As filed with the Securities and Exchange Commission on January 29, 1998
Registration No. 333-___________
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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MENTORTECH INC.
(Exact name of Registrant as specified in its charter)
Delaware 8243 13-3260705
(State or other
jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or classification code number) identification no.)
organization)
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Terry I. Steinberg
Secretary
Mentortech Inc.
462 Seventh Avenue
New York, New York 10018
(212) 736-5870
(Name, address, including zip code, and telephone number, including area
code, of agent for service; Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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Copies to:
Steven J. Glusband, Esq.
CARTER, LEDYARD & MILBURN
2 Wall Street
New York, New York 10005
(212) 732-3200
Fax: (212) 732-3232
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<PAGE>
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
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<TABLE>
<CAPTION>
Proposed
Title of Each Class of Maximum Proposed Amount of
Securities Amount to be Offering Price per Maximum Aggregate Registration
to be Registered Registered Share Offering Price Fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of shares of
Common Stock, par value
$.01 per share to be
registered..................... 12,011,485 $0.60 (1) $7,206,891.00 (1) $2,126.03
Number of shares of
Common Stock, par value
$.01 per share to be
registered..................... 1,012,997 $0.33 $976,087.54 $295.78(2)
Number of shares of
Common Stock, par value
$.01 per share being
carried forward................ 1,445,744 $2.50 $976,087.54 $2,068.97(3)
</TABLE>
(1) Estimated pursuant to Rules 457(c) and 457(o) solely for the purpose of
computing the amount of the registration fee on the basis of the average of
the bid and the asked prices ($.55 and $.65) of a share of Common Stock as
reported by the National Quotation Bureau Inc. on January 27, 1998.
(2) Paid with the filing of Registration Statement on Form SB-2, File No.
333-3677.
(3) Paid with the filing of Registration Statement on Form S-2, File No.
33-93482.
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Pursuant to Rule 429 under the Securities Act of 1933 the combined
Prospectus contained in this Registration Statement applies and shall be used in
connection with the Registrant's Registration Statement on Form S-B, Commission
File No. 333-33677.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
Subject to Completion: Dated January 29, 1998
PROSPECTUS
MENTORTECH INC.
14,470,226 Shares of
Common Stock
$.01 Par Value Per Share
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This Prospectus relates to the resale (the "Offering") of up to 14,470,226
shares (the "Shares") of common stock, $.01 par value per share (the "Common
Stock"), of Mentortech Inc. (the "Company") by certain stockholders of the
Company (the "Selling Stockholders"). See "Principal and Selling Stockholders."
The Shares may be offered from time to time in transactions effected through the
over-the-counter market on the National Association of Securities Dealers,
Inc.'s OTC Bulletin Board, in negotiated transactions, or a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, or at negotiated prices. The Selling Stockholders and certain persons
who purchase shares from them, including broker-dealers acting as principals who
may resell the Shares, may be deemed "underwriters," as that term is defined in
the Securities Act of 1933, as amended (the "Securities Act"). See "Plan of
Distribution."
The Selling Stockholders acquired the Shares through (i) a March 1995
private placement of Convertible Preferred Stock and warrants to purchase Common
Stock (the "1995 Warrants") of the Company (the "1995 Private Placement"); (ii)
the issuance of warrants as a result of the Company's noncompliance with the
terms of the 1995 Private Placement which required that a Registration Statement
on Form S-2 be declared effective on a specific date (the "Penalty Securities");
(iii) the issuance of warrants pursuant to antidilution provisions (the
"Antidilution Securities"); (iv) the conversion of bridge loans made to the
Company in December 1995 (the "1995 Bridge Loans") and October 1996 (the "1996
Bridge Loans" and together with the 1995 Bridge Loans, sometimes collectively
referred to as the "Bridge Loans"); (v) the issuance of 127,273 shares of Common
Stock in October 1997 in connection with acquisition of GLTN Computer
Consultants,
<PAGE>
Inc.; (vi) a December 1997 private placement (the "1997 Private Placement") of
2,045,453 units, each unit consisting of two shares of Common Stock and one
warrant to purchase a share of Common Stock at $.55 per share (the "1997
Warrants"); (vii) the conversion by the Company's principal shareholder, Mashov
Computers Marketing Ltd. ("Mashov") of $1,162,000 of debt into 1,056,363 units,
each consisting of two shares of Common Stock and a 1997 Warrant. Included in
the Shares are 3,101,818 shares of common stock issuable upon exercise of
two-year warrants issued in December 1997 that are exercisable at a price of
$.55 per share. In addition, this Prospectus relates to 1,226,848 shares of
Common Stock issuable upon exercise of warrants sold to the Company's financial
consultant, Brean Murray & Co., Inc. in January 1998 (the "Brean Murray
Warrants") having exercise prices ranging from $.55 to $1.07 per share. The
above-mentioned Convertible Preferred Stock, 1995 Warrants, Penalty Securities,
Antidilution Securities and Bridge Loans were converted into Common Stock
pursuant to a Conversion and Waiver Agreement dated February 6, 1997 and
effective February 13, 1997 (the "Conversion Agreement").
The Company will not receive any of the proceeds from the sale of any of
the Shares. The Company has agreed to bear the expenses in connection with the
registration of the Shares being offered by the Selling Stockholders which are
estimated to be $70,000. The Company has agreed to indemnify the Selling
Stockholders against certain liabilities, including liabilities under the
Securities Act.
The Company's Common Stock is quoted on the over-the-counter market on the
National Association of Securities Dealers, Inc.'s OTC Bulletin Board, under the
symbol "MNTK." On January 27, 1998, the average of the bid and the asked prices
of the Common Stock as reported by the National Quotation Bureau Inc. was $0.60
per share.
The Common Stock offered hereby involves a high degree of risk.
See "Risk Factors" beginning on page 7.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is _______, 1998.
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission
pursuant to the informational requirements of the Exchange Act may be inspected
and copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following regional offices of the Commission: Seven World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Avenue, Suite 1400, Chicago, Illinois 60611-2511. Copies of such material can
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington D.C. 20549 at prescribed rates.
The Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
SB-2 (including all amendments thereto, the "Registration Statement") under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information regarding the Company and the Shares
offered hereby, reference is hereby made to the Registration Statement and to
the exhibits and schedules filed therewith. Descriptions in this Prospectus
regarding the contents of any contract, agreement or other document filed as an
exhibit to the Registration Statement are summaries of all their material
provisions but may not necessarily be complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected at the pubic reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and copies of all or any part thereof
may be obtained from such office upon payment of the prescribed fees.
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3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
The Company
The Company develops and offers instructor-led training ("ILT") and
technology-based training ("TBT") courses for information technology
professionals and end-users and also provides consulting services, in both the
State of Israel and the New York tri-state area. The Company's ILT programs
include a wide range of introductory and advanced classes in a multitude of
subjects ranging from full vocational training programs which are geared to
training individuals to become information technology ("IT") professionals to
end-user computer proficiency courses. The Company develops and offers TBT
programs for use in conjunction with its ILT classes, as well as for home and
corporate users who use self-study tools for training and reference. The
Company's TBT software line includes offerings on Lotus Notes, cc: Mail,
Microsoft Office, and other end-user titles. In addition, the Company develops
TBT products for corporations in Israel and the United States.
The Company has been authorized as a training center by many software and
hardware manufacturers, including Aldus, Apple, Borland, Corel, Lotus, and Magic
Software Enterprises Ltd. The Company offers an extensive curriculum of
Microsoft courses under its Microsoft Advanced Technical & Education Center
Authorization, and Lotus Notes courses under the Company's Lotus Premium Partner
and Lotus Authorized Education Center Status. The authorization status entitles
the Company to preview new products, and thus enables the Company to coordinate
the introduction of training products concurrently with product releases. In
addition, the authorization status allows the Company to purchase training
manuals from the software publishers and offer official vendor courses.
The Company's Consulting Services Division ("CSD") is responsible for
identifying and providing computer personnel, on a temporary basis, to the
Company's client base for special projects. The Company provides its clients
with its own full-time employees, as well as with independent contractors.
Consultants' projects include (i) development of computer programs in accordance
with the client's specifications; (ii) installation of network operating
systems, and networking and communications software tools; (iii) troubleshooting
software problems; and (iv) staffing end-user help desk support.
Effective February 13, 1997, the Company underwent a change in control
pursuant to a Stock Purchase Agreement between Mashov and PC Etcetera, Inc. (the
"Stock Purchase Agreement"). Mashov acquired 68.5% of the common stock of PC
Etcetera, Inc. on a fully diluted basis, in consideration for which PC Etcetera,
Inc. acquired Sivan Computers Training Center (1994) Ltd. ("Sivan") and Mashov
Computer Based Training (C.B.T.) Ltd. ("Mashov CBT"), both of which
4
<PAGE>
corporations are incorporated under the laws of the State of Israel. Under
regulations of the Commission and generally accepted accounting principles, the
stock purchase transaction has been accounted for as a reverse acquisition such
that Sivan and Mashov CBT are considered the surviving entity, although
Mentortech remains the Registrant for purposes of filing periodic reports with
the Commission. Accordingly, for ease of reference in this Prospectus, when the
historical U.S. operations of Mentortech are discussed, the entity will be
referred to as "PCE U.S." When the historical operations of Sivan and Mentortech
TBT are discussed, the entity will be referred to as "Mentortech." When the
current consolidated operations of Mentortech Inc. and its subsidiaries are
discussed, the entity will be referred to as the "Company."
The Company was incorporated in New York in March 1985 as PC Executive
Center, Inc. It changed its corporate domicile to Delaware in December 1987, at
which time it assumed the name PC Etcetera, Inc. The Company changed its name to
Mentortech Inc. on August 4, 1997. The Company's executive offices are located
at 462 Seventh Avenue, New York, New York 10018 (telephone number: (212)
736-5870).
The Offering
Common Stock offered by the
Selling Stockholders................................. 14,470,226 Shares (1)
Common Stock to be outstanding after the Offering...... 31,898,069 Shares (1)(2)
Use of proceeds........................................ The Company will not
receive any of the
procceeds from the
Offering (3)
Nasdaq Bulletin Board symbol.........................................MNTK
__________
(1) Includes 3,101,818 shares of Common Stock issuable upon exercise of the
1997 Warrants at $.55 per share and 1,226,848 shares of Common Stock
issuable upon exercise of warrants issued to Brean Murray & Co., Inc.
exercisable at $0.55, $0.71 and $1.07 per share.
(2) Excludes (i) 765,000 shares of Common Stock issuable upon exercise of
outstanding options and (ii) 4,235,000 shares of Common Stock reserved for
issuance pursuant to the Company's 1997 Stock Option Plan. See
"Capitalization."
(3) The Company will receive the proceeds from any exercise of the 1997
Warrants or the Brean Murray Warrants (except for those warrants exercised
on a cashless basis).
Risk Factors
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
5
<PAGE>
Selected Historical and Pro Forma Consolidated Statements of
Operations and Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
----------------------- -------------------
Pro Pro
Forma Forma
1995 1996 1996(1) 1996 1997 1997(2)
---- ---- -------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues......................................... $6,651 $9,400 $16,442 $6,606 $13,083 $13,685
Cost of revenues................................. 3,849 4,713 9,677 3,454 8,105 8,509
------ ------ ------- ------ ------- --------
Gross profit..................................... 2,802 4,687 6,765 3,152 4,978 5,176
Operating expenses:
Selling and marketing 921 1,446 2,428 927 1,955 2,030
General and administrative 1,816 3,359 6,049 1,959 2,770 3,035
Research and development...................... -- 248 306 192 340 340
------- ------- ------- ------ ------ ------
Income (loss) from operations.................... 65 (366) (2,018) 74 (87) (229)
Equity in earnings of affiliate.................. 61 68 68 41 -- --
Gain on sale of subsidiary....................... -- -- 249 -- 44 50
Financial expenses (net)......................... (433) (455) (595) (411) (136) 150
Income taxes..................................... -- (45) (45) -- -- --
----- ------ ------- ------- ------- -------
Net (loss)................................ (307) (798) (2,341) $(296) $(179) $(329)
====== ====== ======= ====== ------ ======
Net (loss) per common share............... $(0.02) $(0.05) $(0.16) $(0.02) $(0.01) $(0.02)
====== ====== ======= ====== ======= -------
Weighted average common shares
outstanding........................... 15,000 15,000 15,000 15,000 16,386 21,238
====== ====== ======= ====== ====== ======
Dividends........................................ -- -- -- -- -- --
</TABLE>
December 31, 1996 September 30, 1997
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Balance Sheet Data:
Working capital (deficiency)............ $ (1,618) $ (2,201)
Total assets............................ 6,970 12,140
Total debt.............................. 7,717 7,891
Stockholders' equity (deficit).......... (747) 4,249
- ------------------
(1) Gives effect to the reverse acquisition by Sivan and Mashov CBT of PCE U.S.
as if the stock purchase transaction occurred on January 1, 1996.
(2) Gives effect to the reverse acquisition by Sivan and Mashov CBT of PCE U.S.
as if the stock purchase transaction occurred on January 1, 1997.
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus.
Operating Results May Fluctuate. The Company has experienced and may in the
future experience significant fluctuations in revenues and operating results
from quarter to quarter due to a combination of factors, many of which are
beyond the Company's control. These factors include: the timing of significant
revenues for the Company's services; new services introductions by the Company
or its competitors; changes in the Company's product or service mix that may
affect revenues, prices, margins or both; further expansion of the Company's
marketing and service operations; disruptions in sources of personnel; changes
in personnel costs; regulatory changes; general economic conditions and other
factors. The Company's operating expenses are based on anticipated revenue
levels, and a high percentage of such expenses are relatively fixed. The Company
believes that its quarterly operating results will continue to be subject to
significant fluctuations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
History of Unprofitable Operations; Accumulated Deficit; Working Capital
Deficiency. During the fiscal years ended December 31, 1995 and 1996 and the
nine months ended September 30, 1997, the Company's operations were
unprofitable. In addition, as of September 30, 1997, the Company had an
accumulated deficit of $1,145,000 and a working capital deficiency of
$2,201,000. No assurance can be given that it will operate on a profitable basis
in the future. The ability of the Company to continue its operations
successfully is materially dependent upon the marketing of its services and
products in a profitable manner and the raising of any additional capital which
it may require. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Recent Merger; Failure to Manage Growth Effectively Could Have a Material
Adverse Effect on the Company. The Company has grown significantly in 1997 as a
result of the Stock Purchase Agreement. The Company's ability to manage its
growth will require it to continue to improve its operational, financial and
management information systems, and to motivate and manage its employees
effectively. In addition, the Company's management must manage operations which
are international in scope. If the Company's management is unable to manage the
Company's growth and geographically dispersed operations effectively, the
quality of the Company's services, its ability to retain key personnel and its
business and operating results and financial condition could be materially and
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Company Depends upon Major Customers. There can be no assurance that the
Company's current customers will continue to retain the Company or that the
Company will be able to sell
7
<PAGE>
services to new customers. The loss of any one or more of the Company's major
customers could materially and adversely affect the Company's business,
operating results and financial condition.
See "Business - Marketing."
Market for Company's Services is Highly Competitive. The market for the
Company's services is highly competitive and subject to rapid technological
change. The Company faces competition from a number of entities which presently
provide computer training and consulting services, or market TBT products,
similar to those furnished by the Company. The Company also encounters
competition from educational institutions providing personal computer training
programs, including universities, colleges and adult education centers, and
customers' in-house training staffs. Many of the entities which provide ILT and
consulting services, and market TBT products, have greater financial and
marketing resources than the Company. Increased competition could materially and
adversely effect the Company's results of operations through price reductions
and loss of market share. There can be no assurance that the Company will be
able to continue to compete successfully against its existing competitors or
that it will be able to compete successfully against new competitors. See
"Business--Competition."
Cancellation of Software Manufacturers' Authorizations. The Company is
authorized to act as a training center by various software manufacturers.
Management believes that such authorizations have several advantages, including
referrals from the software manufacturers and free listings in the advertising
literature published or distributed by such manufacturers. No assurance can be
given that the Company will continue to maintain its authorizations or that it
will be successful in obtaining new authorizations in the future. The inability
to maintain such authorization or obtain new ones could make the Company's
training courses and consulting services less attractive to its clients and thus
materially adversely effecting its financial results and financial condition.
See "Business - Software Manufacturers' Authorized Training Centers."
The Loss of Key Employees Could Have a Material Adverse Effect on the
Company's Business. The Company's success depends to a significant degree upon
its executive officers. The loss of any of Roy Machnes, Chairman and Chief
Executive Officer, Terry I. Steinberg, Executive Vice President for North
American Sales and Marketing, or Elan Penn, Chief Financial Officer, could have
a material adverse effect on the Company's business. The Company's success also
depends upon its ability to attract and retain highly skilled technical,
management and other personnel. Competition for such personnel is intense, and
the inability to attract and retain additional qualified employees or the loss
of current key employees could materially and adversely affect the Company's
business, operating results and financial condition. See "Business - Employees"
and "Management."
Company's Proprietary Technology Has Limited Protection. The Company
possesses limited patent or registered intellectual property rights with respect
to its TBT technology. The Company depends in part upon its proprietary
technology and know-how to differentiate its products and service from those of
its competitors. The Company relies on a combination of contractual rights and
trade secret laws to protect its proprietary technology. There can be no
assurance that the
8
<PAGE>
Company will be able to protect its technology or that third parties will not be
able to develop similar technology independently. See "Business - Protection of
Proprietary Technology."
Risks Associated with Allegations of Patent Infringement in the Software
Industry. The software industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement. There can be no assurance that third parties will not assert
infringement claims against the Company in connection with its products, that
any such assertion of infringement will not result in litigation, or that the
Company would prevail in such litigation or be able to license any valid and
infringed patents of third parties on commercially reasonable terms.
Furthermore, litigation, regardless of its outcome, could result in substantial
cost to and diversion of effort by the Company. Any infringement claims or
litigation against the Company could materially and adversely affect the
Company's business, results of operations and financial condition. See "Business
- - Protection of Proprietary Technology."
Company Will Continue to be Controlled by its Principal Stockholder. Upon
completion of this offering, Mashov will beneficially own an aggregate of
approximately 60.4% of the Company's outstanding Common Stock. As a result,
Mashov will continue to be able to exert controlling influence over the outcome
of actions requiring stockholder approval, such as the election of the Company's
directors, amendments to the Company's Certificate of Incorporation and mergers.
Roy Machnes, Chairman of the Board of Directors and the Company's Chief
Executive Officer is also the Chairman of the Board of Mashov, and Elan Penn, a
Director and the Company's Chief Financial Officer is also the Chief Financial
Officer and a Director of Mashov. In addition, David Assia and Jack Dunietz are
both Directors of the Company and of Mashov. Messrs. Machnes, Penn, Assia, and
Dunietz own 1.51%, 0.4%, 0.56% and 3.15% of voting equity of Mashov,
respectively. Mashov is an 80%-owned subsidiary of Mashov Computers Ltd., a
publicly-held company in Israel. Messrs. Assia and Dunietz are directors of
Mashov Computers Ltd. and are the beneficial owners of approximately 30% of its
issued and outstanding shares. See "Management," "Principal and Selling
Stockholders" and "Description of Capital Stock."
Impact of the Securities Enforcement and Penny Stock Reform Act of 1990.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure in connection with trades in any stock defined as a penny
stock. The Commission has adopted regulations that generally define a penny
stock to be any equity security that has a price of less than $5.00 per share,
subject to certain exceptions (such exceptions including an equity security
listed on Nasdaq) and an equity security issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for three years, (ii) net tangible assets of at least $5,000,000, if
such issuer has been in continuous operation for less than three years, or (iii)
average annual revenue of at least $6,000,000, if such issuer has been in
continuous operation for less than three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith.
9
<PAGE>
As a result of the Company's common stock not being quoted on Nasdaq and
its failure to have $2,000,000 in net tangible assets, trading in the Company's
common stock is covered by Rule 15cg-9 promulgated under the Exchange Act for
non-Nasdaq and non-exchange listed securities. Under the rule, broker-dealers
who recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities also are exempt from this rule if the market price is
at least $5.00 per share. The regulations on penny stocks could limit the
ability of broker-dealers to sell the Company's common stock and thus the
ability of purchasers to sell their Shares in the secondary market.
Illiquidity of Trading Market; Sales of Shares Eligible for Future Sale
Could Adversely Affect Market Prices for the Company's Common Stock. The Company
does not currently meet the initial listing requirements for the Nasdaq SmallCap
Market. Accordingly, trading in the Company's Common Stock is conducted in the
over-the-counter market on the Nasdaq Bulletin Board where there is presently
only a limited trading market for such securities. As a consequence, purchasers
of the Shares could find it difficult to dispose of, or obtain accurate
quotations as to the market value of such Shares. Sales of substantial amounts
of Common Stock of the Company in the public market following the effective date
of the Registration Statement of which this Prospectus forms a part could
adversely affect the market price for such Common Stock. At present, less than
2% of the Company's outstanding shares are believed to be in the public market.
See "Price Range of Common Stock" and "Shares Eligible for Future Sale."
Anti-takeover Provisions of the Company's Certificate of Incorporation and
By-Laws May Adversely Affect Holders of Common Stock or Delay or Prevent
Corporate Takeovers. Certain provisions of the Company's Certificate of
Incorporation and By-Laws could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. Certain of such provisions allow the Company to
issue preferred stock with rights senior to those of the Common Stock and impose
various procedural and other requirements which could make it more difficult for
stockholders to effect certain corporate actions. The issuance of preferred
stock and certain of the provisions in the Company's Certificate of
Incorporation and By-Laws may delay, defer or prevent a change in control of the
Company. The mere existence of these provisions could limit the price that
certain investors might be willing to pay in the future for shares of the Common
Stock and therefore may have a depressive effect on the market price of the
Common Stock. See "Description of Capital Stock."
Delaware Anti-takeover Provisions May Adversely Affect Holders of Common
Stock or Delay or Prevent Corporate Takeovers. Section 203 of the Delaware
General Corporation Law restricts certain business combinations with any
"interested stockholder" as defined in such law. This statute may delay, defer
or prevent a change in control of the Company. See "Description of Capital
Stock."
Company Does Not Anticipate Paying Dividends. The Company does not
anticipate paying any cash dividends in the foreseeable future. See "Dividend
Policy."
10
<PAGE>
Risks Relating to the Company's Operations in Israel
Operations in Israel. The Company's two Israeli-based subsidiaries were
responsible for 63% of the Company revenues for the first nine months of 1997 on
a pro forma basis, and 57% of the combined revenues of PCE U.S., Sivan and
Mashov CBT for the year ended December 31, 1996. Accordingly, the Company's
operations are directly affected by economic, political and military conditions
in Israel. For information with respect to certain factors concerning the State
of Israel, and risks related to its economic and political situation, see
"Conditions in Israel."
Some of the Company's employees are currently obligated to perform annual
reserve duty in the Israeli Defense Forces and are subject to being called for
active duty at any time upon the outbreak of hostilities. While the Company has
operated effectively under these requirements, no shareholder prediction can be
made as to the effect on the Company of any expansion of such obligation. See
"Business - Conditions in Israel."
Impact of Inflation and Currency Fluctuations. In 1995 and 1996
substantially all of Mentortech's expenses were in unlinked New Israeli Shekels
("NIS") and all of the expenses of the Company's Israeli subsidiaries continued
to be denominated in unlinked NIS. The Company's results are influenced by the
extent to which any inflation in Israel is not offset (or is offset on a lagging
basis) by the devaluation of the NIS in relation to the dollar. The inflation
rate in Israel was 8.1% in 1995 and 10.6% in 1996. At the same time, the
devaluation of the NIS against the dollar was limited to 3.9% in 1995 and 3.7%
in 1996. In the nine months ended September 30, 1997, the rate of devaluation
increased to 7.57%. The Company could be adversely affected in the future as a
result of currency fluctuations. See "Management's Discussions and Analysis of
Financial Conditions and Results of Operations" and "Conditions in Israel."
11
<PAGE>
USE OF PROCEEDS
The Company will receive no part of the proceeds from the sale of any of
the Shares by any of the Selling Stockholders. Any proceeds from the exercise of
the 1997 Warrants or the Brean Murray Warrants will be added to working capital.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, and an adjustment to give effect to the issuance of
4,090,910 shares of Common Stock in connection with the 1997 Private Placement,
the issuance of 2,112,726 shares of Common Stock upon conversion of $1,162,000
of debt of Mashov, and the issuance of 127,273 shares of Common Stock in
connection with the purchase of the assets of GLTN Computer Consultants. A
special meeting of stockholders of the Company will be held on February 26, 1998
for the purpose of authorizing a one-for-eight reverse split of the Common Stock
and reduction in the number of authorized shares of Common Stock to 20,000,000
shares. It is expected that this proposal will pass. This table should be read
in conjunction with the Company's Pro Forma Financial Data and Consolidated
Financial Statements and notes thereto and the other information included
elsewhere in this Prospectus.
September 30, 1997
------------------
Actual As Adjusted
------ -----------
(In thousands)
Long-term liabilities..................................... $1,223 $623
====== ====
Stockholders' equity:
Preferred Stock, $.001 par value;
5,000,000 shares authorized, no shares
issued or outstanding................................... -- --
Common Stock, $.01 par value;
45,000,000 shares authorized; 21,238,495
shares issued and outstanding at
September 30, 1997 and 27,569,403 shares issued
and outstanding as adjusted (1)......................... $ 212 $ 276
Additional paid-in capital................................ 5,325 8,675
Cumulative foreign currency translation
adjustment.............................................. (143) (143)
Accumulated deficit....................................... (1,145) (1,145)
------- -------
Total stockholders' equity............................ $ 4,249 $7,663
------- -----
Total capitalization.................................. $ 5,472 $8,286
======= ======
12
<PAGE>
__________
(1) The 27,569,403 issued and outstanding shares of Common Stock, as adjusted
excludes (i) the exercise of 3,101,818 1997 Warrants and 1,226,848 Brean
Murray Warrants; (ii) 765,000 shares of Common Stock issuable upon exercise
of outstanding options; (iii) 4,235,000 shares of Common Stock reserved for
issuance pursuant to the Company's 1997 Stock Option Plan and (iv) 122,000
warrants having exercise prices ranging from $2.50 to $6.25 per share.
DIVIDEND POLICY
The Company currently intends to retain all of its earnings, if any, to
finance future growth, and therefore does not anticipate paying any cash
dividends in the foreseeable future.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded in the over-the-counter market on the National
Association of Securities Dealers' Bulletin Board under the symbol "MNTK". The
following table sets forth the range of the closing high and low bid prices for
the Company's Common Stock as reported by the National Quotation Bureau, Inc.
The quotations below reflect inter-dealer prices without retail markup, markdown
or commission and may not necessarily represent actual transactions.
High Low
---- ---
1998
- ----
First Quarter (through January 27,)................... $ 9/16 $ 1/2
1997
- ----
First Quarter......................................... $ 3/8 $ 1/4
Second Quarter........................................ 5/16 1/4
Third Quarter......................................... 7/32 3/16
Fourth Quarter........................................ 1/2 3/32
1996
- ----
First Quarter......................................... $ 9/16 $ 9/16
Second Quarter........................................ 1/2 1/2
Third Quarter......................................... 1/2 1/4
Fourth Quarter........................................ 1/4 1/4
13
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
Year Ended December 31, 1996
The following unaudited pro forma consolidated statements of operations for
the year ended December 31, 1996 give effect to the reverse acquisition by Sivan
and Mashov CBT of PCE U.S. as if the stock purchase transaction occurred on
January 1, 1996.
These pro forma financial statements should be read in conjunction with the
audited financial statements and notes thereto of PCE U.S., Sivan and Mashov CBT
as of and for the year ended December 31, 1996. In management's opinion, all
material adjustments necessary to reflect the effect of the stock purchase
transaction have been made.
The unaudited pro forma consolidated financial statements are not
necessarily indicative of what the consolidated results of operations would have
been for the year ended December 31, 1996 had the sale stock purchase
transaction occurred on January 1, 1996 nor are they necessarily indicative of
the financial position or results of operations for future periods.
14
<PAGE>
MENTORTECH INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
MENTORTECH SIVAN AND PRO FORMA PRO FORMA
CONSOLIDATED MASHOV CBT ADJUSTMENTS NOTES AS ADJUSTED
------------ ---------- ----------- ----- -----------
(in thousands except for share and per share data)
<S> <C> <C> <C> <C> <C>
Revenue............................. $ 7,042 $ 9,400 $16,442
Cost of revenue..................... 4,964 4,713 9,677
----- ----- ------
Gross profit........................ 2,078 4,687 6,765
Selling and marketing............... 982 1,446 2,428
General and administrative ......... 2,326 3,359 364 (A)(C) 6,049
Research and development............ 58 248 306
------- ----- ----
Operating loss...................... (1,288) (366) (364) (2,018)
Gain on sale of subsidiary.......... 182 0 182
Other income........................ 67 67
Financial expenses, net............. (174) (455) 34 (B) (595)
----- ----- -- ----
Net loss before provision
for income taxes.................. (1,213) (821) (330) (2,364)
Income taxes........................ 0 (45) (45)
Equity in earnings of affiliate..... -- 68 68
------- ------ ------ -----
Net loss............................ $(1,213) $ (798) $(330) $(2,341)
======= ======= ====== =======
Loss per share...................... $ (0.39) $ (0.05) $(0.16)
======= ======= ======
Weighted average number of
shares outstanding................ 3,138 15,000 15,000
</TABLE>
- -------------------
Adjustments to Pro Forma Consolidated Statement of Operations:
(A) To record the amortization of goodwill for the year as if the stock
purchase transaction occurred as of January 1, 1996. The goodwill is being
amortized over 20 years.
(B) To reverse interest expense related to loans payable - related party which
was converted to equity.
(C) To record additional salary and wages expense that would have been incurred
had the employment contracts with the Executive Vice President and Chief
Financial Officer been effective January 1, 1996.
15
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
Nine Months Ended September 30, 1997
The following unaudited pro forma consolidated statements of operations for
the nine months ended September 30, 1997 give effect to the reverse acquisition
by Sivan and Mashov CBT of PCE U.S. as if the stock purchase transaction
occurred on January 1, 1997.
These pro forma financial statements should be read in conjunction with the
unaudited financial statements of the Company as of September 30, 1997. In
management's opinion, all material adjustments necessary to reflect the effect
of the stock purchase transaction have been made.
The unaudited pro forma consolidated financial statements are not
necessarily indicative of what the consolidated results of operations would have
been for the nine months ended September 30, 1997 had the stock purchase
transaction occurred on January 1, 1997 nor are they necessarily indicative of
the financial position or results of operations for future periods.
16
<PAGE>
MENTORTECH INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MENTORTECH PRO FORMA PRO FORMA
CONSOLIDATED ADJUSTMENTS NOTES AS ADJUSTED
------------ ----------- ----- -----------
(in thousands except for per share data)
<S> <C> <C> <C> <C>
Revenues............................ $13,083 $ 602 B $ 13,685
Cost of revenues.................... 8,105 404 B 8,509
----- --- -----
Gross profit........................ 4,978 198 5,176
Selling and marketing............... 1,955 75 2,030
General and administrative.......... 2,770 14 A 3,035
Research and development............ 340 251 B 340
----- ---- ----
Operating income (loss)............. (87) (142) (229)
Gain on sale of subsidiary.......... 44 6 50
Financial expense, net.............. 136 (14) B 150
----- ---- ----
Net loss............................ $ (179) $(150) $ (329)
======= ===== =====
Loss per share...................... $(0.01) $(0.02)
====== ========
Weighted average number of
shares outstanding................ 16,386,332 21,238,495
</TABLE>
- ----------------
Adjustments to Pro Forma Consolidated Statement of Operations:
(A) To record the amortization of goodwill for the nine months as if the stock
purchase transaction occurred as of January 1, 1997. The goodwill is being
amortized over 20 years.
(B) To record the results of operations for PCE U.S. for the period January 1,
1997 through the date of the stock purchase transaction effective February
13, 1997.
SELECTED FINANCIAL DATA
The selected financial data of the Company set forth below are qualified by
reference to, and should be read in conjunction with, the financial statements
and notes thereto included elsewhere in this Prospectus. The financial
statements for the years ended December 31, 1995 and 1996 included in this
Prospectus reflect the operations of Sivan and Mashov CBT. Because of the change
in control, the stock purchase transaction between Mashov and PCE U.S. was
accounted for as a
17
<PAGE>
reverse acquisition. Based on such accounting treatment, Sivan is reported as
the surviving entity. The unaudited financial statements for the nine months
ended September 30, 1997 included in this Prospectus reflect the operations of
Sivan and Mashov CBT since January 1, 1997, and PCE U.S. and PC Etcetera Israel
since February 1, 1997, the date of the stock purchase transaction used for
accounting purposes. The unaudited financial statements for the nine months
ended September 30, 1996 reflect the operations of Sivan and Mashov CBT. Mashov
CBT did not begin operations until the second quarter of 1996. In the opinion of
management, the unaudited financial information of the Company has been prepared
on the same basis as the audited financial statements and includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial data for such periods.
18
<PAGE>
Selected Historical and Pro Forma Consolidated Statements of
Operations and Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
----------------------- -------------------
Pro Pro
Forma Forma
1995 1996 1996(1) 1996 1997 1997(2)
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues......................................... $6,651 $9,400 $16,442 $6,606 $13,083 $13,685
Cost of revenues................................. 3,849 4,713 9,677 3,454 8,105 8,509
------ ------ ------- ----- ------- -------
Gross profit..................................... 2,802 4,687 6,765 3,152 4,978 5,176
Operating expenses:
Selling and Marketing 921 1,446 2,428 927 1,955 2,030
General and Administrative 1,816 3,359 6,049 1,959 2,770 3,035
Research and development...................... -- 248 306 192 340 340
------- ------- ------- ----- ------- -----
Income (loss) from operations.................... 65 (366) (2,018) 74 (87) (229)
Equity in earnings of affiliate.................. 61 68 68 41 -- --
Gain on sale of subsidiary....................... -- -- 249 -- 44 50
Financial expenses (net)......................... (433) (455) (595) (411) (136) 147
Income taxes..................................... -- (45) (45) -- -- --
------- ----- ------- ------- ------- ------
Net (loss)................................ (307) (798) (2,341) $ (296) $ (179) $(329)
======== ===== ======= ======= ======= ======
Net (loss) per common share............... $(0.02) $(0.05) $(0.16) $ (0.02) $ (0.01) $(0.02)
====== ====== ======= ======== ======= ======
Weighted average common shares
outstanding........................ 15,000 15,000 15,000 15,000 16,386 21,238
====== ====== ======= ======= ====== ======
Dividends........................................ -- -- -- -- -- --
</TABLE>
Balance Sheet Data: December 31, 1996 September 30, 1997
----------------- ------------------
Working capital (deficiency)............ $ (1,618) $(2,201)
Total assets............................ 6,970 12,140
Total debt.............................. 7,717 7,891
Stockholders' equity (deficit).......... (747) 4,249
(1) Gives effect to the reverse acquisition by Sivan and Mashov CBT of PCE
U.S. as if the stock purchase transaction occurred on January 1, 1996.
(2) Gives effect to the reverse acquisition by Sivan and Mashov CBT of PCE
U.S. as if the stock purchase transaction occurred on January 1, 1996.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Such
forward-looking statements involve known and unknown risks and uncertainties
that may cause the actual results, performance, levels of activity, or
achievements of the Company and its consolidated subsidiaries, or industry
results, to be materially different from any future results, performance, levels
of activity, or achievements of the Company expressed or implied by such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, general and economic business
conditions, changes in the industry, and the ability of the Company to implement
its business strategy, as well as those discussed elsewhere in this Prospectus.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto of the Company, PCE U.S. and Mentortech
(formerly Sivan and Mashov CBT) included elsewhere in this Prospectus. All
dollar amounts referred to herein are in thousands.
Background
Effective February 13, 1997, a change of control of PCE U.S. occurred
pursuant to the Stock Purchase Agreement between PCE U.S. and Mashov, whose
shares are publicly traded on the Tel-Aviv Stock Exchange (the "TASE"). Mashov
is a subsidiary of Mashov Computers Ltd., whose shares are also publicly traded
on the TASE. Based on the Stock Purchase Agreement, Mashov acquired 8,438,924
shares of Common Stock and 658,412 shares of Series C Preferred Stock of PCE
U.S. (collectively, the "Sale Stock"), where each share of Series C Preferred
Stock is convertible into 10 shares of Common Stock and has 10 to 1 voting
rights in relation to shares of Common Stock. In consideration for the Sale
Stock, PCE U.S. acquired two of Mashov's subsidiaries, Sivan and Mashov CBT.
Pursuant to the Stock Purchase Agreement, Mashov acquired 69% of PCE U.S.'s
equity and voting securities on a fully diluted basis, subject to an adjustment
based upon the fiscal year 1996 audited balance sheets of PCE U.S., Sivan and
Mashov CBT. Such adjustment was made on August 4, 1997 when Mashov contributed
345,595 shares of Common Stock to the capital of the Company. In addition, on
August 4, 1997, the 658,412 shares of Series C Preferred Stock were converted by
Mashov into 6,584,120 shares of Common Stock. As a result of the adjustment
discussed above, such conversion and the Common Stock acquired in the 1997
Private Placement, Mashov currently owns 60.4% of the outstanding Common Stock.
As a result of the execution of the Stock Purchase Agreement with Mashov,
PCE U.S.'s working capital position improved. The Stock Purchase Agreement
provided that Sivan and Mashov CBT have net tangible assets of $2,200, where
such assets included a cash contribution by Mashov of $1,500 to PCE U.S.
In connection with the execution of the Stock Purchase Agreement, PCE U.S.
executed the Conversion Agreement effective February 13, 1997 with certain prior
holders the Company's equity securities and debt (the "Conversion Parties").
