor, partner, shareholder, director, officer, employee, agent, consultant or in any other capacity or manner whatsoever.
Section 1.3. "Employee Invention" means any idea, invention, technique, modification, process, or improvement (whether patentable or not), any industrial design (whether registerable or not), and any work of authorship (whether or not copyright protection may be obtained for it) created, conceived, or developed by Employee, either solely or in conjunction with others, during the term of the employment of Employee, or a period that includes a portion of
the term of the employment of Employee, that relates in any way to, or is useful in any manner in, the Business then being conducted or proposed to be conducted by Employer, and any such item created by Employee, either solely or in conjunction with others, following termination of Employee's employment with Employer, that is based upon or uses Confidential Information.
Section 1.4. "Person" shall mean any individual, firm, corporation, general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, or governmental body.
Article 2
CONTINUED AT-WILL EMPLOYMENT STATUS
Employee hereby acknowledges that his or her employment status shall
[continue to] be unchanged and nothing contained hereunder is intended to modify
or alter that status. This Agreement shall not confer upon Employee any right
with respect to continuance of employment by Employer, interfere in any way with
the right of Employer to terminate Employee's employment at any time, or change
Employer's policy of employment. Employee hereby agrees to continue to devote
his or her full and exclusive attention on a full time basis to the business of
Employer, to faithfully perform the duties assigned to him or her by Employer,
and to conduct himself or herself in such a way as shall best serve the
interests of Employer.
Article 3
NON-COMPETITION, CONFIDENTIALITY AND
ASSIGNMENT OF INVENTIONS
Section 3.1. Prohibition Against Competitive Activities. Employee hereby agrees that during the term of his or her employment and for a period of one (1) year thereafter (the "Covenant Term"), he or she will not work for any Person which competes with Employer in the Business nor himself or herself engage during such Covenant Term, directly or indirectly, as principal, agent, partner, shareholder, consultant, or employee, in any such business for any Person in competition with Employer.
Section 3.2. Non-Solicitation of Employees. Employee agrees that during the Covenant Term, he or she will not directly or indirectly solicit, cause any other Person to solicit or assist any other person in soliciting, the employment of any Person who is, at the time of such solicitation, or who was within one year of such solicitation, an officer or employee of the Employer.
Section 3.3. Non-Solicitation of Customers. Employee agrees that during the Covenant Term, he or she will not directly or indirectly solicit, interfere, influence, hinder, hamper or impede, or cause any other Person to solicit, interfere, influence, hinder, hamper or impede existing or potential business relationships between Employer and any Person who is a customer or client of Employer.
Section 3.4. Confidential Information. Employee agrees at all times during the term of employment, and thereafter, to hold in strictest confidence, and not to use, except for the benefit of Employer, or to disclose to any Person, the Confidential Information of Employer. Employee understands that "Confidential Information" means any proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customer lists and customers (including, but not limited to, customers of Employer with whom Employee becomes acquainted during the term of his or her employment), software, designs, drawings, hardware and software configuration information, marketing, financial or other business information disclosed to Employee by Employer either directly or indirectly in writing or orally. Confidential Information may also include proprietary information, trade secrets or know-how received in confidence from third parties. Employee further agrees that all memoranda, notes, records, reports, letters, and other documents made, compiled, received, held, or used by Employee while employed by Employer concerning any phase of the business of Employer shall be Employer's property and shall be delivered by Employee to Employer on the termination of his or her employment with Employer, or at any earlier time on the request of Employer. Provided, however, that nothing in this ARTICLE 3 shall apply to information which Employee did not acquire from Employer; information available in the public domain; and information required to be disclosed based on the order of any court of competent jurisdiction.
