Exhibit 10.1

 

EXCHANGE AGREEMENT

 

THIS EXCHANGE AGREEMENT (the “Agreement”) is dated this 29th day of November,
2016, by and among NXT-ID, INC., a Delaware corporation (the “Company”), all of
the subsidiaries of the Company that are party to the Agreement (collectively,
“Subsidiaries”), and the parties identified on Schedule A hereto (each a
“Holder” collectively the “Holders”).

 

WHEREAS, the Holders beneficially own and hold certain Secured Subordinated
Promissory Notes, as set forth on Exhibit A hereto (the “Original Securities”);
and

 

WHEREAS, the Original Securities were originally issued on July 25, 2016,
(“Original Issue Date”) to LogicMark Investment Partners, LLC, a Delaware
limited liability company (“Original Holder”) and were assigned to the Holders
by the Original Holder simultaneously with the entry of the parties into this
Agreement.

 

WHEREAS, the Holders desire to exchange (the “Exchange”) the Original Securities
for new Secured Subordinated Promissory Notes (the “Exchange Notes”) and
warrants convertible into common stock of the Company (the “Warrants”) (in the
aggregate, the Exchange Notes and the Warrants shall be referred to as the
“Exchange Securities”) of the Company as set forth and memorialized on Exhibit B
hereto, and the Company desires to issue the Exchange Securities in exchange for
the Original Securities, all on the terms and conditions set forth in this
Agreement in reliance on the exemption from registration provided by Section
4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).

 

WHEREAS, the Original Securities are, and the Exchange Notes will be,
subordinated to the Loan and Security Agreement entered into by and between the
Company and the parties signatory thereto (the “Senior Lenders”), dated July 25,
2016.

 

NOW, THEREFORE, in consideration of the terms and conditions contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Company and the Holders hereby agree as follows:

 

Section 1. Exchange. Subject to and upon the terms and conditions set forth in
this Agreement, the Holders agree to surrender to the Company the Original
Securities and, in exchange therefore, the Company shall issue to the Holders
the Exchange Securities.

 

1.1 Closing. On the Closing Date (as defined below), the Company will issue and
deliver (or cause to be issued and delivered) the Exchange Securities to the
Holders, or in the name of a custodian or nominee of the Holders, or as
otherwise requested by the Holders in writing, and the Holders will surrender to
the Company the Original Securities. The closing of the Exchange shall occur as
on the date hereof, or as soon thereafter as the parties may mutually agree in
writing (the “Closing Dates”), subject to the provisions of Section 4 and
Section 5 herein.

 

 

 

1.2 Section 4(a)(2). Assuming the accuracy of the representations and warranties
of each of the Company and the Holders set forth in Sections 2 and 3 of this
Agreement, the parties acknowledge and agree that the purpose of such
representations and warranties is, among other things, to ensure that the
Exchange qualifies as an exchange of securities under Section 4(a)(2) of the
Securities Act.

 

1.3 Legal Opinion. At the Closing the Company shall have a legal opinion of
Company Counsel, substantially in the form of Exhibit C attached hereto. Such
opinion shall opine on the availability of an exemption from registration under
the 1933 Act as it relates to the Exchange, the tacking of the holding period of
the Exchange Securities to the Original Issue Date under Rule 144 and other
matters reasonably requested by the Holders;

 

Section 2. Representations and Warranties of the Company. The Company represents
and warrants to the Holders that:

 

2.1 Organization and Qualification. The Company and each of the subsidiaries of
the Company (the “Subsidiaries”) is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company, nor any Subsidiary is in violation
or default of any of the provisions of its respective certificate or
certificates of incorporation, bylaws or other organizational or charter
documents. Each of the Company and the Subsidiaries is duly qualified to conduct
business and is in good standing as a foreign corporation or other entity in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not have or
reasonably be expected to result in: (i) a material adverse effect on the
legality, validity or enforceability of this Agreement or any documents executed
in connection herewith (the “Transaction Documents”), (ii) a material adverse
effect on the results of operations, assets, business, prospects or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (iii) a material adverse effect on the Company’s ability to perform in any
material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no
proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.

 

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2.2 Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
this Agreement and each of the other Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and each of the other Transaction Documents by the Company and
the consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, the Board of Directors or the
Company’s stockholders in connection herewith or therewith other than in
connection with the Required Approvals (as defined below). This Agreement and
each other Transaction Document to which it is a party has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except: (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

 