Pursuant to the Conversion Agreement, the
20
<PAGE>
Conversion Parties received Common Stock in consideration for the cancellation
of the debt owed by PCE U.S. and as a result of antidilution provisions relating
to the securities owned by the Conversion Parties. After giving effect to the
Conversion Agreement, and aggregating their prior holdings, the Conversion
Parties held 4,812,509 shares of Common Stock. In addition, 668,531 shares of
Common Stock were issued to PCE U.S.'s financial adviser, Helix Capital, LLC, in
the transaction.
Nine Month Period Ended September, 1997 as Compared with the Nine Month Period
Ended September 30, 1996.
Revenues. The Company's revenues are derived from training services,
contractual consultation services, and TBT product sales. The Company's revenues
relating to ILT are recognized over the life of the training course. Franchise
revenues from centers operating with the Sivan trade name in Israel and
utilizing Sivan's training materials are included in ILT revenues. Contract
consulting revenues are recognized as the services are performed. TBT revenues
are recognized upon shipment of the software provided that no significant vendor
obligations remain and collection of the related receivable is probable. The
Company's refund policy provides that dissatisfied trainees may either attend
the same course without charge or the trainee's employer may request a full
refund. It is Company policy to reserve for potential refunds; however, an
allowance for refunds has not been established because historically minimal
refunds have been issued. Retakes of a course are provided on a seat available
basis. Accordingly, the Company does not incur any financial exposure with
respect to such retakes.
The Company 's revenues for the nine months ended September 30, 1997
increased 98% to $13,083 from $6,606 from the comparable 1996 period. Sivan
training revenues increased by 29% from $6,487 for the nine months ended
September 30, 1996, to $8,359 for the nine months ended September 30, 1997.
Sivan Jerusalem, a company in which Sivan had held a 50% equity investment until
January 1997, when Sivan purchased the remaining equity, accounted for 41% of
Sivan's increased revenues for the nine months ended September 30, 1997. Sivan's
share of Sivan Jerusalem's results of operations were reported as equity in
earnings of an affiliate in 1996. The remaining increases in Sivan's revenues of
17% for nine months ended September 30, 1997 were due primarily to its success
in offering more profitable technical courses as well as an increase in the
number of application courses offered. The operations of Mashov CBT began in
April 1996, therefore the 1996 amounts only reflect six months of operations
rather than nine.
The revenues of the U.S. Operation were $4,825 for the nine months ended
September 30, 1997, an increase of 2%, compared to revenues of $4,707, for the
nine months ended September 30, 1996. In 1997, the U.S. Operation has been
placing more emphasis on the growth of its Consulting Services Division.
Consulting revenues for the New York metropolitan area increased from $2,725 for
the nine months ended September 30, 1996, to $3,564, for the nine months ended
September 30, 1997, an increase of 31%. Consulting revenues decreased in the
third quarter of 1997 primarily due to termination of assignments and delays in
the start dates of new assignments. Management has
21
<PAGE>
engaged a consultant's advocate whose primary role is to communicate with
consultants, increase their retention rate and improve expected termination
reporting. Management believes that this action should reduce future turnover.
During the nine months ended September 30, 1997, the U.S. Operation
continued to experience declining ILT revenues. Application training revenues
decreased by approximately 36% for the nine months ended September 30, 1997
compared to the same period in 1996. Management attributes the declining ILT
revenue to the fact that software vendors have not released many new versions of
existing software. The U.S. Operation had anticipated that the release of a new
application software entitled Office 97 would have a positive impact on ILT
revenues. However, many clients continued to delay such conversions and projects
pending the market's experiences with Office 97. The U.S. Operation has recently
begun to experience an increase in training demand for the upgraded Office 97
products.
The U.S. Operation is pursuing a move into the higher end training market
as many organizations require certification training for Microsoft and Lotus
back office applications and operating systems, which historically have had
higher margins. Management believes that this higher technical training
environment will have a better synergy with the U.S. Operation's growing
consulting business. The U.S. Operation has been authorized as a Lotus
Authorized Education Center and its status has been upgraded to Premium Business
partner and has received Microsoft Authorized Technical Education Center status.
During the nine months ended September 30, 1997, technical training revenues
increased by 15% compared to the same period in 1996.
Cost of revenues for ILT consists primarily of the expenses of instructors,
classroom space costs as well as depreciation of classroom equipment. Cost of
revenues for consulting services consists primarily of the labor costs of the
consultants performing the work at clients' facilities. Cost of revenues for TBT
revenues include packaging and manufacturing costs of the products as well as
design expenses in custom TBT projects. Cost of revenues rose to 62% of revenues
for the nine months ended September 30, 1997, compared to 52% of revenues for
the nine months ended September 30, 1996. Cost of revenues for Sivan was 58% of
revenues for the nine months ended September 30, 1997, compared to 53% for the
comparable period in 1996. This increase was primarily due to an increase in
depreciation expense as a result of a substantial investment in new classroom
computer equipment. Depreciation expense for classroom computers increased by
51% for the nine months ended September 30, 1997 as compared to the 1996
comparable period. Cost of revenues for the U.S. Operation was 72% for the nine
months ended September 30, 1997. As training revenues decrease, cost of revenues
as a percentage of sales has increased due to the fixed costs of classroom
facilities and depreciation.
Selling and marketing expenses consist primarily of costs relating to
promotion, advertising, trade shows and exhibitions. Such expenses also include
compensation of sales support, travel and related expenses. Sales and marketing
expenses increased to $1,955 during the nine months ended September 30, 1997,
from $927 for the nine months ended September 30, 1996. Selling and marketing
expenses of Sivan increased by 31 % for the nine months ended September 30,
1997,
22
<PAGE>
compared to the same period in 1996. This increase is due to Management's
decision to increase sales and marketing activities in order to obtain increased
revenues. Sivan's increase in sales and marketing expenses correlates with its
increase in revenue. Selling and marketing expenses in the U.S. increased to
$658 for the nine months ended September 30, 1997, from $547 for the nine months
ended September 30, 1996.
General and administrative expenses include compensation costs for
administration, finance and general management personnel and office maintenance
and administrative costs. General and administrative costs for the Company
increased to $2,770 during the nine months ended September 30, 1997, from $1,959
for the nine months ended September 30, 1996. This increase was due entirely to
the expansion and the inclusion of the results of Sivan Jerusalem, Mashov CBT
and the U.S. Operation. General and administrative expenses were $1,062, for the
U.S. Operation, $1,683, for Sivan, and $196 for Mashov CBT for the nine months
ended September 30, 1997. General and administrative expenses for Sivan
(excluding Sivan Jerusalem) decreased by $343 (18%) for the nine months ended
September 30, 1997, compared to the same period in 1996.
Research and development expenses consist primarily of salaries of the
employees of Mashov CBT who are engaged in ongoing research and development
activities of TBT materials and other related costs. Mashov CBT did not begin
operating until the second quarter of 1996. Research and development expenses
amounted to $340, for the nine months ended September 30, 1997, compared to $193
for the nine months ended September 30, 1996.
The Company incurred an operating loss of $87 for the nine months ended
September 30, 1997 compare to operating income of $74 for the nine months ended
September 30, 1996. The results in the 1997 periods were due to decreased
revenues in the U. S., increased sales and marketing expenses, coupled with
increased research and development activities.
As discussed above, equity in earnings of affiliate represented Sivan's 50%
investment in Sivan Jerusalem during 1996. Effective January 1, 1997, Sivan
purchased the remaining equity, and Sivan Jerusalem became a wholly-owned
subsidiary. Sivan Jerusalem's results of operations are consolidated in the
financial statements for the nine months ended September 30, 1997. The Company's
gain on the sale of a subsidiary refers to the 1996 sale of the U.S. Operation's
wholly-owned Canadian subsidiary. Due to the fact that the purchase agreement
included certain covenants that continued for two years, a part of the purchase
price is being recognized over the two year period. The U.S. Operation is not
included in the results for the nine months ended September 30, 1996.
Financial expenses, net, consists primarily of bank charges and interest
expenses offset by interest income. Financial expenses decreased to $39 for the
nine months ended September 30, 1997 from $411 for the nine months ended
September 30, 1996. An adjustment representing renegotiation of loans in Israel
was made during the three months ended September 30, 1997 compared to financial
expenses of $104 for the three months ended September 30, 1996. This decrease
was due principally to the conversion of $2,578 of shareholder loans into equity
by Sivan in the first quarter
23
<PAGE>
of 1997 and the repayment of the U.S. Operation's receivables financing with
Rosenthal and Rosenthal during the second quarter of 1997.
As a result of the foregoing, the Company incurred a net loss of $179 for
the nine months ended September 30, 1997 compared to a net loss of $296 for the
nine months ended September 30, 1996. Sivan's profit was $436, for the nine
months ended September 30, 1997 compared to a net loss of $58 for the nine
months ended September 30, 1996. During both the first and second quarters of
1997, both Sivan and the U.S. Operation operated on a profitable basis, which
profits were offset by the unprofitable operations of Mashov CBT, which incurred
losses of approximately $228 and $485, respectively, during the three and nine
months ended September 30, 1996. The third quarter losses were due primarily to
decreased consulting revenues in the US, and increased sales and marketing
expenses.
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995.
Revenues. In 1995, the revenues of Mentortech were derived exclusively from
training services while a limited amount of revenues were recorded from product
sales in 1996. Mashov CBT was established in 1996 and therefore there were no
TBT revenues in 1995. Revenues increased by 41% to $9.4 million in 1996 from
$6.7 million in 1995. In 1996, $9.2 million of revenues were attributable to the
operations of Sivan while $242 related to the operations of Mashov CBT. The
increase in revenues in 1996 was principally attributable to the substantial
growth in demand for most of the courses offered by Sivan. In addition, a new
branch was opened in Or-Yehuda in the last quarter of 1995 and a new franchisee
was appointed in Raananna.
Cost of revenues. Cost of revenues increased 22.4% to $4.7 million in 1996
from $3.8 million in 1995, substantially all of which related to Sivan's
operations. The increase was principally due to increased payroll, teaching
materials, classroom leasing costs and depreciation of classroom equipment. In
1996, Mashov CBT's cost of revenues was $34, which amount principally related to
CD duplication and packaging costs. Mentortech's cost of revenues in 1996 were
50.1% of revenues. In 1995, Sivan's cost of revenues was 57.9%. The reduction in
Sivan's costs of revenues as a percentage of revenues in 1996 was principally
due to larger class enrollment in Sivan's course offerings as compared to 1995.
Research and development. Research and development costs amounted to $248
in 1996. Research and development costs are primarily attributable to Mashov
CBT.
Selling and marketing. Selling and marketing expenses increased 57% to $1.4
million in 1996 from $921 in 1995 as a result of an increase in Sivan's
advertising costs, which costs include telemarketing costs and salaries of
telesales personnel. In 1996, Sivan's selling and marketing expenses totaled
$1.3 million while Mashov CBT's selling and marketing expenses were $176. As a
percentage of revenues, Sivan's selling and marketing expenses remained at 14%
for both 1995 and 1996.
24
<PAGE>
General and administrative. General and administrative expenses increased
85% to $3.4 million in 1996 from $1.8 million in 1995. Sivan's general and
administrative expenses increased 78% to $3.2 million in 1996 from $1.8 million
in 1995. Mashov CBT general and administrative expenses totaled $130 in 1996.
Sivan's general and administrative expenses increased to $2.5 million in 1996
from $1.6 million in 1995, a 55% increase. These figures do not give effect to
the Mashov management fees, thus the total 1996 and 1995 general and
administrative expenses were $3.2 million and $1.8 million, respectively. During
1996 and 1995, Sivan was charged management fees by Mashov in the amounts of
$691 and $181, respectively. In those years Messrs. Machnes and Penn devoted a
substantial portion of their time to the day-to-day management of Sivan, which
was the principal subsidiary of Mashov, and to a lesser extent to the start-up
activities of Mashov CBT. During 1995 and 1996, the salaries, benefits and
perquisites of Messrs. Machnes and Penn were paid by Mashov, which gave rise to
the billing of the management fees. The fees were calculated based on the levels
of compensation previously paid to these managers, including associated
expenses.
As a percentage of revenues, Sivan's general and administrative expenses,
without giving effect to the Mashov management fees, was 27.7% in 1996 and 24.6%
in 1995. The increase in general and administrative expenses was principally due
to the increase in sales as Sivan attempted to manage its continued growth which
included the opening of the Or-Yehuda branch in late 1995. Beginning in 1997,
Mashov ceased charging management fees. In 1996, Mashov CBT's general and
administrative expenses totaled $73, of which $57 were management fees paid to
Mashov. Similarly, beginning in 1997, Mashov ceased charging Mashov CBT any
management fees.
Financial expenses, net. Financial expenses, net, consisted primarily of
interest expenses on a loan provided by Mashov. Financial expenses increased 5%
to $455 in 1996 from $433 in 1995. In 1996, substantially all of the financial
expenses of Mentortech related to the operations of Sivan, except for $3
attributable to Mashov CBT. The interest charged to Sivan by Mashov in 1996 was
$434 as compared to $355 in 1995.
Income taxes. In 1996, Mentortech incurred income taxes of $45. Mentortech
did not incur any taxes in 1995. Although Mentortech incurred a pretax loss from
operations of $821 in 1996, a tax liability arose from a tax adjustment in
respect of inflation in Israel, taxes assessed in previous year's operations and
nondeductible expenses.
Equity in earnings of an affiliate. Mentortech recognized income and loss
from its affiliate, Sivan Jerusalem, which corporation was 50% owned until
January 1997, when Mentortech acquired all of the outstanding shares of such
company. In 1996, Mentortech recognized $68 from its equity interest as compared
to $61 in 1995.
Net loss. As a result of the foregoing Mentortech incurred a net loss of
$798 in 1996, of which $452 was attributable to Sivan and $346 attributable to
Mashov CBT. In 1995 Sivan incurred a net loss of $307.
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Liquidity and Capital Resources
At September 30, 1997, the Company had $34 in cash and cash equivalents and
a working capital deficiency of $2,201. At December 31, 1996, the cash and
working capital deficiency was $50 and $1,946, for the U.S. Operation, and $384
and $1,618, respectively, for Sivan. The improved cash position at September 30,
1997 was a result of Mashov's infusion of approximately $1,200 into the Company
pursuant to the Stock Purchase Agreement, offset by operating losses as well as
an increase in accounts receivable and an investment in computer equipment and
other fixed assets.
In order to permit the Company to finance its growth and improve its
financial condition, the Company completed a private placement of securities in
December 1997, wherein it issued and sold 2,045,455 units, each unit consisting
of two shares of Common Stock and a 1997 Warrant. The Company obtained net
proceeds of approximately $2,040,000 from the private placement. The Company's
financial position was further improved by Mashov's conversion of $1,162,000 of
debt into 1,056,363 units, each consisting of two shares of Common Stock and a
1997 Warrant. As a result of these two transactions, the Company had a positive
working capital position at year end.
In 1997, the Company obtained a commitment from its Israeli bank to provide
Sivan up to $1.1 million in working capital loans. As of September 30, 1997,
Sivan had borrowed $1 million from such bank.
The Company used net cash of $612 in operating activities in the nine
months ended September 30, 1997. Accounts receivable increased by $121 during
the same period. This increase was due primarily to the increase in revenues.
Accounts payable decreased by $520 during the same period. The Company's
investing activities resulted in $335 mainly from the cash received in
connection with the Stock Purchase Agreement offset by the purchase of $908 in
fixed assets and $45 used to purchase Sivan Jerusalem. Financing activities
provided $43, principally from short term bank credit.
In October 1997, the Company acquired the assets of GLTN Computer
Consultants, Inc., a Long Island, New York, ILT training company in
consideration of $130,000 and the issuance of 127,273 shares of Common Stock.
Based on its improved financial condition and the oral commitment of its
bank, the Company believes that it has sufficient working capital to meet its
obligations through 1998.
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BUSINESS
Introduction
The Company develops and offers ILT and TBT courses for information
technology professionals and end-users and also provides consulting services, in
both the State of Israel and the New York tri-state area. The Company's ILT
programs include a wide range of introductory and advanced classes in operating
systems (Windows 95, Windows NT, UNIX, Netware), word processing, spreadsheets,
databases (Oracle, MS SQL Server), communication software, integrated software
packages, computer graphics, desktop publishing, and groupware products,
including Lotus Notes. In Israel the Company offers an extensive curriculum,
including courses in IT vocational training which provide full change of career
opportunities for individuals seeking to become IT professionals. The Company's
TBT software line includes offerings on Lotus Notes, cc: Mail, Microsoft Office,
and other end-user titles. The Company's CSD provides short to medium term
technical consulting to large and mid-sized corporations in the Northeast region
of the U.S., although no single client accounts for more than 10% of the
Company's revenues.
The Company has been authorized as a training center by a number of
software and hardware manufacturers, including Microsoft, Novell (in Israel
only), Corel, Borland, Apple, Lotus (in the United States only)and Magic. The
Company offers an extensive curriculum of Microsoft courses under its Microsoft
Advanced Technical & Education Center Authorization, and Lotus Notes courses
under the Company's Lotus Premium Partner and Lotus Authorized Education Center
(LAEC) Status. The authorization status entitles the Company to preview new
products, and thus enables the Company to coordinate the introduction of
training products concurrently with product releases. In addition, the
authorization status allows the Company to purchase training manuals from the
software publishers and offer official vendor courses.
The Company develops and offers TBT programs for use in conjunction with
some of its ILT classes. Management believes that certain software packages and
other computer-related topics are particularly suited to being taught in this
manner. For example, TBT programs are an economical approach to training users
on new features of software upgrades. The Company supplies TBT programs on
floppy disks and compact disks for stand-alone PC's, as well as LANs, WANs,
Intranets, and the Internet via InterTrainer for networked PC's. InterTrainer is
Mentortech's platform for delivering just-in-time, continuous learning directly
to the desktop through web browsers. In addition to end-user applications, the
Company also develops custom TBT projects for large corporations. These custom
TBT titles assist corporations in the training and integration of internal
applications and other non-IT related training topics, such as a bank-teller
training title developed for a leading Israeli bank.
The Company's Consulting Services Division ("CSD") is responsible for
identifying and providing computer personnel, on a temporary basis, to the
Company's client base for special projects. The Company provides its clients
with its own full-time employees, as well as with independent contractors.
Consultants' projects include (i) development of computer programs in
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accordance with the client's specifications; (ii) installation of network
operating systems, and networking and communications software tools; (iii)
troubleshooting software problems; and (iv) staffing end-user help desk support.
Demand for training in information technology products is generated by the
rapid pace of technology's product cycles. The pace of emerging technologies has
increased dramatically and this has fueled a demand for IT training and
consulting. The business community continues to adopt the technologies, thus
absorbing the continuing introduction of new products. Publishers of tools,
operating systems and applications produce new versions, on average, once a year
and some even maintain a pace of twice a year or more. For instance, the
emergence of the Internet has created an urgent need to train programmers in the
platform language. Following the initial implementation, new technologies have
emerged, including HTML, Java, ActiveX, audio and video support. The need to
master new versions creates continued demand for training.
In 1995, 1996 and the nine months ended September 30, 1997, the Company and
its predecessor derived substantially all of their revenues from training and
consulting services. As reflected in the following table, revenues from U.S.
training service declined in this period while increasing in Israel and revenues
from U.S. consulting services grew.
Revenues
------------------------------------------
Nine months
ended
Year ended December 31, September 30,
1995 1996 1997
---- ---- ----
(in thousands)
U.S. training..................... $8,136 $3,038 $1,143
Israel training................... 6,651 9,158 8,260
U.S. consulting................... 3,940 4,003 3,065
TBT............................... -- 242 254
Background
U.S. Operations
PCE U.S. was founded in 1985 to serve the growing demand for PC training
following the introduction and proliferation of the IBM PC. Later, the Company
grew serving the training requirements generated by the propagation of the PC at
the corporate desktop. The massive migration from text-based DOS PC's to
Windows-based operating systems generated another growth spurt. Corporations and
individuals making the change from DOS to Windows required the training services
that PCE U.S. offered. PCE U.S.'s main focus was on end-user applications
training via instructor-led training and technology-based training. PCE U.S.
followed a typical training model,
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offering day-long, multi-day sessions. PCE U.S. trained approximately 45,000
students in 1994, 33,000 students in 1995, 28,000 students in 1996, and 11,194
students for the nine months ended, September 30, 1997. As disclosed herein, the
ILT revenues of the U.S. operations have been decreasing.
In the late 1980s and early 1990s PCE U.S. embarked on a geographic
expansion plan that resulted in substantial losses. Throughout this period PCE
U.S.'s operations in the New York metropolitan market continued to be
profitable. PCE U.S. sold a Canadian subsidiary in January 1996, shut-down its
Israeli-based R&D center in March 1996 and sold a San Francisco branch in April
1996.
Prior to the stock purchase transaction with Mashov, PCE U.S. began to
experience a decline in its traditional ILT business which trend has continued
into 1997. In addition, failed investments had left the Company with an
insufficient amount of capital to expand internally, particularly in its growing
CSD business. The stock purchase transaction with Mashov has allowed the Company
to expand its ILT business and has provided the Company with additional capital
for expansion.
In October 1997, the Company acquired the assets of GLTN Computer
Consultants, Inc., a Long Island, New York, ILT training company in consents of
$130,000 at the issue of 127,273 shares of Common Stock. In the nine months
ended September 30, 1997 GLTN had revenue of approximately $700,000.
Israeli Operations
Sivan
Sivan was founded in 1977. At such time it principally offered classes in
systems analysis and programming. The operations of Sivan were acquired by
Mashov in 1994. Under the leadership of the current management team, Sivan's
sales increased from approximately $4 million in 1994 to $9.2 million in 1996.
Sivan is a leading Israeli IT training company, with over sixty classrooms in
ten cities throughout Israel. Sivan is certified by numerous software
publishers, including Novell, Microsoft, Borland, SCO, Lotus, MSE and others.
Several of Sivan's sites have been awarded Microsoft's Advanced Technical
Education Center Authorization, with the remainder expected to be authorized in
the near future.
Sivan trained approximately 31,000 students in 1994, 42,000 students in
1995, 55,000 students in 1996, and approximately 43,750 student in the nine
months ended September 30, 1997. In 1996, training revenues were split 60% for
individual students and 40% for governmental and corporate-sponsored training.
Sivan employs 75 full time people and uses a combination of in-house and
freelance trainers to fulfill the demand for its services. Due to Sivan's size
and its ability to provide many teaching hours to its free-lance contractors,
Sivan's agreements with them stipulate that they can only teach at Sivan's
locations and can not maintain their Sivan contracts if they teach for other
training companies. This arrangement ensures that, while Sivan maintains its
adjunct
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professional teaching faculty, it does not incur the benefits cost associated
with full-time employment contracts.
One of Sivan's major strengths is its vocational training programs. These
programs represent over 30% of Sivan's revenues. These programs, developed by
Sivan experts, provide full vocational training to individuals who want to
become IT professionals and are accredited by the Israeli government and
recognized by leading high-tech employers in Israel. The vocational training
arena will grow with the demand for IT professionals and Mentortech intends to
launch vocational programs in the U.S. based on the proven Sivan model. The
creation of such programs in the U.S. will allow Mentortech to develop talent
internally and then offer it to corporations on a consulting basis.
Sivan offers its training through six academic departments:
o Professional acquisition: vocational courses in Programming in C
and C++, real-time Programming, PC technicians, Communication
Technicians and Application Specialists. These courses provide
between 400 - 900 classroom hours.
o System Analysts: The only course approved by the System Analysts
Guild in Israel.
o Continuing Professional Update: courses for IT professional
providing incremental technology and products updates. (Among
these courses are: JAVA for C++ programmers, ActiveX, new SQL
database versions, Delphi for programmers, PowerBuilder, VB,
Access and others).
o Communications: full curriculum of Novell, Microsoft as well as
AS/400, Mainframe and UNIX communication protocols.
o Graphics: courses offered in all current graphics packages both
for the print and the multi-media industries. These courses are
offered both for the Macintosh and WINTEL (Intel Architecture
based PCs running Windows operating system) environments.
o End-Users: courses offered in the popular end-user packages such
as Microsoft Office.
The model that Sivan employs to deliver all of its ILT courses is based on
a four-hour session model, rather than one-day courses as is the prevalent model
in the U.S. Management believes that teaching a course in four-hour sessions
over a greater length of time with added content, exercises, and homework is a
more effective way of learning technology.
Currently, Sivan is investing substantial efforts in increasing the number
of its value-added technical courses. Sivan offers one-year professional
acquisition programs, training participants to become programmers, PC
technicians, communication technicians, system analysts and help-desk end-user
support professionals. Sivan is currently launching new communications training
programs in cooperation with leading networking equipment companies, Internet
design and programming, ActiveX and Java professional training programs. These
courses have been extremely effective and generate continued demand from
graduates who require technical updates during their professional
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career. During the last two years, Sivan has graduated over 2,000 individuals
from such courses. Its diplomas are recognized by leading Israeli technology
companies and the Israeli Government's Ministry of Labor. Sivan supplements its
ILT end-user training courses with TBT materials, thus reducing end-user
training costs and freeing up instructors to teach technical courses.
Mashov CBT
Mashov CBT is engaged in the development of technology-based training
products. Mashov CBT's products include TBT titles for end-user applications,
custom projects, Hebrew and English titles for training in Microsoft Office,
Lotus Notes and cc:Mail. Mashov CBT provides full service custom development of
training concepts, supporting materials, delivery media and tools. Custom
projects are tailored to corporate needs, such as training for bank tellers,
insurance agents, product scheduling. Mashov CBT is currently engaged in the
development of TBT products to work in conjunction with Sivan's ILT offerings.
Mashov CBT's products are targeted at corporations who utilize LANs, WANs,
Intranet and Internet. The TBT products are network-compatible and are easily
integrated into clients' systems. Mashov CBT intends to continue to expand its
product line to capitalize on the increasing capacity of such networks,
ultimately leading to fully-interactive network video and audio. As the Internet
becomes a more pervasive platform, Mashov CBT offers Internet delivery of
training and know-how. The content is viewed through popular Internet browsers
such as Netscape and Microsoft Explorer, and supports full simulation mode, drag
and drop simulations, audio, and video delivery. Intertrainer allows an
organization to maintain and support a single point TBT server accessible for
any user with network access. Mashov CBT is preparing content and technical
competency to exploit this developing platform in the U.S. and Israeli markets.
In addition to its activity in the IT arena, Mashov CBT provides training
titles and tools to various other industries:
o Banking: the Company developed a number of titles for leading
banks, both in Israel and in the U.S., providing training for
human resources personnel and bank tellers, and titles supporting
the implementation of, and training in, process and procedures.
o Defense: the Company develops custom projects for the Israeli
Ministry of Defense on various non-IT subjects.
o Insurance: the Company developed a training program supporting
remote agents in developing proposals based on a clients'
products.
Consulting Services
CSD identifies and provides independent computer professionals, on a
temporary basis, to the Company's client base for special projects. For example,
the Company currently has six help-desk professionals on assignment at large
pharmaceutical company, three end-user analysts on assignment at a multinational
consumer products company and three Lotus Notes application
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specialists on assignment at a "Big Six" accounting firm. Such projects include
the development of computer programs in accordance with the client's
specifications and requirements, the linking of client computers to allow the
client's employees to share information, files and devices, providing expertise
for the client's software programs, and providing troubleshooting services for
software problems. The Company charges its clients for such services on an
hourly or daily basis. The Company currently furnishes its full-time employees,
as well as independent contractors, to satisfy its clients' requirements.
Projects undertaken by the CSD have included:
o The development of computer programs in accordance with the
client's specifications.
o The installation of network operating systems, and networking and
communications software tools.
o Troubleshooting software problems and help-desk support.
o Staffing end-used help desks.
The CSD provides various services for its corporate customers including:
o Temporary consulting services provided by the Company's full time
employees.
o Temporary consulting services provided by the Company to its
corporate clients using independent subcontractors.
o Project development services in which the Company provides
fixed-bid software development projects. The Company executes
these projects using either it s full time employees or
independent subcontractors.
o Recruiting individuals identified by the Company for permanent IT
positions.
The Company is expanding its U.S.-based consulting practice by implementing
an incentive program for consultants and by developing a database of active IT
professionals, in addition to increasing recruiting initiatives, advertising,
and expanding the sales force. This strategy will enable the Company to retain a
cadre of qualified, highly-trained IT professionals for placement into
short-term and long-term consulting assignments or permanent positions.
The Company believes that the key for success in this area is the ability
to recruit and retain suitable consultants. Currently demand for professionals
with advanced skills far exceeds supply. The Company has adopted two incentive
programs in order to attract loyal IT professionals. These programs offer
employees reduced training fees and incremental pay raises based on the number
of consulting hours each has logged through the Company. The reduced training
fees will enable the consultants to stay current with changing technologies and
further equip them for assignments. Management believes that linking pay raises
with accumulated consulting hours will encourage consultants to dedicate their
services to the Company's clients. It is hoped that increased consultant loyalty
will result in improved skills and repeat placement in consulting assignments.
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Training Programs
Methodology
The Company has developed a variety of computer training programs utilizing
different methods. One method utilizes traditional ILT classes, varying in
length from several hours to several months. Another training method utilizes
the computer and interactive video instruction tapes to teach the student.
Certain employers request a combination of these training methods. The Company
currently provides both live ILT classes and TBT software products, since it
believes that these are the best methods for teaching personal computer skills.
The Company's ILT programs offer a wide range of courses in operating
systems, including Microsoft Windows, Windows NT workstation and server, Novell
NetWare, programming in basic languages such as C, C++ and programming courses
in new development tools such as Microsoft, VB, J++ and other development tools,
word processing, spreadsheets, databases, communications, executive overviews,
integrated software packages, computer graphics, desktop publishing and
groupware products including Lotus Notes. Such programs generally are devised
for use in connection with computing based on networks. The Company currently
offers over 160 different courses.
Each of the Company's live classroom training programs is divided into
modules consisting of introductory lectures, computer exercises with the
assistance of a trainer, and independent exercises without a trainer. Each of
the Company's TBT products is divided into tasks and sub-tasks. This format
allows the product to be used as either a training tool, where the entire TBT is
followed from beginning to end, or as a reference tool, where an end-user
directly accesses the task or sub-task that needs to be studied.
The Company's training model is based on a training model developed by
Sivan in Israel. Sivan's model differs from the prevalent approach to technical
training of IT professionals in two key respects: (i) duration of courses and
(ii) emphasis on practical applications.
Sivan is completing the development of a new administrative application.
This new application will allow Sivan to centralize the information
distribution, registration and scheduling activities for the entire Sivan chain
of schools. Moreover, the new application will provide online information to
potential students and enable online course registration via the Internet.
Training Services
The Company offers several ILT programs to satisfy customer needs,
including public and private courses and special tutorial services.
Public seminars are scheduled on a regular basis at the Company's own
training facilities. The Company offers a variety of public courses that are
designed to accommodate varied levels of
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expertise, background and objectives. The Company distributes its public seminar
schedule to existing and potential customers on a quarterly basis and publishes
its schedule in its Internet sites.
Private seminars are classes which are designed specifically for groups of
employees from one business on a specific topic. Private courses generally are
held either at the Company's training facilities or at the customer's premises.
The curriculum for such private seminars is generally identical to the
standardized curriculum provided at public seminars; however, the curricula may
be adapted to accommodate customer specifications.
The Company also provides special tutorial services to address particular
needs of customers requiring individual attention for their employees.
Consulting services, which are provided either at the Company's own facilities
or those of its customers, typically provide for a trainer to meet with one to
three employees and may involve a customized curriculum. The Company also
develops customized applications for certain software programs utilized by its
customers.
In furtherance of the Company's belief that hands-on application is
essential to computer training, a personal computer is furnished to each student
for his or her exclusive use during ILT programs. Classes that are conducted on
a customer's premises utilize either the customer's own personal computers or
computers furnished by the Company. The Company either owns or leases the
computers utilized for its training programs, with lease terms generally being
three years or less due to the rapid obsolescence of technology. The Company
also provides, without charge, a post-class telephone support line during normal
business hours to answer questions from any enrollees or former enrollees in the
Company's training programs. In providing ILT services, the Company utilizes
professional trainers who possess both teaching skills and a technical command
of the subject matter. The Company presently has over 250 trainers available.
Software Manufacturers' Authorized Training Centers
The Company is authorized to act as a training center by many software
manufacturers, including Novell, Lotus and Microsoft. The Company was the
recipient of the LAEC Award for training the most students in Lotus' Windows
application software. The Company also received a Top Performing Microsoft
Authorized Training Center Award for training the most students in Microsoft
products. The Company was recently authorized by Lotus Development Corporation
("Lotus") as a LAEC for its "Notes" product and was recently upgraded to
Platinum Business Partner. "Notes" is a popular document database product which
provides a means of organizing documents and making them accessible to a group
of people. A "Notes" document can be read, revised, and responded to by many
people. As a Platinum Business Partner, the Company is entitled to receive
specific referrals for new students from Lotus, such that Lotus actually
forwards the name of the student prospect to the Company. Additionally, Lotus
provides marketing support to the Company including payment of a proportion of
the cost of promotional materials. The Company expects that training with regard
to Lotus Notes software products specifically, and work group computing in
general, will be an increasing percentage of its revenues. Work group computing
refers to the software that enables groups of people to collaborate together.
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The Company expends substantial efforts in seeking authorization as a
training center by software manufacturers, including recently established and
start-up software vendors. Management believes that such authorizations have
several advantages, including referrals from software manufacturers and free
listings in the advertising literature published or distributed by such
manufacturers. As an authorized training center, the Company also receives
pre-release copies of new software products enabling the development of
instruction programs prior to the public distribution of these products. The
Company also engages in joint promotions with software manufacturers relating to
specific products. To secure designation as an authorized training center, the
Company is required to pay certain software manufacturers an annual fee of
between $300 to $5,000 per facility and is obligated to furnish manufacturers
with periodic reports on the number of trainees and similar statistical
information.
Program Costs
In the U.S., the Company typically charges its customers from $75 per
enrollee (for introductory classes) to $5,000 per enrollee to conduct ILT
programs. In Israel, the Company typically charges from $200 to $5,000 per
enrollee to conduct ILT programs. Pricing considerations vary depending on the
length and complexity of the program, the number of enrollees, whether the
course is a private one or offered on an open enrollment basis, and the physical
location of the training. The Company's refund policy provides that dissatisfied
trainees may either attend the same program without charge or the trainee's
employer may request a full refund.
The Company's Mentortrain Technology Series products are currently marketed
in the U.S. under various site license agreements at prices of between $1,000
and $10,000 per title. The Company also offers custom TBTs to its customers at
prices ranging from $8,000 to $15,000 per hour of TBT training.
Courseware and TBT Product Development
The Company's TBT products are currently developed by the R&D group located
at Mashov CBT in Israel and comprises 13 programmers and 2 education specialists
with extensive experience in training and education development. The Company's
training staff provides the product and educational design expertise, while the
designer supplies the authoring tool expertise.
Unlike certain of its competitors, the Company provides only training and
consulting services and does not sell any computer hardware, software or related
products other than TBT programs as discussed above. This enables the Company to
focus on the development of its training programs, without preference to any
specific computer-related products except as merited by performance.
Protection of Proprietary Technology
The protection of proprietary information developed by the Company and used
in its training programs is limited to the protection that the Company is able
to secure under copyright laws and confidentiality agreements. However, there is
no assurance that the scope of the protection that the
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Company is able to secure will be adequate to protect its proprietary
information, or that the Company will have the financial resources to engage in
litigation against parties who may infringe on copyrights. In addition, there is
no assurance that competitors will not develop similar training programs
independently of the Company.
Marketing
The Company directs its ILT, TBT and CSD marketing efforts to those
industries and public sector organizations that devote substantial resources to
computer technology for employees. The Company has solid client relations
resulting from its 18 years of operation in Israel and twelve years of operation
in the United States. In the United States the Company has adopted a two-pronged
marketing strategy which addresses large corporations and small office/home
office market segments. One arm of this marketing effort directs ILT, TBT and
CSD emphasis to those industries and public sector organizations that devote
substantial resources to computer technology. In particular, the Company's
marketing activities are aimed at large corporations with multiple sites. These
companies often have complex computer systems spread among numerous locations.
In order to enable employees at various locations to use these facilities, it is
imperative that each employee receive comprehensive and homogenous training. In
addition to training their own employees, corporations hire IT consultants to
quickly acquire and implement new skills and technologies. Their centralized
decision-making facilitates ongoing staffing relationships and scheduling of
training programs.
Direct mail as well as print and radio advertising are the primary media
which are used to reach the small office and home office market segment. The
Company believes that word-of-mouth, as generated by individual and corporate
clients, has the largest potential for gaining new customers.
The Company, in conjunction with software vendors, has established
informational seminars on new software products. These seminars inform potential
customers about the Company's training programs and staffing services. In
addition to these efforts, the Company's account managers act as liaisons with
customers to ensure that the customers select appropriate training programs.
These account managers are knowledgeable about the customer's specific computer
training needs, and can therefore recommend and promote newly offered services.
The Company's marketing efforts include:
o Direct mail solicitation;
o Telephone contact;
o Radio and print advertisement;
o Computer trade show exhibits throughout the U.S.; and
o World Wide Web site.
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Customers
No one customer accounted for more than ten percent of the Company's
revenues during the year ended December 31, 1996 or the nine months ended
September 30, 1997.
Competition
The Company's primary competitors are providers of training products and
services, including education and training specialists, internal corporate IT
departments, software vendors and Big Six consulting practices. Some of these
competitors offer course titles and programs covering similar topics as those of
the Company. Many competitors have significant financial, technical, sales,
marketing and other resources, as well as widespread name recognition. In
addition, some of the larger instructor-led training organizations have the
capacity to develop technology-based training products that they could then
distribute through their existing distribution channels to their current client
base.
