EXCHANGE AGREEMENT

EXCHANGE AGREEMENT (this “Agreement”), dated as of July 9, 2009, by and between
Suspect Detection Systems Inc., a Delaware corporation (the “Company”), and
NG-The Northern Group LP (the "Investor").

WHEREAS, upon and as a result of the consummation of the transactions
contemplated by the Investment Agreement dated as of December 18, 2008 between
the Company and Suspect Detection Systems (SDS) Ltd., a company incorporated in
the State of Israel (“SDS”), the Investor was issued 170,295 Ordinary Shares of
SDS (the “SDS Shares”);

WHEREAS, the Investor now desires to exchange all the SDS Shares for 3,199,891
shares of common stock of the Company (the “Shares”), and the Company is willing
to exchange the SDS Shares for the Shares and the issuance of warrants to
purchase additional shares of common stock of the Company, on the terms and
provisions provided for in this Agreement;

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:

1.           Exchange of SDS Shares for the Shares.  Simultaneous with the
execution and deliver of this Agreement, (a) the Investor shall deliver to the
Company (i) a stock certificate evidencing the SDS Shares, duly endorsed in
blank or accompanied by stock powers duly executed in blank or other instruments
of transfer in form and substance reasonably satisfactory to the Company, and
(ii) resolutions authorizing the transaction contemplated herein and the
exchange of the SDS Shares for the Shares and (b) the Company shall deliver to
the Investor (i) a stock certificate representing the Shares and (ii) a warrant
agreement in the form attached hereto as Exhibit A (the “Warrant”). Within 72
hours of the execution of this Agreement the Investor shall notify the Israeli
Registrar of his transfer of the Shares to the Company.

2.           Representations and Warranties of the Investor. As an inducement to
the Company to enter into this Agreement and to issue the Shares and the Warrant
to the Investor, the Investor hereby represents and warrants to the Company as
follows:

(a)           The Investor is the sole record and beneficial owner of the SDS
Shares and has good and marketable title to said shares, free and clear of all
liens, encumbrances, claims, charges, and any rights of third parties. Other
than as set forth in this Agreement, there are no stockholders’ agreements,
voting trust, proxies, options, rights of first refusal, claims or other
commitments or rights or any other agreements or understandings with respect to
the SDS Shares subject to rights of first refusal as to which the Investor shall
deliver waivers from all the other shareholders simultaneous with the execution
and delivery of this Agreement.

(b) The Investor has the absolute and unrestricted right, power, legal capacity
and authority to enter into and perform its obligations under this Agreement, to
carry out its obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Investor. The execution, delivery and performance of this Agreement have been
duly and validly approved and authorized by all necessary action on the part of
the Investor. The general partner and the partners of the Investor have approved
the execution, delivery and performance of this Agreement.

 
 

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(c)   No filing with, authorization from or consent or approval of any
governmental body, agency, official or authority or any other third party is
necessary or required to be made or obtained to enable the Investor to enter
into, and to perform its obligations under, this Agreement. Assuming the due
authorization, execution and delivery by the Company, this Agreement, when
executed and delivered by the Company constitutes a valid and binding obligation
of the Investor, enforceable against it in accordance with its terms. The
individual executing this Agreement on behalf of the Investor has been duly
authorized by all necessary and appropriate action on behalf of the Investor.

(d)           Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will conflict with, or
(with or without notice or lapse of time, or both) result in a termination,
breach or violation of (a) any provision of the Partnership Agreement or other
charter documents of the Investor, as currently in effect, (b) any instrument,
contract or agreement to which the Investor is a party or by which it is bound,
or (c) any law, ordinance, judgment, decree, order, statute, or regulation, or
that of any other governmental body or authority, applicable to the Investor or
its assets or properties.

(e)           The Investor is not party to or threatened with, any litigation,
suit, action, investigation, proceeding or controversy before any court,
administrative agency or other governmental authority relating to or affecting
the SDS Shares.
 
(f)           The Investor is an “accredited investor”, as such term is defined
in Rule 501 of the Securities and Exchange Commission (the “SEC”) promulgated
under the Securities Act of 1933, as amended (the “Securities Act) or is exempt
by any other applicable provision of the applicable securities laws.
 
(g)           The Investor understands that an investment in the Shares, the
Warrant and the shares of common stock issuable upon due exercise of the Warrant
(the “Warrant Shares’, and together with the Shares and the Warrant, the
“Securities”) is a speculative investment which involves a high degree of risk
and the potential loss of its entire investment.
 
(h)           The Investor has received all documents, books and other
information pertaining to its exchange of its SDS Shares for the Securities that
has been requested by the Investor, including without limitation, the SEC
filings made by the Company.
 
(i)  At no time was the Investor presented with or solicited by any leaflet,
newspaper or magazine article, radio or television advertisement, or any other
form of general advertising or solicited or invited to attend a promotional
meeting otherwise than in connection and concurrently with such communicated
offer.

