CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is entered into this 16 day of February,
2006, by and between TraceGuard Technologies Ltd. ("TG IL" or the "Company") a
company registered in Israel, having its principal place of business at 6
Ravnitzky Street, P.O. Box 4708, Segula Industrial Park, Petach Tikva, Israel
and M.S. Materials Ltd., company No. 511360695, a company registered in Israel,
having its principal place of business at 94 Igal Alon Street, Tel Aviv, Israel
("M.S.").
Whereas, TG IL is in the business of development, manufacture and production of
products in the field of homeland security;
Whereas, TG IL desires to engage M.S to render it with advisory and consulting
services through its employee Dr. Fredy Ornath (I.D. No. 026777284)
("Dr. Ornath") and M.S. has agreed to provide such services to TG IL,
all as more fully described herein; and
Whereas, The Company and M.S. have reached an agreement that the services to be
provided to the Company by M.S. shall be provided solely by Dr. Ornath,
with respect to all of the Company's activities.
Now, therefore, the parties agree as follows:
1. Effective Date; Engagement
1.1. This Agreement shall enter into effect upon receipt of all approvals
required under applicable law (the "Effective Date");
1.2. TG IL shall engage M.S. and M.S. shall agree that as of the
Effective Date, Dr. Ornath shall be engaged as the Chief Scientist
of the Company and to hold itself available to render at the request
of TG IL, at such dates and times as shall be mutually agreed
between the parties from time to time, non-exclusive, independent
advisory and consulting services, to the best of its ability, in
compliance with all applicable laws and the terms and condition set
forth herein.
1.3. All consulting services shall be provided at all times solely by Dr.
Ornath. For the term of this Agreement, and until otherwise agreed
between the parties, M.S. shall dedicate such time equal to at least
four (4) full working days (notifying in advance whether and when
Dr. Ornath will be absent) for the provision of the consulting
services and shall not, during the term of this Agreement, without
providing the Company a prior written notice, be engaged, directly
or indirectly, in any other business or professional activity that
is competitive to the Company's activity, whether or not such
activity is pursued for gain, profit or other pecuniary advantage.
1.4. Other than as expressly authorized by the Board of Directors of the
Company, M.S. and/or Dr. Ornath shall have no authority and shall
make no commitment or representation on behalf of TG IL without TG
IL's prior written approval.
2. Services
Within the framework of this Agreement, M.S. shall render the following
services to the Company through Dr. Ornath (the "Services"):
2.1. Aid and consult TG IL and render it with technical and scientific
advice and assistance, including but not limited to participation in
experiments conducted by TG IL, overseeing experiments and
participation in conferences and meetings on behalf of TG IL.
2.2. Upon Company's request, serve as a member of any committee of the
Board of Directors.
2.3. Dr. Ornath shall devote such time and effort to the Services as the
Company shall deem necessary and proper for the fulfillment of M.S.
obligations hereunder.
2.4. Dr. Ornath time commitment to attend meetings, consult on an ad-hoc
basis and render the Services shall be such time equal to at least
four (4) full working days (notifying in advance whether and when
Dr. Ornath will be absent) as customary with respect to similar
positions in the industry, at such times and places to be agreed
between the parties.
2.5. Dr. Ornath shall utilize the highest professional skill, diligence,
ethics and care to ensure that all Services are performed to the
full satisfaction of the Company and to provide the expertise
required in connection with such services. M.S. acknowledges and
agrees that the performance of the Services may require domestic and
international travel.
2.6. In rendering the Services, M.S. and anyone acting on its behalf,
including Dr. Ornath shall comply with all policies and procedures
of the Company, as may be in effect from time to time.
3. Compensation
For and in consideration of the Services to be performed by M.S., TG IL
agrees to pay M.S. as follows:
3.1. A monthly fee of $12,000 (Twelve Thousand U.S. Dollars) accompanied
by VAT (as specified below), payable on a monthly basis with respect
to the preceding month (the "Fee").
3.2. TG IL agrees to reimburse M.S. for out of pocket expenses incurred
by Dr. Ornath in connection with the rendering of the Services
hereunder up to a total amount not to exceed $250 (Two Hundred Fifty
U.S. Dollars) per month, provided that such expenses are against
original receipts and pre-approved by TG IL in writing (the
"Expenses").
3.3. Payment of the Fee shall be made against M.S. itemized invoice
within 30 days of receipt of the relevant invoice, which invoice
shall be submitted to TG IL within 5 days of the end of each
calendar month during the term of this Agreement, and shall be
accompanied by VAT at the rate prescribed by law, subject to any
set-offs or other deductions of any nature as required under any
applicable law, unless M.S. provides TG IL with appropriate tax
exemption documentation.
3.4. For the avoidance of any doubt, the Fee, the Options (as defined in
Exhibit A and subject to the terms thereof) and the aforementioned
Expenses constitute the full and final consideration for the
Services, and M.S. shall not be entitled to any additional
consideration, of any form, for its services.
4. Stock Options
The Company and/or the Company's parent company ("TG US"), will grant to
M.S. options to purchase shares of Common Stock of TG US upon the
principal terms and conditions set forth Exhibit "A" attached hereto,
constituting an integral part of this Agreement and in accordance with the
terms and conditions of the Stock Option Plan that will be adopted by TG
US.
5. Reports
5.1. Dr. Ornath shall submit to the CEO and the Board of the Company
reports at such times as requested by the Company which shall set
forth any information and data requested by the Company.
5.2. In the event that Dr. Ornath participates in a conference on behalf
of TG IL Dr. Ornath shall submit to TG IL a report on the subject of
the conference within a week from participation therein, unless
requested otherwise by Company.
6. Confidentiality
6.1. M.S. and/or Dr. Ornath (for the purpose of this Section and for the
purpose of Sections 7 and 11, M.S. and Dr. Ornath shall be referred
to together as "Consultant") shall not disclose or put to its own
use, or to the use of any third party, any Proprietary Information
(as hereinafter defined) of TG IL and/or TG US of which Consultant
has been or hereafter becomes informed, whether or not developed by
the Consultant.
"Proprietary Information" shall mean confidential and proprietary
information concerning the business and financial activities of TG
IL and/or TG US or any of their affiliates, including, inter alia,
TG IL's and/or TG US' product research and development, TG IL's
and/or TG US' banking, investments, investors, properties,
employees, marketing plans, customers, trade secrets, and test
results, processes, data, know-how, improvements, inventions,
techniques and products (actual or planned), whether documentary,
written, oral or computer generated. However, excluded from the
above definition with respect to Consultant's confidentiality
undertaking is any information that Consultant has evidence that (i)
is or shall become part of the public knowledge except as a result
of the breach of Consultant's undertakings towards TG IL; (ii)
reflects information and data generally known in the industries or
trades in which TG IL operates; (iii) as shown by written records,
is received by Consultant from a third party exempt from
confidentiality undertakings towards TG IL; (iv) Consultant is
compelled by court or government action pursuant to applicable law
to disclose such information, provided, however, that Consultant
provides TG IL prompt notice thereof so that it may seek a
protective order or other appropriate remedy, after providing TG IL
with written notice.
6.2. Consultant will use the Proprietary Information solely to perform
the Services for the benefit of the Company. Consultant shall treat
all Proprietary Information with the same degree of care as the
Consultant accords to its own confidential and/or proprietary
information, and the Consultant represents that it uses best efforts
to protect its own confidential and/or proprietary information.
6.3. Upon termination of its engagement with TG IL, Consultant will in
due course deliver to TG IL all documents and materials of any
nature pertaining to its engagement with TG IL.
6.4. Consultant recognizes that TG IL and/or TG US received and will
receive confidential and/or proprietary information from third
parties subject to a duty on the part of TG IL and/or TG US to
maintain the confidentiality of such information and to use it only
for certain limited purposes. At all times, both during its
engagement and after its termination, the Consultant undertakes to
keep and hold all such information in strict confidence and trust,
and it will not use or disclose any of such information without the
prior written consent of TG IL, except as may be necessary to
perform its duties hereunder and consistent with TG IL and/or TG US
agreement with such third party (as applicable). Upon termination of
its engagement with TG IL, the Consultant shall act, with respect to
such information, as set forth in Section 6.2 and 6.3, mutatis
mutandis.
6.5. Consultant's undertakings under this Section 6 shall remain in full
force and effect after termination or expiration of this Agreement
or of any renewal thereof for a period of seven (7) years
thereafter.
7. Intellectual Property Rights
7.1. Consultant shall disclose promptly to TG IL or its nominee, any and
all inventions, designs, original works of authorship, formulas,
concepts, techniques, processes, formulas, trade secrets,
discoveries and improvements resulting, directly or indirectly, from
the Services and/or conceived or made by the Consultant or anyone on
its behalf in the course of providing TG IL with the Services during
the term of this Agreement (the "Intellectual Property"), and hereby
assigns and agrees to assign to TG IL or its nominee all its
interest, except for moral rights, in any Intellectual Property.
Consultant agrees to assist TG IL or its nominee, as instructed by
TG IL in every proper way to obtain and enforce patents, copyrights,
mask work rights, and other legal protections for the Intellectual
Property in any and all countries. Whenever requested to do so by TG
IL, Consultant will execute any documents that TG IL or TG US may
reasonably request for use in obtaining or enforcing or extending or
renewing such patents, copyrights, mask work rights, trade secrets
and other legal protections. The obligations in this Section 7 shall
be binding upon Consultant's assigns, executors, employees,
officers, administrators and other legal representatives.
7.2. Consultant agrees that all the Intellectual Property is work made
for hire and will be the sole and exclusive property of TG IL or TG
US, at TG IL's sole discretion. All Intellectual Property, which
shall be reduced to practice during and/or within twelve (12) months
after termination of this Agreement, shall be deemed to have been
invented during the term of this Agreement, unless otherwise proved
by the Consultant.
7.3. Consultant's undertakings under this Section 7 shall remain in full
force and effect after termination of this Agreement or any renewal
thereof. TG IL shall compensate the Consultant at a reasonable rate,
for time or expenses actually spent by him, at TG IL's request, for
such assistance after termination of this Agreement.
8. Term and Termination
8.1. The term of this Agreement shall be thirty six (36) months
commencing on the Effective Date, unless and until terminated by
Company for any reason, as provided in Section 8.2 hereunder.
8.2. After a period of no less than twenty four (24) months commencing on
the Effective Date, this Agreement may be terminated by either
party, at any time, without any further obligation under this
Agreement to the other party and/or any one on its behalf (other
than those obligations surviving termination or expiration hereof),
by ninety (90) days prior written notice, unless terminated as a
result of a material breach, in which case this Agreement may be
terminated by either party upon fourteen (14) days prior written
notice to the other party if such a breach was not cured during the
fourteen (14) days period.
9. Assurances; No Conflict
9.1. M.S. hereby warrants, represents and confirms to TG IL that on the
date hereof it and Dr. Ornath are free to be engaged by TG IL upon
the terms contained in this Agreement and that there are no
engagements, contracts, consulting contracts or restrictive
covenants preventing full performance of its duties hereunder.
9.2. M.S. hereby further represents warrants and confirms that nothing in
this Agreement conflicts with any of M.S. and/or Dr. Ornath`s
current affiliations or other current relationships with any other
entity.
9.3. Without derogating from any of the provisions of this Section 9,
M.S. represents and warrants that it and/or Dr. Ornath currently
render consulting services to and/or is engaged by the entities
listed on Exhibit "B" hereto and that nothing in this Agreement
conflicts with any of M.S. and/or Dr. Ornath relationships with any
of such entities. During the term of this Agreement M.S. shall
promptly notify TG IL in writing of any additional entity that it
shall render consulting services to and/or engage with.
9.4. The Services performed hereunder will not be conducted on time that
is required to be devoted by M.S. to any other third party. M.S.
shall not use the funding, facilities and resources of any third
party to perform the Services hereunder and shall not perform the
Services hereunder in any manner that would give any third party
rights to produce such work. Nothing done in M.S. work for any third
party shall be considered part of the Services performed hereunder
and M.S. shall not use, directly or indirectly, the funding,
facilities and resources of the Company with respect to its
engagement with any third party.
10. Business Opportunities
Consultant shall be obligated to offer the Company the right of first
negotiation for any business opportunity that comes to it, in the field of
homeland security (the "Business Opportunity"). In the event the Company
does not exercise its right to exploit a certain Business Opportunity
within three (3) months, Consultant shall be free to do so in any manner
it deems fit as long as Consultant fulfilles its obligations under this
Agreement.
11. Competitive Activity; Non-Solicitation
11.1. M.S. and/or Dr. Ornath will not, as long as M.S. provides services
to TG IL hereunder and for a period of 24 (Twenty Four) months
thereafter, directly or indirectly, as owner, partner, joint
venturer, stockholder, employee, broker, agent, principal, corporate
officer, director, consultant, licensor or in any other capacity
whatsoever engage in, become financially interested in, be employed
by, or have any connection with any business or venture that is
engaged in any activities which are in direct competition with
products or services offered by TG IL at the prevailing time or in
direct competition with any research and development efforts in
connection with TG IL intended products and services at the
prevailing time without TG IL prior consent.
11.2. During the Term of this Agreement and for a period of 24 (twenty
four) months thereafter, M.S. and/or Dr. Ornath will not solicit or
induce any employee, advisor, contractor or customer of the Company
to terminate or breach any employment, contractual or other
relationship with the Company.
12. Independent Contractor
12.1. M.S. agrees and acknowledges that it is performing the Services
hereunder as an independent contractor and that no employer-employee
relationship exists or will exist between either M.S. or anyone on
its behalf, including Dr. Ornath and the Company, and/or its
affiliates or investment portfolio companies.
12.2. If, despite the parties' explicit intent as reflected in this
agreement, a competent court determines the existence of an
employer-employee relationship between either the Company and M.S.
or the Company and Dr. Ornath and decides that M.S. or Dr. Ornath
are entitled to payments and/or other benefits in connection with
such employment relationship, then the following shall apply:
12.2.1. The gross salary that M.S. and/or Dr. Ornath would
have been entitled to receive as an "employee" of the
Company during the term of this Agreement shall be
calculated as being equivalent to 70 % of the Fee; and
12.2.2. The remaining 30% of the Fee (the "Extra Payments")
shall be returned by M.S. and/or Dr. Ornath (as
applicable) to the Company. The Company shall be
entitled to set off the Extra Payments against any
payment and/or benefit that the Company shall be
obliged, if obliged, to pay M.S. as a result of, or
pursuant to, any such court decision and/or this
Agreement and/or applicable law; and
12.2.3. M.S. and Dr. Ornath, jointly and severally, shall
indemnify the Company and hold it harmless from any
loss or damage incurred by the Company as a result of,
or in connection with, such court decision, including
reasonable expenses and legal fees.
12.3. Dr. Ornath shall also take upon himself, personally, the above, by
signing at the end of this Agreement.
13. Miscellaneous
13.1. M.S. shall not assign this agreement or any of its rights and
privileges hereunder, whether voluntarily or by operation of law, to
any person, firm or corporation without the prior written consent of
TG IL.
13.2. Without derogating Section 12 above, M.S. acknowledges and agrees
that the relationship intended by this agreement is that of an
independent contractor and not that of an employee, agent or
representative of TG IL. M.S. shall be solely responsible for the
payment of any taxes, including all business taxes arising out of
the M.S. activities.
13.3. Except as otherwise provided herein, this Agreement constitutes the
entire agreement between the parties with respect to the matters
referred to herein, and no other arrangement, understanding or
agreement, verbal or otherwise, shall be binding upon the parties
hereto. This Agreement may not be amended, modified or supplemented
in any respect, except by a subsequent writing executed by both
parties hereto.
13.4. No failure, delay or forbearance of either party in exercising any
power or right hereunder shall in any way restrict or diminish such
party's rights and powers under this Agreement, or operate as a
waiver of any breach or non-performance by either party of any of
the terms or conditions hereof.
13.5. If any term or provision of this Agreement shall be declared
invalid, illegal or unenforceable, then such term or provision shall
be enforceable to the extent that a court shall deem it reasonable
to enforce such term or provision and if such term or provision
shall be unreasonable to enforce to any extent, such term or
provision shall be severed and all remaining terms and provisions
shall be unaffected and shall continue in full force and effect.
13.6. Any notice from one party to the other shall be effectively served
if sent in writing by recorded delivery to the address of the
receiving party as stated in the preamble to this agreement, unless
said party informs the other party in writing on a change of
address.
IN WITNESS WHEREOF, THE PARTIES HAVE HEREUNTO SET THEIR HAND UPON THE DATE FIRST
ABOVE WRITTEN.
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TRACEGUARD TECHNOLOGIES LTD. M.S. MATERIALS LTD.