Employees
As of December 31, 1997, the Company employed approximately 292 full-time
persons, including 72 full-time employees in its New York operations and
approximately 220 full-time persons in its Israeli operations. In its New York
operations, the Company employed 17 persons as full time trainers, 19 persons as
consultants, 19 persons in sales, marketing and sales administration and 17
persons in management, finance and operations and also employs 12 freelance
trainers. Sivan employed approximately 85 full-time persons as trainers, 64
persons in sales, marketing and sales administration, and 54 persons in
management, finance and operations. Sivan also employs approximately 46
freelance trainers. Mashov CBT employed 13 persons in research and development,
2 persons in sales and marketing and 2 persons in administration. See also
"Conditions in Israel."
Properties
The Company occupies approximately 16,000 square feet of space at 462
Seventh Avenue, New York, New York where the Company's executive offices and ten
classrooms are located. These premises are occupied under a lease agreement
expiring on January 14, 2004 at a current base annual rental of $288,000, with a
rental increase to $320,000 per annum effective January 14, 1999. The Company
leases approximately 2,500 square feet of classroom space in Garden City, New
York at a base annual rental of $50,260 under a lease which expires on September
30, 1998. In addition, the Company leases approximately 1,200 square feet of
classroom space in Melville, New York at an annual rental of $28,700 under a
lease which expires on October 14, 1998.
37
<PAGE>
Sivan and Mashov CBT lease space in Israel in accordance with the following
table:
<TABLE>
<CAPTION>
Square Monthly
Location Lease Expiration Option Footage Rent
- -------- ---------------- ------ ------- ----
<S> <S> <S> <C> <C>
Tel-Aviv, Sderot March 31, 1998 Six options of 1 9,900 $17,000
Yehudit year each
Tel-Aviv, Beit Hilel December 31, 1999 Two options of 2 9,000 $15,300
years each
Tel-Aviv, Barak August 31, 1997 None 900 $ 3,800
Rishon Le' Zion December 31, 1997 One option of 1 2,000 $ 3,400
year
Rishon Le' Zion February 28, 1998 Two options of 1 900 $ 1,200
year each.
Jerusalem July 31, 1998 1 year option 1,300 $ 2,100
Jerusalem December 31, 1997 1 year option 2,000 $ 2,580
Or-Yehuda February 28, 2000 None 1,110 $ 2,056
Or-Yehuda April 1, 1998 February 28, 2000 870 $ 2,390
</TABLE>
38
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
Director
Name Age Position with the Company Since
- ---- --- ------------------------- -----
Roy Machnes 37 Chairman, President, Chief 1997
Executive Officer and Director
Elan Penn 45 Chief Financial Officer and 1997
Director
Terry I. Steinberg 42 Executive Vice President and 1985
Director
Adrienne Haber 40 Controller and Chief Accounting
Officer
David Assia 45 Director 1997
Jack Dunietz 42 Director 1997
Martin F. Kahn 46 Director 1995
David Assia. Mr. Assia has served as a director of the Company since
February 1997. He is a co-founder with Mr. Dunietz of Mashov Computers Ltd. and
has been its Chairman since 1989. Mr. Assia has been Managing Director, since
its inception in 1983, of Magic Software Enterprises Ltd. ("Magic"), a developer
and provider of network software products and services for departmental,
client/server and Internet/Intranet applications, and has been Chairman of Magic
since 1986. He also serves as a director of Mashov and Aladdin Knowledge Systems
Ltd. Mr. Assia holds a B.A. and an M.B.A. from the Tel-Aviv University.
Jack Dunietz. Mr. Dunietz has served as a director of the Company since
February 1997. He is a co-founder with Mr. Assia of Mashov Computers Ltd. of
which he has been the Chief Executive Officer since 1987. Mr. Dunietz also
serves as a director and interim Chief Executive Officer of Magic and a director
of Mashov and Paradigm Geophysical Ltd. & Data Automation Ltd. Mr. Dunietz holds
a B.SC. in Computer Science from the Technion Israel Institute of Technology.
Adrienne Haber. Ms. Haber has served as the Company's Controller since
February 1997 and served as Controller of PCE U.S. for the eight years prior
thereto. Ms. Haber holds a B.S. in Accounting from Lehman College and is a
Certified Public Accountant.
Martin F. Kahn. Mr. Kahn has served as a director of the Company since May
1995 and was Chairman of the Board of the Company from May 1995 until February
1997. He has served since 1989 as Chairman of Ovid Technologies, Inc., a leading
producer of medical, scientific and technical CD-ROM and network products; since
September 1993 as Chairman of OneSource Information Services, which develops and
markets a comprehensive set of integrated business information and
39
<PAGE>
software products; since 1991 as a Director of Vista Information Solutions, Inc.
(formerly DataMap, Inc., a successor through merger to Vista Environmental
Information, Inc.) which supplies site-specific risk information about real
estate for the insurance, banking, and environmental engineering markets; since
April 1995 as Chairman and CEO of Shoppers Express, Inc., which offers home
grocery shopping through dial-up and on-line services; and since March 1996 as
Managing Director of Cadence Information Associates L.L.C. (and its
predecessor), a consulting and management services firm. Mr. Kahn holds a
Bachelors Degree in Administrative Sciences from Yale College and an M.B.A. from
Harvard Business School.
Roy Machnes. Mr. Machnes has served as the Company's Chairman of the Board
and Chief Executive Officer and a director since February 1997. Since January
1994, he has been Chairman and Chief Executive Officer of Mashov, and prior
thereto, from 1988, he served as Vice President Sales of Mashov Computers Ltd.
Mr. Machnes is also a director of Mashov Computers Ltd. He holds a B.A. from the
University of California at Berkeley.
Elan Penn. Mr. Penn has served as the Company's Chief Financial Officer and
a director since February 1997. He also serves as the Chief Executive Officer of
Mashov and Chief Financial Officer of Mashov Computers Ltd. Mr. Penn joined
Mashov Computers Ltd. and Magic as their Vice President of Finance and
Administration in June 1992. In February 1997, he resigned his position at Magic
to assume the position of Chief Financial Officer of the Company. From January
1991 until May 1992, Mr. Penn was employed by Solgood Representatives Ltd., an
electronics equipment sales representative firm, where he acted in an executive
capacity. Prior to January 1991, he was Vice President of Finance of Mashov
Computers. Mr. Penn holds a B.A. in Economics from the Hebrew University of
Jerusalem and a Ph.D. in Management Science from the University of London.
Terry I. Steinberg. Mr. Steinberg has served as the Company's Executive
Vice President, responsible for North American Sales and Marketing since
February 1997, and a director since 1985. He served as President and Chief
Executive Officer of PCE U.S. since its inception in 1985 until February 1997
and has served as its Treasurer from August 1991. He currently serves as
Secretary. For more than five years prior to PCE U.S.'s inception, he was the
Director of Decision Support for Paramount Pictures Corporation, with
responsibility for all end-user computing. Mr. Steinberg holds a Bachelor's
Degree in Applied Mathematics and Computer Science and an M.B.A., both from
McGill University.
Messrs. Machnes, Penn, Assia, and Dunietz own 1.51%, 0.4%, 0.56% and 3.15%
of the voting equity of Mashov, respectively. Mashov is an 80%-owned subsidiary
of Mashov Computers Ltd., a publicly-held company in Israel. Messrs. Assia and
Dunietz are directors of Mashov Computers Ltd. and are the beneficial owners of
approximately 30% of its issued and outstanding shares.
Mr. Machnes is a resident of New York City and expects to spend
approximately 50% of his work time in the U.S. and the remainder in Israel. Mr.
Penn is a resident of Israel and expects to spend approximately 75% of his work
time in Israel and the remainder in the U.S. Mr. Steinberg is a resident of
Nassau County, New York and devotes substantially all of his time to the
Company's operation in the United States. Due to the fact that a substantial
portion of the Company's
40
<PAGE>
operations are located in Israel and the availability of facsimile, Internet and
telephone communications technologies, the Company expects that the domicile
arrangements of the Company's officers will have no material impact on the
operations of the Company.
Directors' Compensation
Directors, whether or not they are also employees of the Company, are not
paid any fees or other remuneration for service on the Board. The Company
reimburses all of its directors for their out-of-pocket expenses incurred in the
performance of their duties as directors of the Company.
Executive Compensation
The following table sets forth information concerning the compensation
during the last three fiscal years of the Company's chief executive officer and
its only other executive officer who served as such in 1996 and whose total
salary during any of the three prior fiscal years was $100,000 or more. The
Company did not pay any bonuses or make any restricted stock grants in 1994,
1995 or 1996 and the Company has a 401(k) savings plan for its executives which
is available to all Company employees. The current value of all perquisites and
other personal benefits furnished in each of such years to each of the executive
officers named below was less than 10% of such officer's salary for such year.
Summary Compensation Table
Annual Compensation -
Name and principal position (1) Year Salary ($)
- --------------------------- ---- --------------------
Terry I. Steinberg 1996 90,000
President and Chief 1995 99,360
Executive Officer (2) 1994 131,750
- ------------
(1) See "Employment Agreements" at pages 45-46 for information regarding the
current officers of the Company.
(2) Effective February 13, 1997, Mr. Steinberg was appointed Executive Vice
President.
Stock Options
The following table provides information concerning exercises of stock
options during 1996 by each of the executive officers named above in the Summary
Compensation Table, and the number and value of unexercised options held by each
of them at December 31, 1996. No options were granted to these persons in 1996.
41
<PAGE>
Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values
Number of shares
underlying Value of unexercised
unexercised options at in-the-money options
Shares FY-end (#) at FY-end ($)(1)
acquired on exercisable/ exercisable/
Name exercise (#) unexercisable unexercisable
- ---- ------------ ------------- -------------
Terry I. Steinberg -- 20,000/0 --/--
- ----------------
(1) Difference between the aggregate market value of the underlying shares
(based on the average ($.47) of the bid and the asked prices of a share of
Common Stock on December 31, 1996) and the aggregate exercise price of such
shares.
Employment Agreements
Pursuant to the Stock Purchase Agreement and effective February 13, 1997,
the Company entered into employment contracts with each of Roy Machnes, Terry I.
Steinberg and Elan Penn, providing for their employment as Chief Executive
Officer, Executive Vice President and Chief Financial Officer, respectively, of
the Company. Pursuant to such contracts, and effective as of August 4, 1997,
Messrs. Machnes, Steinberg and Penn were granted incentive stock options to
purchase 325,000, 240,000 and 200,000 shares of Common Stock, respectively,
which options vest over a three-year period commencing in August 1997. The
exercise price of such stock options is $0.584 per share.
The base salaries of Messrs. Machnes and Steinberg are each $155,000. Mr.
Penn's salary is paid at a rate of $10,000 per month, adjusted monthly in a
percentage amount equal to the increase in the Consumer Price Index as published
by the Israeli Bureau of Labor Statistics.
Mr. Machnes's employment agreement provides that, although he may perform
the services contemplated by such agreement in the U.S. or Israel, the Company
will pay for or reimburse certain of Mr. Machnes's relocation and living
expenses should Mr. Machnes choose to live in the U.S. during the period of his
employment. Specifically, the Company must pay (or reimburse Mr. Machnes) if he
incurs such expenses for the following: (1) $20,000 for expenses incurred during
any relocation of Mr. Machnes, his family and their possessions to New York; (2)
all expenses associated with the education of Mr. Machnes's children including
private school tuition and associated expenses (estimated at $20,000 per annum)
in the United States; (3) an apartment in Manhattan, New York, including any
associated real estate broker's fees, less the amount of any rental payments
received from the lease of Mr. Machnes's home in Israel, net of associated
42
<PAGE>
expenses; and (4) any expenses incurred by Mr. Machnes in connection with a
visit by his family to Israel once each year. If any of the above constitute
taxable income to Mr. Machnes, such amounts are to be grossed up to account for
the payment of any taxes due, and are to be adjusted upwards annually in a
percentage amount equal to the Consumer Price Index for all urban consumers in
the New York, New Jersey and Connecticut area as published by the Bureau of
Labor Statistics. Should Mr. Machnes' employment be terminated for any reason,
Mr. Machnes is to be reimbursed for relocation expenses of no more than $20,000
in connection with Mr. Machnes's relocation to Israel.
During the eight months ended August 31, 1997, the Company paid
approximately $19,000 for Mr. Machnes's relocation expenses to New York and
pre-paid approximately $15,000 for tuition for Mr. Machnes' children. The
Company also pre-paid approximately $56,000 for the rental of an apartment in
New York which it leased for the use of its executives. The apartment is being
used by Mr. Machnes at the present time. No expenses have been incurred by the
Company for any visits by Mr. Machnes (or his family) to Israel. Any amounts
that are taxable to Mr. Machnes will be grossed up to compensate Mr. Machnes for
any taxes due.
Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities that
they may incur in such capacities, including liabilities under the Securities
Act. The Company's By-Laws provide that the Company will indemnify its directors
and officers to the fullest extent permitted by law and require the Company to
advance litigation expenses upon receipt by the Company of an undertaking from
the director or officer to repay such advances if it is ultimately determined
that the director or officer is not entitled to indemnification. The By-Laws
further provide that rights conferred under the By-Laws will not be deemed to be
exclusive of any other right such persons may have or acquire under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
The Company's Certificate of Incorporation provides that, pursuant to
Delaware law, its directors will not be liable for monetary damages for breach
of the directors' fiduciary duty to the Company and its stockholders. This
provision in the Certificate of Incorporation does not eliminate the duty of
care, and, in appropriate circumstances, equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware law.
In addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to the Company or its stockholders, for acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law, for actions leading to improper personal benefits to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
43
<PAGE>
Stock Option Plan
The Company's 1997 Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors on June 25, 1997 and ratified by the Company's stockholders
on August 4, 1997. The Option Plan provides for the granting of incentive stock
options ("Incentive Stock Options"), within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, to employees, and for the granting of
nonstatutory stock options ("Nonstatutory Stock Options") to employees,
non-employee directors, consultants and advisors. A total of 5,000,000 shares of
Common Stock have been reserved for issuance under the Option Plan. As of
December 31, 1997, 255,001 shares are subject to outstanding Incentive Stock
Options under the Option Plan. These Incentive Stock Options were granted
contingent upon stockholder approval of the Option Plan.
The exercise price of all Incentive Stock Options must be at least equal to
the fair market value of the Common Stock on the date of grant and the option
term may not exceed ten years. The exercise price of all Nonstatutory Stock
Options granted under the Option Plan may be less than the fair market value of
the Common Stock on the date of grant and the option term may be greater than
ten years. Incentive Stock Options and Nonstatutory Stock Options ("Options")
may be exercised by delivery to the Company at its principal office of written
notice of the number of shares with respect to which the Option is being
exercised. Such notice must be accompanied by payment of the full option price
of such shares with a check payable to the order of the Company in such amount.
The Option Plan may be amended or terminated by the Board or the Company's
stockholders, but no such action may impair rights under a previously granted
Option. No Options may be granted under the Option Plan after June 25, 2007.
401(k) Plan
Effective as of January 1, 1993, the Company adopted a 401(k) Employee
Savings Plan (the "401(k) Plan"). The 401(k) Plan covers all employees of the
Company who have attained the age of 21 and are employed by the Company six
months after their employment commences, except those employees who work sixteen
or fewer days per month. A participating employee (a "Participant") may elect to
defer, in the form of pre-tax contributions to the 401(k) Plan, an amount up to
15% of his or her compensation for each year. A Participant's before-tax
contributions cannot exceed $9,500 per year, as adjusted for inflation. For each
year, the Company may contribute for each Participant a matching contribution
equal to 25% of so much of the Participant's before-tax contributions for the
year as does not exceed 4% of his or her compensation. In addition, for each
year, the Company may make a contribution, in any amount determined by the
Company in its sole discretion, to the 401(k) Plan that will be allocated to
Participants in accordance with a formula set forth in the 401(k) Plan.
Contributions to the 401(k) Plan made on behalf of a Participant are
invested in the manner directed by the Participant. Before-tax contributions and
Company matching contributions are fully vested and nonforfeitable at all times.
Company discretionary contributions vest according to a five-year graded vesting
schedule, based on a Participant's years of service.
44
<PAGE>
CERTAIN TRANSACTIONS
Effective February 13, 1997, a change of control of PCE U.S. occurred
pursuant to the Stock Purchase Agreement between PCE U.S. and Mashov, whose
shares are publicly traded on the TASE. Mashov is a subsidiary of Mashov
Computers Ltd., whose shares are also publicly traded on the TASE. Based on the
Stock Purchase Agreement, Mashov acquired 8,438,924 shares of Common Stock and
658,412 shares of Series C Preferred Stock of PCE U.S., where each share of
Series C Preferred Stock is convertible into 10 shares of Common Stock and has
10 to 1 voting rights in relation to shares of Common Stock. In consideration
for such stock issuances, PCE U.S. acquired two of Mashov's subsidiaries, Sivan,
and Mashov CBT. Pursuant to the Stock Purchase Agreement, Mashov acquired 69% of
PCE U.S.'s equity and voting securities on a fully diluted basis, subject to an
adjustment based upon the fiscal year 1996 audited balance sheets of PCE U.S.,
Sivan and Mashov CBT. Such adjustment was made on August 4, 1997 when Mashov
contributed 345,595 shares of Common Stock to the capital of PCE U.S. In
addition, on August 4, 1997, the 658,412 shares of Series C Preferred Stock was
converted by Mashov into 6,584,120 shares of Common Stock. As a result of the
adjustment discussed above and such conversion, Mashov currently owns 68.5% of
the Common Stock. All dollar amounts in this section are in thousands.
In 1996 certain departments of PC Israel (including employees and
equipment) were joined together to form Mashov CBT. PCE U.S. originally owned
30% of the ordinary shares of Mashov CBT. This ownership was subsequently sold
to Elron Electronics Industries Ltd. ("Elron"). Mashov owned 70% of the ordinary
shares of Mashov CBT. Pursuant to a purchase agreement dated February 6, 1997,
between Mashov and Elron, Mashov purchased the remaining 30% of the outstanding
shares of Mashov CBT held by Elron. In consideration of the purchase, Mashov
transferred 130,000 shares of Common Stock to Elron upon the execution of the
Stock Purchase Agreement. Pursuant to the Stock Purchase Agreement, 100% of the
ownership of Mashov CBT was transferred to PCE U.S.
Prior to the execution of the Stock Purchase Agreement, Sivan owned 312,547
shares of Mashov and 234,918 options to purchase shares of Mashov (collectively,
the "Mashov Option Shares"). Pursuant to an agreement dated February 5, 1997,
Sivan granted to Mashov Computers Ltd. the option to purchase the Mashov Option
Shares at the average market value of the Mashov Options Shares during the five
day period immediately following the consummation of the transactions
contemplated by the Stock Purchase Agreement, as quoted on the Tel Aviv Stock
Exchange. The Mashov Option Shares were purchased by Mashov Computers Ltd. in
consideration of approximately $175.
Mashov granted Sivan a shareholders' loan in October 1994 of approximately
$2.6 million which was converted into equity in the first quarter of 1997 as
part of the Stock Purchase Agreement. The loan was linked to the Israeli
Consumer Price Index and interest was charged at a rate of 6% per annum. Mashov
charged Sivan interest and linkage charges in 1996 and 1995 of $434 and $355
respectively. In addition, Mashov charged Sivan management fees of $691 and $181
45
<PAGE>
in 1996 and 1995, respectively. In 1996 Mashov charged Mashov CBT management
fees of $57. In December 1997, Mashov converted $1,162,000 of debt owed to it by
Sivan into 2,127,726 shares of Common Stock and 1,056,363 1997 Warrants.
In connection with the execution of the Stock Purchase Agreement, the
Company executed the Conversion Agreement, which provides that the Conversion
Parties (Elron, Rho Management Trust I (formerly Gibraltar Trust), the Star
Group (comprised of Justy Ltd., SVE STAR Ventures Enterprises No. II Gbr, SVE
STAR Ventures Enterprises No. III Gbr, SVE STAR Ventures Enterprises No. IIIA
Gbr, and Yozma Venture Capital Ltd)., Gilbert H. Steinberg, Special Situations
Fund III, L.P., and Special Situations Cayman Fund, L.P.), receive Common Stock
for the cancellation of debt owed by the Company and the dilution of warrants
owned by the Conversion Parties. See "Principal and Selling Stockholders."
Specifically: (i) the 1,000,000 shares of Series A Preferred Stock held by Elron
were converted into 200,000 shares of Common Stock; (ii) the Bridge Loans the
Company received from certain stockholders aggregating $436 as of December 31,
1996 were converted into 1,750,000 shares of Common Stock; and (iii) the holders
of Company warrants agreed to convert a total of 1,432,519 warrants (consisting
of 922,508 warrants outstanding as of December 31, 1996 which were subsequently
adjusted pursuant to the Conversion and Waiver Agreement under anti-dilution
provisions) into 344,464 shares of Common Stock.
46
<PAGE>
EQUITY OWNERSHIP OF
PRINCIPAL AND SELLING STOCKHOLDERS
AND OFFICERS AND DIRECTORS
The following table sets forth certain information as of January 25,
1998 with respect to the Shares to be sold by each Selling Stockholder, any
stockholder who owns greater than 5% of the outstanding Common Stock and the
Company's officers and directors. The Shares may be offered from time to time by
any of the Selling Stockholders, their transferees and their distributees. See
"Plan of Distribution."
<TABLE>
<CAPTION>
Beneficial
Ownership
Prior to Beneficial Ownership
Offering (1) After Offering (1)
------------ ----------------------------------
Number of Number of Percentage of
Number of Shares Shares Shares
Name and Address Shares to be Sold ------ Outstanding
- ---------------- ------ ---------- -----------
<S> <C> <C> <C> <C>
Mashov Computers
Marketing Ltd. ................(2) 17,716,538 3,169,089(3) 14,547,449 50.8%
Elron Electronic Industries Ltd. ..(4) 2,030,405 2,030,405(3) -- --
Special Situations Private Equity
Fund, L.P......................(5) 1,363,635 1,363,635(3) -- --
Brean Murray & Co., Inc............ 1,226,848 1,226,848(3) -- --
Rho Management Trust I............ (6) 1,166,671 416,628 750,043 --
SIL Nominees....................... 1,127,730 1,127,730(3) -- --
Helix Capital II, LLC.............. 968,532 968,532(3) -- --
Star Group ........................(7) 871,305 64,444 806,861 --
Gilbert H. Steinberg............... 655,631 366,569 289,062 --
Special Situations
Fund III, L.P...................(5) 455,192 455,192 -- --
Jan Mitchell ...................... 270,000 270,000(3) -- --
Uzi Zucker......................... 210,000 210,000(3) -- --
Helix Capital Corp., LLC........... 197,150 197,150 -- --
Special Situations Cayman Fund,
L.P...............................(5) 151,731 151,731 -- --
Awad & Associates L.P ()........... 150,000 150,000(3) -- --
FM Multi-Strategy Investment
Fund L.P. ..................... 150,000 150,000(3) -- --
A. Brean Murray ................... 150,000 150,000(3) -- --
Brean Murray Profit Sharing
Trust.............................. 150,000 150,000(3) -- --
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Beneficial
Ownership
Prior to Beneficial Ownership
Offering (1) After Offering (1)
------------ ----------------------------------
Number of Number of Percentage of
Number of Shares Shares Shares
Name and Address Shares to be Sold ------ Outstanding
- ---------------- ------ ---------- -----------
<S> <C> <C> <C> <C>
Dorothy Finsilver Trust............ 150,000 150,000(3) -- --
Chester A. Barrand................. 150,000 150,000(3) -- --
Joan M. Finsilver.................. 150,000 150,000(3) -- --
Gail Trugman Nikol ................ 127,273 127,273(3) -- --
Michael R. Bruce................... 120,000 120,000(3) -- --
James R. Tesone and Nancy
Barrand JTTEN...................... 111,000 111,000(3) -- --
Norman C. Fields................... 90,000 90,000(3) -- --
James F. Joy....................... 69,000 69,000(3) -- --
Daniel B. Katz and Gail P. Katz
JTTEN.............................. 69,000 69,000(3) -- --
David J. Mitchell.................. 69,000 69,000(3) -- --
Steven Slawson..................... 69,000 69,000(3) -- --
Delaware Charter TTEE
Retirement Plan DTD-1-1-78 FBO
Robert S. Anderson............... 57,000 57,000(3) -- --
Steven Margulies................... 36,000 36,000(3) -- --
Hilltop Offshore Limited........... 30,000 30,000(3) -- --
Hilltop Partners, L.P.............. 30,000 30,000(3) -- --
The R Trust........................ 30,000 30,000(3) -- --
Wolfson Equities................... 30,000 30,000(3) -- --
Wolfson Family Trust............... 30,000 30,000(3) -- --
GR&SA Beachley..................... 30,000 30,000(3) -- --
Elizabeth A. Clements, Trustee
u/w J. A. Clements............. 30,000 30,000(3) -- --
Peter Coolidge IRA................. 30,000 30,000(3) -- --
Margaret H. Duckworth.............. 30,000 30,000(3) -- --
Brian Harra IRA Rollover........... 30,000 30,000(3) -- --
David M. Holzer.................... 30,000 30,000(3) -- --
Christopher D. Illick.............. 30,000 30,000(3) -- --
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Beneficial
Ownership
Prior to Beneficial Ownership
Offering (1) After Offering (1)
------------ ----------------------------------
Number of Number of Percentage of
Number of Shares Shares Shares
Name and Address Shares to be Sold ------ Outstanding
- ---------------- ------ ---------- -----------
<S> <C> <C> <C> <C>
Craig Kornreich.................... 30,000 30,000(3) -- --
Joseph Kornreich................... 30,000 30,000(3) -- --
Stacey Kornreich................... 30,000 30,000(3) -- --
Gordon W. McCoun IRA............... 30,000 30,000(3) -- --
John C. Moore, III................. 30,000 30,000(3) -- --
Joseph A. Vafi and Roxanne M.
Vafi (JTTEN)................... 30,000 30,000(3) -- --
Lance Zipper....................... 30,000 30,000(3) -- --
Neal M. Richard.................... 15,000 15,000(3) -- --
David Assia........................(8)(9) -- -- -- --
Jack Dunietz.......................(8)(9) -- -- -- --
Martin F. Kahn.....................(8) 20,000 -- 20,000 --
Roy Machnes........................(8)(9) 113,334 -- 113,334(10) --
Elan Penn..........................(8)(9) 66,667 -- 66,667(11) --
Terry I. Steinberg.................(8) 390,458 -- 390,458(12) --
All executive officers and
directors as a group............... 590,459 -- 570,459 --
---------------
14,470,226
</TABLE>
- ----------------------
(1) Calculated pursuant to Rule 13d-3 promulgated under the Exchange Act.
Accordingly, with respect to each particular beneficial owner, the number
of shares of Common Stock gives effect to the deemed exercise of such
owner's options and warrants (which are currently exercisable or
exercisable within 60 days). Except as otherwise disclosed in the footnotes
below, the shares listed in this column for a person named in this table
are directly held by such person, with sole voting and dispositive power.
49
<PAGE>
(2) Address is 5 HaPlada Street, Or-Yehuda, Israel. Mashov Computers Marketing
Ltd. is an 80% owned subsidiary of Mashov Computers Ltd., which is also
located at 5 HaPlada Street, Or-Yehuda, Israel. Mashov Computers Ltd. may
be deemed the beneficial owner of the shares registered in the name of
Mashov Computers Marketing Ltd.
(3) Includes shares of Common Stock issuable upon exercise of currently
exercisable warrants held by:
Brean Murray Co., Inc. - 1,226,848 shares
Mashov Computers Marketing Ltd. - 1,056,363 shares
Elron Electronic Industries Ltd. - 180,000 shares
Special Situations Private Equity Fund, L.P. - 454,545 shares
SIL Nominees - 375,910 shares
Helix Capital II, LLC - 100,000 shares
Jan Mitchell - 90,000 shares
Uzi Zucker - 70,000 shares
Awad & Associates L.P. - 50,000 shares
FM Multi-Strategy Investment Fund L.P. - 50,000 shares
A. Brean Murray - 50,000 shares
Brean Murray Profit Sharing Trust - 50,000 shares
Dorothy Finsilver Trust - 50,000 shares
Chester A. Barrand - 50,000 shares
Joan M. Finsilver - 50,000 shares
Michael R. Bruce - 40,000 shares
James R. Tesone and Nancy Barrand JTTEN - 37,000 shares
Norman C. Fields - 30,000 shares
James F. Joy - 23,000 shares
Daniel B. Katz and Gail P. Katz JTTEN - 23,000 shares
David J. Mitchell - 23,000 shares
Steven Slawson - 23,000 shares
Delaware Charter TTEE Retirement Plan DTD 1-1-78 FBO Robert S. Anderson
- 19,000 shares
Steven Margulies - 12,000 shares
Hilltop Offshore Limited - 10,000 shares
Hilltop Partners, L.P. - 10,000 shares
The R Trust - 10,000 shares
Wolfson Equities - 10,000 shares
Wolfson Family Trust - 10,000 shares
GR&SA Beachley - 10,000 shares
Elizabeth A. Clements, Trustee u/w J.A. Clements - 10,000 shares
Peter Coolidge IRA - 10,000 shares
Margaret H. Duckworth - 10,000 shares
Brian Harra IRA Rollover - 10,000 shares
David M. Holzer - 10,000 shares
Christopher D. Illick - 10,000 shares
Craig Kornreich - 10,000 shares
Joseph Kornreich - 10,000 shares
Stacey Kornreich - 10,000 shares
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<PAGE>
Gordon W. McCoun IRA - 10,000 shares
John C. Moore, III - 10,000 shares
Joseph A. Vafi and Roxanne M. Vafi (JTTEN) - 10,000 shares
Lance Zipper - 10,000 shares
Neal M. Richard - 5,000 shares
(4) Address is Advanced Technology Center, P.O. Box 1573, Haifa, Israel.
(5) Special Situations Fund III, L.P., Special Situations Private Equity Fund,
L.P., and Special Situations Cayman Fund, L.P. are affiliated entities
managed through investment advisers principally owned by Austin W. Marxe
and David Greenhouse, each of whom, according to a Schedule 13D filed with
the Securities and Exchange Commission on December 17, 1997, possesses sole
voting and dispositive power over the shares beneficially owned by the
Special Situations entities. The address of each of the Special Situations
entities is 153 East 53rd Street, 51st Floor, New York, New York 10022.54
(6) Rho Management Partners L.P. may be deemed the beneficial owner of shares
registered in the name of Rho Management Trust I, pursuant to an investment
advisory agreement that confers sole voting and dispositive power over such
shares to Rho Management Partners L.P. The 1,166,671 shares of Common Stock
attributed to Rho Management Trust I includes 333,333 shares held of record
by Gilbralter Trust.
(7) The "Star Group" includes the following shareholders of the Company: Justy
Ltd. (261,392 shares); SVE Star Ventures Enterprises No. II Gbr (112,611
shares); SVE Star Ventures Enterprises No. III Gbr (297,422 shares); Yozma
Venture Capital Ltd. (174,260 shares); and SVE Star Ventures Enterprises
No. III AGbr (25,620). To the Company's best knowledge, Dr. Meir Barel
possesses sole voting and dispositive power over the shares beneficially
owned by the Star Group.
(8) Serves as a Director of Mentortech.
(9) Serves as a Director of Mashov Computers Marketing Ltd.
(10) Includes 108,334 shares issuable upon currently exercisable options.
(11) Includes 66,667 shares issuable upon currently exercisable options.
(12) Includes 100,000 shares issuable upon currently exercisable options.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of January 25, 1998, there were 27,569,405 shares of Common Stock
outstanding. Of these shares, assuming that all of the shares offered hereby are
sold (without any warrant exercises), approximately 13,022,000 shares will be
freely tradeable without restriction under the Securities Act, except for any
shares purchased by an "affiliate" of the Company (as that term is defined under
the rules and regulations under the Securities Act), which will be subject to
the resale limitations of Rule 144 adopted under the Securities Act. The
remaining outstanding shares were issued by the Company in transactions not
involving a public offering, and are thus treated as "restricted securities"
within the meaning of Rule 144 under the Securities Act. Sales of significant
numbers of shares of Common Stock in the public market could adversely affect
the market price of the Common Stock and could impair the Company's future
ability to raise capital through an offering of its equity securities.
In general, under Rule 144, as currently in effect, a stockholder (or
stockholders whose shares are aggregated), who has beneficially owned his or her
restricted securities (as that term is defined in Rule 144) for at least 1 year
from the later of the date such securities were acquired from the Company or (if
applicable) the date they were acquired from an affiliate, is entitled to sell,
within any three-month period, a number of such shares that does not exceed the
greater of 1% of the then outstanding shares of Common Stock (212,385 shares) or
the average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, affiliates of the
Company must comply with the restrictions and requirements of Rule 144, other
than the one year holding period requirement, in order to sell shares of Common
Stock that are not restricted securities. Under Rule 144(k), if a period of at
least two years has elapsed between the later of the date restricted securities
were acquired from the Company and the date they were acquired from an affiliate
of the Company, a stockholder who is not an affiliate of the Company at the time
of sale and has not been an affiliate at any time during the 90 days prior to
the sale would be entitled to sell the shares immediately without compliance
with the foregoing requirements under Rule 144.
DESCRIPTION OF CAPITAL STOCK
At January 25, 1998, there were outstanding an aggregate of 27,569,403
shares of Common Stock, and no shares of Preferred Stock of the Company. At
January 25, 1998, there were 108 holders of record of the Company's Common
Stock.
Common Stock
The Company is authorized to issue up to 45,000,000 shares of Common Stock,
$.01 par value per share. Holders of Common Stock are entitled to one vote for
each share held on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. Accordingly, holders of a majority of the shares
of Common Stock entitled to vote in any election of directors may elect all of
the directors standing for election. Holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor, subject to any preferential
dividend rights of outstanding Preferred Stock. Upon the
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<PAGE>
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding Preferred Stock. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares offered by the Company in this
offering will, when issued and paid for, be, fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which the Company may designate and issue in the
future.
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock, $.001 par value per share. The Board of Directors is authorized, subject
to any limitations prescribed by law, without further stockholder approval, to
issue such shares of Preferred Stock in one or more series. Each such series of
Preferred Stock will have such rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as are determined by the Board of
Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of the outstanding voting stock of the Company. The
existence of the authorized but undesignated Preferred Stock may have a
depressive effect on the market price of the Common Stock. The Company has no
present plans to issue any shares of Preferred Stock.
Delaware Law and Certain Provisions of the Company's Certificate of
Incorporation and By-Laws
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, this statute prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless the
business combination is approved in a prescribed manner. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within the prior three years did own) 15% or more of the corporation's voting
stock.
The Company's By-Laws provide that the Company shall have a single class of
directors. The Company's By-Laws further provide that vacancies on the Board of
Directors may be filled only with the approval of a majority of the Board of
Directors then in office, except vacancies occurring as a result of the removal
of directors by stockholders, without cause, shall be filled by a vote of the
stockholders.
The Company's By-Laws provide that, after the closing of this Offering,
any action required or permitted to be taken by the stockholders of the Company
may be taken only at a duly called annual or special meeting of the
stockholders. This provision could have the effect of delaying until the next
stockholders' meeting stockholder actions that are favored by the holders of a
majority of
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<PAGE>
the outstanding voting securities of the Company. This provision may also
discourage another person or entity from making a tender offer for the Common
Stock because such person or entity, even if it acquired a majority of the
outstanding voting securities of the Company, would be able to take action as a
stockholder only at a duly called meeting of stockholders, and not by written
consent. The mere existence of this provision may have a depressive effect on
the market price of the Common Stock. See "Risk Factors - Anti-takeover
Provisions."
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York.
1997 Warrants
The 1997 Warrants expire on December 10, 1999, and are subject to extension
as provided in the 1997 Warrant Agreement. The 1997 Warrants are exercisable at
$0.55 per share and are callable at any time after the share price of the Common
Stock, as determined by the closing bid price on the Nasdaq OTC Bulletin Board
(or the closing sale price if listed on the Nasdaq National or Small Cap Market)
has closed at or above U.S. $1.00 for any 20 consecutive trading day period
preceding the call date. Such call may only be made by the Company within 15
business days after the Common Stock has closed at or above U.S. $1.00 for any
20 consecutive trading day period.
Other Warrants
The Brean Murray Warrants have a five-year term expiring on January 4,
2003. Such warrants are not callable but may be exercised via a "cashless
exercise." The number of shares to be issued in a cashless exercise which
entails an exchange of Brean Murray Warrants for Common Stock, will be computed
by subtracting the warrant exercise price of such warrant from the closing bid
price of the Common Stock on the date of the cashless exercise and multiplying
that amount by the number of shares represented by the warrants and dividing by
the closing bid price as of that date. Of the 1,226,848 Brean Murray Warrants,
613,424 warrants are exercisable at $0.55 per share, 306,712 warrants are
exercisable at $0.71 per share and 306,712 warrants are exercisable at $1.07 per
share.
The Company also has outstanding warrants to purchase a total of 122,000
shares of Common Stock. These warrants, which were issued to various investment
banking firms prior to 1997 have exercise prices ranging from $2.50 to $6.25 per
share. Of such warrants, 36,000 warrants have an exercise price of $2.50 per
share and expire on December 31, 1998, 60,000 warrants have an exercise price of
$5.00 per share and expire on May 15, 2000 and 26,000 warrants have an exercise
price of $6.25 per share and expire on September 30, 2002.
