SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of May 26,
2000, by and among Saf T Lok Incorporated, a Florida corporation, with
headquarters located at 0000 Xxxxxxxxxx Xxxxxxx, Xxxx Xxxx Xxxxx, Xxxxxxx 00000
(the "Company"), and the investor listed on the Schedule of Buyers attached
hereto (individually, a "Buyer" or collectively "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration pursuant
to Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended
(the "1933 Act"),
B. The Company is offering for sale to the Buyer 6% Subordinated
Convertible Debentures (the "Debentures") of the Company, due on May 26, 2002,
and offered in denominations of $25,000 up to an aggregate principal amount of
$875,000. The terms of the Debentures, including the terms on which the
Debentures may be converted into the common stock of the Company, $0.01 par
value, are set forth in the Debenture, in substantially the form attached as
Exhibit "A" hereto.
C. The Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, an aggregate principal amount of up to $875,000 of Debentures
in the respective amounts set forth opposite each Buyer's name on the Schedule
of Buyers;
D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit "B" (the "Registration
Rights Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws;
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES.
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a. Purchase of Debentures. Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, the
Company shall issue and sell to the Buyers and the Buyers shall
purchase from the Company an aggregate principal amount of not more
than $875,000 Debentures, in the respective amounts set forth opposite
each Buyer's name on the Schedule of Buyers (the "Closing").
b. Closing Date. The date and time of the Closing (the "Closing
Date") shall be 10:00 a.m. Eastern Standard Time, within five (5)
business days following the date hereof, subject to notification of
satisfaction (or waiver) of the conditions to the Closing set forth in
Sections 6 and 7 below (or such later date as is mutually agreed to by
the Company and the Buyer). The Closing shall occur on the Closing Date
at the offices of Xxxx Xxxx Xxxxx & Xxxxx LLP, 000 Xxxxxxxxx Xxxx
Xxxxxx, Xxxxx 000, 0000 Xxxxxxxxx Xxxx, X.X., Xxxxxxx, Xxxxxxx 00000.
c. Form of Payment. On the Closing Date, (i) the Escrow Agent
shall pay the purchase price to the Company for the Debentures to be
issued and sold to such Buyer at the Closing, by wire transfer of
immediately available funds in accordance with the Company's written
wire instructions, and (ii) the Company shall deliver to each Buyer,
certificates representing such Debentures which such Buyer is then
purchasing (as indicated opposite such Buyer's name on the Schedule of
Buyers), duly executed on behalf of the Company and registered in the
name of such Buyer or its designee (the "Certificates").
2. BUYER'S REPRESENTATIONS AND WARRANTEES.
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Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Debentures and, (ii) upon conversion of the Debentures will acquire the
Conversion Shares then issuable, for its own account for investment
only and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold
any Debentures or Conversion Shares for any minimum or other specific
term and reserves the right to dispose of Debentures or Conversion
Shares at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. Accredited Investor/Tax Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D
("Regulation D") as promulgated by the United States Securities and
Exchange Commission (the "SEC").
c. Reliance on Exemptions. Such Buyer understands that the
Debentures and Conversion Shares are being offered and sold to it in
reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is
relying in part upon the truth and accuracy of, and such Buyer's
compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the
eligibility of such Buyer to acquire such securities.
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d. Information. Such Buyer and its advisors, if any, have been
furnished with all appropriate materials relating to the business,
finances and operations of the Company and materials relating to the
offer and sale of the Debentures and Conversion Shares which have been
requested by such Buyer. Such Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such
Buyer or its advisors, if any, or its representatives shall modify,
amend or affect such Buyer's right to rely on the Company's
representations and warranties contained in Section 3 below. Such Buyer
understands that its investment in the Debentures and the Conversion
Shares involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make
an informed investment decision with respect to its acquisition of the
Debentures and the Conversion Shares.