2.3 Issuance of Exchange Securities. The issuance of the Exchange Securities is
duly authorized and, upon issuance in accordance with the terms hereof, the
Exchange Securities shall be validly issued, fully paid and non-assessable. The
shares of Common Stock issued upon conversion or exercise of the Exchange
Securities (the “Underlying Shares”), when issued and delivered in accordance
with the terms of the Exchange Securities, will be duly and validly issued,
fully paid and non-assessable, free and clear of all Liens (as defined below)
imposed by the Company, other than restrictions on transfer under applicable
state and federal securities laws. The shares of Common Stock issued upon
exercise of the Exchange Securities, when issued and delivered in accordance
with the terms of the Exchange Securities for the consideration expressed
therein, will be duly and validly issued, fully paid and non-assessable, free
and clear of all Liens imposed by the Company, other than restrictions on
transfer under applicable state and federal securities laws. Upon issuance in
accordance herewith, the issuance by the Company of the Exchange Securities is
exempt from the registration requirements of the Securities Act under Section
4(a)(2) of the Securities Act and all of the shares of Common Stock issuable
upon conversion of the Exchange Securities and upon exercise of the Exchange
Securities will be freely transferable and freely tradable by each Holder
without restriction pursuant to Rule 144 of the Securities Act, assuming the
Holder is not an Affiliate and the holding period requirements of Rule 144 have
been met. The shares of Common Stock issuable upon conversion or exercise, as
applicable, of the Exchange Securities shall not bear any restrictive or other
legends or notations. The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the shares underlying
the Exchange Securities at least equal to 100% of the Required Minimum on the
date hereof. “Required Minimum” means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in the
future pursuant to the Transaction Documents, including any shares of Common
Stock issuable upon exercise in full of all Exchange Securities or conversion in
full of all Exchange Securities (including shares of Common Stock issuable as
payment of interest on the Exchange Securities), ignoring any conversion or
exercise limits set forth therein, and assuming that the Conversion Price or
Exercise Price, as applicable, is at all times on and after the date of
determination 75% of the then Conversion Price or Exercise Price, as applicable,
on the Trading Day immediately prior to the date of determination.

 

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2.4 No Conflicts. The execution, delivery and performance by the Company of this
Agreement and the other Transaction Documents to which it is a party, the
issuance of the Exchange Securities and the consummation by it of the
transactions contemplated hereby and thereby do not and will not: (i) conflict
with or violate any provision of the Company’s or any Subsidiary’s certificate
or certificates of incorporation, bylaws or other organizational or charter
documents, (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result in the
creation of any options, contracts, agreements, liens, security interests, or
other encumbrances (“Liens”) upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the Company or
any Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected to
result in a Material Adverse Effect.

 

2.5 Acknowledgment Regarding the Exchange. The Company acknowledges and agrees
that each Holder is acting solely in the capacity of an arm’s length third party
with respect to this Agreement and the transactions contemplated hereby. The
Company further acknowledges the Holders are not acting as a financial advisor
or fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby, and any advice given by the
Holders or any of their representatives or agents in connection with this
Agreement is merely incidental to the Exchange.

 

2.6 No Commission; No Other Consideration. The Company has not paid or given,
and has not agreed to pay or give, directly or indirectly, any commission or
other remuneration for soliciting the Exchange. The Exchange Securities are
being issued exclusively for the exchange of the Original Securities and no
other consideration has or will be paid for the Exchange Securities.

 

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2.7 4(a)(2) Representation. The Company has not, nor has any person acting on
its behalf, directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would cause
the Exchange and the issuance of the Exchange Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the Securities Act which would prevent the Company from delivering the Exchange
Securities to the Holders pursuant to Section 4(a)(2) of the Securities Act, nor
will the Company take any action or steps that would cause the Exchange,
issuance and delivery of the Exchange Securities to be integrated with other
offerings to the effect that the delivery of the Exchange Securities to the
Holders would be seen not to be exempt pursuant to Section 4(a)(2) of the
Securities Act.

 

2.8 No Third-party Advisors. Other than legal counsel, the Company has not
engaged any third parties to assist in the solicitation with respect to the
Exchange.

 

2.9 SEC Reports; Financial Statements.  The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the
Company under the Securities Act and the Exchange Act of 1934, as amended (the
“Exchange Act”), including pursuant to Section 13(a) or 15(d) of the Exchange
Act, for the two years preceding the date hereof (or such shorter period as the
Company was required by law or regulation to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the “SEC Reports”)
on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such
extension.  As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.  The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the SEC with respect thereto as in effect at the time of
filing.  Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
during the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.

 

2.10 Subsidiaries.  All of the direct and indirect subsidiaries of the Company
are set forth in the SEC Reports.  Other than Liens on the equity interests of
the Subsidiaries held by the Senior Lender, the Holders and the Original Holder,
the Company owns, directly or indirectly, all of the capital stock or other
equity interests of each Subsidiary free and clear of any Liens, and all of the
issued and outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and similar
rights to subscribe for or purchase securities.  If the Company has no
subsidiaries, all other references to the Subsidiaries or any of them in the
Transaction Documents shall be disregarded.

 

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2.11 Filings, Consents and Approvals.  Other than as set forth on Schedule 2.11,
the Company is not required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with, any court
or other federal, state, local or other governmental authority or any natural
person, firm, partnership, association, corporation, company, trust, business
trust or other entity (each, a “Person”) in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) the notice and/or application(s) to each applicable Trading Market for
the issuance and the listing of the shares of Common Stock issuable upon
conversion of the Exchange Securities and the shares of Common Stock issuable
upon exercise of the Exchange Securities for trading thereon in the time and
manner required thereby, and (ii) the filing of Form D with the SEC and such
filings as are required to be made under applicable state securities laws
(collectively, the “Required Approvals”).

