<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 June 30, 1999
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)
FLORIDA 65-0142837
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
1101 Northpoint Parkway
West Palm Beach, FL 33407
(Address of principal executive offices)
Telephone No. (561) 478-5625
_______________________
(Former name, former address and former fiscal year, if changed since last
report.)
_________________________
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 August 12, 1999 there were 13,586,354 shares of the issuer's common stock
outstanding.
Transitional Small Business Disclosure Format: Yes __ No X
---
________________________________________________________________
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION:
This document includes "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of material fact included in this document, including, without
limitation, the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Liquidity and Sources of
Capital" regarding the strategies, plans, objectives, expectations, and future
operating results of Saf T Lok Incorporated (the "Company") are forward-looking
statements. Although the Company believes the expectations reflected in such
forward-looking statements are reasonable at this time, it can give no assurance
that such expectations will prove to have been correct. Actual results could
differ materially based upon a number of factors including, but not limited to,
unproven market, competition, accumulated deficit, need for additional capital,
going concern qualification, outstanding debt, lack of profitable operating
history, SEC investigation, class action lawsuits and other litigation,
political climate or events, state and federal regulation, dependence on key
personnel, protection of patent rights, volatile and thin market for stock,
dilution, no dividends, shares eligible for future resale, risk of low-priced
shares and other risks detailed in the Company's Securities and Exchange
Commission filings.
Part I. Financial Information
Item 1. Financial Statement.
- ---------------------------
The Company's financial statements for the three-month period and six-month
period ended June 30, 1999 are attached hereto.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operation.
- ------------
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 April 15, 1999.
Three Months Ended June 30, 1999 compared to Three Months Ended June 30, 1998.
- -----------------------------------------------------------------------------
Sales for the second quarter of 1999 were $81,393 as compared to sales for the
second quarter of 1998 of $883,498. The decrease was due primarily to the
failure of United
1
<PAGE>
Safety Action, Inc. ("USA") to make the required purchases under the
Distribution and Pricing Agreement between the Company and USA dated February
11, 1998 (the "Distribution Agreement"), which was subsequently terminated in
May 1999. Revenues, which consist of sales, interest and royalty income, and
other miscellaneous income, totaled $93,971 for the second quarter of 1999 as
compared to $952,029 for the second quarter of 1998. Sales for the second
quarter of 1999 were almost entirely from shipments to law enforcement agencies
while substantially all sales in the second quarter of 1998 consisted of
shipments to the distributor through the Distribution Agreement with USA which
has now been terminated.
During the second quarter of 1999, the Company's magazine lock accounted for 96%
of the shipments while the grip lock accounted for the remaining 4%, reflecting
the approximate proportion of semi-automatic pistols to revolvers currently in
use by law enforcement agencies in the U.S.
Significant new customers of the Company in the second quarter of 1999 were the
North Carolina Highway Patrol, the Los Angeles California School District
Police, the Harnett County, North Carolina Sheriff's Department, the Oak Lawn,
Illinois Police Department and the Gloucester, Massachusetts Police Department.
Gross profit for the second quarter of 1999 was $32,689 or 40% of sales. A
relatively large portion of 1999 second quarter sales consisted of a single
order at a deep discount, which had the effect of decreasing the Company's gross
profit. As the Company seeks to build credibility through sales to well known
law enforcement agencies, it is strategically advantageous to obtain those sales
with attractive pricing where necessary. There were no sales in the second
quarter of 1999 through the Distribution Agreement.
Gross profit on sales for the second quarter of 1998 was 22%, reflecting the
additional cost associated with the ramp up of the assembly lines and start up
of the magazine lock coupled with lower selling prices specified in the
Distribution Agreement.
SG&A expenses for the second quarter of 1999 totaled $448,195 as compared to
SG&A expenses for the second quarter of 1998 of $472,722.
However, second quarter 1999 SG&A included an abnormal credit of $165,000 that
was a reversal of sales commissions due under the Distribution Agreement.
Because the Company uses the accrual method of accounting, those commissions
were charged when they became due in 1998 even though they were not actually
paid. One of the conditions of the termination of the Distribution Agreement,
which happened in this quarter, was the cancellation of the $165,000 commission
which resulted in the credit in this quarter. Without the credit, second quarter
1999 SG&A would have been $611,660.
Concerning the above noted SG&A expenses, the second quarter of 1998 was
characterized by high levels of spending related to capital raising activities
and ramp up of production activity associated with the Distribution Agreement
whereas in the second quarter of 1999 more funds were expended on sales related
activities and on legal fees primarily related to the SEC inquiry and the class
action securities suit.
2
<PAGE>
Several of the major differences in expense categories for the second quarter of
1999 as compared with the second quarter of 1998 are:
- - Total legal expenses, primarily due to defense of various lawsuits (see
"Legal Proceedings") and the termination of the Distribution Agreement with
USA, of approximately $186,000 for the second quarter of 1999 as compared
with approximately $26,000 in the second quarter of 1998.
- - Above standard labor expenses of approximately $111,000 less in the second
quarter of 1999 as compared with the second quarter of 1998. The higher
labor expenses in the second quarter of 1998 were due to the rapid increase
of production activity to satisfy terms of the Distribution Agreement with
USA.
- - Consulting, professional and accounting fees of approximately $84,000 for
the second quarter of 1999 as compared with approximately $22,000 in the
second quarter of 1998. The difference is primarily due to a combination of
the timing of receipt of invoices and additional consulting fees for
product promotional activity and procurement of the GSA contract.
Depreciation expenses for the second quarter of 1999 were $85,211 as compared to
SG&A expenses for the second quarter of 1998 of $51,942 due to the acquisition
of additional tooling to produce the magazine lock after the second quarter of
1998.
Charges for the issuance of stock options and warrants for the second quarter of
1999 totaled $754,294 as compared to the second quarter of 1998 of $765,424.
Second quarter 1999 charges are comprised of:
- - $410,775, as the valued by the Black-Sholes method, of stock options issued
to Lisa Broderick in settlement of a lawsuit (see "Legal Proceedings").
- - $172,195, at fair market valuation at the time of issue, of common stock
issued to an employee/director, a director, and three employees upon exercise of
previously granted stock options.
- - $170,544 as the amortized portion previously granted to two directors and
one director/employee.
Second quarter 1998 charges are comprised of:
- - $190,194 as the amortized portion of the value of the stock purchase
warrants for 2,000,000 million shares with an exercise price of $5.00 per share
issued in February 1998 in connection with the Distribution Agreement with USA.
- - $89,000 as the amortized portion of a public relations agreement and a
consulting agreement.
- - The amortized portion of the issuance of warrants for 2,000,000 shares with
an exercise price of $2.00 per share and the issuance of warrants for 500,000
shares with an exercise price of $3.00 per share in connection with a financing
package consisting of the sale of stock and warrants to a group of offshore
investors in October 1997.
In total, the second quarter of 1999 resulted in a loss of ($1,242,433), or
$(.09) per share as compared with a loss of ($1,026,284), or $(.08) per share
for the second quarter of 1998.
3
<PAGE>
Six Months Ended June 30, 1999 compared to Six Months Ended June 30, 1998.
- -------------------------------------------------------------------------
Total revenue for the first two quarters of 1999 was $152,693, consisting of
$130,809 from sales and $21,884 from interest and miscellaneous income compared
to total revenue for the first two quarters of 1998 of $1,229,465, consisting of
$1,160,934 from sales and $68,531 from interest and miscellaneous income. Higher
revenues during the 1998 period were due to sales to United Safety Action under
the Distribution Agreement and greater interest income as a result of the higher
cash balance during the period.
Gross profit as a percentage of sales was approximately 42% for the first two
quarters of 1999, lowered somewhat by the introductory promotional pricing
concessions for the magazine lock during the 1999 period. Gross profit was lower
at approximately 34% of sales for the first two quarters of 1998 because of the
volume price reductions specified in the Distribution Agreement.
SG&A expenses for the first two quarters of 1999 totaled $879,267 compared to
$591,423 for the first two quarters of 1998. Due to a low cash position in the
latter part of 1997 and the first two quarters of 1998, a large portion of
executive salaries were accrued and not paid. In 1998 the executives agreed to
waive the accrued salaries. Since the salaries that had been accrued in 1997
were charged as SG&A expenses in 1997 they had to be taken as a credit against
SG&A expenses when waived in 1998. Thus, the SG&A for the first two quarters
1998 were lowered by the credit of approximately $122,000 from 1997 plus
approximately $88,000 from the waiver of salaries in the 1998 period. These
credits coupled with a lower level of sales and production activities during
the first quarter of 1998 resulted in unusually low SG&A expenses of $118,701
for the first quarter of 1998, thus lowering the total SG&A for the first two
quarters of 1998.
Depreciation expenses for the first two quarters of 1999 totaled $150,598
compared to $103,884 for the first two quarters of 1998. The difference is due
to the acquisition of additional tooling to produce the magazine lock after the
second quarter of 1998.
Charges for the issuance of stock options and warrants for the first two
quarters of 1999 totaled $790,232 as compared to the first two quarters of 1998
of $874,154.
The total of $790,232 for the first two quarters of 1999 was comprised of:
- - $35,398 as the value of 25,000 shares issued in the first quarter of 1999
as compensation to two marketing consultants.
- - $754,294 for the second quarter of 1999 as explained above.
Charges for the first two quarters of 1998 are comprised of:
- - $209,894 as the amortized portion of the value of the stock purchase
warrants for 2,000,000 million shares with an exercise price of $5.00 per share
issued in February 1998 in connection with the Distribution Agreement with USA.
- - $89,000 as the amortized portion of a public relations agreement and a
consulting agreement.
- - the amortized portion of the issuance of warrants for 2,000,000 shares with
an exercise price of $2.00 per share and the issuance of warrants for 500,000
shares with an exercise price of $3.00 per share in connection with a financing
package consisting of the sale of stock and warrants to a group of offshore
investors in October 1997.
In total, the first two quarters of 1999 resulted in a loss of ($1,742,162), or
$(.13) per share as compared with a loss of ($1,102,999), or $(.10) per share
for the first two quarters of 1998.
4
<PAGE>
Liquidity and Sources of Capital
- --------------------------------
The Company ended the second quarter of 1999 with a cash balance of $269,410 and
accounts receivable of $125,318 against accounts payable of $234,759, leaving it
in a low cash position.
In addition to sales and other normally occurring revenues netting a total of
$93,991 in the second quarter of 1999 the Company gained additional funds of
$1,037,600, comprised of $232,600 from the exercise of options by employees,
directors and consultants and net proceeds of $805,000 from the exercise of
warrants. In July 1999, the Company also raised net proceeds of $265,000 from
the sale of convertible debentures
5
<PAGE>
(See "Other Information"). In the second quarter of 1999 the Company's cash
position improved by $224,980 and, in addition to funding normal operations for
approximately $352,000, cash was used to assemble more models of the popular
magazine lock, increasing the inventory of finished goods by $46,138 and for the
reduction of current notes and accrued expenses by $381,946, a share of which
was accrued salaries from 1998 and early 1999.
A large portion of the Company's current assets are in inventories of $2,368,846
which is largely a holdover from the build-up of parts and finished goods in
1998 to meet the requirements of the Distribution Agreement. When United Safety
Action, Inc. failed to make the required purchases and payments under the
Distribution Agreement, the Company was left with excessive inventory. Other
current assets of $57,731 consist mainly of prepaid insurance and tooling
deposits. The accounts payable of $234,759 consists mainly of normal trade
debts, some of which had been extended through negotiations with the creditors.
On July 1999 the Company sold $400,000 of 6%, two-year debentures (See "Other
Information"). The Company has a liability to pay the interest, due each year in
July 2000 and July 2001 in cash or in Company stock. If the Company elects to
pay in cash $24,000 would be due each year on the anniversary date. If the
debentures are not converted to shares of the Company stock before the maturity
date of July 15, 2001 the Company is obligated to repay the debenture holders
the principal amount of the debentures, a total of $400,000 in cash. The
agreement with Alexander, Wescott and Company, Inc. (the "Placement Agent"), who
brokered the debentures, specifies that, at the Company's discretion, the
Company may direct the Placement Agent to use his best efforts to obtain
purchasers for an additional $600,000 of debentures under the same terms as the
completed sale of the previous $400,000 of debentures.
Another important potential source of funds for the Company is through the
exercise of outstanding stock warrants and options. There are currently
outstanding and exercisable warrants for 214,725 shares of stock at an exercise
price of $0.396 per share for a total of $85,031.10. The are currently
outstanding options to that were granted to current or former employees,
directors and consultants for a total of 3,317,637 shares of Company stock with
exercise prices ranging from $0.10 to $7.00 per share. If all options were to be
exercised upon vesting, the Company would receive a total of $5,782,023. Of
course, there is no assurance as to when or if any or all of the options or
warrants would be exercised.
The Company is continuing with its efforts to raise additional capital through
other traditional sources and, while there in no assurance of success, expects
to raise a sufficient amount within the third and fourth quarters of 1999 to
meet its projected needs for the next year.
Going Concern
- -------------
6
<PAGE>
The Company's continued ability to operate as a going concern is dependent on
its ability to raise additional capital and achieve a successful level of sales.
The Company is attempting to obtain the necessary financing to fund operations.
However there can be no assurance that the financing will be satisfactorily
concluded in time to provide the Company the working capital it needs to
continue operations. The aforementioned circumstances raise doubts as to the
Company's ability to continue as a going concern.
Capital Resources and Expenditures
- ----------------------------------
The Company acquired miscellaneous tooling of approximately $17,000 in the
second quarter of 1999.
Year 2000 Compliance. The Company has analyzed Year 2000 issues with its
computer and software advisors and has assessed the impact of Year 2000 issues
on the Company's operations. The Company is in the process of obtaining and
reviewing critical vendor's documentation of Year 2000 compliance and expects to
be completed by September 30, 1999. Due to the Company's current inventory
position there is no great reliance on its parts suppliers. The Company's
computer systems advisor has taken the necessary steps to insure that its
existing computer programs and all of its non-information systems are fully Year
2000 compliant and that it will not be necessary to incur any material expenses
with regard to Year 2000 issues in the future. The Company believes that there
are currently no other material Year 2000 issues to be disclosed.
Outlook:
- --------
The Company ended the second quarter of 1999 still facing a number of
significant problems including the continuing need to obtain funding of its
working capital requirements, ongoing litigation (including litigation involving
its past president, John Gardner) and an ongoing SEC investigation. See "Legal
Proceedings" and "-Liquidity".
However, by the time of this report the Company had made significant progress on
these problems. On April 30, 1999, the lawsuit brought by its former President,
Lisa Broderick Fogel had been settled. (See "Legal Proceedings"). On May 27,
1999 the Company announced the termination of the Distribution and Pricing
Agreement, and several other related transactions which resulted in the inflow
of significant funds from the exercise of warrants, the cancellation of
significant other outstanding warrants and the return of 1,000,000 shares of
Company stock. This now leaves the Company free to seek other potential
opportunities to market its locks into the retail market.
