<PAGE>
File No. 333-23617
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
----------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1993
(File No. 33-23617)
MATERIAL TECHNOLOGIES, INC.
---------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
--------
(State or other jurisdiction of incorporation or organization)
1057
----
(Primary Standard Industrial Classification Code Number)
95-4622822
(I.R.S. Employer Identification No.)
Suite 705, East Tower
11835 West Olympic Blvd.
Los Angeles, California 90064
(310) 208-5589
(Address, including zip code, and telephone number, including area code of
registrant's principal executive offices)
C. Timothy Smoot, Esq.
Law Offices of C. Timothy Smoot
23505 Crenshaw Boulevard, Suite 174
Torrance, California 90505-5221
(310) 530-3366
(Name, address, telephone number of agent for service)
Approximate date of commencement of proposed distribution to the public:
The date this Registration Statement becomes effective.
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. [ ]
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 1993 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Title of each class of securities to Amount to be Par Value Per Aggregate Amount of
be registered registered Share (1) Par Value registration fee
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock of
Material Technologies, Inc., held 369,172 (1)(2) $.001 $369.17 $11.19
by the Company for distribution
to its public shareholders
- ------------------------------------------------------------------------------------------------------------------------------
Registration Fee Paid $11.19
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) No current market exists for these securities, and registrant is unable to
determine the price, if any, at which these shares will trade.
(2) Registrant will receive no proceeds from the distribution of Material
Technologies, Inc.'s Class A Common Stock to Registrant's shareholders.
<PAGE>
MATERIAL TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
BETWEEN ITEMS IN PART I OF FORM S-1 AND PROSPECTUS
Exhibit Index at Page II 3
Item Number and Caption Location in Prospectus
1. Forepart of the Registration Outside Front Cover of Prospectus
Statement and Outside Front Cover Page
of Prospectus.
2. Inside Front and Outside Back Inside Front and Outside Back Cover
Cover Pages of Prospectus
3. Summary Information and Risk Prospectus Summary and Risk Factors
Factors, Ratio of Earnings to Fixed
Charges - not applicable
4. Use of Proceeds Not Applicable
5. Determination of Offering Price Not Applicable
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution The Distribution
9. Description of Securities to be The Distribution
Registered
10. Interests of Named Experts and Not Applicable
Counsel
11. Information with Respect to Business, The Distribution,
Registrant Description of Capital Stock,
Description of Shares, Financial
Statements, Selected Financial
Information, Management s Discussion
and Analysis, Management, Executive
Compensation, Principle Stockholders,
Certain Relationships and Related
Transactions
12. Disclosure of Commission Position Indemnification of Directors and
on Indemnification for Securities Act Officers
Liabilities
<PAGE>
PROSPECTUS
MATERIAL TECHNOLOGIES, INC.
369,172 Shares of Class A Common Stock
Material Technologies, Inc., ( "Matech 2" or the "Company") is
distributing 369,172 shares of its Class A Common Stock (the "Shares") to 405
shareholders of Material Technology, Inc. ("Matech 1") of record on May __ ,
1997, pro rata, one Share of Matech 2 for each share of Matech 1 held by each
shareholder. The distribution to Matech 1's shareholders is being made in
accordance with a February 17, 1997 Stock Purchase Agreement among Matech 1,
Montpelier Holdings, Inc., SecurFone America, Inc., ("SecurFone") and Robert
M. Bernstein, the Chief Executive Officer and controlling shareholder of both
Matech 1 and Matech 2. Under that agreement, immediately after the
distribution, the parties intend to effect a reverse merger of SecurFone into
Matech 1. The purpose of the distribution is to spin-off Matech 2 from
Matech 1 allowing Matech 1's shareholders to retain an interest in Matech 1's
business, while keeping that business separate from SecurFone's new business.
No one will receive any proceeds from distribution of the Shares.
Material Technologies, Inc., is a development stage company requiring
approximately $5,000,000 to fund operations and complete development and
marketing of its two products. As the result of the Company's recurring losses
from operations, there is substantial doubt about its ability to continue as a
going concern. As of March 31, 1997, the Company has an accumulated deficit of
$2,912,828 and $2,783 in cash. It has a net loss of $140,378 in 1996 and
$81,959 for the three months ending March 31, 1997. Moreover, Robert M.
Bernstein will retain overwhelming voting control of the Company with 83.4% of
the votes entitled to be cast by stockholders. The stockholders receiving this
distribution will have approximately 2% of the votes entitled to be cast, Matech
1 will have 3%, and insiders and affiliates other than Mr. Bernstein will
control the remaining votes.
As the result of a teaming agreement with Southwest Research Institute to
provide services relating to a government research contract, the Company expects
to receive sufficient funds to operate until August 1998. Absent additional
funds within the next 18 months, however, the Company may go out of business.
If the Company fails, investors will lose their entire investment. The Company
has no products currently available for commercial sale and is unlikely to have
any such products for six to twelve months from the date it receives additional
capital, if that occurs. The Company is seeking the required funding through
(1) additional government grants, (2) private financing, and (3) public
financing. There can be no assurance of obtaining the needed funds.
<PAGE>
THE SECURITIES BEING DISTRIBUTED ARE HIGHLY SPECULATIVE AND ENTAIL A VERY HIGH
DEGREE OF RISK. -- SEE "VERY HIGH RISK FACTORS" BEGINNING ON PAGE 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May __ , 1997
The Company intends to furnish its stockholders annual reports containing
audited financial statements examined and reported upon by a certified public
accounting firm and quarterly reports for each of the first three quarters of
each fiscal year containing unaudited financial statements.
Prior to this distribution, there was no public market for any of the Company's
securities including the Class A Common Stock (the "Shares"). No assurance can
be given that any trading market for the Shares will develop or that if such a
market develops that such a market will continue. In the absence of the Company
obtaining the necessary funds to conduct its operations beyond the next 18
months, the Company does not expect that any trading market will be meaningful.
The Company may be reached at its principal executive offices as follows:
Material Technologies, Inc.
East Tower, Suite 705
11835 W. Olympic Blvd.
Los Angeles, CA 90064
(310) 208-5589
<PAGE>
MATERIAL TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
VERY HIGH RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . .1
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
THE BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
THE DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
COMMON STOCK OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . .2
WARRANTS OUTSTANDING:. . . . . . . . . . . . . . . . . . . . . . . . . .3
VERY HIGH RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . .3
CESSATION OF THE COMPANY AS A GOING CONCERN. . . . . . . . . . . . . . .3
NO OPERATING HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . .3
NO ASSURANCE OF PRODUCT DEVELOPMENT; NEED FOR ADDITIONAL RESEARCH AND
DEVELOPMENT; MARKET UNCERTAINTY. . . . . . . . . . . . . . . . . . . . .3
LIMITED CURRENT ABILITY TO MARKET PRODUCTS . . . . . . . . . . . . . . .3
DEPENDENCE ON MANAGEMENT CONSULTANTS AND ADVISORS. . . . . . . . . . . .3
COMPETITION FROM OTHER TECHNOLOGIES. . . . . . . . . . . . . . . . . . .3
PATENT PROTECTION MAY BE INADEQUATE. . . . . . . . . . . . . . . . . . .4
POSSIBLE LOSS OF PATENTS TO SECURED LENDERS. . . . . . . . . . . . . . .4
NEED FOR ADDITIONAL FINANCING; LIKELY NEGATIVE CASH FLOW . . . . . . . .4
VERY SUBSTANTIAL DILUTION. . . . . . . . . . . . . . . . . . . . . . . .4
NO PUBLIC MARKET FOR SHARES; SALES OF COMMON STOCK . . . . . . . . . . .4
IMPEDIMENTS TO OBTAINING ADDITIONAL FINANCING. . . . . . . . . . . . . .5
SALARY BENEFIT TO MR. BERNSTEIN FROM FUTURE FINANCING. . . . . . . . . .5
SUBSTANTIAL ROYALTY OBLIGATIONS. . . . . . . . . . . . . . . . . . . . .5
NO DIVIDENDS LIKELY. . . . . . . . . . . . . . . . . . . . . . . . . . .5
RISK OF NEW PRODUCT AND TECHNOLOGY . . . . . . . . . . . . . . . . . . .5
ROBERT M. BERNSTEIN'S CONTINUING CONTROL OF THE COMPANY. . . . . . . . .6
ROBERT M. BERNSTEIN'S CONFLICTS OF INTEREST. . . . . . . . . . . . . . .6
IMPEDIMENTS TO RESALE FROM PENNY STOCK REGULATIONS . . . . . . . . . . .6
POSSIBLE TAX LIABILITY OF THE DISTRIBUTION . . . . . . . . . . . . . . .6
RIGHTS OF TENSIODYNE CORPORATION AS CLASS B PREFERRED STOCKHOLDER. . . .6
CAPITALIZATION.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
SELECTED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . .8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Results of Operation for the Fiscal Years Ended December 31, 1994,
1995, and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . .9
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . .9
MARKET INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
The Stock Purchase Agreement . . . . . . . . . . . . . . . . . . . . . 11
Agreements and Royalty Obligations . . . . . . . . . . . . . . . . . . 12
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Development of Technologies. . . . . . . . . . . . . . . . . . . . . . 15
Description of Technologies. . . . . . . . . . . . . . . . . . . . . . 16
Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Distribution Methods of Product. . . . . . . . . . . . . . . . . . . . 18
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Sources of Basic Material. . . . . . . . . . . . . . . . . . . . . . . 19
Dependence Upon One or More Major Customers. . . . . . . . . . . . . . 19
Total Number of Employees. . . . . . . . . . . . . . . . . . . . . . . 19
Plan of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Description of Property. . . . . . . . . . . . . . . . . . . . . . . . 19
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ADVISORY BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . 22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . 22
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 23
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . 25
WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . . . . . . . . . . 27
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
FURTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
FINANCIAL STATEMENTS - INDEX . . . . . . . . . . . . . . . . . . . . . . . .1
ii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PERSON RECEIVING THE
SHARES IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
INTRODUCTION
Material Technologies, Inc. ("Matech 2" or the "Company") is in the business of
(1) developing for commercial exploitation the Fatigue Fuse, a patented device
designed to give early warning of metal fatigue in bridges, aerospace, shipping,
transportation, and other applications where such information is of significance
and (2) researching and developing the Electrochemical Fatigue Sensor, a device
which, if successfully developed, will indicate the fatigue status of a metal
structure at any time in its life without knowing the structure's past history.
The Company requires $5,000,000 to complete development of these two products,
pay overhead and debts, and market the products. No funds, however, will be
raised in connection with this distribution. The Company has no specific plans
to raise the necessary $5,000,000. It has provided information to various
investment bankers and venture capitalists but no viable plan for raising the
funds has been initiated as of the date of this Prospectus. Prior to this
offering, there has been no public market for any of Matech 2's securities and
no assurance can be given that such a market will develop for its Class A Common
Stock.
VERY HIGH RISK FACTORS
The securities being distributed involve a very high degree of risk. The very
high risk factors include, among others: Matech 2's (1) need for an additional
$5 million to complete development of its products and market them, (2) absence
of operating history, and (3) dependence on management. In addition,
technological changes could destroy the potential usefulness of the Company's
products, and there is substantial uncertainty regarding market acceptance of
its products. SEE, Very High Risk Factors, p. 3.
THE COMPANY
The Company is a development stage company which intends to complete testing and
developing the Fatigue Fuse, a patented device owned by the Company, and the
Electrochemical Fatigue Sensor ("EFS"), a device invented at the University of
Pennsylvania. The Company holds an exclusive worldwide license to develop and
exploit the EFS. The Company was incorporated in the State of Delaware on March
4, 1997. Its principal offices are located at 11835 West Olympic Boulevard,
East Tower, Suite 705, Los Angeles, California 90064.
Matech 2 was formed as a subsidiary of Matech 1 to receive the assets and
liabilities of Matech 1 in connection with a February 17, 1997 Stock Purchase
Agreement among Matech 1, Montpelier Holdings, Inc., SecurFone America, Inc.,
("SecurFone") and Robert M. Bernstein, the Chief Executive Officer and
controlling shareholder of both Matech 1 and Matech 2. Under that agreement,
the parties intend to effect a reverse merger of SecurFone into Matech 1
immediately after
1
<PAGE>
this distribution. In March 1997, in accordance with the Stock Purchase
Agreement, Matech 1's Board of Directors authorized assignment of all of its
assets and liabilities to the Company. The $172,418 in assets included four
patents and liabilities totaling $493,146 as of March 31, 1997.
In exchange for Matech 1's business, on March 9, 1997, the Company authorized
issuance of 5,560,000 shares its Class A Common Stock to Matech 1 who is
distributing 5,000,000 shares to its shareholders of record as of the date of
this Prospectus. The distribution keeps Matech 1's former business, now the
Company's business described in this Prospectus, separate from SecurFone's
business that Matech 1 will enter into on closing the reverse merger.
Accordingly, 405 public shareholders of record of Matech 1 as of the date of
this Prospectus are receiving 369,172 shares of the Company's Class A Common
stock, approximately 6.6%. Control persons and affiliates will own 4,630,828
shares, approximately 83.3%, with Robert M. Bernstein, President and Chief
Executive Officer of the Company receiving 2,936,130 of these shares,
approximately 52.8%. Matech 1 will retain 560,000 shares, approximately 10.1%
of the outstanding shares.
THE BUSINESS
On May __, 1997, Matech 1 assigned all of its assets and liabilities to the
Company including four patents, together with all related know-how, on a device
known as the Fatigue Fuse and its license agreement with the University of
Pennsylvania to exploit the Electrochemical Fatigue Sensor ("EFS"). Although
the Company believes the Fatigue Fuse is in its final stage of testing and
development, no commercial application has been arranged to date and no
assurance can be given that the Company will successfully market it. The
Company requires $5,000,000 to complete development and marketing of its
products including paying overhead and accrued debts. It requires approximately
$2,000,000 to finish testing and developing the Fatigue Fuse and to commercially
produce and market it. The Company estimates that approximately $2,875,000 will
be required to complete research and development of the EFS. SEE, Plan of
Operations.
The Company has a teaming agreement with Southwest Research Institute ("SWRI")
and the University of Pennsylvania (collectively the "Team"). On February 25,
1997, the United States Air Force awarded the Team a $2.5 million Phase I
contract to "determine the feasibility of [the Company's EFS] to improve the
United State Air Force capability to perform durability assessments of military
aircraft, including both air frames and engines through the application of EFS
to specific military aircraft alloys." The Company is a subcontractor to SWRI
and its share of this award is approximately $550,000 for which the Company will
perform certain technical tasks in accordance with its expertise.
The Company is seeking additional funding through (1) additional government
grants, (2) private financing, and (3) public financing to finish development of
its Fatigue Fuse and the EFS. If all required funds were received today, the
Company estimates that six to twelve months would be required to bring the
Fatigue Fuse to market and two years would be required to bring the EFS to
market. The Company will expend monies it receives from any financing as they
are received.
2
<PAGE>
Therefore, the time necessary to bring each of these products to market will be
lengthened as the Company is required to stretch out and complete work depending
on the availability of funds. No assurance can be given that all or part of
these funds will be raised. Assuming the products are successfully tested and
developed, however, competition or other significant risks may prevent the
Company from successfully marketing one or both of these products.
THE DISTRIBUTION
SECURITIES DISTRIBUTED: 369,172 shares of Class A Common Stock. As of the date
of this Prospectus, one share of Matech 2's Class A Common Stock will be
distributed for each share of Matech 1 Class A Common Stock owned on the record
date which will be the date of this Prospectus. Within two weeks after the date
of this Prospectus, which will be the effective date of the spin-off of Matech 2
from Matech 1, stock certificates in Matech 2 will be mailed to shareholders.
No shareholder action is required. After the distribution, Matech 1 will
reverse split its 5,000,000 outstanding shares, 1 for 10, leaving approximately
500,000 shares outstanding. Fractional shares will be rounded up. Thus,
stockholders owning less than ten Matech 1 shares will still receive one share
of Matech 1 in the reverse split.
It is management's understanding that the distribution will be a taxable
dividend to Matech 1's shareholders. Matech 1 shareholders will be required to
include in their taxable ordinary income for the taxable year in which the
distribution is received, the fair market value of the Company's Stock
distributed to them. The Company's Board of Directors has determined that the
value of its Common Stock is $.001 per share. This value was determined due to
the lack of marketability of the Company's stock, as well as the Company's
negative net worth and its predecessors' history of accumulated losses. There
can be no assurance that the Internal Revenue Service (the "Service") or other
taxing agency will not assert a higher value, resulting in greater tax liability
to Matech 1's shareholders as a result of this distribution.
COMMON STOCK OUTSTANDING
Before and After This Distribution: 5,560,000 shares of Class A Common Stock
and 60,000 shares of Class B Common Stock.
WARRANTS OUTSTANDING:
BEFORE AND AFTER THIS DISTRIBUTION: 1,700,000 Warrants each to purchase one
share of Class A Common Stock for $.50 per share until August 22, 1999. (Note
12 a to Financial Statements.)
VERY HIGH RISK FACTORS
THE SHARES BEING DISTRIBUTED HEREBY ARE HIGHLY SPECULATIVE AND ARE SUBJECT TO
MANY SIGNIFICANT RISKS.
CESSATION OF THE COMPANY AS A GOING CONCERN
3
<PAGE>
The Company's independent auditor has issued an opinion that the recurring
losses from operations raise substantial doubt about the Company's ability to
continue as a going concern. The Company may have to cease operations and go
out of business if it does not raise sufficient additional capital. The
business of the Company sustained operating losses on a consolidated basis
totaling $2,832,869 from inception through December 31, 1996, and $2,912,828
through March 31, 1997. The Company has no current product to market and must
rely on loans and investment capital to meet its current obligations and
continue its operations. If necessary funds are not raised, Management will be
forced to discontinue operating and liquidate the Company.
NO OPERATING HISTORY
The Company has no established history of business operations, has not generated
any sales revenue, and is in the early stage of development.
NO ASSURANCE OF PRODUCT DEVELOPMENT; NEED FOR ADDITIONAL RESEARCH AND
DEVELOPMENT; MARKET UNCERTAINTY
The Company's products are in the research, development, and testing stage.
Unexpected problems, technological or specifications changes (1) may make the
technologies obsolete, (2) may affect the products' overall feasibility, or (3)
may delay completion and increase costs of research, development, and testing.
The time required to bring one or both products to market is uncertain. Market
acceptance cannot be determined until product development is complete.
LIMITED CURRENT ABILITY TO MARKET PRODUCTS
The Company's operating results will depend on its ability to market its
products. Its present marketing capability is limited to contacts of its
officers, directors, and consultants and is unproved. It has yet to establish a
direct sales force or distribution network. Failure to put into place an
experienced and skillful marketing infra-structure, in a timely manner, could
have a materially adverse impact upon its ability to bring its products to
market and continue operating.
DEPENDENCE ON MANAGEMENT CONSULTANTS AND ADVISORS
The Company's success largely depends on the performance of its President and
Chief Executive Officer, Robert M. Bernstein, its consultants, and advisors.
Failure to attract and retain key consultants, advisors, and employees with
necessary skills could have a materially adverse impact on the Company's ability
to bring its products to market and continue operating. The Company has an
Advisory Board, the members of which serve without compensation. The Company
intends to issue these members 18,000 shares of Class A Common Stock each, if
and when the Company obtains substantial funding but has no obligation to do so.
SEE, "Advisory Board", INFRA.
COMPETITION FROM OTHER TECHNOLOGIES
4
<PAGE>
The metal fatigue measuring industry has significant competition. Other
technologies exist which can indicate the presence of metal fatigue damage.
Single cracks larger than a certain minimum size can be found by nondestructive
inspection methods such as dye penetrant, radiography, eddy current, acoustic
emission, and ultrasonics. Tracking of load and strain history, for subsequent
estimation of fatigue damage by computer processing, is possible with recording
instruments such as strain gauges and counting accelerometers. These methods
have been in use for up to 40 years and also offer the advantage that they have
been accepted in the marketplace, whereas the Company's products will remain
largely unproved for some currently indeterminable period of time. Other
companies with greater financial and technical resources and larger marketing
organizations than the Company pose a potential threat if they commence an
effort to compete in the Company's market segment. SEE, "Competition".
PATENT PROTECTION MAY BE INADEQUATE
The Company relies on patents to protect its interests in its products. In the
event of a patent infringement, the costs to the Company to enforce its rights
may be substantial whether or not enforcement is successful. Moreover, there
can be no assurance that the Company will have sufficient funds to attempt to
protect its patents from infringement.
POSSIBLE LOSS OF PATENTS TO SECURED LENDERS
The Company's patents are encumbered by certain liabilities as described under
the heading, "Description of Technologies" and "Business". If the Company fails
to discharge its obligations under those liabilities, it may lose its interests
in the patents or certain rights to exploit the technology to certain lenders
including Robert M. Bernstein, a principal shareholder, Director and Chief
Executive Officer. See "Management - Certain Transactions."
NEED FOR ADDITIONAL FINANCING; LIKELY NEGATIVE CASH FLOW
If the Company fails to raise additional funds necessary for the research,
development, and testing from either government grants, the sale of securities,
borrowings, or other sources, it will not have a product for a potential market
and stockholders will have no possibility of any financial return or economic
benefit from their ownership of shares. Even if the necessary $5,000,000 is
raised and research, development, and testing is completed, no assurance can be
given that the results will establish that the products will be marketable.
Moreover, no assurance can be given that the products can be produced at a cost
which will make it possible to market them at a commercially feasible price.
The Company is likely to have negative cash flow through at least March 31,
1998. Over the next 24 months, $5,000,000 is required to complete research and
development of both products and market them. If the Company does not
successfully raise these funds, it may be compelled to halt all operations
resulting in complete loss of share value.
VERY SUBSTANTIAL DILUTION
5
<PAGE>
If the Company raises funds through a securities offering, the shares being
distributed may be subject to very substantial dilution of voting control and
percentage ownership of the Company.
NO PUBLIC MARKET FOR SHARES; SALES OF COMMON STOCK
The failure to develop a public market for the shares of the Company could have
a significant adverse impact on the Company's ability to obtain financing in the
future. The 369,172 shares of common stock being distributed to Matech 1
shareholders may be resold by those shareholders. The fact that these shares
are eligible for sale could adversely affect the Company's ability to sell
Shares in future financings by means of a public offering of shares, since any
potential underwriter would have to be concerned about shareholders offering
shares of the Company's stock for sale at prices lower than that at which an
underwriter might offer such stock. These shares may be immediately sold if a
public market develops and the effect of having these shares eligible for sale
in any market cannot be determined, but may be depressive.
The Company intends to encourage trading of the Shares on the National
Association of Securities Dealer's Bulletin Board. The Company cannot predict
the prices at which the Shares may trade, if at all. Over the last year, Matech
1's Class A Common Stock has been quoted and traded at prices ranging from $2.50
per share to $5.37 per share with 4 market makers. It is likely that any
substantial selling into the market would cause a substantial decrease in the
quoted price of these shares because of the thin trading market. Matech 1's
trading volume ranged from 2,800 shares in all of October 1996 to 90,300 shares
in December 1996 after Matech 1 announced the signing a Letter of Intent with
SecurFone America, Inc. for the reverse merger. At that time, the price
increased from $2.50 per share to $4.73 per share on January 6, 1997. As this
January 6, 1997 price reflected the market's view of the reverse merger as well
as supply and demand, the Shares being distributed are likely to trade, if at
all, substantially below that price.
IMPEDIMENTS TO OBTAINING ADDITIONAL FINANCING
Under modified agreements with the University of Pennsylvania and an agreement
with an unrelated third party, Stephen Forrest Beck, a Los Angeles investment
banker, the Company must pay to them a percentage of amounts raised from
financing other than from government contracts. The Company must pay the
University 30% of any such financing up to $200,000 and pay Mr. Beck 12.5% of
the first $1,000,000 raised and 15% of any amount over $1,000,000 until $375,000
is paid. In addition, the Company is obligated to pay royalties totaling 37% on
revenues received from the sale of the Fatigue Fuse and 10% of revenues received
from the sale of the EFS. These commitments are likely to increase the
difficulty in finding third party financing. Underwriters and other financing
sources are less likely to agree to finance the Company's research and
development of its technologies if these amounts must be paid out rather than
used for additional research and development. SEE, Notes 6, 10 f, and 10 g to
the Financial Statements and "Agreements and Royalty Obligations".
SALARY BENEFIT TO MR. BERNSTEIN FROM FUTURE FINANCING
6
<PAGE>
As of March 31, 1997, the Company was indebted to Robert M. Bernstein in the
amount of $45,000 for accrued salary. If the Company raises additional funds,
it will retire all or part of this debt to Mr. Bernstein. Subject to approval
by the Board of Directors, the Company intends to enter into an employment
agreement with Mr. Bernstein, commencing the first full month after it raises at
least $500,000 at the rate of $200,000 per year. As a result, Mr. Bernstein is
likely to derive a substantial PERSONAL benefit if the Company obtains
additional financing.
SUBSTANTIAL ROYALTY OBLIGATIONS
Over the years, to finance development of the Fatigue Fuse and Electrochemical
Sensor, the Company's predecessors sold substantial royalty rights to others.
As of the date of this Prospectus, the Company was obligated to pay royalties to
others totaling 37% of revenues from sales of its Fatigue Fuse and 10% of
revenues from sales of its EFS. If these products are manufactured and sold,
these royalty obligations will substantially lower the funds available to the
Company from revenues. See, Note 10g to the Financial Statements.
NO DIVIDENDS LIKELY
The Company has never paid any dividends and will not pay dividends for the
foreseeable future.
RISK OF NEW PRODUCT AND TECHNOLOGY
The manufacturing and marketing of the Company's products which incorporate new
technology, has inherent risk. It is uncertain how each product will operate
over time and under various conditions of use. Even if one or both products are
successfully developed, manufactured, and marketed, warranty or product
liability, or lack of market acceptance due to product failure or failure to
meet expectations, could prevent the Company from becoming profitable.
Developing new technologies for manufacture is frequently subject to unforeseen
expenses, difficulties, and complications and, in some cases, such development
cannot be accomplished.
ROBERT M. BERNSTEIN'S CONTINUING CONTROL OF THE COMPANY
Mr. Bernstein owns 60,000 shares of Class B stock, each of which has 200 votes
per share and also owns 2,936,130 shares of the Company's Class A common stock
representing 52.8% of such shares. Thus, in any shareholder vote, Mr. Bernstein
has 14,936,130 votes out of a possible 17,910,015 votes equal to 83.4% voting
control of the Company. Mr. Bernstein overwhelmingly controls the Company's
direction and management. The Company's Bylaws do provide for cumulative
voting. Nevertheless, a minority shareholder will have no control over
management and probably will be unable to elect any directors.
ROBERT M. BERNSTEIN'S CONFLICTS OF INTEREST
Mr. Bernstein controls the Company as its majority stockholder, its President,
Chief Financial Officer, and its Chairman of the Board. He has conflicts of
interest as follows: (1) he received
7
<PAGE>
2,936,130 shares of the Company's Class A Common Stock as a result of (a)
converting a convertible note into 580,000 shares and (b) Matech 1 deciding to
issue him an additional 1,499,454 shares in satisfaction of his accrued salary
as of December 31, 1996, totaling $372,000. These shares increased his
percentage of the business from 36.5% to 52.8%; (2) the Company owes him
$12,846 plus accrued salary of $45,000 through March 31, 1997. If sufficient
funds are raised, he will be paid these amounts; (3) he may receive a future
salary of $200,000 per year; and (4) he has a lien on the Company's patents
giving him the right to foreclose on them if loans that he made to the Company
are not repaid. Mr. Bernstein's right to foreclose means that, if the Company
fails, he could potentially profit by gaining personal control of the Company's
technology. On the other hand, as a director, officer, and controlling
shareholder, Mr. Bernstein owes a fiduciary duty to the Company and its
shareholders to act in the Company's and shareholders best interests.
IMPEDIMENTS TO RESALE FROM PENNY STOCK REGULATIONS
The Securities and Exchange Commission (the "SEC") has adopted regulations which
generally define "Penny Stock" to be any equity security that has a market price
(as defined) less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. For transactions covered by these
rules, the broker dealer must make a delivery, prior to the transaction, of a
disclosure schedule prepared by the SEC relating to the penny stock market. The
broker dealer also must disclose the commissions payable to both the broker
dealer and the registered representative, current quotations for the securities,
and, if the broker dealer is the sole market maker, the broker dealer must
disclose this fact and the broker dealer's presumed control over the market.
Finally, monthly statements must be sent out disclosing recent price information
for the penny stock held in the customer's account and information on a limited
market in penny stocks. Consequently, the "penny stock" rules may restrict the
ability of broker dealers to sell the Company's securities and may affect the
ability of purchasers in the offering to sell the Company's securities in the
secondary market.
POSSIBLE TAX LIABILITY OF THE DISTRIBUTION
It is management's understanding that the distribution will be a taxable
dividend to Matech 1's shareholders. Matech 1 shareholders will be required to
include in their taxable ordinary income for the taxable year in which the
distribution is received, the fair market value of the Company's Stock
distributed to them. The Company's Board of Directors has determined that the
value of its Common Stock is $.001 per share. This value was determined due to
the lack of marketability of the Company's stock, as well as the Company's
negative net worth and its predecessors' history of accumulated losses. There
can be no assurance that the Internal Revenue Service (the "Service") or other
taxing agency will not assert a higher value, resulting in greater tax liability
to Matech 1's shareholders as a result of this distribution.
RIGHTS OF TENSIODYNE CORPORATION AS CLASS B PREFERRED STOCKHOLDER
8
<PAGE>
Fifteen (15) shares of Class B Preferred Stock have been issued to Tensiodyne
Corporation in exchange for canceling its 15 Class B Preferred shares in Matech
1. In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, Tensiodyne as holder of Class B Preferred
Stock will be entitled to receive $10,000 per share as a liquidation preference
or a total of $150,000. This liquidation preference is senior to liquidation
rights of all other classes of stock except the Class A Preferred's liquidation
rights. This provision may have the effect of delaying, deferring or preventing
a change in control. In addition, after January 31, 2002, Tensiodyne will have
the option to redeem its shares at any time for $150,000. In addition,
Tensiodyne as a holder of Class B Preferred Stock, has the right to receive cash
dividends, which are determined pursuant to a formula in the Certificate of
Designation. That formula reads as follows: "Each time a cash dividend is paid
on the Common Stock there shall also be paid with respect to each outstanding
share of Class B Preferred Stock an amount determined by multiplying the
aggregate amount of the dividend paid with respect to the Common Stock by a
fraction (i) the numerator of which is 3,214,480 and (ii) the denominator of
which is the number of shares of Common Stock on which the dividend was paid,
and (x) multiplying the resulting product by thirty percent (30%) and then (y)
dividing the resulting product by five hundred and ten (510)."
CAPITALIZATION
The following sets forth the Company's pro forma capitalization as of March 31,
1997, as if the transfer of assets and liabilities from Matech 1 to the Company
had taken place on that date.
- --------------------------------------------------------------------------------
Short Term Debt $468,146
- --------------------------------------------------------------------------------
Long Term Debt $25,000
- --------------------------------------------------------------------------------
TOTAL LIABILITIES $493,146
- --------------------------------------------------------------------------------
REDEEMABLE CLASS B PREFERRED STOCK $150,000
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Class A Common Stock, $.001 Par Value, Authorized 10,000,000
Shares, Outstanding 5,560,000 shares. $5,560
- --------------------------------------------------------------------------------
Class B. Common Stock, $.001 Par Value, Authorized
300,000 Shares, Outstanding 60,000 Shares $60
- --------------------------------------------------------------------------------
Class A Preferred Stock, $.001 Par Value, Authorized
9,999,490 Shares, Outstanding 350,000 Shares $350
- --------------------------------------------------------------------------------
Additional Paid in Capital $2,458,794
- --------------------------------------------------------------------------------
Less Notes and Subscriptions Receivable - Common Stock ($36,464)
- --------------------------------------------------------------------------------
Deficit Accumulated During the Development Stage ($2,912,828)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS EQUITY (DEFICIT) ($470,728)
- --------------------------------------------------------------------------------
DIVIDEND POLICY
The Company and its predecessors have never paid cash dividends. Management
does not intend to pay dividends in the near future and any dividends paid will
depend on the Company's future
9
<PAGE>
earnings and working capital requirements. Currently, there are no contractual
restrictions placed on the Company in terms of declaring and paying dividends.
DILUTION
There will be no dilution of stockholder equity as a result of this
distribution. There was, however, a substantial dilution of stockholder's
percentage interest in the Company's business as a result of Matech 1 issuing
stock in relation to the Stock Purchase Agreement. See, "Stock Purchase
Agreement" for a schedule of shares issued. Prior to Matech 1 entering into the
Stock Purchase Agreement on February 17, 1997, there were 2,580,546 shares of
Matech 1's Class A Common Stock outstanding with 327,911 shares in the hands of
public shareholders representing 12.7% of the outstanding shares. As a result
of the issuance of shares in connection with this transaction, the Company now
has 5,560,000 shares outstanding. Accordingly, the percentage interest of
Matech 1's public shareholders in the Company's business after this distribution
will decrease from 12.7% to 5.9% resulting in a 46.5% reduction in each
shareholders percentage interest in the Company's business. On the other hand,
each shareholder will also have a small percentage interest in the business of
SecurFone America, Inc.
SELECTED FINANCIAL INFORMATION
On March 9, 1997, the Company authorized issuance of 5,560,000 shares of its
Class A Common Stock to Matech 1, 60,000 shares of its Class B Common Stock to
Robert M. Bernstein, 350,000 shares of its Class A Convertible Preferred Shares
to Matech 1's Convertible Preferred Shareholders in exchange for their Matech 1
Convertible Preferred, and 15 shares of its Class B Convertible Preferred Shares
to Matech 1's Class B Convertible Preferred Shareholder, Tensiodyne Corporation.
In consideration for assuming all of Matech 1's liabilities and obligations, the
Company will receive all of the assets of Matech 1 as of the effective date of
the exchange, twenty-one days after an information statement is mailed to
shareholders of Matech 1. The Company is presenting in its financial statements
the activity of Matech 1, as the Company continues substantially in the same
line of the business including all of its assets and liabilities. The selected
financial data of the Company are derived from the consolidated financial
statements of Matech 1. The selected financial data should be read in
conjunction with the Company's financial statements included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ending December 31 Three Months Ending Inception to
March 31 March 31
- -------------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997 1997
(Unaudited) (Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales 0 0 0 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From $(51,180) ($714,605) $(377,063) $(197,546) $(483,186) $(150,541) $(87,649) $(2,912,828)
Continued Operations
- -------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From $(.17) $(.016)
Continued Operations
Per Common Share
- -------------------------------------------------------------------------------------------------------------------------------
Common Shares 2,580,546 5,560,000
Outstanding
- -------------------------------------------------------------------------------------------------------------------------------
10
<PAGE>
- -------------------------------------------------------------------------------------------------------------------------------
Total Assets $178,944 $167,858 $184,579 $150,692 $208,299 $165,481 $172,418 $172,418
- -------------------------------------------------------------------------------------------------------------------------------
Total Liabilities $46,481 $401,600 $620,375 $783,882 $832,926 $914,049 $493,146 $493,146
- -------------------------------------------------------------------------------------------------------------------------------
Redeemable Preferred 0 0 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000
Stock
- -------------------------------------------------------------------------------------------------------------------------------
Total Stockholders $132,463 $(619,166) $(585,796) $(783,190) $(988,218) $(898,568) $(470,728) $(470,728)
Equity (Deficit)
- -------------------------------------------------------------------------------------------------------------------------------
Dividends 0 0 0 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected Financial
Data" and the Company's financial statements and notes thereto contained
elsewhere in this Prospectus.
BACKGROUND
The Company's predecessors were engaged in developing and testing the Fatigue
Fuse and developing the EFS. The majority of funds used in operations,
development and testing were raised through sales of future royalty interests in
the Company's products and private offerings of common and preferred stock.
The Company was formed on March 4, 1997, as a subsidiary of Matech 1, a Delaware
corporation. On March 9, 1997, in accordance with a February 17, 1997 Stock
Purchase Agreement among Matech 1, Montpilier Holdings, Inc., SecurFone America,
Inc., ("SecurFone") and Robert M. Bernstein, (the "Stock Purchase Agreement")
Matech 1 agreed to assign all its assets and liabilities to the Company
including all Patents and know-how relating to the Fatigue Fuse and the
Electrochemical Fatigue Sensor in exchange for 5,560,000 shares of the Company's
Class A Common Stock. Matech 1 also agreed to distribute 5 million of these
5,560,000 shares to its shareholders thereby spinning off the Company. Upon
completing this distribution, Matech 1 will own 560,000 shares of the Company's
Class A common stock. From its inception through 1993, Tensiodyne Corporation
developed the Fatigue Fuse. In August 1993, Tensiodyne licensed the rights to
develop and exploit the EFS from the University of Pennsylvania. In February
1994, Matech 1 acquired all of the assets and liabilities of Tensiodyne in a
reorganization that resulted in Matech 1 distributing shares to Tensiodyne'
shareholders in January 1996 as part of transactions similar to the transactions
contemplated by the Stock Purchase Agreement.
The following discussion of results of operations, capital resources, and
liquidity pertains to the Company's consolidated activity for the three years
ended December 31, 1994, 1995, and 1996.
RESULTS OF OPERATION FOR THE FISCAL YEARS ENDED DECEMBER 31, 1994, 1995, AND
1996
Revenues
11
<PAGE>
The Company's predecessors did not generate any significant revenues in 1994,
1995, or 1996. In 1996, Matech 1 received $12,275 in expense reimbursements,
$2,427 as interest income, and $17,750 from the sale of 50,000 shares of
Tensiodyne Corporation stock. In 1995, Matech 1 generated interest income of
$1,928 and $4,375 of miscellaneous income. In 1994 Matech 1 generated interest
income of $1,785.
Costs and Expenses
In 1996, research and development costs were $10,700 compared to $15,104 in
1995, $83,360 in 1994, and $330,112 in 1993. In 1993, funds were available for
development. Since that time, substantial funds have not been available. In
1996, $10,000 was paid to the University of Pennsylvania to reimburse it for
costs related to maintaining patents for the EFS. The remaining $700 was for
testing the Fatigue Fuse. In 1995, the Company spent $12,359 for testing the
Fatigue Fuse and spent the remainder for consulting fees of $2,745 related to
that testing. In 1994, the majority of research and development costs was the
salary of Matech 1's in-house engineer totaling $71,096 and testing costs of
$7,263. In 1993, research and development costs included $188,495, which is the
present value of the Company's obligation to sponsor the development of the EFS
with the University of Pennsylvania. Also included in research and development
for 1993 is the salary of the Company's engineer totaling $53,288 and testing
costs of $76,843.
General and administrative costs were $466,286, $188,745, and $295,488 for 1996,
1995, and 1994, respectively. In 1996, the major costs were $200,000 of accrued
salary to the Company's President, Robert M. Bernstein, and $86,633 in legal
fees to (a) represent the Company in contract negotiations with SWRI which
resulted in a teaming agreement and subcontract with SWRI relating to a
government research contract from the U. S. Air Force, (b) complete Matech 1's
January 1996 S-1 registration statement, (c) negotiate the Stock Purchase
Agreement, and (d) preserve the Company's patents. In addition, in the
Company's ongoing effort to raise funds, it incurred costs of $34,632 for
various consultants, $21,902 for travel and entertainment, $21,766 for
telephone, $17,526 for accounting, $29,017 for office rent and $14,454 for
office expenses.
The major costs incurred in 1995 were $56,170 related to attempts to find
funding for research and development including $28,298 for travel and
entertainment expenses, $15,362 in professional fees, and $12,510 in
professional services. In addition, $31,480 was incurred for costs related to
the S-1 Registration statement filed on January 19, 1996, 28,514 for office
rent, $20,696 for accounting fees, $19,751 for telephone and $10,871 for
interest.
In 1994, the major costs were the President's salary of $72,000, which was
accrued and not paid, professional fees of $55,824, office related expense of
$32,206, travel costs of $36,991, rent of $16,169, and utilities of $23,023.
The professional fees were for negotiating and consummating the spin off of
Matech 1 and the audit of the 1993 financial statements.
LIQUIDITY AND CAPITAL RESOURCES
As reflected in the numbers below, over the past three years, to continue
seeking capital and to maintain its patents, the Company's predecessor was
totally dependent on the willingness of the
12
<PAGE>
Company's President, Mr. Bernstein, and long time investors in the Company to
loan the Company money or purchase additional securities from the Company. Over
the next 18 months, the Company expects to receive approximately $550,000 from a
subcontract with SWRI relating to its research contract that the United States
Air Force awarded to SWRI on February 25, 1997. These funds, however, are not
guaranteed but rather the Company's best estimate based on SWRI's contract with
the Air Force and the Company's subcontract with SWRI. Moreover, these funds
are only a beginning, the Company estimates an additional $5,000,000 will have
to be raised to complete research and development and bring its products to
market. Although, Mr. Bernstein intends to continue to loan the Company funds
as required to seek additional financing, he is under no obligation to do so.
The Company does not expect to receive any additional material financing from
its other long time investors.
Although the Company has provided information to various investment bankers and
venture capitalists in an effort to obtain financing, no specific plans are
under consideration. Any prediction of the likelihood or timing of obtaining
the required funding would be highly speculative. The Company's ability to
obtain such financing may depend on the results of the research contract with
SWRI which will not be evident for a year or more.
The Company expects to receive $120,000 from SecurFone America, Inc. under the
Stock Purchase Agreement which will provide the Company additional working
capital. The Company expects that its subcontract with SWRI to conduct research
on the EFS will provide operating funds until approximately August of 1998.
As of December 31, 1996, cash and cash equivalents were 0. During 1996, the
Company received $242,290 including $170,040 for the issuance of Class A common
stock under the Company's 1996 Stock Option Plan, a $43,250 loan from the
President, and a $25,000 loan from an unrelated third party. Of the $242,290
received, $64,676 repaid loans from the President, $5,000 paid legal fees in
connection with the S-1 Registration Statement, and the remaining $172,614 was
used in operations.
Cash and cash equivalents as of December 31, 1995, was $1,226. During 1995,
the Company received $158,874 including $100,874 as a loan from the President
and $58,000 as a loan from a third party. Of the $158,874, $16,000 repaid loans
from the President and the remaining $142,874 was used in operations.
Cash and cash equivalents as of December 31, 1994, was 0. During 1994,, the
Company received $24,787 from its officers on the sale of its Class A Common
Stock, $140,000 from the sale of its redeemable Class B Preferred Stock,
$135,050 from officer loans, and $78,495 from third party loans. Of the
$346,852 received during 1994, $275,441 was used in operations and $31,480 was
paid in fees relating to the preparation and filing of the S-1 registration
statement and $78,446 was repaid to the Company's officer.
MARKET INFORMATION
Currently there is no established public trading market for any of the Company's
securities.
13
<PAGE>
As of the date of this Prospectus the Company has issued 5,560,000 shares of its
Class A Common Stock to Matech 1 in exchange for all of Matech 1's assets and
the Company has assumed all of Matech 1's liabilities. As of the date of this
Prospectus, Matech 1 is distributing 5,000,000 shares of the Company's Class A
Common Stock to its shareholders of record, approximately 405 shareholders on a
pro rata basis, one share of the Company's Class A Common for each share of
Matech 1 Class A Common held of record as of the date of this Prospectus. Only
369,172 shares, however, are registered with the Securities and Exchange
Commission. The remaining 4,630,828 shares are being distributed as restricted
stock to affiliates of the Company and 560,000 shares are being retained by
Matech 1.
As of the date of this Prospectus, the Company has issued 60,000 shares of its
Class B Common Stock to one shareholder, Robert M. Bernstein.
BUSINESS
THE COMPANY
Material Technologies, Inc., a development stage company, was incorporated in
the State of Delaware on March 4, 1997. The Company's principal offices are
located at 11835 West Olympic Boulevard, East Tower, Suite 705, Los Angeles,
California 90064.
BACKGROUND
Prior to February 1994, Matech 1 was a majority-owned subsidiary of Tensiodyne
Corporation, a Delaware corporation ("Tensiodyne") and was named Tensiodyne
Scientific Corporation. Although in 1994 Tensiodyne Scientific Corporation
changed its name to Material Technology, Inc., to provide continuity especially
in its attempts to obtain government funding, the corporation continued to do
business as Tensiodyne Scientific Corporation. The Company also does business
under this name.
From approximately October 1983 until February 1994, Tensiodyne was engaged in
the development for commercial exploitation of a device generally known as the
Fatigue Fuse, a device designed to give early warning of metal fatigue, where
such information is of significance. See "Description of Technologies." On
August 26, 1993, Tensiodyne entered into a license agreement with the University
of Pennsylvania whereby the University licensed to Tensiodyne the right to
develop and exploit the Electrochemical Fatigue Sensor ("EFS"). On December 20,
1993, Tensiodyne agreed to assign to Matech 1 all of Tensiodyne's assets,
including but not limited to the four patents pertaining to the Fatigue Fuse and
the license agreement with the University of Pennsylvania, in exchange for the
assumption of all of Tensiodyne's liabilities. As a result of that agreement
and reorganization, after February, 1994, Matech 1 succeeded to all of the
operations and liabilities of Tensiodyne relating to the Fatigue Fuse and the
EFS. On January 22, 1994, Tensiodyne's board of directors resolved to transfer
its assets and liabilities to Matech 1 and distribute, to Tensiodyne's holders
of record at the close of business on February 1, 1994, one share of the Matech
1's Class A Common Stock for each share of Tensiodyne Class A
14
<PAGE>
Common Stock. That distribution was subsequently made pursuant to an S-1
registration statement filed with the Securities and Exchange Commission
effective on January 19, 1996.
From February 1994 to February 1997, Matech 1's primary activity was to obtain
financing to complete development of the Fatigue Fuse and to fund research and
development of the EFS. That effort resulted in a February 25, 1997, $2.5
million research contract between the United States Air Force and Southwest
Research Institute ("SWRI"). SWRI is subcontracting part of the research to the
Company under an August 23, 1996 Teaming Agreement between SWRI, Matech 1, and
the University of Pennsylvania. The subcontract with SWRI will provide the
Company with operating funds to approximately August 1998. See, "Development of
Technologies", INFRA.
THE STOCK PURCHASE AGREEMENT
As of February 17, 1997, Matech 1 entered into a Stock Purchase Agreement with
Montpelier Holdings, Inc., ("MHI") SecurFone America, Inc., ("SecurFone") and
Robert M. Bernstein, the Chief Executive Officer and controlling shareholder of
both Matech 1 and Matech 2. Under that agreement, the parties intend to effect
a reverse merger of SecurFone into Matech 1 immediately after this distribution.
Upon closing, SecurFone's shareholders will acquire 90% of Matech 1's
outstanding capital stock in exchange for 100% of SecurFone's outstanding
capital stock. Matech 1 also issued 2,319,454 shares of its Class A Common
Stock so that the total number of shares outstanding was increased from
2,680,546 shares to 5,000,000 shares as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Description Number of Shares Issued Number of Shares Issued
to all Shareholders to Robert M. Bernstein
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding as of March 9, 1997 2,680,546 916,676
- ----------------------------------------------------------------------------------------
Issued to Robert M. Bernstein in 1,499,454 1,499,454
lieu of $372,000 in accrued salary
- ----------------------------------------------------------------------------------------
Issued to Robert M. Bernstein for 520,000 520,000
$108,000 Note
- ----------------------------------------------------------------------------------------
Issued to the Baker Group for 280,000 0
$58,000 Note
- ----------------------------------------------------------------------------------------
Issued to Matech 1's Counsel for 20,000 0
Services in 1995 and 1996
- ----------------------------------------------------------------------------------------
TOTAL ISSUED 2,319,454
- ----------------------------------------------------------------------------------------
TOTAL OUTSTANDING 5,000,000 2,936,130
- ----------------------------------------------------------------------------------------
</TABLE>
After the issuance of these shares, Robert M. Bernstein owned 58.7% of Matech
1's outstanding Class A Common Stock and the Baker Group, a group of 15 long
time investors in the business, owned 883,768 shares representing 17.7% of
Matech 1's outstanding Class A Common Stock.
The Company was incorporated on March 4, 1997, for this transaction. On March
9, the Company's Board authorized the issuance of 5,560,000 shares of its Class
A Common Stock to Matech 1 in exchange for all of Matech 1's assets and
liabilities. It also issued (a) 60,000 shares
15
<PAGE>
of its Class B Common Stock to Robert M. Bernstein in exchange for cancellation
of his 60,000 shares of Class B Common Stock in Matech 1, (b) 350,000 shares of
its Class A Convertible Preferred Stock to the Baker Group in exchange for
cancellation of that group's 350,000 shares of preferred stock in Matech 1, (c)
15 shares of the Company's Class B Preferred Stock to Tensiodyne Corporation in
exchange for cancellation of its preferred stock in Matech 1, and (d) 1,700,000
warrants to purchase 1,700,000 shares of the Company's Class A Common Stock for
$.50 per share in exchange for cancellation of like warrants to purchase Matech
1's common stock. The rights, privileges, and designations of the Company's
Class B Common Stock, warrants, and its preferred stock are the same as the
corresponding Matech 1 securities except that the redemption date of the
Company's Class B Preferred Stock was changed from January 31, 2004 to January
1, 2002.
On March 9, 1997, Matech 1's Board authorized the exchange of its assets and
liabilities for 5,560,000 shares of the Company's Class A Common Stock. That
transaction was approved by the majority of Matech 1's shareholders and an
information statement was mailed to Matech 1's shareholders who did not vote on
the transaction. The transaction took effect 21 days after that mailing.
Matech 1 also agreed to distribute 5 million shares of the Company's Class A
Common Stock to Matech 1's shareholders in a ratio of one for one. This public
distribution is part of that distribution. Matech 1 retains 560,000 shares of
the Company's Class A Common Stock equal to 10.1% of the outstanding shares.
After the distribution, Matech 1 will reverse split its 5,000,000 outstanding
shares, 1 for 10, leaving approximately 500,000 shares outstanding. Fractional
shares will be rounded up. Thus, stockholders owning less than ten Matech 1
shares will still receive one share in the reverse split.
Matech 1 will then issue 4,500,000 new shares to SecurFone shareholders in
exchange for all of SecurFone's outstanding shares leaving Matech 1's present
shareholders with a 10% interest in SecurFone. SecurFone will pay the Company
$120,000 to cover expenses. Matech 1 will then change its name to SecurFone.
Accordingly, Matech 1's shareholders will retain approximately 90% of their
interest in the Company's metal fatigue technologies business and own 10% of
SecurFone's prepaid cellular and calling card business as well.
SecurFone is a start-up company providing prepaid cellular and telephone line
calling cards. SecurFone utilizes an advanced switching platform to provide
prepaid debit products to telephone customers. SecurFone's principal offices
are in San Diego, California and its primary network facilities are in Miami,
Fl. The purpose of the distribution is to spin-off Matech 2 from Matech 1
allowing Matech 1's shareholders to retain an interest in Matech 1's business,
while keeping that business separate from SecurFone's new business.
The transfer of assets and liabilities to the Company and the distribution of
its shares is designed to provide Matech 1's shareholders with an interest in
SecurFone's business while separating the two businesses which have distinct
missions and distinct financial, investment, and operating characteristics, as
well as different management teams. Maintaining the separation allows the
Company to adopt strategies and pursue objectives appropriate to its specific
business to be valued independently from SecurFone. The distribution enables
the Company's management to
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concentrate its attention and resources on developing its Fatigue Fuse and
Electrochemical Fatigue Sensor without regard to the corporate and financial
objectives and policies of SecurFone. The distribution allows investors to
evaluate better, in accordance with their objectives and views, the different
merits and outlooks of the Company and SecurFone.
AGREEMENTS AND ROYALTY OBLIGATIONS
There are certain outstanding agreements pursuant to which the Company's
predecessors agreed to pay royalties or remuneration based upon revenues derived
from the commercial exploitation of the Fatigue Fuse and the EFS. The Company
has assumed these obligations.
On December 24, 1985, Tensiodyne entered into agreements with Tensiodyne 1985-I
R&D Partnership to provide funding to research and develop the Fatigue Fuse.
These agreements were amended on October 9, 1989. Under these agreements, the
Company is obligated to pay the Partnership a 10% royalty on future gross sales
of the Fatigue Fuse limited to a return of the Partnership's original investment
of $912,500 plus interest at 6% per annum. In the event that the Company ceases
to be engaged in business, the Partnership will have all rights to the Fatigue
Fuse, and will pay a 15% royalty to the Company. SEE, Note 10 a to the
Financial Statements.
In addition, the Company's predecessors entered into an agreement with Advanced
Technology Center ("ATC") pursuant to which, for a grant of $45,000, the Company
must return an amount equal to the grant by means of a royalty based on sales
and sub license agreements. Ben Franklin Technology Center of South Eastern
Pennsylvania succeeded to this interest. The royalty obligation is limited to
the original advance and a return of 11% per annum. As of December 31, 1996,
this future royalty commitment was $119,336 compared to $107,510 as of December
31, 1995. Payment of this obligation will be made solely from Company sales and
is secured by a security interest in and to equipment used by the Company in
developing its technology. SEE, Note 10 b to the Financial Statements.
A similar agreement with the same entity was entered into May 4, 1987, under
which, in consideration for an additional grant of $63,775, ATC purchased a
royalty of 3% of future gross sales and 6% of sub licensing revenues. The
agreement was amended on August 2, 1987, and, as amended, the royalty cannot
exceed the lesser of (1) the amount of the advance plus a 26% annual rate of
return or, (2) total royalties earned for a term of 17 years. At December 31,
1995, and 1996, the total future royalty commitments, including the accumulated
26% annual rate of
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return, was limited to approximately $440,265 and $555,734, respectively.
Payment of future royalties will be made solely from Company's sales of the
Fatigue Fuse and are secured by the Company's patents, products, and accounts
receivable related to the Fatigue Fuse only, the technology developed with
the funding. SEE, Note 10 c to the Financial Statements.
On June 27, 1991, Tensiodyne issued to Variety Investments, Ltd., and Countryman
Investments, Ltd. (hereinafter the "Issuees"), both of Vancouver, British
Columbia, a royalty in an amount equal to 20% of gross sales of a joint venture
named Tensiodyne Marketing, Inc., consisting of Tensiodyne, Variety and
Countryman. Variety and Countryman were to advance $400,000 to Tensiodyne and
additionally purchase a 2.5% royalty for $100,000. The $100,000 was paid,
however, the Issuees advanced only $360,017 and the agreement was modified.
Pursuant to the modified agreement, the $360,017 was to be repaid solely from
funds derived from the sale of equity received by December 31, 1994, and the
royalty was to be modified upon the issuance of 100,000 shares of the common
stock of Tensiodyne. The obligation to Variety and Countryman bears interest at
the rate of 4.5% per annum. No portion of this sum was repaid by December 31,
1994 as required; consequently, the Issuees will receive, in the aggregate, a
royalty interest in the amount of 16.2%. SEE, Note 10 d to the Financial
Statements.
Under the February, 2, 1994 reorganization agreement, Tensiodyne was obligated
to provide $5,100,000 in financing to Matech 1. During 1994, Matech 1 received
$150,000 under this agreement in exchange for 7,560 shares of its Class A Common
Stock and 15 shares of redeemable Class B Preferred Stock. The Class B
Preferred stockholders had the right to redeem their stock at $10,000 per share
on January 31, 2004. In connection with the Stock Purchase Agreement,
Tensiodyne agreed to exchange its 15 Class B Preferred shares in Matech 1 for
$5,000 and 15 Class B preferred shares in the Company with the same redemption
rights except that Tensiodyne may redeem its shares two years earlier on
January 31, 2002.
Tensiodyne provided no further funding under its agreement to provide $5,100,000
in financing to Matech 1. As a result, Matech 1 sued Tensiodyne. On March 28,
1995, a settlement of that action was reached and Tensiodyne issued a total of
6,375,000 shares of its common stock to Matech 1. The proceeds from the sale of
these shares are applied to reduce Tensiodyne's obligation under the February 2,
1994 agreement. The balance owed is $4,950,000 plus accrued interest at 7% per
year. Matech 1 also received an additional 250,000 shares of Tensiodyne upon
signing the settlement agreement.