Section 3.5. Assignment of Employee Inventions. Employee hereby agrees that each Employee Invention (relating to employer business) will belong exclusively to Employer. Employee acknowledges that all of Employee's writing, works of authorship, specially commissioned works, and other Employee Inventions are works made for hire and the property of Employer, including any copyrights, patents, or other intellectual property rights pertaining thereto. If it is determined that any such works are not works made for hire, Employee hereby assigns to Employer all of Employee's right, title and interest, including all rights of copyright, patent, and other intellectual property rights, to or in such Employee Inventions. Employee covenants that he or she will promptly:
3.5.1. disclose to Employer in writing any Employee Invention;
3.5.2. assign to Employer or to a party designated by Employer, at Employer's request and without additional compensation, all of Employee's right to the Employee Invention for the United States and all foreign jurisdictions;
3.5.3. execute and deliver to Employer such applications, assignments, and other documents as Employer may request in order to apply for and obtain patents or other registrations with respect to any Employee Invention in the United States and any foreign jurisdictions;
3.5.4. sign all other papers necessary to carry out the above obligations; and
3.5.5. give testimony and render any other assistance but without expense to Employee in support of Employer's rights to any Employee Invention.
Section 3.6. Enforceability. Employer and Employee agree that any breach of the covenants and agreements contained in this ARTICLE 3 will result in irreparable injury to Employer for which money damages could not adequately compensate Employer. Accordingly, Employee agrees that in the event of a breach of the terms of this ARTICLE 3, in addition to and not in lieu of any other remedies which Employer may pursue, Employer shall have the right to equitable relief, including issuance of a temporary or permanent injunction by any court of competent jurisdiction against the commission or continuance of any breach of this ARTICLE 3. If Employee is determined by a final judgment of any court of competent jurisdiction to have breached any of the covenants or agreements contained herein, then the term of such covenant or agreement shall be extended for a period of time equal to the period of such breach. In the event of any breach of the covenants and agreements contained in this ARTICLE 3, Employee shall indemnify and hold Employer harmless against any and all claims arising from such breach.
Section 3.7. Limitation of Scope. If a court of competent jurisdiction determines that the temporal or geographical limitations of any of the restrictive covenants contained in this ARTICLE 3 are not reasonably necessary to protect the legitimate business interests of Employer, then such limitations will be deemed to become and thereafter will be the maximum duration and area that such court deems reasonable and enforceable. The parties hereto agree that the foregoing provision is neither intended to, nor does it, constitute or suggest an admission or belief that the restrictive covenants contained herein are unreasonable. Further, the parties hereto acknowledge and agree that temporal and geographical limitations of the restrictive covenants contained herein are in every respect fair and reasonable.
Article 4
MISCELLANEOUS
Section 4.1. Waivers and Amendments. Neither this Agreement nor any term or
condition hereof, including without limitation, the terms and conditions of this
Section 4.1, may be waived or modified in whole or in part as against Employer
or Employee, as the case may be, except by written instrument signed by Employer
and Employee, expressly stating that it is intended to operate as a waiver or
modification of this Agreement, and any such written waiver by either party of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach hereof.
Section 4.2. Notices. All notices and other communications hereunder shall
be (i) in writing; (ii) delivered by telecopy, by commercial overnight or
same-day delivery service with all delivery costs paid by sender, or by
registered or certified mail with postage prepaid, return receipt requested; and
(iii) addressed to the parties at their addresses specified in this Agreement or
at such other address for a party as shall be specified by like notice to the
other party.
Section 4.3. Severability. If any term or provision of this Agreement or the application thereof to any person, property or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons, property or circumstances other than those as to which it is invalid or unenforceable, shall not be effected thereby, and each term and provision of this Agreement shall be valid and enforced to the fullest extent permitted by law.
Section 4.4. No Assignment; Binding Effect. This Agreement shall be binding upon and inure to the benefit of Employer, its successors or assigns. Except as to the obligation of Employee to render personal services which shall be non-assignable, this Agreement shall be binding upon and inure to the heirs, executors, administrators and assigns of Employee.