 

2.12 Capitalization. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.  Other than as set forth in the SEC
Reports, there are no outstanding options, warrants, scrip rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exercisable or exchangeable for, or
giving any Person any right to subscribe for or acquire any shares of Common
Stock, or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock or any securities of the Company which would entitle the holder
thereof to acquire at any time Common Stock, including, without limitation, any
debt, preferred stock, right, option, warrant or other instrument that is at any
time convertible into or exercisable or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock. All of the outstanding shares of
capital stock of the Company are duly authorized, validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, and none of such outstanding shares was issued in violation of
any preemptive rights or similar rights to subscribe for or purchase
securities.  No further approval or authorization of any stockholder, the Board
of Directors or others is required for the issuance of the Exchange
Securities.  There are no stockholder agreements or other similar agreements
with respect to the Company’s capital stock to which the Company is a party or,
to the knowledge of the Company, between or among any of the Company’s
stockholders.

 

2.13 DTC Eligibility. The Company, through the Transfer Agent, currently
participates in the DTC Fast Automated Securities Transfer (FAST) Program and
the Common Stock can be transferred electronically to third parties via the DTC
Fast Automated Securities Transfer (FAST) Program.

 

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2.14 Material Changes; Undisclosed Events, Liabilities or Developments. Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in a subsequent SEC Report filed prior
to the date hereof: (i) there has been no event, occurrence or development that
has had or that could reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP or disclosed in filings made with the SEC, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholder or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate (as defined below), except pursuant to
existing Company stock option plans. The Company does not have pending before
the SEC any request for confidential treatment of information. Except for the
issuance of the Exchange Securities contemplated by this Agreement, no event,
liability, fact, circumstance, occurrence or development has occurred or exists
or is reasonably expected to occur or exist with respect to the Company or its
Subsidiaries or their respective businesses, properties, operations, assets or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least 1 Trading Day prior to the
date that this representation is made.

 

2.15 Litigation.  Other than as set forth in the SEC Reports, there is no
action, suit, inquiry, notice of violation, proceeding or investigation pending
or, to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Exchange Securities or (ii) could, if there
were an unfavorable decision, have or reasonably be expected to result in a
Material Adverse Effect.  Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action involving
a claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty. There has not been, and to the knowledge of
the Company, there is not pending or contemplated, any investigation by the SEC
involving the Company or any current or former director or officer of the
Company.  The SEC has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.

 

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2.16 Labor Relations.  No labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company, which
could reasonably be expected to result in a Material Adverse Effect.  None of
the Company’s or its Subsidiaries’ employees is a member of a union that relates
to such employee’s relationship with the Company or such Subsidiary, and neither
the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their relationships
with their employees are good.  To the knowledge of the Company, no executive
officer of the Company or any Subsidiary, is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement, or
any other contract or agreement or any restrictive covenant in favor of any
third party, and the continued employment of each such executive officer does
not subject the Company or any of its Subsidiaries to any liability with respect
to any of the foregoing matters.  The Company and its Subsidiaries are in
compliance with all U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in compliance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

 

2.17 Compliance. Except as set forth in the SEC Reports, neither the Company nor
any Subsidiary: (i) is in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any of
its properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any judgment, decree or order of any court,
arbitrator or other governmental authority or (iii) is or has been in violation
of any statute, rule, ordinance or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws relating
to taxes, environmental protection, occupational health and safety, product
quality and safety and employment and labor matters, except in each case as
could not have or reasonably be expected to result in a Material Adverse Effect.

 

2.18 Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any Material Permit.

 

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2.19 Title to Assets.  The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them and good and marketable
title in all personal property owned by them that is material to the business of
the Company and the Subsidiaries, in each case free and clear of all Liens,
except for (i) Liens as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries, (ii) Liens for the payment of
federal, state or other taxes, for which appropriate reserves have been made
therefor in accordance with GAAP and, the payment of which is neither delinquent
nor subject to penalties, (iii) Liens held by the Senior Lender and (iv) Liens
held by the Holders.  Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are in
compliance.

 

2.20 Intellectual Property.  Other than as set forth in the SEC Reports, the
Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
trade secrets, inventions, copyrights, licenses and other intellectual property
rights and similar rights as described in the SEC Reports as necessary or
required for use in connection with their respective businesses and which the
failure to so have could have a Material Adverse Effect (collectively, the
“Intellectual Property Rights”).  None of, and neither the Company nor any
Subsidiary has received a notice (written or otherwise) that any of, the
Intellectual Property Rights has expired, terminated or been abandoned, or is
expected to expire or terminate or be abandoned, within two (2) years from the
date of this Agreement.  Neither the Company nor any Subsidiary has received,
since the date of the latest audited financial statements included within the
SEC Reports, a written notice of a claim or otherwise has any knowledge that the
Intellectual Property Rights violate or infringe upon the rights of any Person,
except as could not have or reasonably be expected to not have a Material
Adverse Effect.  To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights.  The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties, except where failure to do so
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

 

2.21 Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged, including, but not limited to, directors and
officers insurance coverage at least equal to the aggregate principal amount of
the Exchange Securities.  Neither the Company nor any Subsidiary has any reason
to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business without a significant
increase in cost.