54
<PAGE>
CONDITIONS IN ISRAEL
Political Environment
Since the establishment of the State of Israel in 1948, a state of
hostility has existed, varying in degree and intensity, between Israel and the
Arab countries. In addition, Israel and companies doing business with Israel
have been the subject of an economic boycott by the Arab countries since
Israel's establishment. Furthermore, following the Six-Day War in 1967, Israel
commenced administering the territories of the West Bank and the Gaza Strip and,
since December 1987, increased civil unrest has existed in these territories.
Although, as described below, Israel has entered into various agreements with
Arab countries and the Palestine Liberation Organization ("PLO") and various
declarations have been signed in connection with efforts to resolve some of the
abovementioned problems, no prediction can be made whether a full resolution of
these problems will be achieved or regarding the nature of any such resolution.
To date, these problems have not had a material adverse impact on the financial
condition or operations of the Company, although there can be no assurance that
continuation of these problems will not have such an impact in the future.
In 1979, a peace agreement between Israel and Egypt was signed under which
full political relations were established; however, economic relations have been
very limited. In September 1993, a joint Israeli-Palestinian Declaration of
Principles (the "September 1993 Declaration") was signed by Israel and the PLO
in Washington, D.C., outlining interim Palestinian self-government arrangements.
Prior to the signing of that declaration, PLO Chairman Arafat sent a letter to
Israeli Prime Minister Rabin in which the PLO recognized Israel's right to exist
in peace and security, renounced terrorism and violence, and affirmed that the
clauses of the PLO Covenant denying Israel's right to exist are no longer valid.
In reply, Israel recognized the PLO as the representative of the Palestinian
people in the peace negotiations.
In May 1994, Israel and the PLO signed an agreement in Cairo in which the
principles of the September 1993 Declaration were implemented. In accordance
with this agreement, Israel has transferred the civil administration of the Gaza
Strip and Jericho to the Palestinian Authority and the Israeli army has
withdrawn from these areas. In September 1995, Israel and the PLO signed an
additional agreement regarding the withdrawal by the Israel Defense Forces from
the heavily Palestinian populated areas and the transfer of the Civil
Administration to the Palestinian Authority in other areas in the West Bank.
In July 1994, the Israeli Prime Minister and the King of Jordan signed a
joint declaration as the first step towards a peace treaty between Israel and
Jordan. The declaration provides for the cessation of belligerency between the
states, the mutual opening of airspace to civil aviation, the opening of border
crossings (the first of which was opened on August 8, 1994) and the commencement
of joint projects with respect to electricity and water resources. On October
26, 1994, Israel and Jordan signed a peace treaty, under which full political
and economic relations were formally established.
Although Israel has entered into agreements with certain Arab countries and
the PLO, and declarations have been signed to resolve some of the economic and
political problems in the Middle East, no prediction can be made whether a full
resolution of these problems will be achieved or
55
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regarding the nature of any such resolution. To date, Israel has not entered
into a peace treaty with either Lebanon or Syria.
On November 4, 1995, Prime Minister Yitzhak Rabin was assassinated. In June
1996, following general elections a new Israeli government was formed, headed by
the newly elected Prime Minister Benjamin Netanyahu of the Likud Party. Since
the formation of the new government, peace negotiations between Israel and both
the Palestinian Authority and with Syria have been in a state of flux. In
January 1997, Israel and the Palestinian Authority reached an accord with
respect to the Israeli withdrawal from Hebron, but no prediction can be made
whether this accord will be successful or whether a failure to reach additional
accords with the Palestinian Authority or Syria will lead to events which could
have a negative impact upon the Israeli business environment in general, and on
the operations and financial condition of the Company in particular.
Army Service
All male adult permanent residents of Israel under the age of 54 are,
unless exempt, obligated to perform military service duty annually.
Additionally, all such residents are subject to being called to active duty at
any time under emergency circumstances. Some of the employees of the Company are
currently obligated to perform annual reserve duty. While Mentortech has
operated effectively under these and similar requirements in the past, no
assessment can be made of the full impact of such requirements on the Company in
the future, particularly if emergency circumstances occur.
Economic Conditions
In 1996, for the seventh consecutive year, the economy of Israel
experienced significant expansion. During the years 1991 through 1996, Israel's
gross domestic product increased by 6.3%, 6.8%, 3.4%, 6.5%, 7.06% and 4.4%,
respectively. The Bank of Israel's and the Israeli Government's fiscal and
monetary policy contributed to relative price and exchange rate stability during
most of these years despite fluctuating rates of economic growth and a high rate
of unemployment. The inflation rate for calendar years 1994, 1995 and 1996 was
14.5%, 8.1% and 10.6%, respectively. There can be no assurance that the Israeli
Government will be successful in its attempt to keep prices and exchange rates
stable.
Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts
and civil unrest. In response to these problems, the Israeli Government has
intervened in various sectors of the economy, employing, among other means,
fiscal and monetary policies, import duties, foreign currency restrictions and
controls of wages, prices and foreign currency exchange rates. The Israeli
Government frequently has changed its policies in all of these areas.
The State of Israel receives significant amounts of economic and military
assistance from the United States, averaging approximately $3 billion annually
over the last several years. In addition, in 1992, the United States approved
the issuance of up to $10 billion of loan guarantees during U.S. fiscal years
1993-1998 to help Israel absorb a large influx of new immigrants, primarily from
the republics of the former Soviet Union. Under the loan guarantee program,
Israel may issue up to $2 billion in principal amount of guaranteed loans each
year, subject to reduction in certain circumstances. There is no assurance that
foreign aid or other assistance from the United States will
56
<PAGE>
continue at or near the amounts received in the past. If the grants for economic
and military assistance or the United States loan guarantees are eliminated or
reduced significantly, the Israeli economy could suffer material adverse
consequences.
Israel is a member of the United Nations, the International Monetary Fund,
the International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is a signatory to the General Agreement on Tariffs
and Trade, which provides for reciprocal lowering of trade barriers among its
members. In addition, Israel has been granted preferences under the Generalized
System of Preferences from the United States, Australia, Canada and Japan. These
preferences allow Israel to export the products covered by such programs either
duty-free or at reduced tariffs.
Israel and the European Union concluded a Free Trade Agreement in July,
1975 which confers certain advantages with respect to Israeli exports to most
European countries and obligates Israel to lower its tariffs with respect to
imports from these countries over a number of years.
In 1985, Israel and the United States entered into an agreement to
establish a Free Trade Area ("FTA"). Under the FTA, most products received
immediate duty-free status, and by 1995 all other tariffs and certain nontariff
barriers on most trade between the two countries were eliminated.
On January 1, 1993, an agreement between Israel and the EFTA, which
includes Austria, Norway, Finland, Sweden, Switzerland, Iceland and
Liechtenstein, established a free-trade zone between Israel and the EFTA
nations.
In recent years, Israel has established commercial and trade relations with
a number of other nations, including Russia, China and nations in Eastern
Europe, with which Israel had not previously had such relations.
57
<PAGE>
PLAN OF DISTRIBUTION
The Shares offered hereby may be sold from time to time by or for the
account of any of the Selling Stockholders or by their pledgees, donees,
distributees or transferees or other successors in interest. The Company will
not receive any of the proceeds from this offering. The distribution of the
Shares by the Selling Stockholders is not subject to any underwriting agreement.
The Shares may be sold hereunder directly to purchasers by the Selling
Stockholders in negotiated transactions; by or through brokers or dealers in
ordinary brokerage transactions or transactions in which the broker solicits
purchasers; block trades in which the broker or dealer will attempt to sell the
Shares as agent but may position and resell a portion of the block as principal;
transactions in which a broker or dealer purchases as principal for resale for
its own account; or through underwriters or agents. The Shares may be sold at a
fixed offering price, which may be changed, at the prevailing market price at
the time of sale, at prices related to such prevailing market price or at
negotiated prices. Any brokers, dealers, underwriters or agents may arrange for
others to participate in any such transaction and may receive compensation in
the form of discounts, commissions or concessions from the Selling Stockholders
and/or the purchasers of the Shares. Each Selling Stockholder will be
responsible for payment of any and all commissions to brokers. The Company has
agreed to indemnify certain of the Selling Stockholders against certain
liabilities, including liabilities under the Securities Act and Exchange Act.
Pursuant to the Conversion Agreement, the Company has agreed, at its
expense, to file the Registration Statement to which this Prospectus is a part
and to take certain other actions to permit the Selling Stockholders to sell the
Shares under the Securities Act and applicable state securities laws. The
aggregate proceeds to any Selling Stockholder from the sale of the Shares
offered by the Selling Stockholder hereby will be the purchase price of such
Shares less any broker's commissions.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdiction only through registered
or licensed brokers or dealers. In addition, in certain states the Shares may
not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
If and when any Shares covered by this Prospectus qualify for sale pursuant
to Rule 144 under the Securities Act, they may be sold under Rule 144 rather
than pursuant to this Prospectus.
Any Selling Stockholder and any broker-dealer, agent or underwriter that
participates with the Selling Stockholder in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act, in
which event any commissions received by such broker-dealers, agents or
underwriters and any profit on the resale of the Shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
The Selling Stockholders are not restricted as to the price or prices at
which they may sell Shares. Sales of such Shares at less than the market prices
may depress the market price of the Company's securities. Moreover, the Selling
Stockholders are not restricted as to the number of Shares which may be sold at
any one time, and it is possible that a significant number of Shares could be
sold at the same time which may also have a depressive effect on the market
price of the Company's securities Common Stock.
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Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares offered hereby may not simultaneously
engage in market making activities with respect to the Shares for a period of
two business days prior to the commencement of such distribution. In addition,
and without limiting the foregoing, each Selling Stockholder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M, which provisions may
limit the timing of purchases and sales of the Shares by the Selling
Stockholders.
There is no assurance that any Selling Stockholder will sell any or all of
the Shares described herein and may transfer, devise or gift such securities by
other means not described herein.
Expenses of preparing and filing the registration statement and all
post-effective amendments will be borne by the Company. It is expected that such
costs will be approximately $70,000.
The Company is permitted to suspend the use of this Prospectus in
connection with sales of the Shares by holders during periods of time under
certain circumstances relating to pending corporate developments and public
filings with the Commission and similar events.
LEGAL MATTERS
Certain legal matters with respect to the Shares offered hereby will be
passed upon for the Company by Carter, Ledyard & Milburn, New York, New York.
EXPERTS
The consolidated financial statements of PC Etcetera, Inc. at December 31,
1996 and for the year then ended appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon said report given upon the authority of such firm as an expert in
accounting and auditing.
The combined financial statements of Mentortech Inc. (formerly Sivan
Computers Training Center (1994) Ltd. and Mashov Computer Based Training
(C.B.T.) Ltd. at December 31, 1996 and 1995 and for the years then ended
appearing in this Prospectus and Registration Statement have been audited by
Kost Levary and Forer, a member of Ernst & Young International, independent
accountants in Israel, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon said report given upon the authority
of such firm as an expert in accounting and auditing.
The consolidated statements of operations, stockholders' equity and cash
flows of PC Etcetera, Inc. at December 31, 1995 and for the year then ended
appearing in this Prospectus have been audited by Arthur Andersen LLP,
independent auditors, as set forth in their report thereon (which contains an
explanatory paragraph with respect to the going concern mentioned in Note 1 to
such financial statements) appearing elsewhere herein, and are included in
reliance upon said report given upon the authority of such firm as an expert in
accounting and auditing.
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CHANGE IN ACCOUNTANTS
On February 24, 1997, the Company dismissed the accounting firm of Arthur
Andersen LLP, which was previously engaged as principal independent auditors. On
February 25, 1997, the Company engaged Ernst & Young LLP to audit the Company's
financial statements. Kost Levary & Forer, C.P.A.s, a member of Ernst & Young
International, independent accountants in Israel, were the auditors of Mashov,
Sivan and Mashov CBT at such time. The decision to change accountants was
recommended and approved by the Board of Directors of the Company. Arthur
Andersen LLP's report on the financial statements for fiscal year ended December
31, 1995 contained a qualification as to uncertainty regarding PCE U.S.'s
ability to continue as a going concern. Such qualification was made due to its
continuing net losses, negative cash flows from operations, negative working
capital and stockholders' deficiency. During the two most recent fiscal years
there were no disagreements with the former accountant of PCE U.S. on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of the former accountant, would have caused it to make reference to
the subject matter of the disagreements in connection with its report.
ADDITIONAL INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
SB-2 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed therewith. Descriptions in this Prospectus regarding the contents of any
contract, agreement or any other document filed as an exhibit to the
Registration Statement are summaries of all their material provisions but may
not necessarily be complete. With respect to each such contract or other
document filed as an exhibit to the Registration Statement, reference is made to
the copy of the exhibit for a more complete description. A copy of the
Registration Statement may be inspected without charge at the offices of the
Commission at 450 Fifth Street, N.W. Washington, D.C. 20549, and copies of all
or any part of the Registration Statement may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W. Washington, D.C.
20549 upon the payment of the fees prescribed by the Commission.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Mentortech Inc. (formerly Sivan and Mashov CBT) Audited Financial Statements
- ----------------------------------------------------------------------------
Report of Independent Auditors........................................................... F-2
Balance Sheets at December 31, 1996 and 1995............................................. F-3
Statements of Operations for the years ended December 31, 1995 and 1996.................. F-5
Statements of Stockholders' Deficiency for the years ended December 31, 1995
and 1996.............................................................................. F-6
Statements of Cash Flows for the years ended December 31, 1995 and 1996.................. F-7
Notes to Financial Statements............................................................ F-9
Mentortech Inc. Unaudited Financial Statements:
- -----------------------------------------------
Balance Sheet at September 30, 1997...................................................... F-21
Statements of Operations for the nine months ended September 30, 1996 and 1997........... F-23
Statements of Cash Flows for the nine months ended September 30, 1996 and 1997........... F-24
Notes to Unaudited Financial Statements.................................................. F-26
PC Etcetera, Inc. Audited Financial Statements:
- -----------------------------------------------
Reports of Independent Auditors.......................................................... F-28
Consolidated Balance Sheet at December 31, 1996.......................................... F-30
Consolidated Statements of Operations for the years ended
December 31, 1995 and 1996.............................................................. F-31
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1995 and 1995......................................... F-32
Consolidated Statements of Cash Flows for the years ended
December 31, 1995 and 1996.............................................................. F-33
Notes to Consolidated Financial Statements............................................... F-35
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
KOST LEVARY & FORER
A MEMBER OF
ERNST & YOUNG INTERNATIONAL
To the Shareholders of MENTORTECH INC.
(Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T.) LTD.)
We have audited the accompanying balance sheet of (Mentortech Inc.
(formerly Sivan Computers Training Center (1994) Ltd.) ("Sivan" or "the
Company") and Mashov Computer Based Training (C.B.T.) Ltd. ("CBT") as of
December 31, 1996 (see note 1a) and 1995, and the related statements of
operations, changes in stockholders' deficiency and cash flows for each of the
two years in the period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Israel, including those prescribed by the Israeli Auditors
Regulations (Mode of Performance) 1973 which do not differ in any significant
respect from United States generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement either originating within the financial statements themselves or
due to any misleading statement included therein. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles in the United States.
Tel Aviv, Israel /s/KOST LEVARY and FORER
March 26, 1997 Certified Public Accountants (Israel)
A member of Ernst & Young International
F-2
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
BALANCE SHEET
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 283 $ 93
Trade receivables, (net of allowance for doubtful
accounts of $12 in 1996) 2,279 1,618
Other receivables and prepaid expenses 326 368
Inventories 91 -
----- -----
Total current assets 2,979 2,079
------ ------
INVESTMENT IN AFFILIATE 178 100
----- ------
SEVERANCE PAY FUND (NOTE 5) 362 212
----- ------
PROPERTY AND EQUIPMENT (NOTE 3):
Cost 2,227 1,269
Less - accumulated depreciation 587 240
----- ------
1,640 1,029
----- ------
GOODWILL, NET OF ACCUMULATED AMORTIZATION
(1996 - $211, 1995 - $ 114) 1,811 1,982
----- ------
Total assets $6,970 $5,402
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
BALANCE SHEET (continued)
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
LIABILITIES LESS STOCKHOLDERS'
DEFICIENCY
CURRENT LIABILITIES
Short-term bank credit $ - $ -
Trade payables 717 412
Related parties 1,478 666
Deferred income 1,624 1,056
Accrued expenses and other payables (Note 4) 778 617
------ ------
Total current liabilities 4,597 2,751
------ -------
LONG-TERM LIABILITIES:
Accrued severance pay (Note 5) 455 277
Shareholder's loan (Note 6) 2,665 2,489
------ ------
Total long-term liabilities 3,120 2,766
------ ------
STOCKHOLDERS' DEFICIENCY:
Share capital (Note 10)
Additional paid in capital 150 -
Cumulative foreign currency translation adjustment 23 7
Accumulated deficit (920) (122)
------- -------
Total shareholders' (deficiency) (747) (115)
------- -------
Total liabilities less shareholders' deficiency $6,970 $5,402
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
Year ended December 31,
-----------------------
1996 1995
---- ----
Revenues $ 9,400 $ 6,651
Cost of revenues 4,713 3,849
------- -------
Gross profit 4,687 2,802
Operating expenses:
Research and development 248 --
Selling and marketing 1,446 921
General and administrative 3,359 1,816
------- -------
Total operating expenses 5,053 2,737
------- -------
Operating income (loss) (366) 65
Financial expenses, net 455 433
------ ------
Loss from ordinary operations (821) (368)
Income taxes 45 --
------- -------
Loss before equity in earnings of affiliate (866) (368)
Equity in earnings of affiliate 68 61
------- -------
Net loss $ (798) $ (307)
======= =======
Net loss per share $ (0.05) $ (0.02)
======= ========
Number of Shares used in computing
loss per share 15,000 15,000
====== ======
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
<TABLE>
<CAPTION>
Cumulative
foreign
Additional currency Total
Share paid in translation Accumulated shareholders'
capital capital adjustment deficit deficiency
------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Balance as of December 31,
1994 -- -- $ 2 $ 185 $ 187
Foreign currency translation
adjustment -- -- 5 -- 5
Loss for the year -- -- -- (307) (307)
------ ------- ---- ----- -----
Balance as of December 31,
1995 -- -- $ 7 $(122) $(115)
Issuance of shares of CBT -- 150 -- -- 150
Foreign currency translation
adjustment -- -- 16 -- 16
Loss for the year -- -- -- (798) (798)
------ ------ ---- ----- ----
Balance as of December 31,
1996 -- $150 $23 $(920) $(747)
====== ==== === ===== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
Year ended
December 31,
------------
1996 1995
---- ----
Cash flows from operating activities:
- -------------------------------------
Net loss for the period $(798) $(307)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 456 300
Capital gain - 6
Equity in earnings of affiliate (68) (61)
Increase (decrease) in accrued severance pay, net 30 (27)
Increase in trade receivables (721) (514)
Decrease (increase) in other receivables and
prepaid expenses 29 (18)
Increase in inventories (91) -
Increase in trade payables 320 150
Increase in related parties 454 446
Increase in deferred income 606 490
Increase in accrued expenses and other
payables 183 108
Accrued interest on shareholders' loan 265 182
------ ---
Net cash provided by operating activities 665 755
----- -----
Cash flows from investing activities:
- -------------------------------------
Purchase of property and equipment (1,006) (666)
Proceeds from sales of property and equipment 2 15
------ -----
Net cash used in investing activities (1,004) (651)
------- -----
Cash flows from financing activities:
- -------------------------------------
Proceeds from issuance of shares 150 -
Short-term bank credit, net - (11)
Increase in related parties 382 -
------ ---
Net cash provided by (used in) financing activities 532 (11)
------ -----
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
STATEMENTS OF CASH FLOWS (continued)
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
Year ended
December 31,
------------
1996 1995
---- ----
Net increase in cash and cash equivalents $193 $ 93
Effect of changes in exchange rate on cash and
cash equivalent (3) -
Cash and cash equivalents at the beginning of the
year 93 -
---- -----
Cash and cash equivalents at the end of the year 283 93
==== =====
Supplemental disclosure of cash flow activities:
- ------------------------------------------------
Income taxes paid during the year $ 16 $ 150
==== =====
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
NOTE 1: - GENERAL
a. Basis of presentation:
Effective February 6, 1997, Mashov Computer Marketing Ltd. ("Mashov"),
the parent company of Sivan Computer Training Center (1994) Ltd.
("Sivan" or "the Company") and Mashov computer Based Training (CBT)
Ltd. ("CBT") transferred to PC Etcetera, Inc. ("PC") all of its
holdings in Sivan and in CBT and $1.2 million in consideration of
8,438,924 shares of common stock and 658,412 shares of convertible
preferred stock par value $0.001, each preferred share can be
converted into ten shares of common stock having a ten to one voting
right in relation to shares of common stock bringing Mashov holdings
in PC to 69%.
In view of the above, the transaction has been accounted for as a
reverse acquisition, and as such, Sivan and C.B.T are effectively the
acquirers. Since Sivan and CBT are under the common control of Mashov,
the combination of their financial statements was prepared in a manner
similar to a pooling of interests.
b. Sivan Computer Training Center (1994) Ltd.:
Sivan is engaged in personal computer training services in Israel.
Sivan implements an original teaching method which is based on a
session model and provides substantial practice, lab and project work.
In October 1994, Sivan purchased all the activities (including
intangible assets, see Note 2f) from Sivan Computers Ltd. for
approximately $2.5 million. As part of the purchase agreement, Mashov
made a commitment to the shareholders of Sivan Computers Ltd. to
reimburse them for any excess taxes resulting from the sale.
Subsequent to the balance sheet date, the shareholders of Sivan
Computers Ltd. received a demand from the Israeli tax authorities to
pay NIS 1 million. In the opinion of Mashov's management, based on the
opinion of its legal advisors, Mashov will not be liable for this
amount.
c. Mashov Computer Based Training (CBT) Ltd.:
F-9
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
CBT - an Israeli corporation - was incorporated in March 1996. CBT is
engaged in developing technology based training products and content.
In addition to content development, CBT develops delivery technology
for delivering training via the Internet and other public networks.
Its Intertrainer 1.0 product supports delivery of training content on
the Internet supporting full simulation, interactivity, sound and
graphics.
d. Since CBT commenced operations on April 1, 1996, the 1995 balance
sheet and statements of operations and cash flows include only Sivan.
The 1996 balance sheet and statements of operations and cash flows
includes a combination of Sivan and CBT.
F-10
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
NOTE 2: - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Financial statements are in United States dollars:
The Company's transactions are recorded in new Israeli shekels
("NIS"). All of the Company's sales are made in Israel in NIS, and
substantially all of the Company's costs are incurred in NIS.
Accordingly, the NIS is the functional currency of the Company.
The Company has elected to prepare its financial statements in U.S.
dollars.
Accordingly, the Company's financial statements have been translated
into U.S. dollars, in accordance with FASB Statement No. 52, "Foreign
Currency Translation." All balance sheet amounts have been translated
using the exchange rates in effect at the balance sheet date.
Statement of operations amounts have been translated using the average
exchange rate for the year. The gains and losses resulting from the
change in exchange rates from year to year have been reported
separately as a component of stockholders' equity.
b. Cash equivalents:
Cash equivalents are short-term highly liquid investments that are
readily convertible to cash and with maturities when purchased of
three months or less.
c. Inventories:
Inventories, mainly finished products are presented at the lower cost
of market value. Cost is determined using the "first-in, first-out"
method.
d. Investments in affiliate:
F-11
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
Sivan's 50% investment in Sivan Computers Jerusalem (1988) Ltd.
(hereafter "Sivan Jerusalem") is presented by the equity method of
accounting. After the balance sheet date, Sivan purchased the
remaining 50% of Sivan Jerusalem for $135,000.
e. Property and equipment:
These assets are stated at cost. Depreciation is computed by the
straight-line method, on the basis of the estimated useful lives of
the assets, as follows:
Years
-----
Computers and peripheral equipment 4 - 5
Office furniture and equipment 7 - 10
Motor vehicles 7
Leasehold improvements According to the leasing period
f. Goodwill
Goodwill, which is attributed to Sivan Computers Ltd.'s personal
computer tutorial services, is stated at cost and amortized by the
straight-line method over a period of 20 years.
The carrying value of goodwill is periodically reviewed by management
based on the expected future undiscounted operating cash flows over
the remaining goodwill amortization period. Based upon its most recent
analysis, management believes that no impairment of goodwill exists at
December 31, 1996.
g. Income taxes:
The Company follows the asset and liability method of accounting for
income taxes in accordance with Israeli accounting principles. Under
Israeli accounting principles, deferred income taxes are provided for
differences resulting from changes in the Israeli Consumer Price Index
("CPI") (the basis for the Company's tax reporting) and changes in the
exchange rate of the NIS to the U.S. dollar. SFAS No. 109, "Accounting
for Income Taxes," does not allow deferred income taxes to be
F-12
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
recognized for this difference which, with respect to the Company's
financial statements, is immaterial.
h. Revenue recognition:
Revenues from training services are recognized upon performance of the
services. Revenues from sales of products are recognized upon shipment
of the software provided no significant vendor obligations remain and
collection of the related receivable is probable.
Deferred revenues are unearned amounts received under training
services.
i. Research and development costs:
Research and development costs are charged to the statement of
operations as incurred. Statement of Financial Accounting Standard
(SFAS) No. 86 "Accounting for the Costs of Computer Software to be
Sold, Licensed or Otherwise Marketed," requires capitalization of
certain software development costs subsequent to the establishment of
technological feasibility.
Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Costs
incurred by the Company between completion of the working model and
general release of the product have been insignificant.
j. Concentrations of credit risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. The Company maintains its cash
balances on deposit with major banks in Israel. Although all trade
receivables are in Israel, concentrations of credit risk with respect
to trade receivables are limited because the Company's customers are
from a wide range of industries and no one customer accounts for more
than five percent of total revenue or accounts receivable in the
two-year period ended December 31, 1996.
F-13
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
k. Fair value of financial instruments:
The financial instruments of the Company consist of non-derivative
assets: cash and cash equivalents, marketable securities, trade
receivables and loans payable in view of their nature, the fair value
of financial instruments approximates their carrying value.
l. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
m. Earnings (loss) per share:
Earnings (loss) per share are computed based on the number of shares
issued by PC to Mashov in consideration for Sivan and CBT in 1997 (see
note 1).
n. Impact of recently issued accounting standards:
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128 (FAS 128),
"Earnings Per Share". This statement is effective for the Company's
quarter ending December 31, 1997. The statement redefines earnings per
share under generally accepted accounting principles. Under the new
standard, primary earnings per share is replaced by basic earnings per
share and fully diluted earnings per share is replaced by diluted
earnings per share.
The impact of FAS 128 on the calculation of primary and fully diluted
earnings per share for the years ended December 31, 1996 and 1995 is
not material.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129 (FAS 129), "Disclosure of Information About Capital
Structure". This statement is effective for financial statements for
periods ending after December 15,
F-14
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
1997. The additional disclosure required by FAS 129 on the Company's
financial statements for the year ended December 31, 1996 and 1995 is
not material.
In June 1997, the FASB issued Statements of Financial Accounting
Standards No. 130 (FAS 130), "Reporting Comprehensive Income", and No.
131 (FAS 131), "Disclosure About Segments of an Enterprise and Related
Information". These statements are effective for fiscal years
beginning after December 15, 1997. These statements do not have
measurable effects on the financial statements but require additional
disclosure.
The impact of these two statements on the financial statements of the
company has not yet been determined.
NOTE 3: - PROPERTY AND EQUIPMENT
December 31,
------------
1996 1995
---- ----
Cost:
Computers and peripheral equipment $1,469 $ 841
Office furniture and equipment 330 229
Motor vehicles 198 41
Leasehold improvements 230 158
------ ------
2,227 1,269
------ ------
Accumulated depreciation:
Computers and peripheral equipment 481 198
Office furniture and equipment 47 21
Motor vehicles 21 5
Leasehold improvements 38 16
------ ------
587 240
------ ------
Depreciated cost $1,640 $1,029
====== ======
Depreciation expenses $ 356 $ 195
======= =======
F-15
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
NOTE 4: - ACCRUED EXPENSES AND OTHER PAYABLES
December 31,
------------
1996 1995
---- ----
Employees and payroll accruals $ 618 $ 380
Government authorities 112 122
Accrued expenses and others 48 115
----- ------
$ 778 $ 617
====== ======
NOTE 5: - ACCRUED SEVERANCE PAY
Under Israeli law, the Company is required to make severance payments to
dismissed employees (including officers) and to employees leaving
employment under certain other circumstances. This liability is calculated
based on the years of employment for each employee respectively, in
accordance with the "severance pay laws." The Company's liabilities for
required severance payments are covered by funding into severance pay
funds, insurance policies and by an accrual. Severance pay expense for the
years ended December 31, 1995 and 1996 was $52 and $157, respectively.
NOTE 6: - STOCKHOLDERS' LOANS
Stockholder loans are linked to the Israeli consumer Price Index and bear
interest at a rate 6% per annum. Repayment terms have not yet been
determined.
NOTE 7: - COMMITMENTS AND CHARGES
a. Lease commitments:
The Company leases its operating facilities under non-cancelable
leases terminating in 1997-2000, with a five-year extension option.
The amounts of future minimum lease payments for the years subsequent
to December 31, 1996, are as follows:
F-16
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
1997 $ 475
1998 306
1999 292
2000 18
------
$1,091
Rent expense for the years ended December 31, 1995 and 1996 was
approximately $413 and $608, respectively.
b. Charges:
As collateral for bank credit, balances due from Israel Credit Cards
Ltd. and Isracard Ltd. (as of December 31, 1996, such amount was $565
thousand) are pledged in favor of Israel Discount Bank Ltd.
NOTE 8: - TAXES ON INCOME
a. Measurement of results for tax purposes:
Results for tax purposes are measured in terms of earnings in NIS
after certain adjustments for increases in the CPI. As explained in
Note 2a, the financial statements are presented in U.S. dollars. The
difference between the annual change in the Israeli CPI and in the
NIS/dollar exchange rate causes a difference between taxable income
and the income shown in the financial statements. This is because
taxable income is measured in NIS adjusted for inflation and
translated into U.S. dollars at the applicable exchange rate for tax
purposes, while net income for financial statement purposes is
measured in U.S. dollars.
b. Tax assessments:
The Companies have not received final assessments since their
incorporation.
c. Reconciliation of the theoretical tax expenses:
F-17
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
A reconciliation between the theoretical tax expenses, assuming all
income is taxed at the statutory rate applicable to income of the
Company and the actual income tax as reported in the statements of
operations, is as follows:
Year ended
December 31,
------------
1996 1995
---- ----
Loss before taxes as reported in the
statements of income $ (821) $ (368)
======= =======
Statutory tax rate 36% 37%
=== ===
Theoretical tax expenses (benefits) $ (295) $ (136)
Increase (decrease) in taxes resulting from:
Taxes in respect of previous years 38 -
Tax adjustment in respect of inflation in
Israel 250 94
Non-deductible expenses 52 42
----- ----
Taxes on income as reported in the
statements of income $ 45 $ -
===== ====
d. Tax loss carryforward:
Net operating loss carryforward in CBT amounted to approximately $370
at December 31, 1996 and according to Israeli tax laws can be carried
forward indefinitely.
Deferred tax assets in the amount of $200 and $30 as of December 31,
1996 and 1995, respectively, which are mainly due to operating loss
carryforwards were offset by a valuation allowance in the same
amounts.
NOTE 9: - RELATED PARTY TRANSACTIONS
F-18
<PAGE>
MENTORTECH INC. (Formerly - SIVAN COMPUTERS TRAINING CENTER (1994) LTD.
AND MASHOV COMPUTER BASED TRAINING (C.B.T) LTD.)
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
U.S. Dollars in thousands
Year ended
December 31,
------------
1996 1995
---- ----
Revenues (2) $ 50 $ 19
Expenses (2)
Cost of revenues $ 41 $145
Rent (1) $138 $ -
Management fees to Mashov (1) $748 $181
Interest (see Note 6) $434 $355
(1) The management fees and rent were paid according to an agreement
which was ended on December 31, 1996.
(2) Related balances are unlinked and do not bear interest.
NOTE 10: - CAPITAL STOCK
As explained in Note 1a, the transaction between PC and Mashov is treated
as a reverse acquisition. As such, the number of shares outstanding as of
December 31, 1996 and 1995 is the number of shares issued to Mashov in the
transaction.
F-19
<PAGE>
This Page Intentionally Left Blank
F-20
<PAGE>
<TABLE>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1997 1996
---- ----
(unaudited)
<CAPTION>
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents.................................... $ 34 $ 384
Accounts receivable.......................................... 4,261 2,279
Prepaid expenses............................................. 142 225
Inventory.................................................... 30 91
----- -----
Total current assets................................ 4,467 2,979
----- -----
Property and Equipment:
Property and equipment....................................... 3,887 2,227
Accumulated depreciation and amortization ................... (1,607) (587)
------ ----
Total property and equipment........................ 2,280 1,640
----- -----
Other Assets:
Other assets, net............................................ 480 362
Investment in affiliate...................................... -- 178
Goodwill (net of accumulated amortization of
$320 in 1997 and $211 in 1996)............................... 4,913 1,811
----- -----
TOTAL ASSETS........................................ $12,140 $6,970
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
<TABLE>
<CAPTION>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
September 30, December 31,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current Liabilities:
Accounts payable and accrued expenses........................ $ 2,953 $1,495
Deferred revenue............................................. 1,770 1,624
Loans payable - others - current portion..................... 824 --
Loans payable - affiliate - current portion.................. 1,085 1,478
Capital equipment obligations................................ 36 --
------ -----
Total current liabilities........................... 6,668 4,597
------ -----
Other Liabilities:
Loans payable affiliates (shareholders)...................... 600 2,665
Other liabilities............................................ 623 455
----- -----
Total liabilities................................... 7,891 7,717
----- -----
Stockholders' Equity (Deficiency):
Common stock................................................. 212 150
Additional paid in capital - common stock.................... 5,325 --
Accumulated deficit.......................................... (1,145) (920)
Cumulative foreign currency
translation adjustment..................................... (143) 23
----- ----
Total Stockholders' Equity (Deficiency)............. 4,249 (747)
----- ----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY............................. $12,140 $6,970
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
<TABLE>
<CAPTION>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1997 1996 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Revenues...................................... $2,397 $4,396 $6,606 $13,083
Cost of revenues.............................. 1,230 2,730 3,454 8,105
----- ----- ----- -----
Gross profit.................................. 1,167 1,666 3,152 4,978
Selling and marketing......................... 371 750 927 1,955
General and administrative.................... 728 981 1,959 2,770
Research and development...................... 90 110 192 340
--- --- --- ---
Operating income (loss)...................... (22) (175) 74 (87)
--- ---- -- ---
Equity in earnings of affiliate............... 9 -- 41 --
Gain on sale of subsidiary.................... 0 17 44
Financial income (expense), net............... (104) (39) (411) (136)
---- --- ---- ----
Net (loss).................................... $(117) $(197) $(296) $ (179)
===== ===== ===== ======
Net (loss) per share.......................... ($0.01) ($0.01) ($0.01) ($0.01)
====== ====== ====== ======
Weighted average number of shares............. 21,238,495 19,158,997 21,238,495 16,386,332
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-23
<PAGE>
<TABLE>
<CAPTION>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months
Ended
September 30,
-------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) for the period ........................................... ($179) ($296)
Adjustments to reconcile net (loss)
to net cash (used in) provided by operating activities
Depreciation and amortization ........................................... 674 334
Capital gain ............................................................ 5 0
Equity in earnings of affiliate.......................................... 0 (41)
Increase in accrued severance pay, net .................................. 94 82
Decrease in deferred income taxes........................................ (73) 0
Increase in trade receivables ........................................... (121) (385)
Decrease in prepaid expenses ............................................ (105) 0
Decrease (increase) in other receivables ................................ 56 (140)
Decrease (increase) in inventories ...................................... 55 (46)
Increase (decrease) in trade payables ................................... (520) 77
Increase (decrease) in loans payable affiliates ......................... (410) 260
Increase in deferred revenue ............................................ 110 343
Increase (decrease) in accounts payable and accrued
expenses............................................................... (198) 94
Accrued interest on shareholders' loan ................................... 0 218
---- ----
Net cash (used in) provided by operating activities ................. (612) 500
---- ---
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ...................................... (908) (645)
Proceeds from sales of property and equipment ........................... 71 0
Purchase of subsidiary ................................................. (45) 0
Cash acquired in acquisition............................................. 1,217 0
----- ----
Net cash provided by (used in) investing activities .................. 335 (645)
----- ----
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
MENTORTECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
Nine Months
Ended
September 30,
-------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of shares ........................................... 0 151
Capital equipment obligation repayments..................................... (37) 0
Stock issuance expense...................................................... (69) 0
Repayment of loans payable.................................................. (480) 0
Increase in short-term bank credit ......................................... 629 0
--- ---
Net cash provided by financing activities ............................... 43 151
--- ---
Net increase (decrease) in cash and cash equivalents....................... (234) 6
Effect of exchange rate changes on cash and cash equivalent................. (20) (2)
Cash and cash equivalents at the beginning of the period.................... 288 93
---- ---
Cash and cash equivalents at the end of the period......................... $34 $97
---- ---
Supplemental disclosure of cash flow information:
Cash paid during the period for
Income taxes ....................................................... $38 $20
Interest............................................................ $88 $411
Supplemental disclosure of non-cash and financing activities:
Two shareholder loans in the amount of $2,578 and $438
were converted to equity in 1997
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
MENTORTECH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
The accompanying financial information is unaudited, but in the opinion of
management, reflects all adjustments (which include only normal recurring
adjustments) necessary to present fairly the Company's financial position,
operating results and cash flows for those periods presented. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulation of the Securities and
Exchange Commission (the "Commission"). The comparative figures for the
consolidated balance sheet for the year ended December 31, 1996, consolidated
statements of operations for the three and nine month periods ended September
30, 1996 and the consolidated statements of cash flows for the nine months ended
September 30, 1996 combines the data of Sivan Computers Training Center (1994)
Ltd. ("Sivan") and Mashov Computer Based Training (C.B.T.) Ltd. ("Mashov CBT").