Section 4.5. Governing Law and Choice of Forum. This Agreement shall be construed and enforced in accordance with the laws of the State of New Jersey and shall be enforced in the state or federal courts sitting in New Jersey.
Section 4.6. Construction. The parties acknowledge and agree that they each have had the opportunity to be represented by independent counsel. Accordingly, and without limiting the scope or significance of the above statement, it is the intention and agreement of the parties that the language, terms and conditions of this Agreement are not to be construed in any way against or in favor of any party hereto by reason of the responsibilities in connection with the preparation of this Agreement.
Section 4.7. Attorney's Fees. In the event that either party shall seek to enforce this Agreement, the non-prevailing party in such enforcement action shall be responsible for and reimburse the prevailing party for the prevailing party's costs incurred in such action, including, without limitation, attorneys' fees.
Section 4.8. Entire Agreement. This Agreement constitutes the entire Agreement between the parties hereto with respect to the subject matter hereof and supercedes all prior agreements and understanding, oral or written, between the parties hereto with respect to the subject matter hereof. No representations, warranties, or undertakings, or promises, whether oral, implied, or otherwise, shall be binding on either party hereto and no modifications hereof shall be binding on either or both of the parties hereto unless the same are pursuant to and set forth in a written agreement executed by both parties hereto. All amendments, supplements, or riders hereto, if any, shall be in writing and executed by both parties.
[The remainder of this page was intentionally left blank]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
ATTEST: EMPLOYER:
Strike Force Technical Services
Corporation d/b/a
StrikeForce Technologies Inc.
|
Exhibit 10.21
THIS SECURED DEBENTURE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT.
SECURED DEBENTURE
STRIKEFORCE TECHNOLOGIES, INC.
7% Secured Convertible Debenture
May 6, 2007
No. HHF-002 US$375,000
This Secured Debenture (the "Debenture") is issued on May 6, 2005 (the "Closing Date") by StrikeForce Technologies, Inc., a New Jersey corporation (the "Company"), to Highgate House Funds, Ltd. (together with its permitted successors and assigns, the "Holder") pursuant to exemptions from registration under the Securities Act of 1933, as amended.
ARTICLE I.
Section 1.01 Principal and Interest. For value received, the Company hereby promises to pay to the order of the Holder on the date May 6, 2007 ("Maturity Date"), in lawful money of the United States of America and in immediately available funds the principal sum of Three Hundred Seventy Five Thousand Dollars ($375,000), together with interest on the unpaid principal of this Debenture at the rate of seven percent (7%) per year (compounded monthly) from the date of this Debenture until paid. At the Holder's option, the entire principal amount and all accrued interest and the redemption premium specified in Section 1.04 hereof shall be either (a) paid to the Holder on the Maturity Date or (b) converted in accordance with Section 1.02 herein.
Section 1.02 Optional Conversion. The Holder is entitled, at its option, to convert, and sell on the same day, at any time and from time to time, until payment in full of this Debenture, all or any part of the principal amount of the Debenture, plus accrued interest, into shares (the "Conversion Shares") of the Company's common stock, par value $0.0001 per share ("Common Stock"), at the lesser of: (i) One Hundred and Twenty Percent (120%) of the average Closing Bid Price during the five (5) trading days immediately preceding the Closing Date (the "Fixed Price"); or (ii) Eighty Percent (80%) of the lowest Closing Bid Price during the five (5) trading days immediately preceding the date of conversion (the "Future Price") (the "Conversion Price"). For purposes of determining the "Closing Bid Price" on any day, reference shall be to the closing bid price for a share of Common Stock on such date on the OTCBB (or such other exchange, market, or other system that the Common Stock is then traded on), as reported on Bloomberg, L.P. (or similar organization or agency succeeding to its functions of reporting prices). No fraction of shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. To convert this Debenture, the Holder hereof shall deliver written notice thereof, substantially in the form of Exhibit A to this Debenture, with appropriate insertions (the "Conversion Notice"), to the Company at its address as set forth herein. The date upon which the conversion shall be effective (the "Conversion Date") shall be deemed to be the date set forth in the Conversion Notice. The Holder has the right to convert this Debenture after the Maturity Date. Except as otherwise provided herein, the Company shall not have the right to object the conversion or the calculation of the applicable conversion price, absent manifest error and the Escrow Agent shall release the shares of Common Stock from escrow upon notifying the Company of the conversion.