The Company also reached settlement, subject to court approval, of the class
action securities suit brought by shareholders in July 1998.
With respect to its Law Enforcement marketing activities, in the second quarter
the Company completed additional significant sales to the North Carolina Highway
Patrol, the Los Angeles California School District Police, the Harnett County,
North Carolina Sheriff's Department, the Oak Lawn, Illinois Police Department
and the Gloucester, Massachusetts Police Department.
On balance, the Company continues to be optimistic that the combination of the
publicity and endorsements the Company and its products have received, the
national focus on handgun safety, the recent significant sales to law
enforcement agencies and the leading state-of-the-art position that its gunlocks
hold over competitive products will permit the Company to continue with
increases in both its sales and revenues in the coming quarters. No assurances
can be provided, however, that such increases will occur or that the Company
will be profitable.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
- --------------------------------------------------------------------
The Company holds no material market risk sensitive financial instruments or
interest therein, and held none at June 30, 1999. The Company's loans, payables,
or receivables to or from others and the interest thereon, are all expressed as
dollar obligations and payable in dollars.
Part II. Other Information
7
<PAGE>
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. On April 30, 1999 the
parties agreed to an out of court settlement of the case. Ms. Broderick Fogel is
to receive $50,000 in cash from the insurance company and stock options from the
Company for 110,000 shares of Saf T Lok Incorporated common stock at an exercise
price of $0.10 per share which expire in one year.
On July 24, 1998, Joseph Yud filed a class action civil complaint against the
Company, Franklin Brooks and John Gardner in the United States District Court,
Southern District of Florida. On August 27, 1998, Marvin Slomovics filed a class
action civil complaint against the Company, Franklin Brooks and John Gardner in
the United States District Court, Southern District of Florida. On October 20,
1998, Neal M. Peters filed a class action civil complaint against the Company,
Franklin Brooks and John Gardner in the United States District Court, Southern
District of Florida. The three suits, each denominated as a class action, allege
violations of the federal securities laws and, more specifically, that the
Company and its officers made misrepresentations, or failed to disclose material
information between May 26, 1998 and June 12, 1998 concerning a development
agreement allegedly entered into with Semiconductor Laser International
Corporation and a highly favorable research report issued by Woodward Trading
Company. The Company has, consistent with its Articles of Incorporation and
Florida law, provided indemnification to Messrs. Brooks and Gardner. On August
3, 1999 the Company announced that it has reached agreement with plaintiff-
shareholders to settle all claims brought against the Company, its Chairman,
Frank Brooks, and its former President and CEO, John Gardner. The terms of the
settlement include payment of $850,000.00 to the plaintiffs. The settlement
payment will be fully funded by the Company's insurer, except that the Company
will pay the legal fees for itself and Mr. Gardner. Persons who acquired shares
of Saf T Lok Incorporated between May 26, 1998 and June 12, 1998 will have the
option to participate in the settlement or exclude themselves from the class.
The settlement is subject to court approval.
8
<PAGE>
On May 29, 1998 the Company received notice of an "informal inquiry" from the
Division of Enforcement of the Securities and Exchange Commission ("SEC")
concerning activities between January 1, 1996 and May 29, 1998. The Company
complied with the SEC's requests to produce documents. On February 18, 1999
Franklin W. Brooks, chairman of the Company's Board of Directors, testified
before the SEC pursuant to a subpoena. At that time the SEC made available to
the Company its formal Order Directing Private Investigation and Designating
Officers to Take Testimony dated September 22, 1998, file no. HO-3451 (the
"Order"). The Order revealed that members of the SEC's staff have reported
information to the Commission that, in the staff's view, tend to show that
during the period from at least January 1, 1996 and continuing thereafter, the
Company, its present or former officers, directors or employees or others may
have violated Federal Securities Laws. At this juncture, it is too early to
speculate what the outcome of this investigation or the potential impact on the
Company will be. The Company has not been requested to make a "Wells" submission
and no action or litigation has been instituted. The extent of any insurance
coverage under the Company's policies has not yet been determined.
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 other legal proceedings, pending or threatened, or judgments entered against
any director or officer of the Company in his capacity as such. See the
Company's Quarterly Report on form 10-QSB for the quarter ended March 31, 1999.
Item 2. Changes In Securities.
- -----------------------------
In May 1999 the Company issued 500,000 shares of common stock due to the
exercise of warrants issued to a group of offshore investors in an October 1997
private placement pursuant to Regulation S.
In May 1999 in an agreement with the stockholder, United Safety Action, Inc.,
the Company cancelled the certificate for 1,000,000 shares of common stock and
returned the shares to authorized but unissued status.
In August 1999 the Company issued 40,000 shares of unregistered Common Stock to
Alexander, Wescott & Co., as commission for the sale of two-year convertible
debentures pursuant to Section 4(2) of the Securities Act of 1933 as amended.
Pursuant to the agreement entered into between the parties The Company
9
<PAGE>
must file for registration of the stock within 90 days following the closing of
the debenture sale.
Item 3. Defaults upon Senior Securities.
- ---------------------------------------
None.
Item 4. Submission Of Matters To A Vote Of Security Holders.
- ------------------------------------------------------------
During the second quarter of 1999 no matters were submitted to a vote of
security holders through the solicitation of proxies or otherwise.
Item 5. Other Information
- -------------------------
The Company announced on July 15, 1999 that it had completed a private sale of
two-year convertible debentures in the principal amount of $400,000.00 pursuant
to Regulation D promulgated under the Securities Act of 1933 as amended.
Alexander, Wescott & Co, Inc. served as placement agent. Interest on the
principal amount is 6% per year simple interest and is payable in cash or shares
of the Company's common stock. The debentures may be converted at any time
after the earlier of the effective date of the Registration Statement to be
filed by the Company registering the shares underlying the debentures, or 90
days after such Registration Statement is filed with the SEC. The conversion
price of the debentures will be equal to 75% of the market price of the
Company's Common Stock upon conversion, with a floor of $0.50 and a ceiling of
$2.00 per share, subject to certain adjustment provisions included in the
debentures. The Company has the right to prepay the debentures prior to
maturity, provided that if it does so within 90 days of issuance, it will pay a
premium of 10% of the face value of the debentures, and if it prepays within 180
days, it will pay a premium of 20% of such value.
Net proceeds to the Company were $265,000 after a cash commission of 10%, a 3%
non-accountable expense allowance, one share of the company's common stock for
every $10 of principal raised, escrow fees, and a $78,000 non-refundable
prepayment of commissions and expenses for additional debentures in the amount
of $600,000 if the Company elects, and the Placement Agent is able, to sell such
additional debentures on or prior to October 15, 1999.
The Company intends to use the proceeds from the sale of the debentures for
general corporate purposes, including, but not limited to, its marketing
activity.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
- ----------------------------------------
(a) Reports on Form 8-K.
- -----------------------
The Company filed a form 8K on May 26, 1999 reporting (a) the termination of the
Distribution and Pricing Agreement with United Safety Action, Inc., (b) the
cancellation of 1,000,000 shares of common stock previously issued to United
Safety Action, Inc. (c) the termination of the Consulting Agreement with Empire
Consulting Ltd., (d) the repurchase by the Company of warrants for 2,000,000
shares of common stock at $0.25 per share, and (e) the exercise by warrant
holders of warrants pursuant to Regulation S for 500,000 shares of common stock
at $3.00 per share.
(b) Exhibits.
- ------------
4.1 Form of 6% Convertible Debenture.(1)
10.1 Agency Agreement with Alexander, Wescott and Company, Inc.
10.2 Letter Agreement dated April 20, 1999 between the Company and
Alexander, Wescott and Company, Inc.(1)
10.3 Form of Subscription Agreement.(1)
10.4 Form of Amendment No. 1 to Subscription Agreement.(1)
10.5 Form of Escrow Agreement.(1)
10.6 Letter Agreement dated July 8, 1999 between the Company and Alexander,
Wescott and Company, Inc.(1)
27.1 Financial Data Schedule.(1)
- ------
(1) Filed Herewith.
11
<PAGE>
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/ Franklin W. Brooks Date: August 16, 1999
-----------------------
Franklin W. Brooks, Chairman, President, Chief Executive Officer
12
<PAGE>
<TABLE>
<CAPTION>
INDEX
-----
<S> <C>
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1999 & 1998 F-2
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AS OF JUNE 30, 1999 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THREE MONTHS AND THE
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 - F-7
</TABLE>
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND 1998
----------------------------
<TABLE>
<CAPTION>
ASSETS
------
CURRENT ASSETS 1999 1998
- -------------- ------------ ------------
<S> <C> <C>
Cash and Cash Equivalents $ 269,410 $ 2,883,120
Accounts Receivable (less allowance for doubtful accounts 125,318 145,661
of $14,510 in 1998)
Notes Receivable, current portion 22,371 12,640
Inventories 2,368,846 1,250,386
Prepaid Expenses 57,731 6,070,883
------------ ------------
Total Current Assets 2,843,676 10,362,690
------------ ------------
PROPERTY AND EQUIPMENT, LESS
- ----------------------------
ACCUMULATED DEPRECIATION 1,171,373 1,340,503
- ------------------------
OTHER ASSETS
- ------------
Patents (less accumulated amortization) 289,942 335,513
Notes Receivable, less current portion 135,248 162,545
Other Assets 9,016 2,150
------------ ------------
Total Other Assets 434,206 500,208
------------ ------------
TOTAL ASSETS $ 4,449,255 $ 12,203,401
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable $ 234,759 $ 579,450
Accrued Expenses 24,556
Customer Deposits 76,816
------------ ------------
Total Current Liabilities 259,315 656,266
------------ ------------
SHAREHOLDERS' EQUITY
Common Stock 134,592 132,766
Paid In Capital 25,523,862 26,730,814
Other Equity Reductions (303,285) (856,773)
Accumulated Deficit (21,165,229) (14,459,672)
------------ ------------
Total Shareholders' Equity 4,189,940 11,547,135
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,449,255 $ 12,203,401
============ ============
</TABLE>
F-2
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK Equity Accumulated
-------------------------------
Shares Amount Paid In Capital Reductions Deficit Total
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1997 9,987,077 $ 99,870 $ 17,736,532 $ (1,080,416) $(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 160,000 1,600 398,400 400,000
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 marketing
agreement 25,000 250 68,500 68,750
Issuance of common stock in
connection with exercise of
warrants 2,000,000 20,000 3,365,998 3,385,998
Issuance of common stock in
connection with distributor
agreement 1,000,000 10,000 3,771,000 3,781,000
Issuance to landlord for
payment of rent 50,880 509 50,371 50,880
Issuance of warrants in
connection with distribution
agreement 1,884,000 1,884,000
Unearned advertising expense (3,781,000) (3,781,000)
Forfeit of deferred (265,500) 265,500
compensation
Amortization of deferred
compensation 341,087 341,087
Issuance of stock options to
consultants 115,436 115,436
Net Loss (6,066,394) (6,066,394)
-----------------------------------------------------------------------------------------------
Balance - December 31, 1998 13,609,957 136,099 27,634,567 (4,254,829) (19,423,067) 4,092,770
Issuance of common stock to
employee/ directors upon
exercise of stock option 115,000 1,150 10,350 11,500
Issuance of common stock in
payment of marketing agreement
fees 25,000 250 35,688 35,938
Issuance of common stock to
consultants upon exercise of
stock option 100,000 1,000 108,000 109,000
Return of common stock upon
cancellation of distribution
agreement (1,000,000) (10,000) (3,771,000) (3,781,000)
Cancellation of unearned
advertising expense 3,781,000 3,781,000
Issuance of common stock to
an employee/director, a director
and three employees upon
exercise of stock options 109,304 1,093 295,482 296,575
Amortization of deferred
compensation 170,544 170,544
Stock options granted to
former officer/employee 410,775 410,775
Issuance of common stock in
connection with exercise of
warrants 500,000 5,000 1,300,000 1,305,000
Purchase of outstanding
warrants (500,000) (500,000)
Net Loss (1,742,162) (1,742,162)
-----------------------------------------------------------------------------------------------
Balance - June 30, 1999 13,459,261 $ 134,592 $ 25,523,862 $ (303,285) $(21,165,229) $ 4,189,940
===============================================================================================
</TABLE>
F-3
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED
-----------------------------------------
JUNE 30 1999 AND 1998
---------------------
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 81,393 $ 883,498 $ 130,809 $ 1,160,934
Cost of Sales 48,704 688,225 74,758 763,003
------------- ------------- ------------- -------------
Gross Profit 32,689 195,273 56,051 397,931
Selling, General & Administrative
expenses 448,195 472,722 879,267 591,423
Depreciation 85,211 51,942 150,598 103,884
Other Income 12,578 68,531 21,884 68,531
Stock Options & Warrants Issued
For Compensation & Services 754,294 765,424 790,232 874,154
------------- ------------- ------------- -------------
NET LOSS $ (1,242,433) $ (1,026,284) $ (1,742,162) $ (1,102,999)
============= ============= ============= =============
LOSS PER COMMON SHARE $ (0.09) $ (0.08) $ (0.13) $ (0.10)
============= ============= ============= =============
Weighted Average Number of
Outstanding Common Shares 13,737,457 12,667,148 13,725,472 11,350,446
============= ============= ============= =============
</TABLE>
F-4
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS $(1,742,162) $(1,102,999)
----------- -----------
Adjustments to reconcile net (loss) to net cash
used in operating activities:
Depreciation and amortization 150,598 103,884
Non cash compensation to directors and officers 662,719 80,638
Issuance of stock for services 35,938 115,390
Issuance of stock for compensation 91,575
Issuance of warrants pursuant to distribution agreement 1,888,400
Issuance of Stock pursuant to distribution agreement 3,000,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (65,722) 141,037
Decrease (increase) in prepaid expenses 99,136 (6,380,974)
Increase in inventories (10,864) (902,704)
(Decrease) increase in accounts payable (136,773) 80,704
(Decrease) increase in accrued liabilities (257,385) 454,720
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,172,940) (2,521,904)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in current portion of note receivable (4,068) 8,308
Payments for purchase of equipment (50,097) (172,965)
Decrease in other assets 13,754 18,000
Decrease in notes payable (121,760)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (40,411) (268,417)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock upon exercise of warrants 805,000 3,333,331
Issuance of stock upon exercise of options 244,100 413,700
Proceeds from issuance of common stock 500,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,049,100 4,247,031
----------- -----------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (164,251) 1,456,710
Cash and equivalents at beginning of year 433,661 1,426,410
----------- -----------
CASH AND EQUIVALENTS AT END OF YEAR $ 269,410 $ 2,883,120
=========== ===========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Cash payments for interest $ 8,956 $ 4,373
=========== ===========
</TABLE>
F-5
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
The unaudited financial information furnished herein reflects all adjustments,
which, in the opinion of management are necessary to fairly state the Company's
financial position, the changes in its financial position and the results of its
operations for the periods presented. This report on Form 10QSB should be read
in conjunction with the Company's financial statements and notes thereto
included on Form 10KSB for the year ended December 31, 1998. The Company
presumes that users of the interim financial information herein have read or
have access to the audited financial statements for the preceding year and that
the adequacy of additional disclosure needed for a fair presentation may be
determined in that context. Accordingly, footnote disclosure, which would
substantially duplicate the disclosure contained in the Company's financial
statements for the year ended December 31, 1998, has been omitted. The results
of operations for the six month period ended June 30, 1999 are not necessarily
indicative of results for the entire year ending December 31, 1999. Certain
items in the June 30, 1998 financial statements have been reclassified for
comparative purposes. These reclassifications have no effect on the net loss for
the period.
