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Exhibit 10.17

 

 
INVESTMENT AGREEMENT
 
By and Between
 
LASERLOCK TECHNOLOGIES, INC.
 
AND
 
VERIFYME, INC.
 
Dated as of December 31, 2012

 

 
 
 

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Table of Contents

         
ARTICLE 1 DEFINITIONS
 
1
         
SECTION 1.01.
 
Definitions
 
1
SECTION 1.02.
 
Interpretation and Rules of Construction
 
7
         
ARTICLE II
 
PURCHASE AND SALE OF INTERESTS
 
7
         
SECTION 2.01.
 
Transactions
 
7
SECTION 2.02.
 
Closing
 
8
SECTION 2.03.
 
Closing Deliveries by the Company
 
8
SECTION 2.04.
 
Closing Deliveries by the Purchaser
 
8
SECTION 2.05.
 
Subscription Agreement
 
8
         
ARTICLE III
 
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 
9
         
SECTION 3.01.
 
Organization, Authority and Qualification of the Company
 
10
SECTION 3.02.
 
Company Subsidiary
 
10
SECTION 3.03.
 
Capitalization
 
10
SECTION 3.04.
 
No Conflict
 
11
SECTION 3.05.
 
Governmental Consents and Approvals
 
11
SECTION 3.06.
 
Compliance with Laws
 
11
SECTION 3.07.
 
Financial Information; Books and Records
 
12
SECTION 3.08.
 
Litigation
 
12
SECTION 3.09.
 
SEC Reports
 
12
SECTION 3.10.
 
Valid Issuance of the Shares, Warrants and Warrant Shares
 
12
SECTION 3.11.
 
Absence of Certain Changes or Events; Absence of Undisclosed Liabilities
 
13
SECTION 3.12.
 
Material Contracts
 
13
SECTION 3.13.
 
Intellectual Property
 
13
SECTION 3.14.
 
Taxes
 
15
SECTION 3.15.
 
Environmental Matters
 
15
SECTION 3.16.
 
Investment Company
 
15
SECTION 3.17.
 
Board Approval
 
15
SECTION 3.18.
 
Brokers
 
15
SECTION 3.19.
 
Solvency
 
15
SECTION 3.20.
 
Pro Forma Capitalization Table and Balance Sheet
 
15
         
ARTICLE IV
 
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
 
16
         
SECTION 4.01.
 
Organization and Authority of the Purchaser
 
16
SECTION 4.02.
 
No Conflict
 
16
SECTION 4.03.
 
Restricted Securities
 
16
SECTION 4.04.
 
Purchase Entirely For Own Account
 
16
SECTION 4.05.
 
Suitable Investor
 
17

 
 
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Table of Contents

         
ARTICLE V
 
RISK FACTORS
 
17
         
SECTION 5.01.
 
Development Stage of Company; Uncertainty of Future Revenues
 
17
SECTION 5.02.
 
Technology
 
17
SECTION 5.03.
 
General Industry Risks
 
18
SECTION 5.04.
 
Competition in the Company’s Industry
 
18
SECTION 5.05.
 
Governmental Regulation of the Company’s Business
 
18
SECTION 5.06.
 
Rapidly Changing Market
 
18
SECTION 5.07.
 
Lack of Diversification
 
19
SECTION 5.08.
 
Lack of Liquidity
 
19
SECTION 5.09.
 
Need for Additional Funds; Future Dilution
 
19
SECTION 5.10.
 
Dependence on Management and Limited Staff
 
19
SECTION 5.11.
 
Dividends
 
19
SECTION 5.12.
 
Projections
 
19
SECTION 5.13.
 
Controlling Stockholders
 
20
SECTION 5.14.
 
Determination of Purchase Price
 
20
         
ARTICLE VI
 
ADDITIONAL AGREEMENTS
 
20
         
SECTION 6.01.
 
Further Action
 
20
SECTION 6.02.
 
Corporate Actions
 
21
SECTION 6.03.
 
Covenants
 
21
SECTION 6.04.
 
Ancillary Agreements
 
23
SECTION 6.05.
 
Use of Proceeds
 
23
SECTION 6.06.
 
Director; Observer
 
23
SECTION 6.07.
 
Additional Investment Options
 
24
SECTION 6.08.
 
Pre-Emptive Right
 
24
         
ARTICLE VII
 
INDEMNIFICATION
 
25
         
SECTION 7.01.
 
Survival of Representations and Warranties
 
25
SECTION 7.02.
 
Indemnification by the Company
 
25
         
ARTICLE VIII
 
MISCELLANEOUS
 
26
         
SECTION 8.01.
 
Amendment; Waiver
 
26
SECTION 8.02.
 
Confidentiality
 
27
SECTION 8.03.
 
Expenses
 
27
SECTION 8.04.
 
Notices
 
27
SECTION 8.05.
 
Severability
 
28
SECTION 8.06.
 
Assignment
 
28
SECTION 8.07.
 
Third Party Beneficiaries and Transfers
 
28
SECTION 8.08.
 
Governing Law; Consent to Jurisdiction
 
28
SECTION 8.09.
 
Waiver of Jury Trial
 
29
SECTION 8.10.
 
Entire Agreement
 
29
SECTION 8.11.
 
Counterparts
 
29
SECTION 8.12.
 
Public Announcements
 
29

 
 
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Table of Contents

         
SECTION 8.13.
 
No Termination
 
29
SECTION 8.14.
 
Restrictive Legends
 
29

 
 
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INVESTMENT AGREEMENT, dated as of December 31, 2012 (this “Agreement”), by and
between LaserLock Technologies, Inc. (the “Company”), a Nevada corporation, and
VerifyMe, Inc. (the “Purchaser”), a Texas corporation.
 
WHEREAS, the Purchaser desires to purchase the Shares and the Warrants from the
Company and the Company desires to issue and sell the Shares and the Warrants to
the Purchaser; and
 
WHEREAS, concurrently with the purchase of the Shares and the Warrants by the
Purchaser and the sale of the Shares and the Warrants by the Company, the
Purchaser and the Company shall enter into the Ancillary Agreements.
 
NOW, THEREFORE, in consideration of the premises and the mutual agreements and
covenants hereinafter set forth, the Company and the Purchaser hereby agree as
follows:
 
ARTICLE 1
 
DEFINITIONS
 
SECTION 1.01     Definitions.  As used in this Agreement, the following terms
shall have the following meanings:
 
“Action” means any claim, action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority.
 
“Affiliate” means, with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
 
“Agreement” shall have the meaning set forth in the Preamble.
 
“Ancillary Agreements” means the Registration Rights Agreement and the Warrants.
 
“Asset Purchase Agreement” means the Asset Purchase Agreement, dated as of the
date hereof, between the Purchaser and the Company.
 
“Business Day” means any day that is not a Saturday, a Sunday or other day on
which commercial banks are required or authorized by Law to be closed in the
State of New York.
 
“Claims” means any and all administrative, regulatory or judicial actions,
suits, petitions, appeals, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations, proceedings, consent orders or
consent agreements.
 
“Closing” shall have the meaning set forth in Section 2.02.
 
“Closing Date” shall have the meaning set forth in Section 2.02.
 
 
 

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“Common Stock” means the common stock, $0.001 par value per share, of the
Company.
 
“Common Stock Equivalents” means any issuance of any warrants, options or
subscription or purchase rights with respect to shares of Common Stock and the
issuance of any securities convertible into, or exchangeable for, shares of
Common Stock and the issuance of any warrants, options or subscription or
purchase rights with respect to such convertible or exchangeable securities.
 
“Company” shall have the meaning set forth in the Preamble.
 
“Company Intellectual Property” means the Owned Intellectual Property and the
Licensed Intellectual Property.
 
“Company IP Agreements” means all (a) (i) licenses of Intellectual Property by
the Company or the Company Subsidiary to any Person, (ii) licenses of
Intellectual Property by any Person to the Company or the Company Subsidiary
relating to the transfer, development, maintenance or use of Intellectual
Property, and (b) consents, settlements, decrees, orders, injunctions, judgments
or rulings governing the use, validity or enforceability of Intellectual
Property to or under which the Company or the Company Subsidiary is a party or
beneficiary, or by which the Company or the Company Subsidiary, or any of its or
their properties or assets, may be bound.
 
“Company Subsidiary” means LL Security Products, Inc., a Pennsylvania
corporation.
 
“Encumbrance” means any security interest, pledge, hypothecation, mortgage, lien
including Tax liens (other (a) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through appropriate
proceedings, (b) purchase money liens and liens securing rental payments under
capital lease arrangements, and (c) other liens arising in the ordinary course
of business and not incurred in the borrowing of money), charge, or encumbrance.
 
“Environmental Law” means any Law relating to (a) releases or threatened
releases of Hazardous Substances or materials containing Hazardous Substances;
(b) the manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances or materials containing Hazardous Substances; (c) exposure
to Hazardous Substances; or (d) pollution or protection of the environment,
health, safety or natural resources, including natural resource damages.
 
“Equity Financing” shall have the meaning set forth in Section 6.08(a).
 
“Escrow Agreement” means the Escrow Agreement, dated as of the date hereof,
among the Purchaser, the Company, and Shearman & Sterling LLP, as escrow agent.
 
“Escrow Amount” means $1,000,000.
 
 
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“Exchange Act” means the Securities Exchange Act of 1934, as amended, and all
rules and regulations promulgated thereunder.
 
“Financial Statements” means the audited consolidated balance sheet of each of
the Company and its consolidated Subsidiary for each of the last three fiscal
years ended December 31, 2011, 2010 and 2009 and the related audited
consolidated statements of operations, changes in stockholders’ equity (deficit)
and cash flows, together with the related notes and schedules thereto,
accompanied by the reports of accountants.
 
“Founder” has the meaning set forth in Section 5.10.
 
“GAAP” means the generally accepted accounting principles applied in the United
States.
 
“Governmental Authority” means any United States or non-United States federal,
national, supranational, state, provincial, local, or similar government,
governmental, regulatory or administrative authority, agency or commission or
any court, tribunal, or judicial or arbitral body, including the SEC or the
appropriate state public utilities commissions.
 