(j)  The Investor is (i) experienced in making investments of the kind described
in this Agreement, (ii) able, by reason of its business and financial experience
to protect its own interests in connection with the investment in the
Securities, and (iii) able to afford the entire loss of its investment in the
Shares.

 
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(k)  The Investor understands that none of the Shares, Warrant or the Warrant
Shares  have not been registered under the Securities Act or registered or
qualified under any the securities laws of any state or other jurisdiction, are
“restricted securities,” and cannot be resold or otherwise transferred unless
they are registered under the Securities Act, and registered or qualified under
any other applicable securities laws, or an exemption from such registration and
qualification is available.  The certificate for the Shares shall bear a legend
to the foregoing effect.

(l)  The Investor is acquiring the Securities for its own account as principal,
not as a nominee or agent, for investment purposes only, and not with a view to,
or for, resale, distribution or fractionalization thereof in whole or in part
and no other person has a direct or indirect beneficial interest in the
Securities the Investor is acquiring herein.  Further, the Investor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to the Securities the Investor is acquiring.

(m)      The Investor understands that the Company is under no obligation to
register any of the Securities under the Securities Act, or to assist the
Investor in complying with the Securities Act or the securities laws of any
state of the United States or of any foreign jurisdiction. The Investor
understands that the Securities can be sold under Rule 144 or any other
exemption, provided such exemption is applicable and provided that such sale is
made pursuant to the terms of the Lock-Up Agreement attached hereto.

3.           Representations and Warranties of the Company.  As an inducement to
the Investor to enter into this Agreement, the Company hereby represents and
warrants to the Investor as follows:

(a)  The Company is duly organized, validly existing and in good standing under
the applicable laws of the state of its incorporation and has full power and
authority to own, lease, use and operate its properties and to carry on its
business as and where now owned, leased, used, operated and conducted.

(b)  The execution and delivery of this Agreement, and the transaction
contemplated hereby and thereby, have been duly approved by the board of
directors of the Company and does not require the approval of the shareholders
of the Company.  This Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
the terms hereof and thereof except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting
the rights of creditors generally and by general principles of equity.

(c) All consents, approvals, authorizations and orders, required for the
consummation by the Company of any of the transactions on its part contemplated
under this Agreement have been obtained.

 
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(d)  None of the execution, delivery, or performance of this Agreement and the
consummation of the transaction contemplated hereby, conflicts or will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach or violation of (i) to the best of the Company’s knowledge,
any instrument, contract or agreement to which the Company is a party or by
which it or its assets is bound; (ii) the certificate of incorporation and
by-laws of the Company, or (iii) to the best of the Company’s knowledge, any
federal, state, local or foreign law, ordinance, judgment, decree, order,
statute, or regulation, or that of any other governmental body or authority,
applicable to the Company.

(e)       The Shares, when issued to the Investor in consideration for the SDS
Shares, will have been duly authorized, fully paid and non-assessable. The
Warrant Shares, when issued to the Investor upon the due exercise of the
Warrant, will be duly authorized, fully paid and non-assessable.

 
(f)           The Company understands that an investment in the SDS Shares is a
speculative investment which involves a high degree of risk and the potential
loss of its entire investment.  The Company made any and all inquiries as to the
business of SDS and is making the investment not relying on any way on any
representations by the Investor as to the business and/or financial affairs of
SDS.

4.      Indemnification; Survival.

4.1           Indemnification.  The Investor shall indemnify and hold harmless
the Company, its agents, beneficiaries, affiliates, representatives and their
respective successors and assigns (collectively, the “Company Indemnified
Persons”) from and against any and all damages, losses, liabilities, taxes,
costs and expenses (including, without limitation, attorneys’ fees and costs)
(collectively, “Losses”) resulting directly or indirectly from (a) any
inaccuracy, misrepresentation, breach of warranty or non-fulfillment of any of
the representations and warranties made by the Investor and contained in this
Agreement, or any actions, omissions or statements of fact inconsistent in any
material respect with any such representation or warranty, (b) any failure on
the part of the Investor to perform or comply with any agreement, covenant or
obligation in this Agreement; provided, however, that the indemnification
pursuant to this Section 4.1 shall terminate on the second anniversary of the
Closing Date, and it shall have no further force or effect thereafter,
notwithstanding anything to the contrary contained in any provision of this
Agreement or applicable law and further provided that in any event the amount of
the indemnification may not exceed US$250,000 in the aggregate.