NOTE 2 - CASH AND CASH EQUIVALENTS
<TABLE>
<S> <C> <C>
Cash and cash equivalents comprised of the following 1999 1998
---------- ----------
as of June 30, 1999 and 1998.
Cash in banks $ 269,410 $2,883,120
---------- ----------
NOTE 3 - INVENTORIES
Inventories are comprised of the following as of
June 30, 1999 and 1998.
Finished Goods $ 682,118 $ -
Raw Materials 1,636,728 1,158,386
Supplies 50,000 92,000
---------- ----------
TOTAL $2,368,846 $1,250,386
========== ==========
NOTE 4 - PREPAID EXPENSES
Prepaid expense is comprised of the following as of
June 30, 1999 and 1998.
Agreement and Warrant expenses $ $2,326,563
Prepaid Marketing and Advertising 3,620,400
Deposit on Patent cost 93,000
Prepaid Show expenses 23,090
Prepaid Insurance 21,374 3,318
Prepaid Tooling 36,357 4,512
---------- ----------
TOTAL $ 57,731 $6,070,883
========== ==========
</TABLE>
F6
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment is comprised of the following as of June 30, 1999 and 1998. 1999 1998
-------------------------
<S> <C> <C>
Equipment $ 441,100 $ 418,493
Furniture and Fixtures 55,423 51,578
Tool and die 1,530,764 1,438,413
Software 40,128 37,214
Leasehold Improvements 23,526 11,436
-------------------------
TOTAL 2,090,941 1,957,134
Less accumulated depreciation 919,568 616,631
-------------------------
TOTAL $1,171,373 $1,340,503
=========================
</TABLE>
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following
as of June 30,1999 and 1998.
<TABLE>
<S> <C> <C>
Accounts payable $ 234,759 $ 579,450
Accrued expenses 24,556
Customer deposits 76,816
-------------------------
TOTAL $ 259,315 $ 656,266
=========================
</TABLE>
NOTE 7 - SHAREHOLDERS' EQUITY
In April 1999, four employees and two consultants exercised 169,304 options. The
exercise price of these options was $1.09.
In May 1999, 1,000,000 shares of stock held in escrow were returned to the
Company upon cancellation of the distribution agreement with United Safety
Action.
In May 1999, a board member exercised 40,000 options. The exercise price of
these options was $2.00.
In May 1999, the Company purchased 2,000,000 outstanding $5.00 warrants for
$0.25 each in connection with the cancellation of the United Safety Action
distribution agreement.
In June 1999, 500,000 $3.00 warrants were exercised.
In June 1999, a former officer was issued an option for 110,000 shares at $0.10
per share in connection with settlement of litigation.
NOTE 8 - SUBSEQUENT EVENTS
In August 1999, a legal consulting firm was issued 87,903 shares of common stock
for professional services.
In August 1999, a registered broker was issued 40,000 shares of common stock as
a commission for services rendered.
F7
<PAGE>
Exhibit 4.1
6% CONVERTIBLE DEBENTURE
Number _____________ U.S. $25,000
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT FOR DISTRIBUTION, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED OR UNDER THE LAWS OF ANY STATE OR OTHER JURISDICTION. SUCH
SECURITIES MAY NOT BE RESOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT THERETO UNDER SUCH ACT UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT OR
UNLESS THE SALE IS OTHERWISE EXEMPT FROM REGISTRATION. THE COMPANY MAY REQUEST A
WRITTEN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH SALE, PLEDGE OR
HYPOTHECATION, OR OTHER TRANSFER. THIS CERTIFICATE MUST BE SURRENDERED TO THE
CORPORATION OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, PLEDGE,
HYPOTHECATION OR ANY OTHER TRANSFER OF ANY INTEREST IN ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICT1ONS ON
TRANSFER CONTAINED IN AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
SAF T LOK INCORPORATED
West Palm Beach, Florida
July 14, 1999
Saf T Lok Incorporated, a Florida corporation (the "Company"), for value
received promises to pay to _______________________________, or registered
assigns, the principal sum of Twenty five thousand U.S. Dollars (U.S. $25,000)
on 07/15/01 (the "Maturity Date" or upon the prior sale of all or substantially
all of the assets of the Company, merger, consolidation or acquisition in which
the Company is not the survivor), which principal sum shall be payable in such
coin or currency of the United States of America which at the time of payment is
legal tender or public and private debts. Interest on such principal sum shall
be simple interest paid annually, on the anniversary date of this debenture or
the next following business day, at the rate of six percent (6%) per year from
the date hereof, and shall be payable in the form of cash or shares of Common
Stock of the Company, at the Company's sole discretion. Payment of principal and
interest shall be made at the offices of the Company in West Palm Beach,
Florida. The number of shares of Common Stock shall be determined as provided
below. Such shares shall be mailed to the registered owner of this Debenture at
the address appearing on the books of the Company.
This Debenture is one of a duly authorized issue of the Company's
debentures in the aggregate amount of up to Two Million Dollars ($2,000,000.00)
issued in minimum denominations of Twenty-five Thousand Dollars ($25,000), all
of like tenure and maturity, except variations necessary to express the number
and payee of each Debenture.
1. Equal Rank. All Debentures of this issue rank equally and ratably
without priority over one another.
1
<PAGE>
2. Conversion of Debentures and Payment of Interest. The holder of this
Debenture may at any time commencing after the earlier of the effective date of
the registration statement covering the conversion shares, or ninety (90) days
after the filing of the registration statement covering the conversion shares
(which shall be the date upon which the Notice of Conversion in the form
attached hereto is received by the Company) from the day after the convert the
principal amount of this Debenture into the Company's common stock at the
conversion price equal to seventy-five percent (75%) of the market price of the
Company's common stock on the date the Company provided that in any event such
conversion price shall be not less than $0.50 (the "Floor"), nor greater than
$2.00 per share (the "Ceiling") subject to adjustment pursuant to Section 4
hereof, (the "Conversion Price"). The number of shares to be received upon such
conversion shall be determined by dividing the principal on this Debenture
through the effective date of the conversion by the Conversion Price, provided
that a minimum of $25,000 must be converted upon any such conversion or any
lesser amount remaining held by the Holder upon conversion. To convert this
Debenture, the holder hereof must surrender this Debenture at the office of the
Company, together with a written Notice of Conversion in the form annexed to
this Debenture, properly filled out and executed by the holder hereof. If shares
of common stock issuable upon such conversion are to be registered in the name
of anyone other than the registered holder of this Debenture, such Notice of
Conversion shall be accompanied by a written instrument of transfer in a form
satisfactory to the Company, properly completed and executed together with such
other documents as shall be reasonably requested by the Company. Facsimile
copies of such documents will be accepted by the Company, provided that the
originally executed documents are provided to the Company within five (5)
business days after the Company has received such facsimile copies.
If any interest shall be paid on the Debenture in shares of stock when such
Debenture is not being converted pursuant to the terms hereof, such interest
shall be payable at a per-share price computed at 75% of the market price as set
forth above in the Paragraph 2, except that such market price shall be
calculated on the date such interest payment is due.
3. Right of Repayment. The Company shall have the right to pre-pay this
Debenture at any time, along with all other outstanding debentures in this
issue, by following the procedure set forth in this paragraph. The Company may
redeem or prepay the Debenture prior to maturity as follows: The Company shall
pay the face value of the Debenture plus all accrued interest at the date of
prepayment or redemption and in the event the prepayment or redemption occurs
within ninety (90) days from the date of issuance of the Debenture then the
Company shall also pay the Debenture holder a premium of ten (10%) of the face
value at time of redemption or prepayment. In the event the prepayment or
redemption occurs after ninety days but within one hundred eighty (180) days
from the date of issuance of the debenture then the Company shall pay the
Debenture holder a premium of twenty (20%) of the face value at time of
redemption or prepayment, plus all accrued interest. Upon electing to prepay
all, and not less than all, of the outstanding Debentures in this issue, the
Company shall notify each debenture holder in writing of this election. This
notice shall state (a) the Company has elected to pre-pay all of the outstanding
debentures on this issue; (b) the date such prepayment will occur which shall be
not less than 60 days from the date of the notice (the "Prepayment Date"); and
(c) that the Company has the financial capability to prepay all of the
outstanding debentures in this issue along with an explanation for such
prepayment. If the Debenture has not been converted by the Prepayment Date, (a)
the holder of this Debenture shall promptly tender this Debenture to the Company
upon receipt of the principal of this Debenture in cash and the accrued interest
on this Debenture in cash or common stock as provided above and (b) this
Debenture shall, on the Prepayment date, convert to the right to receive such
prepayment only, unless previously converted, or to the extent this Debenture
has not been converted, the Company shall pay all principal and interest due
2
<PAGE>
hereon upon the sale of all or substantially all of the assets of the Company or
a merger, consolidation or acquisition in which the Company is not the survivor.
4. Adjustments to Conversion. If the Company is recapitalized, or effects
a stock split or reverse stock split, provisions shall be made as part of the
terms of the recapitalization, stock split or reverse stock split, so that the
holder of this Debenture may receive, in lieu of the common stock otherwise
issuable to the holder upon conversion or payment of this Debenture, at the same
conversion ratio, the same amount of securities as may be distributable upon the
recapitalization, stock split or reverse stock split with respect to the common
stock into which this Debenture is convertible, provided that the Floor and the
Ceiling amounts shall also be adjusted at such conversion ratio, and provided
further that any reasonable determination regarding such adjustment by the
Company's Board of Directors shall be deemed final and binding on the holder
hereof.
5. Fractional Shares. In lieu of issuing any fraction of a share upon the
conversion of this Debenture, the Company shall pay to the holder of this
Debenture, for any fraction of a share otherwise issuable upon the conversion,
cash equal to the same fraction of the then current per share Conversion Price.
6. Covenants of Company. The Company covenants and agrees that, so long as
the Debenture shall be outstanding, it will:
(i) Promptly pay and discharge all lawful taxes, assessments, and
governmental charges or levies imposed upon the Company or upon its income and
profits, or upon any of its property, before the same shall become in default,
as well as all lawful claims for labor, materials and supplies which, if unpaid,
might become a lien or charge upon such properties or any part thereof;
provided, however, that the Company shall not be required to pay and discharge
any such tax, assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings, and the Company
shall set aside on its books adequate reserves with respect to any such tax,
assessment, charge, levy or claim so contested:
(ii) Do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence, rights and franchises and
comply with all laws applicable to the Company as its counsel may advise:
(iii) At all times maintain, preserve, protect and keep its property
used or useful in the conduct of its business in good repair, working order and
condition, and from time to time make all needful and proper repairs, renewals,
replacements, betterments and improvements thereto, so that the business earned
on in connection therewith may be properly and advantageously conducted at all
times:
(iv) Keep adequately insured, by financially sound reputable
insurers, all property of a character usually insured by similar corporations
and carry such other insurance as is usually carried by similar corporations:
(v) At all times keep true and correct books, records and accounts:
(vi) At all items reserve for issuance and delivery upon any
conversion of this Debenture and the payment of interest thereon all shares of
the Company's common Stock receivable by the Holder upon any such conversion and
payment and
(vii) In the event of any occurrences requiring an adjustment,
adjust the shares of common Stock issuable upon any conversion of this Debenture
in an appropriate and fair manner in accordance with the provisions of this
Debenture.
3
<PAGE>
8. No Short Selling. By holding this Debenture, the holder agrees that so
long as this Debenture is held by the holder and for a period of thirty (30)
days following the conversion of this Debenture, the holder will not engage in
short selling of the Company's common stock, directly or indirectly, and will
not enter into any form of agreement, oral or written, whereby the holder agrees
to allow a person or entity to borrow shares of common stock underlying this
Debenture for the purpose of short selling such shares. The holder also agrees
not to sell this Debenture to any person or entity who has the intention of
utilizing the shares underlying this Debenture to effectuate a short sale or to
cover a short sale of the Company's common stock.
9. Events of Default.
Payment of the principal and interest due under this Debenture shall
become and be due and payable upon written demand made by the Holder hereof if
one or more of the following events, herein called events of default, shall
happen and be continuing:
(i) Default in the payment of the principal and accrued interest on
this Debenture when and as the same shall become due and payable, whether by
acceleration or otherwise.
(ii) Default in the due observance or performance of any covenant,
condition or agreement on the part of the Company to be observed or performed
pursuant to the terms hereof, if such default shall continue uncured for 30 days
after written notice, specifying such default, shall be given to the Company by
the Holder by the Debenture:
(iii) Application for, or consent to, the appointment of a receiver,
trustee or liquidator of the Company or of its property:
(iv) Admission in writing of the Company's inability to pay its
debts as they mature:
(v) General assignment by the Company for the benefit of creditors:
(vi) Filing by the Company of a voluntary petition in bankruptcy or
a petition or an answer seeking reorganization, or an arrangement with
creditors; or
(vii) Entering against the Company of a court order approving a
petition filed against it under the Federal bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within 120 days.
The Company agrees that the notice of the occurrence of any event of default
will be promptly given to the holder at his or her registered address by
Certified Mail. In case any one or more of the events of default specified above
shall happen and be continuing, the Holder may proceed to enforce the payment of
this Debenture or to enforce any other legal or equitable rights as such Holder
may deem appropriate.
10. Registered Owner. The Company may treat the person or persons whose
name or names appear on this Debenture as the absolute owner or owners of this
Debenture for the purpose of receiving payment of the principal and interest due
on this Debenture and for all other purposes.
11. This Debenture is Unsecured and is an Obligation of the Company. This
Debenture constitutes an unsecured obligation of the Company and is an
obligation of the Company only. No recourse shall be had for payment of any
principal or interest hereon against any shareholder, officer, director or
employee of the Company, either directly or through the Company.
4
<PAGE>
12. Securities Laws. The holder of this Debenture understands that this
Debenture and the shares underlying this debenture are not registered under the
Securities Act of 1933, as amended, or any state securities laws. The holder of
this Debenture agrees not to sell this Debenture or the shares of common stock
except pursuant to an effective registration pertaining to the Debenture or the
shares of common stock or pursuant to an exemption from registration under such
laws.
13. Miscellaneous.
(i) No remedy herein enumerated is intended to be exclusive of any
other remedy allowed by law, but each and every remedy shall be cumulative and
in addition to every other remedy herein enumerated or allowed by law.
(ii) No failure or delay to exercise any right or power or any
partial exercise, accruing upon any default hereunder shall impair any such
right or power or be construed to be a waiver of any such default or any
acquiescence therein.