“Governmental Order” means any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority.
 
“Hazardous Substances” means (a) any chemicals, materials or substances defined
as or included in the definition of “hazardous substances,” “hazardous wastes,”
“hazardous materials,” “extremely hazardous wastes,” “extremely hazardous
substances,” “restricted hazardous wastes,” “toxic substances,” “toxic
pollutants,” or words of similar import, under any applicable Environmental Law;
and (b) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority.
 
“Indebtedness” of any Person means (a) all indebtedness of such Person for
borrowed money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of such
Person to pay the deferred purchase price of property or services (other than
trade payables and accrued liabilities arising in the ordinary course of
business), (d) all indebtedness created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) all capitalized lease obligations of such Person, (f) all
obligations, contingent or otherwise, of such Person under acceptance, letter of
credit or similar facilities securing Indebtedness, (g) all unconditional
obligations of such Person to purchase, redeem, retire, defease or otherwise
acquire for value any capital stock of such Person or any warrants, rights or
options to acquire such capital stock, (h) all Indebtedness of any other Person
of the type referred to in clauses (a) through (g) guaranteed by such Person or
for which such Person shall otherwise (including pursuant to any keepwell,
makewell or similar arrangement) become directly or indirectly liable (other
than indirectly as a result of a performance guarantee not entered into with
respect to Indebtedness), and (i) all third party Indebtedness of the type
referred to in clauses (a) through (h) above secured by any lien or security
interest on property (including accounts and contract rights) owned by the
Person whose Indebtedness is being measured, even though such Person has not
assumed or become liable for the payment of such third party Indebtedness.
 
 
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“Intellectual Property” means, collectively, (a) patents, utility models,
inventions and discoveries, statutory invention registrations, mask works,
invention disclosures, and industrial designs, community designs and other
designs; (b) trademarks, service marks, domain names, uniform resource locators,
trade dress, trade names, geographical indications and other identifiers of
source or goodwill, including the goodwill symbolized thereby or associated
therewith; (c) works of authorship (including all (i) computer programs,
applications, systems and code, including software implementations of
algorithms, models and methodologies, program interfaces, and source code and
object code, (ii) Internet and intranet websites, databases and compilations,
including data and collections of data, whether machine-readable or otherwise,
(iii) development and design tools, library functions and compilers, and (iv)
technology supporting websites, and the contents and audiovisual displays of
websites) and copyrights, and moral rights, design rights and database rights
therein and thereto; (d) trade secrets, know-how and invention rights; and (e)
registrations, applications, continuations, renewals and extensions for any of
the foregoing in clauses (a)-(d).
 
“Interim Financial Statements” means the unaudited consolidated balance sheet of
the Company and its consolidated Subsidiary as of June 30, 2012 and
September 30, 2012 and related consolidated statements of income, retained
earnings, stockholders’ equity and changes in financial position together with
the related notes and schedules thereto.
 
“Investment Company Act” means the Investment Company Act of 1940, as amended,
and all rules and regulations promulgated thereunder.
 
“Law” means any United States or non-United States federal, national,
supranational, state, provincial, local or similar statute, law, ordinance,
regulation, rule, code, order, requirement or rule of law (including common
law).
 
“Liabilities” means any and all debts, liabilities and obligations, whether
accrued or fixed, absolute or contingent, matured or unmatured or determined or
determinable, including those arising under any Law, Action or Governmental
Order and those arising under any contract, agreement, arrangement, commitment
or undertaking.
 
“Licensed Intellectual Property” means all Intellectual Property that the
Company or the Company Subsidiary is licensed or otherwise permitted to use
pursuant to the Company IP Agreements.
 
“Loss” shall have the meaning set forth in Section 7.02(a).
 
“Lower Price” shall have the meaning set forth in Section 6.03(b).
 
 
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“Material Adverse Effect” means any event, circumstance, change or effect on the
Company and the Company Subsidiary, or their business that, individually or in
the aggregate with all other events, circumstances, changes and effects on the
Company and the Company Subsidiary or their business, (a) is or is reasonably
likely to be materially adverse to the business, condition (financial or
otherwise), assets, liabilities or results of operations of the Company and the
Company Subsidiary taken as a whole or (b) would prevent or materially delay
consummation of the transactions contemplated herein by the Company or otherwise
prevent or materially delay the Company from performing its obligations under
this Agreement; provided, however, that the following shall not be taken into
account in determining whether a Material Adverse Effect has
occurred:  (i) changes in applicable Law or GAAP or in any interpretation
thereof that do not disproportionately affect the Company and the Company
Subsidiary taken as a whole (relative to other participants in the industries in
which the Company and the Company Subsidiary operate); (ii) changes in the
industries in which the Company and the Company Subsidiary conduct their
respective businesses that do not disproportionately affect the Company and the
Company Subsidiary taken as a whole (relative to other participants in the
industries in which the Company and the Company Subsidiary operate); (iii) any
event, circumstance, change or effect arising directly or indirectly from the
public announcement of this Agreement or pendency of the transactions
contemplated herein; (iv) any change in the market price or trading volume of
the Shares (but not the underlying cause of such change); (v) any event,
circumstance, change or effect arising directly or indirectly from any act of
terrorism, war or any other similar event that does not disproportionately
affect the Company and the Company Subsidiary taken as a whole (relative to
other participants in the industries in which the Company and the Company
Subsidiary operate); and (vi) any adverse effect arising directly from or
otherwise directly relating to any action taken by the Company or its Subsidiary
at the written direction of the Purchaser or the failure of the Company or its
Subsidiary to take any action that the Company or its Subsidiary are
specifically prohibited from taking pursuant to this Agreement and were not
consented to by the Purchaser.
 
“Material Contract” shall have the meaning set forth in Section 3.12.
 
“New Securities” shall have the meaning set forth in Section 6.08(a).
 
“Offer Notice” shall have the meaning set forth in Section 6.08(b).
 
“Owned Intellectual Property” means all Intellectual Property owned by,
purported to be owned by or under obligation of assignment to, the Company or
the Company Subsidiary.
 
“Patent and Technology License Agreement” means the Patent and Technology
License Agreement, dated as of the date hereof, between the Purchaser and the
Company.
 
“Person” means any individual, partnership, firm, corporation, limited liability
company, association, trust, unincorporated organization or other entity, as
well as any syndicate or group that would be deemed to be a person under
Section 13(d)(3) of the Exchange Act.
 
 
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“Pre-Emptive Right” shall have the meaning set forth in Section 6.08(a).
 
“Preferred Stock” means the senior convertible preferred stock, $0.001 par value
per share, of the Company.
 
“Purchase Price” means $1,000,000.
 
“Purchaser” shall have the meaning set forth in the Preamble.
 
“Purchaser’s Pro-Rata Portion” shall have the meaning set forth in Section
6.08(a).
 
“Purchaser Indemnified Party” shall have the meaning set forth in
Section 7.02(a).
 
“Registration Rights Agreement” means the Registration Rights Agreement in the
form attached hereto as Exhibit A.
 
“SEC” means the Securities and Exchange Commission.
 
“SEC Reports” shall have the meaning set forth in Section 3.09.
 
“Securities” shall have the meaning set forth in Article V.
 
“Securities Act” means the Securities Act of 1933, as amended, and all rules and
regulations promulgated thereunder.
 
“Shares” means the shares of Common Stock issued to the Purchaser as set forth
in Section 2.01(a).
 
“Subscription Agreement” means the Subscription Agreement in substantially the
form attached hereto as Exhibit B.
 
“Subsidiaries” means, with respect to any Person, any and all corporations,
partnerships, limited liability companies, joint ventures, associations and
other entities controlled by such Person directly or indirectly through one or
more intermediaries.
 
“Tax” or “Taxes” means any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any government or taxing authority, including taxes or other charges
on or with respect to income, franchises, windfall or other profits, gross
receipts, property, sales, use, capital stock, payroll, employment, social
security, workers’ compensation, unemployment compensation, or net worth; taxes
or other charges in the nature of excise, withholding, ad valorem, stamp,
transfer, value added, or gains taxes; license, registration and documentation
fees; and customs’ duties, tariffs, and similar charges.
 
“Tax Returns” shall have the meaning set forth in Section 3.14.
 
 
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“Technology and Services Agreement” means the Technology and Services Agreement,
dated as of the date hereof, between the Purchaser and the Company.
 
“Third Party Claims” shall have the meaning set forth in Section 7.02(c).
 
“Warrants” means the warrants to purchase shares of Common Stock in the form
attached hereto as Exhibit C.
 
SECTION 1.02.  Interpretation and Rules of Construction. In this Agreement,
except to the extent otherwise provided or that the context otherwise requires:
 
(a)           when a reference is made in this Agreement to an Article, Section,
Exhibit or Schedule, such reference is to an Article or Section of, or an
Exhibit or Schedule to, this Agreement;
 
(b)           the table of contents and headings for this Agreement are for
reference purposes only and do not affect in any way the meaning or
interpretation of this Agreement;
 
(c)           whenever the words “include,” “includes” or “including” are used
in this Agreement, they are deemed to be followed by the words “without
limitation”;
 
(d)           the words “hereof,” “herein” and “hereunder” and words of similar
import, when used in this Agreement, refer to this Agreement as a whole and not
to any particular provision of this Agreement;
 
(e)           all terms defined in this Agreement have the defined meanings when
used in any certificate or other document delivered or made available pursuant
hereto, unless otherwise defined therein;
 
(f)           the definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms;
 
(g)           references to a Person are also to its successors and permitted
assigns; and
 
(h)           references to sums of money are expressed in lawful currency of
the United States of America, and “$” refers to U.S. dollars.
 
ARTICLE II
 
PURCHASE AND SALE OF INTERESTS
 
SECTION 2.01.     Transactions.  Subject to the terms and conditions of this
Agreement:
 
(a)           The Company hereby agrees to sell and issue to the Purchaser, and
the Purchaser hereby agrees to purchase from the Company, 22,222,222 shares of
Common Stock and a warrant to purchase 22,222,222 shares of Common Stock, and in
exchange therefor, the Purchaser agrees to pay cash in the amount of the
Purchase Price to the Company.
 