Section 1.03 Reservation of Common Stock. The Company shall reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of this Debenture, that number of
shares of Common Stock equal to a multiple of five (5) times the number of
shares of Common Stock into which this Debenture is convertible from time to
time, based upon the Conversion Price. If at any time the Company does not have
a sufficient number of Conversion Shares authorized and available, then the
Company shall call and hold a special meeting of its stockholders within thirty
(30) days of that time for the sole purpose of increasing the number of
authorized shares of Common Stock.
Section 1.04 Right of Redemption. The Company at its option shall have the right to redeem, with three (3) business days advance written notice (the "Redemption Notice"), a portion or all outstanding convertible debenture. The redemption price shall be One Hundred Twenty Percent (120%) (the "Redemption Price") of the face amount redeemed plus accrued interest subject to the maximum amount of interest allowed to be charged by law. In the event the Company redeems the Debenture within One Hundred and Eighty (180) days of Closing, then the Redemption Price shall be One Hundred Ten Percent (110%). The Company shall pay the Redemption Price on all payments made pursuant to the Debenture, including payments made before, on, or after the Maturity Date. For all payments under this Debenture, the payment of the Redemption Price by the Company shall be in addition to any accrued interest due.
Section 1.05 Registration Rights. The Company is obligated to register the resale of the Conversion Shares under the Securities Act of 1933, as amended, pursuant to the terms of an Investor Registration Rights Agreement, between the
Company and Highgate House Funds, Ltd. of even date herewith (the "Investor Registration Rights Agreement").
Section 1.06 Interest Payments. The interest so payable will be paid at the
time of maturity or conversion to the person in whose name this Debenture is
registered. Interest shall be paid in cash (via wire transfer or certified
funds). In the event of default, as described in Article III Section 3.01
hereunder, the Holder may elect that the interest be paid in cash (via wire
transfer or certified funds) or in the form of Common Stock. If paid in the form
of Common Stock, the amount of stock to be issued will be calculated as follows:
the value of the stock shall be the Closing Bid Price on: (i) the date the
interest payment is due; or (ii) if the interest payment is not made when due,
the date the interest payment is made. A number of shares of Common Stock with a
value equal to the amount of interest due shall be issued. No fractional shares
will be issued; therefore, in the event that the value of the Common Stock per
share does not equal the total interest due, the Company will pay the balance in
cash.
Section 1.07 Paying Agent and Registrar. Initially, the Company will act as paying agent and registrar. The Company may change any paying agent, registrar, or Company-registrar by giving the Holder not less than ten (10) business days' written notice of its election to do so, specifying the name, address, telephone number and facsimile number of the paying agent or registrar. The Company may act in any such capacity.
Section 1.08 Secured Nature of Debenture. This Debenture is secured by all of the assets and property of the Company as set forth on Exhibit A to the Security Agreement dated the date hereof between the Company and Highgate House Funds, Ltd. (the "Security Agreement").
Section 1.09 The Escrow Shares. The Company has already deposited 6,510,000 shares of Common Stock with the Escrow Agent as "Escrow Shares." Upon receipt of the Conversion Notice from the Holder, the Escrow Agent shall distribute the Conversion Shares to Holder pursuant to this Debenture and the Securities Purchase Agreement including Exhibit F thereto.
ARTICLE II.
Section 2.01 Amendments and Waiver of Default. The Debenture may not be amended. Notwithstanding the above, without the consent of the Holder, the Debenture may be amended to cure any ambiguity, defect or inconsistency, or to provide for assumption of the Company obligations to the Holder.