(iii) This Debenture and all rights, benefits, powers and
obligations hereof shall inure to the benefit and shall bind, respectively, the
successors and assigns of the Holder and the Company.
(iv) In the event any part of this Debenture shall be invalid or
unenforceable for any reason, then such invalid or unenforceable part or parts
shall be deemed and held to be separate and severable, and the remainder of this
Debenture shall continue in full force and full effect.
(v) The Company agrees to pay and to save the Holder harmless from
all cost, liability or expense, including reasonable counsel fees and expenses,
in connection with the enforcement of the Holder's rights under this Debenture.
(vi) Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft or destruction of the Debenture, and in the case of
loss, destruction or mutilation upon receipt by the Company of a reasonably
satisfactory indemnification, and upon surrender and cancellation of the
Debenture, if mutilated, the Company shall execute and deliver a new Debenture
of like tenor and date. Any such new Debenture executed and delivered shall
constitute an additional contractual obligation on the part of the Company, and
the Debenture so lost, stolen, destroyed, or mutilated shall not be at any time
enforceable by anyone. Upon the request of the Holder, this Debenture may be
replaced by Debentures of other denominations (of at least $25,000 principal
amount each) totaling, in aggregate principal amount, the principal amount of
this Debenture, provided that this Debenture shall be surrendered and canceled
at the time of issuance of such replacement Debentures.
IN WITNESS WHEREOF, the Company has signed this Debenture this 14 day of
July, 1999.
SAF T LOK INCORPORATED
BY: /s/ Franklin W. Brooks
-----------------------------
Franklin W. Brooks, President
5
<PAGE>
NOTICE OF CONVERSION
The undersigned, the holder of Debenture No. AWC 99-4, issued by Saf T Lok
Incorporated, hereby elects to convert the Debenture into shares of common stock
effective as of the date the Company receives this Notice pursuant to Paragraph
2 (Conversion) of such Debenture.
Please send a certificate for the appropriate number of shares of common
stock in the Company to the undersigned at
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ---------------------------------------------
Print Name of Holder
- ---------------------------------------------
Signature of Authorized Person
Date:
----------------------------------------
PLEASE SEND THIS FORM BY FACSIMILE TRANSMISSION TO THE COMPANY AT (561)688-8784
WITH THE ORIGINALLY SIGNED FORM SENT BY U.S. MAIL TO THE COMPANY. THE EFFECTIVE
DATE FOR CONVERS1ON SHALL BE THE DATE ON WHICH THE COMPANY RECEIVES EITHER THE
FACSIMILE COPY OR THE ORIGINAL FORM, WHICHEVER IS RECEIVED FIRST.
6
<PAGE>
Exhibit 10.1
April 20, 1999
Alexander, Wescott & Co., Inc.
65 Wall Street, 21st Floor
New York, New York 10005
RE: Agency Agreement
Gentlemen:
Saf T Lok Incorporated. ("LOCK"), formed under the Laws of the State
of Florida (the "Company'), desires to offer and sell in an offering (the
"Offering") to be made through Alexander Wescott & Co., Inc. ("AWC"), and
pursuant to exemptions from the registration provisions of the Securities Act of
1933, as amended (the "Securities Act"), as set forth below, the Company's
Convertible 6% Debentures (The "Debentures"). The Offering shall consist of the
sale of a 6% Convertible Debenture due in two years, unless converted or upon
the sale of all or substantially all of the assets of the Company, or a merger,
consolidation, or acquisition in which the Company is not the survivor. The
interest shall be simple interest, paid annually, and paid either in cash or
stock at the sole discretion of the Company. The Company may redeem or prepay
the debenture prior to maturity as follows: The Company shall pay the face value
of the Debenture plus all accrued interest at the date of prepayment or
redemption and in the event the prepayment or redemption occurs within ninety
(90) days from the date of issuance of the Debenture then the Company shall also
pay the Debenture holder a premium of ten (10%) of the face value at time of
redemption or prepayment. In the event the prepayment or redemption occurs after
ninety days but within one hundred eighty (180) days from the date of issuance
of the debenture then the Company shall pay the Debenture holder a premium of
twenty (20%) of the face value at time of redemption or prepayment, plus all
accrued interest. The Debentures will be convertible at a 25% discount to the
market price at the time of conversion, with a provision providing a conversion
floor price of Fifty Cent ($0.50) and a ceiling conversion price of Two Dollars
($2.00). The securities underlying the Debentures shall be registered by an
appropriate registration statement filed no later than ninety (90) days from the
latter of (i) the date of the closing of the Offering contemplated herein or
(ii) June 29, 1999 if the offering contemplated herein is extended to such date,
with penalty for delay.
The Debentures are to be sold at the prices and in the amounts set
forth in Section 2 below. The offering will be limited to maximum gross proceeds
Agency Agreement Page 1
<PAGE>
of $2,000,000.00 with a minimum of $l,000,000.00 to be sold by April 30, 1999.
The Offering period shall end April 30, 1999, unless extended 60 days to June
29, 1999 by Placement Agent in its sole discretion. It is understood that the
Offering will be conducted on a "best efforts" basis with AWC acting as
exclusive agent for the Company, and which offering shall be conducted under the
following terms and conditions:
SECTION 1. Type of Offering: Exemptions.
The Offering will be conducted as a private placement offering
exempt from the registration requirements of the Securities Act, pursuant to the
provisions of Regulation D, of the Securities and Exchange Commission ("SEC").
The Debentures will be offered and sold only to those persons or entities who
qualify as an accredited investor ("Accredited Investor") as such term is
defined in Rule 501 of Regulation D. Investors will be required to subscribe for
the Debentures by executing the appropriate subscription agreement (the
"Subscription Agreement") in the forms set forth as an exhibit hereto, as the
same may be supplemented or amended from time to time by agreement between the
parties.
SECTION 2. Appointment: Basic Terms.
On the basis of the representations, warranties and covenants herein
contained, but subject to the terms and conditions herein set forth:
(a) AWC is hereby appointed as the exclusive placement agent for the Company
during the period herein specified for the purpose of finding subscribers
for the Debentures.
(b) The Offering shall commence on the date hereof, and shall continue until
April 30, 1999, unless extended 60 days to June 29, 1999 by the Placement
Agent at its sole discretion (the "Offering Period").
(c) Subject to the performance by the Company of all of its obligations to be
performed hereunder and to the completeness and accuracy of all material
representations and warranties of the Company, AWC agrees, on the terms
and conditions herein set forth, to use its best efforts during the
Offering Period to find subscribers for the Shares. AWCs agency hereunder
is coupled with an interest, is not terminable by the Company prior to
April 30, 1999 without AWC's consent, and shall continue until the
termination of the Offering Period, except as may be otherwise provided
herein. AWC shall have the right to appoint one or more additional agents
and/or selected dealers (who shall be members of the National Association
of Securities Dealers, Inc.) to assist in finding subscribers for the
Debentures,
Agency Agreement Page 2
<PAGE>
and any such additional agents or selected dealers may rely upon the
representations and warranties and covenants of the Company set forth in
this Agreement.
(d) The price of the Debentures to be sold to each Purchaser (as hereinafter
defined) in the Offering shall be $25,000.00 per Debenture.
(e) Funds received from subscribers in the Offering shall be deposited in an
account to be entitled Chase Manhattan Bank New York a/c #910-2-758829,
Escrow Incoming Wire Account Further Credit: SAF T LOK, INCORPORATED;
Attn: Vicki Caldas, pursuant to the escrow agreement dated April 20, 1999.
SECTION 3. Representations and Warranties of the Company.
The Company represents and warrants to AWC, for AWC's benefit and
for the benefit of purchasers of the Debentures (the "Purchasers") that, except
as otherwise set forth in the offering materials (copies of which shall be
provided to each Purchaser):
(a) The Debentures to be sold in the Offering will be, when
issued, delivered and paid for in accordance with the terms of
the Offering, duly and validly issued, fully paid and
non-assessable; all presently outstanding shares of Common
Stock of the Company have been duly authorized, validly issued
and are fully paid and non-assessable; the holders of the
shares of Debentures offered herein are not and will not be
subject to personal liability by reason of being such holders;
the shares of Debentures being sold in the Offering are not
being issued in violation of the preemptive rights of any of
the Company's security holders; all action required to be
taken by the Company to authorize the issuance and sale of the
6% Convertible Debentures to qualified subscribers has been
or, prior to the sale thereof, will have been taken.
(b) The capitalization of the Company, including the outstanding
shares of the Company's capital stock and any warrants,
options or other rights to subscribe to or purchase shares of
capital stock is as represented to purchasers of the
Debentures.
(c) The Company is duly incorporated, validly existing and in good
standing as a corporation under the laws of its jurisdiction
of incorporation.
Agency Agreement Page 3
<PAGE>
(d) The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in
which its activities or its ownership or leasing of property
requires such qualification, other than those jurisdictions in
which failure to so qualify would not have a material adverse
effect on the business, operations or prospects or condition
(financial or otherwise) of the Company.
(e) This Agreement has been duly and validly authorized and
executed and delivered by and on behalf of the Company and
constitutes a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms,
subject to any applicable bankruptcy, insolvency,
reorganization fraudulent transfer, moratorium and similar
laws of general applicability relating to or effecting
creditor's rights generally and to general principles of
equity and the enforceability of the indemnity provisions
contained in Section 10 or the contribution provisions
contained in Section 11 of this Agreement.
(f) The Company is not in violation of (i) any term or provision
of its charter or by-laws or (ii) any material term or
provision of any indenture, mortgage, deed of trust, note,
agreement, or other material agreement of instrument to which
the Company is a party or by which it is or may be bound or to
which any of its material assets, property or business is or
may be subject, or (iii) any material term of any significant
indebtedness, or (iv) of any statute or (v) to the best of the
Company's knowledge any material judgment, decree, order, rule
or regulation applicable to the Company of any court,
regulatory body or administrative agency or other federal,
state or other governmental body, domestic or foreign, having
jurisdiction over it or its material assets, property or
business, which violation or violations, either in any case or
in the aggregate, might result in any material adverse change,
financial or otherwise, in the assets, properties, condition,
business, earnings or prospects of the Company; and, to the
best of the Company's knowledge, the execution and delivery by
the Company of this Agreement, the consummation by the Company
of the transactions herein contemplated, and the compliance by
the Company with the term of this Agreement will not result in
any such material violation or violations. All material
licenses, approvals or permits from the federal or any
Agency Agreement Page 4
<PAGE>
state, local or foreign government or agency thereof having
jurisdiction over the Company reasonably required for the
conduct of the business or operations of the Company have been
obtained and are outstanding; and there are no proceedings
pending or to the Company's knowledge threatened, seeking to
cancel, terminate or limit such licenses, approvals or
permits.
(g) Other than reported on Forms 10KSB and 10QSB, there are no
actions, investigations, statutes, rules or regulations or
other proceedings of any nature in effect or pending or to the
Company's knowledge threatened, as the case may be, which,
either in any case or in the aggregate, if decided adversely,
might reasonably be expected to result in any material adverse
change, financial or otherwise, in the assets, properties,
condition, business, earnings or prospects of the Company or
which question the validity of the capital stock of the
Company, this Agreement or any action taken or to be taken by
the Company pursuant to or in connection with this Agreement.
(h) The Company has not incurred any liability for any finder's
fees or similar payments in connection with the transactions
herein contemplated except as described in this agreement or
in the Company's SEC filings.
(i) The Company has filed all of the required financial statements
with the Securities and Exchange Commission in the Form of 10
QSB's or 10 KSB's. The audited financial statements provided
to AWC present fairly the financial position of the Company as
of the respective dates thereof and the results of operations
and cash flows for the respective periods covered thereby.
Since the dates of the financial statements, there has been no
material adverse change, financial or otherwise, in the
assets, properties, condition, business, earnings or prospects
of the Company.
(j) The Company has filed each federal, state, local and foreign
tax return which is required to be filed, or has requested an
extension therefor and has paid or otherwise provided for all
taxes shown on such return and all related assessments to the
extent that the same have become due.
(k) All information contained in the written material concerning
the Company which has been or is being provided by the
Agency Agreement Page 5
<PAGE>
Company to AWC or to subscribers to the Offering and all
information from the Company which is included in the
Subscription Agreement (collectively, the "Offering
Materials") is accurate and complete in all material respects
and, to the best of the Company's knowledge, does not contain
any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
(l) The Company has not made and will not make, any offers or
sales of the Company's capital stock or any warrants, options
or other rights to subscribe to or purchase shares of the
Company's common stock in contravention of the requirements
for this Offering to qualify for an exemption from the
registration requirements of the Securities Act, pursuant to
the provisions of Regulation D, of the SEC.
(m) The representations and warranties made in this Agreement
shall be deemed repeated, and shall be true, at the time of
any closing provided for in this Agreement.
SECTION 3A. Representations and Warranties of AWC.
AWC represents and warrants to the Company, for the Company's
benefit, that:
(a) Except as set forth on a separate Schedule 3A(a) attached
hereto by the Placement Agent, it:
(i) is not and has not been the subject of any Investigation
by any Federal, State or local government agency during
any time within the five (5) years prior to the date of
this Agreement, or as of the date hereof, and to its
knowledge, no such investigation is currently
threatened, and
(ii) is not involved in any litigation involving the offer or
sale of securities.
(b) Except as set forth on a separate Schedule 3A(b) attached
hereto by the Placement Agent, it: is in compliance with all
laws, rules and regulations applicable to broker - dealers in
the jurisdictions in which it conducts business and with all
applicable requirements and rules of the National Association
of Securities Dealers, Inc.
Agency Agreement Page 6
<PAGE>
SECTION 4. Closing.
A minimum of $1,000,000 of Debentures is required to be sold under
this Agreement by April 30, 1999 or such later date as may be determined by the
Placement Agent pursuant to Section 2(b) of this Agreement. A closing
("Closing") for the sale of Debentures subscribed for in the Offering may be
held on one or more occasions prior to the end of the Offering Period, provided
the minimum in gross proceeds is reached and provided that such Subscriptions
are accepted by the Company. At each such Closing, payment of the proceeds of
the Offering shall be made by certified or bank check(s) or by wire transfer to
the order of the Company, against delivery of certificates for debentures, for
transmittal to the purchasers of the Debentures. AWC may deduct AWC's
commissions, expense allowance and any other amounts payable to AWC by the
Company from the net proceeds deliverable to the Company.
SECTION 5. Covenants of the Company.
The Company covenants with AWC that:
(a) From the commencement of the Offering Period through any
Closing pursuant to Section 4 hereof, any Offering Materials
will not contain any untrue statement of a material fact or
omit to state a material fact, to the extent known to the
Company, necessary in order to make the statements therein in
light of the circumstances under which they were made, not
misleading.
(b) Either directly or through AWC, the Company shall offer to
each subscriber, at a reasonable time prior to his purchase of
Debentures, the opportunity to ask questions and receive
answers concerning the terms and conditions of the Offering
and to obtain any additional information, which the Company
possesses or can acquire without unreasonable effort or
expense.
