MANAGEMENT TECHNOLOGIES, INC.
000 XXXXX XXXXXX
XXX XXXX, XXX XXXX 00000
December 15, 1995
Israel Trading Fund Ltd.
00 Xxxxx Xxxxxx
Xxx Xxxx, X.X. 10017
Gentlemen:
This letter will confirm the understanding between Management
Technologies, Inc. (the `Company'') and certain investors represented by Israel
Trading Fund Ltd. (hereinafter referred to as `Investors'') in connection with
the subscription and purchase by Investors of a series of Company's 9%
Subordinate Convertible Debentures (hereinafter referred to in the aggregate as
`Debentures'' or individually as ``Series A, B, C or D Debentures'' as
applicable) totaling up to $6,000,000 in an offering pursuant to Regulation S
under the Securities Act of 1933 (`Securities Act'') upon the following terms
and conditions (this letter is hereinafter referred to as the `Agreement''):
Series A Debentures
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1. On or prior to December 15, 1995 Investors shall enter into one or more
subscription agreements to purchase an aggregate of $6,000,000 of Company's
Debentures and shall close on the purchase of $1,250,000 of Series A
Debentures. 100% of the principal amount and accrued interest of the
Series A Debentures or any part thereof shall be convertible by the holder
45 days or later after the date of its issuance into shares of the Company
common stock $.01 par value (`Shares'') at a conversion price for each
Share equal to the lower of (a) $.48 or (b) 62.5% of the average of the
closing bid price of the Shares for the 5 consecutive trading days prior to
the date of conversion. The Series A Debentures shall mature on December
31, 1997 and if not converted prior to maturity shall automatically convert
at such time upon the terms set forth above.
2. As a condition precedent to the purchase by Investors of Series A
Debentures, the Company shall arrange for its management and or others to
acquire $1,000,000 of Shares on or prior to December 22, 1995 and to
execute a note prior to such date for the acquisition of $250,000 of
additional Shares which note shall mature on or prior to April 30, 1996.
In the event the foregoing condition is not satisfied, Investors shall have
the right but not the obligation to purchase the Series A Debentures.
Series B Debentures
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3. On or prior to February 10, 1996, Investors shall close on the purchase of
$1,500,000 of Series B Debentures. 100% of the principal and accrued
interest of the Series B Debentures or any part thereof shall be
convertible by the holder 45 days or later after the date of issuance into
Shares at a conversion price per Share equal to the lower of (a) $.69 or
(b) 62.5% of the average of the closing bid price of the Shares for the 5
consecutive trading days prior to the date of conversion. The Series B
Debentures shall mature on December 31, 1997 and if not converted prior to
maturity shall automatically convert at such time upon the terms set forth
above.
4. As a condition precedent to the purchase by Investors of Series B
Debentures, the Company shall be required to provide unaudited profit and
loss statements under generally accepted accounting principles for the
quarter ended January 31, 1996 indicating that the Company had not suffered
a loss for such quarter. Such statements shall be provided on or prior to
February 10, 1996 and shall be certified by the President and the Chief
Financial Officer of the Company. If the foregoing condition is not
satisfied, Investors shall have the right, but not the obligation in their
sole discretion, to purchase the Series B Debentures.
Series C Debentures
-------------------
5. On March 15, 1996, Investors shall close on the purchase of $1,500,000 of
Series C Debentures. 100% of the principal and accrued interest of the
Series C Debentures or any part thereof shall be convertible by the holder
45 days or later after the date of issuance into Shares at a conversion
price per Share equal to the lower of (a) $1.04 or (b) 62.5% of the average
of the closing bid price of the Shares for the 5 consecutive trading days
prior to the date of conversion. This Series C Debentures shall mature on
December 31, 1997 and if not converted prior to maturity shall
automatically convert at such time upon the terms set forth above.
6. As a condition precedent to the purchase by Investors of Series C
Debentures, the Company shall provide written documentation acceptable to
the Investors that the Company has entered into at least 2 contracts with
financial institutions for the purchase of the Company's products which
sales would generate not less than $2,000,000 in gross revenues with at
least $1,000,000 of such revenues to be recognized prior to April 30, 1996
and the remainder in its 1997 fiscal year. If the foregoing condition is
not satisfied Investors shall have the right, but not the obligation in
their sole discretion, to purchase the Series C Debentures.