ARTICLE III.
Section 3.01 Events of Default. An Event of Default is defined as follows:
(a) failure by the Company to pay amounts due hereunder on the Maturity Date;
(b) failure by the Company's transfer agent to issue freely tradeable Common
Stock to the Holder within five (5) days of the Company's receipt of the
attached Conversion Notice from Holder; (c) failure by the Company for ten (10)
days after notice to it to comply with any of its other agreements in the
Debenture; (d) failure to comply with the terms of the Irrevocable Transfer
Agent Instructions (as defined in the Securities Purchase Agreement dated the
date hereof between Highgate House Funds, Ltd. and the Company (the "Securities
Purchase Agreement")); (e) if the Company files for relief under the United
States Bankruptcy Code (the "Bankruptcy Code") or under any other state or
federal bankruptcy or insolvency law, or files an assignment for the benefit of
creditors, or if an involuntary proceeding under the Bankruptcy Code or under
any other federal or state bankruptcy or insolvency law is commenced against the
company; and (f) a breach by the Company of its obligations under any of the
Transaction Documents (as defined in the Securities Purchase Agreement) which is
not cured by the Company within any allocated cure period therein. Upon the
occurrence of an Event of Default, the Holder may, in its sole discretion, (i)
accelerate full repayment of all debentures outstanding and accrued interest
thereon at the Redemption Price and/or (ii) may, notwithstanding any limitations
contained in this Debenture and/or the Securities Purchase Agreement take
possession of all of the Escrow Shares and convert all debentures outstanding
and accrued interest thereon into the number of shares of Common Stock equal to
the number of Escrow Shares, notwithstanding the Conversion Price specified in
Section 1.02 hereof. Upon an Even of Default, the Escrow Agent is authorized and
directed to release the Escrow Shares to the Buyer if requested by the Buyer,
without approval of the Company. Upon an Event of Default, the Holder, in
addition to any other remedies, shall have the right (but not the obligation) to
convert this Debenture at any time after an Event of Default and require the
issuance of additional Escrow Shares pursuant to the Securities Purchase
Agreement and this Debenture.
Section 3.02 Failure to Issue Unrestricted Common Stock. As indicated in Article III Section 3.01, a breach by the Company of its obligations under the Investor Registration Rights Agreement shall be deemed an Event of Default, which if not cured within ten (10) days, shall entitle the Holder to accelerate full repayment of all debentures outstanding and accrued interest thereon or, notwithstanding any limitations contained in this Debenture and/or the Securities Purchase Agreement, to convert all debentures outstanding and accrued interest thereon into shares of Common Stock pursuant to Section 1.02 herein. The Company acknowledges that failure to honor a Conversion Notice shall cause irreparable harm to the Holder.
ARTICLE IV.
Section 4.01 Rights and Terms of Conversion. This Debenture, in whole or in part, may be converted at any time following the Closing Date (as defined in the Securities Purchase Agreement), into shares of Common Stock at a price equal to the Conversion Price as described in Section 1.02 above.
Section 4.02 Re-issuance of Debenture. When the Holder elects to convert a part of the Debenture, then the Company shall reissue a new Debenture in the same form as this Debenture to reflect the new principal amount.
ARTICLE V.
Section 5.01 Anti-dilution. Adjustment of Conversion Price. The Conversion Price shall be adjusted from time to time as follows:
(a) Adjustment of Conversion Price and Number of Shares upon Issuance of Common Stock. If and whenever on or after the Closing Date of this Debenture, the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (other than (i) Excluded Securities (as defined herein) and (ii)
shares of Common Stock which are issued or deemed to have been issued by the Company in connection with an Approved Stock Plan (as defined herein) or upon issuance, exercise or conversion of the Other Securities (as defined herein)) for a consideration per share less than a price (the "Applicable Price") equal to the Conversion Price in effect immediately prior to such issuance or sale, then immediately after such issue or sale the Conversion Price then in effect shall be reduced to an amount equal to such consideration per share, provided that in no event shall the Conversion Price be reduced below $0.0001.