These Tensiodyne shares were transferred to the Company with all of Matech 1's
other assets but have little or no value. Management believes that Tensiodyne
has insufficient capital to pay any of the amount owed and the Company's
Tensiodyne shares are restricted and subject to Rule 144 under the Securities
and Exchange Act. It thus appears highly unlikely that the Company will receive
any significant funds from this source. SEE, Note 10 e to the Financial
Statements.
On August 4, 1995, Matech 1 entered into an agreement with an unrelated third
party, Stephen Forrest Beck, to compensate him for providing the idea of
pursuing a government contract to fund the development of the EFS. As amended
on February 7, 1997, the agreement requires the Company to issue him 2.5% of the
Company's outstanding Class A common stock
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as of the date the Company signs a subcontract with SWRI, appoint him to the
Company's Board of Directors, and issue him a promissory note equal to 15% of
the amount of SWRI's contract with the government. The funds due on the note
are to be paid only when such funds are available to the Company from financing
or revenues other than from a government contract. Under this Agreement the
Company must execute a promissory note to pay this third party $375,000 plus
interest at major bank prime rate when such funds are available to the Company.
Interest accrues nine months after the government contract is executed, and is
payable quarterly. The Company is obligated to pay 12.5% of the first
$1,000,000 earned or raised through financing, other than a government contract,
and 15% of any amount over $1,000,000 until the note and accrued interest are
paid. SEE, Note 10 f to the Financial Statements.
On August 26, 1993, Tensiodyne entered into a license agreement with the
University of Pennsylvania whereby the University licensed to Tensiodyne the
right to develop and exploit the Electrochemical Fatigue Sensor. Under this
agreement, Tensiodyne issued 12,500 shares of its common stock to the University
and granted the University a 5% royalty interest on revenues from sales of the
EFS. The license was assigned to the Company and terminates upon the expiration
of the underlying patents.
Also on August 26, 1993, Tensiodyne entered into a Sponsored Research Agreement
with the University of Pennsylvania under which Tensiodyne agreed to sponsor
development of the EFS including paying the University $200,000 in 18 monthly
installments. These payments were not made for lack of funds. This agreement
also assigned to the Company.
On May __ , 1997, the Company entered into a modification of its agreements with
the University of Pennsylvania. Under the modification agreements, the
University's royalty on the EFS was increased from 5% to 7%; the Company will
issue the University and certain affiliates of the University (the "University
Group") sufficient additional shares of Class A Common Stock so that the
University Group's percentage ownership equals 5% of the outstanding Class A
Common Stock; and the Company will pay the University 30% of any amounts the
Company raises from financing (excluding government contracts) in excess of
$150,000 until the $200,000 owed to the University is paid. SEE, Note 6 to the
Financial Statements.
The following summarizes the Company's royalty obligations on the Fatigue Fuse
and the EFS:
- ---------------------------------------------------------------------
Fatigue Fuse EFS
- ---------------------------------------------------------------------
Tensiodyne 1985-1 R&D Partnership 10.0%(1) 0
- ---------------------------------------------------------------------
Advanced Technology Center 0
Future Gross Sales 6.0%(2)
Sublicensing Fees 12%(3)
- ---------------------------------------------------------------------
Variety Investments, Ltd. 20.0% 0
- ---------------------------------------------------------------------
University of Pennsylvania
Net Sales of EFS 0 7.0%
Net Sales of Services 0 2.5%
- ---------------------------------------------------------------------
19
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- ---------------------------------------------------------------------
Sherman Baker 1.0% 0.5%
- ---------------------------------------------------------------------
Totals 49.0% 10.0%
- ---------------------------------------------------------------------
(1) The R&D Partnership's 10% royalty is limited to capital contributed plus
accrued interest.
(2) Advanced Technology Center's 6% royalty is limited to $45,000 plus 11% per
year return which equaled $119,336 as of December 31, 1996.
(3) Advanced Technology Center's 12% royalty on sales from sublicensing the
Fatigue Fuse is limited to $63,775 plus a 26% annual return which equaled
$554,734 as of December 31, 1996.
There are no prior affiliations, including stock ownership, among or between the
Company and the other persons described above to whom the Company has royalty
obligations.
BUSINESS
The Company (also "Matech 2"), a development stage company, owns that certain
device known as the Fatigue Fuse, which requires additional testing to more
precisely identify commercial uses prior to manufacturing and marketing. Matech
2 is also the exclusive licensee of the Electrochemical Fatigue Sensor ("EFS"),
which requires substantial additional development. These technologies are
intended to indicate the level of fatigue of certain metal structures including
aircraft, bridges, cranes, ships, and other structures. No commercial
application of Matech 2's products has been arranged to date. The Company
intends to develop a market for the Fatigue Fuse once testing is completed and
for the EFS once it has been fully developed.
The Fatigue Fuse is in its final testing and development stages which will last
from 6 to 12 months and cost approximately $2,000,000, including technical
testing and final development. If testing, development, and marketing are
successful, management estimates the Company should begin receiving revenue from
Fatigue Fuse sales a year of receiving the $2,000,000. At this time, management
cannot estimate the amount of revenue that may be realized. Management
estimates the EFS will require two years and approximately $2,875,000 for
development and marketing. If successful, Matech 2's two products will
complement each other and be used together in systems to detect and measure
metal fatigue. On the other hand, neither may be successful for the many
reasons listed above. SEE, Very High Risks, p.3.
At first, management intends to market the Fatigue Fuse separately. If the EFS
is successfully developed, the two products will complement on another. Several
manufacturers are capable of producing the Fatigue Fuse at a reasonable cost.
It is uncertain, however, that these products (a) will be successfully
developed, (b) can be commercially produced, (c) will perform to expectations,
or (d) that commercial markets will be successfully developed. Moreover, there
is and will be significant competition for the Fatigue Fuse if and when it is
marketed.
DEVELOPMENT OF TECHNOLOGIES
The development and application sequence for the Fatigue Fuse and EFS consists
of Basic Research, Advanced Development, Prototype Evaluation, Application
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Demonstration, and Commercial Sales and Service. The Fatigue Fuse came first
and is furthest along in the sequence. The Basic Research was by the inventor,
Professor Maurice Brull of the University of Pennsylvania. Tensiodyne conducted
the Advanced Development, including variations of the adhesive bonding process,
and fabrication of a laboratory grade recorder (i.e., a fatigue recorder capable
of high precision and reliability, but not designed for use outside a
laboratory) for the separation events which constitute proper functioning of the
Fatigue Fuse. The next step, Prototype Applications, is on hold pending the
receipt of funding, including empirical tailoring of Fuse parameters (i.e.,
parameters to match the measured structure's material and the Fuse's exact
geometric design to the structure's material and use) to fit actual spectrum
loading (i.e., random stress loads over a specific range of loads) expected in
specific applications. Associated tests include coupon specimens (i.e., small
blocks of metal which can be conveniently loaded in a test laboratory) and full
scale structural tests (i.e., the object being tested is a large assembly
constituting a section of the structure, e.g., an airplane wing) with attached
Fuses. A prototype of a flight qualifiable operational (i.e., it can be
modified to function when attached to a flying airplane) separation event
recorder (i.e., a device which detects, stores, and displays the information
that the metal strips in the Fuse have separated at specific times) was
designed, fabricated, and successfully demonstrated. The next tasks will be to
prepare a mathematical analysis for more efficient selection of Fuse parameters
and to conduct a comprehensive test program to prove the ability of the Fatigue
Fuse to accurately indicate fatigue damage when subjected to realistically large
variations in spectrum loading. The final tasks prior to marketing will be an
even larger group of demonstration tests, e.g. on bridges, helicopters, tankers,
or windmills.
To date, certain organizations have included Matech's Fatigue Fuse in test
programs. Already completed are tests for welded steel civil bridge members.
Tests are ongoing on a full scale trainer aircraft and a large mining machine.
Matech 1 has also received commercial inquiries on the availability of Fatigue
Fuses for windmills, marine cranes, and refinery pressure vessels.
Basic Research for the EFS was conducted at the University of Pennsylvania. It
defined the unique physical effect on which the EFS is based, and the materials,
configuration, instrumentation and procedures to be employed. The next phase
will be Advanced Development with more complex load cycles, additional alloys,
fabrication of a movable Electrochemical Fatigue Sensor device, and production
of another body of reproducible test data. Prototype Applications will then
include fabrication of a truly portable near-operational device. And again the
final steps are multiple demonstration tests followed by routine sales.
The Company has a teaming agreement with Southwest Research Institute ("SWRI")
and the University of Pennsylvania (collectively the "Team"). On February 25,
1997, the United States Air Force awarded the Team a $2.5 million Phase I
contract to "determine the feasibility of [the Company's Electrochemical Fatigue
Sensor] to improve the United States Air Force capability to perform durability
assessments of military aircraft, including both air frames and engines through
the application of EFS to specific military aircraft alloys." The Company is a
subcontractor to SWRI and its share of this award is approximately $550,000 for
which the Company will perform certain technical tasks in accordance with its
expertise. This research will substantially assist the Company in determining
the feasibility of the EFS.
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DESCRIPTION OF TECHNOLOGIES
The Company is developing these technologies because the existing methods of
detecting metal fatigue have certain disadvantages which may be avoided by the
Fatigue Fuse and/or EFS. The Fatigue Fuse, like other competing technologies,
must remain attached to the structure to respond to the structure's complete
loading history. Its advantages over the other technologies are (a) it costs
less and (b) it can be simply interpreted without a complex computer analysis
system. If the EFS is developed successfully, it will have a unique advantage
over all competing metal fatigue detection systems in that it will be able to
determine the degree of fatigue damage after a few days of temporary
installation. It will not require continuous input and will be able to assess
structures which have never before been tested for fatigue damage.
Moreover, there is a possibility that these two systems will work well together.
If the EFS can measure the status of the metal fatigue of a structure, then the
Fatigue Fuse may be calibrated to that level of fatigue and installed on the
structure to accurately measure metal fatigue as it occurs in the structure from
that date forward.
THE FATIGUE FUSE
The Fatigue Fuse, developed by Tensiodyne and now owned by the Company, was
designed to be affixed to a structure and to give a number of warnings as
preselected portions of the fatigue life have been used up (i.e., how far to
failure the object has progressed). It will give warnings against a condition
of widespread generalized cracking due to fatigue.
The Fatigue Fuse is a thin piece of metal similar to the material being
monitored. It consists of a series of parallel metal strips connected to a
common base, much as fingers are attached to a hand. Each "finger" has a
different geometric pattern called "notches" defining its boundaries. By
applying the laws of physics in determining the geometric contour of each of the
notches, the fatigue life of each finger should be finite and predictable. When
the fatigue life for a given finger (or fuse) is reached, the fuse breaks. By
implementing different geometry for each finger in the array, different
increments of fatigue life become observable. Typically, notches will be
designed to facilitate observation of increments of fatigue life of 10% to 20%.
By mechanically attaching or bonding these devices to different areas of the
structural member of concern, the Fuses undergo the same fatigue history as the
structural member. Therefore, breakage of a fuse will indicate that an
increment of fatigue life has been reached for the structural member.
Fatigue results from a metal object being subjected to repeated cyclic strain.
In a commercial context this strain and concomitant stress result from a large
number of cycles of loading and unloading. Sudden fracture can result. Fatigue
damage and the resulting compromise of the stability and integrity of the member
experiencing fatigue presents the potential for structural failure and extreme
danger. Objects such as bridges and wings of airplanes are subject to fatigue.
It is obvious that sudden fracture of such objects could have disastrous
results. It is presently impossible, under any generally acceptable theory of
fatigue phenomena, to predict by analysis alone
22
<PAGE>
when the limit is reached and when a fracture may take place. Further, in
normal usage, the damage occurs cumulatively, at microscopic levels and can only
be detected, in the early stages at a time when dire results can be avoided by
examination of the microscopic structure.
This difficulty has caused designers of objects and structures subject to
fatigue to be extremely conservative. They have attempted to design structures
to maintain the stresses presented in critical areas of a structure at a level
well below known endurance limits of the material. In many instances this
results in extreme expense. In spite of this "over-designing," catastrophic
fatigue failures still occur. Although tests of the Fatigue Fuse have been
performed in independent laboratories and the Fuse has been shown to perform as
designed and as expected, Management has determined that substantial additional
testing is necessary to ensure that it will be possible to calibrate various
types of loading spectra. Management estimates that it will require an outlay of
approximately $355,000 to accomplish this additional testing. If this money
were available, Management estimates that such additional testing could be
accomplished in 6 to 12 months.
Management believes that the Fatigue Fuse will be of value in monitoring
aircraft, ships, bridges, conveyor systems, mining equipment, cranes, etc. No
special training will be needed to qualify individuals to report any broken
segments of the Fatigue Fuse to the appropriate engineering authority for
necessary action. The development of such value is contingent upon the Company's
successful production and marketing of the Fatigue Fuse, and no assurance can be
given that the Company will be able to overcome the obstacles relating to the
introduction to the market of a new product. In order to determine its ability
to produce and market the Fatigue Fuse, it will be necessary for the Company to
have substantial capitalization and no assurance can be given that the needed
capital will be available. See "Business" "and "Plan of Operations."
ELECTROCHEMICAL FATIGUE SENSOR
In August 1993, Tensiodyne entered into a license and development agreement with
the University of Pennsylvania regarding a new invention, the EFS, designed to
measure electrochemically the status of fatigue of a structure without knowing
the structure's past loading history. Under this Agreement, 12,500 shares of
Tensiodyne's common stock were issued, a 5% royalty on sales of the EFS was
granted, and Tensiodyne undertook to pay $11,112 per month for 18 months
totaling $200,000. No payments have been made on this obligation. Under the
terms of the governing agreement either party may terminate the agreement
effective upon written notice to the other party. The Company and the
University of Pennsylvania agreed to modify their previous agreements (a) to
increase the University's royalty from 5% to 7% of the sale of related products,
(b) to issue additional shares of the Company's Class A Common Stock so that the
University and certain affiliates will own to 5% of the outstanding Class A
Common Stock of the Company as of the effective date of the modified agreements,
and (c) to pay the University 30% of any financing the Company receives in
excess of $150,000 (excluding amounts received from government grants or
contracts) up to the $200,000 owed to the University.
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<PAGE>
The EFS is a high precision instrument consisting of (a) a cell which can be
attached to a structure to measure electrical current and (b) software to
interpret the current measurements. The cell consists of an enclosure which
contains a fluid which conducts electricity and two metal electrodes connected
to external wires leading to a battery and the current measuring instrument.
The sensor is temporarily attached to a structural member, then the member is
subjected to multiple loads while the instrument records the current. A
computer analyzes the current record to determine the degree of fatigue damage
present at the location of the sensor in the structure. Then the sensor is
removed.
The EFS is in the initial stage of research. No assurance can be given that it
can be developed successfully or that, if developed, it can be produced at a
price which will permit its marketing, or that, even if these two conditions are
met, that the EFS will find a market.
PATENTS
The Company is the assignee of four patents originally issued to Tensiodyne.
The first was issued on May 27, 1986, and expires on May 27, 2003. It is
entitled "Device for Monitoring Fatigue Life" and bears United States Patent
Office Number 4,590,804. The second patent entitled "Method of Making a Device
for Monitoring Fatigue Life" was issued on February 3, 1987 and expires
February 3, 2004. It bears United States Patent Office Number 4,639,997. The
third patent, entitled "Metal Fatigue Detector," was issued on August 24, 1993
and expires on August 24, 2010. It bears United States Patent Number 5,237,875.
The fourth patent, entitled "Device for Monitoring the Fatigue Life of a
Structural Member and a Method of Making Same," was issued on June 14, 1994 and
expires on June 14, 2011. It bears United States Patent Number 5,319,982. This
latter patent was pending when Tensiodyne assigned the rights to Matech 1 in
February 1994 and was assigned to Matech 1 upon issuance later in 1994.
DISTRIBUTION METHODS OF PRODUCT
If funds become available, the Company intends to exhibit the Fatigue Fuse and
the EFS at various aerospace trade shows and market its products directly to end
users, including aircraft manufacturing companies, aircraft maintenance
companies, manufacturers and operators of cranes, certain state regulatory
agencies which oversee bridge maintenance, companies engaged in manufacturing
and maintaining ships and tankers, and the military. Although management
intends to undertake marketing, dependent on the availability of funds, within
and without the United States, no assurance can be given that any such marketing
activities will be implemented. See "Very High Risk Factors" p. 3.
COMPETITION
The Company's Products
1. The EFS is intended to provide a fatigue measurement which cannot now be
obtained from any other instrument, namely, an assessment of the extent of
fatigue damage before cracks have grown to a size detectable by
nondestructive inspection, in a structure
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<PAGE>
which has not previously been instrumented or monitored to record the loads or
strains experienced in service.
2. The Fatigue Fuse provides a simple low-tech way to assess and predict
fatigue damage, which otherwise requires complex instrumentation, precision data
recording, and sophisticated analytical computer programs.
Competitor's Products
Nevertheless, other technologies exist which indicate fatigue damage. Single
cracks larger than a certain minimum size can be found by nondestructive
inspection methods such as dye penetrant, radiography, eddy current, acoustic
emission, and ultrasonics. Tracking of load and strain history, for
subsequent estimation of fatigue damage by computer processing, is possible
with recording instruments such as strain gauges and counting accelerometers.
These methods have been used for up to 40 years and also offer the advantage
that they have been accepted in the marketplace, whereas the Company's
products will remain largely unproved for some currently indeterminable
period. Companies marketing these alternate technologies include Magnaflux
Corporation, Kraut-kremer-Branson, Dunegan-Endevco, and MicroMeasurements.
These companies have more substantial assets, greater experience, more human
and other resources than the Company, including but not limited to
established distribution channels and an established customer base. The
familiarity and loyalty to these technologies may be difficult to dislodge.
Because the Company is still in its development stages, it is unable to
predict whether its technologies may be successfully developed and
commercially attractive to various potential markets.
SOURCES OF BASIC MATERIAL
All of the materials used in the Company's technologies are easily available
from numerous sources. The Company will not be dependent on any supplier as a
sole provider of materials.
DEPENDENCE UPON ONE OR MORE MAJOR CUSTOMERS
The Company believes that its products may be utilized within the aerospace,
crane, bridge, large ship and tanker industries and by the military. If it
successfully develops its products, as to which no assurance can be given, the
Company will attempt to market its products to a variety of companies and
governmental agencies. See "Business - Distribution Methods of Products."
Nevertheless, the Company believes that it is likely, for several years
following introduction of its products, that it may be dependent on a small
number of large customers, the loss of any one of which would have a material
adverse effect upon the Company's revenues and the perceived reliability of its
products within the marketplace.
TOTAL NUMBER OF EMPLOYEES
The Company has three employees, Robert M. Bernstein, its President and Chief
Executive Officer, who spends substantially full time on its affairs, John
Goodman, its Chief Engineer, who works part time, and a secretary. The Company
will employ other persons as
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<PAGE>
needed on a part time or consulting basis, as appropriate, based on the
availability of funds and as a result of the Air Force contract.
PLAN OF OPERATIONS
The Company estimates that it requires $5,000,000 in order to become fully
operational. Of this sum, it estimates that funds would be allocated
approximately as follows:
- ----------------------------------------------------------------------------
Preparation of production models $1,250,000
- ----------------------------------------------------------------------------
Referral fees for prior funding $625,000
- ----------------------------------------------------------------------------
Fatigue Fuse lab testing for specific "loading conditions $500,000
- ----------------------------------------------------------------------------
Fatigue Fuse Beta test completion $250,000
- ----------------------------------------------------------------------------
EFS Beta testing on Turbine blades $500,000
- ----------------------------------------------------------------------------
Marketing efforts for two years including personnel $660,000
- ----------------------------------------------------------------------------
University of Pennsylvania license payment $200,000
- ----------------------------------------------------------------------------
Office administration and overhead for two years $1,015,000
- ----------------------------------------------------------------------------
TOTAL $5,000,000
- ----------------------------------------------------------------------------
The Company is seeking to raise funds from numerous sources, including various
state and federal governmental agencies and/or private or public offerings of
securities. At this time, however, the Company has no firm agreements other
than the subcontract with Southwest Research Institute related to the Air Force
contract signed on February 25, 1997. That contract will provide $2,500,000 for
basic feasibility research on the EFS related to air frames and engines through
the application of EFS to specific military aircraft alloys. The Company will
receive approximately $550,000 to fund its operations related specifically to
that research which will also be conducted at the University of Pennsylvania and
SWRI.
DESCRIPTION OF PROPERTY
The Company leases offices at 11835 West Olympic Boulevard, Suite 705, Los
Angeles, California 90064. The lease expires on May 30, 1997. As of April 10,
1997, the Company entered into a new lease with a term of twenty four months
beginning June 1, 1997 at 11661 San Vicente Boulevard, Suite 706, Los Angeles,
California, 90025. The space consists of 830 square feet of useable space and
will be adequate for the Company's current and foreseeable needs. The rent is
$40,464.00 payable at $1,868.00 per month.
The Company owns a remote monitoring system and certain manufacturing equipment
which is presently leased to the University of Pennsylvania (Laboratory for
Research on the Structure of Matter) for instructional and testing purposes. In
consideration of the leasing of this equipment, the University of Pennsylvania
has agreed to perform 1,200 hours of testing on materials to be used in
conjunction with the Fatigue Fuse. The first five year term of this lease will
expire on March 31, 1998. Lessee has the right to borrow the equipment for a
further five year period.
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Upon the expiration of the second five year period, the University has the right
to purchase the equipment at its then fair market value.
LEGAL PROCEEDINGS
The Company is not presently involved in any legal proceedings which in
management's opinion might have a material effect on the Company.
MANAGEMENT
The name, age and office of principal occupation of the executive officers and
directors of the Company and certain information relating to their business
experiences are set forth below:
NAME AGE POSITION
- ---- --- --------
Robert M. Bernstein 62 President/Chief Financial Officer
Chairman of the Board
Joel R. Freedman 35 Secretary/Director
Dr. John W. Goodman 62 Chief Engineer/Director
The directors' and officers' term of office is until the 1998 annual meeting to
be held prior to April 1, 1998.
Robert M. Bernstein, 62 years of age, is the Company's President, Chief
Financial Officer, and Chairman of the Board of Directors and Principal
Shareholder. Mr. Bernstein received a Bachelor of Science degree from the
Wharton School of the University of Pennsylvania in 1956. From August 1959 to
August 1972 he was a Certified Public Accountant licensed in Pennsylvania. In
August 1972, his accounting license expired because he was no longer a
practicing accountant in Pennsylvania. From 1961 to 1981 he acted as a
consultant specializing in mergers, acquisitions, and financing. From 1981 to
1986, Mr. Bernstein was Chairman and Chief Executive Officer of Blue Jay
Enterprises, Inc., of Philadelphia, Pennsylvania, an oil and gas exploration
company. In December 1985, he formed a research and development partnership
funding approximately $750,000 for research on the Fatigue Fuse. From October
of 1988, until February 2, 1994, Mr. Bernstein was president and chief executive
officer of Tensiodyne. He retained these positions with Matech 1 after the
reorganization in February 1994.
Joel R. Freedman, 35 years of age, is Secretary and a Director of the Company.
From October 1989 until February 1994, Mr. Freedman was Secretary and a Director
of Tensiodyne, retaining these positions with Matech 1 after the reorganization
in February 1994. Mr. Freedman attends board meetings and provides advice to
the Company as needed. Since 1983, he has been president of Genesis Securities,
Inc., a full-service brokerage firm in Philadelphia, Pennsylvania. His duties
there are a full-time commitment. Accordingly, he does not take part in the
Company's day to day activities. He is not a director of any other company.
27
<PAGE>
Dr. John W. Goodman, 62 year of age, is a Director and Chief Engineer for the
Company. As of February 25, 1997, the Company rehired Dr. Goodman part time
after a two year hiatus while Matech 1 sought funding. Dr. Goodman is also
Senior Staff Engineer, Materials Engineering Department of TRW Space and
Electronics and Chairman of the Aerospace Division of the American Society of
Mechanical Engineers. He holds a Doctorate of Philosophy in Materials Science
which was awarded with distinction by the University of California at Los
Angeles in 1970, received in 1957 a Masters of Science degree in Applied
Mechanics from Penn State University and in 1955 he received a Bachelor of
Science degree in Mechanical Engineering from Rutgers University. From 1972 to
1987 Dr. Goodman was with the United States Air Force as Lead Structural
Engineer for the B-1 aircraft; Chief of the Fracture and Durability Branch and
Materials Group Leader, Structures Department, Aeronautical Systems Center,
Wright-Patterson Air Force Base. From 1987 to December, 1993, he was on the
Senior Staff, Materials Engineering Department of TRW Space and Electronics. He
has been the chief engineer developing the Company's products since May 1993. He
worked full time for Tensiodyne and Matech 1 from August 1993 to December 1994
when he returned to TRW. From December 1994 to February 25, 1997, he
consulted with Matech 1 periodically.
ADVISORY BOARD
Since 1987, Tensiodyne and then Matech 1, as the successor to Tensiodyne's
former business, has had an Advisory Board presently consisting of Alexander M.
Adelson, William F. Ballhaus, Robert P. Coogan, Campbell Laird, Ronald Landgraf,
Robert Maddin, and Samuel I. Schwartz. These individuals will consult with the
Company on an as needed basis usually a few hours per month. The members of the
Advisory Board serve at will. Each member of the board will receive 18,000
shares of Class A Common Stock as consideration for accepting a two year term if
and when the Company is funded. The Advisory Board advises Management on
technical, financial and business matters and may in the future be additionally
compensated for these services. A brief biographical description of the members
of the advisory board is as follows:
Alexander M. Adelson, age 51: Has thirty years as an applied physicist and
businessman specializing in technical marketing matters. Since 1974,
Mr. Adelson has led the Technology Resource Group of RTS Research Lab, Inc.
("RTS"). This group provides management, product development, and related
marketing services to various clients with specialization in technical
marketing matters. For example, RTS helped conceive and develop the first
portable bar code scanner and acted as program manager for 12 years while
developing two generations of portable bar code laser scanners for Symbol
Technologies, Inc. Mr. Adelson holds 64 patents in the fields of optical
electronics, bar code technology, automatic inspection and medical software.
Mr. Adelson serves on the board of directors of Base 10, Inc., Nocopi
Technologies, Inc., and PatComm Corporation.
William F. Ballhaus, age 78: Now retired, was an Aerodynamacist with Douglas
Aircraft Co., a Vice President and General Manager, Nortronics Division of
Northrop Aircraft, Inc., Executive Vice President of Northrop Corp., and was
President of Beckman Instruments, Inc. from 1965-1983. He is a director of
Republic Automotive Parts, Microbics Corp., and Nuco Industries.
28
<PAGE>
Vice Admiral Robert P. Coogan, age 72: Retired from a distinguished naval
career spanning 40 years during which he held numerous posts including;
Commander U.S. Third Fleet, Commander Naval Air Force -- U.S. Pacific Fleet,
Commandant of Midshipmen -- U.S. Naval Academy, and Chief of Staff --
Commander Naval Air Force -- U.S. Atlantic Fleet. From 1980 to 1991 he was
with Aerojet General Company and served as Executive Vice President of
Aerojet Electrosystems Co. from 1982 -- 1991.
Campbell Laird, age 60: Received his Ph.D. in 1963 from the University of
Cambridge. His Ph.D. thesis title was "Studies of High Strain Fatigue." He is
presently Professor and graduate group Chairman in the Department of Materials,
Science & Engineering at the University of Pennsylvania. His research has
focused on the strength, structure and fatigue of materials, in which areas he
has published in excess of 250 papers. He is the co-inventor of the EFS.
Ronald W. Landgraf, age 57: Presently a Professor in the Department of
Engineering Science & Mechanics at Virginia Tech, Blacksburg, Virginia. He
spent 20 years in the industrial sector, first as a Materials Engineer in the
Micro Switch Division of Honeywell, Inc. in Freeport, Illinois, and later as a
Research Scientist, Metallurgy Dept., Engineering & Research Staff of Ford Motor
Company in Dearborn, Michigan. In 1988, he became a Visiting Professor at
Virginia Tech and in 1990, a Professor.
Robert Maddin, age 77: Presently retired, received his BS from Purdue
University in 1942 and Doctor of Engineering from Yale University in 1948. From
1957 to 1972, he was a director and later chairman of the Department of
Metallurgy, University of Pennsylvania; from 1973 to 1983 was a Professor of
Metallurgy at the University of Pennsylvania, from 1984 to 1987 was a visiting
professor of anthropology at Harvard University, and from February 1987 to the
present is an honorary curator of archeological sciences, Peabody Museum of
Archeology and Ethnology, Harvard University.
Samuel I. Schwartz, age 48: Presently President of Sam Schwartz Co., consulting
engineers, primarily in the bridge industry. Mr. Schwartz received his BS in
Physics from Brooklyn College in 1969, and his Masters in Civil Engineering from
the University of Pennsylvania in 1970. From February, 1986 to March, 1990, was
the Chief Engineer/First Deputy Commissioner, New York City Department of
Transportation and from April, 1990 to the present has acted as a director of
Infrastructure Institute at the Cooper Union College, New York City, New York.
From April 1990 to 1994 he was a Senior Vice President of Hayden Wegman
Consulting Engineers, and a columnist for the NEW YORK DAILY NEWS.
EXECUTIVE COMPENSATION
29
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------
AWARDS PAYOUTS
Other Restricted All Other
Name and Annual Stock Options/ LTIP Compen-
Principal Salary Bonus Compen- Awards SARs Payouts sation
Position Year ($) ($) sation ($) ($) (#) ($) ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert M. 1993 $130,000(1) 0 0 0 0 0 $165,300(2)
Bernstein 1994 $72,000(3) 0 0 0 0 0 $10(4)
CEO 1995 0 0 0 0 0 0 0
1996 $200,000(3) 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------
John W. 1993 $55,796 0 0 0 0
Goodman 1994 71,096 0 0 0 0 0 0
Director and 1995 2,745 0 0 0 0 0 0
Engineer 1996 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Of this $130,000, $30,000 was paid and $100,000 was accrued.
(2) In 1993, Matech 1 issued 300,000 shares to Mr. Bernstein at par value
of $.001 per share. In addition $165,000 results from Tensiodyne agreeing to
reduce the purchase price of stock that Mr. Bernstein purchased in 1992 from
$30 per share to $2.50 per share by reducing the amount of a promissory note
executed by Mr. Bernstein by $165,000.
(3) This amount was accrued. On April 25, the Matech 1 agreed to issue
Mr. Bernstein 1,499,454 shares of its Class A Common Stock in exchange for
cancellation of the $372,000 in salary accrued by Mr. Bernstein.
(4) In February 1994, Matech 1 issued 10,000 shares of Class A Common Stock,
par value $.001, to Mr. Bernstein
To date, the Company's Board has not authorized any salaries for 1997. As a
result of the subcontract with SWRI, the Company expects Mr. Bernstein to begin
receiving a salary of at least $120,000 per year. Neither Mr. Bernstein nor Mr.
Goodman have received perquisites, other personal benefits, securities, or
property exceeding 10% of their salary in any calendar year from 1993 to the
present.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 9, 1997, the Company authorized the issuance of 60,000 shares of
Class B Common Stock to Mr. Bernstein in exchange for cancellation of his 60,000
shares of Class B Common Stock in Matech 1. Class B Common has voting rights of
200 votes per share but no dividend or liquidation rights. Thus, this
transaction assured Mr. Bernstein voting control of the Company by giving him
12,000,000 votes.
On February 28, 1994, Tensiodyne authorized the issuance of 10,000 shares of
Class A Common Stock to Mr. Bernstein for past services.
30
<PAGE>
In March 1994, Mr. Bernstein advanced Matech 1 $48,750 of which $12,000 was
canceled in exchange for the issuance of 1,200,000 shares of Matech 1's Class A
Common Stock. Mr. Bernstein sold 420,000 share for $4,200 to Joel Freedman and
certain preferred shareholders.
On June 21, 1994, Matech 1 amended its By-Laws and increased the number of
Directors from 3 to 5 and established an advisory board of five individuals. It
also authorized the issuance of 36,000 shares of its Class A Common Stock to
each of its new board members and the issuance of 18,000 shares of its Class A
Common Stock to each advisory board member.
During 1994, the President, Mr. Bernstein, and a director, Joel Freedman,
purchased 278,550 shares of the Matech 1's Class A Common Stock for $2,786.
In connection with the reorganization of Tensiodyne in February 1994, certain
preferred shareholders of Tensiodyne, known as the Baker Group exchanged their
preferred shares in Tensiodyne for 350,000 Matech 1 Class A Preferred Stock. In
connection with the Stock Purchase Agreement, the Baker Group has exchanged
their 350,000 Matech 1 Class A Preferred Shares for 350,000 of the Company's
Class A Preferred Shares.
August 10, 1994, Matech 1's Board of Directors granted 994,500 Class A Warrants
to Mr. Robert Bernstein, 170,000 Class A Warrants to Mr. Joel Freedman, and
535,500 Warrants to Mr. Baker and his associates. Each Class A Warrant entitled
the registered holder to purchase one share of Class A Common Stock of Matech 1
for $.50 per share until August 9, 1996. On December 15, 1995, Matech 1's Board
extended the expiration date to August 22, 1999. In connection with the Stock
Purchase Agreement these warrants are being exchanged for the same number of the
Company's warrants and with same terms.
From time to time, Robert M. Bernstein has advanced funds to Tensiodyne and
Matech 1 and at December 31, 1996, Matech 1 owed him $179,544. The amount of
accrued interest charged to operations on the President's loans were $5,268 in
1995 and $9,430 in 1996. Robert M. Bernstein is under no obligation to make
advances to the Company but may to do so at his sole discretion. In addition,
on December 31, 1996, Matech 1 was obligated to Robert M. Bernstein in the
amount of $372,000 for accrued salary. On April 25, 1997, Matech 1 agreed to
issue Mr. Bernstein 1,499,454 shares of its Class A Common Stock in exchange for
cancellation of the $372,000 in salary accrued by Mr. Bernstein. As a result of
the transfer of Matech 1's assets and liabilities to the Company, these are the
Company's liabilities.
On July 24, 1995, Matech 1 authorized issuance of convertible notes to Robert M.
Bernstein and the Baker Group. Mr. Bernstein's note was for $108,000 and in
exchange for $108,000 in cash advances from Mr. Bernstein. The note's term was
three years. Mr. Bernstein had the right at any time to convert the note or any
ratable portion into 520,000 shares of the Company's Class A Common Stock. The
note to the Baker Group was for $58,000 and in exchange for $58,000 cash paid to
the Company. The term was also three years. The Baker Group had the right at
any time to convert the note or any ratable portion thereof into 280,000 shares
of the Company's Class A Common Stock. In connection with the Stock Purchase
Agreement these notes were converted into 580,000 shares of Matech 1's Class A
Common Stock to Mr. Bernstein and 280,000 shares
31
<PAGE>
of Matech 1's Class A Common Stock to the Baker Group. Accordingly, these notes
are no longer in existence. On the other hand, the conversion of these notes
entitled Mr. Bernstein and the Baker Group to receive a like number of the
Company's Class A Common shares as part of Matech 1's distribution of 5,000,000
shares of the Company's Class A Common.
PRINCIPAL STOCKHOLDERS
As of the date of this Prospectus, the following table sets forth information
the stock ownership of each officer and directors and each person known to the
Company to be the beneficial owner of more than five percent of each class of
the Company's voting securities.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Name and Address of Amount and Nature of Percent of Class
Class of Stock Beneficial Owner Beneficial Ownership
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Robert M. Bernstein, CEO 2,936,130 Shares 52.8%(1)
Common Stock East Tower, Suite 705
11835 Olympic Blvd.
Los Angeles, CA 90064
- ---------------------------------------------------------------------------------------------------
Joel R. Freedman, Director 113,481 Shares 2.0%
1 Bala Plaza
Bala Cynwyd, PA 19004
- ---------------------------------------------------------------------------------------------------
John Goodman, Director 50,000 Shares 0.9%
11835 Olympic Blvd.
East Tower, Suite 705
Los Angeles, CA 90064
- ---------------------------------------------------------------------------------------------------
Directors and executive offi- 3,099,611 Shares 55.7%
cers as a group (3 persons)
- ---------------------------------------------------------------------------------------------------
Material Technology, Inc. 560,000 Shares 10.1%(2)
11835 Olympic Blvd.
East Tower, Suite 705
Los Angeles, CA 90064
- ---------------------------------------------------------------------------------------------------
Sherman Baker 505,700 Shares 9.1%(3)
555 Turnpike St.
Canton, MA 02021
- ---------------------------------------------------------------------------------------------------
Class B Robert M. Bernstein 60,000 Shares 100.00%(1)
Common Stock East Tower, Suite 705
11835 Olympic Blvd.
Los Angeles, CA 90064
- ---------------------------------------------------------------------------------------------------
Class A Sherman Baker 131,600 Shares, Beneficial 37.60%(3)
Preferred 555 Turnpike St. Owner (1)
Canton, MA 02021
- ---------------------------------------------------------------------------------------------------
Nathan Greenberg 35,000 Shares, Beneficial 10.00%
306 Main Street Owner (1)
Worchester, MA 01608
- ---------------------------------------------------------------------------------------------------
32
<PAGE>
- ---------------------------------------------------------------------------------------------------
Melvin Nessel 35,000 Shares, Beneficial 10.00%
180 Beacon Street Owner (1)
Boston, MA 02111
- ---------------------------------------------------------------------------------------------------
Eugene Ribakoff 35,000 Shares, Beneficial 10.00%
46 W. Boylston Street Owner (1)
Worchester, MA 01608
- ---------------------------------------------------------------------------------------------------
Norman Fain 21,000 Shares, Beneficial 6.00%
505 Central Avenue Owner (1)
Pawtucket, RI 02862
- ---------------------------------------------------------------------------------------------------
Morris Loeb 21,000 Shares, Beneficial 6.00%
2368 Century Hill Owner (1)
Los Angeles, CA 90067
- ---------------------------------------------------------------------------------------------------
A. Sandler 21,000 Shares, Beneficial 6.00%
139 Atlantic Avenue Owner (1)
Swamscott, MA 01907
- ---------------------------------------------------------------------------------------------------
Class B Tensiodyne Corporation 15 Shares 100%
Preferred 400 S. Colorado Blvd.
Denver, CO 80222
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Robert M. Bernstein's Class A and Class B common stock
ownership entitle him to cast 83.4% of all votes entitled to be
cast by all common and preferred shareholders and thus voting
control of the Company. All shares of the Company's common and
preferred stock have one vote each except Class B common which has
200 votes each.
(2) Matech 1's Class A Common Stock entitle it to cast 3.1% of
the votes entitled to be cast by all common and preferred
shareholders.
(3) Sherman Baker's Class A Common Stock and his Class A
Preferred Stock entitle him to cast 3.6% of the votes entitled to
be cast by all common and preferred shareholders. The Sherman
Baker Group composed of 15 investors including Mr. Baker are
entitled to cast 6.9% of the votes entitled to be cast by all
common and preferred shareholders.
In addition, the Company is committed under its modified agreement with the
University of Pennsylvania to issue the University and its affiliates additional
shares of the Company's Class A Common Stock so that their holdings equal 5% of
the outstanding Class A Common Stock.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 11,000,000 shares of stock. Each of the
11,000,000 shares of stock has a par value of $.001. Of the shares authorized,
10,000,000 are Class A Common Stock; 100,000 are Class B Common Stock; and
900,000 are Preferred Stock. The Company has designated 350,000 shares as
Class A Preferred Stock and 100 shares as Class B Preferred Stock.
Holders of the Class A Common stock have one vote per share of common stock held
and vote as a single Class with holders of Class B Common Stock, who have 200
votes per share, on all
33
<PAGE>
matters submitted to stockholder vote. Otherwise, Class A Common stockholders
have the usual rights and privileges of common stockholders under Delaware
Corporation Law.
Holders of Class B Common stock have 200 votes for each share of Class B Common
held but are not entitled to have dividends paid on Class B Common Stock; nor
are they entitled to participate in any proceeds in the event of a liquidation
of the company.
The Company's Certificate of Incorporation provides that the designation of
powers, preferences and rights, including voting rights, if any, qualifications,
limitations or restrictions on Preferred Stock is to be fixed by resolution or
resolutions of the Board of Directors.
On April 28, 1997, the Company filed with the Secretary of State of the State of
Delaware a Certificate of Designation designating 350,000 shares of preferred
stock designated Class A Convertible Preferred Stock (hereinafter referred to as
"Class A Preferred".) Class A Preferred has a liquidation preference. In the
event of liquidation, holders of Class A Preferred have the right to receive
$.72 for each share of Class A Preferred held; before any payment is made or any
assets are distributed to holders of Common Stock, or any other stock of any
other series or class ranking junior to these shares. In the event of
liquidation, holders of Class A Preferred are not entitled to payment beyond
$.72 per share. These provisions may have the effect of delaying, deferring or
preventing a change in control. Each share of Class A Preferred is convertible
into common stock at the discretion of the holder, at the rate of one share of
Class A Preferred for each .72 share of common stock. Thus, the 350,000
outstanding shares of Class A Preferred Stock are convertible into 486,111
shares of Class A Common Stock. Under the Certificate of Designation, the
Company is not permitted to issue stock which is senior to or pari passu with
Class A Preferred without prior consent of a majority of the outstanding Class A
Preferred shares. Adjustment of the number of Class A Preferred outstanding is
provided for in the event of any reclassification of outstanding securities or
of the class of securities which are issuable upon conversion of shares and in
the event of any reorganization of the Company which results in any
reclassification or change in the number of shares outstanding. Similarly, in
the event of any such change, the conversion price is subject to adjustment to
reflect such change. If at any time while shares of Class A Preferred are
outstanding a stock dividend on the Common Stock is issued, the conversion price
will be adjusted to prevent any dilution of the holders of Class A Preferred
right of conversion. If (a) there is a reclassification or change in the
Company's Common Stock to which the Class A is convertible other than stock
splits or other decrease or increase in the number of shares outstanding, (b)
the Company consolidates or merges with another corporation, or (c) the Company
sells or transfers substantially all of its assets, then the Class A Preferred
shareholders are entitled to the same consideration as they would have been
entitled to if their shares had been converted prior to the reclassification,
change, consolidation, merger, sale, or transfer. This provision may have the
effect of delaying, deferring or preventing a change in control. Voting rights
and the right to receive dividends inherent in Class A Preferred are similar to
those rights of the Common Stock.
On April 28, 1997, the Company filed a Certificate of Designation bringing into
existence a Class B Preferred Stock. Class B Preferred Stock is junior and
subordinate to Class A Convertible Preferred Stock. 100 shares of Class B
Preferred Stock were authorized from the
34
<PAGE>
550,000 undesignated preferred shares. Fifteen (15) shares have been issued to
Tensiodyne in exchange for canceling its 15 Class B Preferred shares in Matech
1. In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, holders of Class B Preferred Stock are
entitled to receive $10,000 per share as a liquidation preference. This
liquidation preference is senior to liquidation rights of all other classes of
stock except the Class A Preferred's liquidation rights. This provision may
have the effect of delaying, deferring or preventing a change in control. At
any time, the Company has the option to redeem Class B Preferred stock for
$10,000 per share plus any unpaid dividends. At any time after January 31,
2002, holders have the right to compel the Company to redeem their shares for
$10,000 per share plus any unpaid dividends. The holders have the right to
receive cash dividends, which are determined pursuant to a formula in the
Certificate of Designation. That formula reads as follows: "Each time a cash
dividend is paid on the Common Stock there shall also be paid with respect to
each outstanding share of Class B Preferred Stock an amount determined by
multiplying the aggregate amount of the dividend paid with respect to the Common
Stock by a fraction (i) the numerator of which is 3,214,480 and (ii) the
denominator of which is the number of shares of Common Stock on which the
dividend was paid, and (x) multiplying the resulting product by thirty percent
(30%) and then (y) dividing the resulting product by five hundred and ten
(510)." Holders of Class B Preferred Stock shall have one (1) vote per share
and shall be entitled by class vote to elect one (1) director and to vote, as a
class, on removal of any director so elected. Otherwise, holders of Class B
Preferred Stock shall not have the right to vote as a class on any matter.
As of the date hereof, 5,560,000 shares of Class A common stock are outstanding
and upon distribution of the shares under this prospectus 405 shareholders will
hold 369,172 shares; 60,000 shares of Class "B" Common stock are outstanding and
held by one shareholder, Robert M. Bernstein; 350,000 shares of Class A
Convertible Preferred stock are outstanding and are held by 12 shareholders; and
15 shares of Class B Preferred stock are outstanding and are held by one
shareholder, Tensiodyne.
WARRANTS
On March 9, 1997, the Company's Board granted 1,700,000 Class A Warrants,
994,500 to Robert M. Bernstein, 170,000 to Joel Freedman, and 535,500 to Sherman
Baker and his associates in exchange for each of these individuals agreeing to
cancel a like number of warrants to purchase Matech 1 common stock on the same
terms. Each Class A Warrant entitles the registered holder to purchase one
share of Class A Common Stock at $.50 per share until August 22, 1999. Each
holder may exercise by surrendering the warrant certificate, with the form of
election completed and executed, together with payment of the exercise price to
the Company at its corporate offices. The exercise price is payable in cash or
by check acceptable to the Company. If less than all warrants evidenced by the
warrant certificate are exercised, a new certificate is issued for the remaining
warrants. The Board has the right to extend the exercise period and price.
DESCRIPTION OF SHARES
35
<PAGE>
The Shares being distributed are 369,172 shares of the Company's Class A Common
Stock. No assurance can be given that a public market will develop for the
Company's Shares.
LEGAL MATTERS
The Law Offices of C. Timothy Smoot, Torrance, California, has opined on the
validity of the Shares of Class A Common Stock being distributed.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VII, Section 3 of the Company's bylaws permit the Corporation
"to indemnify to the fullest extent permitted by applicable law any person
who was or is a party or is threatened to be made a party to any
threatened, pending, or completed proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right
of the Corporation) relating to such person's status or acts as a director,
officer, employee, or agent of the Corporation, or relating to such
person's service at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by such per-son in connection with such proceeding if he or she
acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect
to any criminal action, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful."
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against the public policy as expressed in the Act and is
therefore unenforceable.
EXPERTS
Jonathon Reuben, CPA, An Accounting Corporation, Independent Certified Public
Accountants, has opined on the financial statements of the Company for the three
years ended December 31, 1996, 1995, and 1994 included in the prospectus and in
the registration statement and audited the financial statements to the extent
and for the period set forth in their report appearing elsewhere herein and in
the registration statement. The financial statements are included in reliance
upon such report given upon the authority of said firm as experts in auditing
and accounting.
36
<PAGE>
FURTHER INFORMATION
The Company has filed with the Commission a registration statement under the
Securities Act of 1933 as amended, with respect to the securities being
distributed. This prospectus does not contain all the information set forth in
the registration statement. Certain parts of the registration statement are
omitted in accordance with the Commission's rules. The statements contained in
this prospectus as to the contents of any contract or other document are not
necessarily complete but include descriptions of the material provisions of such
contracts, and in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the registration statement. Copies of
these contracts and other documents may be obtained upon payment of prescribed
fees or examined without charge at the office of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Moreover, the Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The Commission's Web address is
http://www.sec.gov.
Matech 1's periodic reports are available for inspection at the Commission's
Washington Office and, from the second quarter of 1996 to date, at the
Commission's Web site.
37
<PAGE>
FINANCIAL STATEMENTS - INDEX
MATERIAL TECHNOLOGIES, INC.
(Formerly Material Technology, Inc.)
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
Page
Independent Auditor's Report F-1
Balance Sheets F-3
Statements of Operations F-5
Statement of Stockholder's Equity (Deficiency) F-6
Statement of Cash Flows F-14
Notes to Financial Statements F-16
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
FINANCIAL STATEMENTS
CONTENTS
Page
----
Independent Auditors' Report F1
Balance Sheets F3
Statements of Operations F5
Statement of Stockholders' Equity (Deficiency) F6
Statements of Cash Flows F14
Notes to Financial Statements F16
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Material Technologies, Inc.
(A Development Stage Company)
Los Angeles, California
We have audited the accompanying balance sheets of Material Technologies, Inc.
(A Development Stage Company) as of December 31, 1996 and 1995, and the related
statements of operations, cash flows, and stockholders' equity (deficit) for
each of the three years in the period ended December 31, 1996, and for the
period from January 1, 1991, through 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. Statements of operations and cash flows for the period from October
21, 1983 (inception) through December 31, 1990, (with the exception of 1989
which was unaudited) were audited by other auditors whose reports dated on
various dates, expressed unqualified opinions including an explanatory
paragraph, as discussed in Note 3, regarding the Company's ability to continue
as a going concern.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits 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 audits provides a reasonable basis for our opinion.
F-1
<PAGE>
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Material Technologies, Inc. as
of December 31, 1996, and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 and for
the period from January 1, 1991 through December 31, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Jonathon P. Reuben
Jonathon P. Reuben,
Certified Public Accountant
Calabasas, California
April 25, 1997
F-2
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
December 31, March 31,
1995 1996 1997
--------- --------- ---------
(Unaudited)
CURRENT ASSETS
Cash and Cash Equivalents $ 1,226 $ -- $ 2,783
Accounts Receivable -- -- 4,555
Prepaid Expenses -- 6,472 5,848
--------- --------- ---------
TOTAL CURRENT ASSETS 1,226 6,472 13,186
--------- --------- ---------
FIXED ASSETS
Property and Equipment, Net
of Accumulated Depreciation 100,958 98,016 97,318
--------- --------- ---------
OTHER ASSETS
Investments -- 55,200 13,800
Intangible Assets, Net of
Accumulated Amortization 22,658 20,669 20,172
Note Receivable (Including
Accrued Interest) 23,661 25,753 25,753
Refundable Deposit 2,189 2,189 2,189
--------- --------- ---------
TOTAL OTHER ASSETS 48,508 103,811 61,914
--------- --------- ---------
TOTAL ASSETS $ 150,692 $ 208,299 $ 172,418
--------- --------- ---------
--------- --------- ---------
See accompanying notes and independent accountants' report.
F-3
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996 1997
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Bank Overdraft $ -- $ 2,422 $ --
Legal Fees Payable 111,343 128,191 126,835
Other Accounts Payable 18,185 33,221 39,687
Accrued Officers Salary 172,000 372,000 45,000
Accrued Payroll Taxes 12,051 19,124 22,656
Loan Payable - Officer 23,272 56,846 12,846
Loans Payable-Others 84,439 32,627 32,627
Payable on Research and
Development Sponsorship 188,495 188,495 188,495
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 609,785 832,926 468,146
Loan Payable - Officer 113,268 122,698 --
Loans Payable - Other 60,829 90,893 25,000
----------- ----------- -----------
TOTAL LIABILITIES 783,882 1,046,517 493,146
----------- ----------- -----------
REDEEMABLE PREFERRED STOCK
Class B Preferred Stock, $.001 Par Value
Authorized 510 Shares, Outstanding 15 Shares at December
31, 1996; Redeemable at $10,000 Per Share After January 31, 2002 150,000 150,000 150,000
----------- ----------- -----------
STOCKHOLDERS' (DEFICIT)
Class A Common Stock, $.001 Par Value, Authorized 10,000,000
Shares, Outstanding 2,157,880 Shares at December 31, 1995,
2,580,546 Shares at December 31, 1996, and 5,560,000 Shares at March 31, 1997 2,157 2,580 5,560
Class B Common Stock, $.001 Par Value, Authorized 300,000
Shares, Outstanding 60,000 Shares 60 60 60
Class A Preferred, $.001 Par Value, Authorized 900,000 Shares
Outstanding 350,000 Shares 350 350 350
Additional Paid in Capital 1,763,698 1,799,181 2,458,794
Less Notes and Subscriptions Receivable - Common Stock (14,720) (14,720) (36,464)
Deficit Accumulated During the Development Stage (2,380,135) (2,830,869) (2,912,828)
Unrealized Holding Gain on Investment Securities -- 55,200 13,800
----------- ----------- -----------
TOTAL STOCKHOLDERS' (DEFICIT) (783,190) (988,218) (470,728)
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 150,692 $ 208,299 $ 172,418
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes and independent accountants' report.
F-4
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From Inception
For the Three Months Ended (October 21, 1983)
March 31, Through
1994 1995 1996 1996 1997 March 31, 1997
--------- --------- --------- --------- --------- ---------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Sale of Fatigue Fuses $ -- $ -- $ -- $ -- $ -- $ 64,505
Sale of Royalty Interests -- -- -- -- -- 198,750
Research and Development Revenue -- -- -- -- 4,555 717,135
Test Services -- -- -- -- -- 10,870
--------- --------- --------- --------- --------- ----------
TOTAL REVENUES -- -- -- -- 4,555 991,260
--------- --------- --------- --------- --------- ----------
COSTS AND EXPENSES
Research and Development 83,360 15,104 10,700 -- 4,555 1,512,851
General and Administrative 295,488 188,745 472,486 150,541 83,094 2,233,602
--------- --------- --------- --------- --------- ----------
TOTAL COSTS AND EXPENSES 378,848 203,849 483,186 150,541 87,649 3,746,453
--------- --------- --------- --------- --------- ----------
INCOME (LOSS) FROM OPERATIONS (378,848) (203,849) (483,186) (150,541) (87,649) (2,755,193)
--------- --------- --------- --------- --------- ----------
OTHER INCOME (EXPENSE)
Expense Reimbursed -- -- 12,275 1,135 (5,392)
Interest Income 1,785 1,928 2,427 507 -- 39,487
Miscellaneous Income -- 4,375 -- -- -- 25,145
Loss on Sale of Equipment -- -- -- -- -- (12,780)
Settlement of Teaming Agreement -- -- -- -- -- 50,000
Litigation Settlement -- -- -- -- -- 18,095
Gain on Sale of Stock -- -- 17,750 9,656 -- 17,750
--------- --------- --------- --------- --------- ----------
TOTAL OTHER INCOME 1,785 6,303 32,452 10,163 1,135 132,305
--------- --------- --------- --------- --------- ----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (377,063) (197,546) (450,734) (140,378) (81,959) (2,622,888)
PROVISION FOR INCOME TAXES -- -- -- -- -- (7,000)
--------- --------- --------- --------- --------- ----------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (377,063) (197,546) (450,734) (140,378) (81,959) (2,629,888)
EXTRAORDINARY ITEMS
Forgiveness of Debt -- -- -- -- -- (289,940)
Utilization of Operating Loss Carry forward -- -- -- -- -- 7,000
--------- --------- --------- --------- --------- ----------
NET INCOME (LOSS) $ (377,063) $ (197,546) $ (450,734) $ (140,378) $ (81,959) $(2,912,828)
--------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- ----------
PER SHARE DATA
Income (Loss) Before Extraordinary Item $ (0.17)
Extraordinary Items --
---------
NET INCOME (LOSS) $ (0.17)
---------
---------
COMMON SHARES OUTSTANDING 2,580,546
---------
---------
</TABLE>
See accompanying notes and accountants' report.
F-5
<PAGE>
<TABLE>
<CAPTION>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH DECEMBER 31, 1996
Class A Common Class B Common Class A Preferred Stock
-------------------------- ---------------------- -----------------------
Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount
------------- ------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Initial Issuance of Common Stock,
October 21, 1983 2,408 $ 2 -- $ -- -- $ --
Adjustment to Give Effect
to Recapitalization on
December 15, 1986
Cancellation of Shares (2,202) (2) -- -- -- --
------- ---- ------- ------- ------- -------
206 0 -- -- -- --
Balance, October 21, 1983
Shares Issued By Tensiodyne
Corporation in Connection
With Pooling of Interests 42,334 14 -- -- -- --
Net (Loss), Year Ended
December 31, 1983 -- -- -- -- -- --
------- --- ------- ------- ------- -------
Balance, January 1, 1984 42,540 14 -- -- -- --
Capital Contribution -- 28 -- -- -- --
Issuance of Common Stock 4,815 5 -- -- -- --
Costs Incurred in Connection
with Issuance of Stock -- -- -- -- -- --
Net (Loss), Year Ended
December 31, 1984 -- -- -- -- -- --
------- ---- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Initial Issuance of Common Stock,
October 21, 1983 -- $ -- $ 2,498 $ --
Adjustment to Give Effect
to Recapitalization on
December 15, 1986
Cancellation of Shares -- -- (2) --
------- ------- --------- ---------
-- -- 2,496 --
Balance, October 21, 1983
Shares Issued By Tensiodyne
Corporation in Connection
With Pooling of Interests -- -- 4,328 --
Net (Loss), Year Ended
December 31, 1983 -- -- -- (4,317)
------- ------- --------- ---------
Balance, January 1, 1984 -- -- 6,824 (4,317)
Capital Contribution -- -- 21,727 --
Issuance of Common Stock -- -- 10,695 --
Costs Incurred in Connection
with Issuance of Stock -- -- (2,849) --
Net (Loss), Year Ended
December 31, 1984 -- -- -- (21,797)
------- ------- --------- ---------
</TABLE>
See accompanying notes and independent accountants' report.