e. No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Debentures, the Conversion Shares, or the fairness or suitability of
the investment in the Debentures and the Conversion Shares, nor have
such authorities passed upon or endorsed the merits of the offering of
the Debentures, and the Conversion Shares.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Debentures and
the Conversion Shares have not been and are not being registered under
the 1933 Act or any state securities laws, and may not be offered for
sale, sold, assigned or transferred unless such sale, assignment, or
transfer is approved (unless to an affiliate or successor entity) by
the Company and (a) subsequently registered thereunder, (b) such Buyer
shall have delivered to the Company an opinion of counsel, in a
generally acceptable form, to the effect that such securities to be
sold, assigned or transferred may be sold, assigned or transferred
pursuant to an exemption from such registration, or (c) such Buyer
provides the Company with reasonable assurance that such securities can
be sold, assigned or transferred pursuant to Rule 144 promulgated under
the 1933 Act (or a successor rule thereto); (ii) any sale of such
securities made in reliance on Rule 144 promulgated under the 1933 Act
(or a successor rule thereto) ("Rule 144") may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of such securities under circumstances in which
the seller (or the person through whom the sale is made) may be deemed
to be an underwriter (as that term is defined in the 0000 Xxx) may
require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such
securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Debentures, until such time as the
sale of the Conversion Shares have been registered under the 1933 Act
as contemplated by the Registration Rights Agreement, and the stock
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certificates representing the Conversion Shares, shall bear a
restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS INCLUDING, BUT NOT LIMITED TO,
O.C.G.A. ss.10-5-9(13). THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL,
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of the Debentures and
the Conversion Shares, upon which it is stamped, if, unless otherwise
required by applicable securities laws, (i) the sale of the Conversion
Shares is registered under the 1933 Act, (ii) in connection with a sale
transaction, such holder provides the Company with an opinion of
counsel, reasonably satisfactory to the Company, to the effect that a
public sale, assignment or transfer of the Debentures and the
Conversion Shares may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances
that the Debentures or the Conversion Shares can be sold pursuant to
Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold.
In addition to the foregoing, to the extent that the Holder
receives a certificate for Conversion Shares that does not contain the
foregoing legend, such holder understands that, (A) the Conversion
Shares may be sold only by means of a current prospectus or pursuant to
an applicable exemption from registration under the 1933 Act, (B) in
connection with a prospectus sale, such holder is required to deliver
to the purchaser a current prospectus at the time of resale of the
Conversion Shares and (C) in that event, such holder is responsible for
determining that any such prospectus is current at the time of resale.
The Company undertakes to promptly notify the Holder in writing in the
event that facts and circumstances cause the prospectus to no longer be
current and shall indemnify and hold the Holder harmless from any
costs, losses, or damages, including reasonable attorney's fees that
the Holder may suffer by reason of the Company failing to provide such
prompt notice. Holder hereby indemnifies and holds the Company harmless
from any costs, losses or damages, including reasonable attorneys'
fees, that the Company may suffer by reason of holder's failure to
comply with the provisions of this paragraph.
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h. Authorization, Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and
is a valid and binding agreement of such Buyer enforceable in
accordance with its terms, subject as enforceability to general
principles of equity and to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating
to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.
i. Residency. Such Buyer is a resident of that state and country
specified in its address on the Schedule of Buyers.
3 . REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its
subsidiaries are corporations duly organized and validly existing in
good standing under the laws of the jurisdiction in which they are
incorporated, and have the requisite corporate power to own their
properties and to carry on their business as now being conducted. Each
of the Company and its subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes
such qualification necessary, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries taken as a whole.