Series D Debentures
-------------------
7. On or prior to May 15, 1996 Investors shall close on the purchase of
$1,750,000 of Series D Debentures. 100% of the principal and accrued
interest of the Series D Debentures or any part thereof shall be
convertible by the holder 45 days or later after the date of issuance into
Shares at a conversion price per Share equal to the lower of (a) $1.38 or
(b) 62.5% of the average of the closing bid price of the Shares for the 5
consecutive trading days prior to the date of conversion. The Series D
Debentures shall mature on December 31, 1997 and if not converted prior to
maturity shall automatically convert at such time upon the terms set forth
above. Either party must notify the other party by May 1, 1996 of its
intention not to fund or accept funding of this transaction.
8. As a condition precedent to the purchase by Investors of Series D
Debentures, the Company shall be required to provide the Investors with
unaudited profit and loss statements of the Company which indicate that the
Company has not suffered a loss for the fiscal year ending April 30, 1996.
Such profit and loss statements shall be provided prior to May 15, 1996 and
shall be certified by the President and Chief Financial Officer of the
Company. If the foregoing condition is not satisfied Investors shall have
the right, but not the obligation in their sole discretion, to purchase the
Series D Debentures. Notwithstanding the foregoing both the Company and/or
the Investors at either's sole discretion shall have the right not to
proceed with the purchase and/or sale of the Series D Debentures.
Documentation
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9. Prior to December 15, 1995, Company and Investors shall enter into a
Subscription Agreement substantially in the form attached hereto as Exhibit
A, and upon the closing of the purchase of each Series of Debentures the
Company shall execute Debenture(s) substantially in the form attached
hereto as Exhibits B, C, D and E.
Escrow of Shares
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10. Within 5 days of execution by the Company of each Debenture, Company shall
deliver Irrevocable Treasury Orders for the issuance of Shares (upon
conversion of the Debentures) to be held in escrow by Xxxxx X. Xxxxxxxxx,
Attorney-at-law, 000 Xxxx 00xx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, X.X. 10022
(`Escrow Agent'') under the terms set forth herein. The Treasury Orders
for the number of shares to be held in escrow shall be completed by the
Escrow Agent upon conversion of each Series of Debentures pursuant to the
formulas set forth in the Debentures. Each and every stock certificate
issued upon conversion of the Debentures shall be issued without any
legend.
Conversion
----------
11. In order to convert a Debenture or any portion thereof, the Investors shall
surrender such Debenture to the Escrow Agent accompanied by a written
statement designating the principal amount of such Debenture, or portion
thereof, to be so converted with a copy to the Company. Escrow Agent shall
then deliver the corresponding number of Treasury Orders for the
appropriate number of Shares and upon receipt deliver the Shares to
Investor pursuant to Investor's written instructions. In the case in which
the Debenture is converted in part only, Company shall, upon such
conversion, execute and deliver to Investor at the expense of Company, a
new Debenture of authorized denominations in principal amount equal to the
unconverted portion of such Debenture. If the last day for exercise of the
right to convert shall not be a business day, then such right may be
exercised on the next succeeding business day. Any Treasury Orders not
required for conversion of the Debentures shall be returned to Company.
Indemnification of Escrow Agent
-------------------------------
12. Company and Investors shall indemnify and hold free and harmless Escrow
Agent from any and all losses, expenses, liabilities and damages (including
but not limited to reasonable attorney's fees, and amounts, paid in
settlement) resulting from claims asserted against Escrow Agent with
respect to the performance of any of the provisions of this Agreement.
Fees, Expenses and Warrants.
---------------------------
13. Upon the closing of the purchase of each Series of Debentures Company shall
pay an amount equal to 10% of the purchase price of each Series of
Debentures, 5% to Israel Trading Fund (`ITF'') and/or its designees and 5%
to Select Capital Advisors, Inc. (`Select'') and/or its designees. The
Escrow Agent shall have the right to withhold such amounts from funds
deposited with it by Investors and shall remit the net amount to Company.
14. Upon the closing of the purchase of each Series of Debentures, Company
shall issue warrants pursuant to Regulation S to non-U.S. affiliates of ITF
and Select to purchase one share for each $10 of Debentures purchased, 50%
of which shall be issued as directed by ITF and 50% of which shall be
issued as directed by Select (`Warrants''). The Warrants shall be
exercisable after June 15, 1996 at $.69 per Share and shall be exercisable
at any time within 21/2 years of issuance.