 

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2.22 Transactions With Affiliates and Employees.  Except as set forth in the SEC
Reports, none of the officers or directors of the Company or any Subsidiary and,
to the knowledge of the Company, none of the employees of the Company or any
Subsidiary is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from providing for the borrowing of money from or lending of
money to, or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee, stockholder, member or partner, in each case in
excess of $120,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including stock option agreements
under any stock option plan of the Company.

 

2.23 Sarbanes-Oxley; Internal Accounting Controls.  The Company and the
Subsidiaries are in compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and
all applicable rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof and as of the Closing Dates.  The Company and
the Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that: (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company and the Subsidiaries have established
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure
controls and procedures to ensure that information required to be disclosed by
the Company in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC’s rules and forms.  The Company’s certifying officers have evaluated
the effectiveness of the disclosure controls and procedures of the Company and
the Subsidiaries as of the end of the period covered by the most recently filed
periodic report under the Exchange Act (such date, the “Evaluation Date”).  The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date.  Since the Evaluation Date, there have been no changes in the
internal control over financial reporting (as such term is defined in the
Exchange Act) that have materially affected, or is reasonably likely to
materially affect, the internal control over financial reporting of the Company
and its Subsidiaries.

 

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2.24 Certain Fees. No brokerage or finder’s fees or commissions are or will be
payable by the Company or any Subsidiaries to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by the Transaction Documents.

 

2.25 Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Exchange Securities, will not be or
be an Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.  The Company shall conduct its business in a
manner so that it will not become an “investment company” subject to
registration under the Investment Company Act of 1940, as amended.

 

2.26 Registration Rights. Other than as disclosed in the SEC Reports and the
Transaction Documents, no Person has any right to cause the Company to effect
the registration under the Securities Act of any securities of the Company or
any Subsidiaries.

 

2.27 Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the SEC is contemplating
terminating such registration.  Except as set forth in the SEC Reports, the
Company has not, in the 12 months preceding the date hereof, received notice
from the OTCBB or any other exchange or quotation service on which the Common
Stock is or has been listed or quoted (the “Trading Market”) to the effect that
the Company is not in compliance with the listing or maintenance requirements of
such Trading Market. Except as set forth in the SEC Reports, the Company is, and
has no reason to believe that it will not in the foreseeable future continue to
be, in compliance with all such listing and maintenance requirements.

 

2.28 Application of Takeover Protections.  The Company and the Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s certificate of incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Holders as a result of the Holders and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s
issuance of the Exchange Securities pursuant to the Exchange.

 

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2.29 Disclosure. Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company confirms
that neither it nor any other Person acting on its behalf has provided the
Holders or their agents or counsel with any information that it believes
constitutes or might constitute material, non-public information. The Company
understands and confirms that the Holders will rely on the foregoing
representation in effecting transactions in securities of the Company.  All of
the disclosure furnished by or on behalf of the Company to the Holders regarding
the Company and its Subsidiaries, their respective businesses and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when made,
not misleading. The Company acknowledges and agrees that the Holders make no nor
have made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3 hereof.

 

2.30 No Integrated Offering. Assuming the accuracy of the Holders’
representations and warranties set forth in Section 3, neither the Company, nor
any of its Affiliates, nor any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause the Exchange to be
integrated with prior offerings by the Company for purposes of (i) the
Securities Act which would require the registration of any such securities under
the Securities Act, or (ii) any applicable shareholder approval provisions of
any Trading Market on which any of the securities of the Company are listed or
designated.

 

2.31 Solvency. The Company does not intend to incur debts beyond its ability to
pay such debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt).   The SEC Reports set forth as
of the date hereof all outstanding secured and unsecured Indebtedness of the
Company or any Subsidiary, or for which the Company or any Subsidiary has
commitments.  For the purposes of this Agreement, “Indebtedness” means (x) any
liabilities for borrowed money or amounts owed in excess of $50,000 (other than
trade accounts payable incurred in the ordinary course of business), (y) all
guaranties, endorsements and other contingent obligations in respect of
indebtedness of others, whether or not the same, are, or should be, reflected in
the Company’s consolidated balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (z) the present
value of any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Except as set forth in the SEC Reports,
neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.

 

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2.32 Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and its Subsidiaries each (i) has made or filed all United
States federal, state and local income and all foreign income and franchise tax
returns, reports and declarations required by any jurisdiction to which it is
subject, (ii) has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations and (iii) has set aside on its books provision
reasonably adequate for the payment of all material taxes for periods subsequent
to the periods to which such returns, reports or declarations apply. There are
no unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company or of any Subsidiary know
of no basis for any such claim.

 

2.33 Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to
the knowledge of the Company or any Subsidiary, any agent or other person acting
on behalf of the Company or any Subsidiary, has: (i) directly or indirectly,
used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to foreign or domestic political activity, (ii) made
any unlawful payment to foreign or domestic government officials or employees or
to any foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company or any
Subsidiary (or made by any person acting on its behalf of which the Company is
aware) which is  in violation of law or (iv) violated in any material respect
any provision of FCPA.