 
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(b)           Within 30 days after Closing, Purchaser shall propose the
allocation of the Purchase Price between the Shares and the Warrants in form and
substance reasonably acceptable to both parties, and the parties hereto shall
use their best reasonable efforts to agree to such allocation.
 
SECTION 2.02.     Closing.  Subject to the terms and conditions of this
Agreement, the issuance, sale and purchase of the Shares and the Warrants and
the other transactions contemplated by this Agreement shall take place at a
closing (the “Closing”) to be held at the offices of Shearman & Sterling LLP,
599 Lexington Avenue, New York, New York at 10:00 a.m. New York time on the date
hereof or at such other place or at such other time or such other date as the
Purchaser and the Company shall mutually agree upon in writing (the date on
which the Closing takes place being the “Closing Date”).
 
SECTION 2.03.     Closing Deliveries by the Company.  At the Closing, the
Company shall deliver, or cause to be delivered, to the Purchaser:
 
(a)           Executed counterparts of the Ancillary Agreements.
 
(b)           Stock certificates representing the Shares, in the name of the
Purchaser.
 
(c)           Certificates evidencing the Warrants, in the name of the
Purchaser.
 
(d)           A letter to the Purchaser from the Company, signed by an officer
of the Company, acknowledging that, in accordance with the terms of Section
6.06, the Company shall appoint Purchaser’s two (2) designees as non-voting
observers to the Company’s board of directors and the Company shall appoint
Purchaser’s two (2) designees as advisors to each of the Company’s advisory
committees.
 
SECTION 2.04.     Closing Deliveries by the Purchaser.  At the Closing, the
Purchaser shall deliver, or cause to be delivered, to the Company:
 
(a)           Executed counterparts of the Ancillary Agreements.
 
(b)           The Purchase Price, by wire transfer of immediately available
funds to the bank account designated by the Company to the Purchaser.
 
SECTION 2.05.     Subscription Agreement.
 
(a)            On or before January 31, 2013, the parties hereto shall execute
and deliver the Subscription Agreement, pursuant to which the Company shall sell
and issue to the Purchaser, and the Purchaser shall purchase from the Company,
$1 million in stated amount of cumulative Preferred Stock and a warrant to
purchase 33,333,333 shares of Common Stock, which warrants may be exercised on a
cashless exercise basis, initially at twelve cents ($0.12) per share, and in
exchange therefor, the Purchaser shall release from escrow the Escrow Amount, to
be paid out of such escrow to the Company by wire transfer of immediately
available funds to a bank account designated by the Company.
 
 
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(b)           Prior to the execution of the Subscription Agreement, the Company
shall establish the terms, preferences, and other special rights of the
Preferred Stock under a certificate of designation made effective in the State
of Nevada, on terms no less favorable to the Purchaser than those set forth on
Schedule 2.05(b) and otherwise agreed by the Purchaser.
 
(c)           In respect of the agreement set forth in Section 2.05(a), at the
Closing, the Purchaser shall deliver the Escrow Amount into escrow at Shearman &
Sterling LLP, subject to the terms set forth in the Escrow Agreement, by wire
transfer of immediately available funds to a bank account designated by Shearman
& Sterling LLP to the Purchaser.
 
(d)           If, for any reason, the parties hereto do not, on or before
January 31, 2013, execute and deliver the Subscription Agreement and consummate
the transactions contemplated in the Subscription Agreement (including the
issuance by the Company to the Purchaser of Preferred Stock and warrants to
purchase Common Stock in the amounts and on the terms set forth therein), then
the Purchaser may, at its sole discretion, (i) return to the Company all or any
part of the shares of Common Stock and warrants exercisable for shares of Common
Stock held by the Purchaser and (ii) rescind the Technology and Services
Agreement, the Patent and Technology License Agreement, the Asset Purchase
Agreement, and any transaction made pursuant to such agreements, and in exchange
therefor, the Company shall promptly, but in no event less than three (3)
Business Days later, refund to the Purchaser in cash the price originally paid
by the Purchaser for such shares of Common Stock and warrants exercisable for
shares of Common Stock by wire transfer of immediately available funds to a bank
account designated by the Purchaser.
 
ARTICLE III
 
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
 
As an inducement to the Purchaser to enter into this Agreement, the Company
hereby represents and warrants to the Purchaser, except as set forth in the SEC
Reports (as defined below) of the Company filed with the SEC on or after January
1, 2012 and prior to the date of this Agreement and disclosed on Exhibit E
hereto, other than disclosures referred to in the “Risk Factors” section of any
such SEC Report of the Company, as follows:
 
 
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SECTION 3.01.     Organization, Authority and Qualification of the Company.  The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has all necessary
corporate power and authority to enter into this Agreement and the Ancillary
Agreements, to carry out its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby.  The Company is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the failure to do so would have a Material Adverse
Effect.  The execution and delivery of this Agreement and the Ancillary
Agreements by the Company, the performance by the Company of its obligations
hereunder and thereunder and the consummation by the Company of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
action on the part of the Company and its stockholders, as the case may
be.  This Agreement and the Ancillary Agreements have been duly executed and
delivered by the Company, and (assuming due authorization, execution and
delivery by the Purchaser of this Agreement and the Ancillary Agreements) shall
constitute, legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
fraudulent conveyances, moratorium or other similar Laws affecting the validity
or enforcement of creditors rights generally and the effect of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).
 
SECTION 3.02.     Company Subsidiary.  (a)  The Company Subsidiary does not
conduct any business and holds only de minimis assets.  Neither the Company nor
the Company Subsidiary is a member of (nor is any material part of their
business conducted through) any partnership nor is the Company or the Company
Subsidiary a participant in any joint venture or similar arrangement that is
material to the Company.
 
(b)           (i) The Company Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, (ii) has all necessary power and authority to own, operate or
lease the properties and assets owned, operated or leased by the Company
Subsidiary and to carry on its business as it has been and is currently
conducted by the Company Subsidiary and (iii) is duly licensed or qualified to
do business and is in good standing in each jurisdiction in which the failure to
be so would have a Material Adverse Effect.
 
SECTION 3.03.     Capitalization.  (a)  The authorized capital stock of the
Company consists of 425,000,000 shares of Common Stock and 75,000,000 shares of
preferred stock.  As of the date hereof, (i) 208,368,225 shares of Common Stock
were issued and outstanding, (ii) no shares of preferred stock were issued and
outstanding and (iii) 14,325,996 shares of Common Stock were reserved for
issuance pursuant to (w) outstanding options to acquire Common Stock to
employees and directors of the Company, (x) outstanding warrants to acquire
Common Stock and (y) outstanding debt instruments convertible into 26,250,000
shares of Common Stock.
 
(b)           Other than as set forth in Section 3.03(a), there are no
outstanding options, warrants, subscriptions, calls, convertible securities,
phantom equity, equity appreciation or similar rights, or other rights,
agreements, arrangements or commitments (contingent or otherwise) (including any
right of conversion or exchange under any outstanding security, instrument or
other agreement or any preemptive right) obligating the Company to deliver or
sell, or cause to be issued, delivered or sold, any shares of its capital stock
or other securities, instruments or rights which are, directly or indirectly,
convertible into or exercisable or exchangeable for any shares of its capital
stock.  There are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any shares of its capital stock or to
provide funds to, or make any material investment (in the form of a loan,
capital contribution or otherwise) in, any other Person.  There are no voting
trusts, stockholder agreements, proxies or other agreements or understandings in
effect with respect to the voting or transfer of any of the shares of Common
Stock to which the Company is a party.  As of the date hereof, the Company has
not granted or agreed to grant any holders of shares of Common Stock or
securities convertible into Common Stock registration rights with respect to
such shares under the Securities Act.
 
 
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(c)           The outstanding shares of Common Stock are all duly and validly
authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act, and any relevant state securities Laws, or pursuant to valid exemptions
therefrom.  None of the issued and outstanding shares of Common Stock was issued
in violation of any preemptive rights.
 
SECTION 3.04.     No Conflict.  The execution, delivery and performance of this
Agreement and the Ancillary Agreements by the Company do not and will not (a)
violate, conflict with or result in the breach of any provision of the Amended
and Restated Certificate of Incorporation of the Company, dated December 17,
2003, as amended, or the Amended and Restated Bylaws of the Company, dated
December 17, 2003, as amended, (b) conflict with or violate any Law or
Governmental Order applicable to the Company or any of its assets, properties or
businesses, or (c) conflict with, result in any breach of, constitute a default
(or event which with the giving of notice or lapse of time, or both, would
become a default) under, require any consent under, or give to others any rights
of termination, amendment, acceleration, suspension, revocation or cancellation
of, or result in the creation of any Encumbrance on any of the shares of Common
Stock or any of the assets of the Company pursuant to, any note, bond, mortgage
or indenture, contract, agreement, lease, sublease, license, permit, franchise
or other instrument or arrangement to which the Company is a party or by which
any of the shares of Common Stock or any of the assets of the Company is bound
or affected, other than such conflicts or violations described in clause (c)
above as would not reasonably be expected to have a Material Adverse
Effect.  The execution, delivery and performance of this Agreement and the
Ancillary Agreements by the Company will not result in any acceleration of, or
requirement to repay, convert or exchange any of the Indebtedness of the
Company.
 
SECTION 3.05.     Governmental Consents and Approvals.  The execution, delivery
and performance of this Agreement and the Ancillary Agreements by the Company do
not and will not require any material consent, approval, authorization or other
order of, action by, filing with or notification to, any Governmental Authority,
other than the filing of a Form D with the SEC.
 
SECTION 3.06.     Compliance with Laws.  (a)  The Company has conducted and
continues to conduct its business, in all material respects, in accordance with
all Laws and Governmental Orders applicable to the Company or its properties or
business, and the Company is not in violation in any material respect of any Law
or Governmental Order.
 