(c) During the Offering Period, the parties hereto will keep each
other generally informed of offers for sale and solicitations
of offers to buy Debentures being made.
(d) The Company shall use its best efforts, through counsel
performing services on behalf of the Company in connection
with the Offering, to qualify and register, or perfect the
exemption of the Debentures for offer and sale under the state
Agency Agreement Page 7
<PAGE>
or foreign securities laws of the jurisdictions in which
offers and sales are proposed to be made, and shall assist AWC
and such counsel in connection with the foregoing, provided
that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now qualified
or to take any action which would subject it to general
service of process in any jurisdiction where it is not now
subject.
(e) The Company shall, in a timely manner and as required, prepare
and file a Form D and any required amendments thereto with the
SEC pursuant to Regulation D. The Company will use its best
efforts to take all steps necessary to ensure that any and all
reports which may be required to be filed with the SEC under
federal securities laws are timely filed by the Company.
(f) For the period of time that Placement Agent's clients are
holders of stock of the Company and not to exceed two (2)
years, the Company will provide AWC with copies of any stock
reports of the Company's stock transfer agent if so requested,
but only while AWC's customers continue to hold stock in the
Company.
(g) The Company shall utilize the services of its current
accounting firm or another firm acceptable to AWC.
(h) For the period of time that Placement Agent's clients are
holders of Debentures of the Company and not to exceed two (2)
years, for a period of two (2) years after the Closing, the
Company will furnish AWC with copies of its annual and
quarterly financial statement and reports to shareholders. In
addition, during the Offering and for a period of two(2) years
after the Closing, the Company will provide AWC with all
information and documentation with respect to the Company's
business and financial condition, as reasonably requested by
AWC, and will provide to AWC during the Offering regular
access to the Company's officers, directors, auditors and
counsel to discuss any aspect of the Company's business as
reasonably requested by AWC. This paragraph shall cease to be
operative if, at any time, AWC ceases to have customers who
hold Debentures in the Company.
(i) Unless AWC shall otherwise agree in writing, the Company will
not issue any securities during the period from the date of
this
Agency Agreement Page 8
<PAGE>
Agreement until the expiration of the Offering Period, except
for securities issued pursuant to this Agreement and
pre-existing option and warrant commitments, or in the
ordinary course of business in which case the shares issued,
shall be subject to the same restrictions as provided for in
section 8e.
(j) To the extent the Company is duly authorized to do so, the
Company will reserve and set side, out of its authorized
capital stock, the number of shares of Additional Common Stock
(as hereinafter described) issuable to AWC under this
Agreement, if any. Such shares, when issued, paid for and
delivered upon exercise of such warrants, will be duly and
validly issued, fully paid and non-assessable, and will not
violate any preemptive rights of Company shareholders.
(k) The Company will keep confidential the identity of AWC's
clients and customers involved in this offering, except as may
be otherwise required by law. The Company will not solicit
such persons directly for the sale of securities or for other
financing proposals without the express written consent of
AWC, which consent may be given on the condition that the
Company agrees to compensate AWC on terms comparable to those
set forth in this Agreement for any sales made to such persons
for a period of two years after the closing.
SECTION 6. AWC's Covenants.
AWC covenants with the Company that:
(a) In offering the Debentures, AWC will deliver to each potential
subscriber contacted by it, prior to accepting any
subscription from such subscriber, the appropriate form of
Subscription Agreement together with a subscriber
questionnaire (included in the Offering Materials).
(b) AWC will make offers to sell Debentures to, or solicit offers
to subscribe for any Debentures from, persons in only those
jurisdictions where the Offering and the Debentures have been
qualified or where it has been determined that an exemption
from such qualification is, or may reasonably be anticipated
to be available, under applicable securities statutes. AWC
will accept subscriptions only from persons whom AWC
reasonably believes to be Accredited Investors.
Agency Agreement Page 9
<PAGE>
(c) AWC shall maintain a record of all information obtained by AWC
indicating that subscribers for Debentures sold through AWC
meet the criteria referred to in subsection (b) above. At the
Closing, AWC shall have no reason to believe that the
information with respect to, and the representations of, each
purchaser of Debentures as set forth in the appropriate
Subscription Agreement are not accurate.
SECTION 7. Compensation.
It is the Placement Agent's intent, immediately prior to the
commencement of the Proposed Offering, to enter into an Agency Agreement (the
"Agency Agreement") with the Company, which shall contain such terms and
conditions as are customarily contained in agreements of such character and,
among other things, provide for the following:
(a) The Company shall pay to the Placement Agent a commission of ten
percent (10%) of the gross proceeds of the Proposed offering, which shall be
payable to the Placement Agent at the initial Closing and each subsequent
closing with respect to the amounts raised as of such closing date;
(b) In order to reimburse the Placement Agent for those costs, fees
and expenses customarily incurred by a placement agent in connection with the
offering process, the Company will pay to the Placement Agent a three percent
(3%) of the gross proceeds of the amounts raised, non-accountable expense
allowance at closing and each subsequent dosing with respect to the amounts
raised as of such closing dates.
(c) In addition to the foregoing, the Company shall bear all the
Company's fees, disbursements and expenses in connection with the Proposed
Offering, including, without limitation, the Company's legal and accounting fees
and disbursements;
(d) The Placement Agent shall require the Company and Subscriber
and its principal officers and its directors to provide certain warranties and
representations against shorting or hedging of the Company's stock satisfactory
to the Placement Agent.
(e) In addition to the compensation set forth herein, the Company
shall issue to Placement Agent 100,000 shares of Common Stock with restrictive
legend on a pro rata basis for every $1,000,000 in gross proceeds raised by the
Placement Agent.
(f) Notwithstanding anything to the contrary in this Agreement, the
Agency Agreement Page 10
<PAGE>
Placement Agent agrees that its compensation pursuant to this agreement shall be
reduced to the extent required to comply with the applicable requirements of the
NASD and Nasdaq applicable to the Placement Agent and/or the Company as the case
may be. The Placement Agent agrees that it will repay to the Company any
compensation received by the Placement Agent pursuant to this Agreement upon
receipt of any notice of the NASD or Nasdaq requiring such reduction, such
repayment to be made promptly, but in any event within 10 days of the Placement
Agent's receipt of any such notice.
SECTION 8. Conditions of AWC's Obligations.
AWC's obligation to offer and sell the Debentures is subject to the
accuracy of and compliance with the representations and warranties of the
Company made in Section 3 hereof, to the performance by the Company of its
obligations under this Agreement and to the following further conditions:
(a) At such Closing, AWCs counsel shall have been furnished with
such documents as AWC or they may reasonably require in order
to evidence the accuracy or completeness of each of the
representations or warranties and the compliance with each of
the covenants or satisfaction of any of the conditions herein
contained; and all actions taken by the Company in connection
with the sale of the Debentures as herein contemplated shall
be reasonably satisfactory in form and substance to AWC and
AWCs counsel.
(b) At such Closing, AWC shall receive an opinion from counsel to
the Company, in form and substance reasonably satisfactory to
AWC's counsel, with respect to the matters set forth in
Section 3 and 5 above.
(c) As soon as practicable alter the date hereof and immediately
prior to such Closing and with respect to any sale of
Debentures pursuant to a private placement under Regulation D,
AWC shall receive a blue sky survey or memorandum and a
supplement thereto addressed to AWC and the Company as
prepared by Placement Agent's counsel satisfactory to AWC and
relating to the securities laws of certain jurisdictions
designated by the Company and AWC, indicating the conditions
under which offers and sale of the Shares may be made in the
Offering in compliance with such securities laws and advising
that the appropriate action, if any, was taken in each such
jurisdiction.
(d) The representations arid warranties of the Company set forth
Agency Agreement Page 11
<PAGE>
in Section 3 hereof shall be true and correct as of the
Closing, to the best knowledge of the Company, and the Company
shall have complied with all applicable terms and conditions
of this Agreement.
(e) The Company will, prior to the completion of the initial
closing of the Offering, cause each officer and director of
the Company who holds 200,000 or more shares of Common Stock
(either individually or together with members of his family or
together with any affiliate) to enter into an agreement under
which each such person agrees not to sell in any given weekly
period, more than an amount equal to five (5%) of the weekly
trading volume of the stock, for a period of (6) months from
the final closing of the Offering, without the prior written
consent of AWC.
(g) If any of the conditions specified in this Section 8 shall not
have been fulfilled when and as required by this Agreement,
then this Agreement and all of AWC's obligations hereunder may
be canceled by AWC by notifying the Company of such
cancellation in writing at any time at or prior to the subject
Closing, and any such cancellation shall be without liability
of any party to any other party except as may otherwise be
provided in this Agreement.
SECTION 9. Conditions of the Obligations of the Company.
The obligations of the Company hereunder are subject to the accuracy
of and compliance with AWC's representations and warranties and any other firm
that participates in the Offering, to the performance by AWC of AWCs obligations
hereunder, and to the following further conditions:
(a) At the Closing, the Company shall receive a certificate from
AWC as to the number and identity of persons from whom
subscriptions for Shares shall have been received and
accepted, which certificate shall further be to the effect
that:
(i) Executed Subscription Agreements have been received and
accepted only from persons who, to the best of AWC's
knowledge and belief meet the requirements for
subscribers referred to in Section 6(b) hereof and are
acting for themselves and not on behalf of any other
person; and
(ii) AWC has complied with all applicable broker-dealer
Agency Agreement Page 12
<PAGE>
registration requirements with respect to the Offering
(but no reference need be made as to other agents or
dealers involved in the Offering).
(iii) The representations and warranties of the Placement
Agent shall be true and correct as of the Closing, to
the best knowledge of the Placement Agent, and the
Placement Agent shall have complied with all applicable
terms and conditions of this Agreement.
(b) if any of the conditions specified in this Section 9 shall not
have been fulfilled when and as required by this Agreement, or
if the minimum amount of $1,000,000 of Debentures is not sold
by the completion of the Offering Period, then this Agreement
may be canceled by the Company by notifying AWC of such
cancellation in writing at any time at or prior to the subject
Closing.
(c) Notwithstanding anything to the contrary in this Agreement,
the Company will not be required to sell and issue any
securities to the extent that the issuance of any shares
underlying such securities would prevent the Company from
complying with Nasdaq requirements (as they apply to the
Company) and the Company's charter and by-laws.
SECTION 10. Indemnification,
(a) The Company agrees to indemnify and hold harmless AWC, each of
AWC's officers, directors, representatives, employees and each person, if any,
who controls AWC, against any and all loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all expenses whatsoever,
including attorney fees, reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever) arising out of (i) any untrue statement of a material fact contained
in the Offering Materials or the omission therefrom of a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, unless such untrue statement or
information was made in reliance upon and in conformity with information
furnished to the Company by AWC or any Subscriber in writing expressly for use
in the Offering Materials and (ii) any misrepresentation with respect to, or any
violation of, the representations and warranties of the Company set forth in
this Agreement, whether arising, in any instance, under the Securities Act or
otherwise. In no case shall the Company be liable under this indemnity
Agency Agreement Page 13
<PAGE>
agreement with respect to any claim made against AWC or any persons named above
unless the Company shall be notified in writing of the nature of the claim
within thirty (30) days after AWC's receipt of written notice thereof, but
failure to so notify the Company shall not relieve it from any liability which
it may have otherwise than on account of this indemnity agreement. The Company
shall be entitled to participate in the defense of such action at its own
expense upon receipt of such notice, and to assume the defense, which defense
shall be conducted by counsel chosen by it and reasonably satisfactory to AWC or
the person or persons, defendant or defendants named in the action; AWC or such
persons or defendants shall bear the fees and expenses of any additional counsel
thereafter retained by AWC or them, respectively. The Company agrees to notify
AWC within twenty (20) days of the receipt of written notice of the assertion of
any claim against it in connection with the sale of the Debentures.
b) AWC agrees to indemnify and hold harmless the Company, each of
its officers, directors and employees and each person, if any, who controls the
Company, to the same extent as provided in subsection (a) of the foregoing
indemnity to AWC from the Company, but only with respect to statements in or
omissions from the Offering Materials made In reliance upon and in conformity
with written information furnished to the Company by AWC expressly for use in
the Offering Materials. In no event shall the assistance in the drafting of all
or any portion of the Offering Materials and any exhibits thereto by AWC's
counsel constitute the furnishing of such information. In ease any action shall
be brought against the Company or any person so indemnified, based upon the
Offering Materials and in respect of which indemnity may be sought against AWC,
AWC shall have the rights and duties given to the Company, and the Company and
each person so indemnified shall have the rights and duties given to AWC, by the
provisions of subsection (a) of this Section 10.
SECTION 11. Contribution.
In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in Section 10 hereof
is for any reason held to be unavailable to AWC, the Company and AWC, at AWC's
election, shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by said indemnity agreement incurred by
the Company or AWC, or both, in such proportions that AWC shall be responsible
for that portion represented by the percentage that the selling commissions paid
to AWC bear to the gross offering price of the total Debentures sold and the
Company shall be responsible for the balance; provided, however, that no person
guilty of fraudulent misrepresentation (within the meaning of "Section 11(f)" of
the Securities Act) or negligent or willful failure to perform its obligations
under the Act or under this Agreement shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation or negligent or
willful failure.
Agency Agreement Page 14
<PAGE>
For purposes of this Section 11, each person, if any, who controls AWC within
the meaning of Section 15 of the Securities Act shall have the same rights to
contribution as AWC, and the Company and each officer of the Company and each
person, if any, who controls the Company shall have the same rights to
contribution as the Company.
SECTION 12. Registration Rights for Agent's Restricted Stock.
The Company shall include in any registration, at its own expense,
all of the restricted Common Stock paid AWC as compensation as set forth herein
in Section 7(e) provided that if the registration statement pertains to an
underwritten offering, the inclusion of any such shares shall be subject to an
underwriter's cutback if the underwriter determines, in good faith, that the
inclusion of such shares will adversely affect the offering by the Company with
such cutback to be accomplished on a pro-rata basis among all selling
shareholders or as shall be otherwise required by such underwriter.
SECTION 13. Representations, Warranties and Agreements to Survive
Delivery.
All representations, warranties and agreements contained in this
Agreement or contained in certificates submitted pursuant hereto shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of AWC or by or on behalf of the Company, and shall survive any
Closing.
SECTION 14. Notices.
All notices required or permitted under this Agreement shall be in
writing and shall be sent by certified or registered first class mail, return
receipt requested, or shall be personally delivered, or sent by an overnight
delivery service such as Federal Express, or shall be transmitted by telefax
(provided such telefax message is confirmed by telephone acknowledgment of
receipt or by sending via other authorized means a confirmation copy of such
notice) addressed to the parties as follows, or at such other address as a party
shall specify in compliance with this Section 14:
To the Company; SAF T LOK INCORPORATED
1101 Northpoint Parkway
West Palm Beach, Florida 33407
Agency Agreement Page 15
<PAGE>
To AWC: Alexander, Wescott & Co., Inc.
63 Wall Street, 21st Floor
New York, NY 10005
Attention: President
SECTION 15. Parties.
This Agreement shall inure to the benefit of and be binding upon AWC
and the Company and on the Company's and AWC's successors, this Agreement and
the conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of the parties hereto and their respective successors and
assigns and for the benefit of no other person. This Agreement may not be
assigned without the written consent of both parties.
SECTION 16. Governing Law.
This Agreement shall be governed by the laws of the State of New
York, without regard to choice of law provisions, except with respect to any
matter governed by applicable federal securities laws. The parties agree that
any dispute under this Agreement will be resolved in a federal or state court
located in the County, City and State of New York, or City of West Palm Beach,
Palm Beach County, State of Florida, and will submit to the jurisdiction of such
court for such purpose.
SECTION 17. Waiver.
Any party hereto may waive compliance by the other with any of the
terms, provisions and conditions set forth herein; provided, however, that any
such waiver shall be in writing specifically setting forth those provisions
waived thereby. No such waiver shall be deemed to constitute or imply waiver of
any other term, provision or condition of this agreement.
SECTION 18. Entire Agreement.
This Agreement contains the entire agreement between the parties
hereto and is intended to supersede any and all prior agreements between the
parties hereto relating to the same subject matter. This Agreement may be
executed in multiple counterparts which shall be deemed one instrument.
If the foregoing is in accordance with AWC's understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument, together with all counterparts, will become a binding agreement in
accordance with its terms.
Agency Agreement Page 16
<PAGE>
Sincerely,
SAF T LOK INCORPORATED
By: /s/ Franklin Brooks
-------------------------------
President
Confirmed, accepted and agreed to as
of the date first above written:
ALEXANDER WESCOTT & CO., INC.
By: /s/ James Mullen
--------------------------------
Secretary/Treasurer
Agency Agreement Page 17
<PAGE>
Exhibit 10.2
[LETTERHEAD]
April 20, 1999
Mr. James Mullen
Alexander, Wescott & Co., Inc
181 Genesee Street, 6th Floor
Utica, New York, 13501-2106
Dear Mr. Mullen:
Attached is the signed Agency Agreement for the sale of the Saf T Lok
Incorporated ("STL") Convertible 6% Debentures.
As I mentioned on the phone, we are in the process of freeing up the
necessary shares of stock for issuance to the debenture purchasers. Per our
conversation we have both agreed that Alexander, Wescott & Co., Inc. ("AWC")
will limit solicitation of the debentures to $1,000,000 until AWC receives
approval in writing from STL to sell more. Please sign this letter at the bottom
to acknowledge your agreement and return a copy to me.
On April 15, 1999 STL filed the 1998 10KSB which is to be included in the
due diligence process by AWC and any of the potential Debenture purchasers.
Included with this letter is a copy of the STL 1998 10KSB for AWC to copy and
distribute.
Section 6 of the Agency Agreement requires AWC to ascertain that potential
debenture purchasers meet the criteria to be deemed Accredited Investors. While
not specifically stated, STL requests AWC to send all information to STL on each
potential investor, that AWC deems to be an Accredited Investor, prior to STL
issuing any debentures.
Please call me if you have any questions.
Sincerely,
/s/ William M Schmidt
William M Schmidt
Chief Financial Officer
I have read and agree with the terms of this letter Signed on April 22, 1999
By /s/ James J. Mullen, for Alexander, Wescott & Co., Inc.
<PAGE>
Exhibit 10.3
PRIVATE PLACEMENT OFFERING
SUBSCRIPTION AGREEMENT AND QUESTIONNAIRE
THE SECURITIES, INCLUDING THE UNDERLYING SECURITIES, THAT ARE THE
SUBJECT OF THIS SUBSCRIPTION AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE LAWS OF ANY
STATE OR OTHER JURISDICTION, SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
A REGISTRATION STATEMENT IN EFFECT WITH RESPECT THERETO UNDER SUCH ACT
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT OR UNLESS THE SALE IS
OTHERWISE EXEMPT FROM REGISTRATION. THE COMPANY MAY REQUEST A WRITTEN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH SALE, PLEDGE OR
HYPOTHECATION, OR OTHER TRANSFER.
AGREEMENT, effective this 13 day of May, 1999, between SAF T LOK
INCORPORATED, a corporation incorporated under the laws of the State of Florida
(the "Company"), and (the "Subscriber").
R E C I T A L S
A. The Company through its agents, desire to provide financing for itself
by selling to accredited investors, Company's 6% Convertible Debentures (the
"Debentures"), in the form annexed hereto as Exhibit A, for an aggregate
purchase price of not more than $2,000,000.00. The interest on the Debenture
shall be payable annually. The Proposed Offering shall consist of the sale of a
6% Convertible Debenture due in two years, unless converted or upon the sale of
all or substantially all of the assets of the Company, or a merger,
consolidation, or acquisition in which the Company is not the survivor. The
interest shall be simple interest, paid annually, and paid either in cash or
stock at the sole discretion of the Company. The Company may redeem or prepay
the Debenture prior to maturity as follows: The Company shall pay the face value
of the Debenture plus all accrued interest at the date of prepayment or
redemption and in the event the prepayment or redemption occurs within ninety
(90) days from the date of issuance of the Debenture then the Company shall also
pay the Debenture holder
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Subscription Agreement and Questionnaire
Page 1
<PAGE>
a premium of ten (10%) of the face value at time of redemption or prepayment. In
the event the prepayment or redemption occurs after ninety days but within one
hundred eighty (180) days from the date of issuance of the Debenture then the
Company shall pay the debenture holder a premium of twenty (20%) of the face
value at time of redemption or prepayment, plus all accrued interest. The
Debenture will be convertible at a 25% discount to the market price at the time
of conversion, with a provision providing a floor conversion price of Fifty Cent
($0.50) and a ceiling conversion price of Two Dollars ($2.00). The securities
underlying the Debenture shall be registered by an appropriate registration
statement filed no later than ninety (90) days from the later of date of (i) the
closing of the Offering contemplated herein, or (ii) June 29, 1999 if the
offering contemplated herein is extended to such date.
B. Purchase of the Debentures involve significant investment risks. The
Debentures are being offered only to accredited investors as such term is
defined under Regulation D of the Securities and Exchange Commission ("SEC").
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto do hereby agree as follows:
1. Purchase of Debentures.
The Company agrees to sell to the Subscriber, and the Subscriber
agrees to purchase from the Company, Debentures for the aggregate purchase price
set forth in the signature page hereof.
2. Payment of Purchase Price.
Concurrently with the delivery of this Agreement, the Subscriber has
delivered a check or made a wire transfer in the amount set forth in the
signature page hereof in payment of the purchase price for the Debentures.
Checks shall be made payable, or wired funds shall be sent, Chase Manhattan
Bank, New York, (the "Escrow Agent") AC#910-2-758829, Escrow Incoming Wire
Account, Further Credit: SAF T LOK INCORPORATED, Inc., Attn: Vicki Caldas, such
funds, and the disposition thereof, to be subject to the terms of an Escrow
Agreement dated April 20, 1999, by and among the Escrow Agent, the Company and
Alexander, Wescott & Co., Inc. The Parties hereto acknowledge that a copy of
such Escrow Agreement has been received by the Subscriber.
3. Representations and Warranties of the Company.
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Subscription Agreement and Questionnaire
Page 2
<PAGE>
The Company represents and warrants to the Subscriber as follows:
(a) The Debentures will be, when issued, delivered and paid for in
accordance with this Agreement, duly and validly issued, fully paid and
non-assessable; and all corporate action required to be taken by the Company
prior to the issuance and sale of the Debentures and underlying stock upon any
conversion, to qualified subscribers has been or, prior to the sale thereof,
will have been taken.
(b) The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, par value $0.01 per share, of which
13,749,957 shares of such Common Stock are issued and outstanding.
(c) The Company is duly incorporated, validly existing and in good
standing as a corporation under the laws of the State of FLORIDA.
(d) The Company is duly qualified to do business and is in good
standing in each jurisdiction in which its activities or its ownership or
leasing of property requires such qualification, other than those jurisdictions
in which the failure to so qualify would not have a material adverse effect on
the business, operations or prospects or conditions, financial or otherwise, of
the Company.
(e) This Agreement has been duly and validly authorized and executed
and delivered by and on behalf of the Company and constitutes a valid and
binding agreement of the Company enforceable against the Company in accordance
with its terms, subject to any applicable bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and similar laws of general
applicability relating to or affecting creditor's rights generally and to
general principles of equity.
(f) No consent, approval authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company,
or any of its affiliates is required for execution of this Agreement, including,
without limitation, issuance and sale of the Debenture and the issuance of the
Shares upon any conversion of the Debenture or the performance of obligations
hereunder.
(g) Other than as reported on forms 10-KSB and 10-QSB, there are no
actions, investigations, statutes, rules or regulations or other proceedings of
any nature in effect or pending or to the Company's knowledge threatened, as the
case may be, which, either in any case or in the aggregate, if decided
Private Placement Offering
Subscription Agreement and Questionnaire
Page 3
<PAGE>
adversely, might reasonably be expected to result in any material adverse
change, financial or otherwise, in the assets, properties, condition, business,
earnings or prospects of the Company or which question the validity of the
capital stock of the Company, this Agreement or any action taken or to be taken
by the Company pursuant to or in connection with this Agreement.
(h) The Company's most recent Form 10-KSB and subsequent forms
10-QSB as filed with the U.S. Securities and Exchange Commission (the
"Commission") (collectively, with exhibits thereto, hereinafter referred to as
the "Reports") present fairly the financial position of the Company as of the
respective dates thereof and the results of operations and cash flows for the
respective periods covered thereby and are in conformity with generally accepted
accounting principles applied on a consistent basis throughout the entire period
involved. Since December 31, 1998, there has been no material adverse change,
financial or otherwise, in the assets, properties, condition, business, earnings
or prospects of the Company.
(i) The Company has filed each tax return which is required to be
filed, or has requested an extension therefor and has paid or otherwise provided
for all taxes shown on such return and all related assessments to the extent
that the same have become due.
(J) All information from the Company which is included in this
Subscription Agreement is accurate and complete to the best knowledge of the
Company and does not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
4. Representations and Warranties of the Subscriber.
The Subscriber hereby represents, warrants and acknowledges to the
Company as follows:
(a) Each of the Subscribers and its advisors has received from the
Company such other information concerning its operations, financial condition
and other matters as the Subscriber has requested, and considered all factors
each of the Subscriber and its advisors deems material in deciding on the
advisability of investing in the Securities (such information in writing is,
collectively, the "Other Written Information"). Each of the Subscribers and its
advisors, if any, has been afforded the opportunity to ask questions of the
Private Placement Offering
Subscription Agreement and Questionnaire
Page 4
<PAGE>
Company and have received satisfactory answers to any such inquiries. Neither
such inquiries nor any other due diligence investigation conducted by the
Subscriber and its advisors shall modify, amend or affect the Subscriber's right
to rely on the Company's representations and warranties contained in Section 3
above. The Subscriber acknowledges that, in making the decision to purchase the
Debentures, it has relied solely upon independent investigations made by it and
not upon any representations made by the Company with respect to the Company or
the Debentures, other than those representations set forth in Section 3 hereof.
(b) This Agreement has been executed and delivered by the Subscriber
and is a valid and binding agreement enforceable against the Subscriber in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally; and the Subscriber has
full power and authority necessary to enter into this Agreement and to perform
its obligations hereunder.
(c) No consent, approval, authorization, or order of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Subscriber is required for execution of this Agreement including, without
limitation, the purchase of the Debentures, or the performance of the
Subscriber's obligations hereunder.
(d) The Subscriber understands that no United States or other
governmental agency has passed on or made any recommendation or endorsement of
the Debentures.
(e) The Subscriber understands that the Debentures are being offered
and sold in reliance upon specific exemptions from the registration requirements
of United States federal and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Subscriber's compliance with,
the representations, warranties, agreements, acknowledgments and understandings
of the Subscriber set forth herein in order to determine the availability of
such exemptions and the eligibility of the Subscriber to acquire the Debentures.
(f) The Subscriber is acquiring the Debentures pursuant to this
Agreement for investment for its own account and not with a view to the
distribution (as such term is used in Section 2(11) of the Securities Act of
1933, as amended (the "Securities Act") thereof.
Private Placement Offering
Subscription Agreement and Questionnaire
Page 5
<PAGE>
(g) The Subscriber realizes that the Debentures are speculative,
illiquid and involve a high degree of risk, including the risks of receiving no
return on the investment and of losing the Subscriber's entire investment in the
Company.
(h) The Subscriber is able to bear the economic risk of investment
in the Debentures including the total loss of such investment.
(i) The Subscriber believes that subscribing for the Debentures
pursuant to the terms of this Agreement is an appropriate and suitable
investment for the Subscriber.
(j) The Subscriber is experienced and knowledgeable in financial and
business matters, and is capable of evaluating the merits and risks of
purchasing securities of the Company.
(k) The Subscriber is a resident of the State of
(l) The Subscriber is an accredited investor" as defined in Rule 501
of Regulation D under the Securities Act and (check all that apply):
___ (i) A natural person whose individual net worth (assets
less liabilities), or joint net worth with his or her spouse, at the
time of purchase, exceeds $1,000,000.
___ (ii) A natural person whose individual income was in
excess of $200,000, or whose joint income with his or her spouse was
in excess of $300,000, each of the two most recent years, and who
has a reasonable expectation of reaching the same income level for
the current year.
___ (iii) A bank, insurance company, registered investment
company, business development company, small business investment
company or employee benefit plan, as such terms are defined in the
Securities Act.
___ (iv) A savings and loan association, credit union, or
similar financial institution or a registered broker or dealer, as
such terms are defined in the Securities Act.
___ (v) A private business development company, as
Private Placement Offering
Subscription Agreement and Questionnaire
Page 6
<PAGE>
defined in the Investment Advisors Act of 1980.
___ (vi) An organization described in Section 501(c)(3) of the
Internal Revenue Code with assets in excess of $5,000,000.
___ (vii) A corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in excess of
$5,000,000.
___ (viii) A trust, not formed for the specific purpose of
acquiring the securities offered, with total assets in excess of
$5,000,000.
___ (ix) A director or an executive officer of the Company.
___ (x) An entity in which all of the equity owners are
accredited investors.
___ (xi) A self-directed IRA, Keogh, or similar plan of which
the individual directing the investments qualifies as an "accredited
investor" under one or more of items (i)-(x), above. Also check the
item(s) [(i)-(x)] that applies.
The Company reserves the right to request additional information
from the Subscriber to verify the information represented by the Subscriber
herein.
5. Investment Purpose in Acquiring the Debentures.
The Subscriber and the Company acknowledge that the securities
comprising and/or underlying the Debentures have not been registered under the
Securities Act, or applicable state securities laws, and that such securities
will be issued to Subscriber in reliance on exemptions from the registration
requirements of the Securities Act and applicable state securities laws, based
in part on Subscriber's representations and undertakings contained herein,
including Subscriber's investment intent. The Subscriber has no present
intention to divide his participation with others or to resell or otherwise
dispose of all or any part of the Debentures.