Representations and Warranties of Company
-----------------------------------------
15. Company warrants, represents and covenants that:
a) The principal place of business of Company, the chief executive office
and other places of business of Company, the designated agent for
service of process on behalf of Company, the books and records
relating to the Shares are, and have been during the six-month period
prior to the date hereof, located at the address set forth below.
b) Company will, at its sole cost and expense, perform all acts and
execute all documents requested by Investors from time to time to
evidence, perfect, maintain or enforce Investor's interest earned
herein or otherwise in furtherance of the provisions of the Agreement;
c) except for any trade names set forth on the Exhibit attached
--
hereto, Company has not during the five-year period prior to the date
hereof been known by or used any trade name, fictitious name or any
corporate name other than Company's name as set forth next to its
signature below;
d) the financial statements of Company for the fiscal years ended April
30, 1995, are true and correct and have been prepared in accordance
with generally accepted accounting principles consistently followed
throughout
the periods involved. The consolidated balance sheets and the related
notes fairly present the financial position of Company as of the
respective dates thereof, and the consolidated statements of income
and retained earnings and the related notes fairly present the results
of the operations of Company for the respective periods indicated.
There as been no material adverse change in the condition, financial
or otherwise of Company taken as a whole since September 30, 1995;
e) Company is a corporation duly organized and existing and in good
standing under the laws of the State of New York and has the corporate
power to own its properties and to carry on its business as now being
conducted and as proposed to be conducted. Company is qualified to do
business as a foreign corporation and is in good standing in every
jurisdiction in which such qualification is necessary under applicable
provisions of law;
f) there are no actions, suits or proceedings or, to the knowledge of
Company, threatened against or affecting Company which may result in
any material adverse change in the business, properties or condition
of Company;
g) Company enjoys peaceful and undisturbed possession under all of the
leases to which it is a party or under which it is operating. All of
such leases are valid and subsisting and none of them is in default;
h) neither the execution and delivery of this Agreement nor the
Debentures, the consummation of the transactions herein or therein
contemplated, the fulfillment of the terms hereof or thereof, nor
compliance with the terms and provisions hereof or thereof, will
conflict with or result in a breach of any of the terms, conditions,
or provisions of any corporate restriction or of any agreement or
instrument to which Company is now a party or by which is bound, or
constitute a default thereunder, or results in the creation or
imposition of any lien, charge, security interest, or encumbrance of
any nature whatsoever upon any of the property or assets of Company
pursuant to the terms of any such agreement or instrument;
i) Company has filed, or has received extensions of time to file, all tax
returns which are required to be filed by any jurisdiction to which
Company is or was subject, and has paid or provided for payment of,
all taxes as shown on said returns or pursuant to any assessment
received by Company and does not know of any proposed assessment of
additional taxes or any basis therefor for all taxable years up to and
including the taxable year ending April 30, 1995. The Investors
realize that the Company presently owes Pounds1,920,000 to the
Department of Revenue in the United Kingdom.
j) upon receipt by Company of payment for the Debentures as provided
herein, the Debentures will have been duly authorized, executed, and
issued and will constitute valid and legally binding obligations of
Company enforceable in accordance with their terms and will be
entitled to the benefits provided by this Agreement.
k) the authorized and outstanding capital stock of Company consists of
200,000,000 shares of common stock, par value $.01 per share, of which
16,740,913 are currently outstanding. All of Company's outstanding
common stock has been duly and validly authorized and issued and is
fully paid and nonassessable. The Shares to be issued upon conversion
of the Debentures or exercise of the Warrants pursuant to this
Agreement have been duly and validly authorized and are sufficient in
number for the conversion of the entire principal amount of the
Debentures and Warrants at the conversion and exercise price,
respectively. The Company has 4,832,850 shares issuable under certain
existing subscription and other agreements. Company has granted or
issued, or agreed to grant options and warrants to acquire 7,598,963
shares of its common stock, excluding warrants issuable pursuant to
dilution of `C'' warrants other than the Debentures and Warrants to
be issued pursuant to this Agreement. The Company has granted
warrants to purchase shares of its common stock in numbers pegged to
its stock price through November of 1996. Company holds 0 shares of
its common stock in its Treasury;
l) the common stock of Company is listed on the NASDAQ stock market and
has been duly registered with the Securities and Exchange Commission
(the `SEC'') in accordance with section 12(g) of the Securities
Exchange Act of 1934, as amended (herein called the `Exchange Act'').
