<PAGE>
______________________________________________________________________________
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________
FORM 10-QSB
Mark One:
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1998
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-11968
SAF T LOK INCORPORATED
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
FLORIDA 65-0142837
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
18245 S. E. Federal Highway, Tequesta, FL 33469
(Address of principal executive offices)
Telephone No. (561) 743-5625
________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
-
As of April 30, 1998 there were 11,519,077 shares of the issuer's common stock
outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statement.
The registrant's financial statements for the quarter ended March 31, 1998 begin
on page F-1.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ materially from
those projected in the forward-looking statements as a result of important
factors accompanying the forward-looking statements. The following discussion
should be read in conjunction with the unaudited financial statements and notes
thereto, attached hereto, and in conjunction with the audited financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's Annual
Report on Form 10-KSB filed with the SEC on May 13, 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS SECTION OF THE FORM 10-Q
-------------------------------------------------------------
First quarter of 1998 versus the first quarter of 1997.
------------------------------------------------------
Revenues for the first quarter of 1998 were $277,436 resulting from
shipment of gun locking devices in the month of March. The Company was in the
process of preparing an assembly facility during January and February, and no
shipments took place during those two months. At the end of March 1998, the
Company was shipping gun locking devices at the rate of approximately 3,000 per
week. Substantially all of the shipments were to a wholesaler who placed a
$6,000,000 purchase order with the Company as previously reported. Revenues for
the comparable period in 1997 were primarily the result of sales to gun dealers
as gun dealers began stocking the gun locking devices. After the first quarter
of 1997, the Company discontinued its efforts to market the gun locking devices
through gun dealers.
Cost of goods sold as a percentage of revenues was 27% resulting in a gross
margin of approximately 73% for the first quarter of 1998. The gross margin for
the first quarter of 1997 was approximately 62% on substantially lower sales
volume. None of the locks produced in the first quarter of 1998 were Magazine
Locks. The Company expects the gross margin on the Magazine Locks to be lower
than on the Saf T Loks.
The selling, general and administrative expenses for the first quarter of
1998 were $227,431 compared to $214,694 in the first quarter of 1997. In the
first quarter of 1998, approximately $19,700 of the SG&A expense was the
amortized portion of the value of the stock purchase warrants issued in
connection with the distribution agreement with United Safety Action, Inc.
Stock purchase warrants for a total of 2,000,000 shares exercisable at $5.00 per
share with a 5-year term were issued as a commission on the anticipated sales
under the distribution agreement. The Company placed an aggregate value on
these stock purchase warrants of $473,000. This is the amount the Company
believes a reasonable investor would pay for these warrants as of the date the
warrants were issued. The Company based this value on an analysis of the likely
value of the Company's stock at the end of the fifth year and applying a
discount rate reflecting the high risk involved in estimating this value to the
spread between the estimated market price of the stock and the exercise price to
bring this spread back to present value. The Company is amortizing this value
over the life of the distribution agreement (three years). The charge for the
first quarter of 1998 reflects this amortization for one and one-half months
(mid-February through March 31, 1998). In addition, approximately $89,000 of
the SG&A expense in the first quarter of 1998 consists of the amortized portion
of a public relations agreement and a consulting agreement entered into in 1997
having terms of 12 months. The $89,000 is the amortization of these agreements
for the 3-month period.
The SG&A expenses for the first quarter of 1997 were $227,431. This
compares to $118,701 for the first quarter of 1998 if the amortized portion of
the consulting fees are not included and the amortized portion of the stock
purchase warrants issued in connection with the United Safety Action, Inc.
distribution agreement is not included.
As of March 31, 1998, the Company had $2,359,999 of cash on hand as
compared to $15,465 on March 31, 1997, reflecting the Company's capital raising
efforts and the prepayment of $1,000,000 on the $6,000,000 order from a
wholesaler. After the Company has shipped $1,000,000 of gun locks to the
wholesaler, the Company will receive another $1,000,000 prepayment on this
order. Thereafter, shipments will be made on the basis of net 30 days.
Prepaid expenses as of March 31, 1998 were $5,516,112 consisting primarily
of the value of 1,000,000 shares of common stock issued to United Safety Action,
Inc. in connection with the distributor agreement. The 1,000,000 shares issued
to United Safety Action were valued at $3,781,000 using the last trade price on
Nasdaq as of the day before the United Safety Action agreement was signed. These
shares are held as collateral by the Company and will be released as United
Safety Action, Inc. makes advertising expenditures over the next 21 months (2
years from the date of the agreement). United Safety Action, Inc. is obligated
to spend $5,000,000 over this period in advertising. The value of these shares
will be amortized as the shares are released from the collateral arrangement.
Deferred compensation totaling $968,592, of which $335,461 is treated as a
current asset and current liability and $633,131 is treated as an other asset
and long term liability, is compensation to be recognized in the future as a
result of stock options granted to certain employees in 1997 as these stock
options vest.
The complex accounting for the value of stock options and stock purchase
warrants has caused the capital in excess of par to increase from $9,317,133 on
March 31, 1997 to $21,678,171 on March 31, 1998. Of this amount, only $3,258,705
is the net amount received by the Company for the sale of stock and the exercise
of stock options during that 12-month period. The balance of the increase is the
value attributed to the stock purchase warrants and the value attributed to the
1,000,000 shares of common stock issued to United Safety Action, Inc. in
connection with the distribution agreement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal proceedings
In December 1996 Lisa Broderick Fogel and her husband Bruce Fogel sued the
Company and Mr. Franklin W. Brooks in the Circuit Court for Martin County,
Florida for defamation and loss of consortium arising out of Mrs. Fogel's brief
tenure in November 1996 as President of the Company. No monetary damages are
being sought. The Company's insurance company, is providing for the defense of
the Company and Mr. Brooks. The Company does not believe this lawsuit will have
a materially adverse effect on the Company.
The Company is not a party in any other ongoing or pending legal proceedings,
nor are any of the Company's properties the subject of litigation, and the
Company is not aware of any pending or contemplated proceeding against it by
governmental authorities concerning environmental matters. The Company knows of
no legal proceedings, pending or threatened, or judgments entered against any
director or officer of the Company in his capacity as such.
<PAGE>
Item 2. Changes In Securities.
On March 13, 1998, the Company issued 1,000,000 shares of unregistered Common
Stock to a distributor of the Company's products in connection with the
distribution agreement. These shares are being held in escrow by the Company
under a stock pledge agreement and will be released from escrow upon the
placement of advertising. This sale was exempt from registration under (S)4(2)
of the Securities Act.
On March 25, 1998, the Company sold 25,000 shares of unregistered Common Stock
to a marketing and public relations company in exchange for marketing and public
relations services rendered to the Company. This sale was exempt from
registration under (S)4(2) of the Securities Act.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission Of Matters To A Vote Of Security Holders.
During the first quarter of 1998, no matters were submitted to a vote of
security holders through the solicitation of proxies or otherwise.
Item 5. Other Information
On May 12, 1998, it was announced that Stephen S. Eccher was hired as the
Company's Vice President in charge of Marketing to head up the Company's
internal sales force that will focus on bringing the Saf T Lok products to the
law enforcement industry.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
--------------------------------------------------------------------------
Exhibit
Number Description
--------------------------------------------------------------------------
3.1 Articles of Incorporation (incorporated herein by reference to
the Company's Form S-1 filed February 17, 1998)
--------------------------------------------------------------------------
3.2 Bylaws (incorporated herein by reference to Form 10-KSB/A
filed May 13, 1998)
--------------------------------------------------------------------------
4.1 Instruments Defining the Rights of Security Holders (incorporated
herein by reference to Article IV of the Articles of
Incorporation filed as Exhibit 3.1 to the Company's Form S-1
filed February 17, 1998)
--------------------------------------------------------------------------
<PAGE>
<TABLE>
---------------------------------------------------------------------------
<S> <C>
10.1 Distribution Agreement (incorporated herein by reference to
Form 8-K filed March 13, 1998)
---------------------------------------------------------------------------
10.2 Stock Pledge Agreement
---------------------------------------------------------------------------
10.3 Undertaking
---------------------------------------------------------------------------
10.4 Commission Agreement
---------------------------------------------------------------------------
10.5 Stock Purchase Warrant for 500,000 Shares
---------------------------------------------------------------------------
10.6 Stock Purchase Warrant for 500,000 Shares
---------------------------------------------------------------------------
10.7 Stock Purchase Warrant for 1,000,000 Shares
---------------------------------------------------------------------------
27.1 Financial Data Schedule
---------------------------------------------------------------------------
</TABLE>
(b) Reports on Form 8-K
1. Form 8-K filed on March 13, 1998 reporting the Company's acceptance of a
purchase order and reporting that the Company entered into a distribution
agreement.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SAF T LOK INCORPORATED
By: /s/ John L. Gardner Date: May 20, 1998
------------------------- ---------------
John L. Gardner, President, Chief Executive Officer,
Chief Financial Officer and Chief Accounting Officer
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
INDEX
-----
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BALANCE SHEETS F-2 - F-3
STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY F-4
STATEMENTS OF OPERATIONS F-5
STATEMENTS OF CASH FLOWS F-6 - F-7
NOTES TO FINANCIAL STATEMENTS F-8 - F-14
</TABLE>
F-1
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND 1997
-----------------------------
ASSETS
------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 2,358,999 $ 15,465
Accounts Receivable (less allowance
