Document:

f8k032411ex10i_suspect.htm

Exhibit 10.11

 

THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR TRANSFERRED ABSENT SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND APPLICABLE STATE LAWS.

 

 

CONVERTIBLE NOTE

 

New York, New York

March 21, 2011

 

 

FOR VALUE RECEIVED, Suspect Detection Systems Inc. (the “Company”), promises to pay to the order of Ms. Tamar Shefet (the “Lender”) in United States dollars in immediately available funds the principal amount of three hundred thousand U.S Dollar (300,000$) (the “Loan”) on the Maturity Date together with interest thereon at the rate of 10.00% per annum.

 

	
1.        

	
Extension of Credit.

	
a.  

	
The Lender agrees to make available to the Borrower in United States dollars in immediately available funds the Loans on the date (the “Closing Date”) that five (5) Business Days after the Borrower shall give notice to the Lender of its intent to borrow the Loans.  The Lender shall make available the Loans available to the Borrower by crediting an account as directed by the Borrower with the aggregate amount of the Loans.

	
b.  

	
On the Closing Date to induce the Lender to make the Loan and a condition precedent to the making of such Loan, the Borrower shall represent and warrant to the Lender as follows:

	
i.  

	
The Borrower is (x) duly organized, validly existing and in good standing under the laws of the State of Delaware and (y) in compliance with all requirements of law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a material adverse effect.

	
ii.  

	
The Borrower has the authority and power, and the legal right, to make, delivers and perform the Note and borrow thereunder.  The Note, when executed, will constitute a legal, valid and binding obligation of the Borrower, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

  

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2.        

	
Payments on the Note.

	
a.  

	
The Loan will be repayable in one installment on the earlier of (x) the date that is eighteen months after the Closing Date; provided that such date may be extended at the Borrower’s request by another six months, the Note will be repayable on the date that is twenty four months after the Closing Date (the “Maturity Date”) and (y) the Acceleration Date.

	
b.  

	
The Borrower hereby agrees to pay interest in arrears on the outstanding principal amount hereof, computed daily, at the daily rate of 10% per annum on January 31 and July 31 of each calendar year (each, an “Interest Payment Date”) and on the Maturity Date; provided, that the Borrower will pay interest on this Note by adding the amount of interest due on each Interest Payment Date to the principal amount of this Note (the “PIK Interest”).  Interest shall be calculated on the basis of actual number of days elapsed and in a year of 365 days.  Principal and interest shall be payable by wire transfer pursuant to prior written instructions provided by Lender.

	
c.  

	
If any day on which a payment is due pursuant to the terms of this Note is not a Business Day, such payment shall be due on the immediately following Business Day.  “Business Day” means any day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York are not required to be open.

 

	
3.        

	
Covenants. The Borrower agrees that, so long as any payment obligations remain outstanding under this Note, it shall:

	
a.  

	
preserve, renew and keep in full force and effect its organizational existence;

	
b.  

	
take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a material adverse effect;

	
c.  

	
comply with all material contractual obligations and requirements of law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a material adverse effect;

	
d.  

	
keep proper books of records and account in which full, true and correct entries in conformity with generally accepted accounting principles in the United States as in effect from time to time and all requirements of law shall be made of all dealings and transactions in relation to its business and activities; and

	
e.  

	
refrain from entering into any business except for those businesses in which the Borrower is engaged on the date hereof or that are reasonably related thereto.

 

	
4.        

	
Event of Default.  Non-payment when due of any principal under the Note shall constitute an Event of Default; provided, that non-payment resulting from a wire transfer problem or an operational or administrative error or omission shall not constitute a non-payment so long as the required funds required to make that payment were otherwise available to the Borrower.

 

 

  

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5.        

	
Remedies.  Upon the occurrence of an Event of Default, the Lender shall have the right upon three days’ notice to the Borrower to exercise one of the following remedies:

	
a.  

	
declare all amounts outstanding under the Note to be immediately due and payable (the date on which such proceeds are due and payable, the “Acceleration Date”) or

	
b.  

	
elect to convert the Note in Common Shares (the “Accelerated Conversion Rights”).

	
6.        

	
Conversion Rights.

	
a.  

	
At any time and upon 10 days’ notice, the Lender shall have the right to convert the Note into common share issued by the Borrower (each, a “Common Shares” and, collectively, the “Common Shares”).   For each 7 cents of principal and interest outstanding under the Note, the Lender shall be entitled to $0.01 par value of Common Share.

	
b.  

	
If an Event of Default shall have occurred and continuing and the Lender shall have elected to exercise its Accelerated Conversion Rights, the Lender shall have the right to convert the Note into Common Shares.  For each 1 cent of principal and interest outstanding under the Note, the Lender shall be entitled to convert all or a portion of the principal and interest outstanding under the Note for a number of Common Shares equal to (i) the average closing price of Common Shares for the last ten consecutive trading days multiplied by (ii) 0.75.

	
c.  

	
The Common Shares shall convey both economic and voting rights.

	
d.  

	
In addition, upon the exercise of Lender’s right to convert all or a portion of the principal and interest outstanding under the Note in Common Shares (such date, the “Conversion Exercise Date”) and for each 1000 Common Shares so converted, the Lender shall be entitled to (i) Class C warrants (each a “Class C Warrant” and, collectively, the “Class C Warrants”) to purchase an additional 500 Common Shares at the exercise price of 12 cents per Common Share and (ii) Class D warrants (each, a “Class D Warrant” and, collectively, the “Class D Warrants”) to purchase an additional 500 Common Shares at the exercise price of 21 cents per Common Share.  The Class C Warrants shall be exercisable at any time from the Conversion Exercise Date to and excluding the first anniversary thereof and the Class D Warrants shall be exercisable at any time from the Conversion Exercise Date to and excluding the third anniversary thereof.

	
7.        

	
Loss, Theft, Destruction or Mutilation.  Upon receipt of evidence satisfactory to the Borrower of the loss, theft, destruction or mutilation of this Note and, in the case of such loss, theft or destruction, upon delivery to the Borrower of an indemnity undertaking reasonably satisfactory to the Borrower, or, in the case of any such mutilation, upon surrender of this Note to the Borrower, the Borrower will issue a new note, of like tenor and principal amount, in lieu of or in exchange for such lost, stolen, destroyed or mutilated Note.  Upon the issuance of any substitute Note, the Borrower may require the payment to it of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses in connection therewith.

 

 

  

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8.        

	
Present Intent.  By acceptance of this Note, Lender acknowledges that such Note is being acquired without a present intention of resale or distribution, and that such Note will not be transferred or otherwise disposed of by the Lender in the absence of an effective registration statement under the Securities Act of 1933, as amended, or an exemption from registration.

	
9.        

	
Miscellaneous Provisions.

	
a.  

	
No Oral Modifications.  No term of this Note may be changed, waived, discharged or terminated orally, but may only be amended or modified by an instrument in writing signed by the Lender and the Borrower.

 

	
b.  

	
Binding Effect.  This Note shall be binding upon and inure to the benefit of the Borrower, the Lender and their respective heirs, successors and assigns.

 

	
c.  

	
Governing Law.  THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

	
d.  

	
Recourse.  Recourse under this Note shall be to the assets of the Borrower only and in no event to the officers, directors or stockholders of the Borrower.

 

	
e.  

	
Benefits of this Agreement.  Nothing in this Note, express or implied, shall give to any Person, (other than the parties hereto and their successors hereunder) any benefit or any legal or equitable right, remedy or claim under this Note.

 

	
f.  

	
Legal Representations of Parties.  This Note was negotiated by the parties thereto with the benefit of legal representation and any rule of construction or interpretation otherwise requiring this Note to be construed or interpreted against any party thereto shall not apply to any construction or interpretation thereof.

 [Remainder of page intentionally left blank]

 

IN WITNESS WHEREOF, the parties hereto have caused this Note to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

 

SUSPECT DETECTION SYSTEMS INC.

By:    /s/  Ran Daniel                                                    

Name: Ran Daniel

Title:   Chief Financial Officer

 

 

 

  

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March 21, 2011

To: Suspect Detection Systems, Inc.

Investor Representations and Warranties.

The undersigned hereby acknowledges, represents and warrants to, and agrees with, the Company and its affiliates as follows:

(a)           The undersigned is acquiring the convertible note, dated March 21st, 2011 (“the note”) for his 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 such Securities or any portion thereof.

(b)           The undersigned has full power and authority to purchase the note.

(c)           The undersigned is not purchasing the convertible note as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or presented at any seminar or meeting, or any general solicitation or advertising for securities issued in reliance upon Regulation D.

(d) The undersigned agrees not to sell or otherwise transfer the purchased securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available

 (e) The undersigned has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us,

(f) The undersigned had access to all of our documents, records, and books pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding the terms and conditions of the note and to obtain any additional information which we possessed or were able to acquire without unreasonable effort and expense.

(g) The undersigned has no need for the liquidity in its investment in us and could afford the complete loss of such investment; and;

(h) She is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”).

/s/ Tamar Shefet                                     

Name: Tamar Shefet, Attorney at law

 

 

 

 

 

 

SUSPECT DETECTION SYSTEMS, INC.

INVESTOR QUESTIONNAIRE

 

	
A.

	
General Information

	  
	  	  	  
	
1.

	
Print Full Name of Investor:

	
Individual:

	  	  	
TAMAR SHEFET

	  	  	
First, Middle, Last

	 	 	 
	
2.

	
Address for Notices:

	3 DANIEL FRISH STREET
	  	 	 TEL-AVIV 64731 ISRAEL
	  	 	  
	  	  	  
	
3.

	
Name of Primary Contact Person: 

Title: 

	
TAMAR SHEFET

ATTORNEY AT LAW

	  	  	  
	
4.

	
Telephone Number:

	
+972-522-058-580

	  	  	  
	
5.

	
E-Mail Address:

	

TAMMY@SHEFET-LAW.COM

	  	  	  
	
6.

	
Facsimile Number:

	

+972-3-609-1619

	 	 	 
	
7.

	
Permanent Address:

(if different from Address for Notices above)

	
SAME AS ABOVE

	
8.

	
Authorized Signatory:

Title:

	
 

	  	
Telephone Number:

	
 

	  	
Facsimile Number:

	
 

	 	 	 
	
9.

 

 

	
U.S. Investors Only:

 

U.S. Taxpayer Identification or Social

Security Number:

 

	
 

 

 

 

 

B.           Accredited Investor Status

The Investor represents and warrants that the Investor is an “accredited investor” within the meaning of  Rule 501 of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”), and has checked the box or boxes below which are next to the categories under which the Investor qualifies as an accredited investor:

 

	
x

	
A natural person with individual net worth (or joint net worth with spouse) in excess of $1 million. For purposes of this item, “net worth” means the excess of total assets at fair market value, including home, home furnishings and automobiles (and including property owned by a spouse), over total liabilities.

	  
	  	  	  
	
o

	
A natural person with individual income (without including any income of the Investor’s spouse) in excess of $200,000, or joint income with spouse of $300,000, in each of the two most recent years and who reasonably expects to reach the same income level in the current year.

	  

	  	
March 21, 2011

	  	
(Date)

  

 

  

 

 

CLASS A WARRANT AGREEMENT

 

CLASS A WARRANT AGREEMENT (“Agreement”), dated as of __________, ____, by and between Suspect Detection Systems, Inc., a Delaware corporation (the “Company”), and ____________________ (“Warrantholder”).  Certain capitalized terms used herein are defined in Section 15 hereof.

 

In consideration of the mutual terms, conditions, representations, warranties and agreements herein set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

	
Section 1.  

	
Issuance of Warrants.

 

The Company hereby issues and grants to Warrantholder ________ (_______) stock purchase warrants, which are hereby designated and shall be known as “Class A Warrants” (hereinafter referred to as “Warrants”).  Each Warrant shall grant to the holder thereof the right to purchase one (1) share of common stock of the Company (the “Common Stock”).  Commencing on _____________ (the “Warrant Commencement Date”), and terminating one year from the date of such issuance (the “Warrant Expiration Date”), the holder shall have the right, subject to the satisfaction of the conditions to exercise set forth in Section 7 of this Agreement, to purchase one (1) share of Common Stock per each Warrant (the shares of Common Stock issuable upon exercise of the Warrants being collectively referred to herein as the “Warrant Shares”) at an exercise price of $0.12 per Warrant Share (the “Exercise Price”).  The number of Warrant Shares issuable on exercise of each Warrant and the Exercise Price are all subject to adjustment pursuant to Section 8 of this Agreement.

 

	
Section 2.  

	
Form of Warrant Certificates.

 

Promptly after the execution and delivery of this Agreement by the parties hereto, the Company may, in its sole and absolute discretion, cause to be executed and delivered to Warrantholder one or more certificates evidencing the Warrants (the “Warrant Certificates”).  Each Warrant Certificate delivered hereunder shall be substantially in the form set forth in Exhibit 1 – Warrant Form attached hereto and may have such letters, numbers or other identification marks and legends, summaries or endorsements printed thereon as the Company may deem appropriate and that are not inconsistent with the terms of this Agreement or as may be required by applicable law, rule or regulation.  Each Warrant Certificate shall be dated the date of execution by the Company.

 

	
Section 3.  

	
Execution of Warrant Certificates.

 

Each Warrant Certificate delivered hereunder shall be signed on behalf of the Company by at least one of the following: its Chief Executive Officer, President, Vice President, Secretary or Assistant Secretary.  Each such signature may be in the form of a facsimile thereof and may be imprinted or otherwise reproduced on the Warrant Certificates.

 

If any officer of the Company who signed any Warrant Certificate ceases to be an officer of the Company before the Warrant Certificate so signed shall have been delivered by the Company, such Warrant Certificate nevertheless may be delivered as though such person had not ceased to be such officer of the Company.

 

  

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Section 4.  

	
Registration of Ownership and Transfer.

 

Warrant Certificates shall be issued in registered form only.  The Company will keep or cause to be kept books for registration of ownership and transfer of each Warrant Certificate issued pursuant to this Agreement.  Each Warrant Certificate issued pursuant to this Agreement shall be numbered by the Company and shall be registered by the Company in the name of the holder thereof (initially the Warrantholder).  The Company may deem and treat the registered holder of any Warrant Certificate as the absolute owner thereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for the purpose of any exercise thereof and for all other purposes, and the Company shall not be affected by any notice to the contrary.

 

	
Section 5.  

	
No Transfers.

 

No Warrant may be sold, pledged, hypothecated, assigned, conveyed, transferred or otherwise disposed of without the agreement of the Company, which will not be unreasonably withheld.

 

	
Section 6.  

	
Mutilated or Missing Warrant Certificates.

 

If any Warrant Certificate is mutilated, lost, stolen or destroyed, the Company shall issue, upon surrender and cancellation of any mutilated Warrant Certificate, or in lieu of and substitution for any lost, stolen or destroyed Warrant Certificate, a new Warrant Certificate of like tenor and representing an equal number of Warrants.  In the case of a lost, stolen or destroyed Warrant Certificate, a new Warrant Certificate shall be issued by the Company only upon the Company’s receipt of reasonably satisfactory evidence of such loss, theft or destruction and, if requested, an indemnity or bond reasonably satisfactory to the Company.

 

	
Section 7.  

	
Exercise of Warrants.

 

A. Exercise.  Subject to the terms and conditions set forth in this Section 7, Warrants may be exercised, in whole or in part (but not as to any fractional part of a Warrant), at any time or from time to time on and after the Warrant Commencement Date and on or prior to 5:00 p.m., Eastern time, on the Warrant Expiration Date.

 

In order to exercise any Warrant, Warrantholder shall deliver to the Company at its office referred to in Section 16 the following: (i) a written notice in the form of the Election to Purchase appearing at the end of the form of Warrant Certificate attached as Exhibit 2 – Form of Election to Purchase hereto of such Warrantholder’s election to exercise the Warrants, which notice shall specify the number of such Warrantholder’s Warrants being exercised; (ii) the Warrant Certificate or Warrant Certificates, if any, evidencing the Warrants being exercised; and (iii) payment of the aggregate Exercise Price.

 

All rights of Warrantholder with respect to any Warrant that has not been exercised, on or prior to 5:00 p.m., Eastern time, on the Warrant Expiration Date shall immediately cease and such Warrants shall be automatically cancelled and void.

 

B.           Payment of Exercise Price.  Payment of the Exercise Price with respect to Warrants being exercised hereunder shall be made by the payment to the Company, in cash, by check or wire transfer, of an amount equal to the Exercise Price multiplied by the number of Warrants then being exercised.

 

C.           Payment of Taxes.  The Company shall be responsible for paying any and all issue, documentary, stamp or other taxes that may be payable in respect of any issuance or delivery of Warrant Shares on exercise of a Warrant. Notwithstanding anything contained herein to the contrary, the Warrantholder shall be responsible for all taxes that may be due and payable by the Warrantholder as a result of the issuance of this Warrant to the Warrantholder or as a result of the issuance of the Warrant Shares upon due exercise hereof.

 

  

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D.           Delivery of Warrant Shares.  Upon receipt of the items referred to in Section 7A, the Company shall, as promptly as practicable, execute and deliver or cause to be executed and delivered, to or upon the written order of Warrantholder, and in the name of Warrantholder or Warrantholder’s designee, a stock certificate or stock certificates representing the number of Warrant Shares to be issued on exercise of the Warrant(s).  If the Warrant Shares shall in accordance with the terms thereof have become automatically convertible into shares of the Company’s Common Stock prior to the time a Warrant is exercised, the Company shall in lieu of issuing shares of Common Stock, issue to the Warrantholder or its designee on exercise of such Warrant, a stock certificate or stock certificates representing the number of shares of Common Stock into which the Warrant Shares issuable on exercise of such Warrant are convertible.  The certificates issued to Warrantholder or its designee shall bear any restrictive legend required under applicable law, rule or regulation.  The stock certificate or certificates so delivered shall be registered in the name of Warrantholder or such other name as shall be designated in said notice.  A Warrant shall be deemed to have been exercised and such stock certificate or stock certificates shall be deemed to have been issued, and such holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date that such notice, together with payment of the aggregate Exercise Price and the Warrant Certificate or Warrant Certificates evidencing the Warrants to be exercised, is received by the Company as aforesaid.  If the Warrants evidenced by any Warrant Certificate are exercised in part, the Company shall, at the time of delivery of the stock certificates, deliver to the holder thereof a new Warrant Certificate evidencing the Warrants that were not exercised or surrendered, which shall in all respects (other than as to the number of Warrants evidenced thereby) be identical to the Warrant Certificate being exercised.  Any Warrant Certificates surrendered upon exercise of Warrants shall be canceled by the Company.

 

	
Section 8.  

	
Adjustment of Number of Warrant Shares Issuable Upon Exercise of a Warrant and Adjustment of Exercise Price.

 

A. Adjustment for Stock Splits, Stock Dividends, Recapitalizations.  The number of Warrant Shares issuable upon exercise of each Warrant and the Exercise Price shall each be proportionately adjusted to reflect any stock dividend, stock split, reverse stock split, recapitalization or the like affecting the number of outstanding shares of Common Stock that occurs after the date hereof.

 

B. Adjustments for Reorganization, Consolidation, Merger.  If after the date hereof, the Company (or any other entity, the stock or other securities of which are at the time receivable on the exercise of the Warrants), consolidates with or merges into another entity or conveys all or substantially all of its assets to another entity, then, in each such case, Warrantholder, upon any permitted exercise of a Warrant (as provided in Section 7), at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise of the Warrant prior to such consummation, the stock or other securities or property to which such Warrantholder would have been entitled upon the consummation of such reorganization, consolidation, merger or conveyance if such Warrantholder had exercised the Warrant immediately prior thereto, all subject to further adjustment as provided in this Section 8.  The successor or purchasing entity in any such reorganization, consolidation, merger or conveyance (if other than the Company) shall duly execute and deliver to Warrantholder a written acknowledgment of such entity’s obligations under the Warrants and this Agreement.

 

  

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C. Notice of Certain Events.

 

Upon the occurrence of any event resulting in an adjustment in the number of Warrant Shares (or other stock or securities or property) receivable upon the exercise of the Warrants or the Exercise Price, the Company shall promptly thereafter (i) compute such adjustment in accordance with the terms of the Warrants, (ii) prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, and (iii) mail copies of such certificate to Warrantholder.

 

	
Section 9.  

	
Reservation of Shares.

 

The Company shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock, or its authorized and issued Common Stock held in its treasury, the aggregate number of the Warrant Shares deliverable upon the exercise of all outstanding Warrants, for the purpose of enabling it to satisfy any obligation to issue the Warrant Shares upon the due and punctual exercise of the Warrants, through 5:00 p.m., Eastern time, on the Warrant Expiration Date.

 

	
Section 10.  

	
No Impairment.

 

The Company shall not, by amendment of its certificate of incorporation or bylaws, or through reorganization, consolidation, merger, dissolution, issuance or sale of securities, sale of assets or any other voluntary action, willfully avoid or seek to avoid the observance or performance of any of the terms of the Warrants or this Agreement, and shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of Warrantholder under the Warrants and this Agreement against wrongful impairment.  Without limiting the generality of the foregoing, the Company:  (i) shall not set or increase the par value of any Warrant Shares above the amount payable therefor upon exercise, and (ii) shall take all actions that are necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of the Warrants.

 

	
Section 11.  

	
Representations and Warranties of Warrantholder.

 

Warrantholder represents and warrants to the Company that, on the date hereof and on the date the Warrantholder exercises the Warrant pursuant to the terms of this Agreement:

 

A.           Warrantholder understands that the Warrants and the Warrant Shares have not been registered under the Securities Act and acknowledges that the Warrants and the Warrant Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration becomes available.

 

B.           Warrantholder is acquiring the Warrants for Warrantholder’s own account for investment and not with a view to, or for sale in connection with, any distribution thereof.

 

C.           Warrantholder understands that the Warrants and the Warrant Shares are being offered and sold to him in reliance on an exemption from the registration requirements of United States federal and state securities laws under Regulation S promulgated under the Securities Act and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Warrantholder set forth herein in order to determine the applicability of such exemptions and the suitability of the Warrantholder to acquire the Warrants and Warrant Shares.  In this regard, Warrantholder represents, warrants and agrees that:

(1)           Warrantholder is not a U.S. Person (as defined below) and is not an affiliate (as defined in Rule 501(b) under the Securities Act) of the Company and is not acquiring the Warrants and Warrant Shares for the account or benefit of a U.S. Person.  A U.S. Person means any one of the following:

 

  

4

  

 

 

	
  

	
(A)

	
any natural person resident in the United States of America;

 

	
  

	
(B)

	
any partnership or corporation organized or incorporated under the laws of the United States of America;

 

	
  

	
(C)

	
any estate of which any executor or administrator is a U.S. person;

	
  

	
(D)

	
any trust of which any trustee is a U.S. person;

 

	
  

	
(E)

	
any agency or branch of a foreign entity located in the United States of America;

	
  

	
(D)

	
any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person;

 

	
  

	
(G)

	
any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated or (if an individual) resident in the United States of America; and

 

	
  

	
(H)

	
any partnership or corporation if:

(i) organized or incorporated under the laws of any foreign jurisdiction; and

(ii) formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a) under the Securities Act) who are not natural persons, estates or trusts.

(2)           At the time of the origination of contact concerning this Agreement and the date of the execution and delivery of this Agreement, Warrantholder was outside of the United States.

(3)           Warrantholder will not, during the period commencing on the date of issuance of the Warrants and Warrant Shares and ending on the first anniversary of such date, or such shorter period as may be permitted by Regulation S or other applicable securities law (the “Restricted Period”), offer, sell, pledge or otherwise transfer the Warrants and Warrant Shares in the United States, or to a U.S. Person for the account or for the benefit of a U.S. Person, or otherwise in a manner that is not in compliance with Regulation S.

(4)           Warrantholder will, after expiration of the Restricted Period, offer, sell, pledge or otherwise transfer the Warrants and Warrant Shares only pursuant to registration under the Securities Act or an available exemption therefrom and, in accordance with all applicable state and foreign securities laws and this Agreement.

 

  

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(5)           Warrantholder was not in the United States, engaged in, and prior to the expiration of the Restricted Period will not engage in, any short selling of or any hedging transaction with respect to the Warrants and Warrant Shares, including without limitation, any put, call or other option transaction, option writing or equity swap.

(6)           Neither Warrantholder nor or any person acting on Warrantholder’s behalf has engaged, nor will engage, in any directed selling efforts to a U.S. Person with respect to the Warrants and Warrant Shares and the Warrantholder and any person acting on Warrantholder’s behalf have complied and will comply with the “offering restrictions” requirements of Regulation S under the Securities Act.

(7)           The transactions contemplated by this Agreement have not been pre-arranged with a buyer located in the United States or with a U.S. Person, and are not part of a plan or scheme to evade the registration requirements of the Securities Act.

(8)           Neither Warrantholder nor any person acting on Warrantholder’s behalf has undertaken or carried out any activity for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States, its territories or possessions, for any of the Warrants and Warrant Shares.  Warrantholder agrees not to cause any advertisement of the Warrants and Warrant Shares to be published in any newspaper or periodical or posted in any public place and not to issue any circular relating to the Warrants and Warrant Shares, except such advertisements that include the statements required by Regulation S under the Securities Act, and only offshore and not in the U.S. or its territories, and only in compliance with any local applicable securities laws.

(9)           Each certificate representing the Warrants and Warrant Shares shall be endorsed with the following legends, in addition to any other legend required to be placed thereon by applicable federal or state securities laws:

(A)           “THE SECURITIES ARE BEING OFFERED TO INVESTORS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“THE SECURITIES ACT”)) AND WITHOUT REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT IN RELIANCE UPON REGULATION S PROMULGATED UNDER THE SECURITIES ACT.”

(B)           “TRANSFER OF THESE SECURITIES IS PROHIBITED, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S, PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AVAILABLE EXEMPTION FROM REGISTRATION.  HEDGING TRANSACTIONS MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.”

(10)           Warrantholder consents to the Company making a notation on its records or giving instructions to any transfer agent of the Company in order to implement the restrictions on transfer of the Warrants and Warrant Shares set forth in this Section 11.

 

 

  

6

  

 

	
Section 12.  

	
No Rights or Liabilities as Stockholder.

 

No holder, as such, of any Warrant Certificate shall be entitled to vote, receive dividends or be deemed the holder of Common Stock which may at any time be issuable on the exercise of the Warrants represented thereby for any purpose whatever, nor shall anything contained herein or in any Warrant Certificate be construed to confer upon the holder of any Warrant Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise), or to receive notice of meetings or other actions affecting stockholders or to receive dividend or subscription rights, or otherwise, until such Warrant Certificate shall have been exercised in accordance with the provisions hereof and the receipt and collection of the Exercise Price and any other amounts payable upon such exercise by the Company.  No provision hereof, in the absence of affirmative action by Warrantholder to purchase Warrant Shares shall give rise to any liability of such holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

	
Section 13.  

	
Fractional Interests.

 

The Company shall not be required to issue fractional shares of Common Stock upon exercise of the Warrants or to distribute certificates that evidence fractional shares of Common Stock.  If any fraction of a Warrant Share would, except for the provisions of this Section 13, be issuable on the exercise of a Warrant, the number of Warrant Shares to be issued by the Company shall be rounded to the nearest whole number, with one-half or greater being rounded up.

 

	
Section 14.  

	
Definitions.

 

Unless the context otherwise requires, the terms defined in this Section 15, whenever used in this Agreement shall have the respective meanings hereinafter specified and words in the singular or in the plural shall each include the singular and the plural and the use of any gender shall include all genders.

 

 “Business Day” shall mean any day on which banking institutions are generally open for business in Delaware.

 

“Common Stock” means the common stock of the Company.

 

“Exercise Price” shall be the price per Warrant Share at which Warrantholder is entitled to purchase Warrant Shares upon exercise of any Warrant determined in accordance with Section 7 and  subject to adjustment as provided in Sections 8 and 17 hereof.

 

“Person” shall mean any corporation, association, partnership, limited liability company, joint venture, trust, organization, business, individual, government or political subdivision thereof or governmental body.

 

“Securities Act” shall mean the Securities Act of 1933, as amended, or any similar federal statute as at the time in effect, and any reference to a particular section of such Act shall include a reference to the comparable section, if any, of such successor federal statute.

 

 

  

7

  

 

	
Section 15.  

	
Notices.

 

All notices, consents, requests, waivers or other communications required or permitted under this Agreement (each a “Notice”) shall be in writing and shall be sufficiently given (a) if hand delivered, (b) if sent by nationally recognized overnight courier, or (c) if sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

 

if to the Company:

Suspect Detection Systems, Inc.

150 West 56th Street, Suite 4005

New York, NY 10019

if to Warrantholder:

or such other address as shall be furnished by any of the parties hereto in a Notice.  Any Notice shall be deemed given upon receipt.

 

	
Section 16.  

	
Supplements, Amendments and Waivers.

 

This Agreement may be supplemented or amended only by a subsequent writing signed by each of the parties hereto (or their successors or permitted assigns), and any provision hereof may be waived only by a written instrument signed by the party charged therewith.

 

	
Section 17.  

	
Successors and Assigns.

 

Except as otherwise provided herein, the provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and permitted assigns of the parties hereto.  Warrants issued under this Agreement may be assigned by Warrantholder only to the extent such assignment satisfies the restrictions on transfer set forth in this Agreement; any attempted assignment of Warrants in violation of the terms hereof shall be void ab initio.

 

	
Section 18.  

	
Termination.

 

This Agreement (other than Sections 7C, 11, and Sections 16 through 27, inclusive, and all related definitions, all of which shall survive such termination) shall terminate on the earlier of (i) the Warrant Expiration Date and (ii) the date on which all Warrants have been exercised by the Warrantholder or redeemed by the Company.

 

	
Section 19.  

	
Governing Law; Jurisdiction.

 

A. Governing Law. This Agreement and each Warrant Certificate issued hereunder shall be governed by and construed in accordance with the laws of the state of Delaware and the federal laws of the United States applicable herein.

 

B. Submission to Jurisdiction.  Each party to this Agreement hereby irrevocably and unconditionally submits, for itself and its property, to the jurisdiction of the state of Delaware, and any appellate court from any thereof, in respect of actions brought against it as a defendant, in any action, suit or proceeding arising out of or relating to this Agreement or the Warrant Certificates and Warrants to be issued pursuant hereto, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action, suit or proceeding may be heard and determined in such courts.  Each of the parties hereto agrees that a final judgment in any such action, suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

 

  

8

  

 

 

C. Venue.  Each party hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any action, suit or proceeding arising out of or relating to this Agreement, or the Warrant Certificates and Warrants to be issued pursuant hereto, in any court referred to in this Subsection B.  Each of the parties hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action, suit proceeding in any such court and waives any other right to which it may be entitled on account of its place of residence or domicile.

 

	
Section 20.  

	
Third Party Beneficiaries.

 

Each party intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any Person other than the parties hereto and their successors and permitted assigns.

 

	
Section 21.  

	
Headings.

 

The headings in this Agreement are for convenience only and shall not affect the construction or interpretation of this Agreement.

 

	
Section 22.  

	
Entire Agreement.

 

This Agreement, together with the Warrant Certificates and Exhibits, and the Subscription Agreement, dated of even date herewith, by and between the Company and the Warrantholder, constitute the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and shall supersede any prior agreements and understandings between the parties hereto with respect to such subject matter.

 

	
Section 23.  

	
Expenses.

 

Each of the parties hereto shall pay its own expenses and costs incurred or to be incurred in negotiating, closing and carrying out this Agreement and in consummating the transactions contemplated herein, except as otherwise expressly provided for herein.

 

	
Section 24.  

	
Neutral Construction.

 

The parties to this Agreement agree that this Agreement was negotiated fairly between them at arm’s length and that the final terms of this Agreement are the product of the parties’ negotiations.  Each party represents and warrants that it has sought and received legal counsel of its own choosing with regard to the contents of this Agreement and the rights and obligations affected hereby.  The parties agree that this Agreement shall be deemed to have been jointly and equally drafting by them, and that the provisions of this Agreement therefore should not be construed against a party or parties on the grounds that such party or parties drafted or was more responsible for the drafting of any such provision(s).

 

	
Section 25.  

	
Representations and Warranties.

 

The Company hereby represents and warrants to the Warrantholder that:

 

(a) the Company has all requisite corporate power and authority to (i) execute and deliver this Agreement and (ii) issue and sell the Common Stock upon the conversion thereof and carry out provisions of this Agreement.  All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder, and the authorization (or reservation for issuance), sale and issuance of the Common Stock to be sold hereunder has been taken or will be taken prior to the date hereof;

 

  

9

  

 

(b) this Agreement constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws relating to application affecting enforcement of creditor’s rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief of other equitable remedies;

 

(c) the Common Stock issuable upon the conversion thereof that is being purchased hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and will be free of restrictions on transfer, other than restrictions on transfer under applicable state and federal securities laws;

 

(d) subject in part to the truth and accuracy of Warrantholder’s representations set forth in Section 11 of this Agreement, the offer, sale and issuance of the Common Stock issuable upon the conversion thereof as contemplated by this Agreement are exempt from the registration requirements of the Securities Act and the qualification or registration requirements of any state securities or other applicable blue sky laws; and

 

(e) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation, or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision or an event that results in creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture or nonremoval of any material permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties.

 

	
Section 26.  

	
Counterparts.

 

This Agreement may be executed in counterparts and by facsimile and each such counterpart shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

 

 

 

  

10

  

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

 

	 	SUSPECT DETECTION SYSTEMS, INC	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

 

	 	[WARRANTHOLDER]	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

 

  

11

  

 

EXHIBIT 1

 

WARRANT FORM

 

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.  THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH ACT AND LAWS.  THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF, AND MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH, A CLASS A WARRANT AGREEMENT BETWEEN SUSPECT DETECTION SYSTEMS, INC. AND THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE.  COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE COMPANY.

 

 

	NO.    	_______ CLASS A WARRANTS

 

FORM OF

 

Class A Warrant Certificate

 

SUSPECT DETECTION SYSTEMS, INC..

 

This Warrant Certificate certifies that __________________ (the “Warrantholder”), is the registered holder of _____________ Class A Warrants (the “Warrants”) to purchase shares (the “Warrant Shares”) of Common Stock of Suspect Detection Systems, Inc. (the “Company”).  Each Warrant entitles the holder, subject to the satisfaction of the conditions to exercise set forth in Section 7 of the Warrant Agreement referred to below, to purchase from the Company at any time or from time to time on and after _________(the “Warrant Commencement Date”) and terminate on or prior to 5:00 p.m., Eastern time, on _________________ (the “Warrant Expiration Date”) one fully paid and nonassessable Warrant Share at the Exercise Price set forth in the Warrant Agreement.  The number of Warrant Shares for which each Warrant is exercisable and the Exercise Price are subject to adjustment as provided in the Warrant Agreement.

 

The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants to purchase Warrant Shares and are issued pursuant to a Class A Warrant Agreement, dated as of ________________ (the “Warrant Agreement”), between the Company and the Warrantholder, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and Warrantholder.

 

Warrantholder may exercise vested Warrants by surrendering this Warrant Certificate, with the Election to Purchase attached hereto properly completed and executed, together with payment of the aggregate Exercise Price, at the offices of the Company specified in Section 16 of the Warrant Agreement.  If upon any exercise of Warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued to the holder hereof or its assignee a new Warrant Certificate evidencing the number of Warrants not exercised.

 

 

  

- 1 -

  

 

This Warrant Certificate, when surrendered at the offices of the Company specified in Section 16 of the Warrant Agreement, by the registered holder thereof in person, by legal representative or by attorney duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, for one or more other Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants.

 

The Company may deem and treat the registered holder hereof as the absolute owner of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof and for all other purposes, and the Company shall not be affected by any notice to the contrary.

 

WITNESS the signatures of the duly authorized officers of the Company.

 

Dated:  _____________

 

 

	 	
SUSPECT DETECTION SYSTEMS, INC.

	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

 

 

 

  

- 2 -

  

Exhibit 2

 

Form of Election to Purchase

 

The undersigned hereby irrevocably elects to exercise _________ of the Class A Warrants evidenced by the attached Warrant Certificate to purchase Warrant Shares, and herewith tenders (or is concurrently tendering) payment for such Warrant Shares in an amount determined in accordance with the terms of the Warrant Agreement.  The undersigned requests that a certificate representing such Warrant Shares be registered in the name of , whose address is  and that such certificate be delivered to , whose address is .  If said number of Warrants is less than the number of Warrants evidenced by the Warrant Certificate (as calculated pursuant to the Warrant Agreement), the undersigned requests that a new Warrant Certificate evidencing the number of Warrants evidenced by this Warrant Certificate that are not being exercised be registered in the name of , whose address is  and that such Warrant Certificate be delivered to , whose address is .

 

Dated:                                   ,              

Name of holder of Warrant Certificate:

___________________________________________

 ___________________________________________

(Please Print)

Address:   ___________________________________                                                          

 

___________________________________________

Federal Tax ID No.:   ___________________________                                                 

 

Signature:     _________________________________                                                         

	
  

	
Note:

	
The above signature must correspond with the name as written in the first sentence of the attached Warrant Certificate in every particular, without alteration or enlargement or any change whatever, and if the certificate evidencing the Warrant Shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which this Warrant Certificate is registered, the signature above must be guaranteed.

Dated:                           ,                

  

- 3 -

  

 

CLASS B WARRANT AGREEMENT

 

CLASS B WARRANT AGREEMENT (“Agreement”), dated as of November __, ____, by and between Suspect Detection Systems, Inc., a Delaware corporation (the “Company”), and ____________________ (“Warrantholder”).  Certain capitalized terms used herein are defined in Section 15 hereof.

 

In consideration of the mutual terms, conditions, representations, warranties and agreements herein set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

	
Section 27.  

	
Issuance of Warrants.

 

The Company hereby issues and grants to Warrantholder ________ (_______) stock purchase warrants, which are hereby designated and shall be known as “Class B Warrants” (hereinafter referred to as “Warrants”).  Each Warrant shall grant to the holder thereof the right to purchase one (1) share of common stock of the Company (the “Common Stock”).  Commencing on _____________ (the “Warrant Commencement Date”), and terminating three year from the date of such issuance (the “Warrant Expiration Date”), the holder shall have the right, subject to the satisfaction of the conditions to exercise set forth in Section 7 of this Agreement, to purchase one (1) share of Common Stock per each Warrant (the shares of Common Stock issuable upon exercise of the Warrants being collectively referred to herein as the “Warrant Shares”) at an exercise price of $0.21 per Warrant Share (the “Exercise Price”).  The number of Warrant Shares issuable on exercise of each Warrant and the Exercise Price are all subject to adjustment pursuant to Section 8 of this Agreement.

 

	
Section 28.  

	
Form of Warrant Certificates.

 

Promptly after the execution and delivery of this Agreement by the parties hereto, the Company may, in its sole and absolute discretion, cause to be executed and delivered to Warrantholder one or more certificates evidencing the Warrants (the “Warrant Certificates”).  Each Warrant Certificate delivered hereunder shall be substantially in the form set forth in Exhibit 1 – Warrant Form attached hereto and may have such letters, numbers or other identification marks and legends, summaries or endorsements printed thereon as the Company may deem appropriate and that are not inconsistent with the terms of this Agreement or as may be required by applicable law, rule or regulation.  Each Warrant Certificate shall be dated the date of execution by the Company.

 

	
Section 29.  

	
Execution of Warrant Certificates.

 

Each Warrant Certificate delivered hereunder shall be signed on behalf of the Company by at least one of the following: its Chief Executive Officer, President, Vice President, Secretary or Assistant Secretary.  Each such signature may be in the form of a facsimile thereof and may be imprinted or otherwise reproduced on the Warrant Certificates.

 

If any officer of the Company who signed any Warrant Certificate ceases to be an officer of the Company before the Warrant Certificate so signed shall have been delivered by the Company, such Warrant Certificate nevertheless may be delivered as though such person had not ceased to be such officer of the Company.

 

 

  

- 4 -

  

 

	
Section 30.  

	
Registration of Ownership and Transfer.

 

Warrant Certificates shall be issued in registered form only.  The Company will keep or cause to be kept books for registration of ownership and transfer of each Warrant Certificate issued pursuant to this Agreement.  Each Warrant Certificate issued pursuant to this Agreement shall be numbered by the Company and shall be registered by the Company in the name of the holder thereof (initially the Warrantholder).  The Company may deem and treat the registered holder of any Warrant Certificate as the absolute owner thereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for the purpose of any exercise thereof and for all other purposes, and the Company shall not be affected by any notice to the contrary.

 

	
Section 31.  

	
No Transfers.

 

No Warrant may be sold, pledged, hypothecated, assigned, conveyed, transferred or otherwise disposed of without the agreement of the Company, which will not be unreasonably withheld.

 

	
Section 32.  

	
Mutilated or Missing Warrant Certificates.

 

If any Warrant Certificate is mutilated, lost, stolen or destroyed, the Company shall issue, upon surrender and cancellation of any mutilated Warrant Certificate, or in lieu of and substitution for any lost, stolen or destroyed Warrant Certificate, a new Warrant Certificate of like tenor and representing an equal number of Warrants.  In the case of a lost, stolen or destroyed Warrant Certificate, a new Warrant Certificate shall be issued by the Company only upon the Company’s receipt of reasonably satisfactory evidence of such loss, theft or destruction and, if requested, an indemnity or bond reasonably satisfactory to the Company.

 

	
Section 33.  

	
Exercise of Warrants.

 

A. Exercise.  Subject to the terms and conditions set forth in this Section 7, Warrants may be exercised, in whole or in part (but not as to any fractional part of a Warrant), at any time or from time to time on and after the Warrant Commencement Date and on or prior to 5:00 p.m., Eastern time, on the Warrant Expiration Date.

 

In order to exercise any Warrant, Warrantholder shall deliver to the Company at its office referred to in Section 16 the following: (i) a written notice in the form of the Election to Purchase appearing at the end of the form of Warrant Certificate attached as Exhibit 2 – Form of Election to Purchase hereto of such Warrantholder’s election to exercise the Warrants, which notice shall specify the number of such Warrantholder’s Warrants being exercised; (ii) the Warrant Certificate or Warrant Certificates, if any, evidencing the Warrants being exercised; and (iii) payment of the aggregate Exercise Price.

 

All rights of Warrantholder with respect to any Warrant that has not been exercised, on or prior to 5:00 p.m., Eastern time, on the Warrant Expiration Date shall immediately cease and such Warrants shall be automatically cancelled and void.

 

            B.           Payment of Exercise Price.  Payment of the Exercise Price with respect to Warrants being exercised hereunder shall be made by the payment to the Company, in cash, by check or wire transfer, of an amount equal to the Exercise Price multiplied by the number of Warrants then being exercised.

 

C.           Payment of Taxes.  The Company shall be responsible for paying any and all issue, documentary, stamp or other taxes that may be payable in respect of any issuance or delivery of Warrant Shares on exercise of a Warrant. Notwithstanding anything contained herein to the contrary, the Warrantholder shall be responsible for all taxes that may be due and payable by the Warrantholder as a result of the issuance of this Warrant to the Warrantholder or as a result of the issuance of the Warrant Shares upon due exercise hereof.

 

  

- 5 -

  

D.           Delivery of Warrant Shares.  Upon receipt of the items referred to in Section 7A, the Company shall, as promptly as practicable, execute and deliver or cause to be executed and delivered, to or upon the written order of Warrantholder, and in the name of Warrantholder or Warrantholder’s designee, a stock certificate or stock certificates representing the number of Warrant Shares to be issued on exercise of the Warrant(s).  If the Warrant Shares shall in accordance with the terms thereof have become automatically convertible into shares of the Company’s Common Stock prior to the time a Warrant is exercised, the Company shall in lieu of issuing shares of Common Stock, issue to the Warrantholder or its designee on exercise of such Warrant, a stock certificate or stock certificates representing the number of shares of Common Stock into which the Warrant Shares issuable on exercise of such Warrant are convertible.  The certificates issued to Warrantholder or its designee shall bear any restrictive legend required under applicable law, rule or regulation.  The stock certificate or certificates so delivered shall be registered in the name of Warrantholder or such other name as shall be designated in said notice.  A Warrant shall be deemed to have been exercised and such stock certificate or stock certificates shall be deemed to have been issued, and such holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date that such notice, together with payment of the aggregate Exercise Price and the Warrant Certificate or Warrant Certificates evidencing the Warrants to be exercised, is received by the Company as aforesaid.  If the Warrants evidenced by any Warrant Certificate are exercised in part, the Company shall, at the time of delivery of the stock certificates, deliver to the holder thereof a new Warrant Certificate evidencing the Warrants that were not exercised or surrendered, which shall in all respects (other than as to the number of Warrants evidenced thereby) be identical to the Warrant Certificate being exercised.  Any Warrant Certificates surrendered upon exercise of Warrants shall be canceled by the Company.

 

	
Section 34.  

	
Adjustment of Number of Warrant Shares Issuable Upon Exercise of a Warrant and Adjustment of Exercise Price.

 

A.    Adjustment for Stock Splits, Stock Dividends, Recapitalizations.  The number of Warrant Shares issuable upon exercise of each Warrant and the Exercise Price shall each be proportionately adjusted to reflect any stock dividend, stock split, reverse stock split, recapitalization or the like affecting the number of outstanding shares of Common Stock that occurs after the date hereof.

 

B.    Adjustments for Reorganization, Consolidation, Merger.  If after the date hereof, the Company (or any other entity, the stock or other securities of which are at the time receivable on the exercise of the Warrants), consolidates with or merges into another entity or conveys all or substantially all of its assets to another entity, then, in each such case, Warrantholder, upon any permitted exercise of a Warrant (as provided in Section 7), at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise of the Warrant prior to such consummation, the stock or other securities or property to which such Warrantholder would have been entitled upon the consummation of such reorganization, consolidation, merger or conveyance if such Warrantholder had exercised the Warrant immediately prior thereto, all subject to further adjustment as provided in this Section 8.  The successor or purchasing entity in any such reorganization, consolidation, merger or conveyance (if other than the Company) shall duly execute and deliver to Warrantholder a written acknowledgment of such entity’s obligations under the Warrants and this Agreement.

 

  

- 6 -

  

 

C.     Notice of Certain Events.

 

Upon the occurrence of any event resulting in an adjustment in the number of Warrant Shares (or other stock or securities or property) receivable upon the exercise of the Warrants or the Exercise Price, the Company shall promptly thereafter (i) compute such adjustment in accordance with the terms of the Warrants, (ii) prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, and (iii) mail copies of such certificate to Warrantholder.

 

	
Section 35.  

	
Reservation of Shares.

 

The Company shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock, or its authorized and issued Common Stock held in its treasury, the aggregate number of the Warrant Shares deliverable upon the exercise of all outstanding Warrants, for the purpose of enabling it to satisfy any obligation to issue the Warrant Shares upon the due and punctual exercise of the Warrants, through 5:00 p.m., Eastern time, on the Warrant Expiration Date.

 

	
Section 36.  

	
No Impairment.

 

The Company shall not, by amendment of its certificate of incorporation or bylaws, or through reorganization, consolidation, merger, dissolution, issuance or sale of securities, sale of assets or any other voluntary action, willfully avoid or seek to avoid the observance or performance of any of the terms of the Warrants or this Agreement, and shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of Warrantholder under the Warrants and this Agreement against wrongful impairment.  Without limiting the generality of the foregoing, the Company:  (i) shall not set or increase the par value of any Warrant Shares above the amount payable therefor upon exercise, and (ii) shall take all actions that are necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of the Warrants.

 

	
Section 37.  

	
Representations and Warranties of Warrantholder.

 

Warrantholder represents and warrants to the Company that, on the date hereof and on the date the Warrantholder exercises the Warrant pursuant to the terms of this Agreement:

 

A.           Warrantholder understands that the Warrants and the Warrant Shares have not been registered under the Securities Act and acknowledges that the Warrants and the Warrant Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration becomes available.

 

B.           Warrantholder is acquiring the Warrants for Warrantholder’s own account for investment and not with a view to, or for sale in connection with, any distribution thereof.

 

C.           Warrantholder understands that the Warrants and the Warrant Shares are being offered and sold to him in reliance on an exemption from the registration requirements of United States federal and state securities laws under Regulation S promulgated under the Securities Act and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Warrantholder set forth herein in order to determine the applicability of such exemptions and the suitability of the Warrantholder to acquire the Warrants and Warrant Shares.  In this regard, Warrantholder represents, warrants and agrees that:

  

- 7 -

  

 

(1)           Warrantholder is not a U.S. Person (as defined below) and is not an affiliate (as defined in Rule 501(b) under the Securities Act) of the Company and is not acquiring the Warrants and Warrant Shares for the account or benefit of a U.S. Person.  A U.S. Person means any one of the following:

	
  

	
(A)

	
any natural person resident in the United States of America;

 

	
  

	
(B)

	
any partnership or corporation organized or incorporated under the laws of the United States of America;

 

	
  

	
(C)

	
any estate of which any executor or administrator is a U.S. person;

	
  

	
(D)

	
any trust of which any trustee is a U.S. person;

 

	
  

	
(E)

	
any agency or branch of a foreign entity located in the United States of America;

	
  

	
(F)

	
any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person

 

	
  

	
(G)

	
any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated or (if an individual) resident in the United States of America; and

 

	
  

	
(H)

	
any partnership or corporation if:

(i) organized or incorporated under the laws of any foreign jurisdiction; and

(ii)  formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a) under the Securities Act) who are not natural persons, estates or trusts.

(2)           At the time of the origination of contact concerning this Agreement and the date of the execution and delivery of this Agreement, Warrantholder was outside of the United States.

(3)           Warrantholder will not, during the period commencing on the date of issuance of the Warrants and Warrant Shares and ending on the first anniversary of such date, or such shorter period as may be permitted by Regulation S or other applicable securities law (the “Restricted Period”), offer, sell, pledge or otherwise transfer the Warrants and Warrant Shares in the United States, or to a U.S. Person for the account or for the benefit of a U.S. Person, or otherwise in a manner that is not in compliance with Regulation S.