F-6
<PAGE>
<TABLE>
<CAPTION>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH DECEMBER 31, 1996
Class A Common Class B Common Class A Preferred Stock
-------------------------- ---------------------- -----------------------
Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount
------------- ------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1985 47,355 47 -- -- -- --
Shares Contributed Back
to Company (315) (0) -- -- -- --
Capital Contribution -- -- -- -- -- --
Sale of 12,166 Warrants at
$1.50 Per Warrant -- -- -- -- -- --
Shares Cancelled (8,758) (9) -- -- -- --
Net (Loss), Year Ended
December 31, 1985 -- -- -- -- -- --
------- --- ------- ------- ------- -------
Balance, January 1, 1986 38,282 38 -- -- -- --
Net (Loss), Year Ended
December 31, 1986 -- -- -- -- -- --
------- --- ------- ------- ------- -------
Balance, January 1, 1987 38,282 38 -- -- -- --
Issuance of Common Stock Upon
Exercise of Warrants 216 0 -- -- -- --
Net (Loss), Year Ended
December 31, 1987 -- -- -- -- -- --
------- --- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1985 -- -- 36,397 (26,114)
Shares Contributed Back
to Company -- -- 0 --
Capital Contribution -- -- 200,555 --
Sale of 12,166 Warrants at
$1.50 Per Warrant -- -- 18,250 --
Shares Cancelled -- -- 9 --
Net (Loss), Year Ended
December 31, 1985 -- -- -- (252,070)
------- ------- --------- ---------
Balance, January 1, 1986 -- -- 255,211 (278,184)
Net (Loss), Year Ended
December 31, 1986 -- -- -- (10,365)
------- ------- --------- ---------
Balance, January 1, 1987 -- -- 255,211 (288,549)
Issuance of Common Stock Upon
Exercise of Warrants -- -- 27,082 --
Net (Loss), Year Ended
December 31, 1987 -- -- -- (45,389)
------- ------- --------- ---------
</TABLE>
See accompanying notes and independent accountants' report.
F-7
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock
-------------------------- ---------------------- -----------------------
Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount
------------- ------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1988 38,498 38 -- -- -- --
Issuance of Common Stock
Sale of Stock (Unaudited) 2,544 3 -- -- -- --
Services Rendered (Unaudited) 3,179 3 -- -- -- --
Net (Loss), Year Ended
December 31, 1988 (Unaudited) -- -- -- -- --
------- --- ------- ------- ------- -------
Balance, January 1, 1989
(Unaudited), 44,221 44 -- -- -- --
Issuance of Common Stock
Sale of Stock 4,000 4 -- -- -- --
Services Rendered 36,000 36 -- -- -- --
Net (Loss), Year Ended
December 31, 1989 -- -- -- -- -- --
------- --- ------- ------- ------- -------
Balance, January 1, 1990 84,221 84 -- -- -- --
Issuance of Common Stock
Sale of Stock 2,370 2 -- -- -- --
Services Rendered 6,480 7 -- -- -- --
Net Income, Year Ended
December 31, 1990 -- -- -- -- -- --
------- --- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1988 -- -- 282,293 (333,938)
Issuance of Common Stock
Sale of Stock (Unaudited) -- -- 101,749 --
Services Rendered (Unaudited) -- -- 70,597
Net (Loss), Year Ended
December 31, 1988 (Unaudited) -- -- -- (142,335)
------- ------- --------- ---------
Balance, January 1, 1989
(Unaudited), -- -- 454,639 (476,273)
Issuance of Common Stock
Sale of Stock -- -- 1,996 --
Services Rendered -- -- 17,964 --
Net (Loss), Year Ended
December 31, 1989 -- -- -- (31,945)
------- ------- --------- ---------
Balance, January 1, 1990 -- -- 474,599 (508,218)
Issuance of Common Stock
Sale of Stock -- -- 59,248 --
Services Rendered -- -- 32,393 --
Net Income, Year Ended
December 31, 1990 -- -- -- 133,894
------- ------- --------- ---------
</TABLE>
See accompanying notes and independent accountants' report.
F-8
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock
-------------------------- ---------------------- -----------------------
Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount
------------- ------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1991 as Restated 93,071 93 -- -- -- --
Issuance of Common Stock
Sale of Stock 647 1 -- -- 350,000 350
Services Rendered 4,371 4 -- -- -- --
Conversion of Warrants 30 --
Conversion of Stock (6,000) (6) 60,000 60 -- --
Net (Loss), Year Ended
December 31, 1991 -- -- -- -- -- --
------- --- ------ --- ------- -------
Balance January 1, 1992 92,119 92 60,000 60 350,000 350
Issuance of Common Stock
Sale of Stock 20,000 20 -- -- -- --
Services Rendered 5,400 5 -- -- -- --
Conversion of Warrants 6,000 6 -- -- -- --
Sale of Class B Stock -- -- 60,000 60 -- --
Issuance of Stock to
Unconsolidated Subsidiary 4,751 5 -- -- -- --
Conversion of Stock 6,000 6 (60,000) (60) -- --
Cancellation of Shares (6,650) (7) -- -- -- --
Net (Loss), Year Ended
December 31, 1992 -- -- -- -- -- --
--------- ----- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Balance January 1, 1991 as Restated -- -- 566,240 (374,324)
Issuance of Common Stock
Sale of Stock -- -- 273,335 --
Services Rendered -- -- 64,880 --
Conversion of Warrants --
Conversion of Stock -- -- -- --
Net (Loss), Year Ended
December 31, 1991 -- -- -- (346,316)
------- ------- --------- ---------
Balance January 1, 1992 -- -- 904,455 (720,640)
Issuance of Common Stock
Sale of Stock -- -- 15,980 --
Services Rendered -- -- 15,515 --
Conversion of Warrants -- -- 14,994 --
Sale of Class B Stock -- -- 14,940 --
Issuance of Stock to
Unconsolidated Subsidiary -- -- 71,659 --
Conversion of Stock -- -- -- --
Cancellation of Shares -- -- 7 --
Net (Loss), Year Ended
December 31, 1992 -- -- -- (154,986)
------- ------- --------- ---------
</TABLE>
See accompanying notes and independent accountants' report.
F-9
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock
-------------------------- ---------------------- -----------------------
Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount
------------- ------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992 127,620 127 60,000 60 350,000 350
Issuance of Common Stock
Licensing Agreement 12,500 13 -- -- -- --
Services Rendered 67,030 67 -- -- -- --
Warrant Conversion 56,000 56 -- -- -- --
Cancellation of Shares (31,700) (32) -- -- -- --
Net (Loss) for Year Ended
December 31, 1993 (Restated) -- -- -- -- -- --
--------- ----- ------- ------- ------- -------
Balance December 31, 1993 231,449 231 60,000 60 350,000 350
--------- ----- ------- ------- ------- -------
<CAPTION>
Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Balance December 31, 1992 -- -- 1,037,550 (875,626)
Issuance of Common Stock
Licensing Agreement -- -- 6,237 --
Services Rendered -- -- 13,846 --
Warrant Conversion 304,943 --
Cancellation of Shares -- -- (7,537) --
Net (Loss) for Year Ended
December 31, 1993 (Restated) -- -- -- (929,900)
------- ------- --------- ---------
Balance December 31, 1993 -- -- 1,355,039 (1,805,526)
------- ------- --------- ---------
</TABLE>
See accompanying notes and independent accountants' report.
F-10
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock
-------------------------- ---------------------- -----------------------
Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount
------------- ------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Adjustment to Give Effect
to Recapitalization on
February 1, 1994 30,818 31 -- -- -- --
Issuance of Shares for
Services Rendered 223,000 223 -- -- -- --
Sale of Stock 1,486,112 1,486 -- -- -- --
Issuance of Shares for
the Modification of Agreements 34,000 34 -- -- -- --
Net (Loss) for the Year
Ended December 31, 1994 - -- -- -- -- -- --
--------- ----- ------- ------- ------- -------
Balance - December 31, 1994 2,005,380 2,005 60,000 60 350,000 350
Issuance of Common Stock
in Consideration for
Modification of Agreement 152,500 153 -- -- -- --
Net (Loss) for the Year
Ended December 31, 1995 - -- -- -- -- -- --
--------- ----- ------- ------- ------- -------
Balance - December 31, 1995 2,157,880 2,157 60,000 60 350,000 350
========= ===== ======= ======= ======= =======
<CAPTION>
Redeemable Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Adjustment to Give Effect
to Recapitalization on
February 1, 1994 -- -- 385,393 --
Issuance of Shares for
Services Rendered -- -- -- --
Sale of Stock 15 150,000 23,300 --
Issuance of Shares for
the Modification of Agreements -- -- (34) --
Net (Loss) for the Year
Ended December 31, 1994 - -- -- -- (377,063)
------- ------- --------- ---------
Balance - December 31, 1994 15 150,000 1,763,698 (2,182,589)
Issuance of Common Stock
in Consideration for
Modification of Agreement -- -- -- --
Net (Loss) for the Year
Ended December 31, 1995 - -- -- -- (197,546)
------- ------- --------- ---------
Balance - December 31, 1995 15 150,000 1,763,698 (2,380,135)
======= ======= ========== ==========
</TABLE>
See accompanying notes and independent accountants' report.
F-11
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock
-------------------------- ---------------------- -----------------------
Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount
------------- ------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Shares for
Services Rendered 164,666 165 -- -- -- --
Sale of Stock 70,000 70 -- -- -- --
Issuance of Shares for
the Modification of Agreements 250,000 250 -- -- -- --
Cancellation of Shares Held
in Treasury (62,000) (62) -- -- -- --
Net (Loss) for the Year
Ended December 31, 1996 -- -- -- -- -- --
--------- ----- ------- ------- ------- -------
Balance - December 31, 1996 2,580,546 2,580 60,000 60 350,000 350
Sale of Stock 100,000 100 -- -- -- --
Conversion of Indebtedness 800,000 800 -- -- -- --
Class A Common Stock Issued
in Cancellation of $372,000
Accrued Wages Due Officer 1,499,454 1,500 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Redeemable Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Issuance of Shares for
Services Rendered -- -- 16,301 --
Sale of Stock -- -- 173,970 --
Issuance of Shares for
the Modification of Agreements -- -- (250) --
Cancellation of Shares Held
in Treasury -- -- (154,538) --
Net (Loss) for the Year
Ended December 31, 1996 -- -- -- (450,734)
------- ------- --------- ---------
Balance - December 31, 1996 15 150,000 1,799,181 (2,830,869)
Sale of Stock -- -- 99,900 --
Conversion of Indebtedness -- -- 187,793 --
Class A Common Stock Issued
in Cancellation of $372,000
Accrued Wages Due Officer -- -- 370,500 --
</TABLE>
See accompanying notes and independent accountants' report.
F-12
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock
-------------------------- ---------------------- -----------------------
Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount
------------- ------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Shares for
Services Rendered 20,000 20 -- -- -- --
Adjustment to Give Effect
to Recapitalization on
March 9, 1997 560,000 560 -- -- -- --
Net (Loss) for the Three
Months Ended March 31, 1997 -- -- -- -- -- --
--------- ----- ------- ------- ------- -------
5,560,000 $ 5,560 60,000 $ 60 350,000 $ 350
========= ===== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Redeemable Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Issuance of Shares for
Services Rendered -- -- 1,980 --
Adjustment to Give Effect
to Recapitalization on
March 9, 1997 -- -- (560) --
Net (Loss) for the Three
Months Ended March 31, 1997 -- -- -- (81,959)
------- ------- --------- ---------
15 $ 150,000 $ 2,458,794 $(2,912,828)
======= ======= ========== ==========
</TABLE>
See accompanying notes and independent accountants' report.
F-13
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From Inception
For the Three Months (October 21, 1983)
December 31, Ended March 31, Through
1994 1995 1996 1996 1997 March 31, 1997
--------- --------- --------- --------- --------- --------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (377,063) $ (197,546) $ (450,734) $ (140,378) $ (81,959) $(2,912,828)
--------- --------- --------- --------- --------- ----------
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided (Used) by Operating Activities
Depreciation and Amortization 5,553 5,555 4,931 1,388 1,194 160,909
Gain on Sale of Tensiodyne
Corporation Common Stock -- -- (17,750) (9,656) (17,750)
Charge off of Deferred Offering Costs -- 31,480 -- -- -- 31,480
(Increase) Decrease in Accounts Receivable -- -- -- -- (4,555) (4,555)
(Increase) Decrease in Prepaid Expenses -- -- (1,472) -- 625 (847)
Loss on Sale of Equipment -- -- -- -- -- 12,780
Issuance of Common Stock for Services 223 -- 16,467 -- 2,000 297,965
Issuance of Common Stock for
Agreement Modifications -- 152 -- -- -- 152
Forgiveness of Indebtedness -- -- -- -- -- 165,000
Increase (Decrease) in Accounts -- --
Payable and Accrued Expenses 97,612 16,032 238,957 100,000 53,644 606,179
Interest Accrued on Notes Payable -- 10,870 17,681 3,917 -- 28,551
Increase in Research and Development --
Sponsorship Payable -- -- -- -- 188,495
(Increase) in Note for Litigation Settlement (1,766) (1,921) (2,092) (507) -- (25,753)
(Increase) in Deposits -- -- -- -- -- (2,189)
--------- --------- --------- --------- --------- ----------
TOTAL ADJUSTMENTS 101,622 62,168 256,722 95,142 35,158 1,458,167
--------- --------- --------- --------- --------- ----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (275,441) (135,378) (194,012) (45,236) (46,801) (1,454,661)
--------- --------- --------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sale of Equipment -- -- -- -- -- 10,250
Purchase of Property and Equipment -- -- -- -- -- (226,109)
Proceeds from Sale of Tensiodyne Corporation
Common Stock -- -- 17,750 9,656 17,750 --
(Increase) in Other Assets -- -- -- -- -- (69,069)
Payment for License Agreement -- -- -- -- -- (6,250)
--------- --------- --------- --------- --------- ----------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES -- -- 17,750 9,656 17,750 (291,178)
--------- --------- --------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock Net of Offering Costs 24,787 -- 174,040 25,000 78,256 810,575
Costs incurred in Offering (31,480) -- -- -- -- (31,480)
Sale of Common Stock Warrants -- -- -- -- -- 18,250
Sale of Preferred Stock -- -- -- -- -- 258,500
Sale of Redeemable Preferred Stock 140,000 -- -- -- -- 150,000
Capital Contributions -- -- -- -- -- 301,068
Proceeds From Note Payable -- -- -- -- -- --
Payment on Proposed Reorganization -- -- (5,000) -- (5,000)
Loans From Officers 135,050 100,874 43,250 26,250 19,000 375,307
Repayments to Officer (78,446) (16,000) (64,676) -- (63,000) (293,262)
Increase in Loan Payable-Others 78,495 58,000 25,000 -- -- 164,664
--------- --------- --------- --------- --------- ----------
</TABLE>
See accompanying notes and accountants' report.
F-14
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From Inception
For the Three Months Ended (October 21, 1983)
December 31, March 31, Through
1994 1995 1996 1996 1997 March 31, 1997
--------- --------- --------- --------- --------- --------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 268,406 $ 142,874 $ 172,614 $ 51,250 $ 34,256 $ 1,748,622
--------- --------- --------- --------- --------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (7,035) 7,496 (3,648) 15,670 5,205 2,783
BEGINNING BALANCE - CASH AND
CASH EQUIVALENTS 765 (6,270) 1,226 1,226 (2,422) --
--------- --------- --------- --------- --------- ------------
ENDING BALANCE - CASH AND CASH
EQUIVALENTS $ (6,270) $ 1,226 $ (2,422) $ 16,896 2,783 $ 2,783
--------- --------- --------- --------- --------- ------------
--------- --------- --------- --------- --------- ------------
</TABLE>
SUPPLEMENTAL INFORMATION:
A. Definition of Cash and Cash Equivalents
For the purpose of the statements of cash flows, all highly liquid
investments with a maturity of three months or less are considered
to be cash equivalents.
B. During the periods from the date of inception (October 21, 1983)
to December 31, 1995, there have been no cash payments for income
taxes or interest.
During 1996, the Company made interest payments totalling $2,000.
There were no payments in 1996 for income taxes.
C. Non Cash Investing and Financing Activities
During 1994, the Company authorzed the issuance to certain
directors and to members of its advisory board a total of 198,000
shares of its Class A Common Stock.
Also in 1994, the Company authorized the issuance of 15,000 to unrelated
third parties for services rendered to the Company and also authorized
the issuance of 10,000 shares of Class A Common Stock to its president
for past services.
During 1995, the Company forgave $154,600 on an obligation due
from the Company's President in consideration for the President returning
62,000 shares of the Company's Class A Common Stock to its treasury.
During 1995, the Company also issued 152,500 shares of its Class A
Common stock to third parties in consideration for the modification
of certain agreements.
During 1996, the Company issued 250,000 shares of its Class A Common
stock in consideration for the cancellation of a 2.5% royalty interest in
the Company's Fatigue Fuse
During 1996, a unrelated third party assigned his interest in a $55,000
loan owed him by the Company to the Company's President.
See accompanying notes and accountants' report.
F-15
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization
Material Technologies, Inc. (the "Company") was organized on March 4, 1997,
under the laws of the state of Delaware.
On March 9, 1997, the Company's Board of Directors authorized the issuance
of 5,560,000 of its Class A Common Stock to Material Technology, Inc.
("Matech 1") in exchange for all of Matech 1's operations including all of
its assets and the assumption of all of Matech 1's liabilities.
The formation of this subsidiary and related transfer of assets and
liabilities is in connection with a February 17, 1997 Stock Purchase
Agreement among Matech 1, Montpilier Holdings, Inc., SecurFone America,
Inc. and the Company's President. Under this agreement, the parties
intend to effect a reverse merger of SecurFone into Matech 1 immediately
after the distribution of this Company's stock to the shareholders of
Matech 1 (See Note 15).
A schedule of the assets and liabilities acquired is as follows:
Assets
Prepaid Expenses $ 6,472
Property & Equipment
Net 98,016
Licensing Agreement and
Patents 20,669
Notes Receivable 25,753
Other Assets 57,389
---------
$ 208,299
---------
---------
F-16
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization (continued)
Liabilities
Bank Overdraft $ (2,422)
Payables and Other
Accrued Expenses (180,536)
Accrued Salaries
- Officer (372,000)
Loans Payable - Officer (56,846)
Loans Payable - Other (57,627)
Note Payable on
Licensing Agreement (188,495)
------------
(857,926)
Redeemable Preferred
Stock (150,000)
------------
Liabilities in Excess
of Assets Transferred $ (799,627)
------------
------------
The amounts reflected above are the balances reflected in Matech 1's
audited balance sheet as of December 31, 1996, adjusted to take into effect
the conversion of certain loans due a shareholder and the Company's
President as discussed further in Notes B and 12. Management has determined
that the activity between this balance sheet date and the actual date of
transfer is immaterial.
For financial reporting purposes, the above transaction was treated as a
recapitalization. Therefore, the assets and liabilities transferred have
been recorded at historical cost.
The Company is in the development stage, as defined in FASB Statement 7,
with its principal activity being research and development in the area of
metal fatigue technology with the intent of future commercial application.
The Company has not paid any dividends and dividends which may be paid in
the future will depend on the financial requirements of the Company and
other relevant factors.
F-17
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies
a. Property and Equipment
The cost of property and equipment is depreciated over
the estimated useful lives of the related assets.
Depreciation is computed on the straight-line method for
financial reporting purposes and for income tax reporting
purposes.
b. Intangible Assets
Intangibles are amortized on the straight-line method
over periods ranging from 5 to 20 years (see Note 4).
c. Net Loss Per Share
Net loss per share is computed pursuant to SAB Topic
1.B.2.
d. Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Note 3 - Realization of Assets
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern. However,
the Company has sustained substantial operating losses totaling
$2,824,669 since its inception through December 31,1996. These
continuing losses are an indication that the Company may not be able
to continue to operate.
F-18
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 3 - Realization of Assets
The Company anticipates that it needs approximately $5,000,000 in order to
complete the development and marketing of its two products. Management
believes the source of the $5,000,000 will be through government grants,
sale of the Company's stock, entering into joint ventures, and or through
the sale of royalty interests.
Note 4 - Intangibles
Intangible assets consist of the following:
Period of December 31,
Amortization 1995 1996
------------ -------- --------
Patent Costs 17 Years $ 28,494 $ 28,494
Organization Costs 5 Years 9,076 9,076
License Agreement 20 Years 6,250 6,250
(See Note 7) -------- --------
43,820 43,820
Less Accumulated Amortization (21,162) (23,151)
-------- --------
$ 22,658 $ 20,669
-------- --------
-------- --------
Amortization charged to operations for 1994, 1995, and 1996, were $1,988,
$1,988 and $1,989, respectively.
Note 5 - Litigation Settlement
On October 26, 1992, the Company agreed to an out-of-court settlement
resulting from improprieties by its chief technical consultant, who was
also an officer and director. The settlement resulted in a return from the
individual of 5,650 shares of the Company's common stock, a return of 600
warrants to purchase 600 shares of common stock, and a promissory note for
$50,000 secured by a mortgage interest on the individual's residence.
The note is non-interest bearing due and payable upon either the death of the
individual's spouse or upon conveyance or attempted conveyance of any interest
in
F-19
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 5 - Litigation Settlement (continued)
the individual's residence. Interest has been imputed pursuant to APB-21
at an annual rate of 8.5%. The balance of this note as of December 31,
1995, and 1996, was $23,661 and $25,753, respectively.
As of December 31, 1996, the note was in default due to the failure by the
individual to maintain insurance on the property and to pay property taxes.
The Company commenced foreclosure proceedings with a public foreclosure
sale pending and scheduled for March 1997. Management estimates that the
net amount the Company should receive on the sale of the property
approximates the balance of the note as of December 31, 1996. Accrued
interest credited to operations for the years 1994, 1995 and 1996 were
$1,766, $1,929 and $2,091, respectively.
Note 6 - License Agreement
The Company has entered into a license agreement with the University of
Pennsylvania regarding the development and marketing of the Electrochemical
Fatigue Sensor. The Sensor is designed to measure electrochemically the
status of a structure without knowing the structure's past loading history.
The Company is in the initial stage of developing the Sensor.
Under the terms of the agreement the Company issued to the University
12,500 shares of its common stock, and a 5% royalty on sales of the
product. The Company valued the licensing agreement at $6,250. Under the
terms of the agreement, the license terminates upon the expiration of the
underlying patents, unless sooner terminated as provided in the agreement.
The Company is amortizing the license over 20 years.
In addition to entering into the licensing agreement, the Company also
agreed to sponsor the development of the Sensor. Under the Sponsorship
agreement, the Company agreed to reimburse the University development costs
totaling approximately $200,000 which was to be paid in 18 monthly
installments of $11,112. The research and development costs are recorded
at present value, using an annual interest rate of 8.5%. At December 31,
1995, and 1996, the present value of this obligation was $188,494. The
Company charged the full $188,494 to operations as research and development
in 1993. The Company has not made any payments toward this obligation.
F-20
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 6 - License Agreement (continued)
Pursuant to the terms of the agreement, the Company reimbursed the
University in 1996, $10,000 for the cost it incurred in the prosecution and
maintenance of its patents relating to the Electrochemical Fatigue Sensor.
The Company and the University have agreed to modify the terms of the
licensing agreement and related obligation. The terms of the modified
agreements include an increase in the University's royalty to 7% of the
sale of related products, the issuance of additional shares of the
Company's Class A Common Stock to equal 5% of the outstanding stock of the
Company as of the effective date of the modified agreements, and to pay to
the University 30% of any amounts raised by the Company in excess of
$150,000 (excluding amounts received on government grants or contracts) up
to the amount owed to the University.
Note 7 - Property and Equipment
The following is a summary of property and equipment:
December 31,
1995 1996
---- ----
Office Equipment $ 14,345 $ 14,345
Remote Monitoring system 97,160 97,160
Manufacturing Equipment 100,067 100,067
------- -------
211,572 211,572
Less: Accumulated
Depreciation (110,614) (113,556)
------- -------
$100,958 $ 98,016
------- -------
------- -------
Depreciation charged to operations was $3,567, $3,566 and $2,942 in 1994,
1995, and 1996, respectively. The useful lives of office and manufacturing
equipment for the purpose of computing depreciation is five years.
The Company's equipment has been pledged as collateral on the note payable
to Advanced Technology Center (See Note 9(b).
F-21
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 7 - Property and Equipment (continued)
The Company has entered into an agreement dated April 1, 1993, with the
University of Pennsylvania acting through the Laboratory for Research on
the Structure of Matter ("LRSM") to loan certain manufacturing equipment to
the LRSM for instructional and research related purposes for a period of 5
years, beginning December 1, 1992, and ending December 1, 1997. Upon
expiration of the five year period, LRSM may retain the right to borrow the
equipment for another 5 year period. In exchange for loaning the equipment
to LRSM, the Company receives substantial testing from LRSM which aides the
Company in the development of the Fatigue Fuse. Upon the expiration of the
second five year period, LRSM has the option to purchase the equipment at
its fair market value then prevailing.
Under the terms of the agreement, LRSM shall perform 1,200 hours of
research and testing of materials to be used in conjunction with the
Fatigue Fuse.
Note 8 - Notes Payable
On May 27, 1994, the Company borrowed $25,000 from Mr. Sherman Baker, a
current shareholder. The loan is evidenced by a promissory note which is
assessed interest at major bank prime rate. The principal and all accrued
interest is fully due and payable in 2 years, but the Company is required
to pay-off the loan and accrued interest in full from the proceeds of any
independent financing.
As additional consideration for the loan, the Company granted to Mr. Baker,
a 1% royalty interest in the Fatigue Fuse and a .5% royalty interest in the
Electrochemical Fatigue Sensor. The Company has not placed a value on the
royalty interest granted. The balance due on this loan as of December 31,
1995 and 1996 was $29,270 and $32,459, respectively.
The Company did not pay any amounts due on this note when it matured on May
26, 1996, and the note is in default.
F-22
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 8 - Notes Payable (continued)
In addition, the Company borrowed an additional $58,000 from Mr. Baker in
1995. Under the terms of the loan agreement, interest accrues on this loan
at the prime lending rate of Mellon Bank N.A., and is fully payable with
accrued interest on June 11, 2000. At the option of Mr. Baker, he can
convert the balance due at any time into approximately 280,000 shares of
the Company's Class A common stock. The balances due on this note as of
December 31, 1995, and 1996 were approximately $60,829 and $65,893,
respectively.
In March 1997, Mr. Baker converted the balance owed him into the 280,000
shares of Common Stock.
In October 1997, the Company borrowed $25,000 from an unrelated third
party. Under the terms of the promissory note, the loan is assessed
interest at an annual rate of 10% and matures on October 15, 1998. The
loan is convertible at any time prior to payoff at the option of the payee
into 25,000 shares of the Company's Class A Common Stock. Interest charged
to operations on this loan in 1996 amounted to approximately $527.
Note 9 - Income Taxes
Income taxes are provided based on earnings reported for financial
statement purposes pursuant to the provisions of Statement of Financial
Accounting Standards No. 109 ("FASB 109").
FASB 109 uses the asset and liability method to account for income taxes
which requires the recognition of deferred tax liabilities and assets for
the expected future tax consequences of temporary differences between tax
basis and financial reporting basis of assets and liabilities.
An allowance has been provided for by the Company which reduced the tax
benefits accrued by the Company for its net operating losses to zero, as it
can not be determined when, or if, the tax benefits derived from these
operating losses will materialize.
F-23
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 10 - Commitments and Contingencies
The Company's commitments and contingencies are as follows:
a. On December 24, 1985, in order to provide funding for research and
development related to the Fatigue Fuse, the Company entered into
various agreements with the Tensiodyne 1985-I R & D Partnership.
These agreements were amended on October 9, 1989, and under the
revised terms, obligated the Company to pay the Partnership a royalty
of 10% of future gross sales. The Company's obligation to the
Partnership is limited to the capital contributed to it by its
partners in the amount of approximately $912,500 and accrued interest.
b. On August 30, 1986, the Company entered into a funding agreement with
the Advanced Technology Center ("ATC"), whereby ATC paid $45,000 to
the Company for the purchase of a royalty of 3% of future gross sales
and 6% of sublicensing revenue. The royalty is limited to the $45,000
plus an 11% annual rate of return. At December 31, 1995, and 1996,
the future royalty commitment was limited to $107,510 and $119,336,
respectively.
The payment of future royalties is secured by equipment used by the
Company in the development of technology as specified in the funding
agreement.
c. On May 4, 1987, the Company entered into a funding agreement with ATC,
whereby ATC provided $63,775 to the Company for the purchase of a
royalty of 3% of future gross sales and 6% of sublicensing revenues.
The agreement was amended August 28, 1987, and as amended, the royalty
cannot exceed the lesser of (1) the amount of the advance plus a 26%
annual rate of return or, (2) total royalties earned for a term of 17
years.
At December 31, 1995, and 1996, the total future royalty commitments,
including the accumulated 26% annual rate of return, was limited to
approximately $440,265, and $554,734, respectively. The future
royalties are secured by the Company's patents, products, and accounts
receivable, which may be related to technology developed with the
funding.
F-24
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 10 - Commitments and Contingencies (Continued)
d. In 1994, the Company issued to Variety Investments, Ltd. of Vancouver,
Canada ("Variety"), a 22.5% royalty interest on the Fatigue Fuse in
consideration for the cancellation of cash advances made to the
Company by Variety.
In December 1996, in exchange for the issuance by the Company of
250,000 shares of its Class A Common Stock, Variety reduced its
royalty interest to 20%.
e. Under an agreement which was effective February 2, 1994, Tensiodyne
Corporation, the Company's former parent, was obligated to provide
$5,100,000 in financing.
During 1994, the Company received $150,000 under this agreement in
exchange for the issuance of 7,560 shares of its Class A common stock
and 15 shares of its Redeemable Class B Preferred Stock. The $150,000
has been classified for financial purposes as Redeemable Preferred
Stock.
The Shareholders of the preferred stock have the right of redemption
at $10,000 per share, if the preferred shares are not redeemed by the
Company within 10 years of issuance.
Dividends are payable on the preferred shares to the same extent as
aggregate dividends on the number of shares of common stock equal to
30% of shares of the Company's common stock outstanding on the closing
date. The holders of the preferred shares will be allowed to elect a
director of the Company.
Tensiodyne was not able to fund the full amount of its obligation to
the Company and on November 22, 1994, the Company filed suit against
Tensiodyne for breach of contract. On March 28, 1995, a settlement
agreement was entered into whereby Tensiodyne issued to the Company
6,375,000 shares of its Common Stock. The proceeds received from the
sale of these shares will be used to reduce Tensiodyne's obligation to
pay the remaining balance owing of $4,950,000 and accrued interest
which is assessed under the settlement agreement at 7% per annum.
F-25
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 10 - Commitments and Contingencies (Continued)
The Company also received upon the signing of the settlement agreement
250,000 shares of Tensiodyne common stock.
Management believes that Tensiodyne has insufficient capital to meet
its obligation to pay any of the amounts owed and the Company will
have to rely on the proceeds it receives through the sale of the
Tensiodyne shares to reduce the amount due.
The shares received are subject to restrictions imposed under SEC Rule
144. Based upon these restrictions and the limited market in which to
sell the Tensiodyne stock, it is impractical to estimate the full
value of the obligation owed the Company by Tensiodyne.
On December 30, 1996, an agreement was entered into whereby Tensiodyne
agreed to exchange the 15 shares of Redeemable Class B Preferred Stock
it owned in Matech 1 for 15 shares of the Company's Redeemable Class B
Preferred Stock. The rights of the new issuance will be the same as
the rights of the shares exchanged except the shares in the Company
will be redeemable two years earlier on January 31, 2002. In
consideration for the exchange, the Company paid Tensiodyne $5,000.
f. The Company entered into an agreement with an unrelated third party
for providing the idea of pursuing a government contract for the
funding of the development of the Company's technologies, under which
he would receive a number of the Company's Class A Common Stock equal
to 2.5% of the number of shares outstanding as of the date a
government contract is signed, 15% of the amount of the government
contract, and an appointment to the Company's Board of Directors.
Funds due him will be paid only when such funds become available to
the Company.
The Company's obligation is created on the date the government
contract is signed. Under the agreement with this individual, the
amounts due will be evidenced by a promissory note bearing interest at
major bank prime.
F-26
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 10 - Commitments and Contingencies (Continued)
Interest accrues nine months after the government contract is
executed, and is payable quarterly. The principal balance and any
accrued interest is paid through funds raised or earned by the
Company. The Company is obligated to pay 12.5% of the first
$1,000,000 earned or raised and 15% of any amount in excess of the
$1,000,000.
The Agreement contains anti-dilution provisions relating to the shares
to be issued which expire once $50,000 is paid. The Company's
obligation to have this person as a Director expires once all amounts
due are paid. The contingent amount due has been personally
guaranteed by the Company's President and is secured by the Company's
patents. The personal guarantee expires upon the individual receiving
$100,000.
g. As discussed in Note 8, the Company granted a 1% royalty interest in
the Company's Fatigue Fuse and a .5% royalty interest in its
Electrochemical Fatigue Sensor to Mr. Sherman Baker as part
consideration on a $25,000 loan made by Mr. Baker to the Company.
A summary of royalty interests which the Company has granted and are
outstanding as of December 31, 1996, follows:
Fatigue Fatigue
Fuse Sensor
----------------- ------
Tensiodyne 1985-1 R&D Partnership --* --
Advanced Technology Center
Future Gross Sales 6.00%* --
Sublicensing Fees --** --
Variety Investments, Ltd 20.00% --
University of Pennsylvania
Net Sales of Licensed Products --
7.00% Net Sales of Services -- 2.50%
Sherman Baker 1.00% 0.50%
----- -----
27.00% 10.00%
------ ------
------ ------
*Royalties limited to specific rates of return as discussed in Notes
10(a) and (c) above.
F-27
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 10 - Commitments and Contingencies (Continued)
** The Company granted 12% royalties on sales from sublicensing.
These royalties are also limited to specific rates of return as
discussed in Note 11(c) above.
h. The Company has a teaming agreement with Southwest Research Institute
("SWRI") and the University of Pennsylvania (Collectively known as the
"Team"). On February 25, 1997, the United States Air Force awarded
the Team a $2,500,000 Phase I contract to "determine the feasibility
of [the Company's Electrochemical Fatigue Sensor ("EFS")] to improve
the Unites States Air Force capability to perform durability
assessments of military aircraft, including both air frames and
engines through the application of EFS to specific military aircraft
alloys". The Company is a subcontractor to SWRI and its share of the
award is approximately $550,000 which is to be disbursed for specific
purposes as defined in the contract.
Note 11 - Investments
The Company through a settlement with Tensiodyne Corporation received
6,625,000 of Class A Common Stock of Tensiodyne Corporation. These
shares are restricted and subject to Rule 144 of the Securities and
Exchange Commission. During 1996, the Company received approximately
$17,750 through the sale of 50,000 shares of Tensiodyne Corporation
stock.
As of December 31, 1996, of the remaining 6,575,000 shares owned by
the Company, approximately 690,000 shares were free trading. The
Company is accounting for the free trading shares pursuant to FASB
Statement 115. The 690,000 shares were valued at their market value
using the price as quoted on the bulletin board at December 31, 1996,
of $.08 per share. The Company has classified these shares as
available for sale and the unrealized gain on these shares at December
31, 1996, amounting to $55,200 has been classified to stockholders'
deficit.
F-28
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 12 - Stockholders' Equity
a. Warrants
On August 10, 1994, the Company granted 994,500 Class A Warrants to
Mr. Robert Bernstein, 170,000 Class A Warrants to Mr. Joel Freedman,
and 535,500 Class A Warrants to certain preferred shareholders. Each
Class A Warrant entitles the registered holder to purchase one share
of Class A Common Stock of the Company for $.50. On December 15,
1995, the Company's Board of Directors extended the expiration date of
the Warrants from August 22, 1996 to August 22, 1999.
At the dates of the original grant and subsequent extension, the
exercise price was greater than market value, therefore, no
compensation costs were recognized.
b. Class A Common Stock
The holders of the Company's Class A Common Stock are entitled to one
vote per share of common stock held.
c. Class B Common Stock
The holders of the Company's Class B Common Stock are not entitled to
dividends, nor are they entitled to participate in any proceeds in the
event of a liquidation of the Company. However the holders are
entitled to 200 votes for each share of Class B Common held.
d. Class A Preferred Stock
During 1991, the Company sold to a group of 15 individuals 2,585
shares of $100 par value preferred stock and warrants to purchase
2,000 shares of common stock for a total consideration of $258,500.
In the Company's spin off, these shares were exchanged for 350,000
shares of the Company's Class A Convertible Preferred Stock and
300,000 shares of its Class A Common Stock. The holders of these
shares have a liquidation preference to receive out of assets of the
Company, an amount
F-29
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 12 - Stockholders' Equity (Continued)
equal to $.72 per one share of Class A Preferred Stock. Such amounts
shall be paid upon all outstanding shares before any payment shall be
made or any assets distributed to the holders of the common stock or
any other stock of any other series or class ranking junior to the
Shares as to dividends or assets.
These shares are convertible to shares of the Company's common stock
at a conversion price of $.72 ("initial conversion price") per share
of Class A Preferred Stock which will be adjusted depending upon the
occurrence of certain events. The holders of these preferred shares
shall have the right to vote and cast that number of votes which the
holder would have been entitled to cast had such holder converted the
shares immediately prior to the record date for such vote.
The holders of these shares shall participate in all dividends
declared and paid with respect to the Common Stock to the same extent
had such holder converted the shares immediately prior to the record
date for such dividend.
e. Redeemable Preferred Stock
The Company has authorized a class of 900,000 shares of preferred
stock ($.001 par value) of which 100 shares have been designated Class
B Preferred Shares.
The holders of these shares have a liquidation preference to receive
out of assets of the Company, an amount equal to $10,000 per share.
Such amounts shall be paid upon all outstanding shares before any
payment shall be made or any assets distributed to the holders of the
common stock or any other stock of any other series or class ranking
junior to the Shares as to dividends or assets.
The holders of these preferred shares shall have the right to vote and
cast one vote per share on all matters on which the holders of common
stock have the right to vote. The holders of these shares shall be
entitled by class to vote to elect one member of the board of
directors and to vote as a class
F-30
<PAGE>
to remove any director so elected. The holders of these shares shall
participate in all cash dividends declared and paid with respect to
the
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 12 - Stockholders' Equity (Continued)
to remove any director so elected. The holders of these shares shall
participate in all cash dividends declared and paid with respect to
the Common Stock based upon a set formula as defined in the Company's
Class B Preferred Stock Certificate of Designation.
These shares may be redeemed at the option of the Corporation at any
time upon the payment of $10,000 per share, plus any unpaid dividend
to which the holders are entitled. The shares shall be redeemed at the
option of the holders thereof at any time after January 31, 2002.
g. Issuances Involving Non-cash Consideration
All issuances of the Company's stock for non-cash consideration have
been assign a dollar amount equaling either the market value of the
shares issued or the value of consideration received whichever is more
readably determinable. The majority of the non-cash consideration
received pertains to services rendered by consultants and others.
Note 13 - Transactions With Management
a. On December 10, 1992, the Company issued to Mr. Robert M. Bernstein,
the President of the Company, 60,000 shares of the Company's Class B
common stock. In exchange for the stock, Mr. Bernstein executed a
five year non-interest bearing note for $15,000. The Note is
non-recourse as the only security pledged for the obligation was the
stock purchased.
b. During 1993, Mr. Bernstein exercised warrants to purchase 56,000
shares of the Company's Class A common stock. Pursuant to the
resolution on April 12, 1993, adjusting the per share amount from
$10.00 to $2.50, Mr. Bernstein paid $560 and executed two five year
non-interest bearing notes
F-31
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 13 - Transactions With Management (continued)
to the Company for $124,500 and $14,940. The Note is non-recourse as
the only security pledged for the obligation was the stock purchased.
c. On February 28, 1994, the Company authorized the issuance of 10,000
shares of Class A Common Stock to Mr. Bernstein for past services.
d. In March 1994, Mr. Bernstein advanced the Company $48,750 of which
$12,000 was canceled in exchange for the issuance of 1,200,000 shares
of the Company's Class A Common Stock. Of these shares purchased, Mr.
Bernstein sold 420,000 shares for $4,200 to Joel Freedman and certain
preferred shareholders.
e. In 1994, the president and a director of the Company purchased 278,550
shares of the Company's Class A common stock for $2,786.
f. In 1995, the Company's Board of Directors amended the Company's
By-Laws increasing the number of Directors from 2 to 3, and
establishing an advisory board consisting of 7 people.
The Company authorized the issuance of 58,000 shares of its Class A
Common Stock to the new board member and authorized the issuance of
20,000 shares of its Class A Common Stock to each member of the
advisory board. Each member must serve on the advisory board for at
least 2 years or will have to return the issued shares back to the
Company.
g. On June 12, 1995, $108,000 of the total advances made by the Company's
President to the Company was converted into an interest bearing loan.
The loan is assessed interest at Mellon Bank, N.A. prime lending rate
and is convertible into 520,000 shares of the Company's Class A Common
Stock on a pro rata basis. The loan matures in five years and the
conversion of the $108,000 or any portion thereof can occur any time
prior to maturity.
In March 1997, the President converted the balance owed him into
520,000 shares of Common Stock.
F-32
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
h. In 1995, the Company forgave $154,600 on an obligation due from the
Company's President in consideration for the President returning
62,000 shares of the Company's Class A Common Stock to the Company's
Treasury.
Note 13 - Transactions With Management (continued)
i. During 1996, the Company's President made advances to the Company
totaling approximately $43,250. During 1996, the Company paid back to
the President approximately $64,676.
During 1996, a loan owed by the Company to an unrelated third party in
the amount of $55,000 was assigned to the Company's President. The
total amounts owed the president of the Company as of December 31,
1995 and 1996 amounted to $136,540 and $179,544, respectively. The
amount of accrued interest charged to operations on the President's
loans were $5,268 in 1995, and $9,430 in 1996.
In 1996, the Company issued the President 62,000 shares of its Class A
Common Stock for services.
Note 14 - Stock Option Plan
In January 1996, the Company registered with the Securities Exchange
Commission its 1996 Stock Option Plan. The plan was formed to
encourage ownership of the Common Stock of the Company by key
employees, advisors, consultants, and officers providing service to
the Company. 120,000 shares of Class A Common Stock are reserved
under the plan. The option price will be determined by a Committee
appointed by the Company's Board of Directors. In the case of
Incentive Stock Options granted to an optionee who owns more than 10%
of the Company's outstanding stock, the option price shall be at least
110% of the fair market value of a share of common stock at date of
grant.
F-33
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 14 - Stock Option Plan (continued)
During 1996, the Company received $174,040 through the issuance of
70,000 shares of the Company's Class A Common Stock through the plan.
Note 15 - Subsequent Events
The Company is in the process of preparing a registration statement
under the Securities Act of 1993 whereby the Company will register
369,172 shares of its common stock which will then distributed to
shareholders of Matech.
During the three month period ended March 31, 1997, the Company issued
100,000 shares of its Class A Common Stock. The amount received in
1997 to date amounted to approximately $78,256. The remaining balance
due is secured by 3,300 shares of Nevada Manhattan common stock.
During the three month period ended March 31, 1997, the Company
cancelled the approximately $372,000 of accrued salary owed the
Company's President in exchange for issuing to him 1,499,454 shares of
the Company's Class A Common Stock.
F-34
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1. Summary of Accounting Policies
In the opinion of the Company's Management, the accompanying unaudited
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position
of the Company as of March 31, 1996 and 1995, and the results of
operations and cash flows for the three month periods then ended. The
operating results of the Company on a quarterly basis may not be
indicative of the operating results for the full year.
Note 2. Investments
As of March 31, 1997, of the remaining 6,575,000 shares of Tensiodyne
Corporation Common Stock owned by the Company, approximately 690,000
shares were free trading and were valued at their market value using
the price as quoted on the bulletin board at March 31, 1997, of $.02
per share. The Company has classified these shares as available for
sale and the unrealized loss on these shares at March 31, 1997,
amounting to $41,400 has been classified to stockholders' deficit.
F-35
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, sales person, or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the distribution made by this Prospectus, and, if
given or made, such information or representations must not be relied upon as
having beeen authorized by the Company. Neither the delivery of this Prospectus
nor any distribution made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
date subsequent to the date hereof. This Prospectus does not constitute an
offer to sell or solicitation to buy the Shares of the Company.
MATERIAL
TECHNOLOGIES, INC.
369,172 SHARES OF CLASS A COMMON STOCK
PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-0
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Fees and expenses incurred or to be incurred in connection with the distribution
of securities being registered are as follows:
Securities and Exchange Commission filing fee $11
State Securities Laws (Blue Sky) fees and expenses $5,000 (Estimated)
Transfer Agent's Fees $500 (Estimated)
Printing and mailing expenses $3,000 (Estimated)
Legal fees and costs $30,000 (Estimated)
Accounting fees and costs $5,000
Miscellaneous Expenses $3,000 (Estimated)
------ -----------
TOTAL $46,511
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Delaware general corporation law, the Company has included a
provision in its Certificate of Incorporation to limit the personal liability of
its directors for violation of their fiduciary duty. The provision serves to
eliminate such directors' liability to the Company or its stockholders for
monetary damages, except for (i) any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) acts of omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
unlawful payment of dividends or unlawful
<PAGE>
stock purchases or redemptions, or (iv) any transaction from which a director
derived an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed 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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 9, 1997, the Company's Board authorized the issuance 5,560,000 shares
of its Class A Common Stock to Material Technology, Inc., in connection with the
February 17, 1997 Stock Purchase Agreement among Montpilier Holdings, Inc.,
SecurFone America, Inc., Material Technology, Inc., and Robert M. Bernstein.
Material Technology, Inc., will retain 560,000 shares and the remaining
5,000,000 shares are being distributed on the effective date of this
registration statement to the holders of Material Technology, Inc.'s 5,000,000
shares of common stock in a ratio of one to one as follows: (a) 2,936,130 to
Robert M. Bernstein, (b) 339,172 to 405 shareholders of Material Technology,
Inc., under this registration statement, and (c) 1,724,698 shares to insiders
and affiliates including 1,580,441 shares to the Baker Group.
On March 9, 1997, the Company's Board authorized the issuance of 60,000 shares
of Class B Common Stock to Robert M. Bernstein.
On March 9, 1997, the Company's Board authorized the issuance of 350,000 shares
Class A Preferred Stock to the Baker Group.
On March 9, 1997, the Company's Board authorized the issuance of 15 shares of
Class B Convertible Preferred to Tensiodyne Corporation.
On March 9, 1997, the Company's Board authorized the issuance of 1,700,000 Class
A Warrants, 994,500 to Robert M. Bernstein, 170,000 to Joel Freedman, and
535,500 to Sherman Baker and his associates.
For additional information concerning these transactions, see "Principal
Stockholders" and "Warrants."
The securities were issued in reliance upon applicable exemptions including the
exemption from the registration contained in Section 4(2) of the Securities Act
of 1933, as amended (the "Act"). The issuances did not involve public offerings
of securities, no general solicitation or advertising was involved in connection
with the offering and the purchasers took for investment only and not with a
view to distribution of the securities.
<PAGE>
ITEM 16. EXHIBITS
- --------------------------------------------------------------------------------
Exhibit No. Description Page No.
- --------------------------------------------------------------------------------
2.1 Stock Purchase Agreement among Montpilier Holdings,
Inc., SecurFone America, Inc., Material Technology,
Inc., and Robert M. Bernstein
- --------------------------------------------------------------------------------
2.2 Letter Agreement among Montpilier Holdings, Inc.,
Material Technology, Inc., and Robert M. Bernstein
- --------------------------------------------------------------------------------
3(i) Certificate of Incorporation of Material Technologies,
Inc.
- --------------------------------------------------------------------------------
3(ii) Bylaws of Material Technologies, Inc.
- --------------------------------------------------------------------------------
4.1 Class A Convertible Preferred Stock Certificate of
Designations
- --------------------------------------------------------------------------------
4.2 Class B Convertible Preferred Stock Certificate of
Designations
- --------------------------------------------------------------------------------
5 Opinion of C. Timothy Smoot re legality
- --------------------------------------------------------------------------------
10.1 License Agreement Between Tensiodyne Corporation and
the Trustees of the University of Pennsylvania
- --------------------------------------------------------------------------------
10.2 Sponsored Research Agreement between Tensiodyne
Corporation and the Trustees of the University of
Pennsylvania
- --------------------------------------------------------------------------------
10.3 License Agreement Between Tensiodyne Scientific
Corporation and the Trustees of the University of
Pennsylvania
- --------------------------------------------------------------------------------
10.4 Repayment Agreement Between Tensiodyne Scientific
Corporation and the Trustees of the University of
Pennsylvania
- --------------------------------------------------------------------------------
10.5 Teaming Agreement Between Tensiodyne Scientific
Corporation and Southwest Research Institute
- --------------------------------------------------------------------------------
10.6 Letter Agreement between Tensiodyne Scientific
Corporation, Robert M. Bernstein, and Stephen Forrest
Beck and Handwritten modification.
- --------------------------------------------------------------------------------
10.7 Agreement Between Tensiodyne Corporation and Tensiodyne
1985-1 R&D Partnership is incorporated by reference
from Exhibit 10.3 of Material Technology, Inc.'s S-1
Registration Statement, File No. 33-83526 which became
effective on January 19, 1996.
- --------------------------------------------------------------------------------
10.8 Amendment to Agreement Between Material Technology,
Inc. and Tensiodyne 1985-1 R&D Partnership is
incorporated by reference from Exhibit 10.6 of Material
Technology, Inc.'s S-1 Registration Statement, File No.
33-83526 which became effective on January 19, 1996.
- --------------------------------------------------------------------------------
10.9 Agreement Between Advanced Technology Center of
Southeastern Pennsylvania and Material Technology, Inc.
is incorporated by reference from Exhibit 10.4 of
Material Technology, Inc.'s S-1 Registration Statement,
File No. 33-83526 which became effective on January 19,
1996.
- --------------------------------------------------------------------------------
10.10 Addendum to Agreement Between Advanced Technology
Center of Southeastern Pennsylvania and Material
Technology, Inc. is incorporated by reference from
Exhibit 10.5 of Material Technology, Inc.'s S-1 Regis-
tration Statement, File No. 33-83526 which became
effective on January 19, 1996.
- --------------------------------------------------------------------------------
10.11 Shareholder Agreement Between Tensiodyne Corporation,
Variety Investments, Ltd. and Countryman Investments,
Ltd. is incorporated by reference from Exhibit 10.7 of
Material Technology, Inc.'s S-1
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Registration Statement, File No. 33-83526 which became
effective on January 19, 1996.
- --------------------------------------------------------------------------------
10.12 Agreement and Plan of Reorganization By and Between
Tensiodyne Corporation, Pegasus Technologies, Inc. and
Lloyd and E. Anne Eisenhower and Doug Froom is
incorporated by reference from Exhibit 2.1 of Material
Technology, Inc.'s S-1 Registration Statement, File No.
33-83526 which became effective on January 19, 1996.
- --------------------------------------------------------------------------------
10.13 Settlement Agreement and Modification to Agreement and
Plan of Reorganization is incorporated by reference
from Exhibit 2.3 of Material Technology, Inc.'s S-1
Registration Statement, File No. 33-83526 which became
effective on January 19, 1996.
- --------------------------------------------------------------------------------
10.14 Equipment Loan Agreement between Tensiodyne and the
University of Pennsylvania is incorporated by reference
from Exhibit 10.8 of Material Technology, Inc.'s S-1
Registration Statement, File No. 33-83526 which became
effective on January 19, 1996.
- --------------------------------------------------------------------------------
23.1 Consent of Jonathan P. Reuben, C.P.A., An Accountancy
Corporation
- --------------------------------------------------------------------------------
23.2 Consent of C. Timothy Smoot, Attorney
- --------------------------------------------------------------------------------
27 Financial Data Schedule
- --------------------------------------------------------------------------------
<PAGE>
ITEM 17. UNDERTAKINGS
ITEM 512(h) - 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 Act 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 or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, 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 Act and will
be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on the 28th day of April, 1997.
Registrant: MATERIAL TECHNOLOGIES, INC.
By: Robert M. Bernstein
Robert M. Bernstein
President and Chief Executive Officer
Pursuant to 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 indicated.
Signature Title Date
---------
Robert M. Bernstein Chairman of the Board, President, April 28, 1997
Robert M. Bernstein Chief Executive Officer, Chief
Financial Officer (Principal
Executive Officer, Principal
Financial Officer, and Principal
Accounting Officer)
Joel Freedman Director and Secretary April 28, 1997
Joel Freedman
John Goodman Director April 28, 1997
John Goodman
<PAGE>
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
AMONG
MONTPILIER HOLDINGS, INC.
SECURFONE AMERICA, INC.