The Company shall indemnify the Investor, its agents, beneficiaries, affiliates,
representatives, shareholders and their respective successors and assigns, and
hold each of them harmless from and against any and all Losses resulting
directly or indirectly from (A) any inaccuracy, misrepresentation, breach of
warranty or non-fulfillment of any of the representations and warranties of the
Company in this Agreement, or any actions, omissions or statements of fact
inconsistent in any material respect with any such representation or warranty,
(B) any failure by the Company to perform or comply with any agreement, covenant
or obligation in this Agreement; provided, however, that the indemnification
provided by the Company pursuant to this Section 3.1 shall terminate on the
second anniversary of the Closing Date, and it shall have no further force or
effect thereafter, notwithstanding anything to the contrary contained in any
provision of this Agreement or applicable law and further provided that in any
event the amount of the indemnification may not exceed US$250,000 in the
aggregate.

 
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The provisions of this Section 4.1 shall be the sole and exclusive remedy for
breaches of the matters set forth in said Section.

4.2      Survival.  Unless otherwise stated in this Agreement, all covenants and
agreements of the parties contained herein or in any other certificate or
document delivered pursuant hereto shall survive the date hereof until the later
of the expiration of the applicable statute of limitations or the second
anniversary of the date hereof.

5.       Miscellaneous.

 5.1           Further Assurances.  From time to time, each party shall make
reasonable commercial efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, all things reasonably necessary, proper or advisable,
including as required by applicable laws, to consummate and make effective as
promptly as practicable the transaction contemplated by this Agreement.

5.2           Notices.  All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed duly given (a) if by
personal delivery, when so delivered, (b) if mailed, three (3) business days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid and addressed to the intended recipient as set forth
below (or ten (10) business days if the address to which such notice is
addressed is not in the same country in which such notice is mailed), or (c) if
sent through an overnight delivery service in circumstances to which such
service guarantees next day delivery, the second day following being so sent to
the addresses of the parties as indicated on the signature page hereto. Any
party may change the address to which notices and other communications hereunder
are to be delivered by giving the other party notice in the manner herein set
forth.

5.3           Choice of Law.  This Agreement shall be governed, construed and
enforced in accordance with the laws of the State of New York, without giving
effect to principles of conflicts of law.

5.4           Jurisdiction.  The Parties hereby irrevocably consent to the in
personam jurisdiction and venue of the courts of the State of New York and of
any federal court located in such State in connection with any action or
proceeding arising out of or relating to this Agreement, any document or
instrument delivered pursuant to, in connection with or simultaneously with this
Agreement, or a breach of this Agreement or any such document or
instrument.  EACH PARTY HERETO WAIVES TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY BREACH OR ALLEGED BREACH HEREOF.

 
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5.5           Entire Agreement.  This Agreement sets forth the entire agreement
and understanding of the Parties in respect of the transaction contemplated
hereby and supersedes all prior and contemporaneous  agreements, arrangements
and understandings of the parties relating to the subject matter hereof.  No
representation, promise, inducement, waiver of rights, agreement or statement of
intention has been made by any of the parties which is not expressly embodied in
this Agreement.

5.6           Assignment. Each party's rights and obligations under this
Agreement shall not be assigned or delegated, by operation of law or otherwise,
without the other party’s prior written consent, and any such assignment or
attempted assignment without the other party’s prior written consent shall be
void, of no force or effect, and shall constitute a material default by such
party.

5.7           Amendments.  This Agreement may be amended, modified, superseded
or cancelled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
parties hereto.

5.8           Waivers.  The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect the right at a
later time to enforce the same.  No waiver by any party of any condition, or the
breach of any term, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be deemed to be or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other term, covenant, representation or
warranty of this Agreement.

5.9           Counterparts.  This Agreement may be executed simultaneously in
two or more counterparts and by facsimile, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.

5.10           Severability.   If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated so
long as the economic or legal substance of the transaction contemplated hereby
is not affected in any manner materially adverse to any party. Upon such
determination, the parties shall negotiate in good faith to modify this
Agreement so as to give effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transaction contemplated
hereby are consummated as originally contemplated to the fullest extent
possible.

5.11           Interpretation.   The parties agree that this Agreement shall be
deemed to have been jointly and equally drafted by them, and that the provisions
of this Agreement therefore shall not be construed against a party or parties on
the ground that such party or parties drafted or was more responsible for the
drafting of any such provision(s). The parties further agree that they have each
carefully read the terms and conditions of this Agreement, that they know and
understand the contents and effect of this Agreement and that the legal effect
of this Agreement has been fully explained to their satisfaction by counsel of
their own choosing.  The various paragraph and/or section headings in this
Agreement are for reference and convenience only and shall not be considered in
the interpretation hereof for any purpose and in no way alter, modify, amend,
limit, or restrict any contractual obligations of the parties.

 
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IN WITNESS WHEREOF, the parties have duly executed this Exchange Agreement as of
the date first above written.

SUSPECT DETECTION SYSTEMS INC.
 
By:
/s/ Asher Zwebner
 
Name: Asher Zwebner
Title: CFO and Interim CEO
 
NG – The Northern Group LP
 
By:
/s/ Amiram Levin  
Name: Amiram Levin
Title: Chief Executive Officer

 
 
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