6. Compliance with Securities Act.
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Subscription Agreement and Questionnaire
Page 7
<PAGE>
The Subscriber agrees that if the Debentures or any part thereof are
to be sold or transferred by the Subscriber in the future, the Subscriber will
sell or distribute them pursuant to the requirements of the Securities Act and
applicable state securities Laws. The Subscriber agrees that the Subscriber will
not transfer any part of the Debentures without (i) obtaining an opinion of
counsel satisfactory in form and substance to the counsel for the Company to the
effect that such transfer is exempt from the registration requirements under the
Securities Act and applicable state securities laws or (ii) effecting such
transfer under the required registration requirements of applicable securities
law.
7. Restrictive Legend.
Subscriber agrees that the Company may place a restrictive legend on
the documents representing the securities comprising and/or underlying the
Debentures containing substantially the following language:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT FOR DISTRIBUTION, AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT THERETO UNDER
SUCH ACT UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT OR UNLESS THE SALE
IS OTHERWISE EXEMPT FROM REGISTRATION. THE COMPANY MAY REQUEST A WRITTEN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH SALE, PLEDGE OR
HYPOTHECATION, OR OTHER TRANSFER. THIS CERTIFICATE MUST BE SURRENDERED TO
THE CORPORATION OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE
SALE, PLEDGE HYPOTHECATION OR ANY OTHER TRANSFER OF ANY INTEREST IN ANY OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER CONTAINED IN AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
Private Placement Offering
Subscription Agreement and Questionnaire
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<PAGE>
8. Stop Transfer Order.
The Subscriber and Company agree that the Company may not place a
stop transfer order with its registrar and stock transfer agent (if any)
covering all certificates representing the securities comprising and/or
underlying the Debentures.
9. Knowledge of Restrictions Upon Transfer of the Debentures.
The Subscriber understands that the securities comprising the
Debentures are not freely transferable and may in fact be prohibited from sale
for an extended period of time and that, as a consequence thereof, the
undersigned must bear the economic risk of investment in the Debentures for an
indefinite period of time and may have extremely limited opportunities to
dispose of the Debentures.
10. Registration and Other Rights with regard to the Debentures.
(a) Each Debenture Holder who wishes to convert its Debenture into
shares of Common Stock shall provide notice via facsimile to the Company on a
business day. The Company shall use best efforts and deliver within 5 business
days, a certificate(s) for the number of shares of Common Stock to which the
Holder is entitled, provided the Certificate representing the Debenture is
received by the Company within 2 business days of such notice.
(b) The Debenture may be converted into Common Stock of the Company,
at any time commencing after the earlier of the effective date of the
registration statement covering the conversion shares; or ninety (90) days after
the filing of the registration statement covering the conversion shares provided
that a minimum of $25,000 must be converted upon any such conversion (or any
lesser remaining amount held by the holders upon conversion).
(c) The Debentures are convertible into Common Stock at a discount
of Twenty Five (25%) Percent of the Closing Bid Price on the
date the Conversion notice is received by the Company ("the
Conversion Date") subject to adjustment as provided by the
Debenture. There is a $0.50 floor and a $2.00 ceiling on the
conversion price. For purposes of calculating the conversion,
the Debenture value shall equal the principal face value plus
any and all accrued and unpaid interest as of the date of
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Subscription Agreement and Questionnaire
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conversion, unless the Company in 30 days elects to pay such
interest in cash. Following the issuance of the Debenture, the
number of shares underlying the Debenture shall be
proportionately adjusted for any increase or decrease in the
number of issued shares of stock resulting from the splitting
or consolidation of shares, the payment of a stock dividend or
effected in any other similar manner.
(d) The Company shall file a registration statement covering the
resale of all shares underlying the Debenture, in the event of
conversion, and any shares of Common Stock paid the Placement
Agent as compensation, in a registration statement filed no
later than ninety (90) days after the later of (i) the closing
of this offering or, (ii) June 29, 1999 if the offering
contemplated herein is extended to such date. If the
registration statement is not filed as required by this
Agreement and AWC has given notice to the Company of the final
closing or end of the Offering period, the Company shall pay
to the Holder, a two (2%) percent fee in cash over and above
the face amount of the Debenture as liquidated damages for
each calendar month delayed (if less than one full calendar
month then the liquidated damages shall be prorated over the
number of days delayed in the less than complete calendar
month).
If an offering in connection with which the Subscriber is entitled
to registration under this paragraph (a) is an underwritten offering, then the
Subscriber shall, unless otherwise agreed by the Company, offer and sell the
Debentures and underlying Shares included in such Registration Statement in an
underwritten offering using the same underwriter or underwriters and, subject to
the provisions of this Agreement, on the same terms and conditions as other
Securities; Common Stock or Preferred Stock included in such underwritten
offering provided that if the registration statement pertains to an underwritten
offering, the inclusion of any such shares shall be subject to an underwriter's
cutback if the underwriter determines, in good faith, that the inclusion of such
shares will adversely affect the offering by the Company with such cutback to be
accomplished on a pro-rata basis among all selling shareholders or as shall be
otherwise required by such underwriter.
(e) In connection with the filing of a registration statement
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pursuant to this section, the Company shall:
(i) notify the Subscriber as to the filing and status thereof and
of all amendments thereto filed prior to the effective date of
said registration statement;
(ii) notify such Subscriber promptly after it shall have received
notice of the time when the registration statement becomes
effective or any supplement to any prospectus forming a part
of the registration statement has been filed;
(iii) prepare and file without expense to such Subscriber any
necessary amendment or supplement to such registration
statement or prospectus as may be necessary to comply with the
1933 Act or advisable in connection with the proposed
distribution of the securities by such Subscriber;
(iv) take all reasonable steps to qualify the Shares for sale under
the securities or blue sky laws of such state as such
Subscriber has designated herein and to register or obtain the
approval of any federal or state authority which may be
required in connection with the proposed distribution, except,
in each case, in jurisdictions in which the Company must
either qualify to do business or file a general consent to
service of process as a condition of the qualification of such
securities;
(v) notify such Subscriber of any stop order suspending the
effectiveness of the registration statement and use its
reasonable best efforts to remove such stop order;
(vi) undertake to keep such registration statement and prospectus
effective for a period of twelve months after its effective
date; and
(vii) furnish to such Subscriber as soon as available, copies of any
such registration statement and each preliminary or final
prospectus and any supplement or amendment required to be
prepared pursuant to the foregoing provisions of this section,
all in such quantities as such Subscriber may from time to
time reasonably request.
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<PAGE>
(f) The Company agrees to pay all underwriting discounts and
commissions, transfer taxes, registration fees and his own counsel fees with
respect to the Shares being registered. The Company will pay all other costs and
expenses in connection with a registration statement to be filed pursuant to
this Section 10 including, without limitation, the fees and expenses of counsel
for the Company, the fees and expenses of its accountants, and all other costs
and expenses incident to the preparation, printing and filing under the Act of
any such registration statement, each prospectus and all amendments and
supplements thereto, the costs incurred in connection with the qualification of
such securities for sale in such state as the Subscriber shall have designated,
including fees and disbursements of counsel for the Company, and the costs of
supplying a reasonable number of copies of the registration statement, each
preliminary prospectus, final prospectus and any supplements or amendments
thereto to such Subscriber.
(g) The Company agrees to use its reasonable best efforts to enter
into an appropriate cross-indemnity agreement with any underwriter (as defined
in the Securities Act) for such Subscriber in connection with the filing of a
registration statement pursuant to this section.
(H) If the Company shall file any registration statement including
therein all or any part of the Shares held by the Subscriber, the Company and
each Subscriber shall enter into an appropriate cross-indemnity agreement
whereby the Company shall indemnify and hold harmless the Subscriber against any
losses, claims, damages or liabilities (or actions in respect thereof) arising
out of or based upon any untrue statement of any material fact contained in such
registration statement, or any omission to state therein a material fact
required to be stated therein or necessary to make statements therein not
misleading unless such statement or omission was made in reliance upon and in
conformity with written information furnished or required to be furnished by any
such Subscriber, and each such Subscriber shall indemnify and hold harmless the
Company, each of its directors and officers who have signed the registration
statement and each person, if any, who controls the Company, within the meaning
of the Securities Act against any losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon any untrue statement of
any material fact, contained in such registration statement, or any omission to
state therein a material fact required to be stated therein or necessary to make
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with written information furnished or required
to be furnished by such Subscriber expressly for use in such registration
statement.
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<PAGE>
(i) For a period of one (1) year after the effective date of the
registration statement filed pursuant to this Section 10, the Company at its
expense will file such post-effective amendments as may be necessary to make
available for use a prospectus meeting the requirements of the Securities Act.
The Company will cause copies of such prospectus to be delivered to any person
selling the shares of Common Stock as may be required by the Securities Act and
the rules and regulations of the SEC.
11. Representations to Survive Delivery.
The representations, warranties and agreements of the Company and of
the Subscriber contained in this Agreement will remain operative and in full
force and effect and will survive the payment of the purchase price pursuant to
Section 2 above and the delivery of certificates representing the securities
comprising the Shares.
12. Miscellaneous.
(a) Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the transactions contemplated by this
Agreement and supersedes all prior arrangements or understandings with respect
thereto.
(b) Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto, and their
respective heirs, legal representatives, successors and assigns.
(c) Third Party Rights. Notwithstanding any other provision of this
Agreement, this Agreement shall not create benefits on behalf of any third
party, and this Agreement shall be effective only as between the parties hereto
and their respective successors, heirs and permitted assigns.
(d) Descriptive Headings. The descriptive headings of this Agreement
are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
(e) Notices. Any notice hereunder to or upon either party hereto
shall be deemed to have been duly given for all purposes if (a) in writing and
sent by (i) messenger or an overnight courier service against receipt, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by telegram,
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<PAGE>
telecopy, telex or similar electronic means, provided that a written copy
thereof is sent on the same day by postage paid first class mail, to such party
at the following address:
To Subscriber: at its address set forth on the signature
page hereof
To the Company at: 1101 Northpoint Parkway
West Palm Beach, Florida 33407
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this Section.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance, with the laws of the State of Florida and of the United States of
America, without regard to choice of law provisions.
(g) Remedies. In the event of any actual or prospective breach or
default by either party hereto, the other party shall be entitled to equitable
relief, including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.
(h) Disputes and Jurisdiction. Disputes arising under this Agreement
shall be resolved in a federal or state court of general jurisdiction sitting in
the State of New York, or State of Florida. Each of the parties hereto hereby
irrevocably consents and submits to the jurisdiction of such court.
(i) Severability. The provisions hereof are severable and in the
event that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the party of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
(j) Assignment, Etc. This Agreement may not be assigned without the
prior written consent of the parties, and any purported assignment without
Private Placement Offering
Subscription Agreement and Questionnaire
Page 14
<PAGE>
such consent shall be void and without effect. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. This Agreement is not intended, and shall not
be deemed, to create or confer any right or interest for the benefit of any
person nor a party hereto.
(k) Amendment. Except as otherwise provided herein, no amendment of
this Agreement shall be valid or effective, unless in writing and signing by or
on behalf of the parties hereto.
(l) Waiver. No course of dealing or omission or delay on the part of
either party hereto in asserting or exercising any right hereunder shall
Constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
(m) Further Assurances. Each party hereto covenants and agrees
promptly to execute, deliver, file or record such agreements, instruments,
certificates and other documents and to perform such other and further acts as
the other party hereto may reasonably request or as may otherwise be necessary
or proper to consummate and perfect the transactions contemplated hereby.
(n) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and which together shall constitute
one and the same agreement.
# of Debentures Purchased
- ------------------------- -------------------------------
Subscriber (Signature)
# of Debentures Purchased
- ------------------------- -------------------------------
Subscriber (Signature, if more
than one investor)
Total Dollar Investment
Private Placement Offering
Subscription Agreement and Questionnaire
Page 15
<PAGE>
of Subscriber
$
- ------------------------- -------------------------------
Print Name
-------------------------------
Print Name (If more than one
investor)
-------------------------------
Address
The Company hereby accepts the subscription evidenced by this Subscription
Agreement and Questionnaire:
By: /s/ Franklin Brooks
----------------------------
Name: Franklin Brooks
-----------------------
Title: President, CEO
----------------------
Dated: July 13, 1999
Private Placement Offering
Subscription Agreement and Questionnaire
Page 16
<PAGE>
SUBSCRIBER INFORMATION
- --------------------------------------------------------------------------------
(Please print name(s) in which the Debentures are to be issued)
- --------------------------------------------------------------------------------
Taxpayer I.D. No. Taxpayer I.D. No.
(If more than one investor)
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
Telephone Number
- --------------------------------------------------------------------------------
Occupation
Check One:
____ Individual Ownership
____ Joint Tenants (JTWROS)
____ Partnership
____ Tenants in Common
____ Corporation
____ Other
Private Placement Offering
Subscription Agreement and Questionnaire
Page 17
<PAGE>
CERTIFICATE OF SIGNATORY
(To be completed if Debentures are being subscribed for by an Entity)
I, ____________________________________, am the ________________ of
________________ (the "Entity").
I certify that I am empowered and duly authorized by the Entity to
execute and carry out the terms of the Subscription Agreement and Questionnaire
and to purchase and hold the Securities, and certify further that such
Subscription Agreement and Questionnaire has been duly and validly executed on
behalf of the Entity and constitutes a legal and binding obligation or the
Entity.
IN WITNESS WHEREOF, I have set my hand this ___ day of __________,
1999.
--------------------------
(Signature)
--------------------------
(Title)
--------------------------
(Please Print Name)
Private Placement Offering
Subscription Agreement and Questionnaire
Page 18
<PAGE>
EXHIBIT 10.4
AMENDMENT NO. 1 TO PRIVATE PLACEMENT OFFERING
SUBSCRIPTION AGREEMENT AND QUESTIONNAIRE
AMENDMENT NO: 1 TO PRIVATE PLACEMENT OFFERING SUBSCRIPTION AGREEMENT AND
QUESTIONNAIRE, effective this __ day of ______________, 1999, between SAF T LOK
INCORPORATED, a Corporation incorporated under the laws of the State of Florida
(the "Company") and ______________________ (the "Subscriber").
RECITALS
A. The Subscriber and the Company desire to amend the terms of the Private
Placement Offering Subscription Agreement and Questionnaire (the "Agreement")
with respect to the purchase by the Subscriber of the Company's 6% Convertible
Debentures (the "Debentures") as set forth herein.
B. The Subscriber and the Company desire to amend the terms of the Form of
Debenture attached as Exhibit A to the Agreement.
NOW, THEREFORE, the parties hereto agree to amend the Agreement as
follows:
1. All capitalized terms used in this Amendment that are not defined
herein shall have meanings set forth in the Agreement.
2. Notwithstanding anything to the contrary in the Agreement, the
Company represents and warrants to the Subscriber that the
authorized capital stock of the Company consists of 20,000,000
shares of Common Stock per value $0.01 per share, of which
14,249,957 shares of such Common Stock are issued and outstanding.