for doubtful accounts of $14,510 and
$24,500 respectively) 4,605 8,706
Notes Receivable, current portion 16,794 -
Inventories 592,057 460,179
Prepaid Expenses 5,516,112 19,709
Deferred Compensation, current portion 335,461 -
----------- -----------
TOTAL CURRENT ASSETS $ 8,824,028 $ 504,059
PROPERTY AND EQUIPMENT, LESS
ACCUMULATED DEPRECIATION $ 1,211,210 $ 864,406
OTHER ASSETS
Patents (less accumulated amortization
of $78,264 and $38,000 respectively) $ 344,513 $ 364,147
Notes Receivable, less current portion 162,545 194,923
Deferred Compensation, less current portion 633,131 -
Other Assets 2,150 975
----------- -----------
TOTAL OTHER ASSETS $ 1,142,339 $ 560,045
TOTAL ASSETS $11,177,577 $ 1,928,510
</TABLE>
F-2
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND 1997
-----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CURRENT LIABILITIES
Notes Payable, current portion $ 60,677 $ 71,785
Accounts Payable 559,640 777,754
Accrued Expenses 316,233 -
Accrued Compensation 335,461 -
Prepayments 851,780 -
------------ -----------
TOTAL CURRENT LIABILITIES $ 2,123,791 $ 849,539
LONG TERM LIABILITIES
Notes Payable, less current portion $ 61,081 $ 42,428
Accrued Compensation, less current portion 633,131 -
------------ -----------
TOTAL LONG TERM LIABILITIES $ 694,212 $ 42,428
TOTAL LIABILITIES $ 2,818,003 $ 891,967
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value,
20,000,000 shares authorized, 11,479,077
and 5,727,598 shares issued and
outstanding, in 1998 and 1997 respectively,
of which 1500 shares were held in treasury. $ 114,791 $ 57,276
Capital in Excess of Par 21,678,171 9,317,133
Accumulated Deficit (13,433,388) (8,337,866)
TOTAL SHAREHOLDERS' EQUITY $ 8,359,574 $ 1,132,342
TOTAL LIABILITIES $ 11,177,577 $ 1,928,510
</TABLE>
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK PAID-IN
--------------------------
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ---------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1996 5,655,255 56,553 9,167,898 (8,092,067) 1,132,384
Issuance of common stock in
connection with conversion
of debentures 2,147,247 21,472 985,671 1,007,143
Issuance of common stock in
connection with severance
agreement 30,000 300 78,450 78,750
Issuance of common stock in
connection with repayment
of loans to major shareholder 102,012 1,020 198,980 200,000
Issuance of common stock to
suppliers and service
providers 169,486 1,695 370,653 372,348
Issuance of common stock to
offshore investors 1,683,077 16,830 3,033,170 3,050,000
Issuance of common stock to
an officer upon exercise of
stock options 200,000 2,000 69,200 71,200
Contributed capital 2,752,094 2,752,094
Net loss (5,264,606) (5,264,606)
---------- ------- ----------- ------------ ------------
BALANCE - DECEMBER 31, 1997 9,987,077 99,870 $16,656,116 $(13,356,673) $ 3,399,313
Issuance of common stock to
offshore investors 250,000 2,500 497,500 500,000
Issuance of common stock to
2 consultants upon exercise
of stock options 80,000 800 199,200 100,000
Issuance of common stock to
2 director/employees upon
exercise of stock options 137,000 1,370 12,330 13,700
Issuance of common stock in
connection with a marketing agreement 25,000 250 68,500 68,750
Issuance of common stock in
connection with distributor agreement 1,000,000 10,000 3,771,000 3,781,000
Issuance of warrants in connection
with distributor agreement 473,525 473,525
Net Loss (76,715) (76,715)
BALANCE - MARCH 31, 1998 11,479,077 114,790 21,678,171 (13,433,388) (8,359,573)
</TABLE>
F-4
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
AS OF MARCH 31, 1998 AND 1997
-----------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
REVENUE
Revenue $ 277,436 $ 27,415
Cost of Goods Sold
Cost of Sales 65,257 13,397
Direct Labor Costs 9,521 -
--------- ---------
Total Cost of Goods Sold 74,778 13,397
GROSS PROFIT $ 202,658 $ 14,018
EXPENSES
Selling, General and
Administrative $ 227,431 $ 214,694
Depreciation 51,942 45,123
--------- ---------
NET (LOSS) $ (76,715) $ (245,799)
(LOSS) PER COMMON SHARE (.01) (.04)
Weighted Average number of common
shares outstanding 10,651,036 5,651,089
</TABLE>
F-5
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations $ (76,715)
$ (245,799)
NET (LOSS) (76,715) (245,799)
------------ ------------
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation and amortization 51,942 45,123
Change in assets and liabilities:
Decrease (increase) in accounts receivable 281 213
(Decrease) increase in allowance for bad debts -- 1,500
Increase in prepaid expenses (4,631,793) --
Decrease in prepaid expenses 96,875 --
Increase in inventories 244,375 6,501
Decrease in deferred compensation 111,821 --
(Decrease) increase in accounts payable 60,893 (58,648)
Increase in accrued liabilities 1,100,000 --
(Decrease) in accrued liabilities (465,448) --
Increase in Prepayments (248,220) --
Automobile transferred pursuant to consulting agreement -- 22,734
Issuance of stock for advertising services 68,750 --
Issuance of warrants pursuant to distribution agreement 473,525 --
Issuance of stock pursuant to distribution agreement 3,781,000 --
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES 567,286 (693,411)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in current portion of note receivable 4,154 4,919
Payments for the purchase of equipment (352,551) --
NET CASH PROVIDED BY INVESTING ACTIVITIES (348,397) 4,919
------------ ------------
</TABLE>
F-6
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
(CONTINUED)
1998 1997
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 500,000 150,000
Principal payments on borrowings/capital leases - (1,436)
Issuance of stock upon exercise of options 213,700 -
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 713,700 690,467
---------- ----------
Net increase (decrease) in cash and equivalents 932,589 (73,491)
Cash and equivalents at beginning of year 1,426,410 88,956
---------- ----------
Cash and equivalents at end of period $2,359,999 $ 15,465
========== ==========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash payments for interest $ 22,098 $ 6,982
========== ==========
F-7
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist
in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management
who are responsible for their integrity and objectivity. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from those
estimates. These accounting policies conform to generally accepted
accounting principles and have been applied in the preparation of the
financial statements.
A) ORGANIZATION AND OPERATIONS
Saf T Lok Incorporated and Subsidiaries (the "Company") was
incorporated in Florida in July 1989 under the name of RGB Sales
and Marketing, Inc. ("RGB"). The Company completed an initial
public offering of its common stock on June 23, 1993. On February
13, 1996 RGB acquired the Saf T Lok Corporation ("STL"), a Florida
corporation, by merger and RGB changed its name to Saf T Lok
Incorporated (Note 15). This acquisition ended the Company's
involvement in the video editing business and began its involvement
in the gun lock business. The business of the Company is to design,
develop, manufacture and market proprietary combination gun locks
to prevent the unauthorized use of fire arms, including
unintentional discharge by children and assailants.
The Company's financial statements have been prepared in conformity
with principles of accounting applicable to a going concern. These
principles contemplate the realization of assets and liquidation of
liabilities in the normal course of business. During 1996, the
Company discontinued its previous core business, acquired a new
business and had minimal cash to fund operations. Accordingly, as
of December 31, 1996 there was substantial doubt about the
Company's ability to continue as a going concern. During 1997
management undertook a new advertising campaign for the Saf T Lok ,
concentrated on developing the Magazine Lock and raising the
necessary capital to fund operations. During the second and third
quarters of 1997 the Company was successful in raising capital by
selling shares of common stock and convertible debentures (Note
11). In February 1998 the company accepted a six million dollar
purchase order, with a one million dollar advance payment, for the
purchase of gun locks from an independent wholesaler. In addition,
management entered into a distribution agreement for the sale of
twenty million dollars of the Company's Saf T Lok and Magazine
Locks over a three year period (Note 16). Based on the
aforementioned, management believes it has adequate capital to fund
operations for a reasonable period of time.
F-8
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Saf T
Lok Incorporated and its wholly owned subsidiaries, RGB Video, Inc
and Saf T Lok, Corporation. All significant inter company accounts
and transactions have been eliminated in consolidation.
C) CONCENTRATIONS OF OFF-BALANCE SHEET RISK
The Company has concentrated its credit risk for cash and cash
equivalents by maintaining deposits in financial institutions within
the geographic region of Tequesta, Florida which may at times exceed
amounts covered by insurance provided by the U. S. Federal Deposit
Insurance Corporation (FDIC). The maximum loss that would have
resulted from that risk was approximately $1,326,000 at the end of
1997 for the excess of the deposit liabilities reported by the banks
over the amounts that would have been covered by federal insurance.
The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk to cash
and cash equivalents.
The Company is dependent upon certain vendors for the manufacture of
significant components of its Saf T Lok and Magazine Lock systems.
If these vendors were to become unwilling or unable to continue to
manufacture these components, in required volumes, the Company would
have to identify and qualify acceptable alternative vendors. The
inability to develop alternate sources, if required, could result in
delays or reductions in product shipments.
The Company entered into a three year distribution agreement with a
newly organized company. Under the terms of the agreement the
distributor has the exclusive right to sell the Company's products
throughout the world to wholesalers, retailers and end users except
for law enforcement agencies, governmental entities, military
organizations and original equipment manufacturers. The Company is
dependent upon the distributor fulfilling its commitments under the
terms of the agreement.
D) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts
payable approximates fair value because of the short maturity of
those instruments. The fair value of loans receivable does not
differ materially from the carrying value recorded in the
accompanying balance sheet. Rates currently available to the Company
for debt with similar terms and remaining maturities are used to
estimate fair value of existing long-term debt.
F-9
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E) CASH EQUIVALENTS
For the purpose of the statement of cash flows, the Company
considers all investments with a maturity of three months or less to
be cash equivalents.
F) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for
renewals and betterments which materially extend the useful lives of
the assets or increase the productivity are capitalized.
Expenditures for maintenance and repairs are charged to cost or
expensed as incurred. Depreciation has been computed using the
accelerated and straight-line methods over the estimated useful
lives of the assets. When items of property or equipment are sold or
retired, the related cost and accumulated depreciation are removed
from the accounts and any gain or loss is included in the results of
operations. The estimated useful lives are as follows:
<TABLE>
<CAPTION>
Item Estimated Useful Life
<S> <C>
Furniture and fixtures 7 - 10 years
Equipment 3 - 10 years
Leasehold improvements 1 - 2 years
Automobile 5 years
Software 3 - 5 years
Tools and dies 7 years
</TABLE>
G) INVENTORIES
Inventories are stated at the lower of cost, determined on a first-
in, first-out basis, or market, whichever is less.