(b) Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under Section 5.01(a) above, the following shall be applicable:
(i) Issuance of Options. If after the date hereof, the Company in any manner grants any rights, warrants or options to subscribe for or purchase Common Stock or convertible securities ("Options") and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange of any convertible securities issuable upon exercise of any such Option is less than the Conversion Price then in effect, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 5.01(b)(i), the lowest price per share for which one share of Common Stock is issuable upon exercise of such Options or upon conversion or exchange of such convertible securities shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option or upon conversion or exchange of any other convertible security other than this Debenture issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock or of such convertible securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such convertible securities.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any convertible securities after the Closing Date and the lowest
price per share for which one share of Common Stock is issuable upon the
conversion or exchange thereof is less than the Conversion Price then in effect,
then such share of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the issuance or sale of such
convertible securities for such price per share. For the purposes of this
Section 5.01(b)(ii), the lowest price per share for which one share of Common
Stock is issuable upon such conversion or exchange shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon the issuance or sale of
the convertible security and upon conversion or exchange of such convertible
security. No further adjustment of the Conversion Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
convertible securities, and if any such issue or sale of such convertible
securities is made upon exercise of any Options for which adjustment of the
Conversion Price had been or are to be made pursuant to other provisions of this
Section 5.01(b), no further adjustment of the Conversion Price shall be made by
reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or exchange of any convertible securities, or the rate at which any convertible securities are convertible into or exchangeable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or convertible securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of shares of Common Stock issuable upon conversion of this Debenture shall be correspondingly readjusted. For purposes of this Section 5.01(b)(iii), if the terms of any Option or convertible security that was outstanding as of the Closing Date of this Debenture are changed in the manner described in the immediately preceding sentence, then such Option or convertible security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment pursuant to this Section 5.01(b) shall be made if such adjustment would result in an increase of the Conversion Price then in effect.
(c) Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under Sections 5.01(a) and 5.01(b), the following shall be applicable:
(i) Calculation of Consideration Received. If any Common Stock, Options or convertible securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefore will be deemed to be the net amount received by the Company therefore. If any Common Stock, Options or convertible securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the market price of such securities on the date of receipt of such securities. If any Common Stock, Options or convertible securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefore will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or convertible securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of the Debenture representing at least two-thirds of the shares of Common Stock issuable upon conversion of the Debenture then outstanding. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of the Debenture representing at least two-thirds of the shares of Common Stock issuable upon conversion of the Debenture then outstanding. The determination of
such appraiser shall be final and binding upon all parties and the fees and expenses of such appraiser shall be borne by the Company.
(ii) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $0.001.
(iii) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held will be considered an issue or sale of Common Stock.
(iv) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in convertible securities or (2) to subscribe for or purchase Common Stock, Options or convertible securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.
(d) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time after the date of issuance of this Debenture subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, any Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time after the date of issuance of this Debenture combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, any Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment under this Section 5.01(d) shall become effective at the close of business on the date the subdivision or combination becomes effective.
(e) Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Debenture, then, in each such case any Conversion Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Conversion Price by a fraction of which (A) the numerator shall be the closing bid price of the Common Stock on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's Board of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the closing bid price of the Common Stock on the trading day immediately preceding such record date.
(f) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 5.01 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the holders of the Debenture; provided, except as set forth in Section 5.01(d), that no such adjustment pursuant to this Section 5.01(f) will increase the Conversion Price as otherwise determined pursuant to this Section 5.01.
(g) Notices.
(i) Immediately upon any adjustment of the Conversion Price, the Company will give written notice thereof to the holder of this Debenture, setting forth in reasonable detail, and certifying, the calculation of such adjustment.
(ii) The Company will give written notice to the holder of this Debenture at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder.
(h) Definitions.