MATERIAL TECHNOLOGY, INC.
and
ROBERT M. BERNSTEIN
DATED AS OF
FEBRUARY __, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
1. Sale and Purchase of Shares. 1
1.1 Sale of Shares. 1
1.2 Payment of the Purchase Price 1
1.3 Delivery of Shares. 1
1.4 Reimbursement of Expenses 1
1.5 Consulting Fee to RMB 2
2. Closing; Closing Date 2
3. Representations and Warranties of the Company 2
3.1 Due Incorporation and Authority 2
3.2 Authority to Execute and Perform Agreement 3
3.3 Qualification; Subsidiaries, Etc. 3
3.4 Outstanding Capital Stock 3
3.5 Options or Other Rights 4
3.6 Certificate of Incorporation and By-laws 4
3.7 Financial Statements 4
3.8 No Material or Adverse Change 5
3.9 Tax Matters 5
3.10 Compliance with Laws 5
3.11 No Breach 5
3.12 Actions and Proceedings 6
3.13 Contracts and Other Agreements 6
3.14 Real Property 7
3.15 Environmental Matters 8
3.16 Intangible Property 9
3.17 Title to Assets 10
3.18 Liabilities 10
3.19 Employee Obligations 10
3.20 Employee Benefit Plans 11
3.21 Officers, Directors and Key Employees 11
3.22 Operations of Matech 12
3.23 Potential Conflicts of Interest 13
3.24 Full Disclosure 13
4. Representations and Warranties of MHI 14
4.1 Title to Shares. 14
4.2 Authority to Execute and Perform Agreement 14
4.3 Purchase for Investment 14
5. Representations and Warranties of SecurFone 15
5.1 Due Incorporation 15
<PAGE>
5.2 Authority to Execute and Perform Agreement 15
5.3 No Breach 15
5.4 Qualification; Subsidiaries, Etc. 15
5.5 Outstanding Capital Stock 16
5.6 Options or Other Rights 16
5.7 Certificate of Incorporation and By-laws 16
5.8 Financial Statements 16
5.9 No Material or Adverse Change 17
5.10 Tax Matters 17
5.11 Compliance with Laws 17
5.12 No Breach 17
5.13 Actions and Proceedings 18
5.14 Contracts and Other Agreements 18
5.15 Real Property 19
5.16 Environmental Matters 20
5.17 Intangible Property 21
5.18 Title to Assets 22
5.19 Liabilities 22
5.20 Employee Obligations 22
5.21 Employee Benefit Plans 23
5.22 Officers, Directors and Key Employees 23
5.23 Operations of SecurFone 24
5.24 Potential Conflicts of Interest 25
5.25 Full Disclosure 25
6. Covenants and Agreements 26
6.1 Spin-Off of Business of Matech 26
6.2 RMB's Accrued Salary and Class B Stock and Convertible
Notes 26
6.3 Preferred Stock of Matech 26
6.4 No Sale of Stock by RMB 27
6.5 Conduct of Business of SecurFone 27
6.6 Continued Effectiveness of Representations and
Warranties 27
6.7 Corporate Examinations and Investigations 27
6.8 Expenses 28
6.9 Indemnification of Brokerage 28
6.10 Further Assurance 28
7. Conditions Precedent to the Obligation of MHI and SecurFone to Close 29
7.1 Representations and Covenants 29
7.2 Governmental Permits, Approvals and Third Party Consents 29
7.3 Legal Proceedings 29
7.4 Certified Copy of Resolutions 29
7.5 Officer's Certificate 29
7.6 Approval of Counsel to the Buyer 30
7.7 Releases 30
7.8 Resignations 30
7.9 Lock-Up and Registration Rights Agreement 30
<PAGE>
7.10 Delivery of Documents 30
8. Conditions Precedent to the Obligation of Matech and RMB to Close 30
8.1 Representations and Covenants 30
8.2 Governmental Permits and Approvals 31
8.3 Certified Copy of Resolutions 31
8.4 Officer's Certificates 31
8.5 Approval of Counsel to Matech and RMB 31
8.6 Completion of Spin-Off 31
8.7 Pledge of Newco Shares. 31
8.8 Consulting Agreement 31
9. Survival of Representations and Warranties 31
10. General Indemnification 32
10.1 Obligation of RMB to Indemnify 32
10.2 Obligation of SecurFone to Indemnify 32
10.3 Notice and Opportunity to Defend 33
10.3.1 Notice of Asserted Liability 33
10.3.2 Opportunity to Defend 33
11. Termination of Agreement 34
11.1 Termination 34
11.2 Survival 34
12. Resolution of Disputes 34
12.1 Required Notice and Limitations Period 35
12.2 Procedures 35
12.3 The Arbitrator's Decision 37
13. Miscellaneous 37
13.1 Certain Definitions 37
13.2 Publicity 38
13.3 Notices 38
13.4 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies 39
13.5 Governing Law 39
13.6 Binding Effect; Assignment 40
13.7 Variations in Pronouns 40
13.8 Counterparts 40
13.9 Exhibits and Schedules 40
13.10 Headings 40
13.11 Entire Agreement 40
<PAGE>
EXHIBITS
A: Escrow Agreement Section 1.2(i)
B: Note Section 1.2(ii)
C: Form of Release Section 7.7
D: Form of Letter of Resignation Section 7.8
E: Consulting Agreement Section 8.8
<PAGE>
SCHEDULES
COMPANY
3.3 -- Qualifications
3.5 -- Options or Other Rights
3.6 -- Certificate of Incorporation and By-laws
3.7 -- Financial Statements
3.10 -- Compliance with Laws
3.11 -- Approvals or Consents
3.12 -- Actions and Proceedings
3.13 -- Contracts
3.14 -- Real Property
3.15 -- Environmental Matters
3.16 -- Intangible Property
3.17 -- Liens or Encumbrances
3.18 -- Liabilities
3.19 -- Employee Obligations
3.20 -- Employee Benefit Plans
3.21 -- Officers, Directors and Key Employees
3.22 -- Operations of the Company
3.23 -- Potential Conflicts of Interest
SECURFONE
5.3 -- Approvals or Consents
5.4 -- Qualifications
5.6 -- Options or Other Rights
<PAGE>
5.7 -- Certificate of Incorporation and By-laws
5.8 -- Financial Statements
5.11 -- Compliance with Laws
5.12 -- Approvals or Consents
5.13 -- Actions and Proceedings
5.14 -- Contracts
5.15 -- Real Property
5.16 -- Environmental Matters
5.17 -- Intangible Property
5.18 -- Liens or Encumbrances
5.19 -- Liabilities
5.20 -- Employee Obligations
5.21 -- Employee Benefit Plans
5.22 -- Officers, Directors and Key Employees
5.23 -- Operations of SecurFone
5.24 -- Potential Conflicts of Interest
6.6 -- Certain Affiliated Stockholders
6.9 -- Brokers
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") dated as of the __th
day of February 1997, among MONTPILIER HOLDINGS, INC., a Nevada corporation
("MHI"), SECURFONE AMERICA, INC., a Delaware corporation ("SecurFone"), and
ROBERT M. BERNSTEIN, a resident of Los Angeles, California ("RMB"), and MATERIAL
TECHNOLOGY, INC. ("Matech"), a Delaware corporation.
RECITALS:
MHI owns all of the issued and outstanding shares of capital stock of
SecurFone.
RMB owns or controls (i) 916,676 shares of Class A Common Stock of
Matech, constituting 33.45% of the issued and outstanding shares of such class
and (ii) 60,000 shares of Class B Common Stock of Matech, constituting 100% of
the issued and outstanding shares of such class. At the Closing, RMB will own or
control 2,371,130 shares of the Class A Common Stock of Matech, constituting
47.4% of the 5,000,000 then issued and outstanding shares of Class A Common
Stock, and no shares of Class B Common Stock will be outstanding.
Matech wishes to sell, and MHI wishes to purchase, 4,500,000 (as
adjusted to reflect the 1-for-10 reverse stock split described in Section 6.1 of
this Agreement) authorized but unissued shares of Class A Common Stock of Matech
(the "Shares"), which shares will constitute 90% of the Class A Common Stock to
be issued and outstanding as of the Closing Date, upon the terms and conditions
of this Agreement.
Accordingly, the parties agree as follows:
1. SALE AND PURCHASE OF SHARES.
1.1 SALE OF SHARES. At the closing provided for in Section
2 (the "Closing"), (i) Matech shall sell and MHI shall purchase all of the
Shares for a purchase price consisting of all of the 3,000 issued and
outstanding shares of common stock of SecurFone.
1.2 PAYMENT OF THE PURCHASE PRICE .
The Purchase Price shall be paid by MHI by delivery to Matech at
Closing of certificate(s) representing all of the 3,000 issued and outstanding
shares of SecurFone, duly endorsed in blank for transfer.
1.3 DELIVERY OF SHARES. At the Closing, Matech shall deliver or
cause to be delivered to MHI stock certificates representing all of the
Purchased Shares, duly endorsed in blank for transfer.
1.4 REIMBURSEMENT OF EXPENSES . SecurFone agrees to reimburse
Matech for its expenses, in an amount equal to $120,000, incurred in connection
with the transactions
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contemplated by this Agreement. No proof of these expenses need be provided to
SecurFone. This payment shall be made by (1) delivery to Kohrman Jackson &
Krantz P.L.L. (the "Escrow Agent"), at the execution of this Agreement of
$70,000, by certified check or by wire transfer of immediately available funds,
payable to the order of Newco, as defined in Section 6.1 hereof, to be held
until the Closing and to be distributed by the Escrow Agent in accordance with
the terms of the Escrow Agreement attached hereto as Exhibit A; and (2) delivery
to Newco at the Closing of a non-recourse promissory note of SecurFone,
substantially in the form of Exhibit B hereto (the "Note"). The Note shall be in
the principal amount of $50,000, shall not bear any interest, and shall be
payable in two installments of $25,000 on the date that is 30 days after Closing
and $25,000 on the date that is 75 days after Closing. Payment of the Note shall
be secured by a pledge to Newco of 500,000 shares of common stock of Newco that
will be retained by Matech and not distributed to Matech's shareholders,
pursuant to the terms of a pledge agreement to be agreed to by SecurFone and
Matech prior to Closing.
1.5 CONSULTING FEE TO RMB . SecurFone agrees to pay a consulting
fee to RMB in the amount of $5,000 in consideration for his services pursuant to
the Consulting Agreement referred to in Section 8.8 of this Agreement. This
amount shall be deposited into escrow together with the $70,000 deposited
pursuant to Section 1.4 of this Agreement and paid to RMB at the closing.
2. CLOSING; CLOSING DATE. The closing of the sale and purchase
of the Purchased Shares contemplated hereby shall take place at the offices of
Matech, 11835 West Olympic Boulevard, Los Angeles, California, at 10:00 a.m.
local time, on the third business day after the effectiveness of the
registration statement on Form S-1 (the "Registration Statement") to be filed by
Matech with the Securities and Exchange Commission with respect to the spin-off
of its subsidiary, as described herein (the "Closing"), or such other time, date
or place as MHI and Matech agree in writing, but in no event later than May 30,
1997. The time and date upon which the Closing occurs is hereinafter referred to
as the "Closing Date."
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As of the
date of this Agreement and as of the Closing Date, Matech and RMB, jointly and
severally, represent and warrant to MHI as follows:
3.1 DUE INCORPORATION AND AUTHORITY . Matech is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and lawful authority to own, lease
and utilize its assets, properties and business and to carry on its business as
such business is presently being conducted and as it is presently contemplated
that such business will be conducted in the future.
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3.2 AUTHORITY TO EXECUTE AND PERFORM AGREEMENT . Matech and RMB have
the full legal right and power and all authority and approval required to
enter into, execute and deliver this Agreement, and to perform fully their
respective obligations hereunder. This Agreement has been duly executed and
delivered by Matech and RMB. This Agreement is the valid and binding
obligation of Matech and RMB, enforceable in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights, or
by limitations in the availability of the remedy of specific performance or
injunctive relief.
3.3 QUALIFICATION; SUBSIDIARIES, ETC. Matech is duly qualified
or otherwise authorized as a foreign corporation to transact business and is in
good standing in each jurisdiction where such qualification or authorization is
required, which jurisdictions are set forth on Schedule 3.3. The failure to
obtain such qualification or authorization in any other jurisdiction will not
adversely affect the "condition of Matech" (as defined in Article 13). Except as
set forth on Schedule 3.3, Matech does not directly or indirectly own any
interest in any other person, corporation, partnership or other entity.
3.4 OUTSTANDING CAPITAL STOCK. Matech is authorized to issue (i)
100,000,000 shares of Class A Common Stock, $.001 par value, of which
2,740,546 shares are issued and outstanding as of the date of this Agreement
and 5,000,000 shares will be issued and outstanding as of the Closing Date;
(ii) 300,000 shares of Class B Common Stock, $.001 par value, of which 60,000
shares are issued and outstanding as of the date of this Agreement and no
shares will be outstanding as of the Closing Date; (iii) 10,000,000 shares of
Class A Preferred Stock, $.001 par value, of which 350,000 shares are issued
and outstanding as of the date of this Agreement and no shares will be
outstanding as of the Closing Date; and (iv) 510 shares of Class B Preferred
Stock, $.001 par value, none of which are issued and outstanding. No other
class of capital stock of Matech is authorized or outstanding. All of the
Shares are duly authorized and are validly issued, fully paid and
nonassessable and are not subject to any preemptive rights. There are no
voting trust agreements or other contracts, agreements, or arrangements
restricting voting or dividend rights or transferability with respect to the
Shares. Matech has not violated any federal, state or local law, ordinance,
rule or regulation in connection with the offer for sale or sale and issuance
of its outstanding shares of capital stock or any other securities. RMB
represents and warrants that since December 13, 1996, he has sold no more
than 26,000 shares of Class A Common Stock of Matech. The list of holders of
Matech's Class A Comon Stock, dated December 19, 1996, previously delivered
to MHI and SecurFone, is true and correct as of the date of this Agreement,
except that an additional 100,000 shares were issued between December 19,
1996 and the date of this Agreement, and
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each of the share certificates identified with the letter "I" in such list
contains a legend restricting the transfer of the shares represented by such
certificate, without compliance with or exemption from the provisions of the
Securities Act of 1933, as amended.
3.5 OPTIONS OR OTHER RIGHTS . Except as set forth on Schedule
3.5, there is no outstanding right, subscription, warrant, call, unsatisfied
preemptive right, option or other agreement of any kind, and there is no
commitment of Matech to issue or grant such right, to purchase or otherwise to
receive from Matech any of the outstanding, authorized but unissued,
unauthorized or treasury shares of the capital stock or any other security of
Matech, and there is no outstanding security of any kind convertible or
exchangeable into such capital stock.
3.6 CERTIFICATE OF INCORPORATION AND BY-LAWS . Matech has
heretofore delivered to the Buyer true and complete copies of the Certificate of
Incorporation and of the By-laws of Matech (certified by the secretary of
Matech) as in effect on the date hereof; prior to the Closing Date, Matech will
deliver a copy if its Certificate of Incorporation certified by the Delaware
Secretary of State. Matech's corporate record book and stock transfer records
shall accurately reflect all action taken through the Closing Date.
3.7 FINANCIAL STATEMENTS . The audited balance sheets of Matech
as of December 31, 1994, 1995 and 1996, and the related statements of income and
retained earnings and cash flow for the 12 month periods then ended, including
the notes thereto (the "Annual Financial Statements"), shall be delivered to MHI
by Matech prior to the filing of the Registration Statement. The Annual
Financial Statements will be certified by a firm of independent certified public
accountants and will be accurate and complete and present fairly in all material
respects the financial position of Matech as at such dates and the results of
operations of Matech for such respective periods, in each case in accordance
with generally accepted accounting principles consistently applied for the
periods covered thereby and prepared on a basis consistent with the Matech's
prior practices. Except as reflected on said financial statements, as of the
dates thereof there were no accrued or undisclosed liabilities, there were no
special or non-recurring charges against income, and there were no matters for
which reserves should be established.
3.8 NO MATERIAL OR ADVERSE CHANGE . Since December 31, 1996,
there has been no material or adverse change in the condition of Matech, and
neither Matech nor RMB knows of any such change which is threatened, nor has
there been any damage, destruction or loss, whether or not covered by insurance,
which could have or has had a material or adverse effect on the condition of
Matech.
3.9 TAX MATTERS . All tax returns (federal, state, county and
local) which were required to be filed through December 31, 1996 will be duly
filed with the appropriate taxing
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authority, and Matech will pay all taxes shown as due and payable on such
returns, prior to the filing of the Registration Statement. All payments of
taxes (including amounts withheld from employees) due and payable through the
Closing, including, without limitation, federal, state and local income taxes,
personal property taxes, sales taxes, excise taxes and real estate taxes, will
be fully paid prior to the Filing of the Registration Statement. Matech has not
made or entered into any agreement or arrangement pursuant to which the statute
of limitations, or any other time limitations, or the right by or of the
Internal Revenue Service or any other tax body or authority to audit, review or
challenge any tax return filed by Matech, would be extended beyond the periods
provided by law or regulation.
3.10 COMPLIANCE WITH LAWS . Matech is not in violation of any
applicable federal, state, local or foreign law, ordinance, regulation, order,
judgment, injunction, award, decree or other requirement of any governmental or
regulatory body, court or arbitrator, which violation could have a material or
adverse effect on the condition of Matech. Matech has all licenses, permits,
orders or approvals of, and has made all required registrations with, any
governmental or regulatory body that are material to the conduct of the business
of Matech and to its use of its properties and assets (collectively, "Permits").
The Permits are listed on Schedule 3.10 and are in full force and effect. No
material violations are or have been recorded in respect of any Permit, and no
proceeding is pending or threatened to revoke or limit any Permit. There is no
federal, state or local ordinance, regulation or order which adversely effects
or may adversely effect the ability of Matech to produce and distribute its
products or otherwise conduct its business.
3.11 NO BREACH . The execution and delivery by Matech of this
Agreement, the consummation of the contemplated transactions (including the
transfer of assets to a new subsidiary), and the performance by Matech of this
Agreement in accordance with the terms and conditions hereof, will not (i)
require the approval or consent of any federal, state, county, local or other
governmental regulatory body (domestic or foreign), or the approval of any other
person or entity, except as set forth on Schedule 3.11; (ii) conflict with or
result in any breach or violation of any of the terms of, result in a material
modification of, or otherwise give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both constitute) a
default under, the Certificate of Incorporation or Bylaws of Matech, or any
material contract or other agreement to which Matech is a party or by or to
which Matech's assets or properties may be bound or subject; (iii) violate any
order, writ, judgment, injunction, award or decree of any court, arbitrator or
governmental or regulatory body against, or binding upon, Matech or upon the
assets of Matech; (iv) violate any statute, law or regulation of any
jurisdiction, which violation could have a material or adverse effect on the
condition of Matech;
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(v) violate or result in the revocation or suspension of any Permit, or (vi)
result in the imposition of any lien, security interest or claim in favor of any
person or entity other than MHI.
3.12 ACTIONS AND PROCEEDINGS . There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against Matech. Except as set forth on Schedule
3.12, there are no actions, suits or claims or legal, administrative or arbitral
proceedings or investigations (whether or not the defense thereof or liabilities
in respect thereof are covered by insurance) pending, or to the knowledge of the
Seller threatened, against or involving Matech or any of its properties or
assets. All notices required to have been given to any insurance company listed
as insuring against any action, suit or claim set forth on Schedule 3.12 have
been timely and duly given and no insurance company has asserted, orally or in
writing, that such claim is not covered by the applicable policy relating to
such claim or has reserved its right to so assert at a later date. Schedule 3.12
also describes any dispute with or claim from a sales agent, broker or customer
in connection with or related to a product warranty claim, commission, fee,
pricing or any other monetary dispute which involves $5,000 or more.
3.13 CONTRACTS AND OTHER AGREEMENTS . Schedule 3.13 sets forth
all of the following contracts and other agreements to which Matech is a party
or by or to which it or its assets or properties are bound or subject: (i)
contracts and other agreements with any current or former employee, officer,
director or affiliate or with any other current employee or consultant or with
an entity in which any of the foregoing is a controlling person; (ii) contracts
and other agreements with any labor union or association representing any
employee; (iii) contracts and other agreements with any person to sell,
distribute or otherwise market, or to produce, any products or services of
Matech; (iv) contracts and other agreements, pursuant to which Matech will
receive payments in excess of $10,000; (v) contracts and other agreements for
the sale of any of its assets other than in the ordinary course of business or
for the grant to any person of any option or preferential rights to purchase any
of its assets; (vi) joint venture agreements; (vii) contracts and other
agreements under which it agrees to indemnify any party or to share tax
liability of any party; (viii) contracts or other agreements pursuant to which
Matech is a licensor or licensee of any rights; (ix) contracts and other
agreements that can be canceled without liability, premium or penalty only on
ninety days' or more notice; (x) contracts and other agreements with customers,
distributors or suppliers for the sharing of fees, the rebating of charges or
other similar arrangements; (xi) contracts and other agreements containing
covenants of Matech not to compete in any line of business or with any person in
any geographical area or covenants of any other person not to compete with
Matech in any line of business or in any geographical area; (xii) contracts and
other agreements relating to the
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acquisition by Matech of any operating business or the capital stock of any
other person; (xiii) contracts and other agreements requiring the payment to any
person of an override or similar commission or fee; (xiv) contracts and other
agreements relating to the borrowing of money; or (xv) any other contracts and
other agreements whether or not made in the ordinary course of business (other
than those reflected on any other Schedule) pursuant to which payments in excess
of $5,000 may be expected to be made. All of the foregoing shall be collectively
referred to hereinafter as the "Contracts". Matech has made available to MHI
true, correct and complete copies of all of the Contracts. All of the Contracts
are valid, binding and in full force and effect. Except as described on Schedule
3.13, Matech is not in default under any of the Contracts, nor, to the knowledge
of Matech and RMB, is any other party to any of the Contracts in default
thereunder in any material respect, nor does any condition exist that with
notice or lapse of time or both would constitute a material default thereunder.
Except as separately identified on Schedule 3.13, no approval or consent of any
person is needed in order that any of the Contracts continue in full force and
effect following the consummation of the transactions contemplated hereby.
Schedule 3.13 also lists all contracts and other agreements currently in
negotiation or proposed by Matech of a type which if entered into by Matech
would be required to be listed on Schedule 3.13 or on any other Schedule. Matech
has made available to MHI true and correct copies of the latest drafts or
summaries of all such proposed contracts and other agreements and copies of all
documents relating thereto.
3.14 REAL PROPERTY . Matech owns no real property. Matech leases
certain office space located at 11835 West Olympic Boulevard, East Tower 705,
Los Angeles, California 90064 ("Leased Property"), a copy of which lease has
been furnished to MHI. Matech is not in default under any lease for Leased
Property, and, with respect to Matech, there is no default or event of default
or set of facts which has occurred which, with notice or lapse of time or both,
would constitute a default. The Leased Property is zoned to permit its present
use, there is no record of any violation of any zoning, building or other
restriction relating to the use of the Leased Property, the existing use and
current operation of the building or buildings on the Leased Property does not,
and the past operations did not, violate any applicable environmental laws or
regulations and all certificates, permits, licenses and other authorizations of
governmental bodies or authorities which are necessary to permit the use and
occupancy of the Leased Property for its current operations have been obtained
by Matech, have not been violated or breached, and are in full force and effect.
The only real property in which Matech has any interest is the Leased Property
described above. Such property shall be referred to hereinafter as the
"Property".]
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3.15 ENVIRONMENTAL MATTERS . The terms used in this Section 3.15
shall have the meanings specified by applicable local, state, federal or foreign
statutes or regulations with the respect to environmental protection, including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601 ET SEQ., and regulations
promulgated thereunder, each as amended ("CERCLA"), the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 ET SEQ., and regulations promulgated
thereunder, each as amended ("RCRA"), and other laws and regulations concerning
water pollution, groundwater protection, air pollution, solid wastes, hazardous
wastes, spills or other releases of toxic or hazardous substances,
transportation and disposal of hazardous substances, materials and wastes and
occupational or employee health and safety (collectively, the "environmental
laws").
(a) There has been no past, and there is no current or
presently anticipated, storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of toxic wastes, solid wastes, hazardous
wastes or hazardous substances by Matech (or any of its predecessors-in-interest
or any predecessor owner or operator of any of the Property) at, upon, or away
from any of the Property. There has been no spill, discharge, leak, emission,
injection, escape, dumping or release of any kind onto any of the Property, or
into the environment surrounding any of the Property, of any toxic wastes, solid
wastes, hazardous wastes or hazardous substances. No asbestos fibers or
materials or polychlorinated biphenyls (PCBs) are on or in any of the Property.
(b) None of the Property has previously been used, is
now being used, or is contemplated to be used, for the treatment, collection,
storage or disposal of any refuse or objectionable wastes so as to require a
permit or approval from the United States Environmental Protection Agency
(the"EPA") or any state agency responsible for protection of the environmental
(a "State EPA").
(c) None of the Property has previously been used, is
now being used, or is contemplated to be used, for the generation,
transportation, treatment, storage or disposal of any hazardous wastes subject
to regulation by the EPA or any State EPA pursuant to the environmental laws.
(d) No written reports of environmental audits or internal
audits relating to environmental matters have been prepared within the last five
years, and no citations, orders and decrees have been issued within the last
five years by, for or on behalf of Matech and/or concerning any of the Property
by or with any governmental agency with respect to the treatment, storage or
disposal of hazardous wastes or with respect to air, water and noise pollution.
Matech has not received notification pursuant to CERCLA or any of the
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environmental laws, or any regulations thereunder, of any potential liability
with the respect to the clean-up of any waste disposal site at which it has
disposed of any hazardous substances or with respect to any other alleged
violation of any of the environmental laws.
3.16 INTANGIBLE PROPERTY . Schedule 3.16 sets forth all patents,
trademarks, copyrights, service marks and trade names, all applications for any
of the foregoing, and all permits, grants and licenses or other rights running
to or from Matech relating to any of the foregoing that are material to the
business of Matech (collectively, "Patents and Trademarks"). Matech has the
right to use, free and clear of any claims or rights of others, all trade
secrets, inventions, know how, processes, logos and technology, designs utilized
in or incident to the conduct of its business as presently conducted or as being
developed ("Trade Secrets"). Except as set forth on Schedule 3.16, Matech does
not have any notice that any other person or entity disputes Matech's ownership
or right to use any Patents and Trademarks and/or Trade Secrets, or notice of
any claim of any other person or entity relating to any of the Patents and
Trademarks or any of the Trade Secrets of Matech, and neither Matech nor RMB
knows of any basis for any such dispute or claim. Neither Matech nor RMB has any
knowledge that any person or entity has infringed upon the rights of Matech with
respect to any Patents and Trademarks or Trade Secrets, and Matech has not
infringed upon any patent, copyright, trademark, trade secret or other
intellectual property right of any other person or entity. The books of account
and other corporate records of Matech are complete and correct in all material
respects and have been maintained in accordance with good business practice.
Schedule 3.16 lists all bank accounts maintained by Matech and the names
and capacities of all persons authorized to draw thereon or who
have access thereto.
3.17 TITLE TO ASSETS . Matech owns outright and has good and
marketable title to all of the assets used in its business, including, without
limitation, all of the assets reflected on the Balance Sheet, in each case free
and clear of any lien or other encumbrance, except for (i) liens or encumbrances
specifically described in Schedule 3.17 hereto; (ii) assets disposed of, or
subject to purchase or sales orders, in the ordinary course of business since
the Balance Sheet Date; (iii) liens or other encumbrances securing taxes,
assessments, governmental charges or levies, or the claims of materialmen,
carriers, landlords and like persons, all of which are not yet due and payable;
or (iv) minor liens or other encumbrances of a character that do not
substantially impair the assets to which they apply.
3.18 LIABILITIES . As at December 31, 1996, Matech does not have
any indebtedness, liability, claim or loss, liquidated or unliquidated, secured
or unsecured, accrued, absolute, contingent or otherwise, of a kind required by
generally accepted accounting principles to be set forth on a financial
statement or in the notes thereto ("Liabilities") that were
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not fully and adequately reflected or reserved against on the Balance Sheet or
described in the notes to the Financial. Matech has not, except in the ordinary
course of business, incurred any Liabilities since December 31, 1996.
3.19 EMPLOYEE OBLIGATIONS . Matech has no policies with respect
to vacation pay, holiday and/or sick pay, severance pay, pension and
profit-sharing contributions, health, medical or any other type of employee
benefit plan to which Matech presently contributes or is required to contribute,
nor is Matech indebted to any employee other than for wages and benefits earned
during the current payroll period which are not yet due and payable and
compensation due to RMB as disclosed in the financial statements. There are no
controversies pending between Matech and any of its employees, which
controversies have affected or may affect materially and adversely the condition
of Matech (as defined in Article 13). Matech has complied with all applicable
federal, state and local statutes relating to the employment of labor,
including, without limitation, the Occupational Safety and Health Act ("OSHA"),
the Fair Labor Standards Act, the National Labor Relations Act, Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act, all as
amended, and similar state and local statutes; and Matech has complied with all
applicable federal, state and local statutes relating to wages, fringe benefits
and the payment of withholding and Social Security taxes, and Matech is not
liable for any arrearage in the payment of wages or any taxes or penalties for
failure to comply with any of the foregoing.
3.20 EMPLOYEE BENEFIT PLANS . Schedule 3.20 contains a true and
complete list of all pension, profit sharing, retirement, deferred compensation,
stock purchase, stock option, incentive, bonus, vacation, severance, disability,
hospitalization, medical insurance, life insurance and other employee benefit
plans (within the meaning of section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), programs or arrangements maintained
by Matech or under which Matech has any obligations (other than obligations to
make current wage or salary payments or to pay sales commissions to employees or
agents whose employment or engagement may be terminated by Matech without
penalty or breach by giving a termination notice of 30 days or less) in respect
of, or which otherwise cover, any of the current or former officers or employees
of Matech, or their beneficiaries (hereinafter individually referred to as a
"Plan" and collectively referred to as the "Plans"). Matech has delivered or
made available to MHI true and complete copies of all documents, as they may
have been amended to the date hereof, embodying or relating to the Plans.
Except as specifically set forth in Schedule 3.20, (a) Matech has made all
payments due and payable by Matech to date under or with respect to each Plan,
and all amounts properly
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accrued to date as liabilities of Matech under or with respect to each Plan
which have not been paid have been recorded on the books of Matech; (b) Matech
has performed all material obligations required to be performed by it under, and
is not in default under or in violation of, any Plan; and (c) Matech is in
compliance in all material respects with the requirements prescribed by all
statutes, orders or governmental rules or regulations applicable to the Plans,
including, without limitation, ERISA and the Code
3.21 OFFICERS, DIRECTORS AND KEY EMPLOYEES . The Registration
Statement will set forth the name and total compensation of each person who is
now or has been during the last three fiscal years of Matech an officer or
director of Matech or who is now or has been during the last three fiscal years
of Matech an employee, consultant, agent or other representative of Matech whose
annual rate of compensation (including bonuses, profit sharing and commissions)
exceeds or exceeded $60,000. Since December 31, 1996, except as set forth in the
pending contract with the U.S. Air Force, Matech has not made a commitment or
agreement to increase the compensation or to modify the conditions or terms of
employment of any such person. None of such persons currently holding such a
position has threatened to cancel or otherwise terminate such person's
relationship with Matech and none of such persons has utilized or has threatened
to utilize any Trade Secrets of Matech in competition with Matech.
3.22 OPERATIONS OF MATECH . Except as to be set forth in the
Registration Statement or in Schedule 3.22 to be attached on the Closing Date,
since December 31, 1996, Matech has not:
(i) declared or paid any dividends or declared or made
any other distributions of any kind to its shareholders, or made any
direct or indirect redemption, retirement, purchase or other
acquisition of any shares of its capital stock;
(ii) incurred any indebtedness for borrowed money;
(iii) reduced its cash or short term investments or their
equivalent, other than to meet cash needs arising in the ordinary
course of business, consistent with past practices;
(iv) waived any material right under any Contract;
(v) made any material change in its accounting methods or
practices or made any material change in depreciation or amortization
policies or rates adopted by it;
(vi) materially changed any of its business policies,
including, without limitation, advertising, distributing, marketing,
pricing, purchasing, personnel, sales, returns or budget;
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(vii) except as set forth in the pending contract with the
U.S. Air Force, made any wage or salary increase or bonus, or increase
in any other direct or indirect compensation, or any payment or
commitment to pay any severance or termination pay to any of its
officers, directors, employees, consultants, agents or other
representatives, or any accrual for or commitment or agreement to make
or pay the same;
(viii) made any loan or advance to any of its shareholders,
officers, directors, employees, consultants, agents or other
representatives;
(ix) except in the ordinary course of business, incurred
or assumed any obligation or liability (whether absolute or contingent
and whether or not currently due and payable);
(x) disposed of any property, equipment or assets except
for inventory disposed of in the ordinary course of business or made
any acquisition of all or any part of the assets, properties, capital
stock or business of any other person;
(xi) paid, directly or indirectly, any of its material
Liabilities before the same became due in accordance with its terms or
otherwise than in the ordinary course of business;
(xii) terminated or failed to renew, or received any
written threat (that was not subsequently withdrawn) to terminate or
fail to renew, any contract or other agreement that is or was material
to the condition of Matech;
(xiii) except in the ordinary course of business, entered
into or amended any Contract;
(xiv) merged or consolidated with any other person, firm,
corporation or entity;
(xv) failed to maintain in full force and effect policies
of insurance of the same type, character and coverage as the policies
currently carried; or
(xvi) amended, changed or modified its Certificate of
Incorporation or By-laws.
3.23 POTENTIAL CONFLICTS OF INTEREST . Except as to be set forth
in the Registration Statement , neither any officer, director or affiliate of
Matech, nor any entity controlled by any such officer, director or affiliate,
nor RMB, nor any relative or spouse (or relative of such spouse) of RMB or of
any such officer, director or affiliate:
(i) owns, directly or indirectly, any interest in
(excepting less than 1% stock holdings for investment purposes in
securities of publicly held and traded companies), or is an officer,
director, employee or consultant of, any person which is, or is
engaged in business as, a competitor, lessor, lessee, distributor or
supplier of Matech;
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(ii) owns, directly or indirectly, in whole or in part,
any tangible or intangible property material to the condition of
Matech that Matech uses in the conduct of business; or
(iii) has any cause of action or other claim whatsoever
against, or owes any amount to, Matech, except for claims in the
ordinary course of business such as for accrued vacation pay, accrued
benefits under employee benefit plans, and similar matters and
agreements existing on the date hereof.
3.24 FULL DISCLOSURE . All documents and other papers delivered
by or on behalf of Matech or RMB in connection with this Agreement and the
transactions contemplated hereby are true, complete and authentic in all
material respects. This Agreement, including the Schedules and Exhibits hereto,
does not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. No representation or warranty of Matech or RMB contained
in this Agreement contains an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements made, in the context in which made, not materially false or
misleading. There is no fact that Matech or RMB has not disclosed to MHI in
writing that materially adversely affects the condition of Matech or the
ability of Matech to perform this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF MHI. As of the date of this
Agreement and as of the Closing Date, MHI represents and warrants to Matech and
RMB as follows:
4.1 TITLE TO SHARES. MHI owns beneficially and of record, free
and clear of any lien, option or other encumbrance, and has full power and
authority to convey free and clear of any lien, claims, charges, assessments,
adverse intent or other encumbrance, all of the 3,000 issued and outstanding
shares of common stock of SecurFone, and, in accordance with Section 1.2, MHI
will convey to Matech good and valid title thereto, free and clear of any lien
or other encumbrance.
4.2 AUTHORITY TO EXECUTE AND PERFORM AGREEMENT . MHI has the
full legal right and power and all authority and approval required to enter
into, execute and deliver this Agreement and to perform fully its obligations
hereunder. This Agreement has been duly executed and delivered by MHI and is the
valid and binding obligation of MHI enforceable in accordance with its terms.
The execution and delivery by MHI of this Agreement, the consummation of the
transactions contemplated hereby and thereby and the performance by MHI of this
Agreement in accordance with its respective terms
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and conditions will not (i) require the approval or consent of any foreign,
federal, state, county, local or other governmental or regulatory body or the
approval or consent of any other person which has not been obtained and
disclosed to Matech; (ii) conflict with or result in any breach or violation of
any of the terms and conditions of, or constitute (or with notice or lapse of
time or both constitute) a default under, any statute, regulation, order,
judgment or decree applicable to MHI or to the shares of SecurFone held by MHI,
or any instrument, contract or other agreement to which MHI is a party or by or
to which MHI is or the shares of SecurFone held by MHI are bound or subject;
(iii) result in the creation of any lien or other encumbrance on the shares of
SecurFone held by MHI; or (iv) conflict with or result in any breach or
violation of any instrument governing or applicable to the MHI.
4.3 PURCHASE FOR INVESTMENT . MHI is purchasing the Shares for
investment and not for resale or distribution.
5. REPRESENTATIONS AND WARRANTIES OF SECURFONE. As of the date of this
Agreement and as of the Closing Date, SecurFone represents and warrants to
Matech and RMB as follows:
5.1 DUE INCORPORATION . SecurFone is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and authority to own, lease and operate
its assets and business and to carry on its business as now being and as
heretofore conducted.
5.2 AUTHORITY TO EXECUTE AND PERFORM AGREEMENT . SecurFone has
the full legal right and power and all authority and approval required to enter
into, execute and deliver this Agreement, and to perform fully its obligations
hereunder. This Agreement has been duly executed and delivered by SecurFone.
This Agreement is valid and binding obligation of SecurFone enforceable in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights, or by limitations and the availability of the remedy of
specific performance or injunctive relief.
5.3 NO BREACH . The execution and delivery by SecurFone of this
Agreement, the consummation of the contemplated transactions, and the
performance by SecurFone of this Agreement in accordance with the terms and
conditions hereof, will not (i) require the approval or consent of any federal,
state, county, local or other governmental or regulatory body (domestic or
foreign), or the approval or consent of any other person or entity, except as
set forth on Schedule 5.3; (ii) conflict with or result in any breach or
violation of any of the terms and conditions of, or constitute (or with notice
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or lapse of time or both constitute) a default under, the Certificate of
Incorporation or Bylaws of SecurFone, any statute, regulation, order, judgment
or decree of or applicable to SecurFone, or any instrument, contract or other
agreement to which SecurFone is a party or by or to which SecurFone or any of
its properties is bound or subject; or (iii) result in the creation of any lien
or encumbrance on any of the properties of SecurFone.
5.4 QUALIFICATION; SUBSIDIARIES, ETC. SecurFone is duly
qualified or otherwise authorized as a foreign corporation to transact
business and is in good standing in each jurisdiction where such
qualification or authorization is required, which jurisdictions are set forth
on Schedule 5.4. The failure to obtain such qualification or authorization in
any other jurisdiction will not adversely affect the "condition of SecurFone"
(as defined in Article 13). Except as set forth on Schedule 5.4, SecurFone
does not directly or indirectly own any interest in any other person,
corporation, partnership or other entity.
5.5 OUTSTANDING CAPITAL STOCK . SecurFone is authorized to issue
3,000 shares of Common Stock, $.01 par value, all of which are issued and
outstanding. No other class of capital stock of SecurFone is authorized or
outstanding. All of the Shares are duly authorized and are validly issued, fully
paid and nonassessable and are not subject to any preemptive rights. There are
no voting trust agreements or other contracts, agreements, or arrangements
restricting voting or dividend rights or transferability with respect to the
Shares. SecurFone has not violated any federal, state or local law, ordinance,
rule or regulation in connection with the offer for sale or sale and issuance of
its outstanding shares of capital stock or any other securities.
5.6 OPTIONS OR OTHER RIGHTS . There is no outstanding right,
subscription, warrant, call, unsatisfied preemptive right, option or other
agreement of any kind, and there is no commitment of SecurFone to issue or grant
such right, to purchase or otherwise to receive from SecurFone any of the
outstanding, authorized but unissued, unauthorized or treasury shares of the
capital stock or any other security of SecurFone, and there is no outstanding
security of any kind convertible or exchangeable into such capital stock.
5.7 CERTIFICATE OF INCORPORATION AND BY-LAWS. SecurFone will
deliver to the Buyer true and complete copies of the Certificate of
Incorporation (certified by the Secretary of State of Delaware) and of the
By-laws of SecurFone (certified by the secretary of SecurFone) as in effect on
the date hereof. SecurFone's corporate record book and stock transfer records
accurately reflect all action taken through the date of this Agreement.
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5.8 FINANCIAL STATEMENTS . The unaudited balance sheet of
SecurFone as of November 30, 1996, and the related statement of income and
retained earnings for the six months period then ended, (the "Financial
Statements") will be delivered to Matech by SecurFone. The Financial Statements
are accurate and complete and present fairly in all material respects the
financial position of SecurFone as at such date and the results of operations of
SecurFone for such period, in accordance with generally accepted accounting
principles consistently applied for the periods covered thereby and prepared on
a basis consistent with SecurFone's prior practices. Except as reflected on the
Financial Statements, as of the date thereof there were no accrued or
undisclosed liabilities, there were no special or non-recurring charges against
income, and there were no matters for which reserves should be established. The
balance sheet included in the Financial Statements is sometimes herein called
the "Balance Sheet" and November 30, 1996, is sometimes herein called the
"Balance Sheet Date."
5.9 NO MATERIAL OR ADVERSE CHANGE . Since the Balance Sheet
Date, there has been no material or adverse change in the condition of
SecurFone, and SecurFone knows of no such change which is threatened, nor has
there been any damage, destruction or loss, whether or not covered by insurance,
which could have or has had a material or adverse effect on the condition of
SecurFone.
5.10 TAX MATTERS . All tax returns (federal, state, county and
local) which were required to be filed through the Closing have been duly filed
with the appropriate taxing authority, and SecurFone has paid all taxes shown
as due and payable on such returns. All payments of taxes (including amounts
withheld from employees) due and payable through the Closing, including, without
limitation, federal, state and local income taxes, personal property taxes,
sales taxes, excise taxes and real estate taxes, have been fully paid in a
timely fashion. SecurFone has not made or entered into any agreement or
arrangement pursuant to which the statute of limitations, or any other time
limitations, or the right by or of the Internal Revenue Service or any other tax
body or authority to audit, review or challenge any tax return filed by
SecurFone, would be extended beyond the periods provided by
law or regulation.
5.11 COMPLIANCE WITH LAWS . SecurFone is not in violation of any
applicable federal, state, local or foreign law, ordinance, regulation, order,
judgment, injunction, award, decree or other requirement of any governmental or
regulatory body, court or arbitrator, which violation could have a material or
adverse effect on the condition of SecurFone. SecurFone has all licenses,
permits, orders or approvals of, and has made all required registrations with,
any governmental or regulatory body that
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are material to the conduct of the business of SecurFone and to its use of its
properties and assets (collectively, "Permits"). The Permits are listed on
Schedule 5.11 and are in full force and effect. No material violations are or
have been recorded in respect of any Permit, and no proceeding is pending or
threatened to revoke or limit any Permit. There is no federal, state or local
ordinance, regulation or order which adversely effects or may adversely effect
the ability of SecurFone to produce and distribute its products or otherwise
conduct its business.
5.12 NO BREACH . The execution and delivery by SecurFone of this
Agreement, the consummation of the contemplated transactions, and the
performance by SecurFone of this Agreement in accordance with the terms and
conditions hereof, will not (i) require the approval or consent of any federal,
state, county, local or other governmental regulatory body (domestic or
foreign), or the approval of any other person or entity, except as set forth on
Schedule 5.13; (ii) conflict with or result in any breach or violation of any of
the terms of, result in a material modification of, or otherwise give any other
contracting party the right to terminate, or constitute (or with notice or lapse
of time or both constitute) a default under, the Certificate of Incorporation or
Bylaws of SecurFone, or any material contract or other agreement to which
SecurFone is a party or by or to which SecurFone assets or properties may be
bound or subject; (iii) violate any order, writ, judgment, injunction, award or
decree of any court, arbitrator or governmental or regulatory body against, or
binding upon, SecurFone or upon the assets of SecurFone; (iv) violate any
statute, law or regulation of any jurisdiction, which violation could have a
material or adverse effect on the condition of SecurFone; (v) violate or result
in the revocation or suspension of any Permit, or (vi) result in the imposition
of any lien, security interest or claim in favor of any person or entity other
than Matech.
5.13 ACTIONS AND PROCEEDINGS . There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against SecurFone. There are no actions, suits
or claims or legal, administrative or arbitral proceedings or investigations
(whether or not the defense thereof or liabilities in respect thereof are
covered by insurance) pending, or to the knowledge of SecurFone threatened,
against or involving SecurFone or any of its properties or assets. All notices
required to have been given to any insurance company listed as insuring against
any action, suit or claim set forth on Schedule 5.13 have been timely and duly
given and no insurance company has asserted, orally or in writing, that such
claim is not covered by the applicable policy relating to such claim or has
reserved
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its right to so assert at a later date. Schedule 5.13 also describes any dispute
with or claim from a sales agent, broker or customer in connection with or
related to a product warranty claim, commission, fee, pricing or any other
monetary dispute which involves $5,000 or more.
5.14 CONTRACTS AND OTHER AGREEMENTS . Schedule 5.14 sets forth
all of the following contracts and other agreements to which SecurFone is a
party or by or to which it or its assets or properties are bound or subject:
(i) contracts and other agreements with any current or former employee, officer,
director or affiliate or with any other current employee or consultant or with
an entity in which any of the foregoing is a controlling person; (ii) contracts
and other agreements with any labor union or association representing any
employee; (iii) contracts and other agreements with any person to sell,
distribute or otherwise market, or to produce, any products or services of
SecurFone; (iv) contracts and other agreements, pursuant to which SecurFone will
receive payments in excess of $10,000; (v) contracts and other agreements for
the sale of any of its assets other than in the ordinary course of business or
for the grant to any person of any option or preferential rights to purchase any
of its assets; (vi) joint venture agreements; (vii) contracts and other
agreements under which it agrees to indemnify any party or to share tax
liability of any party; (viii) contracts or other agreements pursuant to which
SecurFone is a licensor or licensee of any rights; (ix) contracts and other
agreements that can be canceled without liability, premium or penalty only on
ninety days' or more notice; (x) contracts and other agreements with customers,
distributors or suppliers for the sharing of fees, the rebating of charges or
other similar arrangements; (xi) contracts and other agreements containing
covenants of SecurFone not to compete in any line of business or with any person
in any geographical area or covenants of any other person not to compete with
SecurFone in any line of business or in any geographical area; (xii) contracts
and other agreements relating to the acquisition by SecurFone of any operating
business or the capital stock of any other person; (xiii) contracts and other
agreements requiring the payment to any person of an override or similar
commission or fee; (xiv) contracts and other agreements relating to the
borrowing of money; or (xv) any other contracts and other agreements whether or
not made in the ordinary course of business (other than those reflected on any
other Schedule) pursuant to which payments in excess of $5,000 may be expected
to be made. All of the foregoing shall be collectively referred to hereinafter
as the "Contracts". SecurFone has made available to Matech true, correct and
complete copies of all of the Contracts. All of the Contracts are valid, binding
and in full force and effect. Except as
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described on Schedule 5.14, SecurFone is not in default under any of the
Contracts, nor, to the knowledge of SecurFone, is any other party to any of the
Contracts in default thereunder in any material respect, nor does any condition
exist that with notice or lapse of time or both would constitute a material
default thereunder. Except as separately identified on Schedule 5.14, no
approval or consent of any person is needed in order that any of the Contracts
continue in full force and effect following the consummation of the transactions
contemplated hereby. Schedule 5.14 also lists all contracts and other agreements
currently in negotiation or proposed by SecurFone of a type which if entered
into by SecurFone would be required to be listed on Schedule 5.14 or on any
other Schedule. SecurFone has made available to Matech true and correct copies
of the latest drafts or summaries of all such proposed contracts
and other agreements and copies of all documents relating thereto.
5.15 REAL PROPERTY . SecurFone owns no real property. SecurFone
leases certain office space located at 14 East Main Street, Somerville, NJ 08876
("Leased Property"), as more fully described in Schedule 5.15. Except as set
forth in Schedule 5.15, SecurFone is not in default under any lease for Leased
Property, and, with respect to SecurFone, there is no default or event of
default or set of facts which has occurred which, with notice or lapse of time
or both, would constitute a default. The Leased Property is zoned to permit its
present use, there is no record of any violation of any zoning, building or
other restriction relating to the use of the Leased Property, the existing use
and current operation of the building or buildings on the Leased Property does
not, and the past operations did not, violate any applicable environmental laws
or regulations and all certificates, permits, licenses and other authorizations
of governmental bodies or authorities which are necessary to permit the use and
occupancy of the Leased Property for its current operations have been obtained
by SecurFone, have not been violated or breached, and are in full force and
effect. The only real property in which SecurFone has any interest is the Leased
Property described above. Such property shall be referred to hereinafter as the
"Property".
5.16 ENVIRONMENTAL MATTERS . The terms used in this Section 5.16
shall have the meanings specified by applicable local, state, federal or foreign
statutes or regulations with the respect to environmental protection, including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601 ET SEQ., and regulations
promulgated thereunder, each as amended ("CERCLA"), the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 ET SEQ., and regulations promulgated
thereunder, each as amended ("RCRA"), and other laws
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and regulations concerning water pollution, groundwater protection, air
pollution, solid wastes, hazardous wastes, spills or other releases of toxic or
hazardous substances, transportation and disposal of hazardous substances,
materials and wastes and occupational or employee health and safety
(collectively, the "environmental laws"). Except as disclosed in Schedule 5.16:
(a) There has been no past, and there is no current
or presently anticipated, storage, disposal, generation, manufacture,
refinement, transportation, production or treatment of toxic wastes, solid
wastes, hazardous wastes or hazardous substances by SecurFone (or any of its
predecessors-in-interest or any predecessor owner or operator of any of the
Property) at, upon, or away from any of the Property. There has been no spill,
discharge, leak, emission, injection, escape, dumping or release of any kind
onto any of the Property, or into the environment surrounding any of the
Property, of any toxic wastes, solid wastes, hazardous wastes or hazardous
substances. No asbestos fibers or materials or polychlorinated biphenyls
(PCBs) are on or in any of the Property.
(b) None of the Property has previously been used, is
now being used, or is contemplated to be used, for the treatment, collection,
storage or disposal of any refuse or objectionable wastes so as to require a
permit or approval from the United States Environmental Protection Agency
(the"EPA") or any state agency responsible for protection of the environmental
(a "State EPA").
(c) None of the Property has previously been used, is
now being used, or is contemplated to be used, for the generation,
transportation, treatment, storage or disposal of any hazardous wastes subject
to regulation by the EPA or any State EPA pursuant to the environmental laws.
(d) No written reports of environmental audits or
internal audits relating to environmental matters have been prepared within the
last five years, and no citations, orders and decrees have been issued within
the last five years by, for or on behalf of SecurFone and/or concerning any of
the Property by or with any governmental agency with respect to the treatment,
storage or disposal of hazardous wastes or with respect to air, water and noise
pollution. SecurFone has not received notification pursuant to CERCLA or any of
the environmental laws, or any regulations thereunder, of any potential
liability with the respect to the clean-up of any waste disposal site at which
it has disposed of any hazardous substances or with respect to any other
alleged violation of any of the environmental laws.
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5.17 INTANGIBLE PROPERTY . Schedule 5.17 sets forth all patents,
trademarks, copyrights, service marks and trade names, all applications for any
of the foregoing, and all permits, grants and licenses or other rights running
to or from SecurFone relating to any of the foregoing that are material to the
business of SecurFone (collectively, "Patents and Trademarks"). SecurFone has
the right to use, free and clear of any claims or rights of others, all trade
secrets, inventions, know how, processes, logos and technology, designs
utilized in or incident to the conduct of its business as presently conducted
or as being developed ("Trade Secrets"). Except as set forth on Schedule 5.17,
SecurFone does not have any notice that any other person or entity disputes
SecurFone's ownership or right to use any Patents and Trademarks and/or Trade
Secrets, or notice of any claim of any other person or entity relating to any
of the Patents and Trademarks or any of the Trade Secrets of SecurFone, and
SecurFone knows of no basis for any such dispute or claim. SecurFone has no
knowledge that any person or entity has infringed upon the rights of
SecurFone with respect to any Patents and Trademarks or Trade Secrets, and
SecurFone has not infringed upon any patent, copyright, trademark, trade secret
or other intellectual property right of any other person or entity. The books
of account and other corporate records of SecurFone are complete and correct in
all material respects and have been maintained in accordance with good business
practice. Schedule 5.17 lists all bank accounts maintained by SecurFone and the
names and capacities of all persons authorized to draw thereon or who have
access thereto.
5.18 TITLE TO ASSETS . SecurFone owns outright and has good and
marketable title to all of the assets used in its business, including, without
limitation, all of the assets reflected on the Balance, in each case free and
clear of any lien or other encumbrance, except for (i) liens or encumbrances
specifically described in Schedule 5.18 hereto; (ii) assets disposed of, or
subject to purchase or sales orders, in the ordinary course of business since
the Balance Sheet Date; (iii) liens or other encumbrances securing taxes,
assessments, governmental charges or levies, or the claims of materialmen,
carriers, landlords and like persons, all of which are not yet due and
payable; or (iv) minor liens or other encumbrances of a character that do not
substantially impair the assets to which they apply.
5.19 LIABILITIES . As at the Balance Sheet Date, SecurFone does
not have any indebtedness, liability, claim or loss, liquidated or unliquidated,
secured or unsecured, accrued, absolute, contingent or otherwise, of a kind
required by generally accepted accounting principles to be set forth on a
financial statement or in the notes
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thereto ("Liabilities") that were not fully and adequately reflected or
reserved against on the Balance Sheet or described on any Schedule hereto or in
the notes to the Financial. SecurFone has not, except in the ordinary course
of business, incurred any Liabilities since the Balance Sheet Date.
5.20 EMPLOYEE OBLIGATIONS . SecurFone has no policies with
respect to vacation pay, holiday and/or sick pay, severance pay, pension and
profit-sharing contributions, health, medical or any other type of employee
benefit plan to which SecurFone presently contributes or is required to
contribute, nor is SecurFone indebted to any employee other than for wages and
benefits earned during the current payroll period which are not yet due and
payable. There are no controversies pending between SecurFone and any of its
employees, which controversies have affected or may affect materially and
adversely the condition of SecurFone (as defined in Article 13). SecurFone has
complied with (i) all applicable federal, state and local statutes relating to
the employment of labor, including, without limitation, the Occupational Safety
and Health Act ("OSHA"), the Fair Labor Standards Act, the National Labor
Relations Act, Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, all as amended, and similar state and local
statutes; and (ii) all applicable federal, state and local statutes relating to
wages, fringe benefits and the payment of withholding and Social Security
taxes, and SecurFone is not liable for any arrearage in the payment of wages or
any taxes or penalties for failure to comply with any of the foregoing.
5.21 EMPLOYEE BENEFIT PLANS . Schedule 5.21 contains a true and
complete list of all pension, profit sharing, retirement, deferred
compensation, stock purchase, stock option, incentive, bonus, vacation,
severance, disability, hospitalization, medical insurance, life insurance and
other employee benefit plans (within the meaning of section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
programs or arrangements maintained by SecurFone or under which SecurFone has
any obligations (other than obligations to make current wage or salary payments
or to pay sales commissions to employees or agents whose employment or
engagement may be terminated by SecurFone without penalty or breach by giving a
termination notice of 30 days or less) in respect of, or which otherwise cover,
any of the current or former officers or employees of SecurFone, or their
beneficiaries (hereinafter individually referred to as a "Plan" and
collectively referred to as the "Plans"). SecurFone has delivered or made
available to Matech true and complete copies of all documents, as they may have
been amended to the date hereof, embodying or relating to the Plans.
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Except as specifically set forth in Schedule 5.21, (a) SecurFone has
made all payments due and payable by SecurFone to date under or with respect to
each Plan, and all amounts properly accrued to date as liabilities of SecurFone
under or with respect to each Plan which have not been paid have been recorded
on the books of SecurFone; (b)SecurFone has performed all material obligations
required to be performed by it under, and is not in default under or in
violation of, any Plan; and (c)SecurFone is in compliance in all material
respects with the requirements prescribed by all statutes, orders or
governmental rules or regulations applicable to the Plans, including, without
limitation, ERISA and the Code
5.22 OFFICERS, DIRECTORS AND KEY EMPLOYEES . Schedule 5.22 sets
forth the name and total compensation of each person who is now or has been
during the last three fiscal years of SecurFone an officer or director of
SecurFone or who is now or has been during the last three fiscal years of
SecurFone an employee, consultant, agent or other representative of SecurFone
whose annual rate of compensation (including bonuses, profit sharing and
commissions) exceeds or exceeded $20,000. Since the Balance Sheet Date,
SecurFone has not made a commitment or agreement to increase the compensation
or to modify the conditions or terms of employment of any such person. None of
such persons currently holding such a position has threatened to cancel or
otherwise terminate such person's relationship with SecurFone and none of such
persons has utilized or has threatened to utilize any Trade Secrets of
SecurFone in competition with SecurFone.
5.23 OPERATIONS OF SECURFONE . Except as set forth on Schedule
5.23, since the Balance Sheet Date SecurFone has not:
(i) declared or paid any dividends or declared or made
any other distributions of any kind to its shareholders, or made any direct
or indirect redemption, retirement, purchase or other acquisition of any
shares of its capital stock;
(ii) incurred any indebtedness for borrowed money;
(iii) reduced its cash or short term investments or their
equivalent, other than to meet cash needs arising in the ordinary course
of business, consistent with past practices;
(iv) waived any material right under any Contract;
(v) made any material change in its accounting methods
or practices or made any material change in depreciation or amortization
policies or rates adopted by it;
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(vi) materially changed any of its business policies,
including, without limitation, advertising, distributing, marketing,
pricing, purchasing, personnel, sales, returns or budget;
(vii) made any wage or salary increase or bonus, or
increase in any other direct or indirect compensation, or any payment or
commitment to pay any severance or termination pay to any of its
officers, directors, employees, consultants, agents or other
representatives, or any accrual for or commitment or agreement to make
or pay the same;
(viii) made any loan or advance to any of its shareholders,
officers, directors, employees, consultants, agents or other
representatives;
(ix) except in the ordinary course of business, incurred
or assumed any obligation or liability (whether absolute or contingent and
whether or not currently due and payable);
(x) disposed of any property, equipment or assets except
for inventory disposed of in the ordinary course of business or made any
acquisition of all or any part of the assets, properties, capital stock or
business of any other person;
(xi) paid, directly or indirectly, any of its material
Liabilities before the same became due in accordance with its terms or
otherwise than in the ordinary course of business;
(xii) terminated or failed to renew, or received any
written threat (that was not subsequently withdrawn) to terminate or fail
to renew, any contract or other agreement that is or was material to the
condition of SecurFone;
(xiii) except in the ordinary course of business, entered
into or amended any Contract;
(xiv) merged or consolidated with any other person, firm,
corporation or entity;
(xv) failed to maintain in full force and effect policies
of insurance of the same type, character and coverage as the policies
currently carried; or
(xvi) amended, changed or modified its Certificate of
Incorporation or By-laws.