(4)           Warrantholder will, after expiration of the Restricted Period, offer, sell, pledge or otherwise transfer the Warrants and Warrant Shares only pursuant to registration under the Securities Act or an available exemption therefrom and, in accordance with all applicable state and foreign securities laws and this Agreement.

  

- 8 -

  

 

(5)           Warrantholder was not in the United States, engaged in, and prior to the expiration of the Restricted Period will not engage in, any short selling of or any hedging transaction with respect to the Warrants and Warrant Shares, including without limitation, any put, call or other option transaction, option writing or equity swap.

 

(6)           Neither Warrantholder nor or any person acting on Warrantholder’s behalf has engaged, nor will engage, in any directed selling efforts to a U.S. Person with respect to the Warrants and Warrant Shares and the Warrantholder and any person acting on Warrantholder’s behalf have complied and will comply with the “offering restrictions” requirements of Regulation S under the Securities Act.

(7)           The transactions contemplated by this Agreement have not been pre-arranged with a buyer located in the United States or with a U.S. Person, and are not part of a plan or scheme to evade the registration requirements of the Securities Act.

(8)           Neither Warrantholder nor any person acting on Warrantholder’s behalf has undertaken or carried out any activity for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States, its territories or possessions, for any of the Warrants and Warrant Shares.  Warrantholder agrees not to cause any advertisement of the Warrants and Warrant Shares to be published in any newspaper or periodical or posted in any public place and not to issue any circular relating to the Warrants and Warrant Shares, except such advertisements that include the statements required by Regulation S under the Securities Act, and only offshore and not in the U.S. or its territories, and only in compliance with any local applicable securities laws.

(9)           Each certificate representing the Warrants and Warrant Shares shall be endorsed with the following legends, in addition to any other legend required to be placed thereon by applicable federal or state securities laws:

(A)           “THE SECURITIES ARE BEING OFFERED TO INVESTORS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“THE SECURITIES ACT”)) AND WITHOUT REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT IN RELIANCE UPON REGULATION S PROMULGATED UNDER THE SECURITIES ACT.”

(B)           “TRANSFER OF THESE SECURITIES IS PROHIBITED, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S, PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AVAILABLE EXEMPTION FROM REGISTRATION.  HEDGING TRANSACTIONS MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.”

(10)           Warrantholder consents to the Company making a notation on its records or giving instructions to any transfer agent of the Company in order to implement the restrictions on transfer of the Warrants and Warrant Shares set forth in this Section 11.

 

 

  

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Section 38.  

	
No Rights or Liabilities as Stockholder.

 

No holder, as such, of any Warrant Certificate shall be entitled to vote, receive dividends or be deemed the holder of Common Stock which may at any time be issuable on the exercise of the Warrants represented thereby for any purpose whatever, nor shall anything contained herein or in any Warrant Certificate be construed to confer upon the holder of any Warrant Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise), or to receive notice of meetings or other actions affecting stockholders or to receive dividend or subscription rights, or otherwise, until such Warrant Certificate shall have been exercised in accordance with the provisions hereof and the receipt and collection of the Exercise Price and any other amounts payable upon such exercise by the Company.  No provision hereof, in the absence of affirmative action by Warrantholder to purchase Warrant Shares shall give rise to any liability of such holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

	
Section 39.  

	
Fractional Interests.

 

The Company shall not be required to issue fractional shares of Common Stock upon exercise of the Warrants or to distribute certificates that evidence fractional shares of Common Stock.  If any fraction of a Warrant Share would, except for the provisions of this Section 13, be issuable on the exercise of a Warrant, the number of Warrant Shares to be issued by the Company shall be rounded to the nearest whole number, with one-half or greater being rounded up.

 

	
Section 40.  

	
Definitions.

 

Unless the context otherwise requires, the terms defined in this Section 15, whenever used in this Agreement shall have the respective meanings hereinafter specified and words in the singular or in the plural shall each include the singular and the plural and the use of any gender shall include all genders.

 

 “Business Day” shall mean any day on which banking institutions are generally open for business in Delaware.

 

“Common Stock” means the common stock of the Company.

 

“Exercise Price” shall be the price per Warrant Share at which Warrantholder is entitled to purchase Warrant Shares upon exercise of any Warrant determined in accordance with Section 7 and  subject to adjustment as provided in Sections 8 and 17 hereof.

 

“Person” shall mean any corporation, association, partnership, limited liability company, joint venture, trust, organization, business, individual, government or political subdivision thereof or governmental body.

 

“Securities Act” shall mean the Securities Act of 1933, as amended, or any similar federal statute as at the time in effect, and any reference to a particular section of such Act shall include a reference to the comparable section, if any, of such successor federal statute.

 

	
Section 41.  

	
Notices.

 

All notices, consents, requests, waivers or other communications required or permitted under this Agreement (each a “Notice”) shall be in writing and shall be sufficiently given (a) if hand delivered, (b) if sent by nationally recognized overnight courier, or (c) if sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

 

  

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if to the Company:

Suspect Detection Systems, Inc.

150 West 56th Street, Suite 4005

New York, NY 10019

if to Warrantholder:

or such other address as shall be furnished by any of the parties hereto in a Notice.  Any Notice shall be deemed given upon receipt.

 

	
Section 42.  

	
Supplements, Amendments and Waivers.

 

This Agreement may be supplemented or amended only by a subsequent writing signed by each of the parties hereto (or their successors or permitted assigns), and any provision hereof may be waived only by a written instrument signed by the party charged therewith.

 

	
Section 43.  

	
Successors and Assigns.

 

Except as otherwise provided herein, the provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and permitted assigns of the parties hereto.  Warrants issued under this Agreement may be assigned by Warrantholder only to the extent such assignment satisfies the restrictions on transfer set forth in this Agreement; any attempted assignment of Warrants in violation of the terms hereof shall be void ab initio.

 

	
Section 44.  

	
Termination.

 

This Agreement (other than Sections 7C, 11, and Sections 16 through 27, inclusive, and all related definitions, all of which shall survive such termination) shall terminate on the earlier of (i) the Warrant Expiration Date and (ii) the date on which all Warrants have been exercised by the Warrantholder or redeemed by the Company.

 

	
Section 45.  

	
Governing Law; Jurisdiction.

 

A. Governing Law. This Agreement and each Warrant Certificate issued hereunder shall be governed by and construed in accordance with the laws of the state of Delaware and the federal laws of the United States applicable herein.

 

B. Submission to Jurisdiction.  Each party to this Agreement hereby irrevocably and unconditionally submits, for itself and its property, to the jurisdiction of the state of Delaware, and any appellate court from any thereof, in respect of actions brought against it as a defendant, in any action, suit or proceeding arising out of or relating to this Agreement or the Warrant Certificates and Warrants to be issued pursuant hereto, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action, suit or proceeding may be heard and determined in such courts.  Each of the parties hereto agrees that a final judgment in any such action, suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

 

  

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C. Venue.  Each party hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any action, suit or proceeding arising out of or relating to this Agreement, or the Warrant Certificates and Warrants to be issued pursuant hereto, in any court referred to in this Subsection B.  Each of the parties hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action, suit proceeding in any such court and waives any other right to which it may be entitled on account of its place of residence or domicile.

 

	
Section 46.  

	
Third Party Beneficiaries.

 

Each party intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any Person other than the parties hereto and their successors and permitted assigns.

 

	
Section 47.  

	
Headings.

 

The headings in this Agreement are for convenience only and shall not affect the construction or interpretation of this Agreement.

 

	
Section 48.  

	
Entire Agreement.

 

This Agreement, together with the Warrant Certificates and Exhibits, and the Subscription Agreement, dated of even date herewith, by and between the Company and the Warrantholder, constitute the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and shall supersede any prior agreements and understandings between the parties hereto with respect to such subject matter.

 

	
Section 49.  

	
Expenses.

 

Each of the parties hereto shall pay its own expenses and costs incurred or to be incurred in negotiating, closing and carrying out this Agreement and in consummating the transactions contemplated herein, except as otherwise expressly provided for herein.

 

	
Section 50.  

	
Neutral Construction.

 

The parties to this Agreement agree that this Agreement was negotiated fairly between them at arm’s length and that the final terms of this Agreement are the product of the parties’ negotiations.  Each party represents and warrants that it has sought and received legal counsel of its own choosing with regard to the contents of this Agreement and the rights and obligations affected hereby.  The parties agree that this Agreement shall be deemed to have been jointly and equally drafting by them, and that the provisions of this Agreement therefore should not be construed against a party or parties on the grounds that such party or parties drafted or was more responsible for the drafting of any such provision(s).