(i) "Approved Stock Plan" means any employee benefit plan which has been approved by the Board of Directors of the Company, pursuant to which the Company's securities may be issued to any employee, officer or director for services provided to the Company.
(ii) "Excluded Securities" means, provided such security is issued at a price which is greater than or equal to the arithmetic average of the Closing Bid Prices of the Common Stock for the ten (10) consecutive trading days immediately preceding the date of issuance, any of the following: (a) any issuance by the Company of securities in connection with a strategic partnership or a joint venture (the primary purpose of which is not to raise equity capital), (b) any issuance by the Company of securities as consideration for a merger or consolidation or the acquisition of a business, product, license, or other assets of another person or entity and (c) options to purchase shares of Common Stock, provided (I) the issuance of such options are issued after the date of this Debenture to employees of the Company and is limited to 50,000 shares of the Company's common stock, and (II) the exercise price of such options is not less than the closing bid price of the Common Stock on the date of issuance of such option.
(iii) "Other Securities" means (i) those options and warrants of the Company issued prior to, and outstanding on, the Closing Date, (ii) the shares of Common Stock issuable on exercise of such options and warrants, provided such options and warrants are not amended after the Closing Date and (iii) the shares of Common Stock issuable upon conversion of this Debenture, or otherwise in connection with this Debenture or in connection with the Cornell Debentures (as defined in the Securities Purchase Agreement).
(i) Nothing in this Section 5.01 shall be deemed to authorize the issuance of any securities by the Company in violation of Section 5.02.
Section 5.02 Consent of Holder to Sell Capital Stock or Grant Security Interests. So long as any of the principal of or interest on this Debenture remains unpaid and unconverted, the Company shall not, without the prior consent of the Holder, (i) issue or sell any Common Stock or Preferred Stock without consideration or for a consideration per share less than its fair market value 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 fair market value determined immediately prior to its issuance, (iii) enter into any security instrument granting the holder a security interest in any of the assets of the Company, or (iv) file any registration statement on Form S-8.
ARTICLE VI.
Section 6.01 Notice. Notices regarding this Debenture shall be sent to the parties at the following addresses, unless a party notifies the other parties, in writing, of a change of address:
If to the Company, to: StrikeForce Technologies, Inc.
1090 King Georges Post Road
Suite 108 Edison, NJ 08837
Attention: Mark Kay
Telephone: (732) 661-9641
Facsimile: (732) 661-9647
With a copy to: Sichenzia, Ross, Friedman and Ference, LLP
1065 Avenue of the Americas
New York, New York 10018
Attn: Jay R. McDaniel
Telephone: (212) 930-9700
Facsimile: (212) 930-9725
If to the Holder: Highgate House Funds, Ltd
488 Madison Avenue
New York, New York 10022
Telephone: (212) 400-6990
Facsimile: (212) 400-6901
With a copy to: Jason M. Rimland, Esq.
488 Madison Avenue
New York, New York 10022
|
Telephone: (212) 400-6990 Facsimile: (212) 400-6901
Section 6.02 Governing Law. The parties hereto acknowledge that the transactions contemplated by this Agreement and the exhibits hereto bear a reasonable relation to the State of New York. The parties hereto agree that the internal laws of the State of New York shall govern this Agreement and the exhibits hereto, including, but not limited to, all issues related to usury. Any action to enforce the terms of this Agreement or any of its exhibits shall be brought exclusively in the state and/or federal courts situated in the County and State of New York. Service of process in any action by the Buyers to enforce the terms of this Agreement may be made by serving a copy of the summons and complaint, in addition to any other relevant documents, by commercial overnight courier to the Company at its principal address set forth in this Agreement.
Section 6.03 Severability. The invalidity of any of the provisions of this Debenture shall not invalidate or otherwise affect any of the other provisions of this Debenture, which shall remain in full force and effect.