5.24 POTENTIAL CONFLICTS of Interest . Neither any officer,
director or affiliate of SecurFone, nor any entity controlled by any such
officer, director or affiliate, nor any relative or spouse (or relative of such
spouse) of any such officer, director or affiliate:
(i) owns, directly or indirectly, any interest in
(excepting less than 1% stock holdings for investment purposes in
securities of publicly held and traded
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companies), or is an officer, director, employee or consultant of, any
person which is, or is engaged in business as, a competitor, lessor,
lessee, distributor or supplier of SecurFone;
(ii) owns, directly or indirectly, in whole or in part,
any tangible or intangible property material to the condition of SecurFone
that SecurFone uses in the conduct of business; or
(iii) has any cause of action or other claim whatsoever
against, or owes any amount to, SecurFone, except for claims in the
ordinary course of business such as for accrued vacation pay, accrued
benefits under employee benefit plans, and similar matters and agreements
existing on the date hereof.
5.25 FULL DISCLOSURE . All documents and other papers delivered
by or on behalf of MHI or SecurFone in connection with this Agreement and the
transactions contemplated hereby are true, complete and authentic in all
material respects. This Agreement, including the Schedules and Exhibits hereto,
does not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. No representation or warranty of MHI or SecurFone
contained in this Agreement contains an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements made, in the context in which made, not materially false or
misleading. There is no fact that MHI or SecurFone has not disclosed to Matech
in writing that materially adversely affects the condition of MHI or SecurFone
or the ability of MHI or SecurFone to perform this Agreement.
6. COVENANTS AND AGREEMENTS. The parties covenant and
agree as follows:
6.1 SPIN-OFF OF BUSINESS OF MATECH and Reverse Stock Split.
Between the date of this Agreement and the Closing Date, Matech agrees to (i)
create a new wholly-owned subsidiary ("Newco") to which it will transfer all of
its assets, subject to the assumption by Newco of all of its liabilities,
whether fixed or contingent, known or unknown; and (ii) after such transfer not
engage in any business, not acquire any assets, not undertake any obligations or
assume or create any liabilities. In order to effect the spin-off of Newco to
the current stockholders of Matech, Matech agrees to prepare and file, on or
before March 10, 1997, with the Securities and Exchange Commission ("SEC") a
registration statement for the purpose of registering the shares of Newco under
the Securities Act of 1933, as amended (the "Registration Statement").
Immediately following the effectiveness of the Registration Statement, Matech
will effect a 1-for-10 reverse stock split of its outstanding Class A Common
Stock, pursuant to which each stockholder holding fewer than 10 shares shall be
entitled to have any fractional share to which such stockholder would otherwise
be entitled rounded up to
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one full share. In addition, Matech agrees to prepare an information statement
to be distributed to the stockholders of Matech in connection with the approval
by its stockholders of the transfer of all of its assets to Newco and the
reverse stock split. In addition, Matech shall not issue any shares of its
Class A Common Stock or any securities convertible into Class A Common Stock,
other than as disclosed in Schedule 6.4.
6.2 RMB'S ACCRUED SALARY AND CLASS B STOCK AND CONVERTIBLE NOTES
Between the date of this Agreement and the Closing Date, RMB agrees to (i)
assign all accrued salary and other compensation owed to him by Matech to Newco
and to waive any claims for compensation from Matech, (ii) exchange all of the
60,000 shares of Class B Common Stock of Matech held by him for 934,454
(pre-reverse stock split) shares of Class A Common Stock of Matech, (iii)
convert the promissory note of Matech in the principal amount of $108,000 held
by him into 520,000 (pre-reverse stock split) shares of Class A Common Stock of
Matech, and (iv) arrange for Sherman Baker to convert the promissory note of
Matech in the principal amount of $58,000 into 280,000 (pre-reverse stock
split) shares of Class A Common Stock.
6.3 PREFERRED STOCK OF MATECH . Between the date of this
Agreement and the Closing Date, all of issued and outstanding shares of Matech's
Class A and Class B Preferred Stock shall be redeemed by Matech or surrendered
to Matech and canceled or converted into shares of Class A Common Stock of
Matech.
6.4 NO SALE OF STOCK BY RMB . Commencing with the date of this
Agreement and for a period of one year thereafter, RMB agrees not to sell,
pledge or otherwise transfer any shares of Matech owned or controlled by him at
the time of Closing. RMB agrees to use his best efforts to obtain the same
agreement from certain other holders of Matech stock, whose names and the number
of shares held by them are set forth in Schedule 6.4 hereto, covering a minimum
of 90% of the total number of shares listed in such Schedule 6.4. On or before
the date of this Agreement, RMB shall obtain the written agreement of David
Weisberg, M.D. not to sell his 65,000 shares of Class A Common Stock until the
earlier of the Closing or May 30, 1997.
6.5 CONDUCT OF BUSINESS OF SECURFONE . From the date thereof
through the Closing Date, SecurFone shall conduct its business in the ordinary
course and shall not undertake any of the actions specified in Section 5.23,
except as disclosed on Schedule 5.23.
6.6 CONTINUED EFFECTIVENESS OF REPRESENTATIONS AND WARRANTIES .
From the date hereof through the Closing Date, RMB shall cause Matech to conduct
its business in such a manner so that, except as set forth in Sections 6.1, 6.2
and 6.3, the representations and warranties contained in Section 3 shall
continue to be true and correct on and as of the Closing Date as if made on and
as of the Closing Date, and SecurFone shall conduct its affairs in such
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a manner so that the representations and warranties contained in Section 5 shall
continue to be true and correct on and as of the Closing Date as if made on and
as of the Closing Date, and Matech and SecurFone shall give each other prompt
notice of (i) any event, condition or circumstance occurring from the date
hereof through the Closing Date that would constitute a violation or breach of
any representation, warranty or covenant of either if them contained in this
Agreement, or (ii) any event, occurrence, transaction or other item which would
have been required to have been disclosed on any Schedule or statement delivered
hereunder, had such event, occurrence, transaction or item existed on the date
hereof.
6.7 CORPORATE EXAMINATIONS AND INVESTIGATIONS . Prior to the
Closing Date, Matech and SecurFone shall be entitled, through their respective
employees and representatives, including, without limitation, its lawyers and
accountants, to make such investigation of the assets, properties, business and
operations of each other, and such examination of the books, records and
financial condition of each other as they wish. Any such investigation and
examination shall be conducted at reasonable times and under reasonable
circumstances and Matech and SecurFone shall cooperate fully therein. No
investigation by either Matech or SecurFone shall diminish or obviate any of the
representations, warranties, covenants or agreements of either of them under
this Agreement. If this Agreement terminates, Matech and SecurFone and their
respective affiliates shall keep confidential and shall not use in any manner
any information or documents obtained from each other concerning its assets,
business and operations, unless readily ascertainable from public or published
information, or trade sources, or already known or subsequently developed by the
party obtaining such information independently of any investigation of other
party. If this Agreement terminates, any documents obtained from either Matech
or SecurFone shall be returned to the party which furnished them.
6.8 EXPENSES . Except as specifically provided in Section 1.4 of
this Agreement, Matech and SecurFone shall each bear its respective expenses
incurred in connection with the negotiation, preparation, execution, delivery
and performance of this Agreement and the transactions contemplated hereby,
including, without limitation, all fees and expenses of agents, representatives,
counsel and accountants. Escrow fees, if any, will be shared equally by Matech
and SecurFone.
6.9 INDEMNIFICATION OF BROKERAGE . Each party represents and
warrants to each other party to this Agreement that, except for persons or
entities identified on Schedule 6.9, there are no brokerage commissions,
finders' fees or similar fees or commissions payable in connection herewith
based upon any agreement, arrangement or understanding with such party, or upon
any action taken by such party. Each party agrees to indemnify and save each
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other party to this Agreement harmless from any claim or demand for commissions
or other compensation by any broker, finder, agent or similar intermediary,
including persons or entities identified on Schedule 6.9 claiming to have been
employed by or on behalf of the indemnifying party, and to bear the cost of
legal expenses incurred in defending against any such claim.
6.10 FURTHER ASSURANCE . Each of the parties shall execute such
documents and other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall use its best efforts to fulfill or
obtain the fulfillment of the conditions to the Closing.
6.11 DELIVERY OF SCHEDULES. Within 10 days following the date of
this Agreement, RMB and Matech shall deliver to MHI and SecurFone, and MHI and
SecurFone shall deliver to RMB and Matech, all of the Schedules to this
Agreement required by Sections 3 and 5, respectively, together with copies of
all the documents referred to in such Schedules.
7. CONDITIONS PRECEDENT TO THE OBLIGATION OF MHI AND SECURFONE
TO CLOSE. The obligation of MHI and SecurFone to proceed with the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, any one or more of which may be waived by it:
7.1 REPRESENTATIONS AND COVENANTS . The representations and
warranties of Matech and RMB contained in this Agreement shall be true in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date. Matech and RMB shall have
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with them on
or prior to the Closing Date.
7.2 GOVERNMENTAL PERMITS, APPROVALS AND THIRD PARTY CONSENTS .
All permits and approvals from any governmental or regulatory body, if any,
required for the lawful consummation of the contemplated transactions shall have
been obtained. All consents, permits and approvals from parties to material
contracts or other agreements with Matech that may be required in connection
with the performance by Matech of its obligations under this Agreement or the
consummation of the contemplated transactions shall have been obtained.
7.3 LEGAL PROCEEDINGS . There shall be no law, and no order
shall have been entered and not vacated by a court or administrative agency of
competent jurisdiction in any litigation, which (a) enjoins, restrains, makes
illegal or prohibits consummation of the transaction contemplated hereby; (b)
imposes any lien or other encumbrance on the Shares or imposes any restriction
on their transfer; or (c) interferes with, in any material way, or materially or
adversely affects the condition of Matech; and there shall be no litigation
pending before a
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court or administrative agency of competent jurisdiction, or threatened, seeking
to do, or which, if successful, would have the effect of, any of the foregoing.
7.4 CERTIFIED COPY OF RESOLUTIONS . Matech shall have each
delivered to MHI a certified copy of the resolutions duly adopted by its Board
of Directors and shareholders authorizing the execution and delivery of this
Agreement and any other documents described or referred to herein, and the
consummation of the transactions contemplated hereby.
7.5 OFFICER'S CERTIFICATE . MHI shall have received a
certificate executed by an executive officer of Matech, dated the Closing Date,
reasonably satisfactory in form and substance MHI, certifying that the
conditions specified in Sections 7.1, 7.2, 7.3 and 7.4 hereof have been
satisfied.
7.6 APPROVAL OF COUNSEL TO THE BUYER . All actions and
proceedings hereunder and all documents and other papers required to be
delivered by the Seller hereunder or in connection with the consummation of the
contemplated transactions, and all other related matters, including compliance
with federal and state securities laws, shall have been approved by Kohrman
Jackson & Krantz P.L.L., counsel to MHI and SecurFone, as to their form and
substance.
7.7 RELEASES . Each officer and director of Matech shall have
executed and delivered to Matech and MHI duplicate counterparts of a Release,
dated the Closing Date, in the form of Exhibit C.
7.8 RESIGNATIONS . Simultaneously with Closing, Matech shall
deliver to MHI the written resignation of each officer and director of Matech as
the Buyer shall request, in the form of Exhibit D.
7.9 LOCK-UP AND REGISTRATION RIGHTS AGREEMENT . RMB and the
other holders of Matech stock listed on Schedule 6.4 shall have entered into
agreements restricting the sale or other transfer of their shares for a period
of one year following the Closing Date and granting them certain registration
rights for a period of 18 months following the Closing with respect to shares in
an amount equal to 25% of any shares registered by Matech (other than on Form
S-8) during such 18 months, such agreements to be in form and substance
reasonably satisfactory to MHI. MHI shall also enter into the agreement granting
registration rights and MHI (and other shareholders of SecurFone) shall be
entitled to to register shares held by them in an aggregate amount equal to 75%
of any shares registered by Matech (other than on Form S-8).
7.10 DELIVERY OF DOCUMENTS . Simultaneously with Closing, all
corporate records and record books of Matech shall be delivered to MHI along
with such other documents as MHI may reasonably request.
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8. CONDITIONS PRECEDENT TO THE OBLIGATION OF MATECH AND RMB TO
CLOSE. The obligation of Matech and RMB to proceed with the Closing is subject,
at the option of Matech and RMB acting in accordance with the provisions of this
Agreement with respect to termination hereof, to the fulfillment of the
following conditions, any one or more of which may be waived:
8.1 REPRESENTATIONS AND COVENANTS . The representations and
warranties of SecurFone contained in this Agreement shall be true in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date. SecurFone shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date.
8.2 GOVERNMENTAL PERMITS AND APPROVALS . All permits and
approvals from any governmental or regulatory body, if any, required for the
lawful consummation of the contemplated transactions shall have been obtained.
8.3 CERTIFIED COPY OF RESOLUTIONS . SecurFone shall have
delivered to Matech a certified copy of the resolutions duly adopted by its
Board of Directors authorizing the execution and delivery of this Agreement and
any other documents described or referred to herein, and the consummation of the
transactions contemplated hereby.
8.4 OFFICER'S CERTIFICATES . Matech shall have received a
certificate executed by an executive officer of SecurFone, dated the Closing
Date, reasonably satisfactory in form and substance to Matech, certifying that
the conditions specified in Sections 8.1, 8.2 and 8.3 hereof have been
satisfied.
8.5 APPROVAL OF COUNSEL TO MATECH AND RMB . All actions and
proceedings hereunder and all documents or other papers required to be delivered
by SecurFone hereunder or in connection with the consummation of the
transactions contemplated hereby, and all other related matters, including
compliance with federal and state securities laws, shall have been approved by
C. Timothy Smoot, counsel to Matech and RMB, as to their form and substance.
8.6 COMPLETION OF SPIN-OFF AND REVERSE STOCK SPLIT. The
Registration Statement shall have been filed with the Securities and Exchange
Commission and shall have become effective under the Securities Act of 1933, as
amended, the spin-off shall have been accomplished with Matech retaining
560,000 of Newco and the outstanding shares of Class A Common Stock shall have
been split on a 1-for-10 basis, with no fractional shares being issued and each
stockholder who would otherwise be entitled to receive a fractional share
entitled to one full share.
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8.7 PLEDGE OF NEWCO SHARES. SecurFone shall have entered into a
pledge agreement, in form reasonably satisfactory to Matech, pledging 560,000
shares of Newco to secure the payment of the Note.
8.8 CONSULTING AGREEMENT . Matech and RMB shall have executed
and delivered the Consulting Agreement substantially in the form attached hereto
as Exhibit E.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding any right
of either Matech or SecurFone fully to investigate the affairs of each other and
notwithstanding any knowledge of facts determined or determinable by any party
to this Agreement pursuant to such investigation or right of investigation, each
party has the right to rely fully upon the representations, warranties,
covenants and agreements of the other parties contained in this Agreement or in
any certificate delivered pursuant to any of the foregoing. All of the
representations, warranties, covenants and agreements contained in this
Agreement shall survive the execution and delivery of this Agreement and the
Closing hereunder, and, except as otherwise specifically provided in this
Agreement, shall thereafter terminate and expire (A) on February 12, 1999, with
respect to any General Claim (as herein defined) based upon, arising out of or
otherwise in respect of any fact, circumstance, action or proceeding of which
the party asserting such claim shall have given notice on or prior to February
12, 1999 to the party against which such General Claim is asserted, and (B) with
respect to any Tax Claim (as herein defined), on the later of (1) the date upon
which the liability to which any such Tax Claim may relate is barred by all
applicable statutes of limitation, and (2) the date upon which any claim for
refund or credit related to such Tax Claim is barred by all applicable statutes
of limitations. As used in this Agreement, the following terms have the
following meanings:
(i) "General Claim" means any claim (other than a Tax Claim) based
upon, arising out of or otherwise in respect of any inaccuracy in or any
breach of any representation, warranty, covenant or agreement contained in
this Agreement;
(ii) "Tax Claim" means any claim based upon, arising out of or
otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement contained in this Agreement
related to Taxes.
10. GENERAL INDEMNIFICATION.
10.1 OBLIGATION OF RMB TO INDEMNIFY . RMB agrees to indemnify,
defend and hold SecurFone (and its directors, officers, employees, affiliates,
successors and assigns) harmless from and against all losses, liabilities,
damages, deficiencies, costs or expenses (including interest, penalties and
reasonable attorneys' and accounting fees and disbursements), which are referred
to collectively hereinafter as "Losses", based upon, arising out of or otherwise
in respect of (i) any inaccuracy in or any breach of any representation,
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warranty, covenant or agreement of Matech or RMB contained in this Agreement or
in any document or other papers delivered by Matech or RMB pursuant to this
Agreement, and (ii) all claims, demands or actions by any person holding shares
of capital stock of Matech arising out of events occurring prior to the Closing
Date.
10.2 OBLIGATION OF SECURFONE TO INDEMNIFY . SecurFone agrees to
indemnify, defend and hold Matech and RMB (and their respective directors,
officers, employees, affiliates, successors and assigns) harmless from and
against all Losses based upon, arising out of or otherwise in respect of (i) any
inaccuracy in or any breach of any representation, warranty, covenant or
agreement of SecurFone contained in this Agreement or in any document or other
papers delivered by SecurFone pursuant to this Agreement and (ii) all claims,
demands or actions by any person holding shares of capital stock of Matech
arising out of events occurring after the Closing Date.
10.3 NOTICE AND OPPORTUNITY TO DEFEND .
10.3.1 NOTICE OF ASSERTED LIABILITY . Promptly after
receipt by any party hereto (the "Indemnitee") of notice of any demand, claim or
circumstances which gives rise, or with the lapse of time would or might give
rise, to a claim or the commencement (or threatened commencement) of any action,
proceeding or investigation that may result in a Loss (an "Asserted Liability"),
the Indemnitee shall give notice thereof (the "Claims Notice") to any other
party (or parties) obligated to provide indemnification pursuant to Section 10.1
or 10.2 (the "Indemnifying Party"). The Claims Notice shall describe the
Asserted Liability in reasonable detail, and shall indicate the amount
(estimated, if necessary and to the extent feasible) of the Loss that has been
or may be suffered by the Indemnitee. No failure or delay to provide notice
shall reduce or otherwise affect the obligation to indemnify.
10.3.2 OPPORTUNITY TO DEFEND . The Indemnifying Party may
elect to compromise or defend, at its own expense and by its own counsel, any
Asserted Liability. If the Indemnifying Party elects to compromise or defend
such Asserted Liability, it shall within 30 days (or sooner, if the nature of
the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
claim over the objection of the other; provided, however, that consent to
settlement or compromise shall not be unreasonably withheld. In any event, the
Indemnitee and the Indemnifying Party may
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participate, at their own expense, in the defense of such Asserted Liability. If
the Indemnifying Party chooses to defend any claim, the Indemnitee shall make
available to the Indemnifying Party any books, records or other documents within
its control that are necessary or appropriate for such defense.
11. TERMINATION OF AGREEMENT.
11.1 TERMINATION . This Agreement may be terminated prior
to the Closing as follows:
(i) at the election of MHI, if Matech or RMB have
breached any material representation, warranty, covenant or agreement
contained in this Agreement, which breach cannot be or is not cured by
the Closing Date, or if any of the conditions precedent set forth in
Article 7 has not been satisfied by the Closing Date;
(ii) at the election of Matech, if SecurFone has
breached any material representation, warranty, covenant or agreement
contained in this Agreement, which breach cannot be or is not cured
by the Closing Date, or if any of the conditions precedent set forth
in Article 8 has not been satisfied by the Closing Date;
(iii) at the election of SecurFone, if the Registration
Statement has not been filed with the SEC by March 10, 1997, or has
not become effective by May 27, 1997;
(iv) at the election of either Matech or SecurFone, if
any legal proceeding is commenced or threatened by any governmental
or regulatory body or other person directed against the consummation
of the Closing or any other transaction contemplated under this
Agreement and either the Matech or SecurFone, as the case may be,
reasonably and in good faith deems it impractical or inadvisable to
proceed in view of such legal proceeding or threat thereof; or
(v) at any time on or prior to the Closing Date, by
mutual written consent of Matech and SecurFone.
If this Agreement so terminates, it shall become null and void and have no
further force or effect, except as provided in Section 11.2.
11.2 SURVIVAL . If this Agreement is terminated and the transactions
contemplated hereby are not consummated as described above, this Agreement
shall become void and of no further force and effect, except for the
provisions of Section 6.3 relating to the obligations of Matech and SecurFone
to keep confidential and not to use certain information and data obtained by
them from each other and to return documents to each other and except for the
provisions of Section 6.6. No party hereto shall have any liability to any
other party in respect of a termination of this Agreement except pursuant to
Sections 6.5, 6.6 or 6.7.
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12. RESOLUTION OF DISPUTES. The parties to this Agreement agree
to submit any disputes arising under or in relation to this Agreement to
mediation to be conducted by a mediator approved by SecurFone and RMB. If
mediation fails to resolve all disputes, the parties agree to submit the
disputes to binding arbitration. If no party is claiming more than $40,000,
excluding cost and expenses, the dispute shall be submitted to a single
arbitrator approved by SecurFone and RMB. If any party is claiming more than
$40,000, the dispute shall be submitted to a panel of three neutral arbitrators,
one arbitrator appointed by each of SecurFone and RMB and the third to be agreed
upon by the two appointed arbitrators. No party shall appoint an arbitrator with
any conflict of interest. SecurFone and RMB shall each bear one-half of the cost
of mediation and pay its own attorneys' fees related to mediation. If
arbitration becomes necessary, the prevailing party shall be entitled to recover
all costs, expenses, and attorneys' fees related to the prior mediation and the
arbitration, which recovery shall be made a part of the arbitration award. The
parties agrees to provide each other with any and all documents and information
relevant to any disputes within 20 days of receipt of a written request.
SecurFone and RMB further agree that an arbitrator or panel of arbitrators may
impose monetary sanctions for failure to timely provide relevant documents or
information.
12.1 REQUIRED NOTICE AND LIMITATIONS PERIOD . SecurFone
and RMB agree that within one year of the discovery of any claim related to this
Agreement or, in any event, within two years of the accrual of any claim, the
claiming party shall give written notice to the other parties of the nature of
the claim and the specific facts upon which the claim is based, and demand
mediation of the claim. The parties understand that this provision has two
separate limits. The first limit means that the claiming party has one year from
the date that party discovers the facts to support a claim to give notice and
make a demand. If notice and a demand are not made within that time, a claim
cannot be brought. The second limit is two years regardless of when the facts
are discovered. If no notice and demand are made within two years, the claim
cannot be brought even if it is not discovered until after the two years has
expired. The parties further agree that if mediation fails to resolve the claim
within six months of the receipt of notice and the claiming party fails to
demand arbitration within the second six months, the claim of the claiming party
shall be forever barred. The intent is that all claims be resolved or submitted
to binding arbitration within one year of written notice of a claim.
12.2 PROCEDURES . Within two months of the receipt of notice and
demand, the parties to the claim shall choose a person acceptable to all such
parties to mediate the claim. Absent agreement within two months, the claiming
party shall ask the American Arbitration Association ("AAA") to appoint a person
who is experienced in the process of deciding contract disputes and the parties
shall, in good faith, attempt to mediate the claim.
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(i) If after six months from the date of receipt of demand
and notice, no agreement is reached, any party to the dispute may demand in
writing that the dispute be submitted to binding arbitration. Once such a
demand is made, the claim shall be submitted to AAA for binding arbitration.
(ii) The parties to the claim shall, in good faith, attempt to
agree on a single arbitrator if no more than $40,000 excluding costs and
expenses is claimed by either party. If within two months of a demand for
arbitration, the parties have not agreed, the arbitrator shall be selected by
alternate striking from a list of nine arbitrators drawn by the AAA from a
panel of arbitrators with expertise in the process of deciding contract
disputes.
(iii) Arbitration shall be conducted under the appropriate AAA
rules in the form they exist on the date the claim is submitted to AAA. Delaware
substantive and procedural law shall apply to any such arbitration and shall
control if in conflict with AAA's rules. The arbitration shall take place in
San Diego, California.
(iv) The arbitrator shall have the discretion to order any and
all reasonable discovery permitted under the laws of Delaware upon the written
request of any party. The request for discovery shall include the discovery
requested and the reasons therefore. The responding party shall be given a
reasonable opportunity to submit any objections in writing prior to an order of
discovery. No hearing, however, shall be required but may be held if the
arbitrator believes that it may assist in a decision. The parties agree that
the arbitrator should honor all reasonable discovery requests. In addition, the
arbitrator may order the parties to exchange any relevant information prior to
the hearing, including, but not limited to, documents, exhibit lists, witness
lists, expert witnesses with a summary of their opinions and credentials,
pre-hearing briefs and summaries of testimony of proposed witnesses.
(v) In deciding the claim and the appropriate award or other relief,
the arbitrator shall determine the rights and obligations of the parties to the
claim under the substantive and procedural laws of Delaware as though the
arbitrator was a court of competent jurisdiction in Delaware and may afford any
relief that could be afforded by Delaware courts including, but not limited to,
specific performance, punitive damages, injunctive relief, and/or sanctions for
abusing or frustrating the arbitration process. In addition, the arbitrator
shall award costs of this action to the prevailing party or parties including
but not limited to the arbitrator's fees. Any party, at its expense, may
arrange for and pay the cost of a court reporter or video recorder to provide a
record of proceedings.
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12.3 THE ARBITRATOR'S DECISION . The decision of the arbitrator must
be based on a written statement of decision explaining the factual and legal
bases for each material issue relevant to the claim and raised in the briefs
or at the hearing. Only if the arbitrator's decision correctly applies the
substantive and procedural laws of Delaware shall the facts found be
conclusive and binding on the parties who appear in the arbitration
proceeding. If the arbitrator's decision correctly applies the substantive
and procedural laws of Delaware, it may be confirmed and entered as a
judgment by an appropriate court of Delaware and may be challenged only for
(1) errors of law or (2) errors of fact appearing in the written decision.
13. MISCELLANEOUS.
13.1 CERTAIN DEFINITIONS . As used in this Agreement, the
following terms have the following meanings unless the context otherwise
requires:
(i) "AFFILIATE" with respect to any person, means any
other person controlling, controlled by or under common control with,
or the parents, spouse, lineal descendants or beneficiaries of such
person.
(ii) "CONDITION OF THE MATECH OR SECURFONE" means the
assets, liabilities, properties, business, results of operations,
prospects and financial condition of Matech or SecurFone, as the case
may be.
(iii) "DOCUMENT OR OTHER PAPERS" means any document,
agreement, instrument, certificate, notice, consent, affidavit,
letter, telegram, telex, statement, schedule (including any Schedule
to this Agreement), exhibit (including any Exhibit to this Agreement)
or any other paper whatsoever.
(iv) "GOVERNMENTAL OR REGULATORY BODY" means any
government or political subdivision thereof, whether federal, state,
local or foreign, or any agency or instrumentality of any such
government or political subdivision.
(v) "KNOWLEDGE" of a party means within the knowledge,
information or belief of the party, which knowledge, information or
belief has been obtained by the party after investigation, and, in
the case of a party which is a corporation, after an appropriate
officer of the party has reviewed all relevant facts and corporate
records and files, including those in the possession and under
control of the party and its employees, attorneys, accountants and
other agents, and after making inquiry of those employees of the
party who might have relevant information.
(vi) "LIEN OR OTHER ENCUMBRANCE" means any lien,
pledge, mortgage, security interest, claim, lease, charge, option,
right of first refusal, easement, servitude, transfer restriction
under any shareholder or similar agreement, encumbrance or any other
restriction or limitation whatsoever.
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(vii) "PERSON" means any individual, corporation,
partnership, firm, joint venture, association, joint-stock company,
trust, unincorporated organization, governmental or regulatory body
or other entity.
(viii) "PROPERTY" means real, personal or mixed
property, tangible or intangible.
13.2 PUBLICITY . No publicity release or announcement concerning this
Agreement or the transactions contemplated hereby shall be made without advance
approval thereof by the Seller and the Buyer.
13.3 NOTICES . Any notice or other communication required or permitted
hereunder shall be in writing and shall be either (i) delivered personally, (ii)
sent by telegraph or telex, (iii) sent by facsimile transmission, (iv) delivered
by nationally recognized overnight courier service against a receipt therefor,
or (v) sent by certified, registered or express mail, postage prepaid. Any such
notice shall be deemed given (A) when so delivered personally, telegraphed,
telexed or sent by facsimile transmission if applicable; (B) when delivered by
courier if applicable; or (C) if mailed, five days after the date of deposit in
the United States mail if applicable, as follows:
(i) if to MHI or SecurFone:
SecurFone America, Inc.
14 East Main Street
Somerville, NJ 08876
Fax No: 908-575-1233
with a copy to:
Steven L. Wasserman
Kohrman Jackson & Krantz P.L.L.
One Cleveland Center - 20th Floor
Cleveland, OH 44114
Fax No: 216-621-6536
(ii) if to Matech or RMB:
Robert M. Bernstein
11835 West Olympic Boulevard
East Tower 705
Los Angeles, CA 90064
Fax No: 310-473-3177
with a copy to:
C. Timothy Smoot
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23505 Crenshaw Boulevard
Suite 174
Torrance, CA 90505
Fax No: 310-530-2211
Any party may, by notice given in accordance with this Section to
the other parties, designate another address or person for
receipt of notices hereunder.
13.4 WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES; PRESERVATION
OF REMEDIES . This Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
signed by the Buyer and the Seller or, in the case of a waiver, by the party
waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof. Nor
shall any waiver on the part of any party of any such right, power or
privilege, nor any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any party may
otherwise have at law or in equity. The rights and remedies of any party
based upon, arising out of or otherwise in respect of any inaccuracy in or
breach of any representation, warranty, covenant or agreement contained in
this Agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement contained in this Agreement
(or in any other agreement between the parties) as to which there is no
inaccuracy or breach.
13.5 GOVERNING LAW . This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed entirely within such State.
13.6 BINDING EFFECT; ASSIGNMENT . This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and legal representatives. Buyer may, in its sole discretion, assign
any and all of its right, title and interest under this Agreement to such
assignee or nominee as it shall, in its sole discretion, elect.
13.7 VARIATIONS IN PRONOUNS . All pronouns and any
variations thereof refer to the masculine, feminine or neuter, singular or
plural, as the context may require.
13.8 COUNTERPARTS . This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart
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may consist of a number of copies hereof each signed by less than all, but
together signed by all of the parties hereto.
13.9 EXHIBITS AND SCHEDULES . The Exhibits and Schedules are a
part of this Agreement as if fully set forth herein. All references herein to
sections, subsections, clauses, Exhibits and Schedules shall be deemed
references to such parts of this Agreement, unless the context shall otherwise
require.
13.10 HEADINGS . The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement.
13.11 ENTIRE AGREEMENT . This Agreement (including the
Schedules and Exhibits) and the collateral agreements executed in connection
with the consummation of the transactions contemplated herein contain the entire
agreement among the parties with respect to the purchase of the Shares and
supersedes all prior agreements, written or oral, with respect thereto.
IN WITNESS WHEREOF, the parties hereto have signed and sealed this
Agreement as of the day and year first above written.
MONTPILIER HOLDINGS, INC.
By: /s/ Nicholas R. Wilson
-------------------------------
President
SECURFONE AMERICA, INC.
By: /s/ Nicholas R. Wilson
-------------------------
President
MATERIAL TECHNOLOGY, INC.
By: /s/ Robert M. Bernstein
-----------------------------
Robert M. Bernstein, President Dated: February 18, 1997
/s/ Robert M. Bernstein
-----------------------------------
Robert M. Bernstein Dated: February 18, 1997
39
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EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement, dated as of February 21, 1997, among MONTPILIER HOLDINGS,
INC., a Nevada corporation ("MHI"), SECURFONE AMERICA, INC., a Delaware
corporation ("SecurFone"), ROBERT M. BERNSTEIN, a resident of Los Angeles,
California ("RMB"), MATERIAL TECHNOLOGY INC., a Delaware corporation ("Matech")
and KOHRMAN JACKSON & KRANTZ P.L.L., an Ohio registered partnership having
limited liability, as escrow agent ("Escrow Agent").
This is the Escrow Agreement referred to in the Stock Purchase Agreement, dated
as of February 17, 1997 (the "Stock Agreement") among MHI, SecurFone, RMB, and
Matech. Capitalized terms used in this Agreement without definition shall have
the respective meanings given to them in the Stock Agreement.
The parties, intending to be legally bound, hereby agree as follows:
1. ESTABLISHMENT OF ESCROW
(a) Contemporaneously with the execution of the Stock Agreement, SecurFone is
depositing with Escrow Agent $75,000 (as increased by any earnings thereon and
as reduced by any disbursements, amounts withdrawn under Section 3, the "Escrow
Fund"). Escrow Agent acknowledges receipt thereof.
(b) Escrow Agent hereby agrees to act as escrow agent and to hold, safeguard
and disburse the Escrow Fund pursuant to the terms and conditions hereof.
2. INVESTMENT OF ESCROW FUND
The Escrow Agent shall hold the Escrow Fund in a separate bank account bearing
interest at the rate normally paid by the bank on commercial accounts. Any
interest shall be paid to the party receiving the Escrow Fund pursuant to this
Agreement.
3. PURPOSE OF ESCROW
MHI and Matech acknowledge and agree that the purpose of the escrow established
by this Agreement is to hold the funds in escrow between the execution of the
Stock Agreement and the closing scheduled thereunder. In the event that the
closing does not occur because of the failure of the conditions set forth in
Section 7 of the Stock Agreement to be satisfied, the Escrow Fund and any
interest earned thereon shall be returned by the Escrow Agent to SecurFone. In
the event that the transactions contemplated by the Stock Agreement are
consummated, the Escrow Fund shall be paid (a) $70,000 to Matech's subsidiary
and (b) $5,000 to RMB. In the event that the closing does not occur because of
MHI's or SecurFone's breach of the Stock Agreement, the Escrow Fund shall be
paid to Matech. The procedures for disbursement of the Escrow Fund are set forth
in Section 4 of this Agreement.
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4. PAYMENT OF ESCROW FUND; DISPUTES
(a) In the event that the transactions contemplated by the Stock Agreement
are not consummated on the Closing Date set forth in the Stock Agreement,
SecurFone shall promptly give give notice (the "Notice") to Matech and Escrow
Agent specifying in reasonable detail the reasons that the transactions did not
close on schedule and the party to whom the Escrow Fund should be paid.
Escrow Agent shall not independently inquire into or consider the accuracy or
adequacy of such reasons but shall be entitled to rely upon and shall perform
its duties hereunder in strict accordance with the provisions of this Escrow
Agreement.
(b) If Matech gives notice (a "Counter Notice") to SecurFone and Escrow Agent
disputing the reasons set forth in the Notice, the Counter Notice shall specify
in reasonable detail the reason for the dispute (the "Dispute") within ten (10)
days following receipt by Escrow Agent of the Notice (the "Counter Notice
Period"), Escrow Agent shall not make any payment to SecurFone with respect to
any such Dispute except upon Escrow Agent's receipt of, and then only in
accordance with the terms of, (i) a joint written instruction of SecurFone and
Matech instructing Escrow Agent to disburse or retain all or a portion of the
Escrow Fund in resolution of such Dispute or (ii) a Certified Arbitration Order
(as hereinafter defined). For purposes of this Escrow Agreement, a "Certified
Arbitration Order" shall be an order of the arbitrator or arbitrators rendered
in accordance with the provisions of the Stock Agreement with respect to
arbitration. Escrow Agent shall upon receipt and without further investigation,
act upon and comply with the terms of any such joint written instruction or
Certified Arbitration Order.
(c) If the Escrow Agent does not receive a Counter Notice before expiration
of the Counter Notice Period, it shall pay the Escrow Fund pursuant to the terms
of the Notice.
5. DUTIES OF ESCROW AGENT
(a) Escrow Agent shall not be under any duty to give the Escrow Fund held by
it hereunder any greater degree of care than it gives its own similar property
and shall not be required to invest any funds held hereunder except as directed
in this Agreement.
(b) Escrow Agent shall not be liable, except for its own gross negligence or
willful misconduct and, except with respect to claims based upon such gross
negligence or willful misconduct that are successfully asserted against Escrow
Agent, the other parties hereto shall jointly and severally indemnify and hold
harmless Escrow Agent (and any successor Escrow Agent) from and against any and
all losses, liabilities, claims, actions, damages and expenses, including
reasonable attorneys' fees and disbursements, arising out of and in connection
with this Agreement. Without limiting the foregoing, Escrow Agent shall in no
event be liable in connection with its investment or reinvestment of any cash
held by it hereunder in good faith, in accordance with the terms hereof,
including, without limitation, any liability for any delays (not resulting from
its gross negligence or willful misconduct) in the investment or reinvestment of
the Escrow Fund, or any loss of interest incident to any such delays.
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(c) Escrow Agent shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that the person purporting
to give receipt or advice or make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so. Escrow
Agent may conclusively presume that the undersigned representative of any party
hereto which is an entity other than a natural person has full power and
authority to instruct Escrow Agent on behalf of that party unless written notice
to the contrary is delivered to Escrow Agent.
(d) Escrow Agent may act pursuant to the advice of counsel with respect to
any matter relating to this Agreement and shall not be liable for any action
taken or omitted by it in good faith in accordance with such advice.
(e) Escrow Agent does not have any interest in the Escrow Fund deposited
hereunder but is serving as escrow holder only and having only possession
thereof. Any payments of income from this Escrow Fund shall be subject to
withholding regulations then in force with respect to United States taxes. The
parties hereto will provide Escrow Agent with appropriate Internal Revenue
Service Forms W-9 for tax identification number certification, or non-resident
alien certifications. This Section 6(e) and Section 6(b) shall survive
notwithstanding any termination of this Agreement or the resignation of Escrow
Agent.
(f) Escrow Agent makes no representation as to the validity, value,
genuineness or the collectability of any security or other document or
instrument held by or delivered to it.
(g) Escrow Agent shall not be called upon to advise any party as to the
wisdom in selling or retaining or taking or refraining from any action with
respect to any securities or other property deposited hereunder.
(h) Escrow Agent (and any successor Escrow Agent) may at any time resign as
such by delivering the Escrow Fund to any successor Escrow Agent jointly
designated by the other parties hereto in writing, or to any court of competent
jurisdiction, whereupon Escrow Agent shall be discharged of and from any and all
further obligations arising in connection with this Agreement. The resignation
of Escrow Agent will take effect on the earlier of (a) the appointment of a
successor (including a court of competent jurisdiction) or (b) the day which is
30 days after the date of delivery of its written notice of resignation to the
other parties hereto. If at that time Escrow Agent has not received a
designation of a successor Escrow Agent, Escrow Agent's sole responsibility
after that time shall be to retain and safeguard the Escrow Fund until receipt
of a designation of successor Escrow Agent or a joint written disposition
instruction by the other parties hereto or a final non-appealable order of a
court of competent jurisdiction.
(i) In the event of any disagreement between the other parties hereto
resulting in adverse claims or demands being made in connection with the Escrow
Fund or in the event that Escrow Agent is in doubt as to what action it should
take hereunder, Escrow Agent shall be entitled to retain the Escrow Fund until
Escrow Agent shall have received (a) a final non-appealable order of a court of
competent jurisdiction directing delivery of the Escrow Fund or (b)
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<PAGE>
a written agreement executed by the other parties hereto directing delivery of
the Escrow Fund, in which event Escrow Agent shall disburse the Escrow Fund in
accordance with such order or agreement. Any court order shall be accompanied by
a legal opinion by counsel for the presenting party satisfactory to Escrow Agent
to the effect that the order is final and non-appealable. Escrow Agent shall act
on such court order and legal opinion without further question.
(j) Escrow Agent shall not charge a fee for the services to be rendered by
Escrow Agent hereunder, but the parties agree to reimburse Escrow Agent for all
reasonable expenses, disbursements and advances incurred or made by Escrow Agent
in performance of its duties hereunder (including reasonable fees, expenses and
disbursements of its counsel). Any such compensation and reimbursement to which
Escrow Agent is entitled shall be borne 50% by MHI, and 50% by Matech. Any fees
or expenses of Escrow Agent or its counsel that are not paid as provided for
herein may be taken from any property held by Escrow Agent hereunder.
(k) No printed or other matter in any language (including, without
limitation, prospectuses, notices, reports and promotional material) that
mentions Escrow Agent's name or the rights, powers, or duties of Escrow Agent
shall be issued by the other parties hereto or on such parties' behalf unless
Escrow Agent shall first have given its specific written consent thereto.
(l) The other parties hereto authorize Escrow Agent, for any securities held
hereunder, to use the services of any United States central securities
depository it reasonably deems appropriate, including, without limitation, the
Depositary Trust Company and the Federal Reserve Book Entry System.
6. LIMITED RESPONSIBILITY
This Agreement expressly sets forth all the duties of Escrow Agent with respect
to any and all matters pertinent hereto. No implied duties or obligations shall
be read into this agreement against Escrow Agent. Escrow Agent shall not be
bound by the provisions of any agreement among the other parties hereto except
this Agreement.
7. OWNERSHIP FOR TAX PURPOSES
Matech agrees that, for purposes of federal and other taxes based on income, it
will be treated as the owner of the Escrow Fund, and that Matech will report all
income, if any, that is earned on, or derived from, the Escrow Fund as its
income, in the taxable year or years in which such income is properly includible
and pay any taxes attributable thereto.
8. NOTICES
All notices, consents, waivers and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by telecopier (with
written confirmation of receipt) provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
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each case to the appropriate addresses and telecopier numbers set forth in the
Stock Agreement.
9. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement shall be decided by arbitration in
accordance with the applicable provisions of the Stock Agreement.
10. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original and all of which, when taken together, will be
deemed to constitute one and the same.
11. SECTION HEADINGS
The headings of sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation.
12. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
13. EXCLUSIVE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements among the parties with respect to
its subject matter and constitutes (along with the documents referred to in this
Agreement) a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may not
be amended except by a written agreement executed by MHI, SecurFone, RMB, Matech
and the Escrow Agent.
14. GOVERNING LAW
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This Agreement shall be governed by the laws of the State of Delaware, without
regard to conflicts of law principles.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
MONTPILIER HOLDINGS, INC. SECURFONE AMERICA, INC.
By: /s/ Nicholas R. Wilson By: /s/ Nicholas R. Wilson
------------------------------- -----------------------
Nicholas R. Wilson Nicholas R. Wilson
/s/ Robert M. Bernstein MATERIAL TECHNOLOGY, INC.
- -----------------------------------
Robert M. Bernstein
Dated: February 18, 1997
By: /s/ Robert M. Bernstein
---------------------------
Robert M. Bernstein
Dated: February 18, 1997
Escrow Agent:
KOHRMAN JACKSON & KRANTZ P.L.L.
By: H. Clark Harvey, Jr.
----------------------------
H. Clark Harvery, Jr.
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EXHIBIT B
NON-RECOURSE PROMISSORY NOTE
$50,000 __________, _________ _________, 1997
For value received the undersigned, SECURFONE AMERICA, INC., (hereinafter
"Payor"), promises to pay to the order of [NEWCO] (hereinafter "Payee") the sum
of Fifty Thousand Dollars ($50,000) with no interest, payable in two
installments of principal each in the amount of $25,000, the first installment
due on ____________ , 1997, and the second installment due on ____________ ,
1997. Installments of principal shall be payable at 11835 West Olympic
Boulevard, East Tower 705, Los Angeles California 90064, or any place hereafter
designated by Payee. Payor may prepay this note, in full or in part, at any
time without penalty. If all or any part of any installment due hereunder is
not received by the Payee by the close of business on the fifth (5th) day
after the date on which such payment is due, then the outstanding principal
balance hereof shall at once become due and payable at the option of Payee
without notice or demand.
Payor hereby waives diligence, presentment, demand, protest and notice of
every kind whatsoever; and hereby consents to an unlimited number of extensions
or modifications of the time of any payment hereunder before or after maturity
at Payee's sole discretion without notice to Payor, and that the obligations
evidenced hereby shall not be discharged by reason of any such extensions and/or
modifications. The failure of Payee to exercise any of its rights hereunder
shall not constitute a waiver of the same or of any other right in that or any
subsequent instance.
This Note is secured by a Pledge Agreement (referred to herein as the
"Pledge Agreement") validly executed and delivered by the Maker to the payee
hereof pledging certain shares of common stock of [Newco], to which agreement
reference is made for a description of the security and the rights of the holder
hereof and the obligations of the Maker in respect thereto, but neither this
reference to the Pledge Agreement nor any provisions thereof shall affect or
impair the absolute and unconditional obligation of the Maker to pay the
principal of this Note when due.
By its acceptance of this Note, [Newco], the Payee, for itself and its
successors and assigns as owner and holder hereof, covenants and agrees that
from and after the date hereof, neither the Maker nor its successors and assigns
shall have any personal liability for payment of the indebtedness evidenced
hereby, and that the holder hereof shall look exclusively to the shares
described in, and encumbered by, the Pledge Agreement, and to such other and
further security as may from time to time be given; and that no judgment, order
or execution of this Note, the Pledge Agreement, or any other instrument
securing the indebtedness evidenced hereby shall be rendered or enforced
against either the Maker or its successors or assigns personally in any such
action, suit or proceeding, whether legal or equitable, brought on this Note,
the Pledge
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Agreement, or such other agreements; provided, however, that nothing herein
contained shall limit, or be construed to limit or impair, the enforcement of
the rights and remedies of the holder hereof, and its successors and assigns as
owner and holder hereof, under this and any other instruments now or hereafter
securing the same, against the shares encumbered by the Pledge Agreement, and
against such other and further security as may from time to time be given as
security for the payment of the indebtedness evidenced by this Note.
The provisions hereof shall inure to the benefit of, and shall be binding
upon, Payor, Payee and their respective, successors and permitted assigns.
IN WITNESS WHEREOF, Payor has executed and delivered this note on the
date first set forth above.
PAYOR:
SECURFONE AMERICA, INC.
By:
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EXHIBIT C
RELEASE
The undersigned, having been a duly elected officer and/or director of
MATERIAL TECHNOLOGY, INC. (the "Company"), for good and valuable consideration,
the receipt of which is hereby acknowledged, does for myself and my heirs,
executors, administrators, assigns and all parties in interest with me, release
and forever discharge the Company, and its officers, directors, employees,
agents, successors and all parties in interest with it, from any and all manner
of claims, demands, damages, causes of action or suits that I might now have, or
that might subsequently accrue to me by reason of any matter or thing
whatsoever, from the beginning of time to the date hereof, arising out of or
related to my service as an officer and/or director of the Company or any
subsidiary of the Company or any other matter, including, but not limited to,
any claims for wages, salaries, commissions or other compensation, fees,
reimbursed expenses, etc., but excluding any amounts to which I may be entitled
by reason of my participation in any pension or profit sharing plan of the
Company, if applicable, and further excluding any claim I might have for
indemnification as an officer or director of the Company or any subsidiary of
the Company with respect to claims against me for actions taken in such capacity
on behalf of the Company.
Dated this_____ day of______, 1997.
<PAGE>
EXHIBIT D
LETTER OF RESIGNATION
Board of Directors
Material Technology, Inc.
Gentlemen:
The undersigned hereby resigns from any and all positions which I now
hold as an officer and/or director of Material Technology, Inc. and any related
entity, effective immediately.
Dated this____ day of_____, 1997.
<PAGE>
EXHIBIT E
CONSULTING AGREEMENT
CONSULTING AGREEMENT
As of the last date written below, Material Technology, Inc., ("Matech")
and Robert M. Bernstein ("Consultant") agree that Consultant shall act as a
consultant to Matech on the following terms and conditions:
WHEREAS, the willingness of Matech to enter into the Stock Purchase
Agreement among Montpilier Holdings, Inc., SecurFone America, Inc., Matech, and
Robert M. Bernstein was conditioned on the willingness of Consultant to act as
consultant on the terms in this Agreement; and
WHEREAS, Consultant is willing to act as a consultant as described below
and on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises set forth herein,
the parties hereto agree as follows:
1. AGREEMENT TO ACT AS CONSULTANT . Effective on the Closing Date of the
Stock Purchase Agreement, Consultant hereby agrees to act as a consultant to
Matech for eighteen months following the Closing (as defined in the Stock
Purchase Agreement). Upon request of Matech's officers or directors, Consultant
shall make himself available for up to fifty (50) hours per calendar quarter to
consult with Matech's officers and directors on matters involving Matech's
business and affairs. Consultant shall be entitled to reasonable notice to
prepare to perform the services requested and to render such services at times
reasonable convenient to Consultant. Moreover, Consultant shall be reimbursed
for all reasonable travel expenses in connection with such services, provided
such expenses are adequately documented.
2. COMPENSATION . On the Closing Date under the Stock Purchase Agreement,
RMB shall be paid $5,000 out of the escrow referred to in such Stock Purchase
Agreement. In addition, for a period of five years from Closing, Consultant
shall be entitled to receive stock options entitling him to purchase Class A
Common Stock of Matech. The number of shares of Matech Class A Common Stock
subject to such options shall be equal to seven per cent (7%) of the sum of (A)
the total number of shares of any class of equity security of Matech that,
during the five years following the Closing, Matech registers with the
Securities Exchange Commission on Form S-8 plus (B) the total number of shares
of any class of equity security of Matech that, during the five years following
Closing, Matech sells under Regulation S of the Securities Act of 1933. The
shares issuable upon exercise of all such options granted to Consultant shall be
registered on Form S-8 within 180 days following the date of grant. In
<PAGE>
addition, (i) Consultant's options based on shares registered on Form S-8 shall
be granted to him on the date each such registration statement becomes
effective, shall not be exercisable until one year following the date of grant,
and shall be exercisable for a period of five years following the expiration of
such one-year period and (ii) Consultant's options based on shares sold under
Regulation S shall be granted within twenty (20) days of any sales under
Regulation S and shall grant Consultant the right to purchase shares on the same
terms and conditions as the purchasers under Regulation S, except that (i) such
option shall not be exercisable for a period of one year following the date of
grant ; (ii) any restrictions on resale of the Regulation S shares shall not
apply to the shares Consultant receives upon exercising his options after such
one-year period; and (iii) the shares shall be registered on Form S-8 within 180
days following the date of grant of options to Consultant; provided that Matech
shall not be obligated to file more than two Form S-8 registration statements in
any calendar year. Consultant shall pay for shares purchased upon exercise of
such options in full at the time of exercise.
3. NO SET-OFF OR REDUCTION. Matech agrees that the right of Consultant to
receive the compensation set forth in Paragraph 2 above shall not be subject to
reduction or set-off for any reason whatever, including, but not limited to, any
alleged breach of warranties or other obligations under this Agreement or the
Stock Purchase Agreement.
4. REMEDIES OF CONSULTANT. In the event of any breach by Matech of its
obligations to compensate consultant, in addition to any remedies Consultant may
have at law, any and all options previously granted to Consultant shall become
immediately exercisable. In the event that Consultant incurs costs, expenses,
and/or attorneys fees to enforce his rights under this Agreement, Matech shall
reimburse Consultant for any and all such costs, expenses, and/or reasonable
attorneys fees.
5. AUTHORIZATION. This Agreement has been authorized by Matech's
directors prior to Closing and by Matech's replacement directors after the
Closing.
6. CONFIDENTIAL INFORMATION. Consultant will acquire information of a
confidential nature relating to the operation, finances, business relationships,
intellectual property, and trade secrets of Matech. During the term of this
Agreement and for two years following termination of the 18-month term of his
consulting obligation, Consultant will not, without Matech's prior written
consent, use, publish, or disclose or authorize anyone else to use, publish, or
disclose,any confidential information pertaining to Matech or its affiliated
entities, including, without limitation, any information relating to existing or
potential business, customers, trade or industrial practices, plans, costs,
processes, technical or engineering data, or trade secrets; provided, however,
that Consultant shall be prohibited from ever using, publishing, or disclosing
or authorizing anyone else to use, publish, or disclose any confidential
information which constitutes a trade secret under applicable law. The foregoing
notwithstanding, Consultant has
2
<PAGE>
no obligation to refrain from using, publishing, or disclosing any such
confidential information which is or hereafter shall become available to the
public otherwise than by Consultant's use, publication, or disclosure. This
prohibition also does not prohibit Consultant from disclosing confidential
information in response to lawful process compelling disclosure. On the other
hand, Consultant shall provide reasonable notice to Matech of any such process
to allow Matech to timely object to such disclosure.
7. RETURN OF DOCUMENTS. Within five days of termination of the 18-month
consulting period under this Agreement, Consultant shall return to Matech or
destroy all of Matech's papers, documents, and things, including information
stored for use in or with computers and software applicable to Matech's business
and all copies of such papers, documents, and things, which are in Consultant's
possession, custody, or control and Consutant shall certify in writing that he
has complied with this provision.
8. AGREEMENT ON FAIRNESS. Consultant acknowledges that: (i) this
Agreement has been specifically bargained between the parties and reviewed by
Consultant and his counsel and (ii) the covenants made by and the duties imposed
upon Consultant hereby are fair, reasonable, and minimally necessary to protect
the legitimate business interests of Matech, and such covenants and duties will
not place an undue burden upon Consultant's livelihood.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
last date written below.
Date: CONSULTANT
-------------------------------
Robert M. Bernstein
Date: MATERIAL TECHNOLOGY, INC.
By:
-----------------------------
Print Name and Title
3
<PAGE>
EXHIBIT 2.2
February 18, 1997
Material Technology, Inc.
11835 West Olympic Boulevard
East Tower 705
Los Angeles, CA 90064
Gentlemen:
Reference is made to the Stock Purchase Agreement dated as of February 17,
1997 among Montpilier Holdings, Inc. ("MHI"), SecurFone America, Inc.
("SecurFone"), Material Technology, Inc. ("Matech") and Robert M. Bernstein
("RMB").
In consideration for entering into the Stock Purchase Agreement, the
parties agree as follows:
1. The officers of SecurFone are: Chief Executive Officer - William
Steuber; President - Nicholas Wilson; Vice President - Derek Davis; Treasurer
and Chief Financial Officer - Michael Lee; Secretary - Steven Wasserman. These
persons and David Neibert are the directors. The sole shareholder of SecurFone
is Montpilier Holdings, Inc.
2. MHI agrees, for a period of two years following the closing, to vote
its shares of Matech to elect Steven L. Wasserman as a director of Matech.
3. Matech agrees to retain 560,000 shares of the 5,560,000 total number
of outstanding shares of the new subsidiary to be formed for the purpose of
transferring all of the assets and assuming all of the liabilities of Matech.
4. RMB agrees that all shares of Matech owned by him as of the date
hereof and at the Closing Date shall not be sold, pledged or otherwise
transferred by him for a period of one year following the Closing under the
Stock Purchase Agreement. In addition, RMB shall use his best efforts to obtain
the same agreement, not to sell or otherwise transfer shares, with respect to
not less than 90% of the total number of shares held, from the shareholders
listed on Exhibit A attached hereto.
5. MHI and RMB agree that MHI, any other shareholders of SecurFone, RMB
and the other shareholders of Matech listed in Exhibit A shall have the right,
for a period of 18 months following the Closing, to have shares owned by them
registered together with any shares that Matech may elect to register (excluding
shares registered on Form S-8) in an amount equal to 75% (for MHI and any other
shareholders of SecurFone) and 25% (for RMB and the other shareholders of Matech
listed on Exhibit A) of the number of shares to be registered by Matech. The
complete terms and conditions of these registration rights shall be set forth in
a Registration Rights
<PAGE>
PAGE 2
CONSULTING AGREEMENT
Agreement to be entered into prior to Closing, but the terms shall be generally
as follows: Matech shall give MHI, RMB and the other shareholders not less than
15 days prior written notice of any proposed registration and such shareholders
shall notify Matech whether or not they wish to exercise their rights to be
included in any such registration within such 15 days. Notwithstanding any
shareholders' election to exercise their rights, Matech shall have the right to
postpone or terminate any registration for any reason and, in the case of any
such determination, it shall have no obligation to register MHI's, RMB's and the
other stockholders' shares until the next time it decides to register shares.
Matech shall pay all expenses of any such registration, except any fees,
discounts and commissions of underwriters or dealers applicable to shares sold
by any shareholders and any fees or expenses of legal counsel retained by any
shareholders.
Please acknowledge your agreement with the foregoing by signing a copy
of this letter.
Sincerely,
MONTPILIER HOLDINGS, INC.
By:
Agreed to:
Robert M. Bernstein
MATERIAL TECHNOLOGY, INC.
By:
2
<PAGE>
EXHIBIT 3(i)
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TURE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "MATERIAL TECHNOLOGIES, INC.", FILED IN THIS OFFICE ON THE
FOURTH DAY OF MARCH, A.D. 1997, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
[SEAL] -----------------------------------
EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION: 8357767
DATE: 03-04-97
<PAGE>
CERTIFICATE OF INCORPORATION
OF
MATERIAL TECHNOLOGIES, INC.
FIRST: The name of the corporation is Material Technologies, Inc.
SECOND: Its registered office in the State of Delaware is to be located at 1013
Centre Road, Wilmington, DE 19805, New Castle County. The registered agent in
charge thereof is Corporation Service Company whose address is the same as
above.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The corporation is authorized to issue eleven million (11,000,000)
shares of stock all of which stock shall have a par value of $.001 per share in
classes as follows:
a. Ten million (10,000,000) shares of stock designated as "Common Stock",
$.001 par value and one hundred thousand (100,000) shares of stock
designated as "Class B Common Stock", $.001 par value. The holders of
Common Stock shall be entitled to receive such dividends out of the funds
or assets of the Corporation legally available therefor as, from time to
time, the Board of Directors may declare. The holders of Class B Common
Stock shall not be entitled to receive dividends. The holders of Common
Stock and the holders of Class B Common Stock shall vote as a single class
on all matters submitted to a vote of stockholders, with each share of
Common Stock entitled to one (1) vote and each share of Class B Common
Stock entitled to two hundred (200) votes. In all other respects, the
Common Stock and Class B Common Stock shall be identical.
b. Nine hundred thousand (900,000) shares of stock designated as
"Preferred Stock", $.001 par value. The Board of Directors is granted the
authority by resolution to authorize the corporation to issue one or more
series of the Preferred Stock and to determine the voting powers, full or
limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights of each and every
series of Preferred Stock and the qualifications, limitations or
restrictions on such preferences and/or rights.
FIFTH: The name and mailing address of the incorporator is as follows:
DEBRA M. CARLL,
CORPORATION SERVICE COMPANY
1013 CENTRE ROAD
WILMINGTON, DE 19805
SIXTH: The names and mailing addresses of the persons who are to serve as
directors until the first annual meeting of stockholders or until their
successors are elected and qualify are:
Robert M. Bernstein Joel Freedman John Goodman
East Tower, Suite 705 1 Bala Plaza East Tower, Suite 705
11835 Olympic Blvd. Bala Cynwyd, PA 19004 11835 Olympic Blvd.
Los Angeles, CA 90064 Los Angeles, CA 90064
SEVENTH: The Board of Directors shall have the power to adopt, amend or repeal
the corporation's bylaws. This provision does not divest the stockholders nor
limit their power to adopt, amend, or repeal the corporation's bylaws.
EIGHTH: The directors of the corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty to the
full extent permitted by Delaware law or
<PAGE>
PAGE 2
CERTIFICATE OF INCORPORATION
MATERIAL TECHNOLOGIES, INC.
by the law of any other jurisdiction that legally applies to a claim for such
breach at the time of any director's alleged breach of fiduciary duty.
NINTH: The directors are authorized to provide through bylaw provisions or
through agreement with the corporation's agents, or both, to indemnify
directors, officers, and other agents of the corporation to the fullest extent
permitted by Delaware law and/or in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject to the
limits on such excess indemnification set forth in Section 204 of the California
Corporations Code.
TENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
DATED: March 4, 1997 /s/ Debra M. Carll
------------------------------
DEBRA M. CARLL
INCORPORATOR
<PAGE>
EXHIBIT 3(ii)
BYLAWS
OF
MATERIAL TECHNOLOGIES, INC.
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
ARTICLE I - OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1. REGISTERED OFFICE.. . . . . . . . . . . . . . . . . . . . . 3
SECTION 2. PRINCIPAL OFFICE.. . . . . . . . . . . . . . . . . . . . . 3
SECTION 3. OTHER OFFICES. . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II - STOCKHOLDERS' MEETING . . . . . . . . . . . . . . . . . . 3
SECTION 1. ANNUAL MEETINGS. . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2. SPECIAL MEETINGS.. . . . . . . . . . . . . . . . . . . . . 3
SECTION 3. VOTING LIST. . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 4. NOTICE OF MEETING. . . . . . . . . . . . . . . . . . . . . 4
SECTION 5. WAIVER OF NOTICE OF MEETING.. . . . . . . . . . . . . . . . 4
SECTION 6. ORGANIZATION.. . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 7. INSPECTORS.. . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 8. QUORUM OF STOCKHOLDERS AND MAJORITY VOTE.. . . . . . . . . 5
SECTION 9. ADJOURNMENTS OF STOCKHOLDER MEETINGS.. . . . . . . . . . . 5
SECTION 10. DECISIONS AT STOCKHOLDERS' MEETINGS.. . . . . . . . . . . 5
SECTION 11. VOTING RIGHTS.. . . . . . . . . . . . . . . . . . . . . . 5
SECTION 12. PROXIES.. . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 13. SHARES HELD BY FIDUCIARIES, RECEIVERS, PLEDGEES AND TWO
OR MORE PERSONS . . . . . . . . . . . . . . . . . . . . . 6
SECTION 14. ACTION BY WRITTEN CONSENT.. . . . . . . . . . . . . . . . 7
SECTION 15. INSPECTION OF BOOKS AND RECORDS.. . . . . . . . . . . . . 7
ARTICLE III - BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . 7
SECTION 1 POWERS OF THE BOARD OF DIRECTORS. . . . . . . . . . . . . . 7
SECTION 2. NUMBER OF DIRECTORS. . . . . . . . . . . . . . . . . . . . 7
SECTION 3. ELECTION AND TERM. . . . . . . . . . . . . . . . . . . . . 7
SECTION 4. RESIGNATION. . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 5. VACANCY AND INCREASE.. . . . . . . . . . . . . . . . . . . 8
SECTION 6. REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV - MEETINGS OF THE BOARD OF DIRECTORS. . . . . . . . . . . . 9
SECTION 1. PLACE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . 9
SECTION 2. ANNUAL MEETINGS. . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3. SPECIAL MEETINGS.. . . . . . . . . . . . . . . . . . . . . 9
SECTION 4. NOTICE.. . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 5. ACTION WITHOUT MEETING.. . . . . . . . . . . . . . . . . . 9
SECTION 6. MEETING BY TELEPHONE OR ELECTRONIC CONFERENCE. . . . . . . 9
SECTION 7. QUORUM.. . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 8. COMPENSATION.. . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 9. ORDER OF BUSINESS. . . . . . . . . . . . . . . . . . . . . 10
SECTION 10. REMOVAL.. . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V - COMMITTEES OF THE BOARD OF DIRECTORS . . . . . . . . . . . 10
SECTION 1. FORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2. POWERS.. . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3. MEETINGS.. . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLES VI - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 1. PRINCIPAL OFFICERS.. . . . . . . . . . . . . . . . . . . . 11
SECTION 2. ADDITIONAL OFFICERS. . . . . . . . . . . . . . . . . . . . 11
i
<PAGE>
SECTION 3. TERM OF OFFICE/RESIGNATION.. . . . . . . . . . . . . . . . 11
SECTION 4. REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5. POWERS AND DUTIES OF OFFICERS. . . . . . . . . . . . . . . 11
SECTION 6. CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . 11
SECTION 7. CHIEF EXECUTIVE OFFICER. . . . . . . . . . . . . . . . . . 11
SECTION 8. THE PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 9. CHIEF OPERATING OFFICER.. . . . . . . . . . . . . . . . . . 12
SECTION 10. VICE PRESIDENTS.. . . . . . . . . . . . . . . . . . . . . 12
SECTION 11. CHIEF FINANCIAL OFFICER.. . . . . . . . . . . . . . . . . 12
SECTION 11. TREASURER.. . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 12. ASSISTANT TREASURERS. . . . . . . . . . . . . . . . . . . 13
SECTION 13. SECRETARY.. . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 14. ASSISTANT SECRETARIES.. . . . . . . . . . . . . . . . . . 13
ARTICLE VII - CONFLICT OF INTEREST AND INDEMNIFICATION . . . . . . . . 13
SECTION 1. DIRECTOR' AND OFFICERS' INTERESTS IN CONTRACTS.. . . . . . 13
SECTION 2. NONLIABILITY OF DIRECTORS IN CERTAIN CASES.. . . . . . . . 14
SECTION 3. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS; INSURANCE. . . . . . . . . . . . . . . . . . . . 14
ARTICLE VIII - BOOKS, DOCUMENTS AND ACCOUNTS . . . . . . . . . . . . . 16
ARTICLE IX - CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 1. STOCK CERTIFICATES.. . . . . . . . . . . . . . . . . . . . 16
SECTION 2. STOCK TRANSFERS. . . . . . . . . . . . . . . . . . . . . . 16
SECTION 3. REGISTERED STOCKHOLDERS. . . . . . . . . . . . . . . . . . 16
SECTION 4. LOST, STOLEN, OR DESTROYED CERTIFICATES. . . . . . . . . . 16
SECTION 5. DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 6. RECORD DATE. . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE X - MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . 17
SECTION 1. FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2. SEAL.. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3. SECURITIES OF OTHER CORPORATIONS.. . . . . . . . . . . . . 18
SECTION 4. FUND DEPOSITORIES. . . . . . . . . . . . . . . . . . . . . 18
SECTION 5. SIGNING OF CHECKS, NOTES, ETC. . . . . . . . . . . . . . . 18
SECTION 6. PERSONS. . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7. HEADINGS.. . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE XI - AMENDMENT OF BYLAWS . . . . . . . . . . . . . . . . . . . 19
ii
<PAGE>
BYLAWS OF MATERIAL TECHNOLOGIES, INC.
A DELAWARE CORPORATION
ARTICLE I - OFFICES
SECTION 1. REGISTERED OFFICE.
The registered Office in Delaware of Material Technologies, Inc., (the
"Corporation") shall be the Corporation Service Company, 1013 Centre Road,
Wilmington, DE 19805, New Castle County, but the Corporation's Board of
Directors (the "Board") may change the registered office without amending these
By-Laws. The registered office shall not be the Corporation's principal place
of business.
SECTION 2. PRINCIPAL OFFICE.
The Corporation's principal executive office shall be at East Tower, Suite 705,
11835 W. Olympic Boulevard, Los Angeles, CA 90064, but the Board may change the
principal office without amending these By-Laws.
SECTION 3. OTHER OFFICES.
The Board may establish offices, in and/or outside California, for the
Corporation's business.
ARTICLE II - STOCKHOLDERS' MEETING
SECTION 1. ANNUAL MEETINGS.
The Board shall hold an annual meeting of the Corporation's stockholders
("Stockholders") to elect directors and transact any other business properly
brought before the meeting. Except as otherwise limited by law and/or these By-
Laws, any and all action may be taken and any and all business transacted at any
annual meeting. The Board may choose any place for holding the annual meeting
which is reasonably convenient for holders of the majority of the Corporation's
stock. Such annual meeting shall be held at a convenient time designated by the
Board prior to April 1 of each calendar year. If the annual meeting is not held
prior to April 1, the Board shall cause the meeting to be held as soon
thereafter as convenient.
SECTION 2. SPECIAL MEETINGS.
At any reasonable times, the Board, the Chairman of the Board, the President, or
any two other officers of the Corporation may call special meetings of the
Stockholders. Within a reasonable time of receiving a written request, the
Secretary shall call a special Stockholders' meeting upon the written request of
holders of not less than 10% of the votes of all outstanding securities of the
Corporation then entitled to vote. Unless otherwise prescribed by law, special
meetings may be called to take any and all actions or conduct any and all
business which actions or business requires Stockholder vote. The Secretary
shall fix a reasonable, date, time, and place for each special meeting within 60
days of receipt of such request and give due notice of such meeting including a
specific description of matters to be decided and acted upon unless all
Stockholders waive such notice in writing signed by each Stockholder or the
Stockholder's lawful representative. Any Stockholder request must be in
writing, include a specific description of matters to be decided, and be sent by
registered mail to the Corporation's President or Secretary at the Corporation's
principal office or delivered to such officer in person. If the Secretary
neglects or refuses to fix the date, time, and place of the special meeting and
give notice of such meeting, the person or persons calling the meeting may do
so. Business transacted at all special
<PAGE>
meetings shall be confined to matters stated in the notice and matters
reasonably related thereto unless all Stockholders entitled to vote are present
and consent.
SECTION 3. VOTING LIST.
The Secretary shall prepare a complete list of Stockholders entitled to vote at
each Stockholders' meeting, arranged in alphabetical order, with each
Stockholder's name, address, number of shares registered in that name, and, if
the shares are owned by more than one person or in some other capacity, such
further information as is necessary to determine how the shares are held and how
they may be voted. For at least ten (10) business days prior to each
Stockholders' meeting , the Secretary shall make such Stockholders' list
reasonably available for any Stockholder to inspect during usual business hours
at a place or places designated in the Notice of Meeting. During each
Stockholder's meeting, the list shall be available for inspection by any
Stockholder present at the meeting.
SECTION 4. NOTICE OF MEETING.
Whenever a Stockholders' meeting is called, the Secretary or a person designated
by the Board, shall deliver, personally or by mail, a written Notice of Meeting,
annual or special, to each Stockholder of record entitled to vote at such
meeting. If mailed, the Notice shall be deemed given when deposited in the
United States mail, postage prepaid, addressed to the Stockholder at the address
as it appears on the stock transfer books of the Corporation. Unless otherwise
provided by law, the Notice shall be given not less than ten (10) days nor more
than sixty (60) days before the date of the meeting. The Notice shall state the
place, day, time, and where and when Stockholders may inspect the Stockholders
list and, in the case of a special meeting, the purpose or purposes of the
meeting.
SECTION 5. WAIVER OF NOTICE OF MEETING.
Any Stockholder may waive receiving notice of any meeting by, at any time,
signing a written waiver of notice to the specific meeting or by attending the
meeting. In either case, waiver shall be deemed equivalent to receiving proper
notice. The waiver of notice need not specify the business to be transacted or
any purpose for the meeting. A person does not waive notice by attending a
meeting and, at the beginning of such meeting, objecting to transacting any
business on the grounds that the meeting was unlawfully called or convened.
SECTION 6. ORGANIZATION.
The President or an officer designated by the Board, shall call each Stockholder
meeting to order and act as Chairperson. If no Chairperson is designated or
present, a majority of Stockholders present in person or by proxy and entitled
to vote, may by a majority vote elect a Stockholder to act as Chairperson. The
Secretary or a person designated by the Chairperson shall act as Secretary of
Stockholders' meetings and keep minutes of the meeting. The Chairperson shall
determine the order of business at all Stockholders' meetings.
SECTION 7. INSPECTORS.
In advance of any Stockholders' meeting, the Board may elect to have one or more
inspectors of election act at the meeting. If the Board does not so elect, the
Chairperson of such meeting may, and on written request of any Stockholder or
his proxy shall, shall appoint one or more inspectors. If inspectors are to be
appointed, the Chairperson shall appoint one or more inspectors to act at the
meeting and write a report of the meeting. Each inspector shall take and sign
an oath to execute faithfully the duties of inspector with strict impartiality,
in good faith, and
2
<PAGE>
according to the best of his or her ability. Inspectors shall have the
following duties: (a) to determine the number of shares outstanding on the
record date for the meeting and the voting power of each; (b) to determine what
shares are represented at the meeting and whether a quorum exists; (c) to
determine the validity of proxies and ballots; (d) to count all votes and
ballots; (e) to hear and decide any and all questions or challenges related to
the right to vote at the meeting; (f) to make and retain for a reasonable time a
record of any challenges and their disposition; and (g) to certify the number of
shares represented at the meeting and the counts of all votes and ballots.
Inspectors may appoint or retain assistants.
SECTION 8. QUORUM OF STOCKHOLDERS AND MAJORITY VOTE.
Unless otherwise provided by law, by the Certificate of Incorporation, or by
these Bylaws, holders of a majority of shares entitled to vote at a Stockholders
meeting, represented in person or by proxy, shall constitute a quorum for
transacting business.
SECTION 9. ADJOURNMENTS OF STOCKHOLDER MEETINGS.
A majority of Stockholders represented at any properly noticed meeting, with or
without a quorum, may adjourn the meeting. If a quorum is present for the
adjournment vote and a new time and place of the adjourned meeting are announced
prior to the vote of adjournment, notice of the new time and place of the
adjourned meeting is not required. If (a) a Stockholders' meeting is adjourned
without a quorum, (b) the adjournment is for less than 30 days, and (c) no new
record date is fixed for the adjourned meeting, a Notice of Meeting need not be
delivered to each Stockholder of record entitled to vote at the adjourned
meeting. If (a) a meeting is adjourned for more than 30 days or (b) a new
record date is fixed for the adjourned meeting, a new Notice of Meeting shall be
delivered to each Stockholder of record entitled to vote at the adjourned
meeting. If a quorum is present at any meeting previously adjourned with less
than a quorum present or represented, any business may be transacted which might
have been transacted at the original meeting as originally noticed.
SECTION 10. DECISIONS AT STOCKHOLDERS' MEETINGS.
Except when applicable law, the Certificate of Incorporation, or these By-Laws
specifically require otherwise, Stockholders shall decide all matters to be
decided by vote of Stockholders at any Stockholder's meeting by majority vote of
the shares represented, in person or by proxy, and entitled to vote. A quorum
of Stockholders must be present for the first vote of Stockholders at any
meeting except for a vote to adjourn. If, after the first vote of a duly called
meeting, enough Stockholders withdraw to leave less than a quorum, the
Stockholders present may continue to transact business until adjournment. In
that case, the majority vote of a quorum shall be the Stockholders' act. Voting
for election of directors shall be by written ballot. Voting on all other
matters shall be by voice vote unless, prior to voting, the Chairperson decides,
or a majority of the shares entitled to vote at such meeting demand, that voting
on any or all other matters shall be by written ballot. Only ballots stating
the number of shares voted and signed by the Stockholder voting or by proxy
shall be valid.
SECTION 11. VOTING RIGHTS.
Unless otherwise provided by law, by the Certificate of Incorporation, or by
these Bylaws, each outstanding share of common stock standing in the
Stockholder's name on the stock transfer books on the record date of a
Stockholders' meeting shall be entitled to one (1) vote on each matter submitted
to a vote at that meeting.
In electing directors, if one or more Stockholders or their proxy deliver
written notice to the Secretary of the Corporation prior to the meeting, or to
the Chairperson prior to the vote for
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directors, all Stockholders may cumulate their votes in electing directors. If
and only if such notice is given, every Stockholder entitled to vote for
directors shall have the number of votes determined by multiplying the number of
directors to be elected by the number of shares the Stockholder is entitled to
vote and each Stockholder may then give one nominated candidate all such votes
or distribute such votes in any proportion among the nominated candidates.
The Corporation is not entitled to vote or count for quorum purposes shares of
its own capital stock owned by the Corporation or by another corporation in
which the Corporation is entitled to vote a majority of the shares of that other
corporation in an election of directors. The Corporation, however, may vote and
count for quorum purposes shares it holds in a fiduciary capacity.
SECTION 12. PROXIES.
Each Stockholder entitled to vote at a specific Stockholders' meeting or to
execute consents may attend such meeting and vote and execute consents either in
person or by proxy. To be valid, a proxy must be in writing and signed by the
Stockholder or by such Stockholder's duly authorized agent or attorney-in-fact
and filed with the Secretary before or at the time of the meeting. No proxy
shall be valid after three (3) years from its execution date unless such proxy
expressly provides a longer period. Each proxy shall be revocable unless it
specifically provides that it is irrevocable and it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. A
Stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing with the Secretary (a) an instrument
in writing revoking the proxy or (b) another duly executed proxy bearing a later
date. In advance of any annual or special meeting of Stockholders, the Board
may prescribe additional rules concerning execution, filing, and/or validation
of proxies to be voted at any such meeting.
SECTION 13. SHARES HELD BY FIDUCIARIES, RECEIVERS, PLEDGEES AND TWO OR MORE
PERSONS.
Persons holding stock in a fiduciary capacity shall be entitled to vote the
shares so held. Persons whose stock is pledged shall be entitled to vote the
pledged shares unless, in the transfer on the Corporation's books, the pledgor
has expressly empowered the pledgee to vote the shares in which case only the
pledgee or proxy for the pledgee may represent and vote the pledged shares.
Unless interested Stockholders deliver to the Secretary written notification and
a copy of the instrument providing for voting their shares, if shares stand of
record in the name of two or more persons, including, but not limited to,
fiduciaries, members of a partnership, joint tenants, tenants in common, and/or
tenants by the entirety, or if two or more persons have the same fiduciary
relationship respecting the same shares, the acts of the two or more persons
with respect to voting the shares shall have the following effect:
a. If only one votes the shares, that act binds all record owners of
those shares;
b. If more than one vote, the vote of the majority voting binds all
record owners of those shares; and
c. If more than one vote, but the vote is evenly split on a particular
matter, each faction may vote the securities in question
proportionally or any person with the right to vote such shares or a
beneficiary may apply to any court with jurisdiction to have another
person appointed to vote the shares in which case the vote of the
majority voting binds all record owners of those shares.
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Under this subsection, if the instrument filed with the Secretary shows that any
tenancy is held in an equal interest, a majority or even-split shall mean a
majority or even split in interest.
SECTION 14. ACTION BY WRITTEN CONSENT.
Without meeting, without prior notice, without a vote, and by signing a consent
or consents in writing specifying the action taken, Stockholders, having not
less than the minimum number of votes necessary to take an action at a meeting
at which all shares entitled to vote were voted, may take any action required or
permitted to be taken at any meeting. The Secretary shall give prompt notice of
any action taken by consent of less than all the Stockholders to those who do
not consent in writing.
SECTION 15. INSPECTION OF BOOKS AND RECORDS.
Upon written demand under oath stating the purpose for inspection, during normal
business hours, and for any proper purpose, any Stockholder or Stockholders'
agent, shall have the right to inspect, and to make copies or abstracts of, the
Corporation's stock ledger, a list of its Stockholders, and its other books and
records. A pro-per purpose shall mean a purpose reasonably related to such
person's interest as a Stockholder. In every in-stance where an attorney or
other agent seeks the right to inspect, the demand under oath shall be
accompanied by a power of attorney or such other writing which authorizes the
attorney or other agent to act on behalf of the Stockholder in exercising the
right to inspect. The demand under oath shall be directed to the Corporation at
its registered office in Delaware or at its principal place of business.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1 POWERS OF THE BOARD OF DIRECTORS.
The Board shall manage and direct the business, property, and affairs of the
Corporation. Subject to the restrictions imposed by law, the Certificate of
Incorporation, and these By-Laws, the Board may exercise all of the powers of
the Corporation.
SECTION 2. NUMBER OF DIRECTORS.
The Board shall consist of not less than two (2) nor more than five (5)
directors. Except as otherwise provided by law or the Certificate of
Incorporation, the exact number of directors shall be fixed and may be changed
from time to time by resolution of the Board.
SECTION 3. ELECTION AND TERM.
Except as otherwise provided in Section 5 of this Article III, each year
Stockholders shall elect the directors at the annual Stockholders' meeting or at
a special meeting of Stockholders held in lieu of the annual meeting. Each
director shall hold office until the earlier of his or her successor being duly
elected and qualified, death, resignation, or removal. Each director shall
qualify by expressly accepting his election to the Board or by acting as a
director.
SECTION 4. RESIGNATION.
Any director or officer of the Corporation may resign at any time by giving
written notice of his resignation to the Corporation. The resignation shall
take effect at the time of its receipt by either the Board, the President, or
the Secretary. Acceptance of a resignation shall not be necessary to make it
effective unless expressly so provided in the resignation.
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SECTION 5. VACANCY AND INCREASE.
By affirmative vote and with or without a quorum, a majority of directors in
office or a sole remaining director may fill any Board vacancy and any newly
created directorships resulting from any increase in the authorized number of
directors. Each director so chosen shall be elected for the unexpired term of
his or her office.
SECTION 6. REMOVAL.
Except as otherwise provided by Delaware General Corporation Law, a majority of
Stockholders entitled to vote at any Stockholders' meeting at which a quorum is
present may remove, with or without cause, any director. The Board may remove a
director (a) if by order a court declares the director of unsound mind, (b) a
director is convicted of a felony, or (c) if a director fails to qualify with-in
sixty (60) days after notice of his or her election. No reduction in the number
of directors shall have the effect of removing any director prior to expiration
of his or her term of office.
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ARTICLE IV - MEETINGS OF THE BOARD OF DIRECTORS
SECTION 1. PLACE OF MEETINGS.
The Board may hold meetings, both annual and special, at any reasonable place
and time.
SECTION 2. ANNUAL MEETINGS.
As soon as practicable after each annual Stockholders' meeting and at the same
place where such annual meeting was held, the Board shall meet to organize,
elect officers, and transact other business. Notice of the Board's annual
meeting need not be given. If the annual meeting of Stockholders is not so
held, the annual meeting of the Board may be held at a place, on a date, and at
a time specified in a written notice thereof delivered in accordance with
Section 4 of this Article IV.
SECTION 3. SPECIAL MEETINGS.
The President, the Chairman of the Board, the Secretary, or any two (2)
Directors may call a special meeting of the Board which meeting shall be held at
any reasonable time and place determined by the person or persons calling the
meeting.
SECTION 4. NOTICE.
The Secretary or an officer designated by the Board shall give notice to each
director of the date, time, and place of each special meeting of the Board.
Such notice shall be given either by United States mail at least three (3) days
prior to the meeting or delivered personally or by telephone, telecopier, or any
electronic means reasonably calculated to provide actual notice to each director
at least twenty-four (24) hours prior to the meeting. By attending any meeting,
a director waives notice of that meeting except when a director attends a
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened. In addition,
a written waiver of notice of a meeting, signed by the person entitled to
notice, whether before or after the time for the meeting, shall be deemed
equivalent to notice.
SECTION 5. ACTION WITHOUT MEETING.
The Board or of any committee thereof may take, without meeting, any action
required or permitted to be taken at a meeting if all members of the Board or
the committee consent to such action in writing and the writing or writings are
filed with the minutes of the Board or such committee.
SECTION 6. MEETING BY TELEPHONE OR ELECTRONIC CONFERENCE.
Directors may participate in Board meetings or any committee meeting by
telephone or other communications equipment which allows all directors
participating in the meeting to directly communicate to, and to directly receive
communications from, all other directors attending the meeting. Any director's
participation through such equipment shall constitute presence in person at the
meeting.
SECTION 7. QUORUM.
A majority of directors holding office shall constitute a quorum for transacting
any and all business. If at any Board meeting less than a quorum is present, a
majority of directors present may adjourn the meeting without notice, other than
by announcement at the meeting, until a
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quorum is present. The act of a majority of the directors present at any Board
meeting at which there is a quorum shall constitute the act of the Board unless
the act of a greater number is required by law, the Certificate of
Incorporation, or these Bylaws.
SECTION 8. COMPENSATION.
The Board shall have the authority to fix by resolution the compensation of
directors including, but not limited to, (a) their expenses, if any, incurred in
attending each Board meeting, special committee meeting, and/or committee
meeting, (b) a fixed sum for attending each such meeting, and/or (c) a stated
salary as a director and/or committee member. These Bylaws shall not limit any
director from serving the Corporation in any other capacity and receiving
separate compensation for such service.
SECTION 9. ORDER OF BUSINESS.
The Board determines the order of business at its meetings. The Chairman of the
Board shall preside at all Board meetings, provided, however, that in the
Chairman's absence, the Board shall choose a temporary chairman from among the
directors present who shall preside at the meeting.
SECTION 10. REMOVAL.
The Stockholders may remove, with or without cause, any director or the entire
Board of Directors by a vote the majority of the shares then entitled to vote at
an election of directors.
ARTICLE V - COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. FORMATION.
The Board, by resolution, may designate an Executive Committee, an Audit
Committee, a Compensation Committee, and any other committee which the Board
deems appropriate. Each committee shall consist of one or more directors as
alternate members of any committee who may replace any absent or disqualified
member at any committee meeting.
SECTION 2. POWERS.
In the resolution establishing any committee, the Board may delegate to that
committee, and that committee shall have and may exercise, all powers and
authority of the Board in managing the business and affairs of the Corporation
except where applicable law requires Board action. Regardless of Board
resolution, however, Board committees shall have no power to do the following:
(a) amend the Certificate of Incorporation; (b) adopt a merger or
consolidation agreement; -C- recommend to Stockholders the sale, lease, or
exchange of all or substantially all of the Corporation's assets; (d) recommend
to Stockholders dissolution of the Corporation or revocation of a dissolution;
or (e) amend the Bylaws. Unless a Board resolution, the Certificate of
Incorporation, or these Bylaws expressly so provides, no committee shall have
the authority to (a) declare a dividend, (b) authorize the issuance of stock, or
(c) adopt a certificate of ownership and merger.
SECTION 3. MEETINGS.
Board committees shall hold regular meetings at such times and places as the
committee may determine. At any time, an officer of the Corporation or any
committee member may call a special meeting of a committee at a reasonable time
and place. No notice of any committee meeting shall be required. A majority of
committee members shall constitute a quorum for transacting
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business. Each committee shall keep minutes of all meetings and present them to
the Board upon request.
ARTICLES VI - OFFICERS
SECTION 1. PRINCIPAL OFFICERS.
The Board shall choose the Corporation's officers. The principal officers shall
be a Chief Executive Officer, a President, an Chief Operating Officer, a Chief
Financial Officer, Secretary, and, from time to time, a Treasurer and as many
Vice Presidents, Assistant Secretaries, or Assistant Treasurers as the Board may
determine and elect. The same individual may hold any number of offices.
SECTION 2. ADDITIONAL OFFICERS.
From time to time, the Board may appoint such other officers and agents as it
deems necessary for such term and shall exercise such powers and perform such
duties as the Board may determine.
SECTION 3. TERM OF OFFICE/RESIGNATION.
Each officer shall hold office until his or her successor is duly elected and
qualified or until his or her earlier death, resignation, or removal. Any
officer may resign at any time upon giving written notice to the Corporation.
Any resignation shall take effect at the time specified therein, or if no time
is specified, immediately upon receipt by the Corporation. Unless otherwise
specified therein, acceptance of such resignation shall not be necessary to make
it effective.
SECTION 4. REMOVAL.
All officers shall serve at the Board's pleasure. Whenever in its judgment the
best interests of the Corporation will be served, the Board may remove any
officer, agent, or member of any committee but such removal shall be without
prejudice to contract rights, if any, of the person so removed. No contract
rights shall be created solely by the Board electing or appointing an officer or
agent.
SECTION 5. POWERS AND DUTIES OF OFFICERS.
Each officer shall perform the duties and exercise the powers (a) expressly
conferred or provided for in these Bylaws, (b) that are customary and incident
to such office, and (c) such other duties and powers as, from time to time, the
Board, the Chief Executive Officer, or the President may assign.
SECTION 6. CHAIRMAN OF THE BOARD.
The Board may select from among its members a Chairman who may preside at all
meetings of the Board and approve the minutes of all proceedings. The Chairman
shall consult with and advise the Corporation's officers with respect to
conducting the Corporation's business and affairs.
SECTION 7. CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer shall be primarily responsible for implementing
Board policies and directives. He or she shall have all powers of the
President, and such additional general,
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executive, and management powers as the Board or applicable law specifically
assigns to him or her.
SECTION 8. THE PRESIDENT.
Subject to control of the Board and the Chief Executive Officer, the President
shall manage and control the Corporation's affairs, properties, and operations
in the ordinary course of its business, with all duties, powers and authority
with respect to such affairs, properties, and operations as may be reasonably
incident to such responsibilities. The President may appoint or employ and
discharge employees and agents of the Corporation and fix their compensation.
The President may make, execute, acknowledge, and deliver any and all contracts,
leases, deeds, assignments, bills of sale, transfers, releases, receipts,
mortgages, deeds of trust, pledges, liens, bonds, debentures, notes, any and all
other obligations and encumbrances, and any and all other instruments and
documents of any kind or character for and on behalf of and in the name of the
Corporation. With the Secretary or an Assistant Secretary, the President may
sign all certificates for the Corporation's capital stock. The President shall
perform such other duties and have such additional authority and powers as from
time to time the Board and/or the Chief Executive Officer may assign or confer
upon her or him.
SECTION 9. CHIEF OPERATING OFFICER.
Subject to the control of the Board, the Chief Executive Officer, and the
President, the Chief Operating Officer shall have the same duties and
responsibilities as the President.
SECTION 10. VICE PRESIDENTS.
In the absence of the President and the Chief Executive Officer, or if they are
both disabled from acting or refuse to act, the Vice President (or if there are
more than one Vice President, the Vice Presidents in the order designated by the
Board, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Any Vice President shall perform other duties as, from time to time,
the Chief Executive Officer, President, Chief Operating Officer, or the Board
Directors may assign.
SECTION 11. CHIEF FINANCIAL OFFICER.
The Chief Financial Officer shall have general supervision, direction, and
control of the financial affairs of the Corporation and shall have such other
powers and duties as the Board, the Chief Executive Officer, the President, or
the Chief Operating Officer may assign. In the absence of a named Treasurer,
the Chief Financial Officer shall also have the powers and duties of the
Treasurer and shall be authorized and empowered to sign as Treasurer where such
officer's signature is required.
SECTION 11. TREASURER.
The Treasurer shall have custody of corporate funds and securities and shall
keep full and accurate accounts of the Corporation's receipts, disbursements,
and books and shall deposit all monies and all other valuables in the name and
to the credit of the Corporation in such depositories as the Board may
designate. Whenever the Board requires, the Treasurer shall render a statement
of the Corporation's cash account. The Treasurer shall enter or cause to be
entered on the Corporation's books full and accurate accounts of all monies
received and paid out by, for, or on account of the Corporation. The Treasurer
shall keep such books under his supervision or direction. The Treasurer shall
have such other powers and duties as the Board, Chief Executive Officer,
President, or Chief Operating Officer may confer upon or assign to him
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or her. The Board may require the Treasurer to give a bond for the faithful
discharge of his or her duties in any reasonable form and amount.
SECTION 12. ASSISTANT TREASURERS.
An Assistant Treasurer shall perform such duties of the Treasurer as, from time
to time, the Treasurer may delegate and such other duties as, from time to time,
the Board, the Chief Executive Officer, President, or Chief Operating Officer
may prescribe or delegate to him or her. In the absence of the Treasurer, or if
the Treasurer is unable to or refuses to act, the Assistant Treasurer shall
perform the duties and exercise the powers of the Treasurer.
SECTION 13. SECRETARY.
The Secretary: (a) shall keep minutes of all Board meetings and minutes of all
meetings of Stockholders in books for those purposes; (2) shall give and serve
all notices; (3) may sign with the President or a Vice President in the
Corporation's name and/or attest the signatures of any officer on all contracts,
conveyances, transfers, assignments, encumbrances, authorizations, and all other
instruments and documents of or executed for or on behalf of the Corporation and
affix the Corporation's seal thereto; (4) may sign with the President or a Vice
President all certificates for the Corporation's capital stock and affix the
corporate seal thereto; (5) shall have charge of and maintain and keep or
supervise and control the maintenance and keeping of the stock certificate
books, transfer books, and stock ledgers and such other books and papers as the
Board may authorize all of which books, ledgers, and papers shall at all
reasonable times be open for any director, upon request, to inspect at the
Corporation's office during business hours; (6) shall in general perform all the
duties incident to the office of Secretary; and (7) shall have such other powers
and duties as the Board may assign.
SECTION 14. ASSISTANT SECRETARIES.
Each Assistant Secretary shall have the usual powers and duties of the office,
with such other powers and duties as the Board or the Secretary may confer upon
or assign to him or her. Assistant Secretaries shall have and exercise the
Secretary's powers during that officer's absence or inability to act.
ARTICLE VII - CONFLICT OF INTEREST AND INDEMNIFICATION
SECTION 1. DIRECTOR' AND OFFICERS' INTERESTS IN CONTRACTS.
When the Corporation enters into a contract or transaction with one or more of
its directors or officers, or with any other corporation, partnership, or entity
in which one or more of the Corporation's directors or officers are directors,
stockholders, or officers, or have a financial interest, such contract or
transaction shall not be void or voidable solely because of this appearance of a
conflict of interest, or solely because the director or officer is present at or
participates in the Board meeting or committee which authorizes the contract or
transaction, or solely because his, her, or their votes are counted for such
purpose, if:
a. the Board or committee approving the contract or transaction has
received or knows all material facts relating to such relationships
and/or interests in the contract or transaction, and the Board or
committee in good faith authorizes, approves or ratifies the contract
or other transaction by affirmative vote of a majority of the
disinterested directors present, even though the disinterested
directors be less than a quorum. Interested directors are to be
counted only in calculating the presence of a quorum; or,
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b. Stockholders entitled to vote on the contract or transaction has
received or know all material facts relating to such relationships
and/or interests in the contract or transaction, and the Stockholders
specifically approve such contract or other transaction in good faith;
or
c. the contract or transaction is fair to the Corporation as of the time
it is authorized, approved or ratified by the Board, a committee
thereof, or the Stockholders.
SECTION 2. NONLIABILITY OF DIRECTORS IN CERTAIN CASES.
A Board member, or any Board committee, in the performing his, her, or its
duties, shall be fully protected in relying in good faith upon the Corporation's
records and upon such information, opinions, reports, or statements presented by
any of the Corporation's officers, employees, Board committees, or by any other
person as to matters the member or Committee reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
SECTION 3. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.
a. The Corporation shall have the power to indemnify to the fullest
extent permitted by applicable law any person who was or is a party or
is threatened to be made a party to any threatened, pending, or
completed proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the
Corporation) relating to such person's status or acts as a director,
officer, employee, or agent of the Corporation, or relating to such
person's service at the request of the Corporation as a director,
officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by such per-son in connection with
such proceeding if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action, had no
reasonable cause to believe his or her conduct was unlawful. The
termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself, create a presumption that the person did not act in
good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
b. The Corporation shall have power to indemnify any person who was, is a
party, or is threatened to be made a party to any threatened, pending,
or completed action by or in the right of the Corporation relating to
such person's status or acts as a director, officer, employee, or
agent of the Corporation, or relating to such person serving at the
Corporation's request as a director, officer, employee, or agent of
another corporation, partner-ship, joint venture, trust, or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or
settlement of such action if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the
Corporation's best interests except that no indemnification shall be
made relating to any claim as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent
that the court in which such action was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses.
c. To the extent that a director, officer, employee, or agent of the
Corporation has been successful on the merits or otherwise in defense
of any proceeding referred to in subsections (a) and (b), or in
defense of any claim, issue or matter therein, he shall be indemnified
against
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expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith.
d. The Corporation shall make any indemnification under subsections (a)
and (b) (unless ordered by a court) only as authorized in the specific
case upon a determination that indemnifying the director, officer,
employee, or agent is proper in the circumstances because such person
has met the applicable standard of conduct set forth in subsections
(a) and (b). Such determination shall be made (1) by the Board by a
majority vote of a quorum consisting of directors who were not parties
to such action, suit or proceeding; or (2) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written
opinion; or (3) by the Stockholders.
e. The Corporation may pay the expenses (including attorneys' fees) of an
officer, director, employee, or agent in defending any civil,
criminal, administrative, or investigative proceeding in advance of
final disposition of such proceeding at the Board's discretion, upon
such terms and conditions as the Board may decide, and if such
director, officer, employee, or agent undertakes in writing to repay
such amount if it is ultimately deter-mined that he or she is not
entitled to be indemnified by the Corporation.
f. The provisions of this Section shall not be exclusive of any other
rights to which one seeking indemnification or advancement of expenses
may be entitled.
g. The Corporation shall have the power to purchase and maintain
insurance for any person who is or was a director, officer, employee,
or agent of the Corporation, or is or was serving at the Corporation's
request as a director, officer, employee, or agent of another
corporation, partnership, joint venture, or other enterprise against
any liability asserted against and incurred by such person in any such
capacity, or arising out of his or her status as such, whether or not
the Corporation has the power to indemnify him or her against such
liability under these By-Laws.
h. For purposes of this Section, references to the "Corporation" includes
the Corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, employees, or
agents, so that any person who is or was a director, officer, employee
or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise, shall stand in the same position under the
provisions of this Section with respect to the resulting or surviving
corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
i. For purposes of this Section, references to "other enterprises"
includes employee benefits plans; references to "fines" includes any
excise taxes assessed with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" includes any
service as a director, officer, employee, or agent of the Corporation
which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good
faith and in a manner he or she reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the
best interests of the Corporation" as referred to in this Section.
j. The indemnification and expenses advance provided herein shall, unless
otherwise provided when authorized or ratified, continue when a person
ceases to be a director, officer, em-
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ployee, or agent and shall inure to the benefit of such person's
heirs, executors, and administrators.
k. Any repeal or modification of this Section shall not affect any right
or protection of any person with respect to any act or omission
occurring prior to such repeal or modification.
ARTICLE VIII - BOOKS, DOCUMENTS AND ACCOUNTS
The Board shall have power to keep the books, documents, and accounts of the
Corporation outside of the State of Delaware. A record of the Corporation's
Stockholders, giving the names and addresses of all Stock-holders and the number
and class of shares held by each, shall be kept at its registered office or
principal place of business, or at the office of its transfer agent or
registrar.
ARTICLE IX - CAPITAL STOCK
SECTION 1. STOCK CERTIFICATES.
The Corporation's stock certificates shall be numbered and registered in the
Corporation's share ledger and transfer books as they are issued. Every owner
of the Corporation's stock ("Stock") shall be entitled to have a certificate in
such form consistent with the Certificate of Incorporation or any law and as the
Board may prescribe, certifying the number of Shares, and the class or series,
owned. Every certificate for Stock shall bear the Corporate Seal and be signed
by the Chairman of the Board or the President and the Secretary or an Assistant
Secretary. Unless otherwise provided by law, signatures may be facsimile and
shall be effective irrespective of whether any person whose signature appears on
the certificates shall have ceased to be an officer before the certificate is
delivered.
SECTION 2. STOCK TRANSFERS.
Stock transfers shall be made on the Corporation's books upon surrender of
certificates for transfer endorsed by the person named in the certificate or by
such person's attorney-in-fact or legal representative. Only the person named
in the certificate, his or her attorney-in-fact, or legal representative, duly
and lawfully authorized in writing, may have a Stock transfer recorded on the
Corporation's books. Upon surrender, the certificate for Stock transferred to
another shall be canceled. Within a reasonable time thereafter, a new
certificate shall be issued for the same number of shares.
SECTION 3. REGISTERED STOCKHOLDERS.
To the extent permitted by law, the Corporation shall be entitled to treat the
person in whose name any share of stock or any warrant, right, or option is
registered as the owner thereof for all purposes and shall not be bound to
recognize any equitable or other claim to, or interest in, such Stock, warrant,
right or option on the part of any other person, whether or not the Corporation
shall have express or other notice thereof.
SECTION 4. LOST, STOLEN, OR DESTROYED CERTIFICATES.
The Corporation may issue a new certificate for Stocks in place of any
certificate previously issued by it, alleged to have been lost, stolen, or
destroyed, and the Corporation may require the owner of the lost, stolen, or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
14
<PAGE>
SECTION 5. DIVIDENDS.
Except at limited by law and the Certificate of Incorporation, the Board may
declare and pay dividends on the Stock, which dividends may be paid either in
cash, securities, or other property.
SECTION 6. RECORD DATE.
a. The Board may fix a record date determining who is entitled to notice
of, and/or to vote at any meeting of Stockholders, or any adjournment
thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any
rights with respect to any change, conversion or exchange of stock or
for the purpose of any other lawful action. The record date so fixed
shall not precede the date upon which the resolution fixing the record
date is adopted by the Board; and
i. in determining who is entitled to vote at any Stockholders'
meeting, the record date shall not be more than sixty (60) nor
less than ten (10) days before the date of such meeting, unless
otherwise provided by law;
ii. in determining who is entitled to consent to corporate action in
writing without a meeting, the record date shall not be more than
ten (10) days from the date upon which the resolution fixing the
date is adopted by the Board; and
iii. for any other action, the record date shall not be more than
sixty (60) days prior to such other action.
b. The determination of Stockholders of record entitled to notice of or
to vote at a meeting of Stockholders shall apply to any adjournment of
the meeting; provided however, that the Board may fix a new record
date for the adjourned meeting.
c. If no record date is fixed by the Board:
i. the record date for determining who is entitled to notice of or
to vote at a Stockholders' meeting shall be at the close of
business on the next business day before the day notice is given
or, if notice is waived, at the close of business on the next
business day before the day the meeting is held;
ii. the record date for determining who is entitled to express
consent to corporate action in writing, when no prior Board
action is required by law, shall be the first day on which a
signed written consent setting forth the action taken or proposed
to be taken is delivered to the Corporation in accordance with
applicable law, or, if prior Board action is required by law,
shall be at the close of business on the day on which the Board
adopts the resolution taking such prior action; and
iii. the record date for determining who are the Stockholders for any
other purpose shall be at the close of business on the day on
which the Board adopts the resolution relating thereto.
ARTICLE X - MISCELLANEOUS PROVISIONS
SECTION 1. FISCAL YEAR.
The Board shall establish a fiscal year for the Corporation.
SECTION 2. SEAL.
15
<PAGE>
The Board shall have the power to prescribe a form of seal for the Corporation
and to use it by causing it or a facsimile thereof to be impressed, affixed,
printed, or reproduced in any manner.
SECTION 3. SECURITIES OF OTHER CORPORATIONS.
The Chief Executive Officer, the President, or any person authorized by the
Board shall have power and authority to transfer, endorse for transfer, vote,
consent, or take any other action with respect to any securities of another
issuer which may be held or owned by the Corporation and to make, execute, and
deliver any waiver, proxy, or consent with respect to any such securities.
SECTION 4. FUND DEPOSITORIES.
Funds of the Corporation not otherwise employed shall be deposited from time to
time in such banks or other depositories as either the Board, the President, or
the Treasurer may select or approve.
SECTION 5. SIGNING OF CHECKS, NOTES, ETC.
Unless otherwise provided by law or these Bylaws, from time to time, the Board
shall authorize one or more officers of the Corporation to sign all checks,
drafts, and other orders to pay money out of the Corporation's funds and all
notes and other evidences of indebtedness of the Corporation. Without such
authorization, no person has such authority.
SECTION 6. PERSONS.
Wherever used in these Bylaws, all pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the person(s) may require.
SECTION 7. HEADINGS.
The headings of the Articles and Sections of these Bylaws are inserted for
convenience of reference only and shall not be deemed to be a part thereof or
used in the construction or interpretation thereof.
16
<PAGE>
ARTICLE XI - AMENDMENT OF BYLAWS
These Bylaws may be amended, repealed, or new Bylaws may be made or adopted:
a. by affirmative vote of the holders of at least a majority of the
Corporation's outstanding stock at any annual or special meeting of
Stockholders; or
b. by affirmative vote of a majority of Directors present at any Board
meeting at which a quorum is present.
17
<PAGE>
EXHIBIT 4.1
MATERIAL TECHNOLOGIES, INC.
(a Delaware corporation)
CLASS A CONVERTIBLE PREFERRED STOCK
CERTIFICATE OF DESIGNATIONS
Material Technologies, Inc., organized and existing under Delaware General
Corporation Law (the "Corporation") by its President and Secretary, does hereby
certify that, pursuant to authority conferred on the Board of Directors (the
"Board") by Paragraph 4 of the Corporation's Certificate of Incorporation
authorizing a class of Nine Hundred Thousand (900,000) shares Preferred Stock
with a par value of one mill ($.001) per share, and pursuant to Section 151 of
the Delaware General Corporation Law, as amended, the Board duly adopted a
resolution providing as follows for the issuance out of such class the series of
up to three hundred fifty thousand (350,000) shares of Class A Convertible
Preferred Stock, and setting forth the designations and powers, preferences and
rights, including voting rights, if any, and the qualifications, limitations or
restrictions thereof:
WHEREAS, the Corporation's Certificate of Incorporation states, among other
things, that the Corporation is authorized to issue up to Nine Hundred Thousand
(900,000) shares of Preferred Stock, of the par value of one mill ($.001) per
share, and that the Board is granted the authority to fix, by resolution, the
designations and powers, preferences, and rights, including voting rights, if
any, and the qualifications, limitations or restrictions thereof, if any, of
such shares;
NOW, THEREFORE, BE IT RESOLVED that the Board does hereby designate Three
Hundred fifty Thousand (350,000) shares of its authorized but previously
unissued Preferred Stock as "Class A Convertible Preferred Stock" which may be
issued from time to time. The designations and the powers, preferences and
rights, including voting rights of the Class A Convertible Preferred Stock and
the qualifications, limitations and restrictions thereof, shall be as follows::
1. LIQUIDATION PREFERENCE
1.1 In the event of liquidation, dissolution or winding up of the
Corporation, whether such be voluntary or involuntary, the holders of
shares of Class A Convertible Preferred Stock (the "Shares") shall be
entitled to receive out of the Corporation's assets, an amount equal to
seventy-two cents ($.72) per Share (the "Liquidation Preference"). Such
amount shall be paid upon all outstanding Shares before any payment shall
be made or any assets distributed to the holders of shares of common stock
or any other stock of any other series or class ranking junior to the
Shares as to dividends or assets. The holders of Shares shall not be
entitled to any further payment.
1.2 A merger or consolidation of the Corporation with another corporation
shall not be deemed to be a liquidation, dissolution or winding up within
the meaning of this Section 1.
1.3 While the Shares are outstanding the Corporation shall not, without
the prior consent of the holders of a majority of the outstanding Shares,
issue any Preferred Stock which is senior to or parri passu with the Shares
with respect to liquidation preference.
2. CONVERSION
2.1 RIGHT TO CONVERT: CONVERSION PRICE Subject to and upon compliance
with this Section 2, at the option of the holder thereof, each outstanding
Share may at any time be converted into duly authorized, validly issued,
fully paid and nonassessable shares of the Corporation's common stock, par
value one Mil ($.001) per share ("Common Stock") at Seventy-two cents
($.72) per share (The "Initial Conversion Price") or, in case an adjustment
in the conversion price has taken place pursuant to Section 3 below, then
at the applicable conversion price as so adjusted (the "Conversion Price"),
upon surrender of the certificate
<PAGE>
representing the Shares to be converted to the Corporation at any time
during usual business hours at the Corporation's principal executive,
accompanied by a written notice of election to convert as provided in
Section 2.2 below. All Shares surrendered for conversion shall be restored
to the status of authorized but unissued and undesignated shares of
Preferred Stock. The number of shares of Common Stock to be issued on
conversion shall be determined by dividing (i) an amount equal to the sum
of the aggregate Liquidation Preference of the converted Shares by (ii) the
Conversion Price as in effect on the date the Shares are surrendered for
conversion.
2.2 ISSUANCE OF COMMON STOCK ON CONVERSION. As promptly as practicable
after surrender of any Shares for conversion, the Corporation shall deliver
or cause to be delivered to, or upon the written order of, the holder of
surrendered Shares a certificate or certificates representing the number of
duly authorized, validly issued, fully paid, and nonassessable shares of
Common Stock into which such Shares have been converted in accordance with
this Section 2. Prior to delivery of such certificate or certificates, the
Corporation shall require written notice at its said office from the holder
of the Shares so surrendered stating that the holder irrevocably elects to
convert such shares. Such notice shall also state the name or names (with
address and social security or other taxpayer identification number) in
which said certificate or certificates are to be issued. Such conversion
shall be deemed to have been made at the time that such shares shall have
been surrendered for conversion and such notice shall have been received by
the Corporation (the "Conversion Date"). The Corporation shall have the
right to pay cash or to round up to the next whole share in lieu of issuing
fractional shares of Common Stock.
3. ADJUSTMENT OF CONVERSION PRICE. The kind of securities issuable upon
conversion of Shares and Conversion Price shall be subject to adjustment from
time to time upon the happening of certain events as follows:
3.1 RECLASSIFICATION, CONSOLIDATION OF MERGER. In case of any
reclassification or change of outstanding securities of the class of
securities which are issuable upon conversion of the Shares (other than as
a result of subdivision or combination or an increase or decrease in the
number of such securities outstanding) or in case of any consolidation or
merger of the Corporation with or into another corporation (other than a
merger with another corporation in which the Corporation is the surviving
corporation and which does not result in any reclassification or change,
other than a subdivision or combination of outstanding securities issuable
upon the conversion of Shares or an increase or decrease in the number of
such securities outstanding), or in case of any sale or transfer to another
corporation of all or substantially all of the Corporation's assets, the
holders of the Shares shall have the right to receive upon conversion, in
lieu of Common Stock issuable upon such conversion, the kind and amount of
shares of stock, other securities, money, or property receivable upon such
reclassification, change, consolidation, merger, sale, or transfer by the
holder of shares of Common Stock issuable upon conversion of such Shares
had such Shares been converted immediately prior to such reclassification,
change, consolidation, merger, sale, or transfer. The Corporation shall
not permit any such reclassification, change, consolidation, merger, sale,
or transfer to take place without adequate and lawful provisions to protect
the rights of the holders of Shares, including provisions assuring that
this Section 3 shall thereafter be applicable, as nearly as may be, with
respect to shares of stock, securities, or assets deliverable upon
conversion of the Shares. This Section 3.1 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, sales, and
transfers.
3.2 SUBDIVISION OR COMBINATION. If the Corporation at any time while
Shares are outstanding, shall subdivide or combine its outstanding
securities of the class of securities which are issuable upon conversion of
Shares, the conversion price shall be proportionately reduced, in case of
subdivision of such securities, as of the effective date of such
subdivision, or shall be proportionately increased, in the case of
combination of such securities, as of the effective date of such
combination.
3.3 STOCK DIVIDENDS. If the Corporation at any time while Shares are
outstanding shall pay a dividend or make any other distribution on its
Common Stock payable in shares of its common stock, then the conversion
price shall be adjusted, as of the date of such payment or other
distribution to that price determined by multiplying the conversion price
in effect immediately prior to such payment or other distribution by a
fraction (a) the numerator of which shall be the total number of shares of
Common Stock
2
<PAGE>
outstanding immediately prior to such dividend or distribution, and
(b) the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution.
3.4 NOTICE OF ADJUSTMENTS. Whenever the Conversion Price shall be
adjusted under Section 3 hereof, the Corporation shall make a certificate
signed by its president or a vice president and by its chief financial
officer, treasurer, assistant treasurer, secretary or assistant secretary
setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the conversion price after giving effect to such
adjustment, and shall cause copies of such certificate to be mailed (by
first class mail postage prepaid) to the holders of Shares promptly after
each adjustment. A determination of any adjustment to the Conversion Price
or the number or kind of shares or other securities issuable upon
conversion of Shares, by independent certified public accountants selected
by the Corporation, shall be final and binding on all parties.
4. VOTING RIGHTS. Each holder of Shares shall have the right to vote on all
matters on which the holders of Common Stock have the right to vote and to cast
that number of votes which the holder would have been entitled to cast had such
holder converted his Shares immediately prior to the record date for such vote
(or if there be no record date, immediately prior to the vote).
5. DIVIDENDS. The Shares shall participate in all dividends declared and paid
with respect to the Common Stock to the same extent as if the Shares had been
converted immediately prior to the record date for the payment of such dividend
(or if there be no record date, immediately prior to the dividend), except for
dividends or distributions on the Common Stock payable in shares of Common Stock
(to which Section 3.3 applies) and dividends or distributions in liquidation or
partial liquidation (to which Section 3.4 applies).
IN WITNESS WHEREOF, Material Technologies, Inc., has caused this certificate of
Designation to be signed by its President and attested by its Secretary on this
9th day of March, 1997, and each of such persons hereby affirms under penalty of
perjury that this Certificate of Designation is the act and deed of Material
Technologies, Inc. and that the facts stated herein are true and correct.
MATERIAL TECHNOLOGIES, INC.
By /s/ Robert M. Bernstein
------------------------------
Robert M. Bernstein, President
Attest:
/s/ Joel R. Freedman
- ---------------------------
Joel R. Freedman, Secretary
3
<PAGE>
EXHIBIT 4.2
MATERIAL TECHNOLOGIES, INC.