b. Authorization, Enforcement, Compliance with Other
Instruments. (i) The Company has the requisite corporate power and
authority to enter into and perform this Agreement, the Registration
Rights Agreement and any related agreements, and to issue the
Debentures, the Conversion Shares, in accordance with the terms hereof
and thereof, (ii) the execution and delivery of this Agreement, the
Registration Rights Agreement and any related agreements by the Company
and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the issuance of the Debentures
and the reservation for issuance and the issuance of the Conversion
Shares issuable upon conversion or exercise thereof, have been duly
authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or
its stockholders, (iii) this Agreement, the Registration Rights
Agreement, and any related agreements have been duly executed and
delivered by the Company, and (iv) this Agreement, the Registration
Rights Agreement, and any related agreements constitute the valid and
binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 30,000,000 shares of Common
Stock, par value $0.01 per share, zero shares of Preferred Stock and
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$125,000 in principal amount of 6% Convertible Debentures, of which as
of the date hereof 15,565,178 shares of Common Stock and zero shares of
Series Preferred Stock were issued and outstanding. All of such
outstanding shares have been validly issued and are fully paid and
nonassessable. Except as disclosed in this Agreement or the SEC
Documents (as defined herein), no shares of Common Stock or preferred
stock are subject to preemptive rights or any other similar rights or
any liens or encumbrances suffered or permitted by the Company. Except
as disclosed in this Agreement or the SEC Documents (as defined
herein), as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company or
any of its subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its subsidiaries is or may
become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, (ii) there are no
outstanding debt securities and (iii) except as set forth in the
Company's SEC Documents, there are no agreements or arrangements under
which the Company or any of its subsidiaries is obligated to register
the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement). However, the Company has approved the
grant of an option to Xxxxxx Xxxxxxx to purchase 250,000 shares of
common stock of the Company which grant is subject to a release from
Xxxxxxxx Xxxxxxxx and Xxxxxx. There are no securities or instruments
containing anti-dilution or similar provisions that will be triggered
by the issuance of the Debentures or the Conversion Shares as described
in this Agreement. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation, as
amended and as in effect on the date hereof (the "Certificate of
Incorporation"), and the Company's By-laws, as in effect on the date
hereof (the "By-laws"), and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
d. Issuance of Securities. The Debentures are duly authorized
and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and nonassessable, are free from all taxes,
liens and charges with respect to the issue thereof and are entitled to
the rights and preferences set forth in the Debentures. The Conversion
Shares issuable upon conversion of the Debentures have been duly
authorized and reserved for issuance. Upon conversion or exercise in
accordance with the Debentures, the Conversion Shares will be validly
issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, with the holders being
entitled to all rights accorded to a holder of Common Stock.
e. No Conflicts. Except as disclosed in the SEC Documents, the
execution, delivery and performance of this Agreement by the Company
and the consummation by the Company of the transactions contemplated
hereby will not (i) result in a violation of the Certificate of
Incorporation or By-laws or (ii) conflict with or constitute a default
(or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
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acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party,
or result in a violation of any law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations
and the rules and regulations of the principal market or exchange on
which the Common Stock is traded or listed) applicable to the Company
or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries is bound or affected. Neither the
Company nor its subsidiaries is in violation of any term of or in
default under its Certificate of Incorporation or By-laws or their
organizational charter or by-laws, respectively, or any material
contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable
to the Company or its subsidiaries. The business of the Company and its
subsidiaries is not being conducted, and shall not be conducted in
violation of any law, ordinance, regulation of any governmental entity.
Except as specifically contemplated by this Agreement and as required
under the 1933 Act and any applicable state securities laws, to the
best of the Company's knowledge, the Company is not required to obtain
any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under or
contemplated by this Agreement and the Registration Rights Agreement in
accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company and
its subsidiaries are unaware of any facts or circumstances which might
give rise to any of the foregoing.
f. SEC Documents: Financial Statements. Since January 1, 1997,
the Company had filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as
amended (the "1934 Act") (all of the foregoing filed prior to the date
hereof and all exhibits included therein and being hereinafter referred
to as the "SEC Documents"). The SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in
the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the
notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial
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position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). No
other information provided by or on behalf of the Company to the Buyer
which is not included in the SEC Documents, including, without
limitation information referred to in Section 2(d) of this Agreement,
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made, not
misleading.
g. Absence of Certain Changes. The Company has not taken any
steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company or its
subsidiaries have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. Except as set forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of
the Company or any of its subsidiaries, threatened against or affecting
the Company, the Common Stock or any of the Company's subsidiaries,
wherein an unfavorable decision, ruling or finding would (i) have a
material adverse effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or
ability of the Company to perform its obligations under, this Agreement
or any of the documents contemplated herein or (iii), except as
expressly set forth in the SEC Documents, have a material adverse
effect on the business, operations, properties, financial condition or
results of operation of the Company and its subsidiaries taken as a
whole.
i. No Undisclosed Events, Liabilities, Developments or
Circumstances. No known event, liability, development or circumstance
has occurred or exists, or is contemplated to occur, with respect to
the Company or its subsidiaries or their respective business,
properties, prospects, operations or financial condition, which could
be material but which is not disclosed in an SEC Document or has not
been publicly announced or disclosed in writing to the Buyer.
j. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the 0000 Xxx) in connection
with the offer or sale of the Debentures or the Conversion Shares.
k. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly
or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of the Debentures or the Conversion Shares under the 1933
Act or cause this offering of Debentures or the Conversion Shares to be
integrated with prior offerings by the Company for purposes of the 1933
Act or any applicable stockholder approval provisions.