Section 6.04 Entire Agreement and Amendments. This Debenture represents the entire agreement between the parties hereto with respect to the subject matter hereof and there are no representations, warranties or commitments, except as set forth herein. This Debenture may be amended only by an instrument in writing executed by the parties hereto.
Section 6.05 Counterparts. This Debenture may be executed in multiple counterparts, each of which shall be an original, but all of which shall be deemed to constitute on instrument.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company as executed this Debenture as of the date first written above.
STRIKEFORCE TECHNOLOGIES, INC.
By:/s/ Mark L. Kay Name: Mark Kay Title: Chief Executive Officer |
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to Convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $ of the principal amount of the above Debenture into Shares of Common Stock of StrikeForce Technologies, Inc., according to the conditions stated therein, as of the Conversion Date written below.
Conversion Date: Applicable Conversion Price: ______________________________________ Signature: ______________________________________ Name: ______________________________________ Address: Amount to be converted: $ ______________________________________ Amount of Debenture unconverted: $ ______________________________________ Conversion Price per share: $ ______________________________________ Number of shares of Common Stock to be issued: ______________________________________ Please issue the shares of Common Stock in the following name and to the following address: ______________________________________ Issue to: Authorized Signature: ______________________________________ Name: Title: ______________________________________ Phone Number: Broker DTC Participant Code: ______________________________________ Account Number: ______________________________________ |
Exhibit 10.22
Cornell Capital Partners, LP 101 Hudson Street, Suite 3700 Jersey City, NJ 07302 Tel: (201) 985-8300 / Fax: (201) 985-8266
February 10, 2005
Mark L. Kay
StrikeForce Technologies, Inc.
1090 King George's Road, Suite 108
Edison, NJ 08837
Guy Amico
Newbridge Securities Corporation
1451 Cypress Creek Road, Suite 204
Fort Lauderdale, FL 33309
Re: Standby Equity Distribution Agreement
This letter will memorialize the agreement between StrikeForce Technologies, Inc., (the "Company"), and Cornell Capital Partners, LP, with respect to the Standby Equity Distribution Agreement, as well as the related Registration Rights Agreement, Placement Agent Agreement and Escrow Agreement each dated December 20, 2004 (collectively the "Transaction Documents") The Transaction Documents are hereby terminated, as are the respective rights and obligations contained therein and none of the parties shall have any rights or obligations under or with respect to the Transaction Documents. The Company shall be entitled to a full refund of all shares issued as commitment fees pursuant to the Transaction Documents.
Cornell Capital Partners, LP By: Yorkville Advisors, LLC Its: General Partner
By: /s/ Mark Angelo
---------------
Name: Mark Angelo
Title: President and Portfolio Manager
|
Agreed and acknowledged on this 10th day of February, 2005.
StrikeForce Technologies, Inc.
By: /s/ Mark L. Kay
----------------
Name: Mark L. Kay
Title: CEO
|
Solely with respect to the Placement Agent Agreement:
Agreed and acknowledged on this 10th day of February, 2005.
Newbridge Securities Corp.
By: /s/ Guy Amico
--------------
Name: Guy Amico
Title: President
|
EXHIBIT 23.1
MASSELLA & ASSOCIATES, CPA, PLLC
---------------- CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS ----------------
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders of:
StrikeForce Technologies, Inc.
Edison, New Jersey
We have issued our reports dated March 28, 2005, except for Note 20, as to which the date is April 27, 2005, accompanying the financial statements of StrikeForce Technologies, Inc. in the Registration Statement on Form SB-2 and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the headings "Selected Financial Data" and "Experts."
/S/MASSELLA & ASSOCIATES, CPA, PLLC --------------------------------- MASSELLA & ASSOCIATES, CPA, PLLC Syosset, New York May 11, 2005 |
485 UNDERHILL BLVD., SUITE 100, SYOSSET, NY 11791-3434
TEL: (516) 682-0101 * FAX: (516) 682-0440
Registered with the Public: Company Accounting Oversight Board Members of the American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants