EXHIBIT 2
SCANTEK MEDICAL, INC.
0X Xxxx Xxxxx
Xxxxx Xxxxxx, XX 00000
July 15, 2004
Mr. Xxxxxx Xxxxx
00 Xxxxxxxxx Xxxxxxxxx
Xxx Xxxxx, Xxx Xxxx 00000
Xx. Xxxxxxx X. Xxxxx and Xx. Xxxxxx X. Xxxxxxxx, as Trustees of the Xxxxx Family
Irrevocable Stock Trust 00 Xxxx Xxxx Xxxxx
Xxxxx Xxxx, Xxx Xxxx 00000
Re: Scantek Medical, Inc.
Dear Messrs. and Madam:
This letter (the "Letter Agreement") shall confirm the agreement by and
among Xxxxxxx X. Xxxxx and Xxxxxx X. Xxxxxxxx, as Trustees of the Xxxxx Family
Irrevocable Stock Trust, an irrevocable trust formed as of November ___, 1997
under the laws of the State of New York (the "Xxxxx Family Trust"), Xxxxxx Xxxxx
("Xxxxx") and Scantek Medical, Inc. ("Scantek").
1. Scantek shall reverse split its stock so that it shall have thirty
million (30,000,000) shares of common stock, par value $.001 of Scantek (the
"Common Stock") issued and outstanding. Scantek shall then issue five million
(5,000,000) shares of Common Stock as follows:
A. Three million (3,000,000) shares of Common Stock to the Xxxxx
Family Trust;
B. One million (1,000,000) to Xxxxx and/or his designees; and
C. One million (1,000,000) shares of Common Stock to M&F
Enterprises, LLC
which shall result in thirty-five million (35,000,000) shares being issued and
outstanding.
2. It is acknowledged that Xx. Xxxxxxxx X. Xxxx is owed one million
three hundred twenty-seven thousand ($1,327,000) dollars in accrued wages which
shall be converted into Common Stock and shall be a part of the thirty million
(30,000,000) shares of Common Stock issued and outstanding after the reverse
stock split.
3. It is further acknowledged that Xx. Xxxx is owed three million four
hundred twenty-two thousand six hundred thirty-five ($3,422,635) dollars in
loans which he has made to Scantek which shall be converted into two million
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four hundred twenty-two thousand six hundred thirty-five (2,422,635) shares of
class A convertible preferred stock, par value $1.00 (the "Class A Preferred
Stock") and one million (1,000,000) shares of class B convertible preferred
stock, par value $1.00 (the "Class B Preferred Stock").
4. The Class A Preferred Stock shall have the following terms:
A. The Class A Preferred Stock shall pay a dividend of two (2%)
percent above the prime rate of interest announced by Citibank, N.A., as
adjusted from time to time; provided, however, that the dividend shall not
exceed seven and one-half (7.5%) percent. The prime rate of interest announced
by Citibank, N.A. to be utilized in the calculation of the dividend shall be the
prime rate of interest in effect on the last business day preceding the date
upon which the dividend is to be paid.
B. The dividend shall be payable quarterly; provided, however, that
it shall only be paid from Scantek's "excess cash flow". If the "excess cash
flow" is insufficient to pay the dividend, then the dividend shall be accrued.
C. The Class A Preferred Stock shall be convertible into Common
Stock for a period of five (5) years from the date of issuance at the following
conversion prices:
i. Fifty cents ($0.50) per share during the first eighteen (18)
months after their issuance;
ii. One ($1.00) dollar per share during the nineteenth (19th)
month through and including the thirty-sixth (36th) month after their issuance;
and
iii. Two ($2.00) dollars per share during the thirty-seventh
(37th) month through and including the sixtieth (60th) month after their
issuance.
D. Upon liquidation or dissolution of Scantek, the Class A Preferred
Stock shall have a liquidation priority equal to the par value of the shares.
E. If the Class A Preferred Stock is not converted, then the
Preferred Stock shall be redeemed at the par value of the Class A Preferred
Stock as follows:
i. If funds are raised through the sale of equity:
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Amount of Net Proceeds to be
Utilized to Redeem the
Net Proceeds Class A Preferred Stock
No more than $3,000,000 dollars $0
In excess of $3,000,000 and no more than 25%
$5,000,000
In excess of $5,000,000 and no more than 33 1/3%
$7,000,000
In excess of $7,000,000 50%
Net proceeds shall mean the balance of the funds raised after
deducting, commissions and other expenses in connection with the raising of the
funds.
ii. If funds are received as a result of the grant of
distribution rights for Scantek's BreastCare(TM)/BreastAlert(TM) Differential
Temperature Sensor product or any other Scantek product, fifty (50%) percent of
said funds shall be utilized to redeem the Class A Preferred Stock.
iii. If funds are received as a result of Scantek's participation
in the State of New Jersey's Technology Business Tax Certificate Transfer
Program which is administered by the New Jersey Economic Development Authority
in conjunction with the New Jersey Division of Taxation and the New Jersey
Commission on Science and Technology, fifty (50%) percent of said funds shall be
utilized to redeem the Class A Preferred Stock.
iv. The following percentages of Scantek's "excess cash flow" at
the end of each June 30th fiscal year shall be utilized to redeem the Class A
Preferred Stock as follows:
Percentage of Excess Cash Flow
to be Utilized to Redeem the
Excess Cash Flow Class A Preferred Stock
No more than $500,000 40%
In excess of $500,000 and no more than $750,000 45%
In excess of $750,000 50%
5. The Class B Preferred Stock shall have the following terms:
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A. The Class B Preferred Stock shall pay a dividend of two (2%)
percent above the prime rate of interest announced by Citibank, N.A., as
adjusted from time to time; provided, however, that the dividend shall not
exceed seven and one-half (7.5%) percent. The prime rate of interest announced
by Citibank, N.A. to be utilized in the calculation of the dividend shall be the
prime rate of interest in effect on the last business day preceding the date
upon which the dividend is to be paid.