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l. Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of
the Company or any of its subsidiaries, is any such dispute threatened.
None of the Company's or its subsidiaries' employees is a member of a
union and the Company and its subsidiaries believe that their relations
with their employees are good.
m. Intellectual Property Rights. To the best of the Company's
knowledge, the Company and its subsidiaries own or possess adequate
rights or licenses to use all trademarks, trade names, service marks,
service xxxx registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted. Except as set forth in the SEC
Documents, none of the Company's trademarks, trade names, service
marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, government
authorizations, trade secrets or other intellectual property rights
have expired or terminated, or are expected to expire or terminate in
the near future. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights,
inventions, licenses, service names, service marks, service xxxx
registrations, trade secret or other similar rights of others, or of
any such development of similar or identical trade secrets or technical
information by others and, except as disclosed in the SEC Documents,
there is no claim, action or proceeding being made or brought against,
or to the Company's knowledge, being threatened against, the Company or
its subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks,
service xxxx registrations, trade secret or other infringement; and the
Company and its subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and its
subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual
properties.
n. Environmental Laws. To the best of the Company's knowledge,
the Company and its subsidiaries are (i) in compliance with any and all
applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with
all terms and conditions of any such permit, license or approval.
o. Title. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is
material to the business of the Company and its subsidiaries, in each
case free and clear of all liens, encumbrances and defects except such
as are disclosed in the SEC Documents or such as do not materially and
adversely affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company
and its subsidiaries.
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p. Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the
Company and its subsidiaries are engaged. Neither the Company nor any
such subsidiary has been refused any insurance coverage sought or
applied for and neither the Company nor any such subsidiary has any
reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect
the condition, financial or otherwise, or the earnings, business or
operations of the Company and its subsidiaries, taken as a whole.
q. Regulatory Permits. The Company and its subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary
to conduct their respective businesses, and neither the Company nor any
such subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit.
r. Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
s. No Materially Adverse Contracts, Etc. Except as disclosed
in the SEC Documents, neither the Company nor any of its subsidiaries
is subject to any charter, corporate or other legal restriction, or any
judgment, decree, order, rule or regulation which in the judgment of
the Company's officers has or is expected in the future to have a
material adverse effect on the business, properties, operations,
financial condition, results of operations or prospects of the Company
or its subsidiaries. Except as disclosed in the SEC Documents, neither
the Company nor any of its subsidiaries is a party to any contract or
agreement which in the judgment of the Company's officers has or is
expected to have a material adverse effect on the business, properties,
operations, financial condition, results of operations or prospects of
the Company or its subsidiaries.
t. Tax Status. The Company and each of its subsidiaries has
made or filed all federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each of its
subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) and has paid all
taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
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declarations, except those being contested in good faith and has set
aside on its books provision reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any
such claim.
u. Certain Transactions. Except as disclosed in the SEC
Documents, and except for arm's length transactions pursuant to which
the Company makes payments in the ordinary course of business upon
terms no less favorable than the Company could obtain from third
parties and other than the grant of stock options disclosed in the SEC
Documents, none of the officers, directors, or employees of the Company
is presently a party to any transaction with the Company (other than
for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property
to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer,
director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
v. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the
Debentures will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon
conversion of the Debentures in accordance with this Agreement and the
Debentures, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests
of other stockholders of the Company.
w. Fees and Rights of First Refusal. The Company is not
obligated to offer the securities offered hereunder on a right of first
refusal basis or otherwise to any third parties including, but not
limited to, current or former shareholders of the Company,
underwriters, brokers, agents, or other third parties.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect to
the Debentures and the Conversion Shares as required under Regulation
D.
c. Reporting Status. Until the earlier of (i) the date as of
which the Investors (as that term is defined in the Registration Rights
Agreement) may sell all of the Conversion Shares without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), or (ii) the date on which (A) the Investors shall have sold
all the Conversion Shares and (B) none of the Debentures are
outstanding (the "Registration Period"), the Company shall file all
11
reports required to be filed with the SEC pursuant to the 1934 Act, and
the Company shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Debentures for working capital and research and
development.
e. [INTENTIONALLY LEFT BLANK.]