H) INTANGIBLE ASSETS
Intangible assets consist of trademark and patent costs which are
incurred as development and enhancement of the Saf T Lok and
Magazine Lock progresses. These costs are capitalized annually and
amortized over a period of fifteen years.
I) INCOME TAXES
Deferred income taxes are reported using the liability method.
Deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the
F-10
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
effects of changes in tax laws and rates on the date of enactment.
J) REVENUE RECOGNITION
The Company recognizes revenue when products are sold and shipped.
K) LOSS PER COMMON SHARE
Loss per common share amounts are calculated based on the weighted
average number of shares outstanding during each period presented.
Warrants, stock options and underwriter's options are antidilutive.
NOTE 2 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprised the following as of March 31, 1998
and 1997.
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Cash in banks $2,358,999 $ 15,465
========== ===========
</TABLE>
NOTE 3 - INVENTORIES
Inventories are comprised of the following as of March 31, 1998 and
1997.:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Finished Goods $ 24,475 $210,611
Raw Materials 517,596 180,529
Supplies 59,986 75,540
-------- --------
TOTAL $592,057 $466,680
======== ========
</TABLE>
NOTE 4 - PREPAID EXPENSES
Prepaid expense is comprised of the following as of March 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Consulting and Warrant expenses 1,638,428 -
Prepaid marketing and advertising 3,821,104 -
Deposit on patent costs 24,438 -
Prepaid show expenses 14,448 3,709
Prepaid insurance 13,182 -
Prepaid other 4,512 -
Prepaid rent - 16,000
---------- ---------
</TABLE>
F-11
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
<TABLE>
<S> <C> <C>
TOTAL $5,516,112 $ 19,709
========== =========
</TABLE>
On January 20, 1998 the Company issued 416,667 warrants in connection
with the purchase of 250,000 shares of the Company's common stock by
three offshore investors. The warrants grant the right to purchase
416,667 shares of the Company's common stock (333,334 shares at an
exercise price of $2.00 per share and 83,333 at an exercise price of
$3.00 per share). The warrants expire in two years.
Pursuant to the February 11, 1998 Distribution Agreement, the
distributor is obligated to create and place advertising totaling at
least $5,000,000. The Company has issued 1,000,000 shares of its common
stock in connection with the Distribution Agreement which has been
pledged by the distributor as security for the obligation to place the
advertising. As the distributor fulfills its obligation, the Company
will release the pledged shares at the rate of one share for each five
dollars of advertising placed. Based on a fair market valuation at
close of business on the day prior to issuance, the value of these
shares is $3,781,000. This will be expensed as the obligation is
fulfilled.
In connection with the Distribution Agreement, on February 11, 1998 the
Company entered into an agreement with three unaffiliated companies,
granting them stock purchase warrants for an aggregate total of
2,000,000 shares of common stock with an exercise price of $5.00 per
share and a term of five years. These companies were instrumental in
assisting the Company in finding the Wholesaler and the Distributor.
The Company placed an aggregate value on these warrants of $473,000.
This is the amount the Company believes a reasonable investor would pay
for these warrants as of the date the warrants were issued. This value
is based on an analysis of the likely value of the Company's stock at
the end of the fifth year and applying a discount rate reflecting the
high risk involved in estimating this value to the spread between the
estimated market price of the stock and the exercise price to bring
this spread back to present value.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following as of March 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Equipment 386,899 $ 373,344
Furniture and fixtures 59,532 52,997
Tools and die 1,289,819 762,560
Software 37,214 37,214
Leasehold improvements 11,436 11,436
---------- ----------
TOTAL 1,784,900 1,271,551
Less accumulated depreciation 573,690 373,145
---------- ----------
TOTAL 1,211,210 864,406
========== ==========
</TABLE>
F-12
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following as
of March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Accounts payable $ 559,640 $ 655,567
Accrued expenses 316,233 -
Deferred compensation-current(1) 335,461 122,187
Prepayments 851,780 -
---------- ----------
TOTAL $2,063,114 $ 777,754
========== ==========
</TABLE>
(1) Compensation from stock options granted in 1997.
NOTE 7 - SHAREHOLDERS' EQUITY
On January 20, 1998 the Company issued 416,667 warrants in connection
with the purchase of 250,000 shares of the Company's common stock from
three offshore investors. The warrants grant the right to purchase
416,667 shares of the Company's common stock (333,334 shares at an
exercise price of $2.00 per share and 83,333 at an exercise price of
$3.00 per share). The warrants expire in two years. The price of the
common stock sold was $2.50 per share.
Pursuant to the February 11, 1998 Distribution Agreement, the
distributor is obligated to create and place advertising totaling
$5,000,000. The Company has issued 1,000,000 shares of its common stock
in connection with the Distribution Agreement which has been pledged by
the distributor as security for the obligation to place the
advertising. As the distributor fulfills its obligation, the Company
will release the pledged shares at the rate of one share for each five
dollars of advertising placed. Based on a fair market valuation at
close of business on the day prior to issuance, the value of these
shares is $3,781,000.
On March 25, 1998, the Company issued 25,000 shares of common stock
valued at $2.75 per share to a financial public relations firm.
In February 1998, two consultants exercised stock options for 80,000
shares. The exercise prices of these options were $2.50 per share.
In March 1998, two employee/directors exercised stock options for a
total of 137,000 shares. The exercise prices of these options were $.10
per share.
F-13
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE 8 - SUBSEQUENT EVENTS
In May 1998, the Company issued 9,570 shares of common stock to a
provider of investor relations services rendered to the Company between
March 1996 and June 1997.
In May 1998, the Company issued 50,880 shares of stock in satisfaction
of rent due to a landlord per an agreement made when the Company's
Common Stock was trading at approximately $0.50 per share. The amount
of the payable to the landlord at December 31, 1997 was $46,640.
F-14
<PAGE>
Exhibit 10.2
STOCK PLEDGE AGREEMENT
----------------------
THIS IS A STOCK PLEDGE AGREEMENT between UNITED SAFETY ACTION, INC., herein
called "Pledgor", and SAF T LOK INCORPORATED, herein called "Pledgee".
Background of this Agreement
----------------------------
Pledgor has received from Pledgee One Million (1,000,000) shares of common
stock in the Pledgee in connection with the Non-Exclusive Distribution and
Pricing Agreement dated this date (the "Distribution Agreement"). Pledgor is
obligated under the Distribution Agreement to make certain advertising
expenditures and to perform numerous other obligations.
In order to secure the obligation to make the advertising expenditures and
other obligations under the Distribution Agreement, Pledgor has agreed to pledge
one million (1,000,000) shares of common stock in the Pledgee pursuant to the
terms of this Stock Pledge Agreement.
Agreement
---------
The parties agree as follows:
1. Pledgor hereby grants to Pledgee a first priority security interest in
the collateral described in Paragraph 2 of this Agreement and pledges such
collateral to secure the performance all of Pledgor's obligations under the
Distribution Agreement. A copy of the Distribution Agreement is attached hereto
as Exhibit "A". As certain obligations of the Pledgor are performed, Pledgee
will release certain portions of the collateral as set forth in Paragraph 6
below.
1
<PAGE>
2. The collateral of this Stock Pledge Agreement is One Million
(1,000,000) shares of common stock in Saf T Lok incorporated, evidenced by Stock
Certificate No. _______ issued in the name of Pledgor, together with Assignments
Separate from Certificate executed in blank with respect to each such
certificate, which collateral is, contemporaneously with the execution of this
Agreement, hereby delivered to and deposited with Pledgee, to be held by Pledgee
in accordance with the terms of this Agreement. The collateral shall also
include any and all additional shares of Saf T Lok Incorporated common stock or
may be issued by Saf T Lok Incorporated from time to time in connection with
stock splits or stock dividends relating to the Saf T Lok Incorporated common
stock. In the event the collateral is exchanged for other securities in
connection with a merger or acquisition of Saf T Lok Incorporated, the
securities for which such collateral is exchanged shall serve as substitute
collateral.
3. The obligations secured by this Stock Pledge Agreement are the
obligations of the Pledgor in the Distribution Agreement, to make the
Advertising Expenditures (as defined in the Distribution Agreement) within 24
months following the date of the Distribution Agreement.
4. The Pledgee, and any successor to the Pledgee, shall hold and have
possession of the collateral described in this Agreement in accordance with the
terms of this Agreement.
5. For those shares which remain part of the collateral under this Pledge
Agreement and are not released pursuant to paragraph 6, Pledgor irrevocably
constitutes and appoints Pledgee, whether or not the collateral has been
transferred into the name of Pledgee or his nominee, as Pledgor's proxy, with
full power to (a) attend all meetings of
2
<PAGE>
stockholders of Saf T Lok Incorporated held after the date of this Agreement and
to vote the collateral at those meetings in such manner as the Pledgee shall in
his sole discretion deem appropriate including, without limitation, in favor of
liquidation of Saf T Lok Incorporated; (b) to consent, in the sole discretion of
the Pledgee, to any action by or concerning Saf T Lok Incorporated for which the
consent of the stockholders of Saf T Lok Incorporated is or may be necessary or
appropriate; and (c) without limitation, to do all things which the Pledgor
could do as a stockholder of Saf T Lok Incorporated, giving to the Pledgee full
power of substitution and revocation. Notwithstanding the foregoing, the Pledgor
alone shall have the rights under this paragraph and the Pledgee may not
exercise those rights (whether or not the collateral has been transferred into
the name of the Pledgee or his nominee) so long as no event of default has
occurred. The proxy contained in this paragraph shall terminate when the Stock
Pledge Agreement terminates, as provided in Paragraph 6. The Pledgor hereby
revokes all proxies heretofore given to any person or persons and agrees not to
give any other proxies in derogation of this proxy so long as this Stock Pledge
Agreement is in force.