B. The dividend shall be payable quarterly; provided, however, that
it shall only be paid from Scantek's "excess cash flow". If the "excess cash
flow" is insufficient to pay the dividend, then the dividend shall be accrued.
C. The Class B Preferred Stock shall be convertible into Common
Stock for a period of five (5) years from the date of issuance at the following
conversion prices:
i. Fifty cents ($0.50) per share during the first eighteen (18)
months after their issuance;
ii. One ($1.00) dollar per share during the nineteenth (19th)
month through and including the thirty-sixth (36th) month after their issuance;
and
iii. Two ($2.00) dollars per share during the thirty-seventh
(37th) month through and including the sixtieth (60th) month after their
issuance.
D. Upon liquidation or dissolution of Scantek, the Class B
Preferred Stock shall have a liquidation priority equal to the par value of the
shares on a pro rata basis with the Class A Preferred Stock.
6. Excess cash flow shall be determined by Scantek's certified public
accountants.
7. You have agreed to raise five hundred thousand ($500,000) dollars
for Scantek through the issuance of convertible debt.
A. It is agreed that the terms of said convertible debt shall be as
follows:
i. The debt shall be due within eighteen (18) months after its
issuance.
ii. The interest rate on the debt shall be seven (7%) percent
per annum.
iii. The interest shall accrue and shall be paid upon maturity.
iv. The interest shall be paid, in Scantek's sole and absolute
discretion, in either (i) Common Stock based upon the average of the closing
prices of the Common Stock for the last ten (10) days of trading of the calendar
quarter prior to the maturity date or (ii) cash.
v. The principal plus interest shall be convertible into Common
Stock at the lesser of fifty cents ($0.50) or one-half (1/2) of the market value
of the Common Stock; provided, however, that the conversion price shall not be
less than thirty-five cents ($0.35) per share.
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vi. As additional consideration for making the loan, each lender
shall receive one and one-quarter (1 1/4) shares of Common Stock for every
dollar loaned to Scantek.
B. The Xxxxx Family Trust shall loan Scantek two hundred thousand
($200,000) dollars simultaneously with the execution of this Letter Agreement
upon the terms set forth in Paragraph "A" of this Article "7" of this Letter
Agreement.
C. The balance of three hundred thousand ($300,000) dollars shall be
raised on or prior to Friday, August 13, 2004.
8. You further agree that you shall endeavor to raise additional funds
through the sale of distributorships. You understand that Scantek must approve,
in its sole and absolute discretion, the terms and conditions and the countries
for each distributorship.
9. Xxxxx shall provide his services as consultant to Scantek for a
period of three (3) years pursuant to a consulting agreement, the form of which
is annexed hereto as Exhibit "A".
10. Xxxxx is not an employee or agent of Scantek and shall have no
authority to bind Scantek in any manner. Scantek shall not be responsible for
any expenses made or incurred by Xxxxx in connection with his services
hereunder.
11. You represent that any business broker, firm or salesman, or any
other person or corporation, investment banker or financial advisor which you
may utilize in connection with the raising of the five hundred thousand
($500,000) dollars pursuant to Article "7" of this Letter Agreement shall be
paid directly by you. You agree to indemnify and save harmless Scantek against
and from any claims, suits, fines, penalties, damages, losses, fees, costs and
expenses (including reasonable attorneys' fees) which may be asserted against
Scantek by any business broker, firm or salesman, or any other person or
corporation, investment banker or financial advisor in connection with the
raising of the five hundred thousand ($500,000) dollars pursuant to Article "7"
of this Letter Agreement.
This Letter Agreement contains the entire agreement between the parties
and supersedes all prior agreements and understandings. This Letter Agreement
may not be altered, changed or modified, except by a written instrument signed
by each of the parties to this Letter Agreement. The validity, interpretation,
and performance of this Letter Agreement shall be controlled by and construed
under and in accordance with the laws of the State of New York without giving
effect to conflict of laws. This Letter Agreement shall be binding upon each of
the parties to this Letter Agreement, and upon their respective successors and
assigns.
Each of the parties hereby acknowledges and agrees that (i) each has
been advised by counsel during the course of negotiations; (ii) each counsel has
had significant input in the development of this Letter Agreement and (iii) this
Letter Agreement shall not, therefore, be construed more strictly against any
party responsible for its drafting regardless of any presumption or rule
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requiring construction against the party whose attorney drafted this Letter
Agreement.
If this Letter Agreement accurately reflects our agreement, please sign
where indicated below.
Scantek Medical, Inc.
By: /s/ Zsigmond X. Xxxx
-------------------------
Xx. Xxxxxxxx X. Xxxx, CEO
Agreed and Accepted:
/s/ Xxxxxx Xxxxx
---------------------------------------
Xxxxxx Xxxxx
Xxxxx Family Irrevocable Stock Trust
By: /s/ Xxxxxxx X. Xxxxx
----------------------------------
Xxxxxxx X. Xxxxx, Trustee
By: /s/ Xxxxxx X. Xxxxxxxx
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Xxxxxx X. Xxxxxxxx, Trustee
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