(b)           No Governmental Order has affected or, to the knowledge of the
Company, could affect, the legality, validity or enforceability of this
Agreement, any Ancillary Agreement or the consummation of the transactions
contemplated hereby or thereby.
 
 
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SECTION 3.07.     Financial Information; Books and Records.  The Financial
Statements and the Interim Financial Statements (a) were prepared in accordance
with the books of account and other financial records of the Company and its
consolidated Subsidiary, (b) present fairly in all material respects the
consolidated financial condition and results of operations of the Company and
its consolidated Subsidiary as of the dates thereof or for the periods covered
thereby, and (c) have been prepared in accordance with GAAP applied on a basis
consistent with past practice (except as may be described in the notes thereto
or, in the case of the Interim Financial Statements as permitted by the
Quarterly Reports on Form 10-Q under the Exchange Act) and (d) in the case of
the Financial Statements, include all adjustments that are necessary for a fair
presentation of consolidated financial condition and results of the operations
as of the dates thereof or for the periods covered thereby.
 
SECTION 3.08.     Litigation.  There are no material Actions by or against the
Company and relating to the Company or affecting any of the assets of the
Company pending before any Governmental Authority (or, to the knowledge of the
Company, threatened to be brought by or before any Governmental Authority) and
neither the Company nor any of its assets or properties is subject to any
material Governmental Order (nor, to the knowledge of the Company, are there any
such material Governmental Orders threatened to be imposed by any Governmental
Authority).
 
SECTION 3.09.     SEC Reports.  The filings required to be made by the Company
under the Securities Act and the Exchange Act (the “SEC Reports”) have been
filed with the SEC, including all forms, statements, reports, written agreements
and all documents, exhibits, amendments and supplements appertaining thereto,
and the Company has complied in all material respects with all applicable
requirements of the appropriate act and the rules and regulations
thereunder.  As of their respective dates, the SEC Reports did 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 under which they were made, not misleading.  The Company has filed
all certifications and statements required by (a) Rule 13a-14 or Rule 15d-14
under the Exchange Act or (b) 18 U.S.C. Section 1350 (Section 906 of the
Sarbanes-Oxley Act of 2002) with respect to the SEC Reports filed after July 30,
2002.  The Company maintains disclosure controls and procedures required under
the Exchange Act, and such controls and procedures are designed to provide
reasonable assurance that all material information concerning the Company is
made known on a timely basis to the individuals responsible for the preparation
of the Company’s SEC filings and other public disclosure documents.  The Company
maintains complete copies of all policies, manuals and other documents
promulgating such disclosure controls and procedures (and all written
descriptions thereof) in compliance with applicable Law.  As used in this
Section 3.09, the term “file” shall be broadly construed to include any document
or information “filed” or “furnished” to the SEC.
 
SECTION 3.10.     Valid Issuance of the Shares, Warrants and Warrant
Shares.  The Shares and the Warrants are duly authorized by the Company.  The
shares of Common Stock issuable upon exercise of the Warrants have been duly
authorized and validly reserved for issuance and, upon issuance in accordance
with the terms of the Warrants for the consideration expressed therein, will be
duly and validly issued, fully paid, and nonassessable, and will be free of
restrictions on transfer other than restrictions on transfer that result from
applicable state and federal securities Laws.
 
 
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SECTION 3.11.     Absence of Certain Changes or Events; Absence of Undisclosed
Liabilities.  (a)  Except as disclosed on Schedule 3.11, since September 30,
2012, the Company has conducted its business in all material respects only in
the ordinary course of business consistent with past practice and there has not
been, and no fact or condition exists which would have, a Material Adverse
Effect.
 
(b)           Other than as disclosed in the Financial Statements, the Company
has no Liabilities or obligations (whether absolute, accrued, contingent or
otherwise), other than (i) Liabilities or obligations related to the
transactions contemplated by this Agreement, (ii) Liabilities, obligations or
contingencies that are accrued or reserved against in the Financial Statements
or disclosed in the notes thereto, (iii) Liabilities which were incurred after
September 30, 2012 in the ordinary course of business and would not be
reasonably expected to have a Material Adverse Effect or (iv) Liabilities that
would not be required by GAAP to be reflected in a consolidated corporate
balance sheet.
 
SECTION 3.12.     Material Contracts.  (a)  Each material contract to which the
Company is a party (a “Material Contract”) (i) is valid and binding on the
Company and, to the knowledge of the Company, each of the other parties thereto,
except as such enforceability may be limited by any applicable bankruptcy,
insolvency, fraudulent conveyances, moratorium or other similar Laws affecting
the validity or enforcement of creditors’ rights generally and the effect of
general principles of equity (regardless of whether considered in a proceeding
in equity or at law), and is in full force and effect and (ii) upon consummation
of the transactions contemplated by this Agreement and the Ancillary Agreements,
shall continue in full force and effect without penalty or other adverse
consequence.  The Company is not in breach of, or default under, any Material
Contract.
 
(b)           The Company has not received any notice of termination,
cancellation, breach or default under any Material Contract, and, to the
knowledge of the Company, no other party to any Material Contract is in breach
thereof or default thereunder.
 
SECTION 3.13.     Intellectual Property.  (a)  The Company Intellectual Property
includes, and the Company and the Company Subsidiary have sufficient rights to
use, all Intellectual Property used or held for use in connection with the
operation of the Company’s and its Subsidiary’s businesses, and there are no
other items of Intellectual Property that are material to or necessary for the
operation of the Company’s and its Subsidiary’s businesses as conducted in the
year preceding the date hereof, and for the continued operation of the Company’s
and the Company’s Subsidiary businesses immediately after the Closing in
substantially the same manner as operated prior to the Closing.  The Company or
the Company Subsidiary is the exclusive owner of all right, title and interest
in and to each item of the Owned Intellectual Property, free and clear of all
exclusive licenses, non-exclusive licenses not granted in the ordinary course of
business consistent with past practice, and Encumbrances, or any obligation to
grant any of the foregoing.  The Company or the Company Subsidiary has a valid
license to use the Licensed Intellectual Property in connection with the
operation of their business, subject only to the terms of the applicable Company
IP Agreements.
 
 
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(b)           The Company Intellectual Property is (i) valid, subsisting and
enforceable, and (ii) not subject to any outstanding Governmental Order
affecting any of the use by the Company or the Company Subsidiary thereof or
rights thereto, or that would, to the knowledge of the Company, impair the
validity or enforceability thereof.  The registered Owned Intellectual Property
is currently in compliance with any and all formal legal requirements necessary
to record and perfect the Company’s or the Company Subsidiary’s interest therein
and the chain of title thereof.  There is no Action pending, asserted, or, to
the knowledge of the Company, threatened in writing (A) against the Company or
the Company Subsidiary concerning the ownership, validity, registerability,
enforceability or use of, or licensed right to use, any of the Company
Intellectual Property, or (B) contesting or challenging the ownership, validity,
registerability or enforceability of, or the Company’s or the Company
Subsidiary’s right to use, any Company Intellectual Property.  The Company and
the Company Subsidiary are not in violation of any agreement or arrangement
with, or any obligation to, any Governmental Authority that does, or to the
knowledge of the Company would, with the passage of time, (A) impair the
validity or enforceability of any Owned Intellectual Property, (B) affect any of
the Company’s or the Company Subsidiary’s use thereof or rights thereto,
including all rights to license, transfer, commercialize or otherwise exploit
such Owned Intellectual Property, or (C) result in the grant of any license
under, or any lien on, any Owned Intellectual Property.
 
(c)           The operation of the businesses of the Company and the Company
Subsidiary and the use of the Company Intellectual Property in connection
therewith does not, and has not, infringed, misappropriated or otherwise
violated or conflicted with the Intellectual Property rights of any other
Person.  There is no Action pending, asserted, or, to the knowledge of the
Company, threatened in writing against any of the Company or the Company
Subsidiary concerning any of the foregoing, nor has any of the Company or the
Company Subsidiary received any written notification that a license under any
other Person’s Intellectual Property is or may be required.  To the Company’s
knowledge, no Person is engaging, or has engaged, in any activity that
infringes, misappropriates or otherwise violates or conflicts with any of the
Company’s Intellectual Property.
 
(d)           The Company and the Company Subsidiary have taken commercially
reasonable measures to maintain the confidentiality of all confidential
information, including trade secrets, used or held for use in connection with
the operation of its business.  No confidential information, trade secrets or
other confidential Intellectual Property of the Company has been disclosed by
the Company or the Company Subsidiary to any Person except pursuant to valid and
enforceable non-disclosure or license agreements that the Company or the Company
Subsidiary, and to the knowledge of the Company, any such Person, have not
breached.
 
(e)           To the extent that any Intellectual Property has been conceived,
developed or created for the Company or the Company Subsidiary by any other
Person, the Company or the Company Subsidiary, as applicable, have executed
valid and enforceable written agreements with such Person with respect thereto
transferring to the Company or the Company Subsidiary the entire and
unencumbered right, title and interest therein and thereto by operation of law
or by valid written assignment.
 
 
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SECTION 3.14.     Taxes.  (a) All material returns and reports in respect of
Taxes (“Tax Returns”) required to be filed by the Company or the Company
Subsidiary (including any consolidated, combined or unitary Tax Returns) have
been timely filed (unless covered by valid extensions of the filing dates
therefor); (b) except where being contested in good faith, all Taxes required to
be shown on such Tax Returns or otherwise due have been timely paid; (c) all
such Tax Returns are true, correct and complete in all material respects; (d)
except for adjustments, actions or proceedings in respect of which adequate
reserves have been established in accordance with GAAP applied on a basis
consistent with past practice, (i) no adjustment relating to such Tax Returns
has been proposed formally or informally by any Tax authority and, to the
knowledge of the Company, no basis exists for any such adjustment and (ii) there
are no pending or, to the knowledge of the Company, threatened actions or
proceedings for the assessment or collection of Taxes against the Company or any
corporation that was included in the filing of a Tax Return with the Company on
a consolidated or combined basis; and (e) there are no Tax liens filed against
any assets of the Company.
 
SECTION 3.15.     Environmental Matters.  To the Company’s knowledge, there are
no facts or circumstances relating to the business of the Company that would
give rise to any material violation or liability under any Environmental Law.
 
SECTION 3.16.     Investment Company.  The Company is not, and immediately after
receipt of payment for the Shares and Warrants will not be, an “investment
company” or an entity “controlled” by an “investment company” within the meaning
of the Investment Company Act and shall conduct its business in a manner so that
it will not become subject to the Investment Company Act.
 
SECTION 3.17.     Board Approval.  The Company’s board of directors, by
resolutions duly adopted by unanimous vote of those voting at a meeting duly
called and held and not subsequently rescinded or modified in any way, has duly
(a) determined that this Agreement is fair to and in the best interests of the
Company and its stockholders, (b) approved this Agreement and the Ancillary
Agreements and declared their advisability and (c) approved the issuance of the
Shares, the Warrants and the shares of Common Stock issuable upon the exercise
of the Warrants contemplated by this Agreement and the Ancillary Agreements.
 
SECTION 3.18.     Brokers.  No placement agent, broker, finder or investment
banker is entitled to any placement, brokerage, finder’s or other fee or
commission in connection with the transactions contemplated by this Agreement
and the Ancillary Agreements based upon arrangements made by or on behalf of the
Company.
 
SECTION 3.19.     Solvency.  The Company is not entering into this Agreement or
the transactions contemplated hereby with the actual intent to hinder, delay or
defraud either present or future creditors.  After giving effect to the
transactions contemplated by this Agreement, at and immediately after the
Closing, each of the Company and the Company Subsidiary will be solvent (in that
both the fair value of such entity’s assets will not be less than the sum of
such entity’s debts and that the present fair saleable value of such entity’s
assets will not be less than the amount required to pay such entity’s probable
liability on such entity’s recourse debts as they mature or become due).
 
SECTION 3.20.     Pro Forma Capitalization Table and Balance Sheet.  Exhibit D
hereto sets forth a pro forma capitalization table and balance sheet of the
Company as of December 31, 2012, giving effect to the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements.
 
 
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ARTICLE IV
 
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
 
As an inducement to the Company to enter into this Agreement, the Purchaser
hereby represents and warrants to the Company as follows:
 
SECTION 4.01.     Organization and Authority of the Purchaser.  The Purchaser is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all necessary power and authority to
enter into this Agreement and the Ancillary Agreements to which it is a party,
to carry out its obligations hereunder and thereunder and to consummate the
transactions contemplated by this Agreement.  The execution and delivery by the
Purchaser of this Agreement and the Ancillary Agreements to which the Purchaser
is a party, the performance by the Purchaser of its obligations hereunder and
thereunder and the consummation by the Purchaser of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
action on the part of the Purchaser.  This Agreement and the Ancillary
Agreements to which the Purchaser is a party have been duly executed and
delivered by the Purchaser, and (assuming due authorization, execution and
delivery by the Company of this Agreement and the Ancillary Agreements to which
the Company is a party) this Agreement and the Ancillary Agreements to which the
Purchaser is a party shall constitute legal, valid and binding obligations of
the Purchaser, enforceable against the Purchaser in accordance with their terms.
 
SECTION 4.02.     No Conflict.  The execution, delivery and performance by the
Purchaser of this Agreement and the Ancillary Agreements to which the Purchaser
is a party do not and will not (a) violate, conflict with or result in the
breach of any provision of the organizational documents of the Purchaser, (b)
conflict with or violate any Law or Governmental Order applicable to the
Purchaser or (c) conflict with, or result in any breach of, constitute a default
(or event which with the giving of notice or lapse of time, or both, would
become a default) under, require any consent under, or give to others any rights
of termination, amendment, acceleration, suspension, revocation or cancellation
of, any note, bond, mortgage or indenture, contract, agreement, lease, sublease,
license, permit, franchise or other instrument or arrangement to which the
Purchaser is a party, which would adversely affect the ability of the Purchaser
to carry out its obligations under, and to consummate the transactions
contemplated by, this Agreement or by the Ancillary Agreements, except in the
case of any of the foregoing that would not be reasonably expected to have a
material adverse effect.
 
SECTION 4.03.     Restricted Securities.  Neither the offer nor the sale of the
Shares and the Warrants purchased hereunder will be registered under the
Securities Act or any other securities Laws.  The Purchaser understands that the
offering and sale of the Shares and the Warrants is intended to be exempt from
registration under the Securities Act.
 
SECTION 4.04.     Purchase Entirely For Own Account.  The Purchaser is acquiring
the Shares and the Warrants to be acquired hereunder for its own account, and
(except as contemplated by the Registration Rights Agreement) not with a view to
the public resale, in violation of any securities Law.  The Purchaser does not
have, and as of the date hereof, has not engaged in any negotiations,
discussions or other communications with respect to, any contract, agreement,
understanding or arrangement with any Person to sell any portion of the Shares
or the Warrants.
 
 
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SECTION 4.05.  Suitable Investor.  The Purchaser represents and warrants that it
is suited to make the investment contemplated by this Agreement.
 
ARTICLE V
 
RISK FACTORS
 
AN INVESTMENT IN THE SHARES AND THE WARRANTS AS WELL AS THE SHARES OF COMMON
STOCK ISSUABLE UPON ANY EXERCISE OF THE WARRANTS (COLLECTIVELY REFERRED TO
HEREIN AS THE “SECURITIES”) INVOLVES A HIGH DEGREE OF RISK; THE COMPANY IS A
DEVELOPMENT STAGE COMPANY WITH LIMITED ASSETS, REVENUES OR OPERATIONS; THERE ARE
OR MAY BE COMPETITIVE PRODUCTS AND SERVICES IN THE MARKETPLACE FOR THE COMPANY’S
PRODUCTS AND SERVICES; THE MARKETPLACE MAY NOT ACCEPT THE COMPANY’S PROPOSED
PRODUCTS AND SERVICES; THE COMPANY MAY NEED ADDITIONAL CAPITAL IN THE FUTURE TO
REACH ITS GROWTH OBJECTIVES AND/OR MEET ITS EXPENSES AND THE SECURITIES MAY
NEVER HAVE ANY VALUE.  AMONG OTHER RISKS, THE PURCHASER SHOULD CONSIDER THE
FOLLOWING:
 
SECTION 5.01.     Development Stage of Company; Uncertainty of Future
Revenues.  The Company’s operations are subject to all of the risks inherent in
a new business enterprise.  The Company currently has limited revenue, limited
operating history and limited salable product.  The Company is subject to the
same types of risks that many new businesses face including but not limited to
shortages of cash, under-capitalization and expenses in connection with new
product development.  The Company does not currently anticipate positive cash
flow on a monthly basis and cannot give assurances that it will be operating at
break-even levels at any time in the future.  Various problems, expenses,
complications and delays may be encountered in connection with the Company’s
development, both in terms of its products and its business.  Future growth
beyond present capacity will require significant expenditures for expansion,
marketing, research and development.  These expenses must be paid either out of
the proceeds of this or future offerings of the Company’s securities or out of
its generated revenues and profits, if any.  The availability of funds from
either of these sources cannot be ensured.
 
SECTION 5.02.     Technology.  The Company’s focus is directed towards light
sensitive ink technology which will require substantial further investment for
the Company to reach its revenue and profitability goals.  The Company cannot
assure the Purchaser that the Company’s technologies will enable the Company to
develop any additional commercial products such that the Purchaser will receive
a return on his investment. In addition, the value of the Company’s technology
and any products derived from its technology could be substantially reduced as
new or modified techniques for combating document and product counterfeiting and
product diversion are developed and become widely accepted.  The Company cannot
guarantee that future technological developments will not result in the
obsolescence of its technologies.
 
 
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SECTION 5.03.     General Industry Risks.  The industry in which the Company
intends to compete is subject to the traditional risks faced by any industry
including but not limited to adverse changes in general economic conditions, the
availability and expense of liability insurance and adverse changes in local
markets.  However, the Company will also be subject to industry specific risks
such as counterfeiters learning how to circumvent new and existing technologies,
evolving consumer preference, federal, state and local chemical processing
controls, consumer product liability claims and risks of product tampering.
 
SECTION 5.04.     Competition in the Company’s Industry.  In the area of
document security and product authentication and serialization, the Company is
aware of other companies and other similar technologies, including both covert
and overt surface marking techniques, which require decoding elements or
analytical methods to reveal the relevant information.  These technologies are
offered by other companies for the same anti-counterfeiting and anti-diversion
purposes for which the Company plans to market its technologies.  Other
competitors are marketing products utilizing the hologram and copy void
technologies.  The hologram, which has been incorporated into credit cards to
foil counterfeiting, is considerably more costly than the Company’s
technology.  Copy void is a security device which has been developed to indicate
whether a document has been photocopied.  It is anticipated that a significant
number of companies of varying sizes, which may ultimately include divisions or
subsidiaries of larger companies, will be vying for the same market segment as
the Company is.  A number of these competitors may have substantially greater
financial and other resources available to them.  There can be no assurance that
the Company can compete successfully with such other companies.  Competitive
pressures or other factors could cause the Company to lose market share or could
result in significant price erosion, either of which would have a material
adverse effect on the results of the Company’s operations.
 
SECTION 5.05.     Governmental Regulation of the Company’s Business.  The
Company’s operations may be subject to varying degrees to federal, state or
local laws and regulations.  Operations such as those the Company intends to
conduct may be subject to federal, state and local laws and regulations
controlling the development of technologies related to privacy protection, the
protection of the environment from materials that the Company may use in its
inks and advanced algorithm formulations or encryption tactics that the Company
may develop.  Any of these regulations may have a materially adverse effect upon
the Company’s operations.
 
SECTION 5.06.     Rapidly Changing Market.  The Company believes that the market
for its products is rapidly changing with evolving industry standards.  The
Company’s future success will depend in part upon its ability to introduce new
products and features to meet changing customer requirements and emerging
industry standards.  There can be no assurance that the Company will
successfully complete the development of future products or that the Company’s
current or future products will achieve market acceptance.  Any delay or failure
of these products to achieve market acceptance would adversely affect the
Company’s business.  In addition, there can be no assurance that products or
technologies developed by others will not render the Company’s products or
technologies non-competitive or obsolete.
 