 

2.34 No Disagreements with Accountants and Lawyers. There are no disagreements
of any kind presently existing, or reasonably anticipated by the Company to
arise, between the Company and the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees owed
to its accountants and lawyers which could affect the Company’s ability to
perform any of its obligations under any of the Transaction Documents.

 

2.35 Acknowledgment Regarding Holders’ Exchange of the Original Securities. The
Company acknowledges and agrees that the Holders are acting solely in the
capacity of an arm’s length party with respect to the Transaction Documents and
the transactions contemplated thereby.

 

2.36 Regulation M Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the issuance or resale of any of the
Exchange Securities or the shares of Common Stock into which the Exchange
Securities are convertible or exercisable, as applicable, (ii) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
Exchange Securities or the shares of Common Stock into which the Exchange
Securities are convertible or exercisable, as applicable, or (iii) paid or
agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of the Company.

 

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2.37 Office of Foreign Assets Control. Neither the Company nor any Subsidiary
nor, to the Company's knowledge, any director, officer, agent, employee or
affiliate of the Company or any Subsidiary is currently subject to any U.S.
sanctions administered by the Office of Foreign Assets Control of the U.S.
Treasury Department (“OFAC”).

 

2.38 Bank Holding Company Act.  Neither the Company nor any of its Subsidiaries
or Affiliates is subject to the Bank Holding Company Act of 1956, as amended
(the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve
System (the “Federal Reserve”).  Neither the Company nor any of its Subsidiaries
or Affiliates owns or controls, directly or indirectly, five percent (5%) or
more of the outstanding shares of any class of voting securities or twenty-five
percent or more of the total equity of a bank or any entity that is subject to
the BHCA and to regulation by the Federal Reserve.  Neither the Company nor any
of its Subsidiaries or Affiliates exercises a controlling influence over the
management or policies of a bank or any entity that is subject to the BHCA and
to regulation by the Federal Reserve.

 

2.39 Money Laundering.  The operations of the Company and its Subsidiaries are
and have been conducted at all times in compliance with applicable financial
record-keeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, applicable money laundering
statutes and applicable rules and regulations thereunder (collectively, the
“Money Laundering Laws”), and no action, suit or proceeding by or before any
court or governmental agency, authority or body or any arbitrator involving the
Company or any Subsidiary with respect to the Money Laundering Laws is pending
or, to the knowledge of the Company or any Subsidiary, threatened.

 

Section 3. Representations and Warranties of the Holders. Each Holder, for
itself only represents and warrants, severally and not jointly, to the Company
that:

 

3.1 Ownership of the Original Securities. The Holder is the legal and beneficial
owner of its pro rata portion the Original Securities. The Holder paid for the
Original Securities, and has continuously held the Securities since its
purchase. The Holder, individually or through an affiliate, owns its pro rata
portion of the Original Securities outright and free and clear of any options,
contracts, agreements, liens, security interests, or other encumbrances.

 

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3.2 No Public Sale or Distribution. The Holder is acquiring the Exchange
Securities in the ordinary course of business for its own account and not with a
view toward, or for resale in connection with, the public sale or distribution
thereof; provided, however, that by making the representations herein, the
Holder does not agree to hold any of the Exchange Securities or the shares of
Common Stock into which such securities are convertible or exercisable, as
applicable, for any minimum or other specific term and reserves the right to
dispose of the Exchange Securities and the Underlying Shares at any time in
accordance with an exemption from the registration requirements of the
Securities Act and applicable state securities laws. Except as contemplated
herein, the Holder does not presently have any agreement or understanding,
directly or indirectly, with any person to distribute, or transfer any interest
or grant participation rights in, the Original Securities or the Exchange
Securities.

 

3.3 Accredited Investor and Affiliate Status. The Holder is an “accredited
investor” as that term is defined in Rule 501 of Regulation D under the
Securities Act. The Holder is not, and has not been, for a period of at least
three months prior to the date of this Agreement (a) an officer or director of
the Company, (b) an “affiliate” of the Company (as defined in Rule 144) (an
“Affiliate”) or (c) a “beneficial owner” of more than 10% of the common stock
(as defined for purposes of Rule 13d-3 of the Exchange Act).

 

3.4 Reliance on Exemptions. The Holder understands that the Exchange is being
made in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
in part upon the truth and accuracy of, and the Holder’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Holder set forth herein in order to determine the availability of such
exemptions and the eligibility of the Holder to complete the Exchange and to
acquire the Exchange Securities.

 

3.5 Information. The Holder has been furnished with all materials relating to
the business, finances and operations of the Company and materials relating to
the Exchange which have been requested by the Holder. The Holder has been
afforded the opportunity to ask questions of the Company. Neither such inquiries
nor any other due diligence investigations conducted by the Holder or its
representatives shall modify, amend or affect the Holder’s right to rely on the
Company’s representations and warranties contained herein. The Holder
acknowledges that all of the documents filed by the Company with the SEC under
Sections 13(a), 14(a) or 15(d) of the Exchange Act that have been posted on the
SEC’s EDGAR site are available to the Holder, and the Holder has not relied on
any statement of the Company not contained in such documents in connection with
the Holder’s decision to enter into this Agreement and the Exchange.

