EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of December
_______, 1999, by and among Saf T Lok Incorporated, a Florida corporation, with
headquarters located at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
(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 December
______, 2001, and offered in denominations of $2,500 up to an aggregate
principal amount of $1,500,000. 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 $1,500,000 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)
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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 $1,500,000 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 ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇.
c. Form of Payment. On the Closing Date, (i) the Escrow Agent shall
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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
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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
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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"). The Buyer is not subject to U.S.
withholding tax or other similar state tax.
c. Reliance on Exemptions. Such Buyer understands that the Debentures
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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.
d. Information. Such Buyer and its advisors, if any, have been
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furnished with all appropriate materials relating to the business, finances
and operations of the
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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
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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
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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
▇▇▇▇ ▇▇▇) 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
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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, the stock 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):
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. 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.
h. Authorization, Enforcement. This Agreement has been duly and
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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
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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
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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
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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.
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(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
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stock of the Company consists of 20,000,000 shares of Common Stock, par
value $0.01 per share, zero shares of Preferred Stock and $375,000 in
principal amount of 6% Convertible Debentures, of which as of the date
hereof 13,983,615 shares of Common Stock and zero shares of Series
Preferred Stock, and $175,000 in principal amount of 6% subordinated
Convertible Debentures were issued and outstanding. All of such
outstanding shares
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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). 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,
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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
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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, 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
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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 Bylaws 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 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.
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g. Absence of Certain Changes. The Company has not taken any steps,
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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,
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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.
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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 ▇▇▇▇ ▇▇▇) 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.
l. Employee Relations. Neither the Company nor any of its
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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.
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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 ▇▇▇▇
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 ▇▇▇▇ 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 ▇▇▇▇
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 ▇▇▇▇
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
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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
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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 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.
p. Insurance. The Company and each of its subsidiaries are insured
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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
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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
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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
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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
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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 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.
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u. Certain Transactions. Except as disclosed in the SEC Documents,
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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. The
Company has not registered its Shares in any of the states of the United
States.
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 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.
11
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.
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
12
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 ▇▇▇▇ ▇▇▇) 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 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
13
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 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
14
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 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,
15
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 ▇▇▇▇▇▇ 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.
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
16
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 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:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Transfer Agent:
Florida Atlantic Stock Transfer, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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.
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
18
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(l), 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 ▇.▇. ▇▇▇▇▇
------
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
SCHEDULE OF BUYERS
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Address and Facsimile Number of Face Amount of
Buyer's Name Buyer Debentures
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21