See Management's Discussion and Analysis, "Background" and "Financial
Reporting." The financial information should be read in conjunction with the
audited financial statements and notes thereto for the year ended December 31,
1996. Results for the interim period are not necessarily indicative of results
for the entire year.
Note 2. Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (FAS 128), "Earnings Per Share". This
statement is effective for the Company's year ending December 31, 1997. The
statement redefines earnings per share under generally accepted accounting
principles. Under the new standard, primary earnings per share is replaced by
basic earnings per share and fully diluted earnings per share is replaced by
diluted earnings per share.
The impact of FAS 128 on the calculation of primary and fully diluted
earnings per share for the three and nine months ended September 30, 1997 and
1996 is not material.
Note 3. Pro Forma Results of Operations
The unaudited financial statements for 1997 included in this report reflect
the operations of Sivan and Mashov CBT for the nine months ended September 30,
1997, and PC Etcetera, Inc. since February 13, 1997, the date of the stock
purchase transaction. See Management's Discussion and Analysis, "Background".
Because of the change in control, the stock purchase transaction between Mashov
and PC Etcetera, Inc. was accounted for as a reverse acquisition. Based on such
accounting treatment, Sivan is reported as the surviving entity. The nine months
ended September 30, 1996 includes the nine months operations of Sivan and the
six months of operations (since inception) of Mashov CBT. It does not include
the operations of PC Etcetera, Inc.
F-26
<PAGE>
MENTORTECH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On a pro forma basis had the acquisition occurred January 1, 1997, the pro
forma results of operations for the nine months ended September 30, 1997 would
have been as follows:
Revenues $13,685,000
Net (Loss) ($315,000)
Net (Loss) Per Share ($0.01)
Note 4. Accounting Policy
For purposes of the Statements of Cash Flows, the Company considers all
highly liquid instruments with maturity of three months or less when purchased
to be cash equivalents.
F-27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
PC Etcetera, Inc.:
We have audited the accompanying consolidated balance sheet of PC Etcetera, Inc.
as of December 31, 1996, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of PC
Etcetera, Inc. as of December 31, 1996, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ERNST & YOUNG LLP
New York, New York
March 28, 1997
F-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
PC Etcetera, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of PC Etcetera, Inc. and
subsidiaries for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the result of operations and cash flows of PC Etcetera,
Inc. and subsidiaries for the year ended December 31, 1995 in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, certain factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ARTHUR ANDERSEN LLP
New York, New York
March 8, 1996
F-29
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
Assets:
Current Assets:
Cash and cash equivalents $50,445
Accounts receivable,
net of allowance for doubtful accounts of $20,189 947,327
Prepaid expenses and other current assets 31,985
---------
Total current assets 1,029,757
---------
Property and equipment net of accumulated
depreciation and amortization of $446,038 319,730
Other assets 37,667
----------
Total assets $1,387,154
==========
Liabilities and Stockholders' Deficit:
Current Liabilities:
Accounts payable and accrued expenses $1,685,391
Loans payable - current portion 663,589
Loans payable - related party 470,833
Capital equipment obligations - current portion 36,299
Deferred revenue 120,308
---------
Total current liabilities 2,976,420
---------
Long-Term Liabilities:
Capital equipment obligations 6,834
Accounts payable - long-term 324,980
Deferred revenue 66,656
---------
Total Liabilities 3,374,890
---------
Commitments and Contingencies
Stockholders' Deficit:
Preferred stock, $.001 par value, 5,000,000
Shares authorized, 1,000,000 Series A Shares
Issued and outstanding 1,000
Common Stock, $.01 par value, 15,000,000
Shares authorized, 3,169,129 shares issued and outstanding 31,691
Additional paid-in capital 5,279,367
Accumulated deficit (7,299,794)
----------
Total stockholders' deficit (1,987,736)
----------
Total Liabilities and Stockholders' Deficit $1,387,154
==========
See Accompanying Notes
F-30
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net revenues $7,042,089 $11,148,929
Cost of revenues 4,964,144 7,231,364
---------- -----------
Gross profit 2,077,945 3,917,565
Selling, general and administrative expenses 3,307,242 5,521,837
Research and development 58,214 891,686
Write down of software investment -- 1,202,100
---------- -----------
Operating loss (1,287,511) (3,698,058)
Gain on sales of subsidiaries 181,771 --
Other income 66,672 --
Interest expense, net of interest income of
$3,476 and $34,944 (174,067) (147,917)
----------- -----------
Net loss ($1,213,135) ($3,845,975)
=========== ===========
Net loss per share: ($0.39) ($1.36)
=========== ===========
Weighted average number of shares 3,137,879 2,827,462
=========== ===========
</TABLE>
See Accompanying Notes
F-31
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL STOCKHOLDERS'
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
------ ------ ------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 1,000,000 $1,000 9,637,308 $96,374 $3,754,689 $(2,240,684) $ 1,611,379
One for five reverse stock split -- -- (7,709,846) (77,099) 77,099 -- --
Issuance of common stock -- -- 1,200,000 12,000 1,452,495 -- 1,464,495
Net Loss -- -- -- -- -- (3,845,975) (3,845,975)
--------- ------ ---------- ------- ---------- ---------- ----------
Balance December 31, 1995 1,000,000 1,000 3,127,462 31,275 5,284,283 (6,086,659) (770,101)
Issuance of common stock -- -- 41,667 416 (416) -- --
Expenses related to 1995 share
registrations -- -- -- -- (4,500) -- (4,500)
Net loss -- -- -- -- -- (1,213,135) (1,213,135)
--------- ------ ---------- ------- ---------- ----------- ----------
Balance December 31, 1996 1,000,000 $1,000 3,169,129 $31,691 $5,279,367 ($7,299,794) ($1,987,736)
========= ====== ========= ======= ========== ============ ===========
</TABLE>
See Accompanying Notes
F-32
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($1,213,135) ($3,845,975)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH (USED IN) OPERATING ACTIVITIES:
Write down of software investment -- 1,202,100
Depreciation and amortization 236,091 814,591
Provision for (recovery of) doubtful accounts (12,246) 32,435
Gain on sale of property and equipment -- (6,690)
Gain on sale of subsidiaries (181,771) --
Amortization of deferred revenue (66,672) --
Changes in operating assets and liabilities: (204,198) 93,584
Prepaid expenses and other current assets (10,030) (58,329)
Inventories 32,467 (32,467)
Assets held for sale 379,611 --
Accounts payable and accrued expenses 760,156 402,946
Deferred revenue 23,254 (49,588)
Liabilities held for sale (564,818) --
--------- ----------
NET CASH (USED IN) OPERATING ACTIVITIES (821,295) (1,447,393)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Other assets 35,330 32,116
Purchase of property and equipment (49,306) (160,640)
Proceeds from sale of property and equipment -- 72,672
Proceeds from sale of license 200,000 --
Proceeds from sale of subsidiaries, net 546,191 --
------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 732,215 (55,852)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayment of loans payable - related party (252,374) (53,774)
Proceeds from loans payable - related party 187,500 500,000
Net proceeds (repayment ) - short term borrowings 209,587 (118,693)
Repayment of capital equipment obligations (152,152) (183,541)
Net proceeds (expenses) from issuance of common and preferred stock (4,500) 1,464,495
---------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (11,939) 1,608,487
--------- ---------
</TABLE>
F-33
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (101,017) 105,242
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 151,462 77,777
LESS CASH AND CASH EQUIVALENTS INCLUDED IN NET ASSETS HELD FOR SALE 0 (31,557)
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $50,445 $151,462
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $142,101 $173,758
Income taxes $10,733 $4,217
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations of $150,026 were incurred when the Company entered
into lease arrangements for new equipment during the year ended December 31,
1995.
The Company effectuated a 1 for 5 reverse stock split in April 1995 resulting
in a reclassification between common stock and paid in capital of $77,099.
Concurrent with the reverse stock split, 1,000,000 shares of preferred stock
were converted into 1,000,000 (post reverse split) shares of common stock.
</TABLE>
See Accompanying Notes
F-34
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
PC ETCETERA, Inc. (the "Company") develops and offers instructor-led and
computer-based personal computer training programs, and provides contract
consulting services, primarily to large business and public sector
organizations. For the years ended December 31, 1996 and 1995, revenues from
instructor led training comprised 39% and 61% of total revenues, respectively,
while consulting services and computer-based training ("CBT") revenues accounted
for 56% and 27% and 5% and 12% of total revenues, respectively.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries until the time they were either sold or
closed. All material intercompany balances and transactions have been eliminated
in consolidation.
As of December 31, 1996, the Company had two facilities operating in New
York City.
As reflected in the Consolidated Financial Statements, the Company has
experienced continuing net losses, negative cash flows from operations, a
negative working capital and a stockholders' deficiency. The Company is
currently working under a plan which has reduced overhead and expenses and
improved profitability Additionally, the Company sold its Canadian subsidiary
and California and Idaho training facilities and suspended operations at its
Israeli subsidiary. Further, as described in Note 13, in February 1997, Mashov
Computers Marketing Ltd. (MCM) acquired 69% of the common stock of the Company.
It is the intent of MCM to provide continued financial support to the Company,
if necessary, to meet its obligations for the next twelve months.
A summary of the Significant Accounting Policies consistently applied in
the preparation of the accompanying financial statements is as follows:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-35
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts receivable.
The Company maintains its cash balances on deposit with one financial
institution. Concentrations of credit risk with respect to accounts receivable
are limited because the Company's customers are from a wide range of industries
and no one customer accounts for more than ten percent of total revenue or
accounts receivable as of December 31, 1996.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the useful lives of the assets. Amortization of
leasehold improvements is computed on the straight-line basis over the shorter
of the period of the lease or the useful life of the asset.
Revenue Recognition
Revenues related to instructor-led training are recognized over the life of
the training course. CBT revenues are recognized upon delivery of the program.
Contract consulting revenue is recognized as the services are performed. The
Company's refund policy provides that dissatisfied trainees may either attend
the same course without charge or the trainee's employer may request a full
refund. It is Company policy to reserve for potential refunds; however, an
allowance for refunds has not been established because historically minimal
refunds have been issued. Retakes are provided on a seat availability basis and
as such the Company incurs no financial exposure related to these retakes.
Research and Development
All research and development costs are charged to expenses when incurred.
Income Taxes
Income taxes are accounted for under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Under this method, deferred
tax assets and liabilities are determined based on differences between the
financial reporting and income tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
F-36
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Foreign Currency
As of December 31, 1996, the Company suspended operations in Israel and
sold its Canadian subsidiary. The financial records of the Israeli subsidiary
are maintained in U.S. dollars because the currency of the primary economic
environment in which the operations of the subsidiary are conducted (the
functional currency) is the U.S. dollar. Transactions and balances in the
Canadian subsidiary were maintained in Canadian dollars and translated into U.S.
dollars in accordance with the principles set forth in Statement of Financial
Accounting Standards No 52. Exchange gains and losses were not material for the
years ended December 31, 1996 and 1995.
Reverse Split
Except as otherwise indicated, all references herein to numbers of shares
of Common Stock and per share amounts give retroactive effect to the Company's
one-for-five reverse split effectuated on April 19, 1995.
Earnings per Share
Earnings per share calculations are based on the weighted average number of
shares of common stock outstanding and dilutive common stock equivalents
outstanding. All earnings per share amounts have been adjusted to give effect to
the reverse stock split.
Long-Lived Assets
It is the Company's policy to estimate future gross revenues from and costs
related to long-lived assets and to write off any amount in excess of the net
realizable value. No such write off was necessary at December 31, 1996.
Inventories
Inventories consist of computer software and components. Inventories are
carried at the lower of cost or market determined by the first-in, first-out
method.
F-37
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - PROPERTY AND EQUIPMENT
Major classifications of property and equipment and their respective lives
are summarized below:
December 31, 1996 Depreciable lives
----------------- -----------------
Furniture and Fixtures $191,188 5-8 years
Computer Equipment 373,898 3 years
Shorter of term of lease
Leasehold Improvements 200,682 or useful life
-------
Accumulated Depreciation
and Amortization (446,038)
--------
Net Property and Equipment $319,730
========
Depreciation and amortization expense for the years ended December 31, 1996 and
1995 were $236,091 and $458,284, respectively. During the year ended December
31, 1996, $437,415 of property and equipment was fully depreciated and written
off.
At December 31, 1996, property and equipment includes computer equipment under
capital leases with a cost of $200,713 and accumulated amortization of $130,079.
NOTE 3 - LOANS PAYABLE
Short-Term Financing
In 1990, the Company entered into a financing arrangement to finance its
trade receivables (excluding those from the Company's subsidiaries). The
arrangement expires on April 30, 1997. The balance outstanding under the
arrangement is limited to 75% of eligible receivables and bears interest at the
rate of 4% above prime per annum. In addition, the Company pays a facility fee
of $7,500 per contract year or 2% of the average monthly daily cash balances of
the loan, whichever is less. Borrowings under the arrangement are secured by the
Company's accounts receivable. At December 31, 1996, the loan balance was
$441,428.
Bank Debt
In 1994, the Company obtained a bank loan for the purchase of
state-of-the-art computer equipment and other fixed assets. The bank loan
matures in May 1997 and carries an interest rate of 9% per annum. The bank loan
at December 31, 1996 was $38,161 (all current).
F-38
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In 1994, the Company's wholly-owned Israeli subsidiary obtained a working
capital loan from a bank in Israel which was guaranteed by the Company. The loan
balance at December 31, 1996 is $184,000 (all current) and carries an interest
rate of 10% per annum.
Accounts Payable - Long Term
In October 1996, the Company entered into an agreement with certain
vendors. The agreement provided for specific payment terms based on the total
debt to the vendor. Class A creditors (total indebtedness in excess of $3,000
each) will be paid in full through a four-year payment plan.
Loans from Related Parties
In 1991, the Company obtained a loan from an unrelated party in the amount
of $100,000 with a 10% interest rate. During the year ended December 31, 1993,
the note was assigned to a then member of the Company's Board of Directors. The
loan is payable on demand and is currently unsecured. The security agreement
whereby the loan was secured by all personal property, other than that property
secured pursuant to the financing agreement described above, was subsequently
released. At December 31, 1996, the loan balance was $33,333.
In 1995, the Company obtained a loan from certain related parties in the
amount of $500,000 with a 10% interest rate. The loan is due on October 25, 1997
and is currently unsecured until such time as the Company is able to obtain
waivers from certain lien holders of the Company. Simultaneously, in
consideration of the loans, the lenders were issued warrants for the purchase of
an aggregate of 75,000 shares of the Company's common stock at a price of $1.50
per share. These warrants were issued at a price in excess of market value. The
loan agreement also provided that additional warrants be issued to the lenders
equal to 11.25% of the outstanding principal amount on June 5, 1996, divided by
$1.50. At June 5, 1996, the principal balance was $250,000 and as such, 18,750
additional warrants were issued. The total warrants issued of 93,750 are subject
to certain anti-dilution provisions which increased the number of warrants
outstanding at December 31, 1996 to 97,656. At December 31,1996, the loan
balance was $250,000.
In 1996, the Company obtained an additional loan from certain related
parties in the amount of $187,500 with a 10% interest rate. Simultaneously with
the receipt of the loan, each lender extended the maturity of the loans made by
them pursuant to the above described 1995 loan agreement, to October 25, 1997.
In consideration for making the loans, the Company agreed to issue to the
lenders warrants for the purchase of an aggregate of 150,000 shares of Common
Stock of the Company at a price of $0.25 per share. The fair value of the loan
was estimated to be approximately $213,000. The warrants are subject to certain
anti-dilution provisions.
F-39
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fair Value
The following methods and assumptions were used by the Company in
estimating its fair value disclosure for loans payable:
Short Term Financing: The carrying amount of the Company's borrowings
under its short term financing agreement approximates fair value.
Bank Debt: The carrying amount of the Company's borrowings under its
bank loans approximates fair value.
Accounts Payable - Long Term: The carrying amount of the Company's
long term accounts payable approximate fair value.
Loans from Related Parties: The carrying amount of the Company's loans
from related parties approximate fair value.
NOTE 4 - STOCKHOLDERS' EQUITY
Effective April 19, 1995, the Company effectuated a one-for-five reverse
split of the shares of Common Stock.
In August 1994, the Company issued 3,300,000 shares of common stock in
connection with the acquisition of substantially all of the assets of the ACE
Division of Elron Electronic Industries Ltd. ("Elron") and Adar International,
Inc. ("Adar"). PC Etcetera Israel, Ltd., ("PC Israel"), the Company's
wholly-owned subsidiary, which operated the acquired businesses, suspended
operations on March 31, 1996. In connection with the acquisition, the Company
issued, or subsequently issued upon exercise of warrants, which were also issued
in connection with the transaction with Elron, 1,000,000 shares of Series A
preferred stock. After the above transactions there were 40,000 warrants
outstanding.
In March 1995, the Company issued an aggregate of 1,000,000 shares of
Series B preferred stock and four-year warrants for the purchase of an aggregate
of 2,500,000 shares of common stock (500,000 post split) at an exercise price of
$.55 per share ($2.75 post split) for an aggregate purchase price of $1,500,000.
Effective with the April 19, 1995 reverse split, the shares of Series B
preferred stock were converted into 1,000,000 shares of common stock (post
split) and the warrants became exercisable. These warrants were issued at an
exercise price above market value. In addition, pursuant to the Series B
preferred stock agreement the Company had undertaken to file a registration
statement with the SEC to register the shares issuable upon conversion of the
Series B preferred stock and upon exercise of the warrants. Since this
registration statement had not been declared
F-40
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
effective by December 31, 1995, the Company issued 200,000 additional shares of
common stock and 101,103 additional warrants at an exercise price of $2.75 per
share, in accordance with the Series B preferred stock agreement. The above
mentioned common stock and warrants were issued with anti-dilution provisions if
either common stock or warrants are subsequently issued by the Company below
specific amounts. Based on certain 1995 and 1996 transactions described in Note
3, 41,667 shares of common stock and 33,749 warrants to purchase additional
shares of common stock were issued.
OPTIONS
The Company has adopted an Amended and Restated 1987 Stock Option Plan
under which 600,000 shares of the Company's common stock have been reserved for
issuance to employees and non-employee Directors, among others.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No, 123, "Accounting for Stock-Based Compensation" requires use of
options valuation models that were not developed for use in valuing employee
stock options. The exercise price of the Company's employee stock options was
equal to or above the market price of the underlying stock on the date of grant
and, therefore, no compensation expense was recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996: risk free interest rate of 6.6%, volatility
factor of the expected market price of the Company's common stock of .72, and
the weighted-average expected life of the options of 5 years. Dividends are not
expected in the future. Since the fair value for the options was determined to
be de minimis, proforma information is not disclosed.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics of
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
All of the options were granted at or above fair market value as of the
date of grant and no compensation expense was recorded.
F-41
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock option activity is summarized as follows:
Weighted-
Average
Shares Exercise Price
------ --------------
Outstanding December 31, 1994 435,800 $3.31
Options Granted 30,000 $3.90
Options Canceled (24,600) $3.79
-------
Outstanding December 31, 1995 (288,100 exercisable
at option prices $.94 to $6.25) 441,200 $3.17
Options Granted 20,000 $5.00
Options Canceled (307,200) $2.03
--------
Outstanding December 31, 1996 (154,000 exercisable
at option prices $.94 to $6.25) 154,000 $3.56
========
Options outstanding and exercisable at December 31, 1996 are as follows:
Weighted-
Average
Remaining
Contractual
Shares Exercise Price Life
- ------ -------------- -----
16,900 $.94 .2
30,000 $1.05 .2
5,100 $2.50 1
10,000 $2.75 1
66,000 $5.00 3
26,000 $6.25 5.75
- -------
154,000
At December 31, 1996, 600,000 options are available for grant.
WARRANTS
The following is a summary of warrants outstanding and exercisable at
December 31, 1996
Number of
Expiration Date Warrants Exercise Price Description
- --------------- -------- -------------- -----------
August 12, 1999 40,000 $5.00 (1)
F-42
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 15, 1999 634,852 $2.60 (2)
December 31, 1998 36,000 $2.50 (3)
December 5, 2000 97,656 $1.44 (4)
October 25, 2001 150,000 $0.25 (5)
-------
Total 958,508
(1) Warrants issued in connection with the Elron acquisition
(2) Warrants issued with the Series B preferred stock agreement, as adjusted
for anti-dilution provisions
(3) Warrants granted to a consultant
(4) Warrants issued in connection with the 1995 loan from related parties
(Note 3), as adjusted for anti-dilution provisions
(5) Warrants issued in connection with the 1996 loan from related parties
(Note 3)
Subsequent to the balance sheet date 922,508 of the above noted warrants
were converted into shares of common stock (See Note 13)
At December 31, 1996, the Company has 958,508 shares of common stock
reserved for issuance to the warrant holders.
NOTE 5 - LEASES
The Company conducts its operations principally from leased facilities.
These facilities consist of office and classroom space at eight locations
pursuant to leases which expire through the year 2003. The Company has also
entered into capital lease arrangements for certain fixed assets. Future minimum
lease payments with respect to leases in effect at December 31, 1996 are as
follows:
Capital Operating
------- ---------
1997 $44,566 $316,426
1998 8,215 298,794
1999 0 330,794
2000 0 330,794
2001 0 330,794
Thereafter 0 641,799
--------- ---------
$52,781 $2,249,401
Less: Amounts representing interest (9,648) ----------
------
$43,133
=======
Rental expense for the years ended December 31, 1996 and 1995 was $456,083 and
$1,010,138, respectively.
F-43
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - DEFERRED REVENUE
The Company enters into agreements with certain clients whereby blocks of
training coupons are purchased in advance at discount prices. The purchases are
recorded as deferred revenue ($53,636 at December 31, 1996) which is recognized
as revenues as classes are attended.
In connection with the sale of the Canadian Subsidiary (see Note 12), the
Company sold a nonrefundable license fee for certain computer software for
$200,000. This license fee has been deferred and is being recognized over three
years which is equal to the term of the license. At December 31, 1996, the
deferred revenue amounted to $133,328 of which $66,672 has been included in
current liabilities in the accompanying consolidated balance sheet.
NOTE 7 - SOFTWARE
The Company's capitalized software consisted of the authoring tool used to
develop the Company's CBT products. The total amount of software costs amortized
for the year ended December 31, 1995 was $343,457. These costs are included in
research and development since the software is only used for the development of
CBT products. It is the Company's policy to project future gross revenues from,
and costs related to, the software and to write off any amount in excess of the
net realizable value. During the fourth quarter of 1995, in connection with the
decision to suspend operations of PC Israel, the Company determined there would
be no continuing value to the asset. As a result, it wrote off the entire
remaining net book value of $1,202,100 in December, 1995.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company, and its former President and Executive Vice President are
parties to an agreement which requires the Company, upon the death of either
such person, to purchase from the estate of such person up to $500,000 of the
Company's Common Stock at a price per share equal to the Company's revenues for
the last four completed fiscal quarters immediately preceding the date of death
divided by the number of outstanding shares of Common Stock at the time of
death. The Company's purchase obligation is conditioned upon its receipt of, and
is only to the extent of, life insurance proceeds on such persons.
F-44
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 - FOREIGN OPERATIONS
RESULTS OF FOREIGN OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
ELIMINA- CONSOLI-
US CANADA ISRAEL TIONS DATED
------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE FROM UNRELATED $6,982,928 $0 $59,161 -- $7,042,089
THIRD PARTIES
INTERCOMPANY REVENUE 0 0 0 -- 0
--- --- --- ---
TOTAL REVENUE $6,982,928 $0 $59,161 -- $7,042,089
========== === ======= ==========
NET LOSS ($889,289) $0 ($323,846) -- $(1,213,135)
=========== === ========= ===========
IDENTIFIABLE ASSETS $1,387,154 $0 $0 -- $1,387,154
========== === === ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
ELIMINA- CONSOLI-
US CANADA ISRAEL TIONS DATED
------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE FROM UNRELATED $7,097,409 $3,335,461 $716,059 -- $11,148,929
THIRD PARTIES
INTERCOMPANY REVENUE 0 0 174,517 (174,517) --
--- --- -------- --------- ---
TOTAL REVENUE $7,097,409 $3,335,461 $890,576 $174,517 $11,148,929
========== ========== ======== ======== ===========
NET INCOME (LOSS) ($3,166,529) ($23,106) ($656,340) $3,845,975
=========== ========== ========= ==========
IDENTIFIABLE ASSETS $1,542,285 $644,771 $379,611 $2,566,667
========== ========= ======== ==========
</TABLE>
NOTE 10 - RETIREMENT PLAN
The Company sponsors a defined contribution plan under Section 401(k) of the
Internal Revenue Code for its employees. Participants can make elective
contributions subject to certain limitations. The Company can make a
discretionary matching contribution on behalf of all participants. The Company
made a contribution of $15,824 and $11,064 in 1996 and 1995, respectively.
NOTE 11 - INCOME TAXES
There was no income tax expense or benefit recorded for the years ended
December 31, 1996 or 1995.
The Company has a net operating loss ("NOL") carry forward for income tax
purposes which is available to offset future taxable income. This NOL totals
$5,485,000 and expires in the years
F-45
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2006 through 2011. The Company has a capital loss carry forward for income tax
purposes, which totals $1,202,000 and expires in 2000.
Components of the Company's deferred tax asset and liability at December
31, 1996 is as follows:
Net operating loss carry forwards $2,194,000
Capital loss carry forward 481,000
Deferred revenue (53,000)
------------
2,622,000
Valuation allowance (2,622,000)
----------
Net deferred tax asset --
The change in valuation allowance amounted to $828,000 and $1,559,000
respectively, for the years ended December 31, 1996 and 1995.
The change in stock ownership discussed in Note 13 will result in a
limitation on the annual utilization of net operating loss carry forwards.
NOTE 12 - GAIN ON SALE OF SUBSIDIARY
Effective January 1, 1996, all of the outstanding stock of the Company's
Canadian subsidiary was sold to a private company for net proceeds of $504,000.
Effective April 1, 1996 the Company sold the San Francisco California and
Boise Idaho training operations for net proceeds of $42,000.
NOTE 13 - SUBSEQUENT EVENTS
Effective February 6, 1997, Mashov Computers Marketing Ltd., ("MCM")
acquired a 69% interest in the Company. In consideration of the foregoing, MCM
transferred to the Company all of its interest in Sivan Computers Training
Center ("Sivan") and Mashov Computer Based Training ("Mashov CBT"). MCM received
8,438,924 shares of common stock and 658,412 shares of preferred stock par value
$.001, each share of preferred being convertible into ten shares of common stock
having a ten to one voting right in relation to shares of common stock. This
transaction will be accounted for as a reverse acquisition.
Concurrently with the above purchase transaction, the Company entered into
a conversion and waiver agreement whereby the following took place:
F-46
<PAGE>
PC ETCETERA, INC. (PCE U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The 1,000,000 shares of Series A Preferred Shares held by Elron Electronic
Industries was converted into 200,000 shares of common stock. (See Note 4).
The loans the Company received from certain stockholders aggregating
$437,500 as of December 31, 1996 were converted into 1,750,000 shares of common
stock. (See Note 3).
The holder of warrants (See Note 4) agreed to convert a total of 1,432,519
warrants (consisting of 922,508 warrants outstanding at December 31, 1996 (See
Note 4) which were subsequently adjusted in 1997 under anti dilution provisions)
into 344,464 shares of common stock.
F-47
<PAGE>
<TABLE>
<CAPTION>
============================================= ==========================================
<S> <C>
No person has been authorized in connection with the MENTORTECH INC.
offering made hereby to give any information or to make any
representation not contained in this Prospectus, and, if 14,470,226 Shares
given or made, such information or representation must not of
be relied upon as having been authorized by the Company or Common Stock
any Underwriter. This Prospectus does not constitute an
offer to sell or a solicitation of any offer to buy any of
the securities offered hereby to any person or by anyone in
any jurisdiction in which it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances,
create any implication that the information contained herein
is correct as of any date subsequent to date hereof.
TABLE OF CONTENTS
Page
----
Prospectus Summary........................... 4
Risk Factors................................. 7
Use of Proceeds.............................. 12
Capitalization............................... 12
Dividend Policy.............................. 13 PROSPECTUS
Price Range of Common Stock.................. 13
Unaudited Pro Forma Financial Data........... 14
Selected Financial Data...................... 18
Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
Business..................................... 27
Management................................... 39
Certain Transactions......................... 45
Equity Ownership of Principal and Selling
Stockholders and Officers and Directors.... 47
Shares Eligible for Future Sale.............. 52
Description of Capital Stock................. 52
Conditions in Israel ........................ 55
Plan of Distribution......................... 58
Legal Matters................................ 59
Experts...................................... 59 , 1998
Change in Accountants........................ 60
Additional Information....................... 60
Index to Financial Statements................ F-1
============================================= ==========================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The expenses incurred by the Company in connection with the issuance and
distribution of the securities being registered are estimated as follows:
Amount
Securities and Exchange Commission registration fee..................$ 2,126
Legal fees and expenses.............................................. 42,500
Accounting fees and expenses......................................... 15,000
Printing............................................................. 3,500
Transfer agent's fees................................................ 2,000
Miscellaneous........................................................ 4,874
-----
Total........................................................$70,000
None of the above expenses will be paid by the Selling Stockholders.
Item 24. Indemnification of Directors and Officers.
Pursuant to the provisions of Section 145 of the Delaware General
Corporation Law the Company has the power to indemnify certain persons,
including its officers and directors, under stated circumstances and subject to
certain limitations, for liabilities incurred in connection with services
performed in good faith for the Company or for other organizations at the
request of the Company.
Article VIII of the Company's Certificate of Incorporation, as amended,
provides that no director of the Company shall be liable for monetary damages
for breach of fiduciary duty, except to the extent that the DGCL prohibits the
elimination of liability of directors for breach of fiduciary duty.
Article IX of the Company's Certificate of Incorporation, as amended,
provides that a director or officer of the Company (a) shall be indemnified by
the Company against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement incurred in connection with any litigation or
other legal proceeding (other than an action by or in the right of the Company)
brought against him by virtue of his position as a director or officer of the
Company if he acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to
II-1
<PAGE>
believe his conduct was unlawful and (b) shall be indemnified by the Company
against all expenses (including attorneys' fees) and amounts paid in settlement
incurred in connection with any action by or in the right of the Company brought
against him by virtue of his position as a director or officer of the Company if
he acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Company, except that no indemnification
shall be made with respect to any matter as to which such person shall have been
adjudged to be liable to the Company, unless a court determines that despite
such adjudication but in view of all of the circumstances, he is entitled to
indemnification of such expenses.
Notwithstanding the foregoing, to the extent that a director or officer has
been successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, he is required to be indemnified by
the Company against all expenses (including attorneys' fees) incurred in
connection therewith. Expenses shall be advanced to a director or officer at his
request, provided that he undertakes to repay the amount advanced if it is
ultimately determined that he is not entitled to indemnification for such
expenses.
Article IX of the Company's Certificate of Incorporation, as amended,
further provides that the indemnification provided therein is not exclusive and
provides that in the event that the Delaware General Corporation Law is amended
to expand or limit the indemnification permitted to directors or officers, the
Company must indemnify those persons to the fullest extent permitted by such
law, as so amended.
Item 26. Recent Sales of Unregistered Securities.
<TABLE>
<CAPTION>
Aggregate
Offering Subscriber Amount of Securities Consideration
- -------- ---------- -------------------- -------------
<S> <S> <C> <C>
March 1995 Special Situations Group 556,863 Series B Preferred Stock
Private 355,269 Warrants (1)(2) $500,000
Placement
Rho Management Trust I 556,863 Series B Preferred Stock
355,269 Warrants(1)(2) $500,000
Star Group 556,863 Series B Preferred Stock
355,269 Warrants(1)(2) $500,000
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Offering Subscriber Amount of Securities Consideration
- -------- ---------- -------------------- -------------
<S> <S> <C> <C>
December 1995 Rho Management Trust I 250,000 Common Stock
Bridge Loans 39,062 Warrants (1)(2) $67,000
Star Group 250,000 Common Stock
39,062 Warrants (1)(2) $67,000
Elron Electronic Industries 250,000 Common Stock
39,062 Warrants (1)(2) $67,000
Gilbert H. Steinberg 250,000 Common Stock
39,062 Warrants (1)(2) $67,000
Rho Management Trust I 250,000 Common Stock $125,000
56,820 Warrants (1)(2)
Elron Electronic Industries 250,000 Common Stock
56,820 Warrants (1)(2) $125,000
Gilbert H. Steinberg 250,000 Common Stock
56,820 Warrants (1)(2) $125,000
February Rho Management Trust I 109,808 Common Stock (3)
1997 Star Group 64,444 Common Stock (3)
Conversion Elron Electronic Industries 60,405 Common Stock (3)
Gilbert H. Steinberg 59,749 Common Stock (3)
Special Situations Group 50,059 Common Stock (3)
February 1997 Mashov Computers 763,329 Common Stock (4)
Stock Purchase Marketing Ltd. 658,412 Series C Preferred Stock (4)
Transaction
Helix Capital Corp., LLC 668,532 Common Stock (5)
October 1997 Gail Trugman-Nikol 127,273 Common Stock (6)
Acquisition of
GLTN Computer
Consultants, Inc.
December 1997 Mashov Computers 2,112,726 Common Stock (7)
Conversion of Marketing Ltd 1,056,363 Warrants
Debt
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Offering Subscriber Amount of Securities Consideration
- -------- ---------- -------------------- -------------
<S> <S> <C> <C>
December Special Situations Private Equity 909,090 Common Stock (8)
1997 Private Fund, L.P. 454,545 Warrants
Offering of Units
SIL Nominess 751,820 Common Stock (8)
375,910 Warrants
Michael R. Bruce 80,000 Common Stock (8)
40,000 Warrants
Awad & Associates L.P. 100,000 Common Stock (8)
50,000 Warrants
James F. Joy 46,000 Common Stock (8)
23,000 Warrants
Daniel B. Katz and Gail P. Katz 46,000 Common Stock (8)
JTTEN 23,000 Warrants
Jan Mitchell 180,000 Common Stock (8)
90,000 Warrants
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Offering Subscriber Amount of Securities Consideration
- -------- ---------- -------------------- -------------
<S> <S> <C> <C>
December 1997 James R. Tesone and Nancy 74,000 Common Stock
Private Offering Barrand JTTEN 37,000 Warrants (8)
of Units
Lance Zipper 20,000 Common Stock
10,000 Warrants (8)
Steven Margulies 24,000 Common Stock
12,000 Warrants (8)
Peter Coolidge IRA 20,000 Common Stock
10,000 Warrants (8)
David M. Holzer 20,000 Common Stock
10,000 Warrants (8)
Delaware Charter TTEE 38,000 Common Stock
Retirement Plan DTD 1-1-78 19,000 Warrants (8)
FBO Robert S. Anderson
Joan M. Finsilver 100,000 Common Stock (8)
50,000 Warrants
Brian Harra IRA Rollover 20,000 Common Stock (8)
10,000 Warrants
Joseph Kornreich 20,000 Common Stock (8)
10,000 Warrants
Stacey Kornreich 20,000 Common Stock (8)
10,000 Warrants
Craig Kornreich 20,000 Common Stock (8)
10,000 Warrants
Norman C. Fields 60,000 Common Stock (8)
30,000 Warrants
Chester A. Barrand 100,000 Common Stock (8)
50,000 Warrants
Helix Capital II, LLC 200,000 Common Stock (8)
100,000 Warrants
John C. Moore, III 20,000 Common Stock (8)
10,000 Warrants
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Offering Subscriber Amount of Securities Consideration
- -------- ---------- -------------------- -------------
<S> <S> <C> <C>
December 1997 FM Multi-Strategy Investment 100,000 Common Stock
Private Offering Fund L.P. 50,000 Warrants (8)
of Units
Steven Slawson 46,000 Common Stock
23,000 Warrants (8)
Joseph A. Vafi and Roxanne M. 20,000 Common Stock
Vafi (IRA JTTEN) 10,000 Warrants (8)
Gordon W. McCoun IRA 20,000 Common Stock
10,000 Warrants (8)
Christopher D. Illick 20,000 Common Stock
10,000 Warrants (8)
A. Brean Murray 100,000 Common Stock
50,000 Warrants (8)
Brean Murray Profit Sharing 100,000 Common Stock
Trust 50,000 Warrants (8)
Uzi Zucker 140,000 Common Stock (8)
70,000 Warrants
Neal M. Richard 10,000 Common Stock (8)
5,000 Warrants
The R Trust 20,000 Common Stock (8)
10,000 Warrants
Wolfson Equities 20,000 Common Stock (8)
10,000 Warrants
Wolfson Family Trust 20,000 Common Stock (8)
10,000 Warrants
Hilltop Partners, L.P. 20,000 Common Stock (8)
10,000 Warrants
Hilltop Offshore Limited 20,000 Common Stock (8)
10,000 Warrants
David J. Mitchell 46,000 Common Stock (8)
23,000 Warrants
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Offering Subscriber Amount of Securities Consideration
- -------- ---------- -------------------- -------------
<S> <S> <C> <C>
December 1997 Dorothy Finsilver Trust 100,000 Common Stock
Private Offering 50,000 Warrants (8)
of Units
Elizabeth A. Clements, Trustee
u/w J. A. Clements 20,000 Common Stock
10,000 Warrants (8)
GR&SA Beachley
20,000 Common Stock
10,000 Warrants (8)
Margaret H. Duckworth
20,000 Common Stock
10,000 Warrants (8)
</TABLE>
- ---------------------------------
(1) Includes associated Penalty Securities.