 

3.6 Risk. The Holder understands that its investment in the Exchange Securities
involves a high degree of risk. The Holder is able to bear the risk of an
investment in the Exchange Securities including, without limitation, the risk of
total loss of its investment. The Holder has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment
decision with respect to the Exchange. There is no assurance that the Exchange
Securities or any securities into which the Exchange Securities may convert will
continue to be quoted, traded or listed for trading or quotation on the OTCBB or
on any other organized market or quotation system.

 

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3.7 No Governmental Review. The Holder understands that no United States federal
or state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement in connection with the Exchange or the
fairness or suitability of the investment in the Exchange Securities nor have
such authorities passed upon or endorsed the merits of the Exchange Securities.

 

3.8 Organization; Authorization. The Holder is duly organized, validly existing
and in good standing under the laws of its state of formation and has the
requisite organizational power and authority to enter into and perform its
obligations under this Agreement.

 

3.9 Validity; Enforcement. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Holder and shall constitute the legal,
valid and binding obligations of the Holder enforceable against the Holder in
accordance with its terms. The execution, delivery and performance of this
Agreement by the Holder and the consummation by the Holder of the transactions
contemplated hereby (including, without limitation, the irrevocable surrender of
the Original Securities) will not result in a violation of the organizational
documents of the Holder.

 

3.10 Prior Investment Experience. The Holder acknowledges that it has prior
investment experience, including investment in securities of the type being
exchanged, including the Original Securities and the Exchange Securities, and
has read all of the documents furnished or made available by the Company to it
and is able to evaluate the merits and risks of such an investment on its
behalf, and that it recognizes the highly speculative nature of this investment.

 

3.11 Tax Consequences. The Holder acknowledges that the Company has made no
representation regarding the potential or actual tax consequences for the Holder
which will result from entering into the Agreement and from consummation of the
Exchange. The Holder acknowledges that it bears complete responsibility for
obtaining adequate tax advice regarding the Agreement and the Exchange.

 

3.12 No Registration, Review or Approval. The Holder acknowledges, understands
and agrees that the Exchange Securities are being exchanged hereunder pursuant
to an exchange offer exemption under Section 4(a)(2) of the Securities Act.

 

Section 4. Conditions Precedent to Obligations of the Company. The obligation of
the Company to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of each of the following conditions, provided that
these conditions are for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion by providing the Holders with prior
written notice thereof:

 

4.1 Delivery. The Holders shall have delivered to the Company the Original
Securities.

 

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4.2 No Prohibition. No order of any court, arbitrator, or governmental or
regulatory authority shall be in effect which purports to enjoin or restrain any
of the transactions contemplated by this Agreement; and

 

4.3 Representations. The accuracy in all material respects when made and on the
applicable Closing Dates of the representations and warranties of the Holders
contained herein (unless as of a specific date therein);

 

Section 5. Conditions Precedent to Obligations of the Holders. The obligation of
the Holders to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of each of the following conditions, provided that
these conditions are for the Holders’ sole benefit and may be waived by the
Holders at any time in its sole discretion by providing the Company with prior
written notice thereof:

 

5.1 No order of any court, arbitrator, or governmental or regulatory authority
shall be in effect which purports to enjoin or restrain any of the transactions
contemplated by this Agreement;

 

5.2 the representations and warranties of the Company (i) shall be true and
correct in all material respects when made and on the applicable Closing Dates
(unless as of a specific date therein) for such representations and warranties
contained herein that are not qualified by “materiality” or “Material Adverse
Effect” and (ii) shall be true and correct when made and on the applicable
Closing Dates (unless as of specific date therein) for such representations and
warranties contained herein that are qualified by “materiality” or “Material
Adverse Effect”;

 

5.3 all obligations, covenants and agreements of the Company required to be
performed at or prior to the applicable Closing Dates shall have been performed;
and

 

5.4 from the date hereof to the relevant Closing Dates, trading in the Company’s
common stock shall not have been suspended by the SEC or any Trading Market and,
at any time prior to the Closing Dates, trading in securities generally as
reported by Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported
by such service, or on any trading market, nor shall a banking moratorium have
been declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of hostilities or
other national or international calamity of such magnitude in its effect on, or
any material adverse change in, any financial market which, in each case, in the
reasonable judgment of the Holders makes it impracticable or inadvisable to
purchase the Exchange Securities at the closing.

 

Section 6. Holding Period. For the purposes of Rule 144 of the Securities Act,
the Company acknowledges that the holding period of the Exchange Securities may
be tacked on the holding period of the Original Securities, and the Company
agrees not to a position contrary to this Section 6.

 

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Section 7. Other Agreements between the Parties.

 

7.1 At any time during the period commencing from the date hereof and ending at
such time that all of the Exchange Securities and Underlying Shares may be sold
without the requirement for the Company to be in compliance with Rule 144(c)(1)
and otherwise without restriction or limitation pursuant to Rule 144, if the
Company shall fail for any reason to satisfy the current public information
requirement under Rule 144(c) (a “Public Information Failure”) then, in addition
to such Holder’s other available remedies, the Company shall pay to an Holder,
in cash, as partial liquidated damages and not as a penalty, by reason of any
such delay in or reduction of its ability to sell the Securities, an amount in
cash equal to two percent (2.0%) of the aggregate principal amount of Exchange
Notes of such Holder’s Exchange Securities on the day of a Public Information
Failure and on every thirtieth (30th) day (pro rated for periods totaling less
than thirty days) thereafter until the earlier of (a) the date such Public
Information Failure is cured and (b) such time that such public information is
no longer required  for the Holders to transfer the Underlying Shares pursuant
to Rule 144.  The payments to which an Holder shall be entitled pursuant to this
Section 4.3(b) are referred to herein as “Public Information Failure Payments.” 
Public Information Failure Payments shall be paid on the earlier of (i) the last
day of the calendar month during which such Public Information Failure Payments
are incurred and (ii) the third (3rd) Business Day after the event or failure
giving rise to the Public Information Failure Payments is cured.  In the event
the Company fails to make Public Information Failure Payments in a timely
manner, such Public Information Failure Payments shall bear interest at the rate
of 1.5% per month (prorated for partial months) until paid in full. Nothing
herein shall limit such Holder’s right to pursue actual damages for the Public
Information Failure, and such Holder shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.

 

7.2 Integration. The Company shall not sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated with the Exchange of the
Original Securities in a manner that would require the registration under the
Securities Act of the sale of the Exchange Securities or that would be
integrated with the offer of the Exchange Securities for purposes of the rules
and regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.

 

7.3 The Company shall (a) by 9:00 a.m. (New York City time) on the Trading Day
immediately following the date hereof, issue a press release disclosing the
material terms of the transactions contemplated hereby and (b) file a Current
Report on Form 8-K, including the Transaction Documents as exhibits thereto,
with the Commission on or prior to the second (2nd) Trading Day immediately
following the date hereof. From and after the issuance of such press release the
Company represents to the Holders that it shall have publicly disclosed all
material, non-public information delivered to any of the Holders by the Company
or any of its Subsidiaries, or any of their respective officers, directors,
employees or agents in connection with the transactions contemplated by the
Transaction Documents. The Company and each Holder shall consult with each other
in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Holder shall issue any such
press release nor otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Holder, or
without the prior consent of each Holder, with respect to any press release of
the Company, which consent shall not unreasonably be withheld or delayed, except
if such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Holder, or include the name of any Holder in any filing
with the Commission or any regulatory agency or Trading Market, without the
prior written consent of such Holder, except: (a) as required by federal
securities law in connection with the filing of final Transaction Documents with
the Commission and (b) to the extent such disclosure is required by law or
Trading Market regulations, in which case the Company shall provide the Holders
with prior notice of such disclosure permitted under this clause (b).

 

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7.3 Indemnification of Holders. Subject to the provisions of this Section 4.10,
the Company will indemnify and hold each Holder and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Holder (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Holder Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Holder Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against the Holder
Parties in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Holder Party, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Holder Party’s
representations, warranties or covenants under the Transaction Documents or any
agreements or understandings such Holder Party may have with any such
stockholder or any violations by such Holder Party of state or federal
securities laws or any conduct by such Holder Party which constitutes fraud,
gross negligence, willful misconduct or malfeasance). If any action shall be
brought against any Holder Party in respect of which indemnity may be sought
pursuant to this Agreement, such Holder Party shall promptly notify the Company
in writing, and the Company shall have the right to assume the defense thereof
with counsel of its own choosing reasonably acceptable to the Holder Party. Any
Holder Party shall have the right to employ separate counsel in any such action
and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Holder Party except to the extent that
(i) the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of counsel, a material conflict on any material issue between
the position of the Company and the position of such Holder Party, in which case
the Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Holder
Party under this Agreement (y) for any settlement by an Holder Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (z) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Holder Party’s breach of any
of the representations, warranties, covenants or agreements made by such Holder
Party in this Agreement or in the other Transaction Documents. The
indemnification required by this Section 4.10 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as and
when bills are received or are incurred. The indemnity agreements contained
herein shall be in addition to any cause of action or similar right of any
Holder Party against the Company or others and any liabilities the Company may
be subject to pursuant to law.

 

7.4 The Company shall maintain a reserve from its duly authorized shares of
Common Stock for issuance pursuant to the Transaction Documents in such amount
as may then be required to fulfill its obligations in full under the Transaction
Documents.

 

7.5 Replacement of Securities. If any certificate or instrument evidencing any
of the Exchange Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof (in the case of mutilation), or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.

 

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7.6 Usury. To the extent it may lawfully do so, the Company hereby agrees not to
insist upon or plead or in any manner whatsoever claim, and will resist any and
all efforts to be compelled to take the benefit or advantage of, usury laws
wherever enacted, now or at any time hereafter in force, in connection with any
claim, action or proceeding that may be brought by any Holder in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum Rate”),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date thereof forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to any Holder with respect to indebtedness
evidenced by the Transaction Documents, such excess shall be applied by such
Holder to the unpaid principal balance of any such indebtedness or be refunded
to the Company, the manner of handling such excess to be at such Holder’s
election.