(a Delaware corporation)
CLASS B PREFFERED STOCK
CERTIFICATE OF DESIGNATIONS
Material Technologies, Inc., a Corporation organized and existing under Delaware
General Corporation Law (the "Corporation"), by its President and Secretary,
does hereby certify that, pursuant to authority conferred upon the Board of
Directors (the "Board") by Paragraph 4 of the Corporation's Certificate of
Incorporation authorizing a class of Nine Hundred Thousand (900,000) shares of
Preferred Stock with a par value of one mill ($.001) per share, and pursuant to
Section 151 of the Delaware General Corporation Law, as amended, the Board duly
adopted a resolution as follows providing for the issuance out of such class of
a series of up to fifteen (15) shares of Class B Preferred Stock, and setting
forth the designations and powers, preferences, and rights, including voting
rights, if any, and the qualifications, limitations, or restrictions thereof:
WHEREAS, the Corporation's Certificate of Incorporation states, among other
things, that the Corporation is authorized to issue up Nine Hundred Thousand
(900,000) shares of Preferred Stock, of the par value of one mill ($.001) per
share, and that the Board is granted the authority to fix, by resolution, the
designations and powers, preferences, and rights, including voting rights, if
any, and the qualifications, limitations or restrictions thereof, if any, of
such shares;
NOW, THEREFORE, BE IT RESOLVED that the Board does hereby designate an aggregate
of Fifteen (15) shares of its authorized but previously unissued Preferred Stock
as "Class B Preferred Stock" which may be issued from time to time. The
designations and powers, preferences, and rights, including voting rights of the
Class B Preferred Stock and the qualifications, limitations, and restrictions
thereof, shall be as follows:
1. LIQUIDATION PREFERENCE
1.1 In the event of a liquidation, dissolution or winding up of the
Corporation, whether such be voluntary or involuntary, the holders of
shares of Class B Preferred Stock (the "Shares") shall be entitled to
receive out of the Corporation's assets, an amount equal to Ten Thousand
Dollars ($10,000) per Share (the "liquidation Preference"). Such amount
shall be paid upon all outstanding Shares before any payment shall be made
or any assets distributed to the holders of shares of Common Stock or any
other stock of any other series or class ranking junior to the Shares as to
dividends or assets, but shall be junior and subordinate to the rights of
the holders of the Corporation's outstanding Class A Convertible Preferred
Stock. The holders of Shares shall not be entitled to any further payment.
1.2 A merger or consolidation of the Corporation with another corporation
shall not be deemed to be a liquidation, dissolution or winding up within
the meaning of this Section 1.
2. VOTING RIGHTS The holders of Class B Preferred Stock shall have one vote
per Share on all matters on which the holders of Common Stock have the right to
vote.
3. DIVIDENDS. The Shares shall participate in all cash dividends declared and
paid with respect to the Common Stock to the extent set forth in this Section 3.
Each time a cash dividend is paid on the Common Stock there shall also be paid
with respect to each outstanding share of Class B Preferred Stock an amount
determined by multiplying the aggregate amount of the dividend paid with respect
to the Common Stock by a fraction (I) the numerator of which is 3,214,480 and
(ii) the denominator of which is the number of shares of Common Stock on which
the dividend was paid, and (x) multiplying the resulting product by thirty
percent (30%) and then (y) dividing the resulting product by five hundred ten
(510).
<PAGE>
4. REDEMPTION The Shares may be redeemed at the option of the Corporation at
any time upon payment to holders thereof Ten Thousand Dollars ($10,000) per
Share, plus any unpaid dividends to which such holders are entitled under
Section 3 above. The Corporation has the option to redeem less than all
outstanding Shares. If less than all of the outstanding Shares are redeemed,
the Corporation shall select the Shares to be redeemed pro rata, by lot or other
means deemed fair by the Board, but the Corporation may not redeem only a
fraction of a Share. The Shares shall be redeemed at the option of the holders
thereof at any time after January 31, 2002.
IN WITNESS WHEREOF, Material Technologies, Inc., has caused this Certificate of
Designation to be signed by its President and attested by its Secretary on this
9th day of March, 1997, and each of such persons hereby affirms under penalty of
perjury that this Certificate of Corporation and that the facts stated herein
are true and correct.
MATERIAL TECHNOLOGIES, INC.
By /s/ Robert M. Bernstein
------------------------------
Robert M. Bernstein, President
Attest:
/s/ Joel R. Freedman
- ---------------------------
Joel R. Freedman, Secretary
2
<PAGE>
EXHIBIT 5
LAW OFFICES OF
C. TIMOTHY SMOOT
Suite 174
23505 Crenshaw Boulevard
Torrance, California 90505-5221
Telephone: 310/530-3366 Telecopier: 310/530-2211
E-mail: [email protected]
April 28, 1997
Board of Directors
Material Technologies, Inc.
East Tower, Suite 705
11835 W. Olympic Blvd.
Los Angeles, CA 90064
Re: Material Technologies, Inc., Form S-1
Dear Sirs:
I have formed a legal opinion regarding the proposed distribution of
369,172 shares of Class A Common Stock of Material Technologies, Inc.,
("Matech"). In coming to my opinion, I have examined Matech 2's Certificate of
Incorporation, the minutes of Matech's Board of Directors, Matech's Certificate
of Incorporation and Bylaws, certain minutes of Material Technology, Inc.,
pertinent agreements relating to the spin-off of Matech from its parent Material
Technology, Inc., Matech's Form S-1 Registration statement, and various other
documents. In addition, I have discussed various aspects of the transaction
with Robert M. Bernstein, Chairman and President of Matech and Jonathon Reuben,
Matech's independent Certified Public Accountant. In forming this opinion, I
have relied on the apparent bona fides of the documents which Matech provided to
me and various representations of Mr. Robert Bernstein.
In my opinion, the 369,172 shares of Matech's Class A Common Stock being
registered for distribution to the shareholders of Material Technology, Inc., as
of the effective date of the S-1 Registration Statement, will, when distributed
be legally issued, fully paid and non-assessable.
Very truly yours,
C. Timothy Smoot
C. Timothy Smoot
Attorney
<PAGE>
EXHIBIT 10.1
LICENSE AGREEMENT
BETWEEN
TENSIODYNE CORPORATION
AND
THE TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA
(JULY ___, 1993)
TECHNOLOGY AREA: METAL FATIGUE MEASUREMENT
<PAGE>
TABLE OF CONTENTS
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 - LICENSE GRANT. . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 3 - ROYALTIES, RECORDS AND ACCOUNTING. . . . . . . . . . . . . . 5
ARTICLE 4 - IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 5 - CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 6 - TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 7 - PATENT MAINTENANCE . . . . . . . . . . . . . . . . . . . .10
ARTICLE 8 - INFRINGEMENT AND LITIGATION. . . . . . . . . . . . . . . . .11
ARTICLE 9 - DISCLAIMER OF WARRANTIES; INDEMNIFICATION. . . . . . . . . .12
ARTICLE 10 - USE OF PENN'S NAME; INDEPENDENCE. . . . . . . . . . . . . .14
ARTICLE 11 - COMPLIANCE WITH LAWS; EXPORT CONTROL. . . . . . . . . . . .14
ARTICLE 12 - ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . .14
ARTICLE 13 - NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . .15
ARTICLE 14 - JURISDICTION; ENTIRE AGREEMENT - DISPUTE
RESOLUTION. . . . . . . . . . . . . . . . . . . . . . . .15
<PAGE>
LICENSE AGREEMENT
BETWEEN
TENSIODYNE CORPORATION
AND
THE TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA
(JULY __, 1993)
This License Agreement ("AGREEMENT") is made by and between The Trustees
of the University of Pennsylvania, a Pennsylvania not for profit corporation,
having an office at 3700 Market Street, Suite 300, Philadelphia, Pennsylvania
19104-3147 ("PENN") and Tensiodyne Corporation having a place of business at
11835 West Olympic Boulevard, East Tower, Suite 705, Los Angeles, California
90064 ("LICENSEE").
This AGREEMENT is effective as of July __, 1993 ("EFFECTIVE DATE").
RECITALS
WHEREAS, PENN is the sole and exclusive owner and proprietor of certain
inventions and improvements together with technical information and proprietary
rights developed by Drs. Campbell Laird and Li Yuan-Feng relating to
electrochemical methods and devices to determine metal fatigue; and,
WHEREAS, PENN is the owner of application(s) for United States and foreign
letters patent(s) in Appendix 1 attached hereto relating to the foregoing
inventions and improvements of Drs. Laird and Yuan-Feng; and,
WHEREAS, PENN, through the continuing work of Dr. Laird or such other
PRINCIPAL INVESTIGATOR as may be designated by the parties in accordance with
the SPONSORED RESEARCH AGREEMENT between the parties of even date herewith, may
make additional inventions and improvements and may develop
<PAGE>
additional technical information and proprietary rights relating to
electrochemical methods and devices to determine metal fatigue; and,
WHEREAS, LICENSEE desires to secure the exclusive right and license to use,
develop, manufacture, market and exploit any inventions and improvements of Dr.
Laird and/or any other PRINCIPAL INVESTIGATOR, owned by PENN as set forth in
Appendix 1 hereto and to use, develop, manufacture, market and exploit the
additional inventions, improvements, technical information and proprietary
rights relating to electrochemical methods and devices to determine metal
fatigue; and,
WHEREAS, PENN has determined that the exploitation of the inventions and
improvements of Drs. Laird and Yuan-Feng and/or any other PRINCIPAL
INVESTIGATOR is in the best interest of PENN and is consistent with its
educational and research missions and goals; and,
WHEREAS, PENN and LICENSEE have entered into a SPONSORED RESEARCH AGREEMENT
on even date herewith providing support for the continuing work of Dr. Laird
[together with a STOCK PURCHASE AGREEMENT providing for the issuance to PENN and
Drs. Laird and Yuan-Feng of shares of LICENSEE's Common Stock in partial
consideration of the exclusive license granted hereunder];
NOW, THEREFORE, in consideration of the premises and of the promises and
covenants contained herein and intending to be legally bound hereby, the parties
agree as follows:
ARTICLE - DEFINITIONS
1.1 AFFILIATE means, when used with reference to LICENSEE, any ENTITY
directly or indirectly controlling, controlled by or under common control with
LICENSEE. For purposes of this AGREEMENT, "control" means the direct or
indirect ownership of over 50% of the outstanding voting securities of an
ENTITY, or the right to receive over 50% of the profits or earnings of an
ENTITY, or the power to direct or cause the direction of the management and
-2-
<PAGE>
policies of an ENTITY, whether through the ownership of voting securities, by
contract, or otherwise.
1.2 BANKRUPTCY EVENT means the ENTITY in question becomes insolvent, or
voluntary or involuntary proceedings by or against such ENTITY are instituted in
bankruptcy or under such insolvency law, or a receiver or custodian is appointed
for such ENTITY, or proceedings are instituted by or against such ENTITY for
corporate reorganization or the dissolution of such ENTITY, which proceedings,
if voluntary, shall not have been dismissed within ninety (90) days after the
date of filing, or such ENTITY makes an assignment for the benefit of creditors,
or substantially all of the assets of such ENTITY are seized or attached and not
released within sixty (60) days thereafter.
1.3 CALENDAR QUARTER means each three-month period, or any portion
thereof, beginning on January 1, April 1, July 1 and October 1.
1.4 CALENDAR YEAR means a period of twelve (12) months beginning on
January 1 and ending on December 31.
1.5 ENTITY means a corporation, an association, a joint venture, a
partnership, a trust, a business, an individual, a government or political
subdivision thereof, including an agency, or any other organization which can
exercise independent legal standing.
1.6 FAIR MARKET VALUE means the gross sales price which LICENSEE would
realize from an unaffiliated, unrelated buyer in an arm's length sale of an
identical item sold in the same quantity and at the same time and place of the
transaction.
1.7 FIELD OF USE means the field of the use or application of PENN PATENT
RIGHTS or PENN TECHNICAL INFORMATION to obtain electrochemical data on metals to
determine the fatigue status of such metals.
1.8 LICENSEE shall include LICENSEE and its AFFILIATES together with any
other business ENTITY in which LICENSEE or any of its AFFILIATES own a
controlling interest or over which LICENSEE or any of its AFFILIATES
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possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of an ENTITY, whether through the ownership of
voting securities, by contract or otherwise.
1.9 NET SALES means gross revenues, whether or not invoiced, billed, or
received by LICENSEE from a third party, attributable to LICENSEE's use, SALE,
lease, or transfer of any PENN LICENSED PRODUCT(S) or SERVICES, less qualifying
costs directly attributable to such use, SALES, lease, or transfer and actually
allowed, identified on the invoice, and borne by LICENSEE.
1.9.1 Such qualifying costs shall be limited to costs of the
following:
1.9.1.1 Discounts, in amounts customary in the trade, for
quantity purchases, cash payments, prompt payments, wholesalers,
and distributors.
1.9.1.2 Credits or refunds, not exceeding the original or
customary billing or invoice amount, for claims or returns.
1.9.1.3 Prepaid transportation insurance premiums.
1.9.1.4 Prepaid outbound transportation expenses.
1.9.1.5 Sales and use taxes, separately billed or invoiced, and
borne by LICENSEE, imposed by a government agency an such use,
SALES, lease or transfer.
1.10 PENN LICENSED PRODUCT(S) means products which in the absence of this
AGREEMENT would infringe at least one claim of PENN PATENT RIGHTS or products
which are made using a process or machine covered by a claim of PENN PATENT
RIGHTS, or products made, at least in part, using PENN TECHNICAL INFORMATION.
1.11 PENN PATENT RIGHTS means those United States and foreign patent
applications listed in Appendix 1 hereto together with any and all patents
issuing thereupon, including continuation, divisional and re-issue applications
and
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continuation-in-part applications thereof based upon inventions and improvements
discovered by PENN through Dr. Campbell Laird, Dr. Li Yuan-Feng and/or any other
PRINCIPAL INVESTIGATOR as a result of the SPONSORED RESEARCH AGREEMENT between
the parties.
1.12 PENN TECHNICAL INFORMATION means research and development information,
unpatented inventions, know-how, trade secrets, and technical data in the
possession of PENN at the EFFECTIVE DATE of this AGREEMENT and/or becomes known
through the Sponsored Research Agreement, which are needed to produce to PENN
LICENSED PRODUCTS and/or SERVICES.
1.13 PRINCIPAL INVESTIGATOR(S) is as defined in the SPONSORED RESEARCH
AGREEMENT executed between the parties.
1.14 SALE means a transaction for which consideration is received or
expected by LICENSEE for the use or transfer of PENN LICENSED PRODUCT(S). A
SALE of PENN LICENSED PRODUCT(S) shall be deemed completed at the time LICENSEE
receives payment for such PENN LICENSED PRODUCT(S).
1.15 SERVICES means and includes services, testing, and evaluation of metal
fatigue performed by LICENSEE which includes or uses PENN TECHNICAL INFORMATION
or PENN LICENSED PRODUCTS, or which, without the benefit of this License
Agreement, would infringe a claim of the PENN PATENT RIGHTS.
1.16 SPONSORED RESEARCH AGREEMENT means the document appended as
Appendix 2.
ARTICLE 2 - LICENSE GRANT
2.1 PENN grants to LICENSEE for the term of this AGREEMENT an exclusive,
world-wide right and license, with the right to grant sublicenses, to
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make, have made, use and sell PENN LICENSED PRODUCT(S) in the FIELD OF USE. No
other rights or licenses are granted hereunder.
2.2 The license grant of this Article 2 is exclusive but for the reserved
right OF PENN to use and permit the use of by nonprofit organizations, the PENN
PATENT RIGHTS and the PENN TECHNICAL INFORMATION solely for educational and
research purposes on a non-commercial basis.
2.3 Any license granted to LICENSEE pursuant to Article 2 hereof shall be
subject to the rights of the United States government reserved under Public Laws
96-517, 97-256 and 98-620, codified at 35 U.S.C. 200-212, and any regulations
issued thereunder, to the extent funded, in whole or in part, by the United
States government.
2.4 The right to sublicense conferred upon LICENSEE under this AGREEMENT
is subject to the following conditions:
2.4.1 In each sublicense, the sublicensee shall be prohibited from
further sublicensing and shall be subject to the terms and conditions of the
license granted to LICENSEE under this AGREEMENT.
2.4.2 LICENSEE shall forward to PENN, within thirty (30) days of
execution, a complete and accurate copy written in the English language of each
sublicense granted hereunder. PENN's receipt of such sublicense shall not
constitute an approval of such sublicense or a waiver of any of PENN's rights or
LICENSEE's obligations hereunder.
2.4.3 If LICENSEE becomes subject to a BANKRUPTCY EVENT, all payments
then or thereafter due and owing to LICENSEE from its sublicensees shall upon
notice from PENN to any such sublicensee become payable directly to PENN for the
account of LICENSEE; provided however, that PENN shall remit to LICENSEE the
amount by which such payments exceed the amounts owed by LICENSEE to PENN.
2.4.4 Notwithstanding any such sublicense, LICENSEE shall remain
primarily liable to PENN for all of the LICENSEE'S duties and obligations
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contained in this AGREEMENT, and any act or omission of a sublicensee which
would be a breach of this AGREEMENT if performed by LICENSEE shall be deemed to
be a breach by LICENSEE of this AGREEMENT.
ARTICLE 3 - ROYALTIES, RECORDS AND ACCOUNTING
3.1 In partial consideration of the exclusive license granted herein and
in lieu of a license initiation fee, LICENSEE shall issue to PENN upon
execution of this AGREEMENT, a non-refundable of five percent (5%) of the
common stock of LICENSEE, to be distributed by LICENSEE as follows: (a)
approximately 2.5 percent (2.5%) of the common stock of LICENSEE directly to
Penn; and (b) approximately 1.25 percent (1.25%) of the common stock of
LICENSEE directly to Dr. Campbell Laird; and (c) approximately 1.25 percent
(1.25%) of the common stock of LICENSEE directly to Dr. Li Yuan-Feng. The
issuance of such stock shall be in accordance with a Stock Agreement which is
attached to this Agreement as Appendix 3.
3.2 In further consideration of the exclusive licenses grant herein,
LICENSEE shall pay to PENN a royalty of five percent (5%) of all NET SALES of
PENN LICENSED PRODUCTS and two-and-one-half percent (2.5%) royalty of NET SALES
of SERVICES made, made for, used or sold by LICENSEE taken together with all
sublicensees in any CALENDAR YEAR.
3.2.1 For sublicenses, LICENSEE shall pay to PENN the above scheduled
royalty on the NET SALES for such PENN LICENSED PRODUCTS and/or SERVICES sold by
such sublicensee. Any noncash consideration received by the LICENSEE from
sublicensees in lieu of a license fee or on account of sales of PENN LICENSED
PRODUCT and/or SERVICES shall be valued at its FAIR MARKET VALUE as of the date
of receipt.
3.2.2 NET SALES of any PENN LICENSED PRODUCT or SERVICES shall not be
subject to more than one assessment of the scheduled royalty due PENN.
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3.3 LICENSEE agrees to the following performance milestones:
3.3.1 LICENSEE shall make the first commercial sale of PENN LICENSED
PRODUCTS and/or SERVICES within twenty-four (24) months of completion of
commercial development of a PENN LICENSED PRODUCT.
3.3.2 LICENSEE shall pay to PENN annual minimum royalties of
$20,000.00 (twenty thousand dollars) due and payable on each anniversary of the
EFFECTIVE DATE of this AGREEMENT commencing one year after the first commercial
sale of PENN LICENSED PRODUCTS and/or SERVICES. If the LICENSEE sponsors
research in the FIELD OF USE at PENN during that year, the full amount of
research funding paid may be applied as a credit against license maintenance
fees due that year.
3.3.3 Minimum royalty payments due hereunder shall be paid on the due
date listed. Upon termination of this AGREEMENT, such amounts shall be applied
pro rata to any shorter period.
3.3.4 A minimum royalty payment paid under Section 3.3.2 herein shall
serve as an advanced payment against royalties due under Section 3.2 herein
solely for the CALENDAR YEAR for which such minimum royalty payment was paid.
3.4 LICENSEE shall deliver to PENN within sixty (60) days after the end of
each CALENDAR QUARTER a report, certified by the chief financial officer of
LICENSEE setting forth in reasonable detail the calculation of the royalties due
to PENN for such CALENDAR QUARTER, including, without limitation:
3.4.1 NET SALES amounts.
3.4.2 Royalties due, broken down by category, including earned,
pass-through, and minimum royalty categories.
3.4.3 Earned royalty amounts credited against minimum royalty
amounts.
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3.4.4 Gross consideration amounts, including sales price or fees,
revenues, or monies invoiced, billed, or received for all PENN
LICENSED PRODUCT(S) and/or SERVICES.
3.4.5 Qualifying costs, as defined in Section 1.13 by category of
cost, deducted from gross consideration to derive NET SALES.
3.4.6 Number of PENN LICENSED PRODUCT(S) and/or SERVICES used,
leased, or transferred in each country.
3.4.7 NET SALES broken down by country.
3.4.8 Date LICENSEE or an AFFILIATE used, leased, or otherwise
transfers each PENN LICENSED PRODUCT and/or SERVICE.
3.4.9 A profit and loss statement showing LICENSEE'S activity during
the reporting period.
3.5 Royalties payable under Section 3.2 hereof shall be paid within ninety
(90) days following the last day of the calendar quarter in which the royalties
accrue.
3.6 All dollar amounts referred to in this AGREEMENT are expressed in
United States dollars. All payments to PENN under this AGREEMENT shall be made
in United States dollars by check payable to "The Trustees of the University of
Pennsylvania."
3.6.1 If LICENSEE receives revenues from SALES of PENN LICENSED
PRODUCTS and/or SERVICES in currency other than United States dollars, royalties
shall be converted into United States dollars at the conversion rate for the
foreign currency as published in the eastern edition of THE WALL STREET JOURNAL
as of the last business day of the applicable CALENDAR QUARTER.
3.6.2 Amounts that are not paid when due shall accrue interest from
the due date until paid, at a rate equal to then prevailing United States prime
rate
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of interest as published in the eastern edition of THE WALL STREET JOURNAL plus
two percent (2%).
3.7 LICENSEE will maintain and cause its sublicensees to maintain,
complete and accurate books and records which enable the royalties payable
hereunder to be verified. The records for each CALENDAR QUARTER shall be
maintained for five years after the submission of each report under Article 3
hereof. Upon reasonable prior notice to LICENSEE, PENN and its accountants
shall have access to the books and records relating to the SALES of PENN
LICENSED PRODUCTS and SERVICES by LICENSEE and its sublicensees to conduct a
review or audit thereof. Such access shall be available not more than once each
CALENDAR YEAR, during normal business hours, and for each of three years after
the expiration or termination of this AGREEMENT. If PENN determines that
LICENSEE has underpaid royalties by 5% or more, LICENSEE will pay the costs and
expenses of PENN and its accountants in connection with its review or audit.
ARTICLE 4 - IMPROVEMENTS
4.1 Title to all intellectual property created or conceived by individuals
owing duty to assign to PENN, including PENN TECHNICAL INFORMATION, shall remain
in PENN.
4.2 Inventions made during the performance of the SPONSORED RESEARCH
AGREEMENT shall be governed by the provisions of the SPONSORED RESEARCH
AGREEMENT.
ARTICLE 5 - CONFIDENTIALITY
5.1 CONFIDENTIAL INFORMATION means any information or material in tangible
form that is marked as confidential or proprietary to PENN at the time it is
delivered to LICENSEE, and any other information that is furnished orally if
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PENN identifies such information as confidential or proprietary when it is
disclosed and confirms such designation in writing within thirty (30) days after
such disclosure.
5.2 CONFIDENTIALITY
5.2.1 LICENSEE agrees to maintain in confidence and not to disclose to
any third party any CONFIDENTIAL INFORMATION of PENN received pursuant to this
AGREEMENT. The foregoing obligation shall not apply to:
5.2.1.1 information that is known to LICENSEE or independently
developed by LICENSEE prior to the time of disclosure, in each case, to the
extent evidenced by written records promptly disclosed to PENN upon receipt of
the CONFIDENTIAL INFORMATION;
5.2.1.2 information disclosed to LICENSEE by a third party that
has a right to make such disclosure;
5.2.1.3 information that becomes patented, published or
otherwise part of the public domain as a result of acts by PENN or a third
person obtaining such information as a matter of right; or
5.2.1.4 information that is required to be disclosed by order
of the FDA or similar authority or a court of competent jurisdiction; provided
that the LICENSEE shall use its best efforts to obtain confidential treatment of
such information by the agency or court.
5.3 LICENSEE agrees to take all reasonable steps to protect the
CONFIDENTIAL INFORMATION of PENN with the same degree of care that LICENSEE uses
to protect its own confidential or proprietary information. Without limiting
the foregoing, LICENSEE agrees to ensure that all of its employees having access
to the CONFIDENTIAL INFORMATION are on need-to-know basis and are obligated (in
writing) to abide by LICENSEE's obligations hereunder.
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5.4 PENN shall not be obligated to accept any confidential information
from LICENSEE. PENN bears no institutional responsibility for maintaining the
confidentiality of any confidential information of LICENSEE.
5.5 LICENSEE agrees that it shall utilize all such CONFIDENTIAL
INFORMATION solely for furthering the objectives of this AGREEMENT and it will
not, either during the term of this AGREEMENT or at any time subsequent to the
termination of this AGREEMENT, otherwise use such information for its own
benefit or for the benefit of others; nor will LICENSEE publish or otherwise
disclose such CONFIDENTIAL INFORMATION to any other individual or entity. This
paragraph shall not restrict LICENSEE's disclosure to the extent required by all
pertinent securities laws, rules and regulations.
5.6 PENN's placement of a copyright notice on any portion of a document,
software, or CONFIDENTIAL INFORMATION shall not be construed to mean that such
portion has been published and will not release LICENSEE from its obligation of
confidence hereunder.
ARTICLE 6 - TERM AND TERMINATION
6.1 This AGREEMENT, unless sooner terminated as provided herein, shall
terminate upon the expiration of the last to expire or become abandoned of the
PENN PATENT RIGHTS, subject to the provisions of paragraph 6.3 hereof.
6.2 LICENSEE may, at its option, terminate this AGREEMENT at any time by
doing all of the following:
6.2.1 Cease making, having made, using and selling any PENN
LICENSED PRODUCT and SERVICES; and
6.2.2 Revokes all sublicenses causing all sublicensees to cease
making, having made, using and selling any PENN LICENSED PRODUCT and SERVICES;
and
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6.2.3 Gives sixty (60) days notice to PENN of such cessation and of
LICENSEE intent to terminate; and
6.2.4 Tenders payment of all accrued royalties.
6.3 PENN may terminate this AGREEMENT if any of the following occur:
6.3.1 LICENSEE becomes more than sixty days in arrears in payment of
royalties or expenses due pursuant to this AGREEMENT and LICENSEE does not
provide full payment immediately upon demand; or
6.3.2 LICENSEE becomes subject to a BANKRUPTCY EVENT; or
6.3.3 LICENSEE breaches this AGREEMENT and does not cure
within-sixty(60) days written notice thereof; or
6.3.4 LICENSEE has not made a commercial sale of PENN LICENSED PRODUCT
or SERVICE within twenty-four (24) months of the completion of commercial
development of a PENN LICENSED PRODUCT.
6.4 If LICENSEE becomes subject to a BANKRUPTCY EVENT, all duties of PENN
and all rights (but not duties) of LICENSEE under this AGREEMENT shall
immediately terminate without the necessity of any action being taken either by
PENN or by LICENSEE. In the event of entry by LICENSEE into bankruptcy or
reorganization, PENN shall be considered to be a preferred creditor and
lienholder against all stocks of PENN LICENSED PRODUCT. PENN is also granted a
security interest in and shall be considered to be a preferred creditor of
LICENSEE with respect to PENN TECHNICAL INFORMATION and PENN PATENT RIGHTS.
6.5 Upon termination of this AGREEMENT, LICENSEE shall, at PENN's request,
return to PENN all data, formulas, drawings, specifications, literature and
other technical information comprising PENN TECHNICAL
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INFORMATION fixed in any tangible medium of expression as well as any data
generated by LICENSEE during the term of this AGREEMENT which will facilitate
the development of the technology licensed hereunder.
6.6 LICENSEE's obligation to pay royalties accrued under Article 3 hereof
shall survive termination of this AGREEMENT. In addition, the provisions of
Sections 4.1 and 7.2 and Articles 5, 6, 9, 10, and 14 shall survive such
termination.
ARTICLE 7 - PATENT MAINTENANCE
7.1 PENN shall prosecute and maintain PENN PATENT RIGHTS as set forth in
Appendix 1 hereto as the same may be supplemented from time to time in
accordance with Article 4, provided however, that such prosecution, and
maintenance fees shall not exceed $10,000.00 as provided for in Section 7.2.
7.2 LICENSEE shall promptly reimburse PENN for all documented attorneys
fees, expenses, official fees and other charges incident to the preparation,
prosecution and maintenance of PENN PATENT RIGHTS, including patents and patent
applications in the United States and in countries foreign to the United States
on developments set forth in foregoing Sections 4.2. LICENSEE's obligation to
reimburse PENN's documented patent expenses, under this Section 7.2, shall not
exceed $10,000. PENN shall provide LICENSEE with itemized statements reflecting
these expenses and LICENSEE shall reimburse PENN for such expenses within thirty
(30) days after receipt of such statement.
7.2.1 LICENSEE may provide advice to PENN regarding preparation,
filing, and prosecution of any U.S. Patent Applications developed under this
Agreement and/or the Sponsored Research Agreement with Dr. Laird (see Attachment
B).
7.2.2 LICENSEE shall have the first option, for a period not to exceed
ten (10) months from the date of filing a U.S. patent application, to support
and pay for foreign applications of any U.S. Patent Application licensed under
this Agreement. If LICENSEE notifies PENN, in writing, of its desire to have
PENN
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file any particular U.S. Patent Application in foreign venues, then PENN will
diligently file and prosecute such applications after consultation with
LICENSEE. Such foreign patent preparation, filing, and prosecution fees and
expenses shall not be subject to the reimbursement limitations ($10,000 limit)
of LICENSEE set forth in Section 7.2. If LICENSEE does not advise PENN that it
will support the foreign filing of a particular U.S. Patent Application, then
PENN shall be free to pursue such foreign filings at PENN's own expense;
provided that PENN notifies LICENSEE of its intention to so file a foreign
application and LICENSEE does not itself file such application with sixty (60)
days of said notice. Such foreign filings which are made by PENN shall not be
included as part of this Agreement and PENN shall be free to license such
foreign patents to other third parties without further obligation to LICENSEE.
7.3 LICENSEE and its sublicensees shall comply with all Federal and
foreign jurisdiction laws in respect of patent marking, if any, but the
selection, location and particulars of such marking shall be at LICENSEE'S
discretion.
ARTICLE 8 - INFRINGEMENT AND LITIGATION
8.1 Both PENN and LICENSEE are responsible for notifying the other of any
infringement of PENN PATENT RIGHTS or JOINT PATENT RIGHTS which may come to
their attention. PENN and LICENSEE shall consult concerning any suspected
infringement in an effort to agree upon terms and conditions for instigation and
maintenance of litigation activities or forbearance from same.
8.2 To the extent litigation is mutually agreed upon, LICENSEE shall have
the right, but not the obligation to prosecute such infringement at its own
expense. In such event, PENN shall cooperate with LICENSEE, at LICENSEE'S
expense. LICENSEE shall not settle or compromise any such suit in a manner that
poses any obligations or restrictions on PENN or grants any rights to the PENN
TECHNICAL INFORMATION or the PENN PATENT RIGHTS, without PENN's written
permission.
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8.3 Financial recoveries from any such litigation will first be applied to
reimburse LICENSEE for its litigation expenditures with additional recoveries
being paid to LICENSEE, subject to a royalty due PENN based on the provisions of
Article 3 hereof.
8.4 Such rights of Section 8.2 shall be subject to the continuing right of
PENN to intervene at PENN's own expense and join LICENSEE in any claim or suit
for infringement of the PENN PATENT RIGHTS. Any consideration received by
LICENSEE in settlement of any claim or suit shall be shared between PENN and
LICENSEE in proportion with their share of the litigation expenses in such
infringement action. If counsel chosen by LICENSEE is reasonably acceptable to
PENN, for these purposes its litigation expenses should not be deemed to include
counsel fees.
8.5 In any infringement suit to enforce any of the PENN PATENT RIGHTS or
the JOINT PATENT RIGHTS, either party, at the request and expense of the other
party shall cooperate in all respects and, to the fullest extent reasonably
possible, shall have its employees testify when requested and shall make
available relevant records, papers, information, samples, specimens, and the
like. This provision shall not be construed to require either party to
undertake any activities, including legal discovery, at the request of any third
party except as may be required by lawful process of a court of competent
jurisdiction.
ARTICLE 9 - DISCLAIMER OF WARRANTIES; INDEMNIFICATION
9.1 THE LICENSED TECHNOLOGY IS PROVIDED ON AN "AS IS" BASIS AND PENN MAKES
NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PENN
TECHNICAL INFORMATION OR THE PENN LICENSED PRODUCTS. BY WAY OF EXAMPLE BUT NOT
OF LIMITATION, PENN MAKES NO REPRESENTATIONS OR WARRANTIES (i) OF COMMERCIAL
UTILITY, (ii) OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR (iii)
THAT THE USE OF THE PENN TECHNICAL INFORMATION WILL NOT INFRINGE ANY PATENT,
COPYRIGHT OR TRADEMARK OR OTHER PROPRIETARY RIGHT OR PROPERTY RIGHTS OF OTHERS.
PENN SHALL
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NOT BE LIABLE TO LICENSEE, LICENSEE'S SUCCESSORS OR ASSIGNS OR ANY THIRD PARTY
WITH RESPECT TO ANY CLAIM ON ACCOUNT OF, OR ARISING FROM, THE USE OF PENN
TECHNICAL INFORMATION IN CONNECTION WITH THE LICENSED TECHNOLOGY SUPPLIED
HEREUNDER OR THE MANUFACTURE, USE OR SALE OF PENN LICENSED PRODUCTS OR ANY OTHER
MATERIAL DERIVED THEREFROM. PENN SHALL NOT BE LIABLE TO LICENSEE OR ANY OTHER
PERSON FOR ANY LOSS OF PROFITS, LOSS OF BUSINESS OR INTERRUPTION OF BUSINESS, OR
FROM ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OF ANY KIND INCURRED BY
LICENSEE OR ANY OTHER PERSON WHETHER UNDER THIS AGREEMENT OR OTHERWISE, EVEN IF
PENN HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS.
9.2 LICENSEE will defend, indemnify and hold harmless PENN, its trustees,
officers, agents and employees (collectively, the "Indemnified Parties"), from
and against any and all liability, loss, damage, action, claim or expense
suffered or incurred by the Indemnified Parties (including attorney's fees)
(individually, a "Liability", and collectively, the "Liabilities") which results
from or arises out of: (a) the development, use, manufacture, promotion, sale or
other disposition, of any PENN LICENSED PRODUCTS and/or SERVICES by LICENSEE,
its AFFILIATES, assignees, sublicensees, vendors or other third parties; (b)
breach by LICENSEE of any covenant or agreement contained in this AGREEMENT; and
(c) the enforcement by an Indemnified Party of its rights under this Section.
The indemnification obligation under clause (a) shall apply regardless of any
contributory negligence of the Indemnified Party. Without limiting the
foregoing, LICENSEE will defend, indemnify and hold harmless the indemnified
Parties from and against any Liabilities resulting from:
9.2.1 any product liability or other claim of any kind related to the
use by a third party of a PENN LICENSED PRODUCT and/or SERVICE that was
manufactured, sold or otherwise disposed by LICENSEE, its AFFILIATES, assignees,
sublicensees, vendors or other third parties;
9.2.2 a claim by a third party that the PENN TECHNICAL INFORMATION or
the design, composition, manufacture, use, sale or other
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disposition of any PENN LICENSED PRODUCT and/or SERVICE infringes or violates
any patent, copyright, trademark or other intellectual property rights of such
third party; and
9.3 The Indemnified Party shall promptly notify LICENSEE of any claim or
action giving rise to Liabilities subject to the provisions of the foregoing
Section. LICENSEE shall have the right to defend any such claim or action, at
its cost and expense. LICENSEE shall not settle or compromise any such claim or
action in a manner that imposes any restrictions or obligations on the
University or grants any rights to the PENN TECHNICAL INFORMATION. If LICENSEE
fails or declines to assume the defense of any such claim or action within
thirty (30) days after notice thereof, PENN may assume the defense of such claim
or action for the account and at the risk of LICENSEE, and any Liabilities
related thereto shall be conclusively deemed a liability of LICENSEE. LICENSEE
shall pay promptly to the Indemnified Party any Liabilities to which the
foregoing indemnity relates, as incurred. The indemnification rights of PENN or
other Indemnified Party contained herein are in addition to all other rights
which such Indemnified Party may have at law or in equity or otherwise.
9.4 LICENSEE shall maintain general liability insurance, including
contractual liability, and, if commercially available at standard rates product
liability insurance in amounts not less than $2,000,000 per incident and
$2,000,000 in the aggregate, issued by an insurance company rated A or better
and naming PENN as an additional insured for ten (10) years after LICENSEE
ceases manufacturing and marketing the PENN LICENSED PRODUCTS and/or SERVICES.
The minimum insurance amounts specified herein shall not be deemed a limitation
on LICENSEE's indemnification liability under this AGREEMENT. LICENSEE shall
provide PENN with copies of the endorsements to such policies, upon request of
PENN. LICENSEE shall notify PENN at least thirty (30) days prior to
cancellation of any such coverage. PENN shall receive a royalty on any
insurance award constituting compensation to LICENSEE for lost profits on the
sale of PENN LICENSED PRODUCTS.
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ARTICLE 10 - USE OF PENN'S NAME; INDEPENDENCE
10.1 LICENSEE and its employees and agents shall not use and LICENSEE shall
not permit its sublicensees to use PENN's name, any adaptation thereof, any PENN
logotype, trademark, service mark or slogan or the name mark or logotype of any
PENN representative or organization in any way without the prior, written
consent of PENN, except as required by law. In this regard, PENN acknowledges
and agrees that the LICENSEE may use PENN's name in various documents used by
LICENSEE for capital raising and financing purposes, provided that PENN grants
prior written approval of such use, which approval shall not be unreasonably
withheld.
10.2 PENN and LICENSEE are independent entities and contractors and neither
is an agent of the other. LICENSEE shall take no action which would suggest to
a reasonable person that an agency relationship exists between LICENSEE and
PENN.
10.3 Neither party shall use directly or by implication the name of the
other or any staff member, faculty member, student or employee of the other in
connection with any products, publicity, promotion, financing or advertising
without the prior written permission of the other party, except as required by
law.
ARTICLE 11 - COMPLIANCE WITH LAWS; EXPORT CONTROL
11.1 LICENSEE shall comply with all prevailing laws, rules and regulations
pertaining to the development, testing, manufacture, marketing, sale, use,
import or export of products. Without limiting the foregoing, it is understood
that PENN is subject to United States laws and regulations controlling the
export of technical data, computer software, laboratory prototypes and other
commodities, articles and information, including the Arms Export Control Act as
amended in the Export Administration Act of 1979, and that its obligations
hereunder are contingent upon compliance with applicable United States export
laws and regulations. The transfer of certain technical data and commodities
may require
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a license from the cognizant agency of the United States Government and/or
written assurances by LICENSEE that LICENSEE shall not export data or
commodities to certain foreign countries without prior approval of such agency.
PENN neither represents that a license is not required nor that, if required, it
will issue.
ARTICLE 12 - ASSIGNMENT
12.1 This AGREEMENT and the rights and duties appertaining thereto may not
be assigned by either party other than to an Affiliate without first obtaining
the express written consent of the other party. Any such purported assignment,
without the written consent of the other party, shall be null and of no effect.
ARTICLE 13 - NOTICES
13.1 Notices, payments, statements, reports and other communications under
this AGREEMENT shall be in writing and shall be deemed as having been received
as of the date dispatched if sent by public courier (e.g. Federal Express)
or by express mail, receipt requested and addressed as follows:
If for PENN:
University of Pennsylvania
Center for Technology Transfer
3700 Market Street, Suite 300
Philadelphia, PA 19104
Attention: Director
with a copy to:
Office of General Counsel
University of Pennsylvania
221 College Hall
Philadelphia, PA 19104-6303
Attention: General Counsel
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If for LICENSEE:
Tensiodyne Corporation
11835 West Olympic Boulevard
East Tower, Suite 705
West Los Angeles, CA 90064
with a copy to:
Stephen M. Goodman, Esquire
Wolf, Block, Schorr and Solis-Cohen
12th Floor Packard Building
S.E. Corner 15th & Chestnut Streets
Philadelphia, PA 19102-2678
Either party may change its official address upon notice to the other party.
ARTICLE 14 - JURISDICTION; ENTIRE AGREEMENT - DISPUTE RESOLUTION
14.1 This AGREEMENT shall be interpreted in accordance with the laws of the
Commonwealth of Pennsylvania. Jurisdiction and venue shall be proper in the
Commonwealth of Pennsylvania.
14.2 This AGREEMENT and the SPONSORED RESEARCH AGREEMENT (Appendix 2
hereto) [and the STOCK PURCHASE AGREEMENT (Appendix 3 hereto)] are being entered
into simultaneously and each is related to the other in setting forth the entire
agreement of the parties. Any modification of this AGREEMENT shall be in
writing and signed by an authorized representative of each party.
14.3 In the event that a party to this AGREEMENT perceives the existence of
a dispute with the other party concerning any right or duty provided for herein,
the parties shall, as soon as practicable, confer in an attempt to resolve the
dispute. In the event that resolution of the dispute is not forthcoming, the
parties shall
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<PAGE>
consult with a view toward submitting the dispute to mediation or arbitration
under mutually-acceptable terms. There is no enforceable obligation to enter
into mediation or arbitration conferred by this paragraph.
IN WITNESS WHEREOF the parties, intending to be legally bound, have caused
this AGREEMENT to be executed by their duly authorized representatives.
THE TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA
- ----------------------------------------------------------------------
DATE: August 26, 1993
-----------------------------------------------------------------
SIGNATURE: /s/ Stephen M. Sammut
------------------------------------------------------------
TYPED NAME: Stephen M. Sammut
-----------------------------------------------------------
TITLE: Managing Director
----------------------------------------------------------------
LICENSEE
DATE: 9/9/93
-----------------------------------------------------------------
SIGNATURE: /s/ Robert M. Bernstein
------------------------------------------------------------
TYPED NAME: Robert M. Bernstein
-----------------------------------------------------------
TITLE: PRES.
----------------------------------------------------------------
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<PAGE>
EXHIBIT 10.2
SPONSORED RESEARCH AGREEMENT
between
TENSIODYNE CORPORATION
(SPONSOR)
and
THE TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA
(PENN)
<PAGE>
TABLE OF CONTENTS
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. Sponsored Research . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3. Term of Agreement. . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 4. Reimbursement of Costs, Payment. . . . . . . . . . . . . . . 3
ARTICLE 5. Intellectual Property. . . . . . . . . . . . . . . . . . . . 3
ARTICLE 6. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 7. Publication, Use of Name . . . . . . . . . . . . . . . . . . 4
ARTICLE 8. Termination. . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 9. Disclaimer of Warranties, Indemnification. . . . . . . . . . 6
ARTICLE 10. Additional Provisions. . . . . . . . . . . . . . . . . . . . 7
ATTACHMENT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
<PAGE>
SPONSORED RESEARCH AGREEMENT
This Sponsored Research Agreement ("AGREEMENT") is made by and between The
Trustees of the University of Pennsylvania, a Pennsylvania nonprofit corporation
("PENN"), with offices located at Suite 300, 133 South 36th Street,
Philadelphia, PA 19104-3246, and Tensiodyne Corporation, a corporation organized
and existing under the laws of Delaware ("SPONSOR"), having a place of business
at Los Angeles, California.
This AGREEMENT is effective as of the ____day of July, 1993 ("EFFECTIVE
DATE").
RECITALS
WHEREAS, the SPONSOR desires to fund the research of Dr. Campbell Laird of
PENN's School of Engineering in fatigue properties of metals;
WHEREAS, the Sponsor desires to support such research conducted by PENN in
accordance with the terms and conditions of this AGREEMENT;
WHEREAS, the research program contemplated by this AGREEMENT is of mutual
interest to SPONSOR and PENN and furthers the educational, scholarship and
research objectives of PENN as a nonprofit, tax-exempt educational institution
and may benefit both SPONSOR and PENN through the creation or discovery of new
inventions;
NOW, THEREFORE, in consideration of the premises and of the promises and
mutual covenants contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE 1. DEFINITIONS
1.1 CONFIDENTIAL INFORMATION means PENN INTELLECTUAL PROPERTY and any
information or materials in tangible form that is marked as confidential or
proprietary to PENN at the time it is delivered to SPONSOR, and any other
information that is furnished orally if PENN identifies such information as
confidential or proprietary when it is disclosed and promptly confirms such
designation in writing within thirty (30) days after such disclosure.
1.2. EFFECTIVE DATE means the first date written above.
-1-
<PAGE>
1.3 LICENSE AGREEMENT means the License Agreement between the SPONSOR and
PENN of even date herewith.
1.4 PENN INTELLECTUAL PROPERTY means and includes all technical
information, inventions, trade secrets, developments, discoveries, software,
know-how, methods, techniques, formulae, data, processes and other proprietary
ideas, whether or not patentable or copyrightable, that are first conceived,
discovered, developed or reduced to practice in the conduct of the SPONSORED
RESEARCH.
1.5 PRINCIPAL INVESTIGATOR is Dr. Campbell Laird who has agreed to serve
as PRINCIPAL INVESTIGATOR for the SPONSORED RESEARCH and shall be responsible
for the administration and supervision of the SPONSORED RESEARCH.
1.6 SPONSORED RESEARCH means the research program described in Attachment
A to this AGREEMENT.
ARTICLE 2. SPONSORED RESEARCH
2.1 PENN shall commence the SPONSORED RESEARCH promptly after the
EFFECTIVE DATE of this AGREEMENT and upon payment by SPONSOR of any funds owed,
and shall use reasonable efforts to conduct such SPONSORED RESEARCH
substantially in accordance with the terms and conditions of this AGREEMENT.
SPONSOR acknowledges that PENN and the PRINCIPAL INVESTIGATOR shall have the
freedom to conduct and supervise the SPONSORED RESEARCH in a manner consistent
with PENN's research mission. This AGREEMENT shall not be construed to limit
the freedom of individuals participating in the SPONSORED RESEARCH to engage in
any other research.
2.2 If the services of the PRINCIPAL INVESTIGATOR become unavailable to
PENN for any reason, PENN shall be entitled to designate another member of its
faculty who is acceptable to both parties to serve as the PRINCIPAL INVESTIGATOR
of the SPONSORED RESEARCH. If a substitute PRINCIPAL INVESTIGATOR has not been
designated within sixty (60) days after the original PRINCIPAL INVESTIGATOR
ceases his or her services under this AGREEMENT, either party may terminate this
AGREEMENT upon written notice thereof to the other party, subject to the
provisions of Article 7.
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<PAGE>
ARTICLE 3. TERM OF AGREEMENT
3.1 The initial term of this AGREEMENT shall begin on the EFFECTIVE DATE
of this AGREEMENT and shall end on July _, 1995 unless terminated sooner
pursuant to Sections 2.2 or 8.1 hereof. This AGREEMENT may be extended or
renewed only by the parties' mutual written agreement, which shall be
incorporated as an attached to this AGREEMENT.
ARTICLE 4. REIMBURSEMENT OF COSTS, PAYMENTS
4.1 SPONSOR agrees to reimburse PENN for all direct and indirect costs
incurred in the conduct of the SPONSORED RESEARCH in an amount not to exceed the
total amount of $200,000.00 as set forth in Attachment A. SPONSOR acknowledges
that this amount is a good faith estimate only and not a guarantee of the cost
to conduct the SPONSORED RESEARCH. If at any time PENN determines that it will
require additional funds for the SPONSORED RESEARCH, it shall notify SPONSOR and
provide an estimate of the additional amount. SPONSOR shall not be liable for
any costs in excess of the amount of $200,000.00 as set forth in Attachment A
unless it has agreed in writing to provide additional funds.
4.2 SPONSOR agrees to make payments to PENN at the rate of $11,112 per
month for eighteen months beginning October 15, 1995. All payments are to be
made by check payable in United States dollars, to "The Trustees of the
University of Pennsylvania", and sent to the address set forth in Section 10.5.
4.3 PENN shall maintain accurate records and books of account relating to
this AGREEMENT in accordance with accepted accounting practices, and shall make
such records and books available to SPONSOR upon reasonable notice during PENN's
normal business hours, but not more frequently than once each calendar year.
4.4 SPONSOR agrees that title to any equipment, laboratory animals, or any
other materials made or acquired with funds provided under this AGREEMENT shall
vest in PENN, and such equipment, animals, or materials shall remain the
property of PENN following termination of this AGREEMENT.
ARTICLE 5. INTELLECTUAL PROPERTY
5.1 Prosecution of Patent Applications and
Maintenance of Patents
5.1.1 PENN agrees to provide promptly to SPONSOR a complete written
disclosure of any PENN INTELLECTUAL PROPERTY reasonably considered
-3-
<PAGE>
patentable. SPONSOR agrees to advise PENN, no later than thirty (30) days after
receipt of such disclosure, whether it requests PENN to file and prosecute a
United States patent application related to such PENN INTELLECTUAL PROPERTY. If
SPONSOR does not request PENN to file and prosecute a patent application, PENN
may proceed with such preparation and prosecution at its own cost and expense;
but such patent applications shall be excluded from SPONSOR's right under the
License Agreement.
5.1.2 The mutual rights and obligations of the parties with respect
to filing, maintenance and prosecution of patents and patent applications
respecting PENN's INTELLECTUAL PROPERTY shall be as set forth in the LICENSE
AGREEMENT.
5.2 The preparation, prosecution, and maintenance of copyright, trademark
and other intellectual property applications for the PENN INTELLECTUAL PROPERTY
shall be subject to the provisions of Section 5.1.
5.3 PENN shall retain all right, title and interest in and to the PENN
INTELLECTUAL PROPERTY and any patents, copyrights and other intellectual
property protections related thereto, regardless of which party prepares and
prosecutes the applications associated therewith, or maintains any resulting
patents, copyrights or other intellectual property protections, subject to any
express license granted to SPONSOR under the LICENSE AGREEMENT.
ARTICLE 6. CONFIDENTIALITY
The rights and obligations of the parties respecting Confidential
Information of the parties received pursuant to this Agreement shall be as set
forth in the License Agreement.
ARTICLE 7. PUBLICATION, USE OF NAME
7.1 SPONSOR acknowledges that the basic objective of research activities
at PENN is the generation of new knowledge and its expeditious dissemination.
To further that objective, PENN retains the right, at its discretion, to
demonstrate, publish or publicize a description of the results of the SPONSORED
RESEARCH, subject to the provisions of Section 8.2 below.
7.2 Should the PRINCIPAL INVESTIGATOR desire to disclose publicly, in
writing or by oral presentation, the results of the SPONSORED RESEARCH, the
PRINCIPAL INVESTIGATOR shall notify SPONSOR and PENN in writing of his or her
intention at least thirty (30) days before such disclosure. The PRINCIPAL
INVESTIGATOR shall include with such notice a description of the oral
presentation or, in the case of a manuscript or other proposed written
disclosure, a current draft of such written disclosure. SPONSOR may request
PENN, no later than thirty (30) days following the receipt of such
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<PAGE>
notice, to file a patent, copyright or other application related to PENN
INTELLECTUAL PROPERTY contained in such disclosure. All such filings shall be
subject to the provisions of ARTICLE 5 of this Agreement. Upon receipt of such
request, PENN and the PRINCIPAL INVESTIGATOR shall arrange a short delay in
publication not to exceed sixty (60) days, to permit filing of a patent
application, copyright or other application by PENN.
7.3 PENN agrees not to use the SPONSOR's name without the SPONSOR's prior
written consent except that PENN may acknowledge the SPONSOR's funding of this
SPONSORED RESEARCH in scientific publications and in listings of SPONSORED
RESEARCH projects. SPONSOR agrees not to use PENN's name, or the name of any
trustee, officer, faculty member, student or employee thereof, except in a
manner consistent with the provisions of the LICENSE AGREEMENT.
ARTICLE 8. TERMINATION
8.1 In addition to the termination right set forth in Section 2.2 hereof,
either party may terminate this AGREEMENT effective upon written notice to the
other party, if the other party breaches any of the terms or conditions of this
AGREEMENT and fails to cure such breach within sixty (60) days after receiving
written notice thereof.
8.2 This AGREEMENT shall automatically terminate upon the occurrence of a
Bankruptcy Event, as defined in the LICENSE AGREEMENT.
8.3 In addition, either party may terminate this AGREEMENT for any reason
upon ninety (90) days prior written notice to the other party.
8.4 In the event of termination of this AGREEMENT prior to its stated term
whether for breach or for any other reason whatsoever, PENN shall be entitled to
retain from the payments made by SPONSOR prior to termination PENN's reasonable
costs of concluding the work in progress. Allowable costs include, without
limitation, all costs or noncancellable commitments incurred prior to the
receipt, or issuance, by PENN of the notice of termination, and the full cost of
each student and faculty member supported hereunder through the end of such
commitments. In the event of termination, PENN shall submit a final report of
all costs incurred and all funds received under this AGREEMENT within sixty (60)
days after the effective termination date. The report shall be accompanied by a
check in the amount of any excess of funds advanced over costs and allowable
commitments incurred. In case of a deficit of funds, the SPONSOR agrees to pay
PENN the amount needed to cover costs and allowable commitments incurred by PENN
under this AGREEMENT.
8.5 Termination of this AGREEMENT shall not affect the rights and
obligations of the parties accrued prior to termination hereof. The provisions
of ARTICLES
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<PAGE>
5, entitled "Intellectual Property"; 9, entitled "Disclaimer of Warranties,
Indemnification"; and 10, entitled "Additional Provisions", shall survive such
termination.
ARTICLE 9. DISCLAIMER OF WARRANTIES, INDEMNIFICATION
9.1 PENN MAKES NO WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING, WITHOUT LIMITATION, WARRANTIES WITH RESPECT TO THE
CONDUCT, COMPLETION, SUCCESS OR PARTICULAR RESULTS OF THE SPONSORED RESEARCH, OR
THE CONDITION OF ANY INVENTION(S) OR PRODUCT(S), WHETHER TANGIBLE OR INTANGIBLE,
CONCEIVED, DISCOVERED, OR DEVELOPED UNDER THIS AGREEMENT, OR THE OWNERSHIP,
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OF THE SPONSORED RESEARCH
OR ANY SUCH INVENTION OR PRODUCT. PENN SHALL NOT BE LIABLE FOR ANY DIRECT,
CONSEQUENTIAL, PUNITIVE OR OTHER DAMAGES SUFFERED BY SPONSOR OR ANY OTHER PERSON
RESULTING FROM THE SPONSORED RESEARCH OR THE USE OF ANY SUCH INVENTION OR
PRODUCT.
9.2 SPONSOR agrees to defend, indemnify and hold harmless PENN, the
PRINCIPAL INVESTIGATOR and any of PENN's faculty, students, employees, trustees,
officers, affiliates and agents (hereinafter referred to collectively as the
"INDEMNIFIED PERSONS") from and against any and all liability, claims, lawsuits,
losses, damages, costs or expenses (including documented attorneys' fees), which
the INDEMNIFIED PERSONS may hereafter incur, suffer or be required to pay as a
result of SPONSOR'S use of the results of SPONSORED RESEARCH or any PENN
INTELLECTUAL PROPERTY or as a result any breach of this AGREEMENT or any
wrongful act or omission of SPONSOR, its employees, affiliates, contractors,
licensees or agents. PENN shall notify SPONSOR upon learning of the institution
or threatened institution of any such liability, claims, lawsuits, losses,
damages, costs and expenses and PENN shall cooperate with SPONSOR in every
proper way in the defense or settlement thereof at SPONSOR'S request and
expense.
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<PAGE>
ARTICLE 10. ADDITIONAL PROVISIONS
10.1 In the event that a party to this AGREEMENT perceives the existence of
a dispute with the other party concerning any right or duty provided for herein,
the parties shall, as soon as practicable, confer in an attempt to resolve the
dispute. In the event that resolution of the dispute is not forthcoming, the
parties shall consult with a view toward submitting the dispute to mediation or
arbitration under mutually acceptable terms. There is no enforceable obligation
to enter into mediation or arbitration conferred by this paragraph.
