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Technology Stocks : Preference Technologies

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To: jjs64 who wrote (449)4/21/2003 6:33:23 PM
From: StockDung   of 460
Shalom Weiss, a broker who claimed to represent foreign investors who were interested in the Company's securities in an offering conducted pursuant to the transaction exemption provided by Rule 903 of Regulation S, arranged both the private equity offering and the USA Distribution Agreement and conditioned his clients' investment on the Company's agreement to enter into certain contracts. Accordingly, the Company entered into a business consulting agreement with A.B. Consulting, Inc. for a period of one year at a cost of $250,000 (which by agreement was paid from the proceeds of the equity offering). Ultimately, the Company received no services from A.B. Approximately $200,000 was charged against 1998 earnings by virtue of this payment.

Weiss also required the Company to engage Marketing Direct Concepts, a Las Vegas-based public relations firm ("MDC"). That agreement was also to be for a one-year term and called for payment of $750,000, of which $375,000 was paid upon the closing of the offering (paid from the offering's proceeds) and $375,000 was to be paid in the event Weiss' clients (the Regulation S investors) exercised warrants issued as part of the equity offering for an aggregate of $1,000,000. MDC's duties under the agreement included developing a financial public relations campaign consisting of e-mail and faxing services, maintenance of a website and providing teleconference services for brokers and securities analysts. MDC generally provided the services specified in the agreement, though not entirely to the Company's satisfaction. In January of 1998, the Company restructured the agreement with MDC as a product recognition campaign aimed at exposing the Company and its products to the general public, utilizing media sources and MDC's e-mail database, as well as to comply with the Regulation S's prohibition against directed selling efforts (as defined in the regulation). Under the restructured agreement, the Company issued MDC 25,000 shares of common stock and paid the remaining $375,000 to certain Regulation S investors introduced by Weiss upon their subsequent exercise of warrants aggregating $1,000,000 (500,000 warrants at an exercise price of $2.00 per share). The agreements described in this paragraph accounted for expense of $728,750 in 1998 (of which $68,750 related to the issuance of the 25,000 shares of common stock and $660,000 to the amortized 1998 portion of the $375,000 paid to MDC and the $375,000 paid to certain Regulation S investors introduced by Weiss.)

In connection with the February 10, 1998 purchase order from D & W Enterprises and the February 11, 1998 USA Distribution Agreement, Weiss required the Company to issue to Atom Corp., Danvers Investment Corp. and Amexcorp Limited, which the Company believes were either affiliates of or controlled by Weiss, as a finder's fee, warrants to purchase 2,000,000 shares of the Company's common stock for $5 per share (which warrants were subsequently repurchased by the Company at a price of $.25 per share in May 1999 as a part of a larger transaction that included the termination of the USA Distribution Agreement). Although the market price of the Company's common stock on February 11, 1998 was $3.91 per share, the Black-Scholes method of valuing derivative securities resulted in a charge of $1.88 million against 1998 earnings.

The Company notes that in November of 1999, after a lengthy trial in an unrelated matter, Weiss was convicted of seventy-eight counts of racketeering, wire fraud, money laundering and other crimes in connection with the looting of millions of dollars from a life insurance company. Weiss fled during the start of jury deliberations, and is considered a fugitive by the FBI. He was sentenced in absentia to 845 years in prison and ordered to pay a $123 million fine and another $125 million in restitution. Although Weiss was taken into custody in 2001, the Company believes the likelihood of a recovery is remote against Weiss for any fraud he may have perpetuated against the Company

SAF T LOK INC 10KSB/A 3/26/2001
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