 

7.7 Independent Nature of Holders’ Obligations and Rights. The obligations of
each Holder under any Transaction Document are several and not joint with the
obligations of any other Holder, and no Holder shall be responsible in any way
for the performance or non-performance of the obligations of any other Holder
under any Transaction Document. Nothing contained herein or in any other
Transaction Document, and no action taken by any Holder pursuant hereto or
thereto, shall be deemed to constitute the Holders as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Holders are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction
Documents. Each Holder shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Holder to be joined as an additional party in any
proceeding for such purpose. Each Holder has been represented by its own
separate legal counsel in its review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, each Holder and its
respective counsel have chosen to communicate with the Company through Grushko &
Mittman, P.C. (“G&M”). G&M does not represent any of the Holders and only
represents Alpha Capital Anstalt. The Company has elected to provide all Holders
with the same terms and Transaction Documents for the convenience of the Company
and not because it was required or requested to do so by any of the Holders.

 

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7.8 Issuances of Common Stock. At any time during the period commencing from the
date hereof and ending at such time that all of the Exchange Securities and
Underlying Shares are no longer held by the Holders, the Company shall not issue
any shares of its common stock at a price below $3.00 without the consent of the
Holders of a majority of then outstanding Exchange Notes.

 

7.9 The Company shall at all times reserve not less than 150% of the shares
necessary to convert the Exchange Notes.

 

7.10 The Company shall at all times maintain a listing for its common stock on a
trading market and ensure not regulatory or judicial stop orders are entered
against trading its common stock.

 

7.11 The Company shall ensure that no monetary judgment, writ or similar final
process shall be entered or filed against the Company, any subsidiary or any of
their respective property or other assets for more than $150,000, and such
judgment, writ or similar final process shall remain unvacated, unbonded or
unstayed for a period of 45 calendar days.

 

Section 8. Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement
shall be construed under the laws of the state of New York, without regard to
principles of conflicts of law or choice of law that would permit or require the
application of the laws of another jurisdiction. The Company and the Holders
each hereby agrees that all actions or proceedings arising directly or
indirectly from or in connection with this Agreement shall be litigated only in
the Supreme Court of the State of New York or the United States District Court
for the Southern District of New York located in New York County, New York. The
Company and the Holders each consents to the exclusive jurisdiction and venue of
the foregoing courts and consents that any process or notice of motion or other
application to either of said courts or a judge thereof may be served inside or
outside the State of New York or the Southern District of New York by generally
recognized overnight courier or certified or registered mail, return receipt
requested, directed to such party at its or his address set forth below (and
service so made shall be deemed “personal service”) or by personal service or in
such other manner as may be permissible under the rules of said courts. THE
COMPANY AND THE HOLDERs EACH HEREBY WAIVES ANY RIGHT TO A JURY TRIAL IN
CONNECTION WITH ANY LITIGATION PURSUANT TO THIS AGREEMENT.

 

Section 9. Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.

 

Section 10. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

 

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Section 11. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

 

Section 12. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

 

Section 13. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Holders, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein. No provision of this Agreement may be amended other
than by an instrument in writing signed by the Company and the Holders. No
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought.

 

Section 14. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (a) upon receipt, when
delivered personally; (b) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (c) one calendar day (excluding
Saturdays, Sundays, and national banking holidays) after deposit with an
overnight courier service, in each case properly addressed to the party to
receive the same.

 

The addresses and facsimile numbers for such communications shall be:

 

If to the Company:

 

Nxt-ID, Inc.

285 North Drive, Suite D

Melbourne, FL 32934

Attn: Gino M. Pereira, Chief Executive Officer

 

If to the Holders:

 

to the addresses set forth on Schedule A.

 

or to such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.

 

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Section 15. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Exchange Securities. The Holders may assign some
or all of its rights hereunder without the consent of the Company, in which
event such assignee shall be deemed to be the Holder hereunder with respect to
such assigned rights.

 

Section 16. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

 

Section 17. Survival of Representations. The representations and warranties of
the Company and the Holders contained in Sections 2 and 3, respectively, will
survive the closing of the transactions contemplated by this Agreement.

 

Section 18. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

[Signature Page Follows]

 

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

 

NXT-ID, INC.         By:     Name: Gino M. Pereira   Title: Chief Executive
Officer         3D-ID, LLC         By:     Name: Gino M. Pereira   Title:
Manager         Logicmark, LLC         By:     Name: Gino M. Pereira   Title:
Manager  

 

[Company signature page to the Exchange Agreement]

 

24

 

 

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

 

HOLDER NAME:

 

 

 

 

By:     Name:     Title:           Address:                     Fax:            
    Email:                      

 

[Holder signature page to the Exchange Agreement]

 

25

 

 

 

SCHEDULE A

 

Holders

 

 

 

 

26

 

 

EXHIBIT A

 

Convertible Notes

 

 

 

 

27

 

 

 

EXHIBIT B

 

Form of and Schedule of Exchanged Securities

 

 

 

 

28

 

 

EXHIBIT C

 

Form of Legal Opinion

 

 

 

 

29