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than 100% of the number of shares of Common Stock
needed to provide for the issuance of the Conversion Shares, which
could be issued at any time at the Floor Price as defined in the
Debentures.
g. Listings. The Company shall promptly secure the listing of
the Conversion Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock
are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all Conversion Shares from time to time
issuable under the terms of this Agreement and the Registration Rights
Agreement. The Company shall use its best efforts to maintain the
Common Stock's authorization for quotation in the NASDAQ Small Cap
Market.
h. Expenses. Each of the Company and the Buyer shall pay all
costs and expenses incurred by such party in connection with the
negotiation, investigation, preparation, execution and delivery of this
Agreement and the Registration Rights Agreement.
i. [LEFT INTENTIONALLY BLANK]
j. Listing. [LEFT INTENTIONALLY BLANK]
k. Corporate Existence. So long as any Debentures remain
outstanding, the Company shall not directly or indirectly consummate
any merger, reorganization, restructuring, consolidation, sale of all
or substantially all of the Company's assets or any similar transaction
or related transactions (each such transaction, a "Sale of the
Company") except if the surviving or successor entity in such
transaction (i) expressly assumes, in writing, the Company's
obligations hereunder and under the Registration Rights Agreement, the
Debentures and any other agreements and instruments entered into or
delivered by the Company in connection herewith and (ii) is a publicly
traded corporation whose Common Stock is listed for trading on the New
York Stock Exchange, Inc., the American Stock Exchange or the NASDAQ
National Market, NASDAQ SmallCap Market, or electric bulletin board.
12
l. Shareholder Approval. The Company covenants to promptly
submit to its shareholders at a shareholder's meeting a proposal for
ratification of the issuance of the Debentures, the Conversion Shares,
if and as required by the rules of the National Association of
Securities Dealers, Inc. ("NASD") and any other applicable law, rules,
and regulations applicable to the transaction. The Company represents
and warrants that Affiliates of the Company, including the Company's
officers and directors, have individually agreed in writing in their
capacity as shareholders to vote their shares of Common Stock in favor
of such a proposal at such meeting.
m. No Short Sales of the Common Stock. So long as (i) a Buyer
owns at least $100,000 of Debentures, (ii) the Company has not issued
any publicly traded convertible securities and (iii) the Issuer is not
in material default under the terms of the Debentures, the Registration
Rights Agreement, this Agreement or any related agreement, each Buyer
shall not directly or indirectly engage in any short sales or third
party short sales of the Company's Common Stock or hold a "put
equivalent position" with respect to the Common Stock (as defined in
Rule 16a-1 under the 1934 Act). Notwithstanding anything contained to
the contrary in this section, in the event that the Company enters into
a private placement transaction (other than in connection with employee
benefit plans, employee or consultant compensation, or in connection
with mergers and acquisitions) which permits the investors rights to
engage in short sales of Common Stock, the restrictions contained in
this section shall be automatically modified to permit the Buyer to
engage in short sales of Common Stock substantially to the extent
permitted by the Company with respect to such private placement
investors.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent to issue certificates, registered in the name of the Buyer or its
respective nominee(s), for the Conversion Shares in such amounts as specified
from time to time by the Buyer to the Company upon conversion of the Debentures
(the "Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares, prior
to registration of such shares under the 0000 Xxx) will be given by the Company
to its transfer agent and that the Conversion Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement or the Registration Rights Agreement. Nothing in this
Section 5 shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Debentures or the
Conversion Shares. If the Buyer provides the Company with an opinion of counsel,
reasonably satisfactory in form, and substance to the Company, that registration
of a resale by the Buyer of any of the Debentures or the Conversion Shares is
not required under the 1933 Act, the Company shall permit the transfer, and, in
the case of the Conversion Shares, promptly instruct its transfer agent to issue
one or more certificates in such name and in such denominations as specified by
the Buyer. The Company acknowledges that a breach by it of its obligations
13
hereunder will cause irreparable harm to the Buyer by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 5, that the Buyer shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
----------------------------------------------
The obligation of the Company hereunder to issue and sell the
Debentures to the Buyer at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
a. The Buyer shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
b. The Buyer shall have delivered to the Escrow Agent the
Purchase Price for the Debentures being purchased by the Buyer at the
Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.