10.2 No rights hereunder may be assigned by SPONSOR, directly or by merger
or other operation of law, except in a manner consistent with the terms of the
LICENSE AGREEMENT limiting such assignments. Any prohibited assignment of this
AGREEMENT or the rights hereunder shall be null and void. No assignment shall
relieve SPONSOR of responsibility for the performance of any accrued obligations
which it has prior to such assignment. This AGREEMENT shall inure to the
benefit of permitted assigns of SPONSOR.
10.3 A waiver by either party of a breach or violation of any provision of
this AGREEMENT will not constitute or be construed as a waiver of any subsequent
breach or violation of that provision or as a waiver of any breach or violation
of any other provision of this AGREEMENT.
10.4 Nothing herein shall be deemed to establish a relationship of
principal and agent between PENN and SPONSOR, nor any of their agents or
employees for any purpose whatsoever. This AGREEMENT shall not be construed as
constituting PENN and SPONSOR as partners, or as creating any other form of
legal association or arrangement which would impose liability upon one party for
the act or failure to act of the other party.
10.5 Notices, payments, statements, reports and other communications under
this AGREEMENT shall be writing and shall be deemed to have been received as of
the date dispatched if sent by public courier (e.g. Federal Express) or by
express mail, return receipt requested and addressed as follows:
If to PENN:
Office of Research Administration
University of Pennsylvania
133 South 36th Street, Suite 300
Philadelphia, PA 19104-3246
Attn: Executive Director
Office of General Counsel
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<PAGE>
221 College Hall
University of Pennsylvania
Philadelphia, PA 19104-6303
Attn: General Counsel
If to SPONSOR:
Tensiodyne Corporation
11835 West Olympic Boulevard
East Tower, Suite 705
West Los Angeles, California 90064
cc: Stephen M. Goodman, Esquire
Wolf, Block, Schorr and Solis-Cohen
12th Floor Packard Building
S.E. Cor. 15th & Chestnut Streets
Philadelphia, PA 19102-2678
10.6 This AGREEMENT embodies the entire understanding between the parties
relating to the subject matter hereof and supersedes all prior understandings
and agreements, whether written or oral. This AGREEMENT may not be varied
except by a written document signed by duly authorized representatives of both
parties.
10.7 Any of the provisions of this AGREEMENT which are determined to be
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability in such jurisdiction, without rendering
invalid or unenforceable the remaining provisions hereof or affecting the
validity or unenforceability of any of the terms of this AGREEMENT in any other
jurisdiction.
10.8 The headings and captions used in this AGREEMENT are for convenience
of reference only and shall not affect its construction or interpretation.
10.9 Nothing in this AGREEMENT, express or implied, is intended to confer
on any person other than the parties hereto or their permitted assigns, any
benefits, rights or remedies.
10.10 This AGREEMENT shall be construed and governed in accordance with the
laws of the Commonwealth of Pennsylvania, without giving effect to conflict of
law provisions.
-8-
<PAGE>
10.11 PENN and SPONSOR shall not discriminate against any employee or
applicant for employment because of race, color, sex, sexual or affectional
preference, age, religion, national or ethnic origin, or handicap.
10.12 Neither party shall be liable for any failure to perform as required
by this AGREEMENT to the extent such failure to perform is due to circumstances
reasonably beyond such party's control, including, without limitation, labor
disturbances or labor disputes of any kind, accidents, failure of any
governmental approval required for full performance, civil disorders or
commotions, acts of aggression, acts of God, energy or other conservation
measures imposed by law or regulation, explosions, failure of utilities,
mechanical breakdowns, material shortages, disease, or other such occurrences.
10.13 All rights granted to SPONSOR by this AGREEMENT are contingent upon
compliance with United States laws and regulations controlling the export of
technical data, computer software, laboratory prototypes, and all other export
controlled commodities. These laws include, but are not limited to, the Arms
Export Control Act and the Export Administration Act as they may be amended.
SPONSOR shall not, directly or indirectly, export any export controlled
commodities, which are subject to this AGREEMENT, unless the required
authorization and/or license is obtained from the proper government agency(ies)
prior to export. By granting rights in this AGREEMENT, PENN does not represent
that export authorization or an export license will not be necessary or, if
necessary, that such authorization or export license will be granted.
IN WITNESS WHEREOF, the duly authorized representatives of the parties
hereby execute this AGREEMENT as of the date first written above.
THE TRUSTEES OF THE [SPONSOR]
UNIVERSITY OF PENNSYLVANIA
By: /s/ Stephen M. Sammut By: /s/ Robert M. Bernstein
-------------------------------- --------------------------------
Name: Stephen M. Sammut Name: Robert M. Bernstein
------------------------------ ------------------------------
Title: Managing Director Title: PRES.
----------------------------- -----------------------------
Date: August 26, 1993 Date: 9/9/93
------------------------------ ------------------------------
(signatures continued on next page)
-9-
<PAGE>
Acknowledged and Agreed to by
PRINCIPAL INVESTIGATOR:
By: /s/ Campbell Laird
---------------------------
Date: Aug 31, 93
-------------------------
-10-
<PAGE>
Attachment A
Summary of SPONSORED RESEARCH
Work Scope
1) Details of Program - See Attachment B
PRINCIPAL INVESTIGATOR Campbell Laird
Representative of SPONSOR
1) Name: Robert M. Bernstein
2) Phone Number: (310) 208-5589
Period of Performance August 1, 1993 to July 31, 1995
Report Schedule Every sixty (60) days
Final report within thirty (30) days after termination
Budget: See Attachment C
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<PAGE>
EXHIBIT 10.3
AMENDMENT 1
LICENSE AGREEMENT BETWEEN TENSIODYNE SCIENTIFIC CORPORATION
AND
THE TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA
<PAGE>
AMENDMENT 1
LICENSE AGREEMENT BETWEEN
TENSIODYNE SCIENTIFIC CORPORATION
AND
THE TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA
This Amendment 1 ("AMENDMENT 1") to the License Agreement effective October 15,
1993 ("AGREEMENT") between Tensiodyne Scientific Corporation ("LICENSEE") and
the Trustees of the University of Pennsylvania ("PENN") is made between Material
Technology, Inc. ("MATECH") and PENN effective by the parties as of the date of
the last signature executing this AMENDMENT 1.
BACKGROUND
WHEREAS, MATECH, is a successor as of February 1994, to LICENSEE's business, and
therefore, is obligated to perform the obligations of LICENSEE under the
AGREEMENT, and this AMENDMENT 1 thereto.
NOW, THEREFORE, the parties agree as follows:
1. Unless otherwise defined in this Amendment 1, all capitalized terms shall
have the same meaning as set forth in the AGREEMENT.
2. The parties hereby agree that PENN, no later than thirty (30) days after
the date of the last signature executing this AMENDMENT 1, will be issued
shares of common stock in MATECH as will cause PENN to own shares of common
stock representing at least five percent (5%) of the outstanding shares of
capital stock of MATECH on a fully diluted basis subsequent to an additional
two million dollars of paid in capital invested in MATECH.
3. MATECH hereby represents and warrants that it is the lawful successor to
LICENSEE's rights and obligations under the AGREEMENT.
4. The parties hereby agree that Section 3.2 of the AGREEMENT is hereby
amended to obligate MATECH to pay to PENN a royalty of seven percent (7%) of
NET SALES.
5. Pursuant to Section 7.2 of the AGREEMENT, the parties hereby agree that,
LICENSEE will reimburse PENN, with funds from 30% of any equity investment,
debt, or any other capital with the exception of funds provided by any public
sector funding, (FUNDING) as set forth in paragraph 5 of REPAYMENT AGREEMENT,
for all documented attorney's fees, expenses, official fees and other charges
incident to the preparation, prosecution, licensing and maintenance of PENN
PATENT RIGHTS, including patents and patent applications in the United States
and in countries foreign to the United States on developments set forth in
foregoing Sections 4.2 of the
<PAGE>
AGREEMENT. However, such remittance to PENN will be subsequent to the first
$150,000.00 of such FUNDING raised by LICENSEE after the date of the last
signature executing this AMENDMENT 1. The provisions of paragraph 6 of the
REPAYMENT AGREEMENT shall take precedence over the provisions of this paragraph
5.
6. LICENSEE will have the right to cause its patent counsel, providing that
such patent counsel is acceptable to PENN, to pursue work, at the sole cost of
LICENSEE, on the PENN PATENT RIGHTS.
7. Except as set forth in the foregoing provisions of this AMENDMENT 1, all of
the terms and conditions of the AGREEMENT shall apply, and such AGREEMENT, as
amended, shall remain in full force and effect.
IN WITNESS THEREOF, the parties have executed this AMENDMENT 1 through their
duly authorized representatives as set forth below, and this AMENDMENT 1 shall
be attached to, and shall become a part of, the AGREEMENT between the parties.
THE TRUSTEES OF THE
UNIVERSITY of PENNSYLVANIA MATERIAL TECHNOLOGY INC.
By: By:
------------------------------ ---------------------------
Name: Name:
----------------------------- ---------------------------
Title: Title:
---------------------------- --------------------------
Date: Date:
---------------------------- ----------------------------
<PAGE>
EXHIBIT 10.4
REPAYMENT AGREEMENT BETWEEN TENSIODYNE SCIENTIFIC CORPORATION
AND
THE TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA
<PAGE>
REPAYMENT AGREEMENT BETWEEN
TENSIODYNE SCIENTIFIC CORPORATION
AND
THE TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA
This Repayment Agreement is made between Material Technology, Inc. ("MATECH")
and the Trustees of the University of Pennsylvania ("PENN") in reference to the
Sponsored Research Agreement effective October 15, 1993 ("SRA") between
Tensiodyne Scientific Corporation ("SPONSOR") and PENN and is made effective as
of the date of the last signature executing this Repayment Agreement.
BACKGROUND
WHEREAS, pursuant to the terms and conditions of the SRA, SPONSOR agreed to
sponsor the research of Dr. Campbell Laird of PENN's School of Engineering in
fatigue properties of metals by payment of costs incurred in such research in an
amount of $200,000 ("OBLIGATION").
WHEREAS, SPONSOR has not made payments as required under the SRA.
WHEREAS, Material Technology, Inc. ("MATECH"), is a successor as of February
1994, to SPONSOR's business, and therefore, is obligated to perform the
obligations of SPONSOR under the SRA and this REPAYMENT AGREEMENT thereto.
WHEREAS, neither SPONSOR nor MATECH has made payments on OBLIGATION,
WHEREAS, PENN and MATECH wish to provide for the repayment of the OBLIGATION on
the following terms:
NOW, THEREFORE, the parties agree as follows:
1. Unless otherwise defined in the Repayment Agreement, all capitalized terms
shall have the same meaning as set forth in the SRA.
2. MATECH hereby represents and warrants that it is the lawful successor to
LICENSEE's rights and obligations under the AGREEMENT.
3. MATECH agrees that the amount outstanding and due to PENN under the SRA is
$200,000.00.
4. MATECH shall pay the OBLIGATION in accordance with the following terms:
5. The entire obligation with accrued interest shall be paid to PENN no later
than four (4) years from the date of the last signature executing this
AGREEMENT.
<PAGE>
6. In the event that MATECH secures any proceeds in the form of an equity
investment, debt, or any other capital with the exception of funds provided
by any public sector entity ("FUNDING"), MATECH will immediately remit to
PENN 30% of such FUNDING until OBLIGATION is paid in full. However, such
remittance to PENN will be subsequent to the first $150,000.00 of such
FUNDING raised by SPONSOR after the date of the last signature executing this
AGREEMENT. The provisions of this paragraph 6 shall take precedence over the
provisions of Amendment 1, paragraph 5 of the SRA.
7. In the event that MATECH remits payment or other consideration to Mr.
Robert M. Bernstein, currently President of Tensiodyne Scientific Corporation
("BERNSTEIN") in partial or full satisfaction of any debt owed by MATECH to
BERNSTEIN (a "BERNSTEIN PAYMENT"), MATECH will remit to PENN, within five (5)
working days after such payment is made, an amount equal to such payment (each
such payment to PENN an "EQUIVALENT PAYMENT"), until the OBLIGATION is fully
repaid to PENN. Notwithstanding the foregoing, any monies which MATECH pays to
BERNSTEIN which are used by MATECH in agreement with BERNSTEIN as MATECH Working
Capital, shall not be considered a BERNSTEIN PAYMENT. As used herein, the term
Working Capital shall mean "working capital" as defined by the Generally
Accepted Accounting Principles of the Federal Accounting Standards Board, except
that Working Capital shall not include any form of payment to BERNSTEIN and/or
Mr. Bernstein's family other than the salary described in Section 6 of this
AGREEMENT. In addition to the foregoing, in the event that BERNSTEIN provides
additional monies to MATECH in the form of Working Capital within ninety (90)
days after the date of the last signature executing this AGREEMENT, MATECH may
repay BERNSTEIN up to one hundred thousand dollars ($100,000) of such additional
monies without being obligated to remit an EQUIVALENT PAYMENT to PENN.
8. MATECH will not remit to BERNSTEIN an annual salary, or any other
consideration in lieu of a salary, exceeding $150,000 per annum until OBLIGATION
is paid in full.
9. Effective June 30, 1997, MATECH will owe to PENN, on an accrued basis,
interest amounting to 1.5% per month of the outstanding balance of the
OBLIGATION.
10. PENN will have the right to review or audit all the books and records of
MATECH. If in the course of such a review or audit, PENN determines in good
faith that it SPONSOR has not met any of the duties defined in paragraphs 3,
4, 5, and 6 above, PENN will, by written notice, notify MATECH that PENN has
determined that it determines that MATECH has not met a duty (duties). If
MATECH determines in good faith that MATECH has met all of the duties defined
in paragraphs 3, 4, 5, and 6 above then MATECH and PENN shall choose a
mutually agreeable independent auditor to review or audit all the books and
records of MATECH at MATECH's expense. If such an auditor determines that
MATECH has not met any of the duties defined in
<PAGE>
paragraphs 3, 4, 5, and 6, the entire unpaid OBLIGATION together with the
accrued interest shall become immediately due and payable. Such payment will
not forgive MATECH of any of the duties as defined in paragraphs 3, 4, 5, and
6 above. If such an auditor determines that MATECH has met all of the duties
defined in paragraphs 3, 4, 5, and 6, PENN will reimburse MATECH for all
costs associated with such review or audit.
11. Notwithstanding anything to the contrary contained in this REPAYMENT
AGREEMENT, MATECH shall pay any balance remaining on the OBLIGATION no later
than four (4) years from last signature executing this AGREEMENT.
IN WITNESS THEREOF, the parties have executed this Repayment Agreement through
their duly authorized representatives as set forth below, and this Repayment
Agreement shall be attached to, and shall become a part of, the SRA between the
parties.
THE TRUSTEES OF THE
UNIVERSITY of PENNSYLVANIA MATERIAL TECHNOLOGY INC.
By: By:
---------------------------- ---------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
------------------------- --------------------------
Date: Date:
--------------------------- --------------------------
ACKNOWLEDGEMENT
I have read and agree to abide by the terms of the Agreement and this Amendment
(Amendment 1).
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Date:
-------------------------
<PAGE>
EXHIBIT 10.5
TEAMING AGREEMENT BETWEEN TENSIODYNE CORPORATION
AND
SOUTHWEST RESEARCH INSTITUTE
<PAGE>
TEAMING AGREEMENT
No. 96-058
THIS AGREEMENT made and entered into by and between SOUTHWEST RESEARCH
INSTITUTE (hereinafter referred to as "SwRI") located at 6220 Culebra Road, San
Antonio, Texas 78238-5166, and TENSIODYNE SCIENTIFIC CORPORATION (hereinafter
referred to as the "Subcontractor") located at 11835 West Olympic Boulevard,
Suite 705, West Los Angeles California 90064.
WHEREAS, SwRI intends to submit a proposal as prime contractor to the
Government in response to a Task Order Request that may be issued pursuant to
an existing SwRI ID/IQ contract concerning a program entitled
"ELECTROCHEMICAL METAL FATIGUE MONITORING TECHNOLOGY" (hereinafter referred
to as "the Program");
WHEREAS, the existing Electrochemical Metal Fatigue Monitoring Technology
("EPS") is a proprietary technology previously developed by Subcontractor and
the University of Pennsylvania.
WHEREAS, SwRI and the Subcontractor desire to combine their respective
capabilities with the capabilities of the University of Pennsylvania in a team
effort to submit said proposal for the Program and to complete the work required
by any work statement in any task order (hereinafter referred to as "Task
Order") resulting from such proposal; and
WHEREAS, SwRI and the Subcontractor desire to define their mutual rights
and obligations during the preparation and submittal of said proposal and under
any subsequent Task Order resulting therefrom, consistent with federal/state
laws governing restraint of trade or competition as applicable.
1
<PAGE>
NOW THEREFORE, to effect the foregoing, SwRI and the Subcontractor in
consideration of the mutual covenants hereinafter contained, agree as follows:
1. The proposal will be based on SwRI acting as the prime contractor to
the Government for any resultant Task Order, and Tensiodyne Scientific
Corporation and the University of Pennsylvania acting as subcontractors to SwRI,
furnishing of support to the Prime Contractor under the Program. Any resulting
subcontract to the Subcontractor will involve, but may not be limited to, work
set forth in Exhibit "A" in Statement of Work attached hereto.
2. SwRI will prepare and submit its proposal to the Government with
assistance from the Subcontractor in the following areas: inputs on selected
Statement of Work tasks, related experience information, tailored resumes on key
personnel, and appropriate costs information, all to be used in preparation of
the SwRI proposal. Details and formats for these inputs will be provided
separately.
3. SwRI will recognize and identify the Subcontractor in its proposal and
use its diligent efforts to secure Government approval of the use of the
Subcontractor in the Program for the area of responsibility described in Exhibit
A, including but not limited to affording Subcontractor an opportunity to
accompany SwRI on a visit to the Government for the purpose of securing such
approval. SwRI will keep the Subcontractor fully advised of any changes which
affect its area of responsibility.
4. In the event SwRI is awarded the Task Order contemplated by the
Request for Task Order Proposal identified on Page One of this Agreement, to
accomplish the work set forth in Exhibit "A" of this Agreement, it is agreed
that SwRI and the Subcontractor will, in good faith, proceed in a timely manner
to negotiate a mutually acceptable subcontract(s) for the selected portions of
the work identified in Exhibit "A" and described in a responsible technical/cost
proposal prepared by the Subcontractor, unless otherwise directed by the
Government. The
2
<PAGE>
subcontract shall embody, among other provisions, those terms and conditions of
the prime contract which must be passed on to the Subcontractor in order to
comply with such prime contract (a) terms and conditions setting forth the work
specified on Exhibit A; (b) provisions setting forth the prices contained in the
Subcontractor's proposal or those approved in writing by Subcontractor prior to
their inclusion in the Proposal; and (c) other provisions mutually agreed to by
and between SwRI and the Subcontractor including those set forth on Exhibit B.
The subcontract will be negotiated at a fair and reasonable price(s) to be
established after cost or price analysis in accordance with the requirements of
the applicable Government procurement regulation. In the event that
negotiations with the Government result in a substantial reduction of the
Subcontractor's area of responsibility from that proposed by the Prime
Contractor, SwRI shall afford Subcontractor an opportunity to accompany SwRI on
a visit to the Government for the purpose discussing the Government's decision
and making a presentation to the Government for the purpose of reversing the
Government's decision and securing the Government approval for Subcontractor of
the original areas of responsibility. It is understood between SwRI and the
Subcontractor that any such subcontract will be subject to the approval of the
Contracting Officer of the procuring authority of the United States Government,
regardless of the provisions hereof.
The subcontract shall include the following clause as well as those
contained on Exhibit B:
"In the event any cost negotiated in connection with the contract
between the Government and SwRI or any cost that is reimbursable under
such contract is reduced as a result of a formal demand by the
Government Contracting Officer because cost or pricing data furnished
and certified to by the Subcontractor is defective, the Subcontractor
will reimburse SwRI for such cost. However, the Subcontractor shall
not be liable for SwRI's profit on the Subcontractor's cost or pricing
data.
For the purposes of administering this clause and interpreting the
rights and obligations of the parties, the various rules and
guidelines provided for in FAR 15.804 and 15.806 shall govern.
3
<PAGE>
SwRI agrees that the Subcontractor shall have the right in accordance
with the intent set forth in the applicable FAR clause, to proceed
under SwRI's name (by asserting the prime contract) by entering appeal
from any decision of the Contracting Officer concerning the alleged
submission of defective cost or pricing data by the Subcontractor
under the subcontract, and SwRI agrees that it will give the
Subcontractor prompt notice of such decision in order that an appeal
may be perfected."
Each party shall exert its diligent efforts toward the successful
performance of the Task Order contemplated by the Request for Task Order
Proposal identified on Page One of this Agreement, assuming award of the Task
Order and the subcontract to the parties hereto, and shall provide appropriate
and high quality managerial, marketing, advisory, technical, and other personnel
to perform and support such contracts.
5. LIMITATIONS ON USE OF DATA AND INFORMATION
a. The parties anticipate that under this Agreement it may be
necessary for either party to transfer to the other information
of a proprietary nature. Proprietary information shall be
clearly identified by the disclosing party at the time of
disclosure by (i) appropriate stamp or markings on the document
exchanged; or (ii) written notice, with attached listings of all
material, copies of all documents, and complete summaries of all
oral disclosures (under prior assertion of the proprietary nature
of the same) to which each notice relates, delivered within two
(2) weeks of the disclosure to the other party.
b. Each of the parties agrees that it will use the same reasonable
efforts to protect such information as are used to protect its
own proprietary information. Disclosures of such information
shall be restricted to those
4
<PAGE>
individuals who are directly participating in the proposal,
contract and subcontract efforts identified in Articles 1, 2, 3,
and 4 hereof.
c. Neither party shall make any reproduction, disclosure, or use of
such proprietary information except as follows:
(1) Such information furnished by the Subcontractor may be used,
reproduced and/or disclosed by SwRI in performing its
obligations under this Agreement.
(2) Such information furnished by SwRI may be used, reproduced
and/or disclosed by the Subcontractor in performing its
obligations under this Agreement.
(3) Such information may be used, reproduced and/or disclosed
for other purposes only in accordance with prior written
authorization received from the disclosing party.
d. The limitations on reproduction, disclosure, or use of
proprietary information shall not apply to, and neither party
shall be liable for reproduction, disclosure, or use of
proprietary information with respect to which any of the
following conditions exist:
(1) If, prior to the receipt thereof under this Agreement, it
has been developed or learned independently by the party
receiving it, or has been lawfully received from other
sources without any restriction of non-disclosure, including
the Government, provided such other source did not receive
it due to a breach of this Agreement or any other agreement.
5
<PAGE>
(2) If, subsequent to the receipt thereof under this Agreement,
(i) it is published by the party furnishing it or is
disclosed, by the party furnishing it to others, including
the Government, without restriction; or (ii) it has been
lawfully obtained, by the party receiving it, from other
sources without any restriction of non-disclosure including
the Government, provided such other source did not receive
it due to a breach of this or any other agreement; or (iii)
such information otherwise comes within the public knowledge
or becomes generally known to the public without breach of
this Agreement;
(3) If any part of the proprietary information has been or
hereafter shall be disclosed in a United States patent
issued to the party furnishing the proprietary information
hereunder, the limitations on such proprietary information
as is disclosed in the patent shall be only that afforded by
the United States Patent Laws after the issuance of said
patent.
e. Neither the execution and delivery of this Agreement, nor the
furnishing of any proprietary information by either party shall
be construed as granting to the other party either expressly, by
implication, estoppel, or otherwise, any license under any
invention or patent now or hereafter owned or controlled by the
party furnishing the same.
f. Notwithstanding the expiration of the other portions of this
Agreement, the obligations and provisions of this Article 5 shall
continue for a period of
6
<PAGE>
three (3) years from the date of this Agreement, however, any
resulting contract shall take precedence.
g. Each party will designate in writing one (1) or more individuals
within its organization as the only point(s) for receiving
proprietary or security information exchanged between the parties
pursuant to this Agreement.
6. RIGHTS IN INVENTIONS
Inventions conceived or first reduced to practice during the course of
work under the Contract contemplated by this Agreement shall remain the property
of the originating party. In the event of joint inventions, the parties shall
establish their respective rights by negotiations between them. In this regard,
it is recognized and agreed that the parties may be required to and shall grant
license or other rights to the Government to inventions, data and other
information under such standard provisions which may be contained in the
Government Contract contemplated by this Agreement, provided, however, such
license or other rights shall not exceed those required by said Contract.
7. No publicity or advertising regarding any proposal or contract under
the Program or relating to this Agreement shall be released by either party
without the prior written approval of the other party. No advertising or
publicity containing any reference to the Subcontractor or any of its employees,
either directly or by implication, shall be made use of by SwRI or on SwRI's
behalf, without the Subcontractor's prior written approval.
8. All communication relating to this Agreement shall be directed only to
the specific person designated to represent SwRI and the Subcontractor on this
Program. Each of the parties to this Agreement shall appoint one (1) technical
and one (1) administrative representative. These appointments shall be kept
current during the period of this Agreement. Communications which are not
properly directed to the persons designated to represent SwRI and the
Subcontractor shall
7
<PAGE>
not being binding upon SwRI or the Subcontractor. For purposes of this section,
"properly directed" shall mean an oral communication or a written correspondence
addressed and transmitted to the individuals identified below.
All technical notices shall be addressed to:
As to SwRI:
Dr. Stephen J. Hudak, Jr.
Director, Materials Engineering Department
Southwest Research Institute
P.O. Drawer 28510
San Antonio, Texas 78228-0510
210/522-2330
As to SUBCONTRACTOR:
MR. ROBERT M. BERNSTEIN
TENSIODYNE SCIENTIFIC CORPORATION
11835 WEST OLYMPIC BOULEVARD, SUITE 705
WEST LOS ANGELES, CALIFORNIA 90064
All contractual notices shall be addressed to:
As to SwRI:
Mr. Robert E. Chatten
Director, Contracts
Southwest Research Institute
P.O. Drawer 28510
San Antonio, Texas 78228-0510
210/522-2235
As to SUBCONTRACTOR:
MR. ROBERT M. BERNSTEIN
TENSIODYNE SCIENTIFIC CORPORATION
11835 WEST OLYMPIC BOULEVARD, SUITE 705
WEST LOS ANGELES, CALIFORNIA 90064
9. Except for the conditions expressed in Articles 4 and 5 hereof, this
Agreement, which is effective upon the date of its execution by the last of the
signatory parties hereto, shall
8
<PAGE>
automatically expire and be deemed terminated effective upon the date of the
happening or occurrence of any one of the following events or conditions,
whichever shall first occur:
a. Official Government announcement or notice of the cancellation of
the Program.
b. The receipt by SwRI of written notice from the Government that
it will not award to it the Task Order for the Program.
c. The receipt of written notice from the Government that it has
awarded a Contract or Task Order for the Program to someone other
than SwRI.
d. The receipt of official Government notice that the Subcontractor
will not be approved as a major subcontractor under the Task
Order to SwRI on the Program or that substantial areas of the
Subcontractor's proposed responsibility AND/OR RELATED COSTS have
been eliminated from the requirements, OR DISAPPROVED BY THE
GOVERNMENT as long as the parties have met their obligations as
set forth in Sections 3 and 4 above.
e. Award of a subcontract to the Subcontractor by SwRI for its
designated portion of the Program.
f. Mutual agreement of the parties to terminate the Agreement.
g. The expiration of a three (3) month period commencing on the
effective date of this Agreement unless such period is extended
by mutual agreement of the parties during which the Government
fails to issue the Task Order for the Program OR, ALTERNATIVELY,
THE PARTIES FAIL TO REACH AGREEMENT ON THE COSTS/PRICES AND TASKS
TO BE INCLUDED IN THE SUBCONTRACTOR'S PROPOSAL TO BE SUBMITTED TO
THE GOVERNMENT AS PART OF SwRI'S PROPOSAL.
9
<PAGE>
h. FAILURE OF THE PARTIES DESPITE GOOD FAITH NEGOTIATIONS TO REACH
AGREEMENT AND EXECUTE A SUBCONTRACT BASED UPON EXHIBIT A ON OR
BEFORE DECEMBER 15, 1996 UNLESS MUTUALLY EXTENDED IN WHICH EVENT
SwRI SHALL END ALL ACTIVITIES RELATING TO PERFORMANCE OF THE
PROGRAM.
i. If this Agreement terminates for any of the reasons set forth
above, excluding (e) above, SwRI shall either decline to submit a
proposal for the Program or alternatively, if SwRI has submitted
a proposal to the
9A
<PAGE>
Government, withdraw its proposal for the Program from further
consideration by the Government.
10. This Agreement pertains only to the proposal relating to the Program
and to no other joint or separate effort undertaken by SwRI or the
Subcontractor. The parties hereto shall be deemed to be independent contractors
and the employees of one (1) party shall not be deemed to be employees of the
other. This Agreement shall not constitute, create, or in any way be
interpreted as a joint venture, partnership, agency relationship or formal
business organization of any kind.
11. This Agreement may not be assigned or otherwise transferred by either
party, in whole or in part, without the express prior written consent of the
other party.
12. This Agreement shall not preclude either party from bidding or
contracting independently from the other on any Government or industry program
which may develop or arise in the general area of business related to this
Agreement or in any other area.
13. This Agreement shall be governed, construed and interpreted in
accordance with the laws of the United States and the State of Texas.
14. Access to security information classified "Top Secret," "Secret," and
"Confidential," shall be governed by the provisions of FAR 52.204-2. Should
provisions be established by the Government for special access handling of
selected information relating to this Program, access will be governed by such
provisions.
15. This Agreement contains the entire agreement of the parties and
cancels and supersedes any previous understanding or agreement related to the
Program, whether written or oral. All changes or modifications to this
Agreement must first be agreed to in writing between the parties.
10
<PAGE>
16. Each party to this Agreement will bear its respective costs, risks, and
liabilities incurred by it as a result of its obligations and efforts under this
Agreement. Therefore, neither SwRI nor the Subcontractor shall have any right
to any reimbursement, payment, or compensation of any kind from each other
during the period prior to the award and execution of any resulting subcontract
between SwRI and the Subcontractor for the Program and work described in this
Agreement.
17. To the extent permitted by law, during the effective term of this
Agreement SwRI and the Subcontractor each agree that it will not participate in
any manner in other teaming efforts that are competitive to this Teaming
Agreement. Moreover, during the effective term of this Agreement, SwRI and the
Subcontractor each agree that it will not compete independently (including the
independent submission of a proposal to the Government) for the work specified
in this Agreement. The term "participate" as used herein includes (but is not
limited to) the interchange of technical data with competitors.
18. Either party hereto is authorized to disclose the terms and conditions
of this Agreement to appropriate Government officials upon their request.
11
<PAGE>
19. In the event a Task Order is not awarded to SwRI as a result of a
proposal each party will, at the request of the other party, return all
materials such as, but not limited to, those that are written, printed, drawn,
or reproduced, to the originating party.
20. This Agreement is executed in multiple originals upon the date set
forth beside the final execution signature.
21. Exhibit C attached contains agreed to language of Federal Lobbying Act.
SOUTHWEST RESEARCH INSTITUTE
By /s/ Sharon Rowe
---------------------------
for Robert E. Chatten
Title Director, Contracts
Date August 22, 1996
TENSIODYNE SCIENTIFIC
CORPORATION
By /s/ Robert M. Bernstein
--------------------------
Name Robert M. Bernstein
--------------------------
Title Pres.
--------------------------
Date 8/23/96
--------------------------
12
<PAGE>
EXHIBIT A
In anticipation of the issuance by the San Antonio Air Logistics Center,
Kelly Air Force Base, San Antonio, Texas, of a task order and a statement of
work pursuant to Contract No. F41608-96-D-0108, for services to improve fatigue
life prediction utilizing the Electrochemical Fatigue Sensor and its related
technology (the "Services"), Southwest Research Institute ("SwRI") and
Tensiodyne Scientific Corporation ("Tensiodyne") agree that Tensiodyne shall
perform as subcontractor to SwRI which shall act as the prime contractor in the
performance of the Services. The University of Pennsylvania ("Penn") shall also
be a subcontractor to SwRI and close technical interactions will be required
among Tensiodyne, Penn, and SwRI as indicated below.
The purpose of the work is to improve the U.S. Air Force's capability to
perform durability assessments of military aircraft, including both airframes
and engines using novel Electrochemical Fatigue Sensor (EFS) technology to
detect the stages of fatigue damage prior to, and after, the onset of fatigue
cracking. The proposed program will include the following three phases: 1)
Phase 1: Feasibility, 2) Phase 2: Development, and 3) Phase 3:
Validation; work on the feasibility phase is proposed for the first year and
a half of the project. The overall objectives of this phase are to 1)
characterize the phenomena of current transients in representative airframe
and engine materials, 2) assess the feasibility of constructing sensors from
electrolytic gels and combination electrodes, and 3) evaluate both the
fundamental and practical limitations associated with key technical
challenges. Provided the milestones of this phase are met, the Phase 1 work
will provide the basis for proceeding in subsequent years to Phase 2 and
Phase 3 in development of a suitable breadboard device in support of the EFS.
The tasks to be performed in the first year and a half are provided in the
following Work Breakdown Structure (WBS).
PHASE 1: FEASIBILITY
*1.1 Establish viability of transient current measurements on a range of
typical aircraft alloys (e.g., 7075-I73, Ti-6-4, and 4130 steel).
- ------------------
* Penn shall have the primary technical responsibility for these tasks
and be supported by Tensiodyne.
+ SwRI shall have the primary technical responsibility for these tasks
and be supported by Tensiodyne.
A-1
<PAGE>
*1.2 Establish viability of measurements under bounding load ratios,
frequencies, and waveforms associated with typical spectrum fatigue
loading of fighter/trainer and transport aircraft.
*1.3 Develop nondamaging electrolytic gel and establish shelf-life.
*1.4 Establish possible influence of electrolytic gel on fatigue damage
in selected aircraft alloys under both continuous and intermittent
exposure.
*1.5 Develop suitable reference electrodes which are compatible with
electrolytic gel and optimize for use in aircraft component tests
in Phase 2: Development.
*1.6 Develop general relationships among transient current traces, key
loading variables, and extent of fatigue damage for selected aircraft
alloys. The key loading variables shall include loading frequency and
waveform, load ratio, and load amplitude (including both elastic and
plastic loading).
*1.7 Explore fundamental relationship between transient current response
under elastic versus elastic-plastic strains.
+1.8 Establish practicality of measurements on protected (e.g., anodized,
primed and painted) as well as corroded surfaces, and if necessary,
develop methods to remove/reapply protective surface coatings without
altering underlying fatigue damage. This effort shall be coordinated
with the USAF's Coating Technology Integration Office (CTIO).
+1.9 Perform tests and develop associated signal analysis techniques to
establish that the sensor output will be interpretable for typical
aircraft spaces.
+1.10 Resolve electrical isolation issues associated with application of
EFS to aircraft components and structures.
In anticipation of receiving funding in the amount of $2.5 million
pursuant to the anticipated task order to be issued by Kelly Air Force Base
pursuant to Contract No. F41608-96-D0108 and based upon the description of
tasks and division of task responsibilities in the above WBS, Tensiodyne
shall receive $820,000 for their respective responsibilities. The actual
funding to Tensiodyne will be based upon their cost proposals as
subcontractors to SwRI in response to the Government's SOW and the subsequent
acceptance of SwRI's technical and cost proposal by the Government.
Tensiodyne will assist both SwRI and Penn as indicated in the above WBS.
Tensiodyne assistance to Penn will be supplied by providing staff members to
work under the direction of Professor Campbell Laird.
A-2
<PAGE>
EXHIBIT B
Agreed to Terms and Conditions as per telephone conversation on August 22, 1996.
I. Termination for Convenience
II. Rights in Inventions and Works of Authorships
III. Proprietary Rights
IV. Government Data Rights
V. Dispute Resolution
VI. Indemnification
<PAGE>
EXHIBIT C
No Federal appropriated funds have been paid or will be paid, by or on behalf of
the undersigned, to any person for influencing or attempting to influence an
officer or employee of any agency, a Member of Congress, an officer or employee
of Congress, or an employee of a Member of Congress in connection with the
awarding of any Federal contract, the making of any Federal grant, the making of
any Federal loan, the entering into of any cooperative agreement, and the
extension, continuation, renewal, amendment, or modification of any Federal
contract, grant, loan, or cooperative agreement.
If any funds other than Federal appropriated funds have been paid or will be
paid to any person for influencing or attempting to influence an officer or
employee of any agency, a Member of Congress, an officer or employee of
Congress, or an employee of a Member of Congress in connection with this Federal
contract, grant, loan, or cooperative agreement, the undersigned shall complete
and submit Standard Form -LLL, "Disclosure Form to Report Lobbying," in
accordance with its instructions.
The undersigned shall require that the language of this certification be
included in the award documents for all subawards at all tiers (including
subcontracts, subgrants, and contracts under grants, loans, and cooperative
agreements) and that all subrecipients shall certify and disclose accordingly.
This certification is a material representation of fact upon which reliance was
placed when this transaction was made or entered into. Submission of this
certification is a prerequisite for making or entering into this transaction
imposed by section 1352, title 31, U.S. Code. Any person who fails to file the
required certification shall be subject to a civil penalty of not less than
$10,000 and not more than $100,000 for each such failure.
<PAGE>
ADDITIONAL TERMS AND CONDITIONS TO BE INCLUDED IN THE SUBCONTRACT BY AND
BETWEEN SOUTHWEST RESEARCH INSTITUTE AND TENSIODYNE SCIENTIFIC CORPORATION AS
AGREED TO BY THE PARTIES ON AUGUST 22 AND 23, 1996 AND AS REFERENCED IN
THE TEAMING AGREEMENT BETWEEN THE PARTIES EXECUTED ON AUGUST 23, 1996
I. TERMINATION FOR CONVENIENCE
Performance of work under this Subcontract may be terminated in whole or in
part by SwRI, at any time, only if and to the extent that the Government
terminates the corresponding work set forth in the Task Order issued to SwRI
pursuant to Contract ______________. Any such termination shall be effected by
delivery to Subcontractor of a Notice of Termination specifying the extent to
which performance of work under this Subcontract is terminated and the date upon
which such termination becomes effective. Such termination of this Subcontract
shall be in accordance with FAR _________ as incorporated by reference pursuant
to Exhibit __ of this Subcontract.
II. RIGHTS IN INVENTIONS AND WORKS OF AUTHORSHIP
A. During the performance of this Subcontract, subject to the rights
granted to the Government as discussed in Article __ of this Subcontract,
inventions, works of authorship and other proprietary technical data (as well as
the copyrights, patents and similar rights attendant thereto):
(1) conceived and reduced to practice, or, in the cases of works of
authorship, authored solely by employees of, or persons under contract
to, either party shall be owned exclusively by that party:
(2) conceived and reduced to practice, or, in the cases of works of
authorship, authored jointly by the parties shall be owned as
determined by the parties' good faith negotiations to establish their
respective rights. Failing agreement or resolution of the matter
pursuant to the dispute resolution procedure of this Subcontract, each
party shall have an equal undivided one-half interest in the
invention, work of authorship, proprietary technical data, copyright
or patent. Subject to the Government's rights, the parties agree to
use their best efforts to reach mutual agreement as to their
rights and obligations in connection with the commercial
exploitation of any joint invention, work or authorship or proprietary
technical data. Failing agreement, the matter shall be a Dispute and
resolved as set forth in accordance with the dispute resolution
procedure of this Subcontract. Each of the parties agrees to cause
their employees to produce only "works made for hire" hereunder and
will hold the other party harmless from their failure to do so.
B. Each party agrees to use its best efforts to require its employees,
and if appropriate, other persons under contract to it, to provide reasonable
assistance in the
<PAGE>
procurement and protection of rights conferred by this Article and to execute
all lawful documents in conjunction therewith. Expenses incurred in conjunction
with the preparation of patent applications, applications for copyright
registrations and in enforcing proprietary rights therein shall be borne by the
party owning such rights or, if jointly owned, by the parties in proportion to
their respective interests.
III. PROPRIETARY RIGHTS
SwRI shall be afforded, to the extent required to meet its obligations
under this Subcontract and the Task Order issued pursuant to Contract No. ___,
the same rights and obligations as the Government regarding technical data,
computer software and other deliverables under this Subcontract.
IV. GOVERNMENT DATA RIGHTS
The rights granted to the Government with regard to technical data shall be
determined in accordance with DFARS 252.227-7013 (Nov. 1995). Both parties
acknowledge that Subcontractor and SwRI possess pre-existing technical data,
developed exclusively at private expense and such data shall not be delivered
with "unlimited rights." Such pre-existing technical data, as well as
pre-existing patents shall be identified by Subcontractor and shall be marked in
accordance with DFARS 252.227-7013 (Nov. 1995). SwRI acknowledges and agrees
that it shall fully inform the Government of such pre-existing technical data
and patent rights.
V. DISPUTE RESOLUTION
A. DISPUTES UNDER THIS SUBCONTRACT. This paragraph A governs all claims,
controversies or disputes arising out of or relating to this Subcontract or its
breach ("Disputes") that are not directly or indirectly subject to resolution
under the Disputes Clause of the Prime Contract. Any Dispute that is not
disposed of by written mutual agreement will be preliminarily determined by
SwRI's Authorized Representative, who will within 15 days render a preliminary
written determination on the issues in dispute and furnish a copy thereof to the
Subcontractor. The preliminary determination will become final and conclusive
unless the Subcontractor submits a written demand for arbitration to the
American Arbitration Association within 30 days of the preliminary
determination. The Dispute will then be arbitrated, pursuant to the Commercial
Rules of the American Arbitration Association, before a panel of three
arbitrators. The "preliminary determination" will not bind the arbitrators and
will not prejudice the legal position of either party in the arbitration. One
of the arbitrators will be selected by each party, and the third arbitrator will
be selected by the two party-appointed arbitrators. Any such arbitration will
be held in the _____________ metropolitan area. The parties will share the
costs of the arbitration equally subject to final apportionment by the
arbitrators. The arbitrators will apply the law chosen by the parties to govern
this Subcontract. The decision of the arbitrators may be entered in any court
of competent jurisdiction. Neither party will institute any action or
proceeding against the other party in any court concerning any Dispute that is
or could be the subject of a claim or proceeding under this paragraph A. The
arbitrators shall not award exemplary or punitive damages to either party.
2
<PAGE>
B. DISPUTES UNDER THE PRIME CONTRACT. This paragraph B governs all
Disputes of the Subcontractor concerning matters that are directly or
indirectly subject to resolution under the Disputes Clause of the Prime
Contract. SwRI will submit any such Dispute to the Contracting Officer under
the Prime Contract for a written decision under the Disputes Clause of the
Prime Contract and will notify the Subcontractor of any final decision of the
Contracting Officer under the Prime Contract that relates to this Subcontract
or to the Subcontractor's performance under it within 10 days after SwRI
receives the decision. Any final decision will be conclusive and binding
upon the Subcontractor unless it is appealed pursuant to paragraph A. above
or pursuant to the Disputes Clause of the Prime Contract.
If SwRI elects not to appeal any final decision of the Contracting Officer
under the Disputes Clause of the Prime Contract, SwRI will so notify the
Subcontractor in writing within 20 days after SwRI receives the final decision.
Within 30 days after Subcontractor receives SwRI's notice of its decision not to
appeal the final decision of the Contracting Officer, Subcontractor notify SwRI
that Subcontractor wishes to appeal that final decision pursuant to the Disputes
Clause of the Prime Contract. SwRI shall, within 10 days either grant or deny
the Subcontractor an indirect right to appeal that final decision in SwRI's name
under the Disputes Clause of the Prime Contract. Both parties acknowledge and
agree that with regard to Disputes concerning alleged submissions of defective
cost or pricing data, SwRI shall grant Subcontractor's request. Subcontractor
will pay all costs and expenses of any such appeal. Subcontractor will be
solely responsible for prosecuting the appeal and preparing and presenting all
pleadings, evidence and argument. Subcontractor will provide monthly written
reports to SwRI of the progress of the appeal and will furnish SwRI copies of
all pleadings and non-privileged correspondence filed or received by it
concerning the appeal.
If SwRI is required to submit a certification to the Government regarding a
claim submitted pursuant to the Contract Disputes Act, Subcontractor will make
available to SwRI all data and documentation that is necessary or appropriate to
support or confirm the certification.
In the event, SwRI denies Subcontractor an indirect right to appeal a
final decision in SwRI's name under the Disputes Clause of the Prime
Contract, both parties acknowledge and agree that such Dispute shall be
considered a Dispute by and between the Subcontractor and SwRI and that such
Dispute shall be submitted to arbitration in accordance with paragraph A.
above. SwRI agrees that it shall not utilize as a defense the fact that the
Dispute was one that concerns matters that were directly or indirectly
subject to resolution under the Prime Contract to any alleged damages or
costs owed to Subcontractor arising in connection with the Dispute, and SwRI
agrees to step into the shoes of the Government with regard to such Dispute.
C. DISPUTE-RESOLUTION METHOD AND CONTINUATION OF PERFORMANCE. Pending
the final resolution of any Dispute under this Article, Subcontractor will
proceed diligently to perform this Subcontract and comply with SwRI's
preliminary determination.
VI. INDEMNIFICATION
Each party and its agents, employees and authorized assigns shall be
indemnified, defended and held harmless (including reasonable attorneys fees) by
the other party against all
3
<PAGE>
third party liability (including liability to the government) that arises
from or in connection with negligence, or willful, wanton, or reckless
conduct of the other party, its employees, agents, subcontractors, or
authorized assigns in the performance of this Subcontract which causes damage
to real or tangible personal property, death or bodily injury, provided that:
(1) the indemnifying party was properly notified in writing of the claim; (2)
the indemnifying party was allowed to direct the defense or settlement of the
claim; (3) if requested, the indemnified party reasonably assisted the
indemnifying party at the indemnifying party's expense in defending or
settling the claim.
4
<PAGE>
EXHIBIT 10.6
February 8, 1995
Robert M. Bernstein
Tensiodyne Scientific Corporation
11835 West Olympic Blvd.
Los Angeles, CA 90064
Dear Bob,
We are agreed as follows:
1. Duties:
Stephen Forrest Beck (hereinafter "Beck") will work to obtain funding for
Tensiodyne Scientific Corporation, its assigns, affiliates, parents,
successors, or any associated entity or individual, (hereinafter collectively
referred to as "The Company") from one or more government agencies or private
organizations. To that end, Beck will prepare correspondence, schedule and
attend meetings, and assist in the development of strategy.
2. Term: The term of the agreement is eighteen months, commencing on the
date of execution of this agreement.
3. Compensation: In consideration for his services you will pay Beck the
following compensation:
a. For work already performed for the Company, including the
recommendation that the Company seek funding from governmental sources, and
in particular that efforts be made in Congress to obtain support for the
Company's research, Beck will receive 1/2 of 1 percent of the outstanding
common shares of the Company, payable on signing of this agreement.
b. (i) For work to be performed Beck will receive two percent of
the outstanding common shares of the Company, payable on signing of this
agreement.
(ii) Beck will also receive 15% of any funding received by the
Company from any governmental body or private entity during the term of this
agreement. If funding for the Company is obtained from either the Commerce or
the Energy Departments, and a claim for 5% of the funds received is made by
Mel Levine, and such funds are actually
<PAGE>
paid, then Beck shall receive 10% of the total funds. If during the term of
this agreement, events are set in motion, or contacts are made, which
eventually lead to the Company obtaining funds from a governmental agency or
private party after this agreement has expired, then the fees specified in
this paragraph shall be payable to Beck for a period of five years from the
date of expiration of the agreement.
c. The cash compensation payable under this agreement shall be paid
to Beck within 10 business days of the Company's receipt of such funds, in
any legal manner which he shall specify, either under a 3 to 5 year
employment contract, through the Company's purchase of an annuity, through
the Company's purchase of an annuity, through the Company's placing the funds
in escrow, or by any other means selected by Beck at his sole option.
d. (i) Shares paid to Beck under this agreement shall not be
diluted except by the sale of securities for cash. Beck shall have the right,
for a period of 30 days after the receipt of notification in writing of the
sale of shares for cash, to acquire a pro rata share of any such shares, on
the same terms and conditions as any other buyer, so that Beck can maintain
the same percentage interest in the Company.
(ii) In the event that the Company receives $1 million or more
from any governmental body or private party during the term of this
agreement, or the five year period following its termination specified in
b.(ii) above, then, notwithstanding d.(i) above, Beck's shares shall not be
diluted unless and until the Company has completed a public offering which
results in $10 million in proceeds to the Company.
e. The Company agrees that it will issue the shares described in
3.(a) above as soon as shares are available to distribute to shareholders.
Evidence of Beck's ownership interest will be by way of a Board of Director's
resolution, a copy of which will be provided to him within 30 days of the date
of this agreement.
4. The fees payable in this agreement will also be paid to Beck in the event
that any non-governmental source provides funds to the Company during the
term of this agreement, or for a period of five years after the expiration of
this agreement, provided that Beck has introduced such source to the Company,
or in the event that such source has otherwise come to the attention of the
Company in a manner that is in any way related to the efforts of Beck on
behalf of the Company, during the term of this agreement.
5. Beck's expenses under this agreement shall be borne by the Company. The
Company agrees that it will pay for a minimum of three trips to Washington
D.C. Such travel shall be paid by the Company in advance and shall be by
<PAGE>
coach class airfare and shall provide reasonable allowance for hotel, meal
and other expenses. Any additional expenses beyond those cited above shall
be approved by the Company in advance.
6. Dispute Resolution: Any dispute arising under this agreement shall be
resolved in Los Angeles by binding arbitration under the auspices of the
American Arbitration Association. The prevailing party shall be entitled to
reimbursement for reasonable legal costs, fees and expenses.
In any dispute under this agreement, if there is a disagreement over
whether Beck's efforts, or those of some other party are responsible for the
Company's obtaining funding from a government or non-government source, then
the arbitrator is instructed by the parties to interpret Beck's contributions
broadly, giving Beck the benefit of any doubt, and to take into account that
Beck originated the concept of obtaining governmental funding, and that he
has provided, and will provide, consulting services that might enable the
executives or others associated with the Company to make contacts on their
own that might lead to funding. In such event, the fees specified in this
agreement would be fully payable to Beck.
The parties represent and warrant that they are duly authorized to enter
into this agreement and that it is binding upon them. If the foregoing is
acceptable, please sign in the space provided below and return a copy of this
agreement to me along with the appropriate stock certificates.
Sincerely,
/s/ STEPHEN FORREST BECK
- -----------------------------------
Stephen Forrest Beck
ACCEPTED AND AGREED:
FOR: Tensiodyne Corporation
/s/ ROBERT M. BERNSTEIN
- -----------------------------------
By: Robert M. Bernstein, President
<PAGE>
ADDENDUM
Robert M. Bernstein, President of Tensiodyne and Stephen Forrest Beck
do hereby agree to amend that certain agreement between them (hereinafter the
"Agreement") dated February 8, 1995 as follows:
7. Notwithstanding any other provision of this Agreement, any shares received
by Beck shall not be subject to any dilution until the Company has completed
an initial public offering of at least $10 million.
8. The obligations of Tensiodyne and Bob Bernstein to Beck are secured by the
patents to the Tensiodyne technology and are personally guaranteed by Robert
Bernstein. Beck's interest in the patents, and Bernstein's guarantee will
both be formalized in a more complete agreement to be prepared in the future.
Unless and until that agreement is completed however, this Agreement will be
fully binding upon the parties.
9. This Agreement is fully binding upon Tensiodyne, Matech, their parents,
subsidiaries, successors in interest, assigns, or any other person or entity
associated with them.
10. The amounts payable to Beck under paragraph 3(b) of the Agreement shall
be paid to Beck based on the total amount of funds which are appropriated
and/or expended for the purpose of research, development, or for any other
purpose related to Tensiodyne's technology, and shall not be based only on
the amount which is actually received by the Company. Beck shall be paid the
amounts which are due to him under this Agreement as funds become available
to the Company, but only to the extent that such funds are actually available
to the Company.
11. Beck will be fully indemnified and held harmless by Tensiodyne for any
activity undertaken on behalf on Tensiodyne, provided that such activity is
not illegal or fraudulent.
ACCEPTED AND AGREED:
For: Tensiodyne and for himself
/s/ ROBERT M. BERNSTEIN 8/4/95
- ----------------------------------- ------------------
Robert M. Bernstein Date
/s/ STEPHEN FORREST BECK 8/4/95
- ----------------------------------- ------------------
Stephen Forrest Beck Date
<PAGE>
2/7/97
(1) Operative when gov't contract is signed
(2) Pers Guar -- goes away after 100$ paid to S.B.
(3) Anti Dil goes away after 50$ pd to S.B.
(4) Seat on B.O.D. until all $ due is pd.
(5) A note @ 15% of gov't contract (2.5 mil expected)
also to add'l gov't contracts expected @ add'l 2.5 mil.
(6) Int re Note @ prime recorded on Co. books, begins 9 mos after gov't
contract signed -- payable quarterly. Unpaid int added to principal.
(7) Method of pymt --
12.5% of 1st mil raised (debt or equity) or earned by Co. -- and 15%
over 1st mil until pd.
(8) $2500 cash payment.
(9) Fee for raising capital by Beck -- 5% of first 2.5 mil and 4% over.
/s/ Stephen Forrest Beck /s/ Robert M. Bernstein
<PAGE>
EXHIBIT 23.1
[LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Material Technologies, Inc.
11835 West Olympic Blvd.,
East Tower, Suite 705
Los Angeles, California 90064
The undersigned consents to the use of its opinion dated April 25, 1997,
relating to the financial statements of Material Technologies, Inc., a
Delaware Corporation, and to the reference to the firm under "Experts," all
as included in the Registration Statement on Form S-1.
Calabasas, California /s/ Jonathon P. Reuben, C.P.A.
April 25, 1997 -------------------------------
Jonathon P. Reuben, C.P.A.
<PAGE>
EXHIBIT 23.2
LAW OFFICES OF
C. TIMOTHY SMOOT
Suite 174
23505 Crenshaw Boulevard
Torrance, California 90505-5221
Telephone: 310/530-3366 Telecopier: 310/530-2211
E-mail: [email protected]
CONSENT OF COUNSEL
Material Technologies, Inc.
East Tower, Suite 705
11835 W. Olympic Blvd.
Los Angeles, CA 90064
C. Timothy Smoot, Esq., hereby consents (1) to the use of his opinion
dated March 14, 1997, relating to Material Technologies, Inc., a Delaware
corporation, filing an S-1 Registration Statement with the Securities and
Exchange Commission for distribution of 369,172 shares of Class A Common
Stock of Material Technologies, Inc., ("Matech") and (2) to the reference to
the Law Offices of C. Timothy Smoot under "Legal Matters" in the Registration
Statement on Form S-1 and Amendments thereto relating to registering such
shares under the Securities Act of 1933.
Torrance, California C. Timothy Smoot
April 28, 1997 C. Timothy Smoot, Attorney
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MATERIAL
TECHNOLOGIES, INC., FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995, DECEMBER 31,
1996 AND MARCH 31, 1997 (UNAUDITED) AND FOR THE THREE YEARS ENDED DECEMBER 31,
1996 AND FOR THE TWO MONTHS AND NINE DAYS ENDED MARCH 31, 1997 (UNAUDITED)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS OTHER
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1997 MAR-31-1997 MAR-31-1997
<CASH> 0 2,783 2,783
<SECURITIES> 55,200 13,800 13,800
<RECEIVABLES> 25,753 30,308 30,308
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 6,472 6,472 6,472
<PP&E> 211,572 211,572 211,572
<DEPRECIATION> 113,556 114,254 114,254
<TOTAL-ASSETS> 208,299 172,418 172,418
<CURRENT-LIABILITIES> 832,926 468,146 468,146
<BONDS> 0 0 0
0 0 0
150,000 150,000 150,000
<COMMON> 2,580 5,560 5,560
<OTHER-SE> 0 (476,288) (476,288)
<TOTAL-LIABILITY-AND-EQUITY> 208,299 172,418 172,418
<SALES> 0 0 0
<TOTAL-REVENUES> 0 4,555 991,260
<CGS> 0 0 0
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 483,186 87,649 3,746,453
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 18,198 625 0
<INCOME-PRETAX> (450,734) (81,959) (2,622,888)
<INCOME-TAX> 0 0 (7,000)
<INCOME-CONTINUING> (450,734) (81,959) (2,629,888)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 (282,940)
<CHANGES> 0 0 0
<NET-INCOME> (450,734) (81,959) (2,912,828)
<EPS-PRIMARY> (0.17) 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