(2) Includes associated Antidilution Securities.
(3) Received Common Stock in exchange for conversion of outstanding Preferred
Stock and/or Warrants.
(4) Issued in connection with the Stock Purchase Agreement.
(5) Acted as financial advisor to PCE U.S. in connection with the stock
purchase transaction.
(6) Assets of GLTN Computer Consultants, Inc.
(7) Surrendered demand note in the amount of U.S. $1,162,000.
(8) An aggregate amount of cash of $2,250,000 was received by the Company from
all the subscribers in the Company's December, 1997 private offering of
Units.
II-7
<PAGE>
Item 27. Exhibits.
Exhibit
Number Description of Exhibit
- ------ ----------------------
2.1 Stock Purchase Agreement dated February 6, 1997 and effective February 13,
1997 by and between the Company and Mashov (1)
3.1 Certificate of Incorporation, as amended (2)
3.2 Certificate of Amendment of Certificate of Incorporation with regard to the
change of the Company's name and the increase in the Company's authorized
capital stock (3)
3.3 By-Laws (4)
4.1 Specimen Common Stock Certificate (5)
4.2 Form of 1997 Subscription Agreement
4.3 Form of December 10, 1997 Warrant Agreement
4.4 Form of Brean Murray Warrant
5.1 Opinion of Carter, Ledyard & Milburn
10.1 Lease for premises situated at 462 Seventh Avenue, 18th Floor, New York,
New York (6)
10.2 Lease for premises situated at 462 Seventh Avenue, 4th Floor New York, New
York (7)
10.3 1997 Stock Option Plan (3)
10.4 Employment Agreement of Roy Machnes (8)
10.5 Employment Agreement of Elan Penn (8)
10.6 Employment Agreement of Terry I. Steinberg (8)
23.1 Consent of Kost, Levary & Forer
23.2 Consent of Ernst & Young LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Carter, Ledyard & Milburn (contained in Exhibit 5.1)
24.1 Power of Attorney*
II-8
<PAGE>
_________
(1) Filed as an exhibit to the Company's Current Report on Form 8-K for an
event dated February 13, 1997 and hereby incorporated by reference thereto.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 and incorporated herein by reference,
as amended by document filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1993 and hereby
incorporated by reference thereto.
(3) Filed as exhibit to the Company's quarterly report on Form 10-QSB for the
quarter ended June 30, 1997 and hereby incorporated by reference thereto.
(4) Filed as an exhibit to the Company's Registration Statement on Form S-18
(File No. 33- 19521) and hereby incorporated by reference thereto.
(5) Filed as an exhibit to the Company's Registration Statement No. 33-93842 on
Form S-2 and incorporated herein by reference.
(6) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993 and hereby incorporated by reference
thereto.
(7) Filed as an exhibit to the Company's Current Report on Form 8-K/A Amendment
No. 2 for an event dated February 24, 1997 and hereby incorporated by
reference thereto.
(8) Filed as a "Related Agreement" to the Stock Purchase Agreement, which was
filed as an exhibit to the Company's Current Report on Form 8-K for an
event dated February 13, 1997 and hereby incorporated by reference thereto.
Item 28. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
II-9
<PAGE>
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee " table in the effective
registration statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer of controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person n connection with the securities being
registered, the registrant will,
II-10
<PAGE>
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-11
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this amendment to the
registration statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York on the 28th day of January, 1998.
MENTORTECH, INC.
By: /s/Roy Machnes
--------------
Roy Machnes
President and
Chief Executive Officer
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Roy Machnes and Terry I. Steinberg, and each of
them, as his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and any other documents in connection therewith, with the
United States Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute, may lawfully do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
- --------- ----- ----
/s/Roy Machnes
- --------------
Roy Machnes Chairman, President, and Chief January 28,1998
Executive Officer
II-12
<PAGE>
Signature Title Date
- --------- ----- ----
/s/Terry I.Steinberg
- --------------------
Terry I. Steinberg Executive Vice President and Director January 28, 1998
/s/Adrienne Haber
- -------------------- Controller (Principal Accounting January 28, 1998
Adrienne Haber Officer)
/s/Elan Penn
- ------------
Elan Penn Chief Financial Officer and Director January 28, 1998
/s/David Assisa
- ---------------
David Assia Director January 28, 1998
- ---------------
Jack Dunietz Director January , 1998
/s/Martin Kahn
- --------------
Martin Kahn Director January 28, 1998
II-13
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
2.1 Stock Purchase Agreement dated February 6, 1997 and effective February 13,
1997 by and between the Company and Mashov (1)
3.1 Certificate of Incorporation, as amended (2)
3.2 Certificate of Amendment of Certificate of Incorporation with regard to the
change of the Company's name and the increase in the Company's authorized
capital stock (3)
3.3 By-Laws (4)
4.1 Specimen Common Stock Certificate (5)
4.2 Form of 1997 Subscription Agreement
4.3 Form of December 10, 1997 Warrant Agreement
4.4 Form of Brean Murray Warrant
5.1 Opinion of Carter, Ledyard & Milburn
10.1 Lease for premises situated at 462 Seventh Avenue, 18th Floor, New York,
New York (6)
10.2 Lease for premises situated at 462 Seventh Avenue, 4th Floor New York, New
York (7)
10.3 1997 Stock Option Plan (3)
10.4 Employment Agreement of Roy Machnes (8)
10.5 Employment Agreement of Elan Penn (8)
10.6 Employment Agreement of Terry I. Steinberg (8)
23.1 Consent of Kost, Levary & Forer
23.2 Consent of Ernst & Young LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Carter, Ledyard & Milburn (contained in Exhibit 5.1)
24.1 Power of Attorney*
<PAGE>
_________
(1) Filed as an exhibit to the Company's Current Report on Form 8-K for an
event dated February 13, 1997 and hereby incorporated by reference thereto.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 and incorporated herein by reference,
as amended by document filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1993 and hereby
incorporated by reference thereto.
(3) Filed as exhibit to the Company's quarterly report on Form 10-QSB for the
quarter ended June 30, 1997 and hereby incorporated by reference thereto.
(4) Filed as an exhibit to the Company's Registration Statement on Form S-18
(File No. 33- 19521) and hereby incorporated by reference thereto.
(5) Filed as an exhibit to the Company's Registration Statement No. 33-93842 on
Form S-2 and incorporated herein by reference.
(6) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993 and hereby incorporated by reference
thereto.
(7) Filed as an exhibit to the Company's Current Report on Form 8-K/A Amendment
No. 2 for an event dated February 24, 1997 and hereby incorporated by
reference thereto.
(8) Filed as a "Related Agreement" to the Stock Purchase Agreement, which was
filed as an exhibit to the Company's Current Report on Form 8-K for an
event dated February 13, 1997 and hereby incorporated by reference thereto.
SUBSCRIPTION AGREEMENT
-------------------------------------------
MENTORTECH INC.
-------------------------------------------
Up to 2,045,455 Units
-------------------------------------------
To: Mentortech Inc.
This Subscription Agreement is made by and between Mentortech Inc., a
Delaware corporation (the "Company"), and the undersigned prospective purchaser
who is subscribing hereby for 1,056,363 units of the Company (the "Units"), at a
purchase price of U.S. $1.10 per Unit (the "Purchase Price"), each unit
consisting of 2 shares of common stock of the Company, par value of $0.01 per
share (the "Common Stock") and one warrant to purchase a share of Common Stock
at an exercise price of U.S. $0.55 per warrant (the "Warrants"). Subject to the
satisfaction of certain conditions as described in Section 7(d) of the Warrant
Agreement by and between the undersigned and the Company dated December 10,
1997, the Warrants are callable at any time the market price of the Common
Stock, as determined by the closing price of the Common Stock on a national
securities exchange or the Nasdaq National or SmallCap Market (collectively,
"Nasdaq"), or, if the Common Stock is not admitted for trading on an exchange or
on Nasdaq, by the closing bid price on the Nasdaq OTC Bulletin Board, has closed
at or above U.S. $1.00 for any 20 consecutive trading day period prior to the
call. Such call may only be made by the Company within 15 business days after
the Common Stock has closed at or above U.S. $1.00 for any such 20 consecutive
trading day period. This subscription is submitted to you in accordance with and
subject to the terms and conditions described in this Subscription Agreement
relating to the offering (the "Offering") of a minimum of 909,091 Units and up
to 2,045,455 Units (the "Private Placement"). The minimum investment is 10,000
Units ($11,000), which minimum amount may be reduced at the discretion of the
Company.
In consideration of the Company's agreement to sell Units to the
undersigned upon the terms and conditions contained herein, the undersigned
agrees and represents as follows:
A. Sale of Units; Closings
(1) The undersigned hereby agrees to purchase the number of Units indicated
on the cover and signature pages hereto at a purchase price of U.S. $1.10 per
Unit. Simultaneously with the execution and delivery of this Subscription
Agreement by the undersigned and the Company, the Company shall deliver to the
undersigned a stock certificate representing the shares of Common Stock
contained in the Units and the Warrants purchased by the undersigned, against
payment of
<PAGE>
the purchase price therefor by wire transfer of immediately available funds to
the Company in accordance with the Company's wiring instructions.
(2) The Company represents that 1,215,000 Units were sold by it on December
5, 1997, pursuant to the Memorandum (as defined below). There may be one or more
closings (each a "Closing Date") relating to the balance of 830,455 Units before
the final closing of the Offering (the "Final Closing"). The Final Closing
shall, in no event, be held later than December 15, 1997.
B. Representation and Warranties.
The undersigned hereby represents and warrants to and agrees with the
Company as follows:
(1) The undersigned has been furnished with and has carefully read the
Company's Confidential Private Placement Memorandum dated November 19, 1997
(the "Memorandum"), including the exhibits thereto and is familiar with and
understands the terms of the Offering. With respect to individual or
partnership tax and other economic considerations involved in this
investment, the undersigned has carefully considered and has, to the extent
the undersigned believes such discussion necessary, discussed with the
undersigned's professional legal, tax, accounting and financial advisers
the suitability of an investment in the Units for the undersigned's
particular tax and financial situation and has determined that the Units
being subscribed for by the undersigned are a suitable investment for the
undersigned.
(2) The undersigned acknowledges that all documents, records, and
books pertaining to this investment which the undersigned has requested
have been made available for inspection by the undersigned, and the
undersigned's attorney, accountant or advisers.
(3) The undersigned and/or the undersigned's adviser(s) has/have had a
reasonable opportunity to ask questions of and receive answers from a
person or persons acting on behalf of the Company concerning the Offering
and all such questions have been answered to the full satisfaction of the
undersigned.
(4) The undersigned is not subscribing for Units as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or meeting.
(5) The undersigned: (i) has a pre-existing business relationship with
either (a) the Company or any of its officers, directors or controlling
persons or (b) the Company's financial advisor, Brean Murray, and (ii) by
reason of the business or financial experience of the undersigned or the
undersigned's professional advisers who are unaffiliated with and who are
not compensated by the Company or any affiliate of the Company, directly or
2
<PAGE>
indirectly, can be reasonably assumed to have the capacity to protect the
undersigned's interests in connection with an investment in the Units.
(6) If the undersigned is a natural person, the undersigned has
reached the age of majority in the state in which the undersigned resides,
has adequate means of providing for the undersigned's current financial
needs and contingencies, is able to bear the substantial economic risks of
an investment in the Units for an indefinite period of time, has no need
for liquidity in such investment and, at the present time, could afford a
complete loss of such investment.
(7) The undersigned or the undersigned's purchaser representative, as
the case may be, has such knowledge and experience in financial, tax and
business matters so as to enable the undersigned to utilize the information
made available to the undersigned in connection with the Offering to
evaluate the merits and risks of an investment in the Units and to make an
informed investment decision with respect thereto.
(8) The undersigned will not sell or otherwise transfer any Units,
Common Stock or Warrants without registration of such securities under the
Securities Act of 1933, as amended (the "Securities Act") and any
applicable state securities laws or an exemption therefrom. The Units,
Common Stock and Warrants have not been registered under the Securities Act
or under the securities laws of any state. The undersigned represents that
the undersigned is purchasing the Units for the undersigned's own account,
for investment and not with a view to resale or distribution except in
compliance with the Securities Act and such "blue sky" laws as may be
applicable. The undersigned has not offered or sold any portion of the
Units, Common Stock or Warrants being acquired nor does the undersigned
have any present intention of dividing such securities with others or of
selling, distributing or otherwise disposing of any portion of such
securities either currently or after the passage of a fixed or determinable
period of time or upon the occurrence or non-occurrence of any
predetermined event or circumstance in violation of the Securities Act. The
undersigned is aware that except as provided in Section D hereof, the
Company has no obligation to register the Units, Common Stock or Warrants
subscribed for hereunder, or to make available an exemption from the
registration requirements pursuant to Rule 144 or any successor rule for
resale of the Units, Common Stock or Warrants.
(9) Further, the undersigned has carefully read and considered the
matters set forth under the caption "Risk Factors" in the Memorandum
previously delivered to the undersigned, and has taken full cognizance of
and understands all of the risks related to the purchase of the Units. The
undersigned's financial condition is such that he is able to bear the risk
of holding Units for an indefinite period of time, has adequate means to
provide for his current financial needs and contingencies and can risk the
loss of his entire investment in the Units.
3
<PAGE>
(10) The undersigned acknowledges that each certificate representing
the Common Stock underlying the Units shall be stamped or otherwise
imprinted with a legend substantially in the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
UNITED STATES FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE OFFERED
FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE,
DIRECTLY OR INDIRECTLY, NOR MAY THE SECURITIES BE TRANSFERRED ON THE
BOOKS OF THE COMPANY, WITHOUT REGISTRATION OF SUCH SECURITIES UNDER
ALL APPLICABLE UNITED STATES FEDERAL SECURITIES LAWS OR COMPLIANCE
WITH AN APPLICABLE EXEMPTION THEREFROM, SUCH COMPLIANCE AT THE OPTION
OF THE COMPANY, TO BE EVIDENCED BY AN OPINION OF SHAREHOLDER'S
COUNSEL, IN FORM ACCEPTABLE TO THE COMPANY, THAT NO VIOLATION OF SUCH
REGISTRATION PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR
ASSIGNMENT"
(11) If this Subscription Agreement is executed and delivered on
behalf of a partnership, corporation, trust or estate: (i) such
partnership, corporation, trust or estate has the full legal right and
power and all authority and approval required (a) to execute and deliver,
or authorize execution and delivery of, this Subscription Agreement and all
other instruments executed and delivered by or on behalf of such
partnership, corporation, trust or estate in connection with the purchase
of its Units, (b) to delegate authority pursuant to a power of attorney and
(c) to purchase and hold such Units; (ii) the signature of the party
signing on behalf of such partnership, corporation, trust or estate is
binding upon such partnership, corporation, trust or estate; and (iii) such
partnership, corporation or trust has not been formed for the specific
purpose of acquiring such Units, unless each beneficial owner of such
entity is qualified as an accredited investor within the meaning of Rule
501(a) of Regulation D promulgated under the Securities Act ("Regulation
D") and has submitted information substantiating such individual
qualification.
(12) If the undersigned is a retirement plan or is investing on behalf
of a retirement plan, the undersigned acknowledges that investment in the
Units poses additional risks including the inability to use losses
generated by an investment in the Units to offset taxable income.
C. Understandings.
(1) The undersigned understands, acknowledges and agrees with the
Company as follows:
4
<PAGE>
(a) No Federal or state agency has made any finding or
determination as to the accuracy or adequacy of the information
provided by the Company to the undersigned in connection with the
Offering, or as to the fairness of the terms of this Offering for
investment nor any recommendation or endorsement of the Units.
(b) The Offering is intended to be exempt from registration under
the Securities Act by virtue of Section 4(2) of the Securities Act and
the provisions of Regulation D promulgated thereunder, which is in
part dependent upon the truth, completeness and accuracy of the
statements made by the undersigned herein and in the Representation
Letter.
(c) The undersigned represents and warrants that it has not
incurred any liability for, and is unaware of any claim for, any
finders' or brokers' fees or similar payments in connection with the
transactions contemplated hereby.
(d) The undersigned acknowledges that the information as to the
Offering is confidential and non-public and agrees that all such
information shall be kept in confidence by the undersigned and neither
used by the undersigned for the undersigned's personal benefit (other
than in connection with this Subscription) nor disclosed to any third
party for any reason; provided, however, that this obligation shall
not apply to any such information that (i) is part of the public
knowledge or literature and readily accessible at the date hereof,
(ii) becomes part of the public knowledge or literature and readily
accessible by publication (except as a result of a breach of this
provision) or (iii) is received from third parties (except third
parties who disclose such information in violation of any
confidentiality agreements or obligations, including, without
limitation, any Subscription Agreement entered into with the Company).
(e) The representations, warranties and agreements of the
undersigned contained herein and in any other writing delivered in
connection with the transactions contemplated hereby shall be true and
correct in all respects on and as of the Closing Date of the sale of
the Units as if made on and as of such date and shall survive the
execution and delivery of this Subscription Agreement and the purchase
of the Units.
(f) IN MAKING AN INVESTMENT DECISION PURCHASERS MUST RELY ON
THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THE UNITS, COMMON STOCK AND
WARRANTS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THE OFFERING OR THIS
5
<PAGE>
SUBSCRIPTION AGREEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
(g) THE UNITS, COMMON STOCK AND WARRANTS MAY NOT BE TRANSFERRED,
RESOLD OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
(h) For Residents of Florida:
IF SALES ARE MADE TO FIVE OR MORE FLORIDA PURCHASERS, EACH
PURCHASER MAY VOID THE PURCHASE OF ANY UNITS WITHIN THREE DAYS AFTER
THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE
COMPANY, AN AGENT OF THE COMPANY, OR AN ESCROW AGENT OR WITHIN THREE
DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH
PURCHASER, WHICHEVER OCCURS LATER.
(2) The Company represents to the undersigned as follows:
(a) Litigation. There are no claims, actions, suits, proceedings,
arbitrations, investigations or inquiries by or before any
governmental agency, court or tribunal, domestic or foreign, or before
any private arbitration tribunal, pending or, to the best of the
Company's knowledge, threatened against the Company or any subsidiary
of the Company (hereinafter a "Subsidiary") or involving the
properties or business of the Company or any Subsidiary which, if
determined adversely, would, individually or in the aggregate, result
in a material adverse effect on the condition (financial or
otherwise), results of operations, business, assets, or prospects of
the Company and its Subsidiaries taken as a whole (a "Material Adverse
Effect"), or which relate in any way to the validity of the capital
stock of the Company or the validity of this Agreement, or of any
action taken or to be taken by the Company pursuant to or in
connection with this Agreement. Neither the Company nor any Subsidiary
is subject to any order, writ, judgment, injunction, decree,
determination or award of any court or of any governmental agency or
instrumentality (whether federal, state, local or foreign) which could
reasonably be expected to have a Material Adverse Effect.
(b) No event has occurred since September 30, 1997 such that, if
such event had occurred during the quarter ended September 30, 1997,
the Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1997 would have contained any untrue statement of a
material fact or omitted to state
6
<PAGE>
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(c) No stockholder of the Company or other person or entity has
any preemptive right of subscription or purchase, right of first
refusal or similar right with respect to any capital stock of the
Company. Issuance of the Units (including the issuance of the shares
of Common Stock and the Warrants comprising such Units and any shares
of Common Stock underlying the Warrants) will not result in the
issuance of any additional shares of Common Stock or the triggering of
any other anti-dilution or similar rights contained in any options,
warrants, debentures or other securities, commitments or agreements of
the Company. Other than the registration rights granted to the
subscribers in the Private Placement, no person or entity has any
piggyback registration rights with respect to the Registration
Statement or any other registration rights which will be accelerated
or become exercisable as a result of the registration rights provided
for in this Subscription Agreement.
(d) The Memorandum does not contain any untrue statement of
material fact or omit a material fact required to be stated therein or
necessary in order to make such statements, in light of the
circumstances under which they were made, not misleading. The purchase
and sale of all Units on December 5, 1997, was made in compliance with
applicable laws.
D. Registration Rights; Compliance with the Securities Act.
(1) The Company shall:
(a) no later than 45 calendar days following the Final Closing,
prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement (the "Registration Statement")
covering the resale of the Common Stock underlying the Units and
issuable upon exercise of the Warrants (hereinafter the "Registrable
Shares") by the undersigned from time to time on the Nasdaq OTC
Bulletin Board, or on such securities market or system on which the
Common Stock shall then be publicly traded, or in privately negotiated
transactions;
(b) use its best efforts, subject to receipt of necessary
information from the undersigned, to cause the Registration Statement
to become effective as soon as possible thereafter;
(c) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions
of the Securities Act until the later of such time as all of the
Registrable Shares have been sold pursuant
7
<PAGE>
thereto or, by reason of Rule 144(k) under the Securities Act or any
other rule of similar effect, such Registrable Shares are no longer
required to be registered for the unrestricted sale thereof by the
Purchasers;
(d) furnish to the undersigned such number of copies of
prospectuses and preliminary prospectuses in conformity with the
requirements of the Securities Act and such other documents as the
undersigned may reasonably request, in order to facilitate the public
sale or other disposition of all or any of the Registrable Shares held
by the undersigned, provided, however, that the obligation of the
Company to deliver copies of prospectuses or preliminary prospectuses
to the undersigned shall be subject to the receipt by the Company of
reasonable assurances from the undersigned that the undersigned will
comply with the applicable provisions of the Securities Act and of
such other securities or blue sky laws as may be applicable in
connection with any use of such prospectuses or preliminary
prospectuses;
(e) file documents required of the Company for normal blue sky
clearance in all states, as required, provided, however, that the
Company shall not be required to qualify to do business or consent to
service of process in any jurisdiction in which it is not now so
qualified or has not so consented;
(f) bear all expenses in connection with the procedures in
paragraphs (a) through (e) of this Section D(1), other than brokerage
commissions or placement agent fees and fees and expenses, if any, of
counsel or other advisers to the undersigned with respect to the
registration and resale of the Registrable Shares; and
(g) prepare and file additional listing applications for the
Registrable Shares on the Nasdaq National or Small Cap Market or other
exchange if the Common Stock is admitted for trading on such exchange.
(h) use its best efforts to have the Registration Statement (or
any supplement or amendment to the Registration Statement, if
applicable) declared effective by the Commission as soon as
practicable after the filing thereof, but in no event later than 120
calendar days following the Final Closing (the "First Target Effective
Date"). If the Registration Statement (or any supplement or amendment
to the Registration Statement, if applicable) is not declared
effective by the First Target Effective Date, the Company shall use
its best efforts to have the Registration Statement (or any supplement
or amendment to the Registration Statement, if applicable) declared
effective by the Commission as soon as practicable after the First
Target Effective Date, but in no event later than 180 Calendar days
following the Final Closing (the "Second Target Effective Date"). If
the Registration Statement (or any supplement or amendment to the
Registration Statement, if applicable) is not declared effective by
the Second Target Effective Date, the Company shall use its best
efforts to have the Registration Statement (or any
8
<PAGE>
supplement or amendment to the Registration Statement, if applicable)
declared effective by the Commission as soon as practicable after the
Second Target Effective Date, but in no event later than 270 calendar
days following the Final Closing (the "Final Target Effective Date").
If the Registration Statement (or any supplement or amendment to the
Registration Statement, if applicable) has not become effective by the
First Target Effective Date, then the undersigned shall be entitled to
receive, in addition to any other remedies at law or in equity
available to the undersigned, such number of Units equal to 10% of the
Units purchased in the Private Placement and held by the undersigned
(and to the extent that the Common Stock underlying the Units is not
then registered under the Securities Act). If the Registration
Statement (or any supplement or amendment to the Registration
Statement, if applicable) has not become effective by the Second
Target Effective Date, then the undersigned shall be entitled to
receive, in addition to any other remedies at law or in equity
available to the undersigned, such number of Units equal to 10% of the
Units purchased in the Private Placement and held by the undersigned
(including any Units issued upon the penalty for missing the First
Target Effective Date, if any, and to the extent that the Common Stock
underlying the Units is not then registered under the Securities Act).
If the Registration Statement (or any supplement or amendment to the
Registration Statement, if applicable) has not become effective by the
Final Target Effective Date, then the undersigned shall be entitled to
receive, in addition to any other remedies at law or in equity
available to the undersigned, such number of Units equal to 10% of the
Units purchased in the Private Placement and held by the undersigned
(including any Units issued upon the penalty for missing the First
Target Effective Date and the Second Target Effective Date, as the
case may be, and to the extent that the Common Stock underlying the
Units is not then registered under the Securities Act). The Company
shall issue and deliver the Units required to be delivered by the
Company hereunder to the undersigned within 20 days following the
First Target Effective Date, the Second Target Effective Date and the
Final Target Effective Date, as the case may be.
The Company understands that the undersigned disclaims being an
underwriter, but the undersigned being deemed an underwriter shall not
relieve the Company of any of its obligations hereunder.
(2) The undersigned agrees that it will not effect any disposition of
the Registrable Shares that would constitute a sale within the meaning of
the Securities Act except as contemplated in the Registration Statement
referred to in Section D(1) or pursuant to an available exemption from
registration under the Securities Act and applicable state securities laws,
and further that as a condition to inclusion of the Registrable Shares in
the Registration Statement the undersigned agrees to provide to the Company
such information as it may reasonably request in order to include such
Registrable Shares in such Registration Statement.
9
<PAGE>
(3) The undersigned agrees not to make any sale of the Registrable
Shares, pursuant to the Registration Statement referred to in this Section
D without effectively causing the prospectus delivery requirements under
the Securities Act to be satisfied. The undersigned acknowledges that there
may occasionally be times when the Company must suspend the use of the
prospectus forming a part of the Registration Statement until such time as
an amendment to such Registration Statement has been filed by the Company
and declared effective by the Commission or until the Company has amended
or supplemented such prospectus. In the event that the Registration
Statement has been suspended, the Company shall provide written notice of
such suspension to the selling shareholders listed in the Registration
Statement. In the event that such Registration Statement is no longer
subject to such suspension, the Company shall provide written notice to
such selling shareholders that such selling shareholders may thereafter
effect sales pursuant to said Registration Statement.
(4) (a) For the purpose of this Section D(4):
(i) the term "Selling Shareholder" shall mean any person or
entity selling Registrable Shares pursuant to the Registration
Statement, and any affiliate thereof;
(ii) the term "Registration Statement" shall include any
preliminary prospectus, final prospectus, exhibit, supplement or
amendment included in or relating to the Registration Statement;
and
(iii) the term "untrue statement" shall mean any untrue
statement or alleged untrue statement of a material fact in the
Registration Statement, or any omission or alleged omission to
state in the Registration Statement a material fact required to
be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
(b) The Company agrees to indemnify and hold harmless each
Selling Shareholder from and against any losses, claims, damages or
liabilities to which such Selling Shareholder may become subject
(under the Securities Act or otherwise) insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of, or are based upon, any untrue statement, or
arise out of any failure by the Company to fulfill any undertaking
included herein or in the Registration Statement, and the Company
promptly will reimburse such Selling Shareholder for any legal or
other expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim; provided,
however, that the Company shall not be liable in any such case to the
extent that such loss, claim, damage or liability arises out of, or is
based upon, an untrue statement made in reliance upon and in
conformity with written information furnished to the
10
<PAGE>
Company by or on behalf of such Selling Shareholder specifically for
use in preparation of the Registration Statement, or the failure of
such Selling Shareholder to comply with the covenants and agreements
contained herein; provided further, that the indemnification contained
in this Section D(4) with respect to any prospectus after it has been
amended or supplemented, shall not inure to the benefit of any Selling
Shareholder (or any person controlling such Selling Shareholder) from
whom the person asserting such loss, claim, damage, or liability shall
have purchased Registrable Shares, that are the subject thereof if,
after copies thereof have been delivered by the Company to such
Selling Shareholder, such Selling Shareholder shall have failed to
send or give a copy of the prospectus as then amended or supplemented,
as the case may be, to such person at or prior to the confirmation of
such sale of such Registrable Shares, to such person, and, if such
loss, claim, damage or liability would not have arisen but for the
failure of such Selling Shareholder to deliver the same.
(c) The Selling Shareholder agrees to indemnify and hold harmless
the Company (and each other person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, each officer
of the Company who signs the Registration Statement and each director
of the Company) from and against any losses, claims, damages or
liabilities to which the Company (or any such officer, director or
controlling person) may become subject (under the Securities Act or
otherwise), insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of, or are based
upon, any failure of the Selling Shareholder to comply with its
covenants and agreements contained herein, or any untrue statement if
such untrue statement was made in reliance upon and in conformity with
written information furnished by or on behalf of the Selling
Shareholder specifically for use in preparation of the Registration
Statement, and the Selling Shareholder promptly will reimburse the
Company (or such officer, director or controlling person), as the case
may be, for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action,
proceeding or claim.
(d) Promptly after receipt by any indemnified person of a notice
of a claim or the beginning of any action in respect of which
indemnity is to be sought against an indemnifying person pursuant to
this Section D(4), such indemnified person shall notify the
indemnifying person in writing of such claim or of the commencement of
such action, and, subject to the provisions hereinafter stated, in
case any such action shall be brought against an indemnified person
and such indemnifying person shall have been notified thereof, such
indemnifying person shall be entitled to participate therein, and, to
the extent it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified person. After notice from
the indemnifying person to such indemnified person of its election to
assume the defense thereof, such indemnifying person shall not be
liable to such
11
<PAGE>
indemnified person for any legal expenses subsequently incurred by
such indemnified person in connection with the defense thereof. In the
event that the indemnifying party shall have assume the defense of
such action, such indemnifying party shall not enter into any
compromise or settlement without the indemnified party's prior written
consent, which consent shall not be unreasonably withheld, delayed or
denied.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this
Section D(4) is due in accordance with its terms but for any reason is
held to be unavailable or insufficient to hold harmless an indemnified
party, the Company on the one hand and the Selling Shareholder on the
other hand shall, in lieu of indemnifying such indemnified party,
contribute to the aggregate losses, claims, damages or liabilities
referred to in this Section D(4) (including costs of any investigation
and legal and other expenses reasonably incurred in connection
therewith, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted), in such proportions as is
appropriate to reflect the relative benefits received by the Company
and the Selling Shareholder from any offering of Registerable Shares
and the relative fault of the Company and the Selling Shareholder in
connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of the Company
and the Selling Shareholder shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a
material fact or omission related to information supplied by the
Company (including for this purpose information supplied by any
officer, director, employee or agent of the Company) or to written
information furnished to the Company by or on behalf of the Selling
Shareholder specifically for use in the preparation of the
Registration Statement or any amendment thereof or supplement thereto,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
Notwithstanding the provisions of this Section D(4)(e) in no case
shall the Selling Shareholder be liable or responsible for any amount
in excess of the proceeds received by the Selling Shareholder from the
sale of the Registerable Shares included in the Registration
Statement, provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of
this Section D(4)(e), each person, if any, who controls the Selling
Shareholder within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") shall have the same rights to contribution as the
Selling Shareholder, and each person, if any, who controls the Company
within the meaning of the Section 15 of the Securities Act or Section
20(a) of the Exchange Act, each director of the Company and each
officer of the Company who shall
12
<PAGE>
have signed the Registration Statement shall have the same rights to
contribution as the Company, subject to the immediately preceding
sentence of this Section D(4)(e). Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action,
suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this
Section D(4)(e), notify such party or parties from whom contribution
may be sought, and the omission so to notify such party or parties
from whom contribution may be sought shall relieve the party or
parties from whom contribution may be sought (if such party was
unaware of such action, suit, or proceeding and was materially
prejudiced by such omission) from any liability under this Section
D(4)(e), but not from any other obligation it or they may have
hereunder or other than under this Section D(4)(e). No party shall be
liable for contribution with respect to the settlement of any action,
suit, proceeding or claim effected without its written consent. The
obligations of the Selling Shareholder to contribute pursuant to this
Section D(4)(e) are several in proportion to its respective number of
Registerable Shares included in the Registration Statement and not
joint.
(5) The restrictions imposed by Sections B(8) and D(2) upon the
transferability of the Registrable Shares shall cease and terminate as to
any particular Registrable Shares when such Registrable Shares shall have
been effectively registered under the Securities Act and sold or otherwise
disposed of in accordance with the intended method of disposition set forth
in the Registration Statement or at such time as an opinion of counsel
satisfactory to the Company shall have been rendered to the effect that
such restrictions are not necessary in order to comply with the Securities
Act.
(6) So long as the Registration Statement is effective covering the
sale of Registrable Shares owned by the undersigned, the Company will
furnish to the undersigned upon request;
(a) any document filed by the Company with the SEC, with the
exception of documents for which confidential treatment has been
granted by the SEC;
(b) upon the reasonable request of the Purchaser, any other
information concerning the Company that is generally available to the
public; and
(c) an adequate number of copies of the prospectuses relating to
the resale of the Registrable Shares to supply to any party requiring
such prospectuses.
(7) With a view to making available to the undersigned the benefit of
Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the undersigned to
sell Common Stock to the public without registration ("Rule 144"), the
Company agrees to:
13
<PAGE>
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and
the Exchange Act; and
(c) furnish to the undersigned, so long as the undersigned owns
Registrable Shares, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of
the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or periodic report of the Company and such other reports
and documents so filed by the Company and (iii) such other information
as may be reasonably requested to permit the undersigned to sell such
securities pursuant to Rule 144 without registration.
E. Miscellaneous.
(1) All pronouns and any variations thereof used herein shall be
deemed to refer to the masculine, feminine, impersonal, singular or plural,
as the identity of the person or persons may require.
(2) Neither this Subscription Agreement nor any provision hereof shall
be waived, modified, changed, discharged, terminated, revoked or canceled
except by an instrument in writing signed by the party effecting the same
against whom any change, discharge or termination is sought.
(3) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally
delivered or sent by registered mail, return receipt requested, addressed:
(i) if to the Company, at Mentortech Inc., 462 Seventh Avenue, New York,
New York 10018, phone: (212) 736-5870, Attention: Chief Executive Officer,
(ii) if to the undersigned, at the address for correspondence set forth in
the Representation Letter, or at such other address as may have been
specified by written notice given in accordance with this Section E(3).
(4) Failure of the Company to exercise any right or remedy under this
Subscription Agreement or any other agreement between the Company and the
undersigned, or otherwise, or delay by the Company in exercising such right
or remedy, will not operate as a waiver thereof. No waiver by the Company
will be effective unless and until it is in writing and signed by the
Company.
(5) This Subscription Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the state of New
York, as such laws are applied
14
<PAGE>
by New York courts to agreements entered into and to be performed in New
York by and between residents of New York, and shall be binding upon the
undersigned and the Company, and their respective heirs, estate, legal
representatives, successors and assigns and shall inure to the benefit of
the parties hereto, and their respective successors and assigns. If any
provision of this Subscription Agreement is invalid or unenforceable under
any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be
deemed modified to conform with such statute or rule of law. Any provision
hereof that may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision hereof.
F. Execution of Agreement by Power of Attorney.
THE UNDERSIGNED ACKNOWLEDGES THAT THE UNDERSIGNED HAS SIGNED THIS
SUBSCRIPTION AGREEMENT ON THE UNDERSIGNED'S OWN BEHALF, AND NOT BY POWER OF
ATTORNEY, UNLESS SUCH POWER OF ATTORNEY EXPRESSLY PROVIDES FOR THE FURTHER
DELEGATION OF SUCH POWER OF ATTORNEY BY THE HOLDER THEREOF AND, IN SUCH EVENT,
THE UNDERSIGNED REPRESENTS THAT ATTACHED HERETO IS A TRUE AND COMPLETE COPY OF
SUCH POWER OF ATTORNEY.
G. Signature.
The signature page of this Subscription Agreement is contained as part of
the applicable Subscription Package, entitled "Signature Page".
15
<PAGE>
REPRESENTATION LETTER
To: Mentortech Inc. (the "Company")
In connection with the purchase by the undersigned purchaser (the
"Purchaser") of Units of the Company (the "Units") for a purchase price of U.S.