6. Provided that Pledgor is not in default of any material obligation
under the Distribution Agreement, Pledgee will release from this Stock Pledge
Agreement and release its security interest in those shares of stock set forth
below upon receipt by Pledgee of a written report signed by the Chief Executive
Officer of the Pledgor that Advertising Expenditures have been made in
accordance with the Distribution Agreement in the month or months prior to such
written report, with the written report setting forth the amount of such
Advertising Expenditures made. For each Five Dollars ($5.00) of Advertising
Expenditures made by the Pledgee on a cumulative basis, up to Five Million
Dollars
3
<PAGE>
($5,000,000) of Advertising Expenditures, Pledgor shall release from this Stock
Pledge Agreement one share of stock within five business days after receipt of
each written report. As an example, if Pledgor receives a written report from
the Pledgee, signed by the Chief Executive Officer of the Pledgor, reporting
that during the month of July, 1998, the Pledgee made Advertising Expenditures
of $500,000, the Pledgor shall release from this Stock Pledge Agreement 100,000
shares of stock and deliver the stock certificate for such shares to Pledgee
within five days after receiving the written report. Release of shares from this
Stock Pledge Agreement will not act as a waiver or release of any obligations of
Pledgor under the Distribution Agreement.
7. In the event that Pledgor has not made Advertising Expenditures equal
to or exceeding Five Million Dollars ($5,000,000) within 24 months from the
date of this Agreement, the Pledgor shall be in default under this Agreement.
8. Upon default under this Agreement by Pledgor, Pledgee shall notify
Pledgor of the amount by which Pledgor's Advertising Expenditures fell short of
Five Million Dollars ($5,000,000) and shall give Pledgor 30 days from the
receipt of such notice to cure such default by making Advertising Expenditures
within such 30 days so as to bring the cumulative Advertising Expenditures to at
least Five Million Dollars ($5,000,000). In the event that Pledgor fails to make
the Advertising Expenditures necessary to bring the cumulative Advertising
Expenditures to at least Five Million Dollars ($5,000,000) within such 30 day
period, Pledgee shall have the right to take any remaining collateral into its
own name and Pledgor shall have no further rights in such collateral. Pledgor
agrees that Pledgee shall have this right as a form of liquidated damages
regardless of the market value of the stock held as collateral at such time.
Such liquidated damages shall apply only
4
<PAGE>
as to the failure of Pledgor to make Advertising Expenditures as required and
shall not affect Pledgee's right to receive damages for any other failure of
Pledgor to perform any other of Pledgor's material obligations under the
Distribution Agreement, provided, however, that nothing in this Pledge Agreement
shall give Pledgee any right to damages not otherwise available under the
Distribution Agreement or applicable law.
9. Upon the Pledgor's default under this Agreement, Pledgee, in addition
to any other rights provided by law, shall at any time thereafter have all of
the rights and remedies provided to it by the Uniform Commercial Code in the
State of Florida and this Agreement shall be governed under the laws of the
State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement this
____ day of ______, 1998.
PLEDGOR:
UNITED SAFETY ACTION, INC.
BY: _____________________________(SEAL)
PLEDGEE:
SAF T LOK INCORPORATED
By: _____________________________(SEAL)
5
<PAGE>
Exhibit 10.3
UNDERTAKING
-----------
UNDERTAKING made this 11th day of February, 1998 in favor of Danvers
Investment Corp. ("Danvers"), Amexcorp Ltd. ("Amexcorp"), and Atom Corp.
("Atom") (sometimes collectively "Company"), from Saf T Lok Incorporated, a
Florida corporation ("STL").
WHEREAS:
A. The Company has introduced STL to United Safety Action, Inc.
("United") which has entered into a Distribution and Purchase Agreement with
STL, dated February 11, 1998, pursuant to which United has agreed to purchase
and distribute products designed and manufactured by STL throughout the world
("DPA");
B. STL wishes to compensate the Company for procuring the DPA and for all
orders for products which are placed by United with STL pursuant to the DPA.
NOW, THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged STL undertakes and agrees as follows:
1. Stock Purchase Warrant. As compensation for introducing STL to United
----------------------
and for procuring the DPA, simultaneously with the giving of this Undertaking
STL shall issue to the Company stock purchase warrants for a total of 2,000,000
shares of STL's common stock ("Shares") at an exercise price of $5 per Share and
a term of 5 years ("Warrants"). A copy of the Warrants is annexed hereto as
Exhibit A. The Warrants shall carry demand registration rights and shall be
- ---------
issued in the following denominations: 1,000,000 shares to Danvers, 500,000
shares to Amexcorp. and 500,000 shares to Atom.
2. Investment Representations. The Company represents, warrants and
--------------------------
agrees that:
(a) The Warrants and the Shares underlying the Warrants are not
registered under the Securities Act of 1933 or any state's securities laws and
may not be sold without registration unless pursuant to an exemption from
registration.
(b) The Warrants are being acquired by the Company for their own
accounts and for investment purposes and not with a view to being sold in a
public distribution (unless pursuant to a registration statement); and
(c) The Warrants and the certificates for the underlying Shares shall
contain a legend stating that the Warrants (or Shares) are not registered and
may not be sold without registration or in a transaction exempt from
registration.
<PAGE>
3. Notices. Any notice, request or demand required to be made or given
-------
hereunder must be in writing and shall be given, deemed given, or made one day
after it has been sent by overnight or express mail courier and fax, at the
addresses and the fax numbers set forth below, or at such other address as any
party shall subsequently provide to the other party in writing, as follows:
If to STL:
Saf T Lok Incorporated
18245 SE Federal Highway
Tequesta, Florida 33469
Att'n: John Gardner, President
Fax: 407-745-6601
If to the Company:
Danvers Investment Corp.
Amexcorp. Limited
Atom Corp.
300 East 42nd Street
New York, New York 10017
Att'n: Edward H. Burnbaum, Esq.
Fax: 212-986-2907
4. Term. The Term of this Undertaking shall be the same Term as set
----
forth in the DPA, including any successive periods which extend the Term under
the DPA.
5. Arbitration. All disputes that may arise under this Undertaking,
-----------
except for disputes which may necessitate extraordinary equitable or injunctive
relief, that are not adjusted by the partes themselves, shall be submitted to
binding arbitration in New York City, New York, before the American Arbitration
Association under its Commercial Rules then prevailing. All costs or
arbitration, including each party's attorneys fees and the fees of the
arbitrators, shall be paid by the non-prevailing party. Pending resolution of
any dispute, if requested in writing by the Company, STL shall proceed
diligently with the performance of its obligations hereunder, including the
payment of Commissions to the Company.
6. Miscellaneous.
-------------
(a) Relationship of Parties. This Undertaking does not constitute a
-----------------------
partnership or joint venture between STL and the Company.
(b) Governing Law. This Undertaking and any dispute or claim arising
-------------
under this Undertaking shall be governed by the laws of the State of New York
without regard to principles of conflicts of law.
2
<PAGE>
(c) Jurisdiction. The parties hereby consent to the personal
------------
jurisdiction of an arbitrator or court located in New York City, New York and of
the United States District Court for the Southern District of New York. Service
of process may be made by certified mail/return receipt requested or any other
method of service of process authorized by law. Each party agrees that it shall
not assert venue as a defense to any action or proceeding or make any argument
based on principles of forum non conveniens or similar legal principles or
--------------------
doctrines.
(d) Assignment. STL may not assign its rights under this Undertaking
----------
without the express written consent of the Company.
(e) No Waiver. Failure of any party to insist upon the strict
---------
performance of this Undertaking, or a delay in exercising any remedy provided
under this Undertaking, shall not constitute a waiver of any rights, remedies,
terms, conditions or provisions of this Undertaking.
(f) Survival of Obligations. Obligations which, by their nature,
-----------------------
would continue beyond termination or expiration of this Undertaking, including
by way of illustration only and not limitation, sections related to warranty and
indemnification, shall survive termination or expiration of this Undertaking by
either party for any reason.
(g) Entire Agreement. This Undertaking constitutes the entire
----------------
agreement and understanding between the parties as to the subject matter of this
Undertaking and supersedes all previous written or oral communications,
representations or agreements. This Undertaking may not be modified except by a
written instrument executed by both parties.
(h) Remedies. Remedies available to either party for breach of this
--------
Undertaking are cumulative and may be exercised concurrently or separately, and
the exercise of any one remedy shall not be deemed an election of such remedy to
the exclusion of other remedies.
(i) Headings. The paragraph headings used in this Undertaking are for
--------
convenience of reference only and shall not in any way limit or amplify the
terms and provisions hereof, nor enter into the interpretation of this
Undertaking.
(j) Binding Agreement. The persons executing this Undertaking on
-----------------
behalf of the parties have been duly and validly authorized to do so, and this
Undertaking is a valid and binding obligation of the parties. Simultaneously
with the execution of this Undertaking, STL shall deliver to the Company a
resolution of its Board of Directors authorizing STL to enter into this
Undertaking and consummate the transactions contemplated hereunder.
(k) Severability. If any term of this Undertaking shall be unlawful,
------------
void or unenforceable, such term shall be deemed omitted to the extent
prohibited or invalid,
3
<PAGE>
but the remainder of this Undertaking shall not be invalidated and shall be
given effect to the extent possible.
This Undertaking has been executed as of the date first above written.
SAF T LOK INCORPORATED
A Florida Corporation
By:
-------------------------------------
John Gardner, President
4
<PAGE>
Exhibit 10.4
AGREEMENT
---------
AGREEMENT made this 11th day of February, 1998, between EMPIRE CONSULTING
LTD., INC., a New York corporation ("Company"), and SAF T LOK INCORPORATED, a
Florida corporation ("STL").
WHEREAS:
A. The Company has, alone or together with others, introduced STL to
United Safety Action, Inc. ("United") which has entered into a Distribution and
Purchase Agreement with STL, dated February 11, 1997, pursuant to which United
has agreed to purchase and distribute products designed and manufactured by STL
throughout the world ("DPA");
B. STL wishes to compensate the Company for procuring the DPA and for all
orders for products which are placed by United with STL pursuant to the DPA.
NOW, THEREFORE, it is agreed:
1. Commissions. The Company shall be entitled to a cash commission of
-----------
15% of the gross dollar amount of each final sale invoice or non-refundable
deposit for any order placed by United or its Customers, as defined in the DPA,
which shall be payable within 15 days after receipt of payment by STL on each
such order, and 15% of each of the Warrants exercised by Danvers Investment
Corp., Amexcorp Limited or Atom Corp. pursuant to an Agreement of even date
between STL and Danvers Investment Corp., Amexcorp Limited and Atom Corp.