c. The representations and warranties of the Buyer shall be
true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
the Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Buyer at
or prior to the Closing Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
------------------------------------------------
The obligation of the Buyer hereunder to purchase the
Debentures at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Buyer's sole benefit and may be waived by the Buyer at
any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Common Stock shall be authorized for quotation on the
over-the-counter market, or the NASDAQ SmallCap Market , Inc., trading
in the Common Stock shall not have been suspended for any reason.
c. The representations and warranties of the Company shall be
true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case, such representations and
warranties shall be true and correct without further qualification) as
14
of the date when made and as of the Closing Date as though made at that
time (except for representations and warranties that speak as of a
specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or
complied with by the Company at or prior to the Closing Date. The Buyer
shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by
the Buyer including, without limitation an update as of the Closing
Date regarding the representation contained in Section 3(c) above.
d. The Buyer shall have received the opinion of the Company's
counsel dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer and in substantially the form of
Exhibit "C" attached hereto.
e. The Company shall have executed and delivered to the Buyer
the Certificates (in such denominations as the Buyer shall request) for
the Debentures being purchased by the Buyer at the Closing.
f. The Board of Directors of the Company shall have adopted
the resolutions in substantially the form of Exhibit "D" attached
hereto.
g. As of the Closing Date, the Company shall have reserved out
of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Debentures, such number of shares of
Common Stock no less than 100% of the number of shares of Common Stock
for which are issuable upon conversion of all of the Debentures which
could be issued at any time at the Floor Price as defined in the
Debentures.
h. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyer, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
8. INDEMNIFICATION.
---------------
a. In consideration of the Buyer's execution and delivery of
this Agreement and acquiring the Debentures and the Conversion Shares,
hereunder and in addition to all of the Company's other obligations
under this Agreement, the Company shall defend, protect, indemnify and
hold harmless the Buyer and each other holder of the Debentures, the
Conversion Shares, and all of their officers, directors, employees and
agents (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively,
the "Indemnitees") from and against any and all actions, causes of
action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether
any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and
disbursements (the "Indemnified Liabilities"), incurred by the
15
Indemnitees or any of them as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation
or warranty made by the Company in this Agreement, the Debentures or
the Registration Rights Agreement or any other certificate, instrument
or document contemplated hereby or thereby, (b) any breach of any
covenant, agreement or obligation of the Company contained in this
Agreement, the Debentures, the Registration Rights Agreement, or any
other certificate, instrument or document contemplated hereby or
thereby, or (c) any cause of action, suit or claim brought or made
against such Indemnitee by any third party and arising out of or
resulting from the execution, delivery, performance or enforcement of
this Agreement or any other instrument, document or agreement executed
pursuant hereto by any of the Indemnities, any transaction financed or
to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Debentures or the status of the Buyer
or holder of the Debentures, the Conversion Shares, as an investor in
the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
b. Each Buyer agrees to severally and not jointly indemnify,
hold harmless and defend, to the same extent and in the same manner as
is set forth in Section 8a., the Company from Indemnified Liabilities,
in each case to the extent, and only to the extent, that such
Indemnified Liabilities are incurred by the Company arising out of or
relating to a breach by that Buyer of (a) any misrepresentation or
breach of any representation or warranty made by the Buyer in this
Agreement, the Debentures or the Registration Rights Agreement or any
other certificate, instrument or document contemplated hereby or
thereby, (b) any breach of any covenant, agreement or obligation of the
Buyer contained in this Agreement, the Debentures the Registration
Rights Agreement, or any other certificate, instrument or document
contemplated hereby or thereby, provided, further, however, that the
Investor shall be liable under this Section 8b. for only that amount of
Indemnified Liabilities as does not exceed the proceeds to such Buyer
as a result of the sale of Registrable Securities pursuant to the
Registration Statement.
9. GOVERNING LAW: MISCELLANEOUS.
----------------------------
a. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware
without regard to the principles of conflict of laws. Company
acknowledges that upon any breach of Buyer's conversion rights
hereunder, Buyer's resulting injury may not be adequately compensated
by a remedy at law. Accordingly, upon such breach, Buyer, at its
election and without limitation of its other remedies, shall be
entitled to pursue a claim for specific performance of this Agreement,
and Company hereby waives the right to assert any defense thereto that
Purchaser has an adequate remedy at law. The parties expressly consent
to the jurisdiction and venue of the Superior Court of Xxxxxx County,
Georgia and the United States District Court for the Northern District
of Georgia for the adjudication of any civil action asserted pursuant
to this Paragraph.