$1.10 per Unit, each Unit consisting of 2 shares of common stock of the Company,
par value of $0.01 per share (the "Common Stock") and one warrant to purchase a
share of Common Stock at an exercise price of U.S. $0.55 per warrant (the
"Warrants") and, subject to the satisfaction of certain conditions as described
in Section 7(d) of the Warrant Agreement by and between the undersigned and the
Company dated December 10, 1997, such Warrants being callable by the Company at
any time the market price of the Common Stock, as determined by the closing
price of the Common Stock on a national securities exchange or the Nasdaq
National or SmallCap Market (collectively, "Nasdaq"), or, if the Common Stock is
not admitted for trading on an exchange or on Nasdaq, by the closing bid price
on the Nasdaq OTC Bulletin Board, has closed at or above U.S. $1.00 for any 20
consecutive trading day period prior to the call, such call only being made by
the Company within 15 business days after the Common Stock has closed at or
above U.S. $1.00 for any such 20 consecutive trading day period, we confirm and
agree as follows:
(a) The following information regarding the Purchaser is true and
correct as of the date hereof:
Name:
- --------------------------------------------------------------------------------
Social Security or Taxpayer Identification Number:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
(Number and Street)
- --------------------------------------------------------------------------------
(City) (State) (Zip Code)
Telephone Number:
- --------------------------------------------------------------------------------
Area Code) (Number)
16
<PAGE>
Type of Purchaser:
[ ] Individual [ ] Corporation
[ ] Trust [ ] Retirement Plan
[ ] Partnership
(b) we are authorized to consummate the purchase of the Units;
(c) we are purchasing the Units and will acquire the Common Stock and
Warrants underlying the Units for our own account (or for accounts as to
which we exercise investment discretion and have authority to make and do
make the statements contained in this Representation Letter), and not with
a view to any resale, distribution or other disposition of such securities,
or any part thereof in any transaction that would be in violation of the
securities laws of the United States or any state thereof, subject,
nevertheless, to the disposition of our property being at all times within
our control;
(d) we agree that if we decide to offer, sell or otherwise transfer,
pledge or hypothecate, or otherwise dispose of all or any part of the
Units, the Common Stock and the Warrants we will not offer, sell or
otherwise transfer, pledge or hypothecate or otherwise dispose of any of
them (other than pursuant to an effective registration statement under the
Securities Act 1933, as amended (the "Securities Act")), directly or
indirectly unless:
(i) the disposition is to the Company; or
(ii) the disposition is made pursuant to the exemption from
registration under the Securities Act provided by Rule 144 thereunder
if available; or
(iii) the disposition is made in a transaction that does not
require registration under the Securities Act or any applicable United
States state laws and regulations governing the offer and sale of
securities, and we have furnished to the Company an opinion of
counsel, of recognized standing reasonably satisfactory to the Company
to that effect;
(e) we understand and acknowledge that upon the original issuance
thereof, and until such time as the same is no longer required under
applicable requirements of the Securities Act or state securities laws, the
certificates representing the Units, the Common Stock and
17
<PAGE>
the Warrants and all certificates issued in exchange therefor or in
substitution thereof, shall bear a legend substantially in the form of the
following:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
UNITED STATES FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE OFFERED
FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE,
DIRECTLY OR INDIRECTLY, NOR MAY THE SECURITIES BE TRANSFERRED ON THE
BOOKS OF THE COMPANY, WITHOUT REGISTRATION OF SUCH SECURITIES UNDER
ALL APPLICABLE UNITED STATES FEDERAL SECURITIES LAWS OR COMPLIANCE
WITH AN APPLICABLE EXEMPTION THEREFROM, SUCH COMPLIANCE AT THE OPTION
OF THE COMPANY, TO BE EVIDENCED BY AN OPINION OF SHAREHOLDER'S
COUNSEL, IN FORM ACCEPTABLE TO THE COMPANY, THAT NO VIOLATION OF SUCH
REGISTRATION PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR
ASSIGNMENT";
(f) we have been afforded the opportunity (i) to ask such questions as
we have deemed necessary of, and to receive answers from, representatives
of the Company concerning the terms and conditions of the offering of the
Units, and (ii) to obtain such additional information which the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to verify the accuracy and completeness of the information
contained in the Offering Documents; and
(g) (i) we are an "accredited investor" within the meaning of Rule
501(a) under the Securities Act as set forth in Exhibit A to this
Representation Letter, and by reason of our business and financial
experience and the business and financial experience of those persons we
retain to advise us with respect to investment in the Units we, together
with our advisors, have such knowledge, sophistication and experience in
business and financial matters that we are capable of evaluating the merits
and risks of the prospective investment; or (ii) we acknowledge that we
have received the information contained in the Company's Registration
Statement on Form SB-2, as amended, dated October 14, 1997 and the
Company's Confidential Private Placement Memorandum, dated November 19,
1997, which includes a description of the securities being offered hereby
and the use of proceeds of the offering.
We acknowledge that the representations and warranties and agreements
contained herein are made by us with the intent that they may be relied upon by
you in determining our eligibility or (if applicable) the eligibility of others
on whose behalf we are contracting hereunder to purchase the Units. We further
agree that by accepting the Units we shall be representing and warranting that
the foregoing representations and warranties are true as at the closing time
with the same force and effect as if they had been made by us at the closing
time and that they shall survive the purchase by
18
<PAGE>
us of the Units and shall continue in full force and effect notwithstanding any
subsequent disposition by us of the Units.
You are irrevocably authorized to produce this letter or a copy hereof to
any interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
19
<PAGE>
MENTORTECH INC.
SIGNATURE PAGE
Your signature on this Signature Page evidences the agreement by the
undersigned Purchaser to be bound by the Subscription Agreement and the
Representation Letter.
1. The undersigned hereby represents that (a) the information contained in
this Representation Letter is complete and accurate and (b) the undersigned
Purchaser will notify the Company (contact at the telephone number contained on
page 9 hereof) immediately if any material change in any of this information
occurs before the acceptance of the undersigned Purchaser's subscription and
will promptly send the Company written confirmation of such change.
2. The undersigned Purchaser hereby certifies that it has read and
understands this Subscription Agreement.
3. The undersigned Purchaser hereby represents and warrants that he or she
is an individual acting in his or her own capacity or that the person signing
this Subscription Agreement on behalf of the Purchaser has been duly authorized
by the Purchaser to acquire the Units and sign this Subscription Agreement on
behalf of the Purchaser and, further, that the undersigned Purchaser has all
requisite authority to purchase such Units and enter into this Subscription
Agreement.
-------------------------- ----------------------------
Number of Units Date
----------------------------
Name of Purchaser
(Please Type or Print)
By: _________________________________
(Signature)
Name: ________________________________
(Please Type or Print)
Title: _________________________________
20
<PAGE>
Accepted and Agreed as of
this _____ day of December, 1997.
MENTORTECH INC.
By: _____________________________
Roy Machnes
President and CEO
THE UNITS, COMMON STOCK AND WARRANTS HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS SUCH SECURITIES ARE INCLUDED IN AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN OPINION OF
COUNSEL, SATISFACTORY TO COUNSEL TO THE COMPANY, HAS BEEN DELIVERED TO THE
EFFECT THAT REGISTRATION OF SUCH SECURITIES IS NOT REQUIRED.
21
<PAGE>
Exhibit A
1. Accredited Investor (defined in Rule 501(a) of Securities and Exchange
Commission ("SEC") Regulation D) means any person who comes within any of
the following categories, or who the Company reasonably believes comes
within any of the following categories, at the time of the sale of the
securities to that person:
Please initial next to the portion of the definition applicable to you:
(a) any bank as defined in Section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Exchange Act, any insurance company as
defined in Section 2(13) of the Securities Act; any investment company
registered under the Investment Company Act of 1940 (the "ICA") or a
business development company as defined in Section 2(a)(48) of the
ICA; Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established and maintained
by a state, its political subdivisions, or any, agency or
instrumentality of a state or its political subdivisions for the
benefit of its employees, if such plan has total assets in excess of
$5,000,000; employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974 ("ERISA") if the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of
the ERISA, which is either a bank, savings and loan association,
insurance company or registered investment adviser, or, if the
employee benefit plan has total assets in excess of $5,000,000 or, if
a self-directed plan, with investment decisions made solely by persons
that are accredited investors;
(b) any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(c) any organization described in Section 501(c)(3) of the Internal
Revenue Code, 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;
(d) any director, executive officer, or general partner of the Company or
any director, executive officer, or general partner of a general
partner of the Company;
(e) any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of the purchase exceeds $1,000,000;
22
<PAGE>
a (f) any natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the
current year;
(g) any trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered hereby, whose
purchase is directed by a sophisticated person as described in SEC
Rule 506(b)(2)(ii); and
(h) any entity in which all of the equity owners are Accredited Investors.
(i) any entity (or person) that has received the information contained in
the Company's Registration Statement on Form SB-2, as amended, dated
October 14, 1997 and the Company's Confidential Private Placement
Memorandum, dated November 19, 1997, which includes a description of
the securities being offered hereby and the use of proceeds of the
offering.
The Investor must initial beside the portion of the above definition
applicable to it.
23
<PAGE>
W-9 TO BE INSERTED HERE
24
WARRANT AGREEMENT
-------------------------------------------
MENTORTECH INC.
-------------------------------------------
THIS WARRANT AGREEMENT (this "Agreement") dated as of December 10, 1997 is
made by and between Mentortech Inc., a corporation organized under the laws of
the State of Delaware (the "Company"), and _____________ (the "Warrantholder").
Subject to the terms and conditions hereof, the Company agrees to issue to
the Warrantholder, pursuant to a subscription agreement by and between the
Company and the Warrantholder dated as of December 10, 1997 (the "Subscription
Agreement"), warrants as hereinafter described (the "Warrants") to purchase up
to an aggregate of 1,056,363 shares of the common stock of the Company, par
value $.01 per share (the "Common Stock"), at a Warrant Price of U.S. $0.55 per
share of Common Stock, subject to adjustment pursuant to Section 8 hereof. The
Warrants shall be subject to call by the Company as provided in Section 7
hereof. As used herein (i) the terms "Share" or "Shares" shall mean collectively
the Common Stock issuable upon exercise of the Warrants together with any other
securities issuable upon such exercise as provided in Section 8 of this
Agreement; (ii) the term "Warrants" shall include any and all warrants
outstanding pursuant to this Agreement, including those evidenced by a
certificate or certificates issued upon division, exchange or substitution
pursuant to this Agreement; and (iii) the term "Warrant Price" shall mean the
price per share of Common Stock at which the Common Stock shall at any time be
purchasable upon exercise of the Warrants. In addition to the adjustments
provided in Section 8 hereof, any fixed dollar per share amounts referenced in
this Agreement shall be appropriately adjusted for any stock splits,
subdivisions, stock dividends or stock distributions, combinations,
reclassifications or consolidations or other changes to the Company's capital
structure. Terms which are capitalized but not defined herein shall have the
same meanings as in the Subscription Agreement. The issuance of the Warrants
shall occur on each Closing Date, as provided in the Subscription Agreement upon
receipt of payment therefor. Except where otherwise specified, the terms of this
Agreement shall apply to all registered holders of Warrants.
For the purpose of defining the terms and provisions of the Warrants and
the respective rights and obligations thereunder, the Company and the
Warrantholder, for value received, hereby agree as follows:
<PAGE>
Section 1. Transferability and Form of Warrants.
1.1. Registration. The Warrants shall be numbered and shall be registered
on the books of the Company when issued, in accordance with Delaware corporate
practice.
1.2. Transfer. The Warrants shall be transferable only on the books of the
Company maintained at its principal office in New York, New York or wherever its
principal office may then be located, upon delivery thereof duly endorsed by the
Warrantholder seeking such transfer or by its duly authorized attorney or
representative, accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver new Warrants to the person entitled thereto.
1.3. Form of Warrants. The form of certificate evidencing the Warrants
shall be substantially as set forth in Exhibit 1 attached hereto. Certificates
evidencing the Warrants shall be executed on behalf of the Company by its
Chairman, President or by any Vice President, shall be attested to by its
Secretary or any Assistant Secretary, and shall be dated as of the date of
execution thereof.
1.4. Legend on Warrants and Shares. The Warrants, and the Shares issuable
upon the exercise thereof, have not been registered under the Securities Act of
1933, as amended (the "Securities Act"). Each certificate for the Warrants shall
bear the following legend:
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE, AND THE COMMON STOCK
ISSUABLE UPON EXERCISE OF SUCH WARRANTS, HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR THE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES. SUCH WARRANTS MAY NOT BE SOLD, AS
SIGNED, EXCHANGED OR OTHERWISE TRANSFERRED IN ANY MANNER AND SUCH
COMMON STOCK MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
And each certificate for the Shares shall bear the following legend:
"THE COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED
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STATES AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act of the securities represented thereby) shall also bear a like
legend unless, in the opinion of the Company's counsel, the securities
represented thereby need no longer be subject to such restrictions.
Section 2. Exchange of Warrant Certificate. Any Warrant certificate may be
exchanged for another certificate or certificates entitling a Warrantholder to
purchase a like aggregate number of Shares as the certificate or certificates
surrendered then entitles such Warrantholder to purchase. Any Warrantholder
desiring to exchange a Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the Warrant to be so exchanged. Thereupon, the Company
shall execute and deliver to the person entitled thereto a new Warrant
certificate as so requested.
Section 3. Term of Warrants; Exercise of Warrants; Market Price
(a) Subject to the terms of this Agreement, each Warrantholder shall have
the right, at any time during the period commencing at 9:00 a.m., Eastern Time,
on December 10, 1997 (the "Commencement Date") and ending at 5:00 p.m., Eastern
Time, on December 9, 1999 (the "Termination Date"), to purchase from the Company
up to the number of fully paid and nonassessable Shares which such Warrantholder
may at the time be entitled to purchase pursuant to this Agreement, upon
surrender to the Company at its principal office of the certificates evidencing
the Warrants to be exercised, with the purchase form duly completed and signed,
and upon payment to the Company of the Warrant Price (as determined in
accordance with the provisions of Section 8 hereof) for the number of Shares in
respect of which such Warrants are then exercised, but in no event for fewer
than 100 Shares (unless fewer than an aggregate of 100 Shares are then
purchasable under all outstanding Warrants held of record by a Warrantholder).
The Termination Date shall be extended for such number of days as (i) the Shares
are not covered by and may not be sold pursuant to an effective registration
statement under the Securities Act for any reason whatsoever (including, without
limitation, any stop order or suspension), (ii) the Common Stock is not listed
and trading on any national exchange or on the Nasdaq Stock Market, or is not
traded on the Nasdaq OTC Bulletin Board, or (iii) the Shares are not listed on
the principal exchange on which the Common Stock is listed or the Nasdaq Stock
Market, if the Common Stock is listed thereon, or are not eligible for trading
on the Nasdaq OTC
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Bulletin Board, and for a period of 30 days thereafter. Payment of the aggregate
Warrant Price shall be made in cash or by certified or cashier's check or any
combination thereof.
(b) Upon surrender of Warrant certificates and payment of the Warrant
Price, the Company shall issue and cause to be delivered with all reasonable
dispatch to or upon the written order of a Warrantholder, and (subject to
Section 11 hereof) in such name or names as such Warrantholder may designate, a
certificate or certificates for the number of full Shares so acquired upon the
exercise of the Warrant, together with cash, as provided in Section 9 hereof, in
respect of any fractional Shares otherwise issuable upon such surrender. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such Shares as of the date of surrender of the Warrants being
exercised and payment of the Warrant Price notwithstanding that the certificate
or certificates representing such securities shall not actually have been
delivered or that the stock transfer books of the Company shall then be closed.
The Warrants shall be exercisable at the election of a Warrantholder either in
full or from time to time in part and, in the event that a certificate
evidencing Warrants is exercised in respect of fewer than all of the Shares
specified therein at any time prior to the Termination Date, a new certificate
evidencing the remaining portion of the Warrants shall be issued by the Company.
(c) For all purposes of this Agreement, the term "Market Price" as of any
specified date shall mean: (i) if the Common Stock is listed or admitted for
trading on one or more United States national securities exchanges, the daily
closing price for the Common Stock on that of such exchanges as may be
designated by the Board of Directors of the Company (the "Board") as the
principal exchange in the United States on which the Common Stock is listed;
(ii) if the Common Stock is not listed or admitted for trading on any United
States national securities exchange, the daily closing bid price for the Common
Stock on the Nasdaq National or SmallCap Market ("Nasdaq"); or (iii) if the
Common Stock is not listed or admitted for trading on a United States national
securities exchange or on Nasdaq, the closing bid price of the Common Stock on
the Nasdaq OTC Bulletin Board as reported by the National Quotation Bureau Inc.
In the event that it is impracticable for the Board to establish the Market
Price of the Common Stock pursuant to this Section 3 on any specified date, the
"Market Price" shall be determined in good faith by the Board, such
determination to be conclusive.
Section 4. Payment of Taxes. The Company will pay all taxes and fees, if
any, attributable to the initial issuance of the Warrants or the issuance of the
Shares upon exercise of the Warrants, except that the Company shall not be
required to pay any tax or fee which may be payable in respect of any secondary
transfer of the Warrants or such Shares.
Section 5. Mutilated or Missing Warrants. In case the certificate or
certificates evidencing any Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the affected Warrantholder,
issue and deliver in exchange and substitution for and upon
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cancellation of the mutilated certificate or certificates, or in lieu of and
substitution for the certificate or certificates lost, stolen or destroyed, a
new Warrant certificate or certificates of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company of the loss, theft or destruction of such Warrant and, if requested,
at the cost and expense of the Warrantholder, a bond of indemnity in form and
amount satisfactory to the Company. Applicants for such substitute Warrant
certificates shall also comply with such other reasonable regulations as the
Company may prescribe.
Section 6. Reservation of Shares. There has been reserved, and the Company
shall at all times keep reserved so long as any Warrants remain outstanding, out
of its authorized share capital, such number of shares of Common Stock as shall
be subject to purchase under all outstanding Warrants. Every transfer agent for
the Common Stock and other securities of the Company issuable upon the exercise
of Warrants will be irrevocably authorized and directed at all times to reserve
such number of authorized shares of Common Stock and other securities as shall
be requisite for such purpose. The Company will supply every such transfer agent
with duly executed stock and other certificates, as appropriate, for such
purpose and will provide or otherwise make available any cash which may be
payable as provided in Section 9 hereof.
Section 7. Callability of Warrants.
(a) The Warrants shall, at the option of the Company, be subject to
call, at a price of U.S. $.01 per Warrant outstanding (the "Call Price"),
any time that the Market Price (as such term is defined in Section 3(c)
hereof) of the Common Stock has closed at or above U.S. $1.00 for any 20
consecutive trading day period. Such call may only be made by the Company
within 15 business days after the Common Stock has closed at or above U.S.
$1.00 for any such 20 consecutive trading day period.
(b) In the event that the Company shall exercise its right to call the
Warrants pursuant to this Section 7, the Company shall cause written notice
of such intention to call the Warrants to be delivered to the Warrantholder
by first-class mail at the last address of the Warrantholder as then
registered on the books of the Company not less than 30 days prior to the
date on which the Warrants shall be called for redemption (the "Call Date")
and the Call Price shall be paid to the Warrantholder by cash or check for
the number of Warrants then held by the Warrantholder.
(c) Upon due receipt of the notice referred to in Section 7(b), the
Warrantholder shall have the right to exercise the Warrants in accordance
with Section 3(a) hereof, provided that the Warrantholder shall exercise
such right prior to the Call Date. In the event that the Warrantholder
fails to exercise its right to exercise the Warrants in accordance with
Section 3(a) prior to the Call Date, upon due payment of the Call Price,
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<PAGE>
the Company and the Warrantholder shall have no further obligations under
this Agreement.
(d) Notwithstanding the foregoing, no day may be taken into account
either (i) as a date on which the Market Price of the Common Stock closed
at or above U.S. $1.00 for purposes of Section 7(a), or (ii) as part of the
30-day period, set forth in Section 7(b), between the date the Company
notifies the Warrantholder of its intention to call the Warrants and the
Call Date (i.e., such 30-day period shall be suspended on each day during
such period) if (i) all Shares are not covered by and may not be sold
pursuant to an effective registration statement under the Securities Act
for any reason whatsoever, (ii) the Common Stock is not listed and trading
on any national exchange or on the Nasdaq Stock Market, or is not traded on
the Nasdaq OTC Bulletin Board, or (iii) the Shares are not listed on the
principal exchange on which the Common Stock is listed or the Nasdaq Stock
Market, if the Common Stock is listed thereon, or are not eligible for
trading on the Nasdaq OTC Bulletin Board.
Section 8. Adjustment of Number and Kind of Securities. The Warrant Price
and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
8.1. Adjustments.
(a) In case the Company shall (i) pay a dividend in Common Stock or
make a distribution in Common Stock, (ii) subdivide its outstanding Common
Stock, (iii) combine its outstanding Common Stock into a smaller number of
shares of Common Stock, or (iv) issue, by reclassification of its Common
Stock, other securities of the Company, the number of shares of Common
Stock or other securities purchasable upon exercise of the Warrants
immediately prior thereto shall be adjusted so that each Warrantholder
shall be entitled to receive the kind and number of shares of Common Stock
or other securities of the Company which it would have owned or would have
been entitled to receive immediately after the happening of any of the
events described above, had the Warrants been exercised immediately prior
to the happening of such event or any Record Date (as defined below) with
respect thereto. For purposes hereof, "Record Date" shall mean the date of
closing the transfer books of the Company for the determination of the
shareholders entitled to any relevant dividend, distribution, subscription
rights or other rights or for the determination of shareholders entitled to
vote on any proposed merger, dissolution, liquidation or winding up of the
Company. Any adjustment made pursuant to this subsection 8.1(a) shall
become effective immediately on the effective date of such event
retroactive to the Record Date, if any, for such event.
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(b) In the event the Company shall issue or sell any shares of Common
Stock for a consideration per share less than the Warrant Price in effect
immediately prior to such issue or sale, then the Warrant Price in effect
immediately prior to such issue or sale, shall be reduced to such lesser
price calculated to the nearest cent) as shall be determined prior thereto
by a fraction, the numerator of which shall be the sum of (i) the number of
shares of Common Stock outstanding immediately prior to the issuance or
sale of such additional shares and (ii) the number of shares of Common
Stock which the aggregate consideration received for the issuance or sale
of such additional shares would purchase at the Warrant Price then in
effect, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the issuance or sale of such
additional shares.
(c) For the purpose of subsection 8.1(b), the following subparagraphs
(i) to (iii), inclusive, shall be applicable:
(i) If at any time the Company shall issue or sell any rights to
subscribe for, or any rights or options to purchase, Common Stock or
any stock or other securities convertible into or exchangeable for
Common Stock (such convertible or exchangeable stock or securities
being hereinafter called "Convertible Securities"), whether or not
such rights or options or the right to convert or exchange any such
Convertible Securities shall be immediately exercisable, and the price
per share for which Common Stock shall be issuable upon the exercise
of such rights or options or upon conversion or exchange of such
Convertible Securities (determined by dividing (1) the total amount,
if any, received or receivable by the Company as consideration for the
granting of such rights or options, plus the minimum aggregate amount
of additional consideration payable to the Company upon the exercise
of such rights or options, plus, in the case of any such rights or
options which shall relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon the conversion
or exchange thereof, by (2) the total number of shares of Common Stock
issuable upon the exercise of such rights or options or upon the
conversion or exchange of all such Convertible Securities issuable
upon the exercise of such rights or options) shall be less than the
Warrant Price in effect immediately prior to the time of the issue or
sale of such rights or options, then the total number of shares of
Common Stock issuable upon the exercise of such rights or options or
upon conversion or exchange of the total amount of such Convertible
Securities issuable upon the exercise of such rights or options shall
(as of the date of granting of such rights or options) be deemed to be
outstanding and to have been issued for such price per share, and
except as provided in Section 8.1(i) below, no further adjustments of
the Warrant Price shall be made upon the actual issue of such Common
Stock
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or of such Convertible Securities, upon the exercise of such rights or
options or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities.
(ii) If at any time the Company shall issue or sell any
Convertible Securities, whether or not the rights to exchange or
convert thereunder shall be immediately exercisable, and the price per
share for which Common Stock shall be issuable upon such conversion or
exchange (determined by dividing (1) the total amount received or
receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (2) the total number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Warrant Price in effect
immediately prior to the time of such issue or sale, then the total
number of shares of Common Stock issuable upon conversion or exchange
of all such Convertible Securities shall (as of the date of the issue
or sale of such Convertible Securities) be deemed to be outstanding
and to have been issued for such price per share, and, except as
provided in Section 8.1(i) below, no further adjustments of the
Warrant Price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities. In
addition, if any issue or sale of such Convertible Securities shall be
made upon exercise of any rights to subscribe for or to purchase or
any option to purchase any such Convertible Securities for which
adjustments of the Warrant Price shall have been or shall be made
pursuant to other provisions of this subsection 8.1(c), no further
adjustment of the Warrant Price shall be made by reason of such issue
or sale.
(iii) If at any time the Company shall set a Record Date for the
purpose of entitling holders of Common Stock (1) to receive a dividend
or other distribution payable in Common Stock or in Convertible
Securities, or (2) to subscribe for or purchase Common Stock or
Convertible Securities, then such Record Date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(d) In case the Company shall distribute to all or substantially all
holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions out of earnings) or rights,
options, warrants or convertible securities containing the right to
subscribe for or purchase shares of Common Stock (excluding those referred
to in subsection 8.1(b) above and rights in connection with a shareholder
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rights plan), then in each case the number of Shares thereafter purchasable
upon the exercise of the Warrants shall be determined by multiplying the
number of Shares theretofore purchasable upon exercise of the Warrants by a
fraction, of which the numerator shall be the then effective Warrant Price
as of the date of such distribution calculated pursuant to this Section 8,
and of which the denominator shall be such then effective Warrant Price on
such date minus the then Fair Value (determined as provided below) of the
portion of the assets or evidences of indebtedness so distributed or of
such subscription rights, options, warrants or convertible securities
applicable to one share. Such adjustment shall be made whenever any such
distribution is made and shall become effective on the date of distribution
retroactive to the Record Date for the determination of shareholders
entitled to receive such distribution.
For all purposes of this Agreement, "Fair Value" shall be determined
in good faith by the Board, such determination to be conclusive.
(e) No adjustment in the number of Shares purchasable pursuant to the
Warrants shall be required unless such adjustment would require an increase
or decrease of at least one percent in the number of Shares then
purchasable upon the exercise of the Warrants; provided that any
adjustments which by reason of this subsection 8.1(e) are not required to
be made immediately shall be carried forward and taken into account in any
subsequent adjustment.
(f) Whenever the number of Shares purchasable upon the exercise of a
Warrant is adjusted, as herein provided, the Warrant Price payable upon
exercise of such Warrant shall be adjusted by multiplying such Warrant
Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Shares purchasable upon the exercise of
the Warrant immediately prior to such adjustment, and of which the
denominator shall be the number of Shares so purchasable upon the exercise
of the Warrant immediately thereafter. In addition, whenever the Warrant
Price shall be adjusted, the number of Shares purchasable upon exercise
hereof simultaneously shall be adjusted by multiplying the number of Shares
issuable immediately prior to such adjustment by the Warrant Price in
effect immediately prior to such adjustment and dividing the product so
obtained by the Warrant Price, as adjusted.
(g) Whenever the number of Shares purchasable upon the exercise of
Warrants, and/or the Warrant Price, are adjusted as herein provided, the
Company shall cause to be promptly mailed to the Warrantholders by first
class mail, postage prepaid, notice of such adjustment and a statement of
the chief accounting officer of the Company setting forth the number of
Shares purchasable upon the exercise of the Warrants and the Warrant Price
after such adjustment, a brief statement of the facts requiring such
adjustment, and the computation by which such adjustment was made.
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(h) For the purpose of this subsection 8.1, the term Common Stock
shall mean (i) the class of Common Stock designated as the Common Stock of
the Company at the date of this Agreement, or (ii) any other class of
shares resulting from successive changes or reclassification of the Common
Stock consisting solely of changes in par value, or from par value to no
par value, or from no par value to par value. In the event that at any
time, as a result of an adjustment made pursuant to this Section 8, a
Warrantholder shall become entitled to purchase any securities of the
Company other than Common Stock, (i) if the Warrantholders' right to
purchase is on any other basis than that available to all holders of the
Common Stock, the Board shall determine the Fair Value of such other
securities and (ii) thereafter the number of such other securities so
purchasable upon exercise of the Warrants shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
this Section 8.
(i) Upon the expiration of any rights, options, warrants or conversion
privileges, if such shall not have been exercised, the number of Shares
purchasable upon exercise of the Warrants, to the extent the Warrants have
not then been exercised, shall, upon such expiration, be readjusted and
shall thereafter be such as they would have been had they been originally
adjusted (or had the original adjustment not been required, as the case may
be) on the basis of (A) the fact that the only shares of Common Stock so
issued were the shares of Common Stock, if any, actually issued or sold
upon the exercise of such rights, options, warrants or conversion
privileges, and (B) the fact that such shares of Common Stock, if any, were
issued or sold for the consideration actually received by the Company upon
such exercise plus the consideration, if any, actually received by the
Company for the issuance, sale or grant of all such rights, options,
warrants or conversion privileges whether or not exercised; provided,
however, that no such readjustment shall have the effect of decreasing the
number of Shares purchasable upon exercise of the Warrants by an amount in
excess of the amount of the adjustment initially made in respect of the
issuance, sale or grant of such rights, options, warrants or conversion
privileges.
8.2. No Adjustment for Dividends. Except as provided in subsection 8.1, no
adjustment to the Warrants or any provision or condition thereof in respect of
any dividends or distributions out of earnings of the Company shall be made
during the term of the Warrants or upon the exercise of Warrants.
8.3 No Adjustment in Certain Cases. No adjustment shall be made pursuant to
Section 8 hereof in connection with the grant or exercise of options to purchase
Common Stock under any of the Company's employee benefit plans existing as of
the date hereof.
8.4. Preservation of Purchase Rights upon Reclassification, Consolidation,
etc. In case of any consolidation of the Company with or merger of the Company
into another entity or in
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case of any sale or conveyance to another entity of the property, assets or
business of the Company as an entirety or substantially as an entirety, the
Company or such successor or purchasing entity, as the case may be, shall
execute with the Warrantholders an agreement that the Warrantholders shall have
the right thereafter, upon exercise of the Warrants and payment of the Warrant
Price in effect immediately prior to such consolidation, merger or sale, to
purchase the kind and amount of shares and other securities and property which
it would have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had the Warrants been exercised
immediately prior thereto. In the event of a merger described in Section
368(a)(2)(E) of the Internal Revenue Code of 1986 (or any successor provision),
in which the Company is the surviving corporation, the right to purchase Shares
under the Warrants shall terminate on the date of such merger and thereupon the
Warrants shall become null and void, but only if the controlling corporation
(after such event) shall agree to substitute for the Warrants its warrants
entitling the holder thereof to purchase the kind and amount of shares and other
securities and property which it would have been entitled to receive had the
Warrants been exercised immediately prior to such merger. Any such agreements
referred to in this subsection 8.4 shall provide for adjustments, which shall be
as nearly equivalent as may be practicable to the adjustments provided for in
Section 8 hereof, and shall contain substantially the same terms, conditions and
provisions as are contained herein immediately prior to such event. The
provisions of this subsection 8.4 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
8.5. Nominal Value of Common Stock. Before taking any action which would
cause an adjustment effectively reducing the portion of the Warrant Price
allocable to each share of Common Stock below the then nominal value per share
of Common Stock issuable upon exercise of the Warrants, the Company will take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully-paid and
nonassessable Shares upon exercise of the Warrants.
8.6. Independent Public Accountants. The Company may retain a firm of
independent public accountants of recognized national standing in the United
States (which may be any such firm regularly employed by the Company) to make
any computation required under this Section 8, and a certificate signed by such
firm shall be evidence of the correctness of any computation made under this
Section 8.
8.7. Statement on Warrant Certificates. Irrespective of any adjustments in
the number of securities issuable upon exercise of the Warrants, Warrant
certificates theretofore or thereafter issued may continue to express the same
number of securities as are stated in the similar Warrant certificates initially
issuable pursuant to this Agreement. However, the Company may, at any time in
its reasonable discretion, make any change in the form of the Warrant
certificate that it may deem appropriate and that does not affect the substance
thereof; and any Warrant certificate
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hereafter issued, whether upon registration of transfer of, or in exchange or
substitution for, an outstanding Warrant certificate, may be in the form so
changed.
Section 9. Fractional Interests. The Company shall not be required to issue
fractional Shares upon the exercise of any Warrant. If any fraction of a Share
would, except for the provisions of this Section 9, be issuable on the exercise
of any Warrant (or specified portion thereof), the Company shall pay an amount
in cash equal to the Market Price (of the Common Stock for the 20 consecutive
trading days immediately preceding the date the certificates evidencing the
Warrants to be exercised are received by the Company at its principal office)
multiplied by such fraction.
Section 10. No Rights as Shareholder; Notices to Warrantholders. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon the Warrantholder or any transferee of any rights as a shareholder of the
Company, including (without limitation) the right to vote, receive dividends,
consent or receive notices as a shareholder in respect of any meeting of
shareholders for the election of directors of the Company or any other matter.
If, however, at any time prior to the expiration of the Warrants and prior to
their exercise in full, any one or more of the following events shall occur:
(a) any action which would require an adjustment pursuant to Section
8.1 or 8.4; or
(b) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger or sale of its property,
assets and business as an entirety or substantially as an entirety) shall
be proposed;
then the Company shall give notice in writing of such event to each of the
Warrantholders, as provided in Section 13 hereof, at least 20 days prior to the
date fixed as the Record Date. Such notice shall specify such Record Date.
Failure to mail or receive such notice or any defect therein shall not affect
the validity of any action taken with respect thereto.
Section 11. Restrictions on Transfer. The Warrantholder agrees and
undertakes that if the Warrantholder proposes to sell or otherwise transfer any
Warrants or Shares issuable upon exercise thereof, and if such Shares are not
then registered for resale pursuant to an effective registration statement under
the Securities Act, the Warrantholder proposing to make such transfer shall give
written notice to the Company describing briefly the manner in which any such
proposed transfer is to be made and no such transfer shall be made unless the
Company shall have received an opinion of counsel for the Warrantholder
reasonably acceptable to the Company, that registration under the Securities Act
is not required with respect to such transfer.
Section 12. Registration Rights.
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12.1 Registration Statement. The Company shall:
(a) no later than 45 calendar days following the Final Closing,
prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement (the "Registration Statement")
covering the resale of the Shares issuable upon exercise of the
Warrants by the Warrantholder from time to time on the Nasdaq OTC
Bulletin Board, or on such securities market or system on which the
Common Stock shall then be publicly traded, or in privately negotiated
transactions;
(b) use its best efforts, subject to receipt of necessary
information from the Warrantholder, to cause the Registration
Statement to become effective as soon as possible thereafter;
(c) prepare and file with the Commission such supplements and
amendments to the Registration Statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions
of the Securities Act until the later of such time as all of the
Shares have been sold pursuant thereto or, by reason of Rule 144(k)
under the Securities Act or any other rule of similar effect, such
Shares are no longer required to be registered for the unrestricted
sale thereof by the Warrantholder;
(d) furnish to the Warrantholder such number of copies of
prospectuses and preliminary prospectuses in conformity with the
requirements of the Securities Act and such other documents as the
Warrantholder may reasonably request, in order to facilitate the
public sale or other disposition of all or any of the Shares held by
the Warrantholder, provided, however, that the obligation of the
Company to deliver copies of prospectuses or preliminary prospectuses
to the Warrantholder shall be subject to the receipt by the Company of
reasonable assurances from the Warrantholder that the Warrantholder
will comply with the applicable provisions of the Securities Act and
of such other securities or blue sky laws as may be applicable in
connection with any use of such prospectuses or preliminary
prospectuses;
(e) file documents required of the Company for normal blue sky
clearance in all states, provided, however, that the Company shall not
be required to qualify to do business or consent to service of process
in any jurisdiction in which it is not now so qualified or has not so
consented;
(f) bear all expenses in connection with the procedures in
paragraphs (a) through (e) of this Section 12.1, other than brokerage
commissions or placement agent fees and fees and expenses, if any, of
counsel or other advisers to the Warrantholder with respect to the
registration and resale of the Shares; and
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<PAGE>
(g) prepare and file additional listing applications for the
Shares on the Nasdaq National or SmallCap Market or other exchange if
the Shares are admitted for trading on such exchange.
(h) use its best efforts to have the Registration Statement (or
any supplement or amendment to the Registration Statement, if
applicable) declared effective by the Commission as soon as
practicable after the filing thereof, but in no event later than 120
calendar days following the Final Closing (the "First Target Effective
Date"). If the Registration Statement (or any supplement or amendment
to the Registration Statement, if applicable) is not declared
effective by the First Target Effective Date, the Company shall use
its best efforts to have the Registration Statement (or any supplement
or amendment to the Registration Statement, if applicable) declared
effective by the Commission as soon as practicable after the First
Target Effective Date, but in no event later than 180 calendar days
following the Final Closing (the "Second Target Effective Date"). If
the Registration Statement (or any supplement or amendment to the
Registration Statement, if applicable) is not declared effective by
the Second Target Effective Date, the Company shall use its best
efforts to have the Registration Statement (or any supplement or
amendment to the Registration Statement, if applicable) declared
effective by the Commission as soon as practicable after the Second
Target Effective Date, but in no event later than 270 calendar days
following the Final Closing (the "Final Target Effective Date"). If
the Registration Statement (or any supplement or amendment to the
Registration Statement, if applicable) has not become effective by the
First Target Effective Date, then the Warrantholder shall be entitled
to receive, in addition to any other remedies available at law or in
equity, such number of Warrants equal to 10% of the Warrants then held
by the Warrantholder. If the Registration Statement (or any supplement
or amendment to the Registration Statement, if applicable) has not
become effective by the Second Target Effective Date, then the
Warrantholder shall be entitled to receive, in addition to any other
remedies available at law or in equity, such number of Warrants equal
to 10% of the Warrants then held by the Warrantholder (including any
Warrants issued upon the penalty for missing the First Target
Effective Date, if any). If the Registration Statement (or any
supplement or amendment to the Registration Statement, if applicable)
has not become effective by the Final Target Effective Date, then
Warrantholder shall be entitled to receive, in addition to any other
remedies available at law or in equity, such number of Warrants equal
to 10% of the Warrants then held by the Warrantholder (including any
Warrants issued upon the penalty for missing the First Target
Effective Date and the Second Target Effective Date, if any). The
number of Warrants that shall be used to calculate any payment under
this Section 12.1(h) shall be appropriately adjusted for any stock
splits, subdivisions, stock dividends or stock distributions,
combinations, reclassifications or consolidations or other changes to
the Company's capital structure. The Company shall issue and deliver
the Warrants required to be delivered by the Company hereunder to the
Warrantholder within 20 days following
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<PAGE>
the First Target Effective Date, the Second Target Effective Date and
the Final Target Effective Date, as the case may be.
The Company understands that the Warrantholder disclaims being an
underwriter, but the Warrantholder being deemed an underwriter shall not relieve
the Company of any of its obligations hereunder.