("Commissions"). Commissions shall be payable to the Company by STL and
calculated on partial payments as well as full payments.
2. Notices. Any notice, request or demand required to be made or given
-------
hereunder must be in writing and shall be given or shall be deemed given or made
one day after it has been sent by overnight or express mail courier and fax, at
the addresses and the fax numbers set forth below, or at such other address as
any party shall subsequently provide to the other party in writing, as follows:
IF to STL:
Saf T Lock Incorporated
18245 SE Federal Highway
Tequesta, Florida 33469
Attn: John Gardner, President
Fax: 407-745-6601
1
<PAGE>
If to the Company:
Empire Consulting Ltd., Inc.
300 East 42nd Street
New York, New York 10017
Attn: Edward H. Burnbaum, Esq.
Fax: 212-986-2907
3. Term. The Term of this Agreement shall be the same Term as set forth
----
in the DPA, including any successive periods which extend the term under the
DPA.
4. Arbitration. All disputes that may arise under this Agreement, except
-----------
for disputes which may necessitate extraordinary equitable or injunctive relief,
that are not adjusted by the parties themselves, shall be submitted to binding
arbitration in New York City, New York, before the American Arbitration
Association under its Commercial Rules then prevailing. All costs of
arbitration, including each party's attorneys fees and the fees of the
arbitrators, shall be paid by the non-prevailing party. Pending resolution of
any dispute, if requested in writing by the Company, STL shall proceed
diligently with the performance of its obligations hereunder, including the
payment of Commissions to the Company.
5. Miscellaneous.
-------------
(a) Relationship of Parties. This Agreement does not constitute a
-----------------------
partnership or joint venture between STL and the Company.
(b) Governing Law. This Agreement and any dispute or claim arising
-------------
under this Agreement shall be governed by the laws of the State of New York
without regard to principles of conflicts of law.
(c) Jurisdiction. The parties hereby consent to the personal
------------
jurisdiction of an arbitrator or court located in New York City, New York, and
of the United States District Court for the Southern District of New York.
Service of process may be made by certified mail/return receipt requested or any
other method of service of process authorized by law. Each party agrees that it
shall not assert venue as a defense to any action or proceeding or make any
argument based on principles of forum non conveniens or similar legal principles
--------------------
or doctrines.
(d) Assignment. STL may not assign its rights under this Agreement
----------
without the express written consent of the Company.
(e) No Waiver. Failure of any party to insist upon the strict
---------
performance of this Agreement, or a delay in exercising any remedy provided
under this Agreement, shall not constitute a waiver of any rights, remedies,
terms, conditions or provisions of this Agreement.
(f) Survival of Obligations. Obligations which, by their nature,
-----------------------
would continue beyond termination or expiration of this Agreement, including by
way of illustration only and not
2
<PAGE>
limitation, sections related to warranty and indemnification, shall survive
termination or expiration of this Agreement by either party for any reason.
(g) Entire Agreement. This Agreement constitutes the entire agreement
----------------
and understanding between parties as to the subject matter of this Agreement and
supersedes all previous written or oral communications, representations or
agreements. This Agreement may not be modified except by a written instrument
executed by both parties.
(h) Remedies. Remedies available to either party for breach of this
--------
Agreement are cumulative and may be exercised concurrently or separately, and
the exercise of any one remedy shall not be deemed an election of such remedy to
the exclusion of other remedies.
(i) Headings. The paragraph headings used in this Agreement are for
--------
convenience of reference only and shall not in any way limit or amplify the
terms and provisions hereof, nor enter into the interpretation of this
Agreement.
(j) Binding Agreement. The persons executing this Agreement on behalf
-----------------
of the parties have been duly and validly authorized to do so, and this
Agreement is a valid and binding obligation of the parties. Simultaneously with
the execution of this Agreement, STL shall deliver to the Company a resolution
of its Board of Directors authorizing STL to enter into this Agreement and
consummate the transactions contemplated hereunder.
(k) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original and all of which constitute one and
the same Agreement.
(l) Severability. If any term of this Agreement shall be unlawful,
------------
void or unenforceable, such term shall be deemed omitted to the extent
prohibited or invalid, but the remainder of this Agreement shall not be
invalidated and shall be given effect to the extent possible.
This Agreement has been executed as of the date first above written.
SAF T LOK INCORPORATED
A Florida corporation
By:
-------------------------------------
John Gardner, President
EMPIRE CONSULTING LTD., INC.
A New York corporation
By:
-------------------------------------
3
<PAGE>
Exhibit 10.5
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO
SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES REPRESENTED BY
THIS WARRANT ARE RESTRICTED AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
SAF T LOK INCORPORATED
----------------------
WARRANT FOR THE PURCHASE OF COMMON SHARES
NO. W- 500,000 SHARES
FOR VALUE RECEIVED, SAF T LOK INCORPORATED, a Florida corporation (the
"Company"), hereby certifies that Atom Corp. or its permitted assigns (the
"Holder") is entitled to purchase from the Company, at any time or from time to
time after February 11, 1998 but prior to 5:00 P.M. on February 11, 2003, Five
Hundred Thousand (500,000) fully paid and non-assessable shares of common stock,
par value $.01 per share, of the Company for an aggregate purchase price of
$2,500,000 (computed on the basis of $5.00 per share). (Hereinafter, (i) said
common shares, together with any other equity securities which may be issued by
the Company in substitution therefor, are referred to as the "Common Shares",
(ii) the Common Shares purchasable hereunder are referred to as the "Warrant
Shares", (iii) the aggregate purchase price payable hereunder for the Warrant
Shares is referred to as the "Aggregate Warrant Price", (iv) the price payable
hereunder for each of the Warrant Shares, as adjusted in the manner set forth in
Section 3, is referred to as the "Per Share Warrant Price" and (v) this Warrant
and all warrants hereinafter issued in exchange or substitution for this Warrant
are referred to as the "Warrants".) The Aggregate Warrant Price is not subject
to adjustment. The Per Share Warrant Price and the number of Warrant Shares are
subject to adjustment as hereinafter provided.
1. EXERCISE OF WARRANT. This Warrant may be exercised, in whole at any
-------------------
time or in part from time to time (such partial exercises to be in amounts of
not less than 25,000 Warrant Shares), on and after February 11, 1998, but prior
to 5:00 P.M. on February 11, 2003, by the Holder of this Warrant, by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the
1
<PAGE>
principal office of the Company at 18245 SE Federal Highway, Tequesta, Florida
33469, together with proper payment of the Aggregate Warrant Price applicable on
such date, or the proportionate part thereof if this Warrant is exercised in
part. Payment for Warrant Shares shall be made by check or checks, payable to
the order of the Company. If this Warrant is exercised in part, this Warrant
must be exercised for a number of whole Warrant Shares, and the Holder is
entitled to receive a new Warrant covering the number of Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the Holder for the largest number of
whole Warrant Shares to which the Holder shall be entitled and, if this Warrant
is exercised in whole, in lieu of any fractional Warrant Share to which the
Holder shall be entitled, cash equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of Directors of the Company
shall determine), and (b) deliver the other securities and properties receivable
upon the exercise of this Warrant, or the proportionate part thereof if this
Warrant is exercised in part, pursuant to the provisions of this Warrant.
2. RESERVATION OF WARRANT SHARES. The Company agrees that, prior to the
-----------------------------
expiration of this Warrant, the Company will at all times have authorized and
will reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the shares receivable upon the exercise of this
Warrant, the Warrant Shares and other securities and properties as from time to
time shall be receivable upon the exercise of this Warrant, free and clear of
all restrictions on sale or transfer (except as may arise under applicable
securities laws) and free and clear of all preemptive rights.
3. PROTECTION AGAINST DILUTION.
---------------------------
a. If, at any time or from time to time after the date of this
Warrant, the Company shall issue to the holders of the Common Shares any Common
Shares by way of a stock dividend or stock split (including, without limitation,
a reverse stock split), then, and in each such case, the Per Share Warrant Price
on the date of such stock dividend or stock split shall be adjusted, or further
adjusted, to a price (to the nearest cent) determined by dividing (i) an amount
equal to the number of Common Shares outstanding immediately prior to such
issuance multiplied by the Per Share Warrant Price in effect immediately prior
to such issuance by (ii) the total number of Common Shares outstanding
immediately after such issuance. Upon each adjustment in the Per Share Warrant
Price resulting from a stock split or stock dividend, the number of Warrant
Shares shall be adjusted by dividing the Aggregate Warrant Price by the Per
Share Warrant Price in effect immediately after such adjustment. Notice of each
such adjustment and each such readjustment shall be forthwith mailed to the
Holder.
2
<PAGE>
b. If the Company shall be consolidated with or merged into another
corporation, or shall sell all or substantially all of its assets in part of a
reorganization to which the Company is a party within the meaning of the
Internal Revenue Code of 1986, as presently in effect, or shall issue a security
convertible into its Common Shares as a dividend on its Common Shares, or shall
reclassify or reorganize its capital structure (except a stock split covered by
Subsection 3(a) hereof), each Warrant Share shall be replaced for the purposes
hereof by the securities or properties issuable or distributable in respect of
one Common Share upon such consolidation, merger, sale, reclassification or
reorganization, and adequate provisions to that effect shall be made at the time
thereof. Notice of such consolidation, merger, sale, reclassification or
reorganization, and of said provisions so proposed to be made, shall be mailed
to the Holder not less than 15 days prior to such event.
c. If the Company shall sell all or substantially all of its assets,
other than as part of a reorganization to which the Company is a party within
the meaning of the Internal Revenue Code of 1986, as presently in effect, or
shall distribute its assets in dissolution or liquidation (other than as part of
such a reorganization), the Company shall mail notice thereof to the Holder and
shall make no distribution to shareholders until the expiration of 15 days from
the date of mailing of said notice and then only to shareholders of record as of
a date at least 15 days after the date of mailing of said notice.
d. If the Board of Directors of the Company shall declare any
dividend or other distribution in cash with respect to the Common Shares, other
than out of surplus, the Company shall mail notice thereof to the Holder not
less than 15 days prior to the record date fixed for determining shareholders
entitled to participate in such dividend or other distribution.
4. REGISTRATION RIGHTS.
-------------------
a. If the Company proposes, at any time prior to the Expiration
Date, to file a registration statement with the Securities and Exchange
Commission (the "Commission") on a general form for registration under the Act
and relating to securities issued or to be issued by it, then it shall give
written notice of such proposed filing to the Holder not less than 10 days prior
to the filing of such registration statement. Any written request of the Holder
to include the Warrant Shares shall be given to the Company not less than 5 days
prior to the date specified in the notice as the date on which such registration
statement is intended to be filed with the Securities and Exchange Commission.
Neither the delivery of the notice by the Company nor the delivery of the
request by the Holder shall obligate the Company to file such registration
statement; and notwithstanding the filing of such registration statement, the
Company may, at any time prior to the effective date thereof, determine to
withdraw such registration statement and not offer the securities
3
<PAGE>
intended to be offered by the Company to which the registration statement
relates, without liability to the Holder on account thereof.
b. In addition to the registration rights set forth in Section 4a
above, if the Holder shall give notice to the Company at any time prior to the
Expiration Date to the effect that such Holder desires to register, for sale
under the Act, any Warrant Shares, then the Company will promptly, on one
occasion only, no later than 60 days after the receipt of such notice, file a
post-effective amendment to any current registration statement or a new
registration statement, to the end that the Warrant Shares designated in such
notice may be publicly sold under the Act as promptly as practicable thereafter,
and the Company will use its best efforts to cause such registration statement
to become and remain effective (including the taking of such steps as are
necessary to obtain the removal of any stop order); provided, that the Holder
shall furnish the Company with such appropriate information in connection
therewith as the Company may reasonably request in writing, and provided further
that, if such notice is received more than four weeks before the Company is
required to file its current financial statements with the Commission, the
Company may delay filing the registration statement until the date on which such
financial statement are required to be filed with the Commission.
c. In the event the Company files a registration statement, and
subject to the Company's right to withdraw such registration statement as set
forth above, the Company shall:
i. supply to the Holder as soon as available a reasonable
number of copies of the registration statement and each preliminary or final
prospectus and any supplement or amendment required by the Act and the rules and
regulations promulgated thereunder;
ii. use its best efforts to cause the Warrant Shares to be
registered, qualified or exempted under the securities laws of such reasonable
number and selection of states selected by the Holder and do any and all other
acts and things which may be necessary or advisable to enable the Holder to
complete the proposed sale or the disposition of the Warrant Shares in such
states;
iii keep effective for a period of 90 days after the initial
effectiveness thereof all such registration statements, and cooperate in taking
such action as may be necessary to keep effective such other registrations,
qualifications or exemptions, and do any and all other acts and things for such
period, not to exceed such 90 days, as may be necessary to permit the public
sale or other disposition of such Warrant Shares by the Holder; and
iv. pay all costs of the registration statement and the public
offering and such other registrations, qualifications or exemptions, exclusive
of (x) brokers or sales commissions on the sale of the Warrant Shares and (y)
any legal
4
<PAGE>
fees incurred by the Holder in connection with the registration statement or
public offering.
5. FULLY PAID SHARES; TAXES. The Company agrees that the Common Shares
------------------------
represented by each and every certificate for Warrant Shares delivered on the
exercise of this Warrant shall, at the time of such delivery, be validly issued
and outstanding, fully paid and non-assessable, and the Company will take all
such actions as may be necessary to assure that the par value or stated value,
if any, per Warrant Share is at all times equal to or less than the then Per
Share Warrant Price. The Company further covenants and agrees that it will pay,
when due and payable, any and all Federal and state stamp, original issue or
similar taxes which may be payable in respect of the issue of any Warrant Share
or certificate therefor.
6. LOSS, ETC. OF WARRANT. Upon receipt of evidence satisfactory to the
---------------------
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnify reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, and upon
reimbursement of the Company's reasonably incidental expenses, the Company shall
execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
7. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided therein,
------------------------------
this Warrant does not confer upon the Holder any right to vote or to consent or
to receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a shareholder, prior
to the exercise hereof.
8. COMMUNICATION. No notice or other communication under this Warrant
-------------
shall be effective unless the same is in writing and is mailed by first-class
mail, postage prepaid, addressed to:
a. the Company 18245 SE Federal Highway, Tequesta, Florida 33469, or
such other address as the Company has designated in writing to the Holder, or
b. the Holder c/o Edward H. Burnbaum, Esq., 300 East 42nd St, New
York, New York 10017, or such other address as the Holder has designated in
writing to the Company.
9. HEADINGS. The headings of this Warrant have been inserted as a matter
--------
of convenience and shall not affect the construction hereof.
10. APPLICABLE LAW. This Warrant shall be governed by and construed in
--------------
accordance with the laws of the State of New York.
5
<PAGE>
IN WITNESS WHEREOF, SAF T LOK INCORPORATED. has caused this Warrant to be
signed by its President and its corporate seal to be hereunto affixed this 12th
day of February, 1998.
ATTEST: SAF T LOK INCORPORATED
_________________________ By: _________________________
Secretary
[Corporate Seal]
6
<PAGE>
ASSIGNMENT
(To be executed by the registered holder to effect a transfer
of the within Warrant)
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto
(Name)
(Address)
the right to purchase ____________ shares of Common Stock of Saf T Lok
Incorporated evidenced by the within Warrant, together with all right title and
interest therein, and do irrevocably constitute and appoint
(Name)
attorney to transfer the said right on the books of said Corporation with full
power of substitution in the premises.
Dated: ____________________
_________________________
Signature
7
<PAGE>
PURCHASE FORM
(To be executed upon exercise of Warrant)
To: SAF T LOK INCORPORATED
The undersigned hereby exercises the right to ___________ shares of Common
Stock of Saf T Lok Incorporated, evidenced by the within Warrant according to
the terms and conditions thereof, and herewith makes payment of the purchase
price in full.
Dated:____________,
___________________________
Signature
8
<PAGE>
Exhibit 10.6
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO
SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES REPRESENTED BY
THIS WARRANT ARE RESTRICTED AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
SAF T LOK INCORPORATED
----------------------
WARRANT FOR THE PURCHASE OF COMMON SHARES
NO. W- 500,000 SHARES
FOR VALUE RECEIVED, SAF T LOK INCORPORATED, a Florida corporation (the
"Company"), hereby certifies that Amexcorp. Limited or its permitted assigns
(the "Holder") is entitled to purchase from the Company, at any time or from
time to time after February 11, 1998 but prior to 5:00 P.M. on February 11,
2003, Five Hundred Thousand (500,000) fully paid and non-assessable shares of
common stock, par value $.01 per share, of the Company for an aggregate purchase
price of $2,500,000 (computed on the basis of $5.00 per share). (Hereinafter,
(i) said common shares, together with any other equity securities which may be
issued by the Company in substitution therefor, are referred to as the "Common
Shares", (ii) the Common Shares purchasable hereunder are referred to as the
"Warrant Shares", (iii) the aggregate purchase price payable hereunder for the
Warrant Shares is referred to as the "Aggregate Warrant Price", (iv) the price
payable hereunder for each of the Warrant Shares, as adjusted in the manner set
forth in Section 3, is referred to as the "Per Share Warrant Price" and (v) this
Warrant and all warrants hereinafter issued in exchange or substitution for this
Warrant are referred to as the "Warrants".) The Aggregate Warrant Price is not
subject to adjustment. The Per Share Warrant Price and the number of Warrant
Shares are subject to adjustment as hereinafter provided.
1. EXERCISE OF WARRANT. This Warrant may be exercised, in whole at any
-------------------
time or in part from time to time (such partial exercises to be in amounts of
not less than 25,000 Warrant Shares), on and after February 11, 1998, but prior
to 5:00 P.M. on February 11, 2003, by the holder of this Warrant, by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the
1
<PAGE>
principal office of the Company at 18245 SE Federal Highway, Tequesta, Florida
33469, together with proper payment of the Aggregate Warrant Price applicable on
such date, or the proportionate part thereof if this Warrant is exercised in
part. Payment for Warrant Shares shall be made by check or checks, payable to
the order of the Company. If this Warrant is exercised in part, this Warrant
must be exercised for a number of whole Warrant Shares, and the Holder is
entitled to receive a new Warrant covering the number of Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the Holder for the largest number of
whole Warrant Shares to which the Holder shall be entitled and, if this Warrant
is exercised in whole, in lieu of any fractional Warrant Share to which the
Holder shall be entitled, cash equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of Directors of the Company
shall determine), and (b) deliver the other securities and properties receivable
upon the exercise of this Warrant, or the proportionate part thereof if this
Warrant is exercised in part, pursuant to the provisions of this Warrant.
2. RESERVATION OF WARRANT SHARES. The Company agrees that, prior to the
-----------------------------
expiration of this Warrant, the Company will at all times have authorized and
will reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the shares receivable upon the exercise of this
Warrant, the Warrant Shares and other securities and properties as from time to
time shall be receivable upon the exercise of this Warrant, free and clear of
all restrictions on sale or transfer (except as may arise under applicable
securities laws) and free and clear of all preemptive rights.
3. PROTECTION AGAINST DILUTION.
---------------------------
a. If, at any time or from time to time after the date of this
Warrant, the Company shall issue to the holders of the Common Shares any Common
Shares by way of a stock dividend or stock split (including, without limitation,
a reverse stock split), then, and in each such case, the Per Share Warrant Price
on the date of such stock dividend or stock split shall be adjusted, or further
adjusted, to a price (to the nearest cent) determined by dividing (i) an amount
equal to the number of Common Shares outstanding immediately prior to such
issuance multiplied by the Per Share Warrant Price in effect immediately prior
to such issuance by (ii) the total number of Common Shares outstanding
immediately after such issuance. Upon each adjustment in the Per Share Warrant
Price resulting from a stock split or stock dividend, the number of Warrant
Shares shall be adjusted by dividing the Aggregate Warrant Price by the Per
Share Warrant Price in effect immediately after such adjustment. Notice of each
such adjustment and each such readjustment shall be forthwith mailed to the
Holder.
2
<PAGE>
b. If the Company shall be consolidated with or merged into another
corporation, or shall sell all or substantially all of its assets in part of a
reorganization to which the Company is a party within the meaning of the
Internal Revenue Code of 1986, as presently in effect, or shall issue a security
convertible into its Common Shares as a dividend on its Common Shares, or shall
reclassify or reorganize its capital structure (except a stock split covered by
Subsection 3(a) hereof), each Warrant Share shall be replaced for the purposes
hereof by the securities or properties issuable or distributable in respect of
one Common Share upon such consolidation, merger, sale, reclassification or
reorganization, and adequate provisions to that effect shall be made at the time
thereof. Notice of such consolidation, merger, sale, reclassification or
reorganization, and of said provisions so proposed to be made, shall be mailed
to the Holder not less than 15 days prior to such event.
c. If the Company shall sell all or substantially all of its assets,
other than as part of a reorganization to which the Company is a party within
the meaning of the Internal Revenue Code of 1986, as presently in effect, or
shall distribute its assets in dissolution or liquidation (other than as part of
such a reorganization), the Company shall mail notice thereof to the Holder and
shall make no distribution to shareholders until the expiration of 15 days from
the date of mailing of said notice and then only to shareholders of record as of
a date at least 15 days after the date of mailing of said notice.
d. If the Board of Directors of the Company shall declare any
dividend or other distribution in cash with respect to the Common Shares, other
than out of surplus, the Company shall mail notice thereof to the Holder not
less than 15 days prior to the record date fixed for determining shareholders
entitled to participate in such dividend or other distribution.
4. REGISTRATION RIGHTS.
-------------------
a. If the Company proposes, at any time prior to the Expiration
Date, to file a registration statement with the Securities and Exchange
Commission (the "Commission") on a general form for registration under the Act
and relating to securities issued or to be issued by it, then it shall give
written notice of such proposed filing to the Holder not less than 10 days prior
to the filing of such registration statement. Any written request of the Holder
to include the Warrant Shares shall be given to the Company not less than 5 days
prior to the date specified in the notice as the date on which such registration
statement is intended to be filed with the Securities and Exchange Commission.
Neither the delivery of the notice by the Company nor the delivery of the
request by the Holder shall obligate the Company to file such registration
statement; and notwithstanding the filing of such registration statement, the
Company may, at any time prior to the effective date thereof, determine to
withdraw such registration statement and not offer the securities
3
<PAGE>
intended to be offered by the Company to which the registration statement
relates, without liability to the Holder on account thereof.
b. In addition to the registration rights set forth in Section 4a
above, if the Holder shall give notice to the Company at any time prior to the
Expiration Date to the effect that such Holder desires to register, for sale
under the Act, any Warrant Shares, then the Company will promptly, on one
occasion only, no later than 60 days after the receipt of such notice, file a
post-effective amendment to any current registration statement or a new
registration statement, to the end that the Warrant Shares designated in such
notice may be publicly sold under the Act as promptly as practicable thereafter,
and the Company will use its best efforts to cause such registration statement
to become and remain effective (including the taking of such steps as are
necessary to obtain the removal of any stop order); provided, that the Holder
shall furnish the Company with such appropriate information in connection
therewith as the Company may reasonably request in writing, and provided further
that, if such notice is received more than four weeks before the Company is
required to file its current financial statements with the Commission, the
Company may delay filing the registration statement until the date on which such
financial statement are required to be filed with the Commission.
c. In the event the Company files a registration statement, and
subject to the Company's right to withdraw such registration statement as set
forth above, the Company shall:
i. supply to the Holder as soon as available a reasonable
number of copies of the registration statement and each preliminary or final
prospectus and any supplement or amendment required by the Act and the rules and
regulations promulgated thereunder;
ii. use its best efforts to cause the Warrant Shares to be
registered, qualified or exempted under the securities laws of such reasonable
number and selection of states selected by the Holder and do any and all other
acts and things which may be necessary or advisable to enable the Holder to
complete the proposed sale or the disposition of the Warrant Shares in such
states;
iii keep effective for a period of 90 days after the initial
effectiveness thereof all such registration statements, and cooperate in taking
such action as may be necessary to keep effective such other registrations,
qualifications or exemptions, and do any and all other acts and things for such
period, not to exceed such 90 days, as may be necessary to permit the public
sale or other disposition of such Warrant Shares by the Holder; and
iv. pay all costs of the registration statement and the public
offering and such other registrations, qualifications or exemptions, exclusive
of (x) brokers or sales commissions on the sale of the Warrant Shares and (y)
any legal
4
<PAGE>
fees incurred by the Holder in connection with the registration statement or
public offering.
5. FULLY PAID SHARES; TAXES. The Company agrees that the Common Shares
------------------------
represented by each and every certificate for Warrant Shares delivered on the
exercise of this Warrant shall, at the time of such delivery, be validly issued
and outstanding, fully paid and non-assessable, and the Company will take all
such actions as may be necessary to assure that the par value or stated value,
if any, per Warrant Share is at all times equal to or less than the then Per
Share Warrant Price. The Company further covenants and agrees that it will pay,
when due and payable, any and all Federal and state stamp, original issue or
similar taxes which may be payable in respect of the issue of any Warrant Share
or certificate therefor.
6. LOSS, ETC. OF WARRANT. Upon receipt of evidence satisfactory to the
---------------------
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnify reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, and upon
reimbursement of the Company's reasonably incidental expenses, the Company shall
execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
7. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided therein,
------------------------------
this Warrant does not confer upon the Holder any right to vote or to consent or
to receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a shareholder, prior
to the exercise hereof.
8. COMMUNICATION. No notice or other communication under this Warrant
-------------
shall be effective unless the same is in writing and is mailed by first-class
mail, postage prepaid, addressed to:
a. the Company 18245 SE Federal Highway, Tequesta, Florida 33469, or
such other address as the Company has designated in writing to the Holder, or
b. the Holder c/o Edward H. Burnbaum, Esq., 300 East 42nd St, New
York, New York 10017, or such other address as the Holder has designated in
writing to the Company.
9. HEADINGS. The headings of this Warrant have been inserted as a matter
--------
of convenience and shall not affect the construction hereof.
10. APPLICABLE LAW. This Warrant shall be governed by and construed in
--------------
accordance with the laws of the State of New York.
5
<PAGE>
IN WITNESS WHEREOF, SAF T LOK INCORPORATED. has caused this Warrant to be
signed by its President and its corporate seal to be hereunto affixed this 12th
day of February, 1998.
ATTEST: SAF T LOK INCORPORATED
_________________________ By: _________________________
Secretary
[Corporate Seal]
6
<PAGE>
ASSIGNMENT
(To be executed by the registered holder to effect a transfer
of the within Warrant)
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto
(Name)
(Address)
the right to purchase ____________ shares of Common Stock of Saf T Lok
Incorporated evidenced by the within Warrant, together with all right title and
interest therein, and do irrevocably constitute and appoint
(Name)
attorney to transfer the said right on the books of said Corporation with full
power of substitution in the premises.
Dated: ____________________
_________________________
Signature
7
<PAGE>
PURCHASE FORM
(To be executed upon exercise of Warrant)
To: SAF T LOK INCORPORATED
The undersigned hereby exercises the right to ___________ shares of Common
Stock of Saf T Lok Incorporated, evidenced by the within Warrant according to
the terms and conditions thereof, and herewith makes payment of the purchase
price in full.
Dated:____________,
___________________________
Signature
8
<PAGE>
EXHIBIT 10.7
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO
SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES REPRESENTED BY
THIS WARRANT ARE RESTRICTED AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
SAF T LOK INCORPORATED
----------------------
WARRANT FOR THE PURCHASE OF COMMON SHARES
NO. W- 1,000,000 SHARES
FOR VALUE RECEIVED, SAF T LOK INCORPORATED, a Florida corporation (the
"Company"), hereby certifies that Danvers Investment Corp. or its permitted
assigns (the "Holder") is entitled to purchase from the Company, at any time or
from time to time after February 11, 1998 but prior to 5:00 P.M. on February 11,
2003, One Million (1,000,000) fully paid and non-assessable shares of common
stock, par value $.01 per share, of the Company for an aggregate purchase price
of $5,000,000 (computed on the basis of $5.00 per share). (Hereinafter, (i)
said common shares, together with any other equity securities which may be
issued by the Company in substitution therefor, are referred to as the "Common
Shares", (ii) the Common Shares purchasable hereunder are referred to as the
"Warrant Shares", (iii) the aggregate purchase price payable hereunder for the
Warrant Shares is referred to as the "Aggregate Warrant Price", (iv) the price
payable hereunder for each of the Warrant Shares, as adjusted in the manner set
forth in Section 3, is referred to as the "Per Share Warrant Price" and (v) this
Warrant and all warrants hereinafter issued in exchange or substitution for this
Warrant are referred to as the "Warrants".) The Aggregate Warrant Price is not
subject to adjustment. The Per Share Warrant Price and the number of Warrant
Shares are subject to adjustment as hereinafter provided.
1. EXERCISE OF WARRANT. This Warrant may be exercised, in whole at any
-------------------
time or in part from time to time (such partial exercises to be in amounts of
not less than 25,000 Warrant Shares), on and after February 11, 1998, but prior
to 5:00 P.M. on February 11, 2003, by the holder of this Warrant, by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the
1
<PAGE>
principal office of the Company at 18245 SE Federal Highway, Tequesta, Florida
33469, together with proper payment of the Aggregate Warrant Price applicable on
such date, or the proportionate part thereof if this Warrant is exercised in
part. Payment for Warrant Shares shall be made by check or checks, payable to
the order of the Company. If this Warrant is exercised in part, this Warrant
must be exercised for a number of whole Warrant Shares, and the Holder is
entitled to receive a new Warrant covering the number of Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the Holder for the largest number of
whole Warrant Shares to which the Holder shall be entitled and, if this Warrant
is exercised in whole, in lieu of any fractional Warrant Share to which the
Holder shall be entitled, cash equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of Directors of the Company
shall determine), and (b) deliver the other securities and properties receivable
upon the exercise of this Warrant, or the proportionate part thereof if this
Warrant is exercised in part, pursuant to the provisions of this Warrant.
2. RESERVATION OF WARRANT SHARES. The Company agrees that, prior to the
-----------------------------
expiration of this Warrant, the Company will at all times have authorized and
will reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the shares receivable upon the exercise of this
Warrant, the Warrant Shares and other securities and properties as from time to
time shall be receivable upon the exercise of this Warrant, free and clear of
all restrictions on sale or transfer (except as may arise under applicable
securities laws) and free and clear of all preemptive rights.
3. PROTECTION AGAINST DILUTION.
---------------------------
a. If, at any time or from time to time after the date of this
Warrant, the Company shall issue to the holders of the Common Shares any Common
Shares by way of a stock dividend or stock split (including, without limitation,
a reverse stock split), then, and in each such case, the Per Share Warrant Price
on the date of such stock dividend or stock split shall be adjusted, or further
adjusted, to a price (to the nearest cent) determined by dividing (i) an amount
equal to the number of Common Shares outstanding immediately prior to such
issuance multiplied by the Per Share Warrant Price in effect immediately prior
to such issuance by (ii) the total number of Common Shares outstanding
immediately after such issuance. Upon each adjustment in the Per Share Warrant
Price resulting from a stock split or stock dividend, the number of Warrant
Shares shall be adjusted by dividing the Aggregate Warrant Price by the Per
Share Warrant Price in effect immediately after such adjustment. Notice of each
such adjustment and each such readjustment shall be forthwith mailed to the
Holder.
2
<PAGE>
b. If the Company shall be consolidated with or merged into another
corporation, or shall sell all or substantially all of its assets in part of a
reorganization to which the Company is a party within the meaning of the
Internal Revenue Code of 1986, as presently in effect, or shall issue a security
convertible into its Common Shares as a dividend on its Common Shares, or shall
reclassify or reorganize its capital structure (except a stock split covered by
Subsection 3(a) hereof), each Warrant Share shall be replaced for the purposes
hereof by the securities or properties issuable or distributable in respect of
one Common Share upon such consolidation, merger, sale, reclassification or
reorganization, and adequate provisions to that effect shall be made at the time
thereof. Notice of such consolidation, merger, sale, reclassification or
reorganization, and of said provisions so proposed to be made, shall be mailed
to the Holder not less than 15 days prior to such event.
c. If the Company shall sell all or substantially all of its assets,
other than as part of a reorganization to which the Company is a party within
the meaning of the Internal Revenue Code of 1986, as presently in effect, or
shall distribute its assets in dissolution or liquidation (other than as part of
such a reorganization), the Company shall mail notice thereof to the Holder and
shall make no distribution to shareholders until the expiration of 15 days from
the date of mailing of said notice and then only to shareholders of record as of
a date at least 15 days after the date of mailing of said notice.
d. If the Board of Directors of the Company shall declare any
dividend or other distribution in cash with respect to the Common Shares, other
than out of surplus, the Company shall mail notice thereof to the Holder not
less than 15 days prior to the record date fixed for determining shareholders
entitled to participate in such dividend or other distribution.
4. REGISTRATION RIGHTS.
-------------------
a. If the Company proposes, at any time prior to the Expiration
Date, to file a registration statement with the Securities and Exchange
Commission (the "Commission") on a general form for registration under the Act
and relating to securities issued or to be issued by it, then it shall give
written notice of such proposed filing to the Holder not less than 10 days prior
to the filing of such registration statement. Any written request of the Holder
to include the Warrant Shares shall be given to the Company not less than 5 days
prior to the date specified in the notice as the date on which such registration
statement is intended to be filed with the Securities and Exchange Commission.
Neither the delivery of the notice by the Company nor the delivery of the
request by the Holder shall obligate the Company to file such registration
statement; and notwithstanding the filing of such registration statement, the
Company may, at any time prior to the effective date thereof, determine to
withdraw such registration statement and not offer the securities
3
<PAGE>
intended to be offered by the Company to which the registration statement
relates, without liability to the Holder on account thereof.
b. In addition to the registration rights set forth in Section 4a
above, if the Holder shall give notice to the Company at any time prior to the
Expiration Date to the effect that such Holder desires to register, for sale
under the Act, any Warrant Shares, then the Company will promptly, on one
occasion only, no later than 60 days after the receipt of such notice, file a
post-effective amendment to any current registration statement or a new
registration statement, to the end that the Warrant Shares designated in such
notice may be publicly sold under the Act as promptly as practicable thereafter,
and the Company will use its best efforts to cause such registration statement
to become and remain effective (including the taking of such steps as are
necessary to obtain the removal of any stop order); provided, that the Holder
shall furnish the Company with such appropriate information in connection
therewith as the Company may reasonably request in writing, and provided further
that, if such notice is received more than four weeks before the Company is
required to file its current financial statements with the Commission, the
Company may delay filing the registration statement until the date on which such
financial statement are required to be filed with the Commission.
c. In the event the Company files a registration statement, and
subject to the Company's right to withdraw such registration statement as set
forth above, the Company shall:
i. supply to the Holder as soon as available a reasonable
number of copies of the registration statement and each preliminary or final
prospectus and any supplement or amendment required by the Act and the rules and
regulations promulgated thereunder;
ii. use its best efforts to cause the Warrant Shares to be
registered, qualified or exempted under the securities laws of such reasonable
number and selection of states selected by the Holder and do any and all other
acts and things which may be necessary or advisable to enable the Holder to
complete the proposed sale or the disposition of the Warrant Shares in such
states;
iii. keep effective for a period of 90 days after the initial
effectiveness thereof all such registration statements, and cooperate in taking
such action as may be necessary to keep effective such other registrations,
qualifications or exemptions, and do any and all other acts and things for such
period, not to exceed such 90 days, as may be necessary to permit the public
sale or other disposition of such Warrant Shares by the Holder; and
iv. pay all costs of the registration statement and the public
offering and such other registrations, qualifications or exemptions, exclusive
of (x) brokers or sales commissions on the sale of the Warrant Shares and (y)
any legal
4
<PAGE>
fees incurred by the Holder in connection with the registration statement or
public offering.
5. FULLY PAID SHARES; TAXES. The Company agrees that the Common Shares
------------------------
represented by each and every certificate for Warrant Shares delivered on the
exercise of this Warrant shall, at the time of such delivery, be validly issued
and outstanding, fully paid and non-assessable, and the Company will take all
such actions as may be necessary to assure that the par value or stated value,
if any, per Warrant Share is at all times equal to or less than the then Per
Share Warrant Price. The Company further covenants and agrees that it will pay,
when due and payable, any and all Federal and state stamp, original issue or
similar taxes which may be payable in respect of the issue of any Warrant Share
or certificate therefor.
6. LOSS, ETC. OF WARRANT. Upon receipt of evidence satisfactory to the
---------------------
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnify reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, and upon
reimbursement of the Company's reasonably incidental expenses, the Company shall
execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
7. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided therein,
------------------------------
this Warrant does not confer upon the Holder any right to vote or to consent or
to receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a shareholder, prior
to the exercise hereof.
8. COMMUNICATION. No notice or other communication under this Warrant
-------------
shall be effective unless the same is in writing and is mailed by first-class
mail, postage prepaid, addressed to:
a. the Company 18245 SE Federal Highway, Tequesta, Florida 33469, or
such other address as the Company has designated in writing to the Holder, or
b. the Holder c/o Edward H. Burnbaum, Esq., 300 East 42nd St, New
York, New York 10017, or such other address as the Holder has designated in
writing to the Company.
9. HEADINGS. The headings of this Warrant have been inserted as a matter
--------
of convenience and shall not affect the construction hereof.
10. APPLICABLE LAW. This Warrant shall be governed by and construed in
--------------
accordance with the laws of the State of New York.
5
<PAGE>
IN WITNESS WHEREOF, SAF T LOK INCORPORATED. has caused this Warrant to be
signed by its President and its corporate seal to be hereunto affixed this 12th
day of February, 1998.
ATTEST: SAF T LOK INCORPORATED
_________________________ By: _________________________
Secretary
[Corporate Seal]
6
<PAGE>
ASSIGNMENT
(To be executed by the registered holder to effect a transfer
of the within Warrant)
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto
(Name)
(Address)
the right to purchase ____________ shares of Common Stock of Saf T Lok
Incorporated evidenced by the within Warrant, together with all right title and
interest therein, and do irrevocably constitute and appoint
(Name)
attorney to transfer the said right on the books of said Corporation with full
power of substitution in the premises.
Dated: ____________________
_________________________
Signature
7
<PAGE>
PURCHASE FORM
(To be executed upon exercise of Warrant)
To: SAF T LOK INCORPORATED
The undersigned hereby exercises the right to ___________ shares of Common
Stock of Saf T Lok Incorporated, evidenced by the within Warrant according to
the terms and conditions thereof, and herewith makes payment of the purchase
price in full.
Dated:____________,
___________________________
Signature
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000902056
<NAME> SAF T LOK INCORPORATED
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,358,999
<SECURITIES> 0
<RECEIVABLES> 19,115
<ALLOWANCES> 14,510
<INVENTORY> 592,057
<CURRENT-ASSETS> 8,824,028
<PP&E> 1,784,900
<DEPRECIATION> 573,690
<TOTAL-ASSETS> 11,177,577
<CURRENT-LIABILITIES> 2,123,791
<BONDS> 0
0
0
<COMMON> 114,791
<OTHER-SE> 21,678,171
<TOTAL-LIABILITY-AND-EQUITY> 11,177,577
<SALES> 277,436
<TOTAL-REVENUES> 277,436
<CGS> 74,776
<TOTAL-COSTS> 227,431
<OTHER-EXPENSES> 51,942
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (76,715)
<INCOME-TAX> 0
<INCOME-CONTINUING> (76,715)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (76,715)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