Said common stock is the only `equity securities'' (as defined in the
Exchange Act) of Company required to be registered under Section 12 of
the Exchange Act. The Company will undertake to make all filings
necessary with all regulatory authorities to list the Shares upon
their issuance.
m) Company represents and warrants that the net proceeds of the sale of
the Debenture will be added to the general funds of Company and will
be used for working capital and to pay off debt; and
n) Company is a `Reporting Issuer,'' as defined by Rule 902 of
Regulation S under the Act, which has a class of securities registered
pursuant to Section 12(b) or 12(g) of the Exchange Act or is required
to file reports pursuant to Section 15(d) of the Exchange Act.
o) Other than the Debentures the only money indebtedness of Company over
$500,000 is as listed on Exhibit 150 hereto. Company will not incur
any additional indebtedness, except in ordinary course of business
without the prior written consent of Investors. The restriction
contained in the last sentence expires on the date of conversion of
the last closed tranche of the Debentures.
p) Company shall, on or prior to December 15, 1995, obtain the consent of
the Company's officers, directors and 10% stockholders that they will
not sell, transfer, pledge or assign any Shares that they own or
acquire for a period of 8 months from the date of this Agreement. The
Company's officers shall also use all reasonable efforts to obtain a
similar consent in connection with the shares owned by the investors
represented by X.X. Xxxxx & Co.
q) Company shall not sell any Shares pursuant to Regulation S for a
period of 5 months from the date of the funding of the last tranche
funded hereunder, subject to closing of tranches A and B hereunder.
Representations and Warranties of Investors
-------------------------------------------
16. Investors hereby represent and warrant to Company as follows:
a) Investors have the legal capacity and all necessary authority to enter
into and perform this Agreement and to consummate the transactions
contemplated hereby;
b) Investors represent and warrant that they are not `U.S. persons'' as
defined by Rule 902 of Regulation S under the Act, that the offer and
sale of the Debentures and Shares is not taking place in the United
States of America, but rather in an off-shore transaction, and that
Investors acknowledge their understanding that the offer and sale of
the Shares is intended to be exempt from the registration requirements
of the Act by virtue of Regulation S of such Act;
c) This Agreement has been duly authorized, executed and delivered by
Investors and constitutes a legal, valid and binding obligation of
Investors, enforceable against Investors in accordance with its terms;
d) The execution and delivery of this Agreement and the performance of
the obligations imposed hereunder will not result in a violation of
any order, decree or judgment of any court or governmental agency
having jurisdiction over Investors or Investors' properties, will not
conflict with, constitute a default under, or result in the breach of,
any contract, agreement, or other instrument to which Investors are a
party or are otherwise bound and no consent, authorization or order
of, or filing or registration with, any court, governmental, or
regulatory authority is required in connection with the execution and
delivery of this Agreement and any related agreements or the
performance by Investors of their obligations hereunder;
e) There is no litigation or proceeding pending or, to the best knowledge
of Investors, threatened, against Investors which would have any
effect on the validity or performance of this Agreement;
f) Investors:
i) are aware of the circumstances under which Investors are required
to take and hold the Debentures and Shares pursuant to the
requirements of the Act, and any applicable state securities or
`Blue Sky'' law or laws;
ii) are aware that the Debentures and Shares have not been registered
under the Act and may not be transferred or otherwise disposed of
unless they are subsequently registered under the Act or an
exemption from such registration is available;
iii) have been fully informed that an opinion of Company's counsel
will be delivered to Company's transfer agent and to Investors
opining that the Shares may be transferred or sold by Investors
on the forty-first (41st) day from the date of issuance of each
Series of Debentures without restriction subject to the Company
and Investors meeting all regulatory requirements applicable at
such time;
iv) are aware that neither Company nor Escrow Agent is under any
obligation to cause the Shares to be registered under the Act or
to comply with any applicable exemption under the Act with
respect to the Shares;
v) have such knowledge and experience in financial and business
matters that Investors are capable of evaluating the merits and
risks of the purchase of the Debentures and Shares and making an
informed investment decision with respect thereto, has evaluated
the merits and risks of the purchase of the Debentures and
Shares, and is able to bear the economic risk of purchasing the
Debentures and Shares and can afford the complete loss of the
investment;
vi) are purchasing the Debentures and Shares for its own account for
investment purposes and not with a view to `distribute the
Debentures and Shares as that term is defined in the Act; and
vii) have been provided with any and all written information and
materials concerning Company and its business which it has
requested.