12.2 Limitations on Transfer. The Warrantholder agrees that it will not
effect any disposition of the Shares that would constitute a sale within the
meaning of the Securities Act except as contemplated in the Registration
Statements referred to in Section 12.1 or pursuant to an available exemption
from registration under the Securities Act and applicable state securities laws,
and further that as a condition to inclusion of the Shares in the Registration
Statement the Warrantholder agrees to provide to the Company such information as
it may reasonably request in order to include such Shares in such Registration
Statement.
12.3 Prospectus Delivery Requirements. The Warrantholder agrees not to make
any sale of the Shares, pursuant to the Registration Statement referred to in
Section 12.1 without effectively causing the prospectus delivery requirements
under the Securities Act to be satisfied. The Warrantholder acknowledges that
there may occasionally be times when the Company must suspend the use of the
prospectus forming a part of the Registration Statement until such time as an
amendment to such Registration Statement has been filed by the Company and
declared effective by the Commission or until the Company has amended or
supplemented such prospectus. In the event that the Registration Statement has
been suspended, the Company shall provide written notice of such suspension to
the selling shareholders listed in the Registration Statement. In the event that
such Registration Statement is no longer subject to such suspension, the Company
shall provide written notice to such selling Shareholders that such Selling
Shareholder may thereafter effect sales pursuant to said Registration Statement.
12.4 Indemnification and Contribution.
(a) For the purpose of this Section 12.4:
(i) the term "Selling Shareholder" shall mean any person or entity
selling Common Stock pursuant to the Registration Statement, and any
affiliate thereof;
(ii) the term "Registration Statement" shall include any preliminary
prospectus, final prospectus, exhibit, supplement or amendment
included in or relating to the Registration Statement; and
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<PAGE>
(iii) the term "untrue statement" shall mean any untrue statement or
alleged untrue statement of a material fact in the Registration
Statement, or any omission or alleged omission to state in the
Registration Statement a material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) The Company agrees to indemnify and hold harmless each Selling
Shareholder from and against any losses, claims, damages or liabilities to
which such Selling Shareholder may become subject (under the Securities Act
or otherwise) insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of, or are based upon,
any untrue statement, or arise out of any failure by the Company to fulfill
any undertaking included herein or in the Registration Statement, and the
Company promptly will reimburse such Selling Shareholder for any legal or
other expenses reasonably incurred in investigating, defending or preparing
to defend any such action, proceeding or claim; provided, however, that the
Company shall not be liable in any such case to the extent that such loss,
claim, damage or liability arises out of, or is based upon, an untrue
statement made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Selling Shareholder
specifically for use in preparation of the Registration Statement, or the
failure of such Selling Shareholder to comply with the covenants and
agreements contained herein; provided further, that the indemnification
contained in this Section 12.4 with respect to any prospectus after it has
been amended or supplemented, shall not inure to the benefit of any Selling
Shareholder (or any person controlling such Selling Shareholder) from whom
the person asserting such loss, claim, damage, or liability shall have
purchased Common Stock, that are the subject thereof if, after copies
thereof have been delivered by the Company to such Selling Shareholder,
such Selling Shareholder shall have failed to send or give a copy of the
prospectus as then amended or supplemented, as the case may be, to such
person at or prior to the confirmation of such sale of such Common Stock,
to such person, and, if such loss, claim, damage or liability would not
have arisen but for the failure of such Selling Shareholder to deliver the
same.
(c) The Warrantholder agrees to indemnify and hold harmless the
Company (and each other person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act, each officer of the Company
who signs the Registration Statement and each director of the Company) from
and against any losses, claims, damages or liabilities to which the Company
(or any such officer, director or controlling person) may become subject
(under the Securities Act or otherwise), insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise
out of, or are based upon, any failure of the Warrantholder to comply with
its covenants and agreements contained herein, or any untrue statement if
such untrue statement was made in reliance upon and in conformity with
written information furnished by or on behalf of the
16
<PAGE>
Warrantholder specifically for use in preparation of the Registration
Statement, and the Warrantholder promptly will reimburse the Company (or
such officer, director or controlling person), as the case may be, for any
legal or other expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim.
(d) Promptly after receipt by any indemnified person of a notice of a
claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 12.4, such
indemnified person shall notify the indemnifying person in writing of such
claim or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and such indemnifying person shall have been notified
thereof, such indemnifying person shall be entitled to participate therein,
and, to the extent it shall wish, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified person. After notice
from the indemnifying person to such indemnified person of its election to
assume the defense thereof, such indemnifying person shall not be liable to
such indemnified person for any legal expenses subsequently incurred by
such indemnified person in connection with the defense thereof. In the
event that the indemnifying party shall have assume the defense of such
action, such indemnifying party shall not enter into any compromise or
settlement without the indemnified party's prior written consent, which
consent shall not be unreasonably withheld, delayed or denied.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section
12.4 is due in accordance with its terms but for any reason is held to be
unavailable or insufficient to hold harmless an indemnified party, the
Company on the one hand and the Warrantholder on the other hand shall, in
lieu of indemnifying such indemnified party, contribute to the aggregate
losses, claims, damages or liabilities referred to in this Section 12.4
(including costs of any investigation and legal and other expenses
reasonably incurred in connection therewith, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted), in
such proportions as is appropriate to reflect the relative benefits
received by the Company and the Warrantholder from any offering of Common
Stock and the relative fault of the Company and the Warrantholder in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company and the
Warrantholder shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or
omission related to information supplied by the Company (including for this
purpose information supplied by any officer, director, employee or agent of
the Company) or to written information furnished to the Company by or on
behalf of the Warrantholder specifically for use in the preparation of the
Registration Statement or any amendment thereof or supplement thereto, and
the
17
<PAGE>
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. Notwithstanding the
provisions of this Section 12.4 in no case shall the Warrantholder be
liable or responsible for any amount in excess of the proceeds received by
the Warrantholder from the sale of the Registerable Shares included in the
Registration Statement, provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this
Section 12.4, each person, if any, who controls the Warrantholder within
the meaning of Section 15 of the Securities Act or Section 20(a) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") shall
have the same rights to contribution as the Warrantholder, and each person,
if any, who controls the Company within the meaning of the Section 15 of
the Securities Act or Section 20(a) of the Exchange Act, each director of
the Company and each officer of the Company who shall have signed the
Registration Statement shall have the same rights to contribution as the
Company, subject to the immediately preceding sentence of this Section
12.4. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party
in respect of which a claim for contribution may be made against another
party or parties under this Section 12.4, notify such party or parties from
whom contribution may be sought, and the omission so to notify such party
or parties from whom contribution may be sought shall relieve the party or
parties from whom contribution may be sought (if such party was unaware of
such action, suit, or proceeding and was materially prejudiced by such
omission) from any liability under this Section 12.4, but not from any
other obligation it or they may have hereunder or other than under this
Section 12.4. No party shall be liable for contribution with respect to the
settlement of any action, suit, proceeding or claim effected without its
written consent. The obligations of the Warrantholder to contribute
pursuant to this Section 12.4 are several in proportion to its respective
number of Registerable Shares included in the Registration Statement and
not joint.
12.5 Elimination of Transfer Restrictions. The limitations imposed by
Section 12.2 upon the transferability of the Shares shall cease and terminate as
to any particular Shares when such Shares shall have been effectively registered
under the Securities Act and sold or otherwise disposed of in accordance with
the intended method of disposition set forth in the Registration Statement or at
such time as an opinion of counsel of the Warrantholder satisfactory to the
Company shall have been rendered to the effect that such restrictions are not
necessary in order to comply with the Securities Act.
12.6 Furnishing of Information. The Company shall:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 promulgated under the Securities Act
("Rule 144");
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<PAGE>
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) furnish to the Warrantholder, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, (ii) a copy of the
most recent annual or periodic report of the Company and such other reports
and documents so filed by the Company and (iii) such other information as
may be reasonably requested to permit the Warrantholder to sell such
securities pursuant to Rule 144 without registration.
Section 13. Notices. Any notice pursuant to this Agreement shall be in
writing and shall be deemed to have been duly given (i) if given by facsimile
transmission on the business day on which such transmission is sent and
confirmed, (ii) if given by air courier, two business days following the date it
was sent or (iii) if mailed by certified mail, return receipt requested, ten
business days following the date it was mailed, to the following addresses
(unless another address is herein specified):
If to the Warrantholder:
To the address of the Warrantholder as shown on the books of the Company.
With a copy to:
Brean Murray & Co., Inc.
570 Lexington Avenue, 11th Floor
New York, New York 10022
Attention: Ms. Joan Finsilver, Re: Mentortech Inc.
Facsimile#: (212) 702-6548
If to the Company, addressed to:
Mentortech Inc.
462 Seventh Avenue
New York, New York 10018
Attention: President
Facsimile#: (212) 736-9046
Each party may from time to time change the address or fax number to which
notices to it are to be delivered or mailed hereunder by notice in accordance
herewith to the other party.
Section 14. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company and the Warrantholder shall bind and inure
to the benefit of their respective successors and assigns.
19
<PAGE>
Section 15. Applicable Law. This Agreement shall be deemed to be a contract
made under the laws of the state of New York and for all purposes shall be
construed in accordance with the internal laws of said sate (without reference
to its rules as to conflicts of laws).
Section 16. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Warrantholder any legal or equitable right, remedy or claim under this
Agreement. This Agreement shall be for the sole and exclusive benefit of the
Company and the Warrantholder.
20
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the date and year first above written.
MENTORTECH INC.
By:______________
Terry Steinberg
Vice President
By:_______________
21
<PAGE>
[FORM OF WARRANT CERTIFICATE]
EXHIBIT 1
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE, AND THE COMMON
STOCK ISSUABLE UPON EXERCISE OF SUCH WARRANTS, HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR
THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. SUCH
WARRANTS MAY NOT BE SOLD, ASSIGNED, EXCHANGED OR OTHERWISE
TRANSFERRED IN ANY MANNER AND SUCH COMMON STOCK MAY NOT BE
OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE."
Warrant Certificate No. _____
MENTORTECH INC.
(ORGANIZED UNDER THE LAWS
OF THE STATE OF DELAWARE)
WARRANTS TO PURCHASE COMMON STOCK
This certifies that, for value received, _____________________ (the
"Warrantholder") is the registered owner of ___ warrants (the "Warrants") to
purchase from Mentortech Inc. (the "Company"), at any time prior to 5:00 p.m.,
Eastern Time, on December 9, 1999 (the "Termination Date"), one share of common
stock of the Company, par value $0.01 per share (the "Common Stock") at an
initial purchase price of U.S. $0.55 per share of Common Stock (the "Warrant
Price"). The Warrants are subject to, and each Warrantholder, by acceptance of
this certificate, consents to, all the terms and provisions of, the Warrant
Agreement dated as of December 10, 1997, by and between the Company and the
Warrantholder, pursuant to which the Warrants were issued (the "Warrant
Agreement"). Any capitalized terms used herein and not defined herein shall have
the
<PAGE>
meanings assigned to such terms in the Warrant Agreement. The Termination Date
may be extended for a further period as provided in Section 3 of the Warrant
Agreement.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form herein duly
executed, and simultaneous payment of the Warrant Price for each Warrant
exercised, at the principal office of the Company. Payment of such price shall
be made at the option of each Warrantholder in cash or by certified or cashier's
check.
Upon any partial exercise of the Warrants evidenced hereby, there shall be
signed and issued to the Warrantholder effecting such partial exercise a new
Warrant Certificate in respect of the Common Stock as to which the Warrants
evidenced hereby shall not have been exercised. These Warrants may be exchanged
at the office of the Company by surrender of this Warrant Certificate properly
endorsed for one or more new Warrants of the same aggregate number of shares of
Common Stock as here evidenced by the Warrant or Warrants exchanged. No
fractional shares of Common Stock will be issued upon the exercise of rights to
purchase hereunder, but the Company shall pay the cash value of any fraction
upon the exercise of one or more Warrants. These Warrants are transferable at
the office of the Company in the manner and subject to the limitations set forth
in the Warrant Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a shareholder of the Company.
[This space intentionally left blank.]
2
<PAGE>
MENTORTECH INC.
By: _____________________________
Terry I. Steinberg
Vice President
ATTEST:
By: ____________________________
Adrienne Haber
Assistant Secretary
Dated: December 10, 1997
3
<PAGE>
PURCHASE FORM
Mentortech Inc.
462 Seventh Avenue
New York, New York 10018
Pursuant to Section 3 of the Warrant Agreement, the undersigned hereby
irrevocably elects to exercise the right of purchase represented by this Warrant
Certificate for, and to purchase thereunder, __________ shares of Common Stock
provided for therein, and requests that certificates for such Common Stock be
issued in the name of:
-----------------------------------
(Please Print or Type Name(s), Address and Taxpayer Identification Number(s))
-----------------------------------
-----------------------------------
-----------------------------------
If this Warrant Certificate is hereby being exercised with respect to fewer than
all the shares of Common Stock specified herein, please issue a new Warrant
Certificate for the unexercised balance of the Warrants, registered in the name
of the undersigned Warrantholder or his assignee as below indicated and
delivered to the address stated below.
Dated: _______________________
Name of Warrantholder(s)
or Assignee(s) (Please Print): _____________________________
_____________________________
Address (Please Print): ______________________________________
____________________________________________
Signature(s): ____________________________________________
____________________________________________
Note: The above signature(s) must correspond exactly with the name(s)
as written upon the face of this Warrant Certificate, without alteration or
enlargement or any change whatever, unless these Warrants have been
assigned.
1
<PAGE>
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
-----------------------------------
-----------------------------------
-----------------------------------
(Name(s) and Address(es) of Assignee(s) Must be Printed or Typewritten)
the within Warrants, hereby irrevocably constituting and appointing
________________________ the undersigned's attorney-in-fact to transfer said
Warrants on the books of the Company, with full power of substitution.
Dated: __________ ___________________________________
___________________________________
Signature(s) of Registered Holder(s)
Note: The above signature(s) must correspond exactly with the
name(s) as written upon the face of this Warrant Certificate, without
alteration or enlargement or any change whatever.
2
APPENDIX B
FORM OF WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 1
1,226,848
FOR VALUE RECEIVED, Mentortech Inc. (the "Company"), hereby certifies that Brean
Murray & Co., Inc., or a permitted assign thereof, is entitled to purchase from
the Company, at any time or from time to time commencing January 15, 1998, and
prior to 5:00 P.M., New York City time, on January 14, 2002, 1,226,848 fully
paid and nonassessable shares of the common stock, of the Company for an
aggregate purchase price of $150.00, represented by 613,424 shares at $0.55,
306,712 shares at $0.71, and 306,712 shares at $1.07. (Hereinafter, (i) said
common stock, together with any other equity securities which may be issued by
the Company with respect thereto or in substitution therefore, is referred to as
the "Common Stock," (ii) the shares of the Common Stock purchasable hereunder or
under any other Warrant (as hereinafter defined) are referred to as the "Warrant
Shares," (iii) the aggregate purchase price payable hereunder for the Warrant
Shares is referred to as the "Aggregate Warrant Price," (iv) the price payable
hereunder for each of the Warrant Shares is referred to as the "Per Share
Warrant Price," (v) this Warrant, all identical warrants issued on the date
hereof and all warrants hereafter issued in exchange or substitution for this
Warrant or such other warrants are referred to as the "Warrants" and (vi) the
holder of this Warrant is referred to as the "Holder" and the holder of this
Warrant and all other Warrants are referred to as the "Holders"). The Aggregate
Warrant Price is not subject to adjustment. The Per Share Warrant Price is
subject to adjustment as hereinafter provided; in the event of any such
adjustment, the number of Warrant Shares shall be adjusted by dividing the
Aggregate Warrant Price by the Per Share Warrant Price in effect immediately
after such adjustment.
I. Exercise of Warrant.
A. Cashless Exercise
This Warrant may be exercised, in whole at any time or in part from time to
time, commencing January 15, 1998, and prior to 5:00 P.M., New York City
time, on January 14, 2002, by the Holder by the surrender of this Warrant
(with the subscription form at the end hereof duly executed) at the address
set forth in Subsection 9(a) hereof, together with proper payment of the
Aggregate Warrant Price, or the proportionate part thereof if this Warrant
is exercised in part. Payment for Warrant Shares shall be made by certified
or official bank check payable to the order of the Company or the Warrant
may be exercised by surrender of the Warrant without payment of any other
consideration, commission or remuneration, by execution of the cashless
exercise subscription form (at the end hereof, duly executed). The number
of shares to be issued in exchange for the Warrant will be computed by
subtracting the Warrant Exercise Price from the closing bid price of the
common stock on the date of receipt of the cashless exercise subscription
form, multiplying that amount by the number of shares represented by the
Warrant, and dividing by the closing bid price as of the same date.
If this Warrant is exercised in part, this Warrant must be exercised for a
number of whole shares of the Common Stock, and the Holder is entitled to
receive a new Warrant Covering the Warrant Shares which have not been
exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such surrender of this
Warrant, the
<PAGE>
Company will (a) issue a certificate or certificates in the name of the
Holder for the largest number of whole shares of the Common Stock to which
the Holder shall be entitled and, if this Warrant is exercised in whole, in
lieu of any fractional share of the Common Stock to which the Holder shall
be entitled, pay to the Holder cash in an amount equal to the fair value of
such fractional share (determined in such reasonable manner as the Board of
Directors of the Company shall determine), and (b) deliver the other
securities and properties receivable upon the exercise of this Warrant, or
the proportionate part thereof if this Warrant is exercised in part,
pursuant to the provisions of this Warrant.
II. Reservation of Warrant Shares; Listing.
The Company agrees that, prior to the expiration of this Warrant, the
Company will at all times (a) have authorized and in reserve, and will keep
available, solely for issuance or delivery upon the exercise of this
Warrant, the shares of the Common Stock and other securities and properties
as from time to time shall be receivable upon the exercise of this Warrant,
free and clear of all restrictions on sale or transfer and free and clear
of all pre-emptive rights.
III. Protection Against Dilution.
A. If, at any time or from time to time after the date of this Warrant,
the Company shall issue or distribute to the holders of shares of
Common Stock evidences of its indebtedness, any other securities of
the Company or any cash, property or other assets (excluding a
subdivision, combination or reclassification, or dividend or
distribution payable in shares of Common Stock, referred to in
Subsection 3(b), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor if
the full amount thereof, together with the value of other dividends
and distributions made substantially concurrently therewith or
pursuant to a plan which includes payment thereof, is equivalent to
not more than 5% of the Company's net worth) (any such nonexcluded
event being herein called a "Special Dividend"), the Per Share Warrant
Price shall be adjusted by multiplying the Per Share Warrant Price
then in effect by a fraction, the numerator of which shall be the then
current market price of the Common Stock (defined as the average for
the thirty consecutive business days immediately prior to the record
date of the daily closing price of the Common Stock as reported by the
Nasdaq system less the fair market value (as determined by the
Company's Board of Directors) of the evidences of indebtedness,
securities or property, or other assets issued or distributed in such
Special Dividend applicable to one share of Common Stock and the
denominator of which shall be such then current market price per share
of Common Stock. An adjustment made pursuant to this Subsection 3(A)
shall become effective immediately after the record date of any such
Special Dividend.
B. In case the Company shall hereafter (i) pay a dividend or make a
distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number
of shares, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares or (iv) issue by reclassification of its
Common Stock any shares of capital stock of the Company, the Per Share
Warrant Price shall be adjusted so that the Holder of any Warrant upon
the exercise hereof shall be entitled to receive the number of shares
of Common Stock or other capital stock of the Company which he would
have owned immediately prior thereto. An adjustment made pursuant to
this Subsection 3(B) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an
adjustment made pursuant
<PAGE>
to this Subsection 3(B), the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of
two or more classes of capital stock or shares of Common Stock and
other capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be described in a written
notice to the Holder of any Warrant promptly after such adjustment)
shall determine the allocation of the adjusted Per Share Warrant Price
between or among shares of such classes or capital stock or shares of
Common Stock and other capital stock.
C. In the event the Company shall issue or sell any shares of Common
Stock for a consideration per share less that $0.55 (after giving
effect to any recapitalization or consolidation) per share, then the
Per Share Warrant Price shall be reduced to such lesser price as shall
be determined by a fraction, the numerator of which shall be the sum
of (i) the number of shares of Common Stock outstanding immediately
prior to the issuance or sale of such additional shares and (ii) the
number of shares of Common Stock which the aggregate consideration
received for the issuance of sale of such additional shares would
purchase at the Per Share Warrant Price then in effect, and the
denominator of which shall be the number of shares of Common Stock
outstanding after the issuance or sale of such additional shares. The
provisions of this paragraph shall not apply to the issuance of any
shares of Common Stock on the exercise conversion or exchange of any
rights, options or warrants outstanding prior to January 15, 1998, or
any shares issued to employees, directors or consultants, pursuant to
the Company's 1997 Stock Option Plan.
D. In case of any capital reorganization or reclassification, or any
consolidation or merger to which the Company is a party other than a
merger or consolidation in which the Company is the continuing
corporation, or in case of any sale or conveyance to another entity of
the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with
another corporation (including any exchange effected in connection
with a merger of a third corporation (including any exchange effected
in connection with a merger of a third corporation into the Company),
the Holder of this Warrant shall have the right thereafter to convert
such Warrant into the kind and amount of securities, cash or other
property which he would have owned or have been entitled to receive
immediately after such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance had this
Warrant been converted immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger, statutory
exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the
provisions set forth in this Section 3 with respect to the rights and
interests thereafter of the Holder of this Warrant to the end that the
provisions set forth in this Section 3 shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in
relation to any shares of stock or other securities or be, in relation
to any shares of stock or other securities or property thereafter
deliverable on the conversion of this Warrant. The above provisions of
this Subsection 3(F) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The issuer of any shares of stock or
other securities or property thereafter deliverable on the conversion
of this Warrant shall be responsible for all of the agreements and
obligations of the Company hereunder. Notice of any such
reorganization, reclassification, consolidation, merger, statutory
exchange, sale or conveyance and of said provisions so proposed to be
made, shall be mailed to the Holders of the Warrants not less than 30
days prior to such event. A sale of all or substantially all of the
assets of the Company for a consideration consisting primarily of
securities shall be deemed a consolidation or merger for the foregoing
purposes.
<PAGE>
E. No adjustment in the Per Share Warrant Price shall be required unless
such adjustment would require an increase or decrease of at least
$0.05 per share of Common Stock; provided, however, that any
adjustments which by reason of this Subsection 3(e) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment; provided further, however, that adjustments
shall be required and made in accordance with the provisions of this
Section 3 (other than this Subsection 3(e) not later than such time as
may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock issuable
upon exercise hereof. All calculations under this Section 3 shall be
made to the nearest cent or to the nearest 1/100th of a share, as the
case may be. Anything in this Section 3 to the contrary
notwithstanding, the Company shall be entitled to make such reductions
in the Per Share Warrant Price, in addition to those required by this
Section 3, as it in its discretion shall deem to be advisable in order
that any stock dividend, subdivision of shares or distribution of
rights to purchase stock or securities convertible or exchangeable for
stock hereafter made by the Company to its shareholders shall not be
taxable.
F. Whenever the Per Share Warrant Price is adjusted as provided in this
Section 3 and upon any modification of the rights of a Holder of
Warrants in accordance with this Section 3, the Company shall promptly
obtain, at its expense, a certificate of a firm of independent public
accountants of recognized standing selected by the Board of Directors
(who may be the regular auditors of the Company) setting forth the Per
Share Warrant Price and the number of Warrant Shares after such
adjustment or the effect of such modification, a brief statement of
the facts requiring such adjustment or modification and the manner of
computing the same and cause copies of such certificate to be mailed
to the Holders of the Warrants.
G. If the Board of Directors of the Company shall declare any dividend or
other distribution with respect to the Common Stock, other than a cash
distribution out of earned surplus, the Company shall mail notice
thereof to the Holders of the Warrants not less than 15 days prior to
the record date fixed for determining shareholders entitled to
participate in such dividend or other distribution.
IV. Fully Paid Stock; Taxes.
The Company agrees that the shares of the Common Stock represented by each
and every certificate for Warrant Shares delivered on the exercise of this
Warrant shall, at the time of such delivery, be validly issued and
outstanding, fully paid and nonassessable, and not subject to pre-emptive
rights, and the Company will take all such actions as may be necessary to
assure that the par value or stated value, if any, per share of the Common
Stock is at all times equal to or less than the then Per Share Warrant
Price. The Company further covenants and agrees that it will pay, when due
and payable, any and all Federal and state stamp, original issue or similar
taxes which may be payable in respect of the issue of any Warrant Share or
certificate therefor.
<PAGE>
V. Registration Under Securities Act of 1933.
A. Piggy Back Registration Rights
The Company agrees that if, at any time and from time to time during the
period commencing on January 15, and ending on January 14, 2002, the Board
of Directors of the Company shall authorize the filing of a registration
statement or a post-effective amendment to a registration statement (any
such registration statement being hereinafter called a "Subsequent
Registration Statement") under the Act other than a registration statement
on Form S-8 or other form which does not include substantially the same
information as would be required in a form for the general registration of
securities) in connection with the proposed offer of any of its securities
by it or any of its shareholders, the Company will (i) promptly notify the
Holder and each of the Holders, if any, of other Warrants and/or Warrant
Shares that such Subsequent Registration Statement will be filed and that
the Warrant Shares which are then held, and/or which may be acquired upon
the exercise of the Warrants, by the Holder and such Holders, will, at the
Holder's and such Holders' request, be included in such Subsequent
Registration Statement, (ii) include in the securities covered by such
Subsequent Registration Statement all Warrant Shares which it has been so
requested to include, (iii) use its best efforts to cause such Subsequent
Registration Statement to become effective as soon as practicable and (iv)
take all other action necessary under any Federal or state law or
regulation of any governmental authority to permit all Warrant Shares which
it has been so requested to include in such Subsequent Registration
Statement or to be sold or otherwise disposed of, and will maintain such
compliance with each such Federal and state law and regulation of any
governmental authority for the period necessary for the Holder and such
Holders to effect the proposed sale or other disposition.
If a "piggyback registration" involves an underwritten offering and the
managing underwriter advises the Company in writing that, in its opinion,
marketing factors require a limitation on the number of shares to be
underwritten, then the number of Warrant Shares to be offered pursuant to
this right, shall be reduced pro rata as to all holders of "piggyback
registration rights" on the basis of the relative number of shares of
common stock subject to such registration rights each such holder has
requested to be included in such registration, to the extent necessary to
reduce the total amount or kind of share of common stock subject to such
rights to be included in such offering to the amount advised by such
managing underwriter; provided, however, that no securities may be offered
in such registration for the account of persons other than the Company
(including for this purpose any affiliate of the Company) by virtue of
their also having "piggyback registration rights", unless the Warrant
Shares requested to be included in such registration are so included on a
pro rata basis as to such other persons holding "piggyback registration
rights," and provided, further, that nothing in this paragraph shall be
implied to permit the Company to include in such registration shares of
common stock of any person other than persons holding "piggyback
registration rights" unless all the Warrant Shares requested to be included
in such registration are so included.
<PAGE>
B. Demand Registration Rights
(1) Demand by Holder. Subject to the further terms and conditions of
this Agreement, if, at any time prior to January 15, 1999, any Holder
or Holders who hold Warrant Shares (and which have not been sold in a
registered offering) notify the Company that they desire to sell or
distribute to the public Warrant Shares (which request shall specify
the Warrant Shares intended to be disposed of by Holder(s) and the
intended method of disposition thereof), the Company will use its best
efforts to promptly cause the Warrant Shares for which Holder(s) have
requested registration to be registered under the Securities Act and
relevant blue sky laws and to remain effective continuously for the
period set for the in Paragraph V(A). Within ten (10) business days
after receipt of such request, the Company will be give written notice
of such registration request to all Holders, and the Company will
include in such registration (to the extent permitted under Paragraph
B(2) below) all Warrant Shares with respect to which the Company has
received written requests (each of which shall specify the Warrant
Shares intended to be disposed of by Holder(s) and the intended method
of disposition thereof) for inclusion therein within thirty (30)
business days after the receipt by the applicable Holder of the
Company's notice.
(2) Priorities in Demand Registrations. The Company may include in any
registration statement filed in response to one or more Holders'
request other shares of Common Stock for sale by the Company or by
other stockholders' provided, however, that if such registration
statement relates to an underwritten offering and the managing
underwriter or underwriters advise the Company in writing that, in its
or their opinion, the number of securities requested to be included in
such registration would have a material adverse effect on such
offering (including, without limitation, a material decrease in the
price at which such securities can be sold), then the amount of the
Warrant Shares included in the offering shall be reduced, and the
Warrant Shares and the other shares of Common Stock to be included in
the offering shall participate in such offering as follows: (i)
Warrant Shares to be sold by the Holder(s) shall have priority over
all shares to be offered by the Company and other stockholders of the
Company, subject to reduction pro rate in proportion to the number of
Warrant Shares requested by each Holder to be included in the
registration, and (ii) if shares in excess of the Holders' Warrant
Shares can, in the good faith judgment of such managing underwriter or
underwriters, successfully be marketed in such offering, such excess
shares shall be included in such offering in such proportions as may
be agreed upon by the Company and such other Stockholders.
(3) Limit of One Demand Registrations. The right to cause a
registration of Warrant Shares provided for in this Paragraph B shall
be limited to one (1) such registrations, provided that the
registrations so requested are actually effected and remain in effect
in accordance with Paragraph V. section A., and any Holders who do not
request to be included in any such registrations shall be deemed to
have waived all rights to such demand registrations. Notwithstanding
anything to the contrary contained herein, no Holder shall have the
right to demand that the Company file a demand registration statement
pursuant to this Paragraph B after January 15, 1998 or on any date
that is within twelve (12) months of the effective date of any
registration statement filed by the Company pursuant to which the
Holder was given full "piggyback" registration rights for all of
Holders shares requested to be included in accordance with Paragraph
A.
<PAGE>
C. Whenever the Company is required pursuant to the provisions of this
Section 5 to include Warrant Shares in a registration statement or a
post-effective amendment to a registration statement, the Company
shall (i) furnish each Holder of any such Warrant Shares and each
underwriter of such Warrant Shares with such copies of the prospectus,
including the preliminary prospectus, conforming to the Act, (and such
other documents as each such Holder or each such underwriter may
reasonably request) in order to facilitate the sale or distribution of
the Warrant Shares, (ii) use its best efforts to register or qualify
such Warrant Shares under the blue sky laws (to the extent applicable)
of such jurisdiction or jurisdictions as the Holders of any such
Warrant Shares and each underwriter of Warrant Shares being sold by
such Holders shall reasonably request and (iii) take such other
actions as may be reasonably necessary or advisable to enable such
Holders and such underwriters to consummate the sale or distribution
in such jurisdiction or jurisdictions in which such Holders shall have
reasonably requested that the Warrant Shares be sold.
D. The Company shall pay all expenses incurred in connection with any
registration or other action pursuant to the provisions of this
Section 5, other than underwriting discounts and applicable transfer
taxes relating to the Warrant Shares.
E. The Company will indemnify the Holders of Warrant Shares which are
included in each Subsequent Registration Statement substantially to
the same extent as the Company has indemnified the underwriters (the
"Underwriters") of its public offering of Common Stock pursuant to the
Underwriting Agreement and such Holders will indemnify the Company
(and the underwriters, if applicable) with respect to information
furnished by them in writing to the Company for inclusion therein
substantially to the same extent as the Underwriters have indemnified
the Company.
F. Limited Transferability.
This Warrant may not be sold, transferred, assigned or hypothecated by
the Holder until the first anniversary hereof except (a) to any
successor firm or corporation of Brean Murray & Co., Inc., (b) to any
of the officers, managing directors, any associates of Brean Murray &
Co., Inc., to a finder that has been recognized by both parties or of
any such successor firm or (c) in the case of an individual, pursuant
to such individual's last will and testament or the laws of descent
and distribution, and is so transferable only upon the books of the
Company which it shall cause to be maintained for the purpose. The
Company may treat the registered Holder of this Warrant as he or it
appears on the Company's books at any time as the Holder for all
purposes. The Company shall permit any Holder of a Warrant or his duly
authorized attorney, upon written request during ordinary business
hours, to inspect and copy or make extracts from its books showing the
registered holders of Warrants. All warrants issued upon the transfer
or assignment of this Warrant will be dated the same date as this
Warrant, and all rights of the Holder thereof shall be identical to
those of the Holder.
VI. Loss, etc., of Warrant.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and of indemnity reasonably
satisfactory to the Company, if lost, stolen or destroyed, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
<PAGE>
VII. Warrant Holder Not Shareholders.
Except as otherwise provided herein, this Warrant does not confer upon the
Holder any right to vote or to consent to or receive notice as a
shareholder of the Company, as such, in respect of any matters whatsoever,
or any other rights or liabilities as a shareholder, prior to the exercise
hereof.
VIII. Communication.
No notice or other communication under this Warrant shall be effective
unless, but any notice or other communication shall be effective and shall
be deemed to have been given if, the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:
A. the Company at 462 Seventh Avenue, New York, New York 10018
B. the Holder at 570 Lexington Avenue, New York, New York 10022, Attn:
Joan Finsilver, or such other address as the Holder has designated in
writing to the Company.
IX. Headings.
The headings of this Warrant have been inserted as a matter of convenience
and shall not affect the construction hereof.
X. Applicable Law.
This Warrant shall be governed by and construed in accordance with the law
of the State of New York without giving effect to the principles of
conflicts of law thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
Chief Executive Officer and its corporate seal to be hereunto affixed by its
Secretary this day _________ of _________ , 1998.
MENTORTECH INC.
By: ______________________________
Roy Machnes
Chief Executive Officer
ATTEST:
_______________________
Assistant Clerk
[Corporate Seal]
<PAGE>
SUBSCRIPTION
The undersigned, _________________, pursuant to the provisions of the foregoing
Warrant, hereby agrees to subscribe for and purchase ___________ shares of the
Common Stock of Mentortech Inc. Common stock covered by said Warrant, and makes
payment therefor in full at the price per share provided by said Warrant.
Dated:____________ Signature:____________________
Address: ____________________
____________________
ASSIGNMENT
FOR VALUE RECEIVED____________________ hereby sells, assigns and transfers unto
__________________the foregoing Warrant and all rights evidenced thereby, and
does irrevocably constitute and appoint, attorney, to transfer said Warrant on
the books of Mentortech Inc.
Dated:____________ Signature:____________________
Address: ____________________
____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED_________________________ hereby assigns and transfers unto
_________________________the right to purchase ________________ shares of the
Common Stock of Mentortech Inc. by the foregoing Warrant, and a proportionate
part of said Warrant and the
rights evidenced hereby, and does irrevocably constitute and appoint, attorney,
to transfer that part of said Warrant on the books of Mentortech Inc.
Dated:____________ Signature:____________________
Address: ____________________
____________________
<PAGE>
CASHLESS EXERCISE SUBSCRIPTION
The undersigned, ______________________, pursuant to the provisions of the
foregoing Warrant, hereby agrees to subscribe to that number of shares of Common
Stock of Mentortech Inc. as are issuable in accordance with the formula set
forth in paragraph 1(b) of the Warrant, and makes payment therefore in full by
surrender and delivery of this Warrant.
Dated:____________ Signature:____________________
Address: ____________________
____________________
CARTER, LEDYARD & MILBURN
COUNSELLORS AT LAW
2 WALL STREET
NEW YORK, N.Y. 10005
-----------
(212) 732-3200
FAX: (212) 732-3232
January 27, 1998
Mentortech Inc.
462 Seventh Avenue
New York, New York 10018
Re: Registration Statement on Form SB-2
of Mentortech Inc.
-----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Mentortech Inc., a Delaware corporation (the
"Registrant"), in connection with the above-captioned Registration Statement
filed with the Securities and Exchange Commission on the date hereof relating to
the registration under the Securities Act of 1933 of up to 14,470,226 shares of
its common stock, par value $.01 per share (the "Common Stock") offered by
certain selling stockholders (the "Selling Stockholders") of the Registrant.
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and officers of the Registrant and such other instruments as we have
deemed necessary or advisable for the purpose of this opinion.
On the basis of the foregoing, we are of the opinion that the outstanding
shares of Common Stock which may be offered for the account of the Selling
Stockholders are legally issued, fully paid and non-assessable and the shares of
Common Stock issuable upon exercise of certain outstanding warrants when
delivered and paid for pursuant to the terms of such warrants shall be validly
issued, fully paid and non-assessable.
<PAGE>
Mentortech Inc. -2-
We hereby consent to the filing of this opinion as an exhibit to the above
Registration Statement and to the reference to our name under the caption "Legal
Opinion" in the Prospectus included therein.
Very truly yours,
/s/Carter, Ledyard & Milburn
SJG/asb
EXHIBIT 23.1
KOST LEVARY & FORER
A MEMBER OF
Ernst & Young International
CONSENT OF INDEPENDENT ACCOUNTANTS
Mentortech Inc. (formerly Sivan Computers Training Center (1994) Ltd. and Mashov
Computer Based Training (C.B.T.) Ltd.)
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 26, 1997 in the Registration Statement (Form SB-2)
and related Prospectus of Mentortech Inc. for the registration of 14,470,226
shares of common stock.
Yours truly,
/s/Kost Levary and Forer
KOST, LEVARY and FORER
Certified Pubic Accountants (Israel)
Tel-Aviv, Israel
January 27, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference to our firm under the caption "Experts" and
to the use of our report dated March 28, 1997 in the Registration Statement
(Form SB-2) and related Prospectus of Mentortech Inc. for the registration of
14,470,226 shares of common stock.
/s/Ernst & Young LLP
January 26, 1998
New York, New York
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement on Form SB-2 registering 14,470,226 shares of common
stock.
/s/Arthur Andersen LLP
New York, New York
January 27, 1998