 
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SECTION 5.07.     Lack of Diversification.  The Company’s proposed operations,
even if successful, will in all likelihood result in the Company’s engaging in a
business which is concentrated in only one industry.  Consequently, the
Company’s activities will be limited to the anti-counterfeiting industry.  The
Company’s inability to diversify its activities into a number of areas may
subject the Company to economic fluctuations within a particular business or
industry and, therefore, increase the risks associated with the Company’s
operations.
 
SECTION 5.08.     Lack of Liquidity.  A purchase of the Securities should be
considered a long-term investment.  There is no public market for the
Securities, nor is one expected to develop as a result of this offering.  The
Purchaser must be prepared to hold the Securities indefinitely and should not
expect to be able to liquidate this investment even in an emergency or for any
other reason.
 
SECTION 5.09.     Need for Additional Funds; Future Dilution.  The Company will
require significant additional funds in order bring the Company’s products and
services to market.  To the extent that the funds generated by this offering
together with existing resources and any future earnings or credit facilities
are insufficient to fund the Company’s activities, the Company may adversely
affect the current stockholders by diluting the stockholders’ interests in the
Company.  It is difficult to estimate the exact funds necessary to develop a
finished product.  No assurance can be given that additional financing will be
available or that, if available, it will be obtained on terms favorable to the
Company.  If adequate funds are not available, the Company may have to reduce
developing, manufacturing and marketing activities and services, which could
have a material adverse effect on the Company’s business, or discontinue
operations entirely.
 
SECTION 5.10.     Dependence on Management and Limited Staff.  The Company’s
ability to achieve its objectives is largely dependent upon the services of
Norman Gardner (the “Founder”).  The loss of services of the Founder could have
a material adverse impact on the Company.  The death or disability of the
Founder or the occurrence of any other uninsured event would likely have a
material adverse impact on the Company.  The Company’s future success also
depends on its continuing ability to attract and retain highly qualified
technical, sales and marketing, customer support, financial and accounting and
managerial personnel.  Competition for such personnel is intense, and there can
be no assurance that the Company will be able to attract, assimilate or retain
highly qualified personnel in the future.
 
SECTION 5.11.     Dividends.  The Company does not intend to pay dividends to
the holders of any of the Company’s outstanding capital stock for the
foreseeable future.  Therefore, potential purchasers who anticipate the need for
immediate or future income by way of dividends from their investment should
refrain from the purchase of the Securities.
 
SECTION 5.12.     Projections.  Any financial projections of the Company and
projections relating to the future market for the Company’s potential products
are based upon current assumptions as to future events and conditions which the
Company believes to be reasonable as of the date thereof, but which are
inherently uncertain and unpredictable.  Any such projections have been prepared
by officers of the Company and no independent expert rendered an opinion as to
the reasonableness of the projections or the assumptions on which they are
based.  The assumptions may prove to be incomplete or incorrect, and
unanticipated events and circumstances may occur.  Because of such
uncertainties, and the other risks outlined herein, the actual results of the
Company’s future operations can be expected to be different from those
projected, and such difference may be material and adverse.  The Purchaser
should consider the projections in light of the underlying assumptions, reach
their own conclusions as to the reasonableness of those assumptions and evaluate
the projections on the basis of that analysis.
 
 
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SECTION 5.13.     Controlling Stockholders.  Upon the closing of the transaction
contemplated by this Agreement, control of the majority of the outstanding
shares of capital stock of the Company will remain concentrated amongst very few
individuals.  As a result of the beneficial ownership of a majority of the
outstanding capital stock with a majority of the voting rights, these
individuals will be in a position to control the outcome of all matters
requiring a vote of the Company’s stockholders, including the election of
directors.
 
SECTION 5.14.     Determination of Purchase Price.  There have been no formal
professional opinions concerning the value of the stock of the Company, the
value of the assets of the Company, the net worth of the Company or the
projected financial results of the Company.  The Purchase Price for the Shares
has been determined by the Company based in part on public information.  The
Purchase Price for the Shares is not necessarily indicative of their value since
there are many unknowns at this time.  It is possible that the Shares, if
transferable, could not be resold for the Purchase Price, or for any other
amount.
 
ARTICLE VI
 
ADDITIONAL AGREEMENTS
 
SECTION 6.01.     Further Action.  (a)  Each party hereto shall use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
do or cause to be done all things necessary, proper or advisable under
applicable Law, and execute and deliver such documents and other papers as may
be reasonably required to carry out the provisions of this Agreement and the
Ancillary Agreements and consummate and make effective the transactions
contemplated by this Agreement and the Ancillary Agreements.
 
(b)           Each party hereto shall cooperate and use its reasonable best
efforts to (i) promptly prepare and file with the appropriate Governmental
Authorities all necessary reports, applications, petitions, forms, notices or
other applicable documents required or advisable with respect to the
transactions contemplated by this Agreement and the Ancillary Agreements,
(ii) comply, at the earliest practicable date following the date of receipt by
the Purchaser or the Company, with any request for information or documents from
a Governmental Authority related to, and appropriate in the light of, matters
within the jurisdiction of such Governmental Authority, provided that (x) the
parties shall use their reasonable best efforts to keep any such information
confidential to the extent required by the party providing the information and
(y) each party may take, in its reasonable discretion, appropriate legal action
not to provide information relating to trade or business secrets, privileged
information or other information which reasonably should be treated as
confidential, (iii) take all actions necessary or advisable to promptly obtain
all necessary permits, consents, approvals and authorizations of all
Governmental Authorities necessary or advisable to consummate the transactions
contemplated by this Agreement and the Ancillary Agreements and (iv) oppose
vigorously any litigation that would impede or delay the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements,
including promptly appealing any adverse court order.
 
 
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SECTION 6.02.     Corporate Actions.  (a)  Until the date that is 3 years after
the Closing Date, the Company shall timely file with the SEC all SEC Reports
required to be made by the Company, and the Company shall comply in all material
respects with all applicable requirements of the appropriate act and the rules
and regulations thereunder.  As of their respective dates, the SEC Reports 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 under which they were made, not misleading.
 
(b)           As long as any Warrants are outstanding, the Company shall at all
times have authorized and reserved for issuance a sufficient number of shares of
Common Stock to permit the full exercise of the Warrants issued in connection
with this Agreement.
 
SECTION 6.03.     Covenants.  Until the date that is 24 months after the Closing
Date, the Company shall not, without the Purchaser’s consent:
 
(a)      Issue or sell in any manner whatsoever (other than to the Purchaser)
any preferred stock or any other equity securities having a preference on
liquidity senior to the Common Stock; provided, that if the Company does issue
or sell any such preferred stock or any other equity securities having rights
more favorable than the Common Stock, then:
 
 (i)           notwithstanding any contrary rights otherwise applicable to the
Common Stock, the Company shall be required to treat all shares of Common Stock
issued in connection with the transactions contemplated in this Agreement and
the shares of Common Stock issuable upon exercise of any warrants exercisable
for shares of Common Stock issued in connection with the transactions
contemplated in this Agreement as though they are entitled to the same more
favorable rights, and the Company shall be required to take any action requested
by Purchaser to give effect to such intent, including by way of exchanging any
shares of Common Stock and warrants exercisable for shares of Common Stock for
corresponding shares of preferred stock, warrants exercisable for preferred
stock, or any other equity securities issued with the Purchaser’s consent in
accordance with this Section 6.03(a); and
 
 (ii)           if the Company receives a bona fide binding offer from a
third-party under which such third-party would purchase from the Company, and
the Company would issue or sell to such third party, any preferred stock or any
other equity securities having a preference on liquidity senior to the Common
Stock, that the Company intends to consummate if the Purchaser granted its
consent under this Section 6.03(a), then the Company shall notify the Purchaser
of such offer prior to requesting consent to the transaction from the Purchaser
and the Purchaser shall have a right of first refusal with respect to such offer
during a period beginning on the date on which the Purchaser receives a written
notice from the Company, specifying the terms of the offer in detail, and ending
five (5) Business Days later. Any time before the expiration of such five (5)
Business Day period, the Purchaser may elect, by written notice delivered to the
Company, to purchase such securities on the same terms contained in the binding
offer in lieu of such third party and the Company shall consummate such
transaction with the Purchaser within five (5) Business Days thereafter.
 
 
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(b)           If the Company issues or sells any Common Stock or Common Stock
Equivalents at a price per share lower than the lesser of (i) the prevailing
market price per share of Common Stock or Common Stock Equivalents at the time
of issuance or sale (which, as long as the Common Stock is listed, shall be the
closing price on the last trading day prior to such issuance or sale of the
Common Stock as traded on a national securities exchange, the NASDAQ Global
Market, the NASDAQ Capital Market, or another nationally recognized trading
system (including Pink OTC Markets, Inc.)) or (ii) $0.045 per share of Common
Stock or Common Stock Equivalents (such price, a “Lower Price”), then,
 
 (i)           on the date of such issuance or sale, the Company shall issue to
the Purchaser a number of shares of Common Stock (if greater than zero) equal to
(x) the number of Shares multiplied by (1) $0.045 divided by (2) the Lower Price
minus (y) the number of Shares minus (z) all shares of Common Stock previously
issued to the Purchaser under this Section 6.03(b).  All shares of Common Stock
issued to the Purchaser under this Section 6.03(b) shall be entitled to the same
rights given to the Shares under this Agreement and the Ancillary Agreements;
and
 
 (ii)           if the Company receives a bona fide binding offer from a
third-party under which such third-party would purchase from the Company, and
the Company would issue or sell, any Common Stock or Common Stock Equivalents at
a Lower Price to such third party, that the Company intends to consummate if the
Purchaser granted its consent under this Section 6.03(b), then the Company shall
notify the Purchaser of such offer prior to requesting consent to the
transaction from the Purchaser and the Purchaser shall have a right of first
refusal with respect to such offer during a period beginning on the date on
which the Purchaser receives a written notice from the Company, specifying the
terms of the offer in detail, and ending five (5) Business Days later. Any time
before the expiration of such five (5) Business Day period, the Purchaser may
elect, by written notice delivered to the Company, to purchase such securities
on the same terms contained in the binding offer in lieu of such third party and
the Company shall consummate such transaction with the Purchaser within five (5)
Business Days thereafter.
 