g) Neither Company, nor any person acting on behalf of Company, has
offered to sell, offered for sale or sold the Debentures and/or Shares
to Investors by means of any form of general public solicitation or
advertising.
h) Investors are `accredited investors'' as the term is defined in the
Rules and Regulations promulgated under the Act, and are sufficiently
sophisticated to make informed and educated investment decisions,
including the transaction contemplated hereby.
i) Investors were not formed for the sole purpose of investing in the
Debentures and Shares herein, and have other substantial business and
investments.
j) Investors have received the Company's Report on Form 10KSB for the
year ended April 30, 1995, as amended, the Company's Report on Form
10QSB for the quarter ended July 31, 1995, and the Company's Reports
on Form 8-K filed since April 30, 1995.
17. Miscellaneous
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18. Amendment and Waivers. This Agreement may be amended or any of its
---------------------
restrictions or provisions may be waived only with the written consent of
Investors.
19. Survival of Covenants, Agreements, Representations and Warranties. All
-----------------------------------------------------------------
covenants, agreements, representations, and warranties made herein and in
certificates delivered pursuant hereto shall survive the execution and
delivery of the Debentures, and shall continue in full force and effect as
long as the Debentures are outstanding and unpaid.
20. Entire Agreement: No Oral Change. This Agreement embodies the entire
--------------------------------
agreement and understanding between Company and Investors relating to the
subject matter hereof, and supersedes all prior agreements and
understandings relating to such subject matter. This Agreement may not be
changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, or discharge
is sought. If any provisions of this Agreement are not consistent with the
provisions of any other agreement, then the provisions of this Agreement
shall control.
21. Notices, Requests, Consents, etc. All notices, requests, consents, and
--------------------------------
other communications hereunder shall be in writing and shall be delivered,
or mailed by registered mail, postage prepaid, addressed: (a) if to
Investors, to Investors' address to which this Agreement is addressed, or
to such other address as may have been furnished to Company in writing with
a copy to Escrow Agent; or (b) if to Company, to its address set forth
below or to such other address as may have been furnished to Investors by
Company in writing.
22. Law Governing. This Agreement and the Debentures shall be construed in
-------------
accordance with and governed by the laws of the State of New York. The
parties hereto hereby consent to the jurisdiction of the state and federal
courts of the State and County of New York and the United States of America
and agree that any dispute arising hereof shall be litigated in said
jurisdiction.
23. Company Right To Reject Investors' Purchase. If the average closing bid
-------------------------------------------
prices of the Shares for the 5 consecutive trading days prior to the date
of purchase of any Series of Debentures by Investors is below $.50 per
Share, Company shall have the absolute right not to close on the sale of
such Series of Debentures to Investors.
24. Investors' Obligation To Fund. Notwithstanding the foregoing Agreement,
-----------------------------
the Investors shall have the right in their sole and absolute discretion to
determine whether to purchase the Series B, C and D Debentures. In the
event the Investors decide not to purchase the Series B or C or D
Debentures, neither the Company nor the Investors shall have any further
liability one to the other except with respect to the Series A Debentures.
However, if the Investors do not close on the purchase of the Series B
Debentures, the Company shall not be required to honor the representation
in paragraph 15(q).
IN WITNESS WHEREOF, the parties hereto have signed this Agreement this
15th day of December, 1995.
MANAGEMENT TECHNOLOGIES, INC.
/s/ Xxxxx Xxxxxx
By: Xxxxx Xxxxxx
Agreed To and Accepted By:
SELECT CAPITAL ADVISORS, INC.
/s/ Xxxxxx X. Xxxxxxxx
By: Xxxxxx X. Xxxxxxxx, Pres.
ISRAEL TRADING FUND LTD.
/s/ X. Xxxxxxxxx