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b. Acknowledgment Regarding Buyer's Purchase of Debentures.
The parties acknowledge and agree that the Buyer is acting solely in
the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The parties further
acknowledge that the Buyer is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to
this Agreement and the transactions contemplated hereby and any advice
given by the Buyer or any of their respective representatives or agents
in connection with this Agreement and the transactions contemplated
hereby is merely incidental to such Buyer's purchase of the Debentures
or the Conversion Shares. The parties further acknowledge to the Buyer
that the Company's decision to enter into this Agreement has been based
solely on the independent evaluation by the Company and its
representatives.
c. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. In the event any
signature page is delivered by facsimile transmission, the party using
such means of delivery shall cause four (4) additional original
executed signature pages to be physically delivered to the other party
within five (5) days of the execution and delivery hereof.
d. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
e. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other
jurisdiction.
f. Entire Agreement, Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyer, the Company,
their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor any
Buyer makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived
or amended other than by an instrument in writing signed by the party
to be charged with enforcement.
g. Notices. Any notices consents, waivers or other
communications required or permitted to be given under the terms of
this Agreement must be in writing and will be deemed to have been
delivered (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile, provided a copy is mailed by U.S.
certified mail, return receipt requested; (iii) three (3) days after
being sent by U.S. certified mail, return receipt requested, or (iv)
one (I) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such
communications shall be:
17
If to the Company:
0000 Xxxxxxxxxx Xxxxxxx
Xxxx Xxxx Xxxxx, Xxxxxxx 00000
Attention: Chief financial Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to:
Xxxxx & Xxxxxxx, LLC
0000 X Xxxxxx, X.X. # 000
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Transfer Agent:
Florida Atlantic Stock Transfer, Inc.
0000 Xxx Xxxx Xxxx
Xxxxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to the Buyer's counsel as set forth on the Schedule
of Buyers. Each party shall provide five (5) days' prior written notice
to the other party of any change in address or facsimile number.
h. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective
successors and assigns. The Company shall not assign this Agreement or
any rights or obligations hereunder without the prior written consent
of the Buyer. The Buyer may assign its rights hereunder without the
consent of the Company, provided, however, that any such assignment
shall not release the Buyer from its obligations hereunder unless such
obligations are assumed by such assignee and the Company has consented
to such assignment and assumption.
i. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
18
j. Survival. Unless this Agreement is terminated under Section
9(m), the representations and warranties of the Company and the Buyer
contained in Sections 2 and 3, the agreements and covenants set forth
in Sections 4, 5 and 9, the indemnification provisions set forth in
Section 8, shall survive the Closing. The Buyer shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.
k. Publicity. The Company and the Buyer shall have the right
to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the
prior approval of the Buyer, to make any press release or other public
disclosure with respect to such transactions as is required by
applicable law and regulations.
l. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and
shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in
order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.
m. Termination. In the event that the Closing shall not have
occurred with respect to the Buyer on or before five (5) business days
from the date hereof due to the Company's or the Buyer's failure to
satisfy the conditions set forth in Sections 6 and 7 above (and the
nonbreaching party's failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this
Agreement with respect to such breaching party at the close of business
on such date without liability of any party to any other party-
provided, however, that if this Agreement is terminated pursuant to
this Section 9(m), the Company shall remain obligated to reimburse the
Buyer for the expenses described in Section 4(h) above.
n. Finder. The Company acknowledges that it has engaged X.X.
Xxxxx Securities, Inc. as placement agent in connection with the sale
of the Debentures, which placement agent may have formally or
informally engaged other agents on its behalf. The Company shall be
responsible for the payment of any placement agent or brokers' fees
(which includes cash and warrants to purchase Common Stock) relating to
or arising out of the transactions contemplated hereby as described in
the Placement Agency Agreement between the parties dated of even date
herewith.
o. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be
applied against any party.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
19
IN WITNESS WHEREOF, the Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
"COMPANY"
SAF T LOK INCORPORATED
By:
Name:______________________________
Its: ______________________________
"BUYER"
___________________________
By: _______________________________
Name: _____________________________
Title: ____________________________
20