3. Notwithstanding anything to the contrary in the Agreement, the
Debentures shall be convertible into Common Stock at a discount of
twenty five percent (25%) of the market price of the Company's
Common Stock on the date the Notice of Conversion (as required by
the Debenture) is received by the Company (the "Conversion Date")
subject to adjustment as provided by the Debenture.
4. The Form of Debentures to be issued by the Company with respect to
the purchase thereof by the Subscriber shall be the Form of
Debenture attached hereto as Exhibit A, which form shall replace the
Form of Debenture attached as Exhibit A to the Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Amendment as of
the dates set forth below.
__________________________________
Signature of Subscriber
__________________________________
print name
__________________________________
title
__________________________________
address
__________________________________, 1999
date
SAF T LOK INCORPORATED
By: /s/ Franklin Brooks
------------------------------
Name: Franklin Brooks
Title: President / CEO
July 13, 1999
------------------------------
date
<PAGE>
Exhibit 10.5
ESCROW AGREEMENT
ESCROW AGREEMENT, dated April 20, 1999 between Saf-T-Lok, Incorporated, a
Florida corporation (the "Company"), Alexander, Wescott & Co., Inc. (the
"Placement Agent") and Chase Manhattan Bank, as escrow agent ("the Escrow
Agent").
WHEREAS, the Company is offering Convertible Debentures to prospective investors
pursuant to the Company's Subscription Agreement dated April 20, 1999 (the
"Memorandum"), in connection with the consummation of the Company's private
placement (the "Private Placement");
WHEREAS, unless subscriptions are received from subscribers and accepted by the
Company by April 30, 1999 and, unless the offering is terminated at an earlier
date by the Placement Agent and the Company, or unless the offering is extended
by the Company and the Placement Agent to June 29, 1999 (the "Termination
Date"), then all funds received by the Escrow Agent will he returned without
interest to the subscribers;
WHEREAS, the Subscription Agreement provides that all funds received for
subscriptions prior to the consummation of the Private Placement will be placed
into an escrow account with the Escrow Agent until such time as release or
return of the funds is required pursuant to Section 5 hereof; and
WHEREAS, Chase Manhattan Bank has consented to act as escrow agent, subject to
the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereby agree as follows:
1. The Company hereby appoints Chase Manhattan Bank as escrow agent and Chase
Manhattan Bank hereby accepts such appointment, in accordance with the terms and
conditions herein set forth.
2. The Company shall notify the Escrow Agent of its acceptance and rejection of
subscriptions respecting subscribers.
3. The Placement Agent shall deliver to the Escrow Agent all funds received by
it from subscribers as the Placement Agent shall determine, drawn on a U.S. bank
or Fedwire, in payment of accepted subscriptions for the Convertible Debenture
offering
<PAGE>
from time to time as the Placement Agent receives such subscriptions. The Escrow
Agent shall accept all funds received from subscribers, provided that, the
Escrow Agent shall not deposit funds received respecting any subscription for
the Convertible Debenture which the Company has given notice of its rejection,
and the Escrow Agent shall promptly return to the subscriber. The Escrow Agent
shall promptly deposit all funds for subscriptions for Convertible Debentures
which may have been accepted into the Escrow Account for collection (such funds
when collected are hereinafter referred to as the "Proceeds").
The Escrow Agent shall have no duty to solicit any funds with respect to any
subscriber or to determine the propriety of any Proceeds received by it. The
Escrow Agent shall hold the funds uninvested.
The Escrow Agent shall have no duty to solicit any funds with respect to any
subscriber or to determine the propriety of any funds received by it. All funds
received by the Escrow Agent on or after the Termination Date shall be returned
to the source.
4. If the company rejects or has rejected the subscription of any subscriber for
which the Escrow Agent has collected Proceeds and such Proceeds remain in the
Escrow Account, the Escrow Agent shall promptly remit the amount of such
subscriber's funds as are held in the Escrow Account without interest to such
subscriber at the address supplied by the Company.
5. The Proceeds to be held in the Escrow Account shall be subject to, and
distributed in accordance with the following provisions:
(A) If (1) the Escrow Agent has not been provided with a letter, officially
signed on behalf of the Company and the Placement Agent by close of
business prior the Termination Date, or (2) the Escrow Agent has received
from the Company and Placement Agent a notice that the offering otherwise
has been terminated prior to such date, then the Escrow Agent shall
promptly terminate the Escrow Account and return all Proceeds without
interest earned on such Proceeds to the subscribers in the amounts
received by the Escrow Agent from such persons, upon receipt by the Escrow
Agent from the Company of the proper mailing addresses.
(B) If, on or prior to the Termination Date, the Escrow Agent has been
provided with the Letter, attached hereto as Exhibit A, then, on the date
(the "Closing Date"), and at the time and place as shall be stated in the
Letter, the Escrow Agent shall deliver to the Company by wire transfer or
other immediately available funds the principal amount of the Proceeds
held in the Escrow Account except for such
2
<PAGE>
amounts, representing underwriting commissions and expenses due the
Placement Agent and other expenses, as shall be set forth in the Letter,
which amounts the Escrow Agent shall deliver by wire transfer or other
immediately available funds to the Placement Agent or as otherwise
directed as set forth in the Letter. The "Letter" shall be signed by the
Company and the Placement Agent, and shall specifically set forth dollar
amounts to be released. The Escrow Agent shall be entitled to rely upon
any notice, instrument or other writing delivered to it under cover letter
of an Officer of the Company and Alexander Wescott & Co., without being
required to determine the authenticity or correctness of any fact stated
therein or the propriety or validity or the service thereof. The Escrow
Agent may act in reliance upon any instrument or signature believed by it
to be genuine and may assume that any person purporting to give notice or
receipt or execute any document in connection with the provisions hereof
has been duly authorized to do so.
6. The Company and the Placement Agent agree to hold the Escrow Agent
harmless and to indemnify the Escrow Agent against any loss, liability
expense (including reasonable attorney's fees and expenses), claim or
demand arising out of or in connection with, the performance of its
obligations in accordance with the provisions of this Agreement, except
for the gross negligence or willful misconduct of the Escrow Agent.
Further, the Company shall indemnify the Escrow Agent for any loss the
Escrow Agency may incur as a result of releasing Proceeds to the Company
or to the subscribers, which Proceeds were credited to the Escrow Account
as a result of a dishonest check.
(A) The Escrow Agent's duties are only such as are specifically provided
herein, and the Escrow Agent shall incur no liability whatsoever to
the Company, except for gross negligence or willful misconduct. The
Escrow Agent shall have no responsibility hereunder other than to
follow faithfully the instructions herein contained. The Escrow
Agent may consult with counsel and shall be fully protected in any
actions taken in good faith in accordance with such advice. The
Escrow Agent shall be fully protected in acting in accordance with
any written instructions given to it hereunder believed by it to
have been executed by the proper parties.
(B) The Company agrees to pay the Escrow Agent a fee of $5,000.00 per
year, without proration for partial years, payable upon execution of
this agreement or deducted from Proceeds collected, as compensation
for the ordinary administrative services to be rendered hereunder;
and agrees to pay all reasonable expenses of the Escrow Agent,
including fee for refund checks respecting the Proceeds not in
excess of $5 per check or $25 per wire and its reasonable attorney's
fees and expenses, and other expenses which it may incur in
connection with the performance of its duties under this Agreement.
3
<PAGE>
(C) It is agreed that, should any dispute arise with respect to the
payment and/or ownership or right of possession of the Escrow
Account, the Escrow Agent is authorized and directed to retain in
its possession, without liability to anyone, all or part of the
Escrow Account until such dispute shall have been settled either by
mutual agreement by the parties concerned or by the final order,
decree or judgment of a court or other tribunal of competent
jurisdiction in the United States of America and time for appeal has
expired and no appeal has been perfected, but the Escrow Agent shall
be under no duty whatsoever to institute or defend any such
proceedings.
(D) The Escrow Agent may resign at any time giving written notice
thereof to the Company, but such resignation shall not become
effective until a successor Escrow Agent shall have been appointed
and shall have accepted such appointment in writing. If any
instrument of acceptance by a successor Escrow Agent shall have not
been delivered to the Escrow Agent within thirty days after giving
of such notice of resignation, the resigning Escrow Agent may, at
the expense of the Company, petition any court of competent
jurisdiction for the appointment of a successor agent.
(E) The Escrow Agent's duties and obligations hereunder shall be
determined solely by the express provisions of this Agreement. The
Escrow Agent's duties and obligations are purely ministerial in
nature, and nothing in this Agreement shall be construed to give
rise to any fiduciary obligations of the Escrow Agent with respect
to the Subscribers or the other parties of this Agreement.
(F) The Placement Agent and the Company represent to the Escrow Agent
that they have and shall continue to solicit the advise of their
respective counsel regarding compliance and all applicable state and
federal securities laws in connection with the offer and sale of the
Convertible Debentures and that they will act in accordance with
such advice. The Escrow Agent shall have no responsibility to ensure
compliance with any such securities laws and such responsibility
rests solely with the Placement Agent and the Company. The Escrow
Agent makes no representations and has no responsibility as to the
validity, value or genuineness of the offering of the Convertible
Debenture.
(G) In no event shall the Escrow Agent be required to notify or obtain
consent, approval, authorization or order of any court of
governmental body pursuant to the transactions contemplated by the
provision of this Agreement.
(H) The provisions of this paragraph shall survive the resignation of
the Escrow Agent or the termination of this Agreement.
4
<PAGE>
7. This Agreement shall be construed in accordance with the laws of the State
of New York. It may be executed in several counterparts, each one of which
shall constitute an original, and all collectively shall constitute but
one instrument.
8. Any notice, consent or request to be given in connection with any of the
terms or provisions of this Agreement shall be in writing and shall be
sent by registered mail, postage prepaid, or delivered:
If to the Company, to: If to the Placement Agent, to:
Saf-T-Lok, Incorporated Alexander, Wescott & Co., Inc.
1101 Northpoint Parkway 181 Genesee Street, 6th Floor
West Palm Beach, FL. 33408 Utica, New York 13501
Attn: William Schmidt Attn: James Mullen
If to the Escrow Agent, to:
Chase Manhattan Bank
450 West 33rd Street
New York, NY 10001
Attn: Vicky Caldas
9. This Agreement shall terminate on the Termination Date, unless previously
terminated by fully disbursing the Escrow Account, or the date of the
distribution of funds after the Termination Date.
10. If any one or more of the covenants or agreements provided in this
Agreement on the part of the parties hereto to be performed should be
determined by a court of competent jurisdiction to be contrary to law,
such covenant or agreement shall be deemed and construed to be severable
from the remaining covenants and agreements herein contained and shall in
no way affect the validity of the remaining provisions of this Agreement.
11. Any corporation or association into which the Escrow Agent may be
converted or merged, or to which it may sell or transfer its assets as a
whole or substantially as a whole, or any corporation or association
resulting from any conversion, sale, merger, consolidation or transfer to
which it is a party, ipso facto, shall be and become successor Escrow
Agent hereunder and shall be vested with all the power, discretion,
immunities, privileges and all other matters as with its predecessor,
without the execution or filing of any instrument or any further act or
deed of conveyance on the part of any of the parties hereto.
5
<PAGE>
12. The duties and responsibilities of the Escrow Agent hereunder shall be
determined solely by the express provisions of this Escrow Agreement and
no other or further duties or responsibilities shall be implied. The
Escrow Agent shall not have any liability under, nor duty to inquire into
the terms and provisions of any agreement or instructions, other than
outlined in the Agreement.
13. Anything in this agreement to the contrary notwithstanding, in no event
shall the Escrow Agent be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if the Escrow Agent has been advised of the likelihood of
such loss or damage and regardless of the form of action.
IN WITNESS WHEREOF, the parties have duly executed this Escrow Agreement
as of the date first above written.
Saf-T-Lok, Incorporated (the "Company")
By: /s/ Franklin Brooks
---------------------------------------------------
Dated: 4-22-99
------------------------------------------------
Alexander, Wescott & Co., Inc. (the "Placement Agent")
By: /s/ James Mullen
---------------------------------------------------
Dated: 4-22-99
------------------------------------------------
Chase Manhattan Bank (the "Escrow Agent")
By: /s/ A. Caldas
---------------------------------------------------
Dated: 4/28/99
------------------------------------------------
6
<PAGE>
EXHIBIT 10.6
[LETTERHEAD OF SAF T LOK]
July 8, 1999
Mr. James Mullen
Alexander, Wescott & Co., Inc.
181 Genesee Street, 6th Floor
Utica, New York, 13501-2106
Dear Mr. Mullen:
Alexander Wescott & Co. ("AWC") and Saf T Lok ("STC") agree to amend the Agency
Agreement ("AA") dated April 20, 1999 for the sale of 6% Convertible Debentures
as follows:
1. The parties agree to close on the initial sale of $400,000 regardless of
whether any additional debentures are to be sold. The "closing date" for
these debentures will be the date they are closed.
2. Any sale of the remaining $600,00 in debentures is on hold and may be
cancelled at the sole discretion of STL. STL has until October 15, 1999 to
direct AWC, who will use its best efforts, to sell any or all of the
remaining 6% Convertible Debentures. STL may repeal the AA at any time
prior to AWC delivering bona fide Subscription Agreements for any of the
remaining $600,000 to STL.
3. In consideration of AWC's efforts STL will prepay a non-refundable cash
commission of $130,000 to AWC upon closing of the initial sale of
$400,000. This commission will apply to any further sale of debentures per
paragraph 2 above.
4. STL will issue the prorated portion of 40,000 shares of STL common stock
to AWC as soon as possible after the close of the initial sale of
$400,000.
5. Only if an when the remaining $600,000, or any portion thereof, of
debentures are subscribed to and issued, will AWC be entitled to receive
the remaining prorated portion of STL common stock.
For STL For AWC
/s/ William Schmidt /s/ James Mullen
William Schmidt James J. Mullen
Chief Financial Officer Secretary/Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 269,410 2,883,120
<SECURITIES> 0 0
<RECEIVABLES> 147,689 158,301
<ALLOWANCES> 0 0
<INVENTORY> 2,368,846 1,250,386
<CURRENT-ASSETS> 2,843,676 10,362,690
<PP&E> 57,731 6,070,883
<DEPRECIATION> (58,852) (919,568)
<TOTAL-ASSETS> 4,449,255 12,203,401
<CURRENT-LIABILITIES> 259,315 656,266
<BONDS> 0 0
0 0
0 0
<COMMON> 134,592 132,766
<OTHER-SE> 4,055,348 11,414,369
<TOTAL-LIABILITY-AND-EQUITY> 4,449,255 12,203,401
<SALES> 81,393 130,809
<TOTAL-REVENUES> 81,393 130,809
<CGS> 48,704 74,758
<TOTAL-COSTS> 48,704 74,758
<OTHER-EXPENSES> 1,287,700 1,820,097
<LOSS-PROVISION> (1,255,011) (1,764,046)
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 12,578 21,884
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,242,433) (1,742,162)
<EPS-BASIC> (.09) (.13)
<EPS-DILUTED> (.09) (.13)
</TABLE>