By: /s/ Meir Zucker By: Dr. Fredy Ornath
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Its: /s/ President & CEO Its: General Manager
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I, the undersigned, Dr. Fredy Ornath, residing at 12 Beit Zuri Street, Tel Aviv,
Israel, hereby represent and warrant, and undertake, that I fully agree to the
provisions of this Agreement (including Sections 1.2, 1.3, 6, 7, 10, 11 and 12
hereinabove), as if made by myself and I undertake to comply with all such
provisions.
Signed on February 16, 2006
/s/ Dr. Fredy Ornath
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Dr. FREDY ORNATH
EXHIBIT A
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PRINCIPLE TERMS OF OPTIONS
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1. Number of Options. Subject to the receipt of all consents required under
applicable law, M.S. shall be entitled to receive options for the purchase
of common stock of TG US, par value $0.01 each (the "Options"), as
follows:
1.1. M.S. will be entitled to receive Options for the purchase of
1,200,000 (One Million Two Hundred Thousand) shares of common stock
of TG US, par value $0.01 each, according to the terms and
conditions set forth in the Company's Employee Stock Option Plan to
be adopted by TG US. The exercise price of such Options shall be as
approved by TG US with respect to other employees and consultants of
TG US and/or the Company at this time, at its sole discretion, but
not less than seventy US Cents ($0.70).
1.2. Upon the receipt of the approval/certificate of the Israeli Security
Agency and/or the US Transportation Security Administration (TSA) to
the CarrySafe - M.S. shall receive additional Options for the
purchase of 1,200,000 (One Million Two Hundred Thousand) shares of
common stock of TG US, par value $0.01 each, at an exercise price of
US$1.00 (One U.S. Dollar). These Options shall be fully vested and
exercisable for a period of three (3) years commencing on the date
of their grant and shall expire immediately thereafter;
1.3. Upon the receipt of a purchase order for equipment in an aggregate
amount of 1,000,000$ (One Million U.S. Dollars) during 1 (One)
calendar year and/or entering into a Strategic Agreement (as defined
below) - M.S. shall receive additional Options for the purchase of
1,200,000 (One Million and Two Hundred Thousand) shares of common
stock of TG US, par value $0.01 each, at an exercise price of
US$1.50 (One U.S. Dollar and Fifty Cents). These Options shall be
fully vested and exercisable for a period of three (3) years
commencing on the date of their grant and shall expire immediately
thereafter;
For the purpose of this Section a "Strategic Agreement" means a
Meaningful Partnership (as defined herein) with one of the companies
listed in Exhibit "C" or a similar transaction, as determined by the
Company, at its sole discretion.; and a "Meaningful Partnership"
means a joint venture with one of the companies listed in Exhibit C
in which such company invests an amount of at least US$ 10,000,000
(Ten Million U.S. Dollars) in such joint venture or a an agreement
with such company that it is anticipated by the Company to generate
revenues to TG IL of at least US$ 10,000,000 (Ten Million U.S.
Dollars) over a period of 5 (Five) years.
1.4. Upon the Company's achieving a gross profits of US$ 2,000,000 (Two
Million U.S. Dollars), according to the audited financial statements
of the Company (a "Profit") - M.S. shall receive additional Options
to purchase 1,500,000 (One Million Five Hundred Thousand) shares of
common stock of TG US, par value $0.01 each, at an exercise price of
US$1.75 (One U.S. Dollar and Seventy Five Cents). These Options
shall be fully vested and exercisable for a period of three (3)
years commencing on the date of their vesting and shall expire
immediately thereafter.
2. General Term of Options. Without derogating the aforesaid, if the
Employees Incentive Stock Option Plan that shall be adopted by TG US
includes additional provisions related to expiration of Options,
such provisions shall also apply with respect to the Options granted
to M.S. under Section 1.1 of this Exhibit.
3. Tax. All options will be granted to M.S. under Section 3(i) of
Israeli Internal Revenue Ordinance.
EXHIBIT B
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ENTITIES TO WHICH DR. ORNATH AND/OR M.S. ARE PROVIDING SERVICES
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Company Name Status of Engagement Anticipated Termination of Signature of Dr.
Engagement Ornath
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EXHIBIT C
STRATEGIC ENTITIES
1) GE
2) Smits Detection
3) L3
4) Boeing
5) Siemens
6) Lockheed Martin
7) Northrop Grumman Corp.
8) Rapsican
9) Any company that conducts significant business in the United States
with sales exceeding an amount of US$ 100,000,000 (One Hundred
Million U.S. Dollars) to the homeland security market.