(c)           Acquire or divest (including by merger, consolidation or
acquisition or divestiture of stock or assets or any other business combination)
any corporation, limited liability company, partnership, other business
organization or any division thereof or any material amount of assets.
 
 
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(d)           Incur any Indebtedness or issue any debt securities or assume,
guarantee or endorse, or otherwise become responsible for, the obligations of
any Person, or make any loans or advances or capital contribution to, or
investment in, any Person.
 
(e)           Enter into any new line of business, make any change to the
current Company business plan or adopt a new Company business plan.
 
(f)            Enter into any transaction with any of its Affiliates.
 
(g)           Amend or restate the Amended and Restated Certificate of
Incorporation of the Company, dated December 17, 2003, as amended.
 
SECTION 6.04.     Ancillary Agreements.  Each party hereto shall use its best
efforts to promptly execute and deliver each of the Ancillary Agreements in
substantially the forms attached as Exhibits hereto.
 
SECTION 6.05.     Use of Proceeds.  The Company shall use the proceeds from the
sale and issuance of the Shares and Warrants in accordance with, and in the
order set forth in, Schedule 6.05 hereto; provided, that, proceeds may be used
for ordinary course payments of compensation to the management of the Company
substantially consistent with current levels of compensation.
 
SECTION 6.06.     Director; Observer.  Until the date that is four (4) years
after the date of effectiveness of the Company’s registration statement to be
filed pursuant to the Registration Rights Agreement:
 
(a)           The Purchaser shall be entitled to nominate, and the Company shall
arrange to fill, two seats on the Company’s board of directors with two Persons
reasonably acceptable to the Company, such acceptance not to be unreasonably
withheld.  To the extent those positions become vacant for any reason, the
Company agrees that the Purchaser shall be permitted to fill the vacancy. To the
extent he is at any time serving on the Company’s board of directors, Jonathan
Weinberger shall be deemed to be one of the two Persons selected by Purchaser to
fill one of the two seats on the Company’s board of directors.
 
(b)           The Company shall appoint Purchaser’s designee as a non-voting
observer to the Company’s board of directors, to the extent such Person is
reasonably acceptable to the Company, such acceptance to be not unreasonably
withheld, such designee replaceable at the Purchaser’s discretion from time to
time at any time.
 
(c)           The Company shall appoint Purchaser’s designee as an advisor to
each of the Company’s advisory committees, such designee replaceable at the
Purchaser’s discretion from time to time at any time.
 
(d)           The Company agrees that there shall not be more than nine (9)
directors serving together on the Company’s board of directors at any time.
 
 
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SECTION 6.07.     Additional Investment Options.
 
(a)           If, during the period between the date hereof and the date that is
18 months from the date hereof, in addition to the funds received pursuant to
the Subscription Agreement, the Company reasonably determines that it requires
an additional $900,000 to fund its working capital, then, at any time following
such determination, at the Purchaser’s election in its sole discretion, within
five (5) Business Days after the date of the Purchaser’s written notification to
the Company of such election (or on any other date agreed by the Purchaser and
the Company), the Company shall sell and issue to the Purchaser, and the
Purchaser shall have the first right to purchase from the Company (i) 30,000,000
shares of Preferred Stock, and (ii) a warrant to purchase 30,000,000 shares of
Common Stock with an initial exercise price of twelve cents ($0.12) and
otherwise on terms consistent with those provided in the Warrants (or such
lesser amount of shares of Preferred Stock and warrants exercisable for shares
of Common Stock as determined in the sole discretion of the Purchaser), and in
exchange therefor, the Purchaser shall pay cash in the amount per share of
Preferred Stock (together with a corresponding warrant exercisable for one share
of Common Stock to the Company) that is the lower of (A) three cents ($0.03) or
(B) 90% of the prevailing market price per share of Common Stock or Common Stock
Equivalents at the time of such issuance or sale (which, as long as the Common
Stock is listed, shall be the closing price on the last trading day prior to
such issuance or sale of the Common Stock as traded on a national securities
exchange, the NASDAQ Global Market, the NASDAQ Capital Market, or another
nationally recognized trading system (including Pink OTC Markets, Inc.) by wire
transfer of immediately available funds to a bank account designated in writing
by the Company to the Purchaser.
 
SECTION 6.08.     Pre-Emptive Right.
 
(a)           Grant of Pre-Emptive Right.  Until the date that is 24 months
after the Closing Date, the Company hereby grants the Purchaser the right to
receive equity securities or other securities convertible into equity securities
of the Company (“New Securities”, and any such transaction, an “Equity
Financing”) proposed to be sold by the Company, of an amount of such New
Securities as is required for the Purchaser to maintain its fully-diluted
ownership percentage in the Company calculated as of the time immediately prior
to the issuance of such New Securities (the “Pre-Emptive Right” and such amount,
the “Purchaser’s Pro-Rata Portion”).  The Purchaser’s Pre-Emptive Right with
respect to New Securities shall not be applicable to, and the Purchaser shall
have no right to purchase any New Securities issued in connection with any bona
fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise.
 
(b)           Notice of Equity Financing.  In the event the Company desires to
consummate an Equity Financing, the Company shall give notice (the “Offer
Notice”) to the Purchaser, stating (i) its bona fide intention to offer and sell
New Securities in an Equity Financing, (ii) the number of such New Securities to
be offered and (iii) the price and terms, if any, upon which it proposes to
offer such New Securities.
 
(c)           Exercise of Pre-Emptive Right.  The Company shall ensure that the
Purchaser shall automatically receive in such Equity Financing the Purchaser’s
Pro-Rata Portion of such New Securities simultaneously with the consummation of
such Equity Financing.
 
 
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ARTICLE VII
 
INDEMNIFICATION
 
SECTION 7.01.     Survival of Representations and Warranties.  (a)  The
representations and warranties of the Company contained in this Agreement shall
survive the Closing until the first anniversary of the Closing Date, other than
the representations and warranties set forth in Sections 3.01, 3.03 and 3.10,
which shall survive indefinitely.  Notwithstanding anything herein to the
contrary, the representations and warranties contained in Section 3.14 shall
terminate at the close of business 30 days after the expiration of the
applicable statute of limitations with respect to the Tax liabilities in
question (giving effect to any waiver, mitigation or extension thereof).
 
(b)           The representations and warranties of the Purchaser contained in
this Agreement shall survive the Closing until the first anniversary of the
Closing Date, other than the representations and warranties set forth in Section
4.01, which shall survive indefinitely.
 
SECTION 7.02.     Indemnification by the Company.  (a)  To the greatest extent
permitted by applicable Law, the Company shall indemnify and hold harmless the
Purchaser and its Affiliates, officers, directors, employees, agents, successors
and assigns (each a “Purchaser Indemnified Party”) from and against any and all
Liabilities, losses, diminution in value, damages, claims, costs and expenses,
interest, awards, judgments and penalties (including attorneys’ and consultants’
fees and expenses) suffered or incurred by them (including any Action brought or
otherwise initiated by any of them) (hereinafter a “Loss”), arising out of or
resulting from:  (i) the breach of any representation or warranty of the Company
contained herein, or in any agreement, certificate or instrument delivered
pursuant hereto set forth therein and (ii) the breach of any agreement or
covenant of the Company contained herein.
 
(b)           Notwithstanding the provisions of Section 7.02(a), the maximum
liability of the Company under this Section 7.02 shall not exceed $2,000,000,
provided, however, that the limitations in Section 7.02(b) shall not apply to
breaches by the Company of its representations and warranties contained in
Sections 3.01, 3.03 and 3.10 or a breach of the covenants in Section 6.03.
 
 
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(c)           A Purchaser Indemnified Party shall give the Company prompt
written notice of any matter that a Purchaser Indemnified Party has determined
has given or could give rise to a right of indemnification under this Agreement,
no later than within 30 days of such determination, stating the amount of the
Loss, if known, and method of computation thereof, and containing a reference to
the provisions of this Agreement in respect of which such right of
indemnification is claimed or arises.  The obligations and Liabilities of the
Company under this Article VII with respect to Losses arising from claims of any
third party that are subject to the indemnification provided for in this
Article VII (“Third Party Claims”) shall be governed by and be contingent upon
the following additional terms and conditions:  if a Purchaser Indemnified Party
shall receive notice of any Third Party Claim, the Purchaser Indemnified Party
shall give the Company notice of such Third Party Claim within 30 days after the
receipt by the Purchaser Indemnified Party of such notice; provided, however,
that the failure to provide such notice shall not release the Company from any
of its obligations under this Article VII except to the extent that the Company
is materially prejudiced by such failure and shall not relieve the Company from
any other obligation or Liability that it may have to any Purchaser Indemnified
Party otherwise than under this Article VII.  If the Company acknowledges in
writing its obligation to indemnify the Purchaser Indemnified Party hereunder
against any Losses that may result from such Third Party Claim, then the Company
shall be entitled to assume and control the defense of such Third Party Claim at
its expense and through counsel of its choice if it gives notice of its
intention to do so to the Purchaser Indemnified Party within five days of the
receipt of such notice from the Purchaser Indemnified Party; provided, however,
that if there exists or is reasonably likely to exist a conflict of interest
that would make it inappropriate in the judgment of the Purchaser Indemnified
Party in its sole and absolute discretion for the same counsel to represent both
the Purchaser Indemnified Party, on the one hand, and the Company, on the other
hand, then the Purchaser Indemnified Party shall be entitled to retain its own
counsel in addition to any requisite local counsel for which the Purchaser
Indemnified Party reasonably determines counsel is required at the expense of
the Company.  In the event that the Company exercises the right to undertake any
such defense against any such Third Party Claim as provided above, the Purchaser
Indemnified Party shall cooperate with the Company in such defense and make
available to the Company, at the expense of the Company, all witnesses,
pertinent records, materials and information in the Purchaser Indemnified
Party’s possession or under the Purchaser Indemnified Party’s control relating
thereto as is reasonably required by the Company.  Similarly, in the event the
Purchaser Indemnified Party is, directly or indirectly, conducting the defense
against any such Third Party Claim, the Company shall cooperate with the
Purchaser Indemnified Party in such defense and make available to the Purchaser
Indemnified Party, at the expense of the Company, all such witnesses, records,
materials and information in the Company’s possession or under the Company’s
control relating thereto as is reasonably required by the Purchaser Indemnified
Party.  No such Third Party Claim may be settled by the Company without the
prior written consent of the Purchaser Indemnified Party, except if such
settlement constitutes a full and unconditional release of the Purchaser
Indemnified Party.
 