 

	
Section 51.  

	
Representations and Warranties.

 

The Company hereby represents and warrants to the Warrantholder that:

 

(a) the Company has all requisite corporate power and authority to (i) execute and deliver this Agreement and (ii) issue and sell the Common Stock upon the conversion thereof and carry out provisions of this Agreement.  All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder, and the authorization (or reservation for issuance), sale and issuance of the Common Stock to be sold hereunder has been taken or will be taken prior to the date hereof;

 

  

- 12 -

  

 

(b) this Agreement constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws relating to application affecting enforcement of creditor’s rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief of other equitable remedies;

 

(c) the Common Stock issuable upon the conversion thereof that is being purchased hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and will be free of restrictions on transfer, other than restrictions on transfer under applicable state and federal securities laws;

 

(d) subject in part to the truth and accuracy of Warrantholder’s representations set forth in Section 11 of this Agreement, the offer, sale and issuance of the Common Stock issuable upon the conversion thereof as contemplated by this Agreement are exempt from the registration requirements of the Securities Act and the qualification or registration requirements of any state securities or other applicable blue sky laws; and

 

(e) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation, or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision or an event that results in creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture or nonremoval of any material permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties.

 

	
Section 52.  

	
Counterparts.

 

This Agreement may be executed in counterparts and by facsimile and each such counterpart shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

 

 

  

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

 

 

 

	 	SUSPECT DETECTION SYSTEMS, INC	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

 

	 	[WARRANTHOLDER]	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

 

 

 

  

- 14 -

  

EXHIBIT 1

WARRANT FORM

 

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.  THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH ACT AND LAWS.  THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF, AND MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH, A CLASS B WARRANT AGREEMENT BETWEEN SUSPECT DETECTION SYSTEMS, INC. AND THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE.  COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE COMPANY.

 

 

	NO.    	_______ CLASS B WARRANTS

 

FORM OF

 

Class B Warrant Certificate

 

	
  

	
SUSPECT DETECTION SYSTEMS, INC.

 

 

This Warrant Certificate certifies that __________________ (the “Warrantholder”), is the registered holder of _____________ Class B Warrants (the “Warrants”) to purchase shares (the “Warrant Shares”) of Common Stock of Suspect Detection Systems, Inc. (the “Company”).  Each Warrant entitles the holder, subject to the satisfaction of the conditions to exercise set forth in Section 7 of the Warrant Agreement referred to below, to purchase from the Company at any time or from time to time on and after _________(the “Warrant Commencement Date”) and terminate on or prior to 5:00 p.m., Eastern time, on _________________ (the “Warrant Expiration Date”) one fully paid and nonassessable Warrant Share at the Exercise Price set forth in the Warrant Agreement.  The number of Warrant Shares for which each Warrant is exercisable and the Exercise Price are subject to adjustment as provided in the Warrant Agreement.

 

The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants to purchase Warrant Shares and are issued pursuant to a Class B Warrant Agreement, dated as of ________________ (the “Warrant Agreement”), between the Company and the Warrantholder, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and Warrantholder.

 

Warrantholder may exercise vested Warrants by surrendering this Warrant Certificate, with the Election to Purchase attached hereto properly completed and executed, together with payment of the aggregate Exercise Price, at the offices of the Company specified in Section 16 of the Warrant Agreement.  If upon any exercise of Warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued to the holder hereof or its assignee a new Warrant Certificate evidencing the number of Warrants not exercised.

 

  

- 15 -

  

 

 

This Warrant Certificate, when surrendered at the offices of the Company specified in Section 16 of the Warrant Agreement, by the registered holder thereof in person, by legal representative or by attorney duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, for one or more other Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants.

 

The Company may deem and treat the registered holder hereof as the absolute owner of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof and for all other purposes, and the Company shall not be affected by any notice to the contrary.

 

WITNESS the signatures of the duly authorized officers of the Company.

 

Dated:  _____________

 

 

	 	
SUSPECT DETECTION SYSTEMS, INC

	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

 

 

 

 

  

- 16 -

  

 

Exhibit 2

 

Form of Election to Purchase

 

The undersigned hereby irrevocably elects to exercise _________ of the Class B Warrants evidenced by the attached Warrant Certificate to purchase Warrant Shares, and herewith tenders (or is concurrently tendering) payment for such Warrant Shares in an amount determined in accordance with the terms of the Warrant Agreement.  The undersigned requests that a certificate representing such Warrant Shares be registered in the name of , whose address is  and that such certificate be delivered to , whose address is .  If said number of Warrants is less than the number of Warrants evidenced by the Warrant Certificate (as calculated pursuant to the Warrant Agreement), the undersigned requests that a new Warrant Certificate evidencing the number of Warrants evidenced by this Warrant Certificate that are not being exercised be registered in the name of , whose address is  and that such Warrant Certificate be delivered to , whose address is .

 

 

Dated:                                   ,              

Name of holder of Warrant Certificate:

___________________________________________

 ___________________________________________

(Please Print)

Address:   ___________________________________                                                          

 

___________________________________________

 

Federal Tax ID No.:   ___________________________                                                 

 

Signature:     _________________________________                                 

     

	
  

	
Note:

	
The above signature must correspond with the name as written in the first sentence of the attached Warrant Certificate in every particular, without alteration or enlargement or any change whatever, and if the certificate evidencing the Warrant Shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which this Warrant Certificate is registered, the signature above must be guaranteed.

Dated:                           ,ex10_5.htm

 Exhibit 10.5 

 FUNDING AGREEMENT 

 This Funding Agreement (the "Agreement") made as of March 22, 2011 by and between Xiaozhong Wu ("Lender") and Mega World Food Holding Company, a Nevada company ("Company"). 

 WITNESSETH 

 WHEREAS, the Company requires and will continue to require funding for the Company for its operations and for the Company’s going and staying public in the U.S., including but not limited to legal, accounting, EDGAR, filing, corporate and other fees and expenses (the “Funding”); and 

 WHEREAS, Lender has agreed to provide all Funding needed by the Company for its operations and for the Company’s going and staying public in the U.S. on the terms and conditions set forth herein. 

 NOW, THEREFORE, in consideration of the mutual covenants hereinafter stated, it is agreed as follows: 

 1.  FUNDING 

 The Company requires and will continue to require funding for the Company for its operations and for the Company’s going and staying public in the U.S., including but not limited to legal, accounting, EDGAR, filing, corporate and other fees and expenses (the “Funding”).  Lender hereby agrees to provide all Funding needed by the Company for its operations and for the Company’s going and staying public in the U.S. on the terms and conditions set forth herein. 

 2.  TERM 

 The term of this Agreement began as of the date of this Agreement and shall terminate when the Company generates operating revenues or receives other financing in amounts necessary to fund its operations and for the Company’s going and staying public in the U.S., including but not limited to legal, accounting, EDGAR, filing, corporate and other fees and expenses. 

 3.  FUNDING TERMS 

 The Funding will be provided by Lender on a non-interest bearing basis due upon demand.  There is no limit on the amount of Funding which must be provided under the Agreement, and Lender agrees to provide all needed Funding.  Lender further represents that he has sufficient liquid assets to meet all of Funding obligations under the Agreement. 

 

  

  

  

 4.  MISCELLANEOUS 

 Modification: This Agreement sets forth the entire understanding of the Parties with respect to the subject matter hereof, and may be amended only in a writing signed by both parties. 

 Notices: Any notices required or permitted to be given hereunder shall be in writing and shall be mailed or otherwise delivered in person or by facsimile transmission at the address of such Party set forth above or to such other address or facsimile telephone number, as the Party shall have furnished in writing to the other Party. 

 Waiver: Any waiver by either Party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of that provision or of any breach of any other provision of this Agreement. The failure of a Party to insist upon strict adherence to any term of this Agreement on one or more occasions will not be considered a waiver or deprive the other Party of the right thereafter to insist upon adherence to that term of any other term or this Agreement. 

 Severability: If any provision of this Agreement is invalid, illegal, or unenforceable, the balance of this Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. 

 IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of the date first above written. 

	
 /s/  Xiaozhong Wu 

	   
	
 Xiaozhong Wu 

	   

 Mega World Food Holding Company, a Nevada corporation 

	 By:   	
 /s/  Xiaozhong Wu 

	   
	   	
      Xiaozhong Wu, 

	   
	   	
      Chairman of Board

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