ARTICLE VIII
 
MISCELLANEOUS
 
SECTION 8.01.     Amendment; Waiver.  This Agreement may not be amended,
supplemented, modified or restated except by an instrument in writing signed by,
or on behalf of, the parties hereto or by a waiver in accordance with this
Section 8.01.  Any party to this Agreement may (a) extend the time for the
performance of any of the obligations or other acts of any other party, (b)
waive any inaccuracies in the representations and warranties of any other party
contained herein or in any document delivered by any other party pursuant hereto
or (c) waive compliance with any of the agreements of any other party or
conditions to such party’s obligations contained herein.  Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party to be bound thereby.  Any waiver of any term or condition shall not be
construed as a waiver of any subsequent breach or a subsequent waiver of the
same term or condition, or a waiver of any other term or condition of this
Agreement.  The failure of any party to assert any of its rights hereunder shall
not constitute a waiver of any of such rights.  All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
 
 
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SECTION 8.02.     Confidentiality.  The Purchaser and the Company covenant and
agree that they will not, and they will cause their principals, Affiliates,
officers and other personnel and authorized representatives not to, use
information concerning another party’s business, properties and personnel
received in the course of negotiating this Agreement and investigation in
connection with this transaction and will hold such information (and will cause
the aforesaid persons to hold such information) in confidence until such
information otherwise becomes publicly available or as may be required by
applicable Law.
 
SECTION 8.03.     Expenses.  Except as otherwise specified in this Agreement,
each party hereto shall bear its own costs and expenses incurred in connection
with this Agreement, including the fees and expenses of their respective
accountants and legal counsel.
 
SECTION 8.04.     Notices.  All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by an internationally recognized overnight courier service, by telecopy,
facsimile or registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 8.04):
 
(a)           if to the Company:
 
LaserLock Technologies, Inc.
837 Lindy Lane
Bala Cynwyd, PA 19004
Facsimile:  (610) 668-2771
Attention:  Norman Gardner
Attention:  Neil Alpert
 
with a copy to:
 
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
Facsimile:  (215) 963-5001
Attention:  Justin W. Chairman, Esq.
 
 
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(b)           if to the Purchaser:
 
VerifyMe, Inc.
205 Linda Drive
Daingerfield, TX  75638
Facsimile:  (212) 661-2146
Attention:  Shephard Lane
 
with a copy to:
 
Lane & Seidman LLP
2 Park Avenue, 14th Floor
New York, NY 10016
Facsimile:  (212) 249-6960
Attention:  Vanessa Seidman, Esq.
 
SECTION 8.05.     Severability.  If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect for so long as the economic or
legal substance of the transactions contemplated by this Agreement is not
affected in any manner materially adverse to any party.  Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated by
this Agreement are consummated as originally contemplated to the greatest extent
possible.
 
SECTION 8.06.     Assignment.  This Agreement may not be assigned by the
Company, by operation of law or otherwise, without the express written consent
of the Purchaser (which consent may be granted or withheld in the sole
discretion of the Purchaser).  The Purchaser may assign this Agreement or any of
its rights and obligations hereunder to one or more Affiliates without the
consent of the Company or to a third party with the consent of the Company,
which consent shall not be unreasonably withheld.
 
SECTION 8.07.     Third Party Beneficiaries and Transfers.  Except for the
provisions of Article VII relating to indemnified parties, this Agreement shall
be binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other Person, any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
 
SECTION 8.08.     Governing Law; Consent to Jurisdiction.  This Agreement shall
be governed by, and construed in accordance with, the laws of the State of New
York.  The parties hereto hereby (a) submit to the exclusive jurisdiction of any
state or federal court sitting in the Borough of Manhattan of The City of New
York for the purpose of any action arising out of or relating to this Agreement
brought by any party hereto, and (b) irrevocably waive, and agree not to assert
by way of motion, defense, or otherwise, in any such action, any claim that it
is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that the action
is brought in an inconvenient forum, that the venue of the action is improper,
or that this Agreement or the transactions contemplated by this Agreement may
not be enforced in or by any of the above-named courts.
 
 
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SECTION 8.09.     Waiver of Jury Trial.  Each of the parties hereto hereby
irrevocably waives to the fullest extent permitted by applicable Law any right
it may have to a trial by jury with respect to any litigation directly or
indirectly arising out of, under or in connection with this Agreement or the
Ancillary Agreements.  Each of the parties hereto (a) certifies that no
representative of any other party has represented, expressly or otherwise, that
such other party would not, in the event of litigation, seek to enforce the
foregoing waiver and (b) acknowledges that it and the other parties hereto have
been induced to enter into this Agreement and the Ancillary Agreements, as
applicable, by, among other things, the mutual waivers and certifications in
this Section 8.09.
 
SECTION 8.10.     Entire Agreement.  This Agreement and the Ancillary Agreements
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior agreements and
undertakings, both written and oral, between the Company and the Purchaser with
respect to the subject matter hereof and thereof.
 
SECTION 8.11.     Counterparts.  This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.
 
SECTION 8.12.     Public Announcements.  Subject to its obligations under Law
(including requirements of stock exchanges and other similar regulatory bodies
and the requirements of the Exchange Act), no party hereto shall make any
announcement regarding the entering into of this Agreement or the Closing to the
financial community, governmental entities, employees, customers or the general
public without the prior consent of the other party, which shall not be
unreasonably withheld; provided, that if a party hereto is required by any such
obligations under Law to make any such announcement as contemplated by this
Section 8.12, the parties hereto shall cooperate with each other regarding the
contents and timing of any such announcement, and the non-announcing party shall
have the opportunity to review and comment upon the language of the proposed
announcement in advance of public disclosure.  Any such comments shall be
considered in good faith by the announcing party.
 
SECTION 8.13.     No Termination.  This Agreement may not be terminated or
rescinded for any reason.
 
SECTION 8.14.     Restrictive Legends.  In order to reflect the restrictions on
disposition of the Shares and the Warrants, certificates representing the Shares
and the Warrants will be endorsed with restrictive legends, including a legend
substantially in the following form:
 
“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER
THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER
EVIDENCE SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED.”
 
[Remainder of page intentionally left blank]
 
 
29

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers or other representatives thereunto duly authorized,
as of the date first above written.
 

 
LASERLOCK TECHNOLOGIES, INC.
         
 
By:
/s/Norman A. Gardner
     
Name:  Norman A. Gardner
     
Title:  Chief Executive Officer
 

 
[Signature Page to Investment Agreement]
 
 
 

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VERIFYME, INC.
         
 
By:
/s/ Claudio Ballard
     
Name: Claudio Ballard
     
Title:   President
 

 
[Signature Page to Investment Agreement]
 
 
 

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SCHEDULE 2.05(b)
 
TERMS OF PREFERRED STOCK
 
 
1.
The Preferred Stock shall be senior convertible preferred stock, which shall be
senior to all existing or future preferred stock.

 
 
2.
Stated Amount and Preference: $1,000,000.00.

 
 
3.
Conversion: Convertible into common stock by dividing stated amount per share by
Conversion Price.

 
 
4.
Conversion Price: Initial conversion price equals $0.03, subject to adjustment.

 
 
5.
Adjustment and Anti-Dilution: Conversion price subject to “full ratchet”
adjustment in the event of issuance of Common Stock at a price below the then
applicable conversion price.

 
 
6.
Approval Rights: For two (2) years beginning on the date of the first issuance
of Preferred Stock to the Purchaser, approval of holders of a majority of stated
amount of Preferred Stock shall be required for all significant corporate
actions including, but not limited to: issuance of any securities with a senior
preference on liquidation; incurrence of debt; approval of annual business
plans; sale or acquisitions of assets or businesses; sale, license or other
actions relating to any material intellectual property rights; merger,
reorganization, combination or similar transaction; bankruptcy filing or similar
actions.

 
 
7.
Preference on Liquidation: On any liquidation or deemed liquidation, holders of
Preferred Stock will have the right to receive the stated amount per share of
the Preferred Stock prior to any distribution to holders of Common Stock.

 
 
 

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SCHEDULE 3.11
 
ABSENCE OF CERTAIN CHANGES OR EVENTS; ABSENCE OF UNDISCLOSED LIABILITIES
 
1.           None.
 
 
 

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SCHEDULE 6.05
 
USE OF PROCEEDS
 
The proceeds received by the Company in connection with this Agreement will be
used to pay expenses incurred in the normal course of business consistent with
the Company’s business plan provided to the Purchaser at the earliest stages of
discussion and include expenses such as compensation, insurance, sales and
marketing, research & development, professional fees and working capital.
 
 
 

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EXHIBIT A
 
REGISTRATION RIGHTS AGREEMENT
 
See attached.
 
 
 

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EXHIBIT B
 
FORM OF SUBSCRIPTION AGREEMENT
 
See attached.
 
 
 

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EXHIBIT C
 
WARRANTS
 
See attached.
 
 
 

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EXHIBIT D
 
PRO FORMA CAPITALIZATION TABLE AND BALANCE SHEET
 
See attached.
 
 
 

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EXHIBIT E
 
DISCLOSURES
 
None.