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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10K/A
AMENDMENT No.1
ANNUAL REPORT PURSUANT TO SECTION 13 OF 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number - 3383526
MATERIAL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4453386
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11661 San Vicente Boulevard, Suite 707
Los Angeles, CA 90049
-------------------------
(Address of principal executive offices)
Registrant's telephone number including area code -(310) 208-5589
Securities Registered pursuant to Section 12(g) of the Act:
Class A Common Stock
--------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ( 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy of information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by Non-affiliates of
the registrant at March 20, 1997 was $1,872,110. As of June 20, 1997, the were
4,550,000 shares of Class A Common Stock outstanding and the Board has
authorized issuance of an additional 450,000 shares conditioned on the closing
of a reverse merger for a total of 5,000,000 shares.
Documents incorporated by reference - See Exhibit List.
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PART I
MATERIAL TECHNOLOGY, INC.
ITEM 1. BUSINESS
Material Technology, Inc. ("Matech") a development stage company, successor in
February, 1994, to Tensiodyne Corporation's business ("Tensiodyne"), is the
owner of that certain device known as the Fatigue Fuse, which requires
additional testing to more precisely identify appropriate commercial uses prior
to manufacturing and marketing. Matech is also the exclusive licensee of the
Electrochemical Fatigue Sensor, 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's products have been
arranged to date and it will be Matech's aim to develop a market for the Fatigue
Fuse once testing is completed and for the Electrochemical Fatigue Sensor once
it has been fully developed.
The Fatigue Fuse is in its final stages of testing and development. To begin
marketing the Fatigue Fuse, it will take 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 Matech
should begin receiving revenue from the sale of the Fatigue Fuse within a year
of receiving the $2,000,000. Management cannot at this time estimate the amount
of revenue that may be realized. On the other hand, management estimates the
Electrochemical Fatigue Sensor will require two years and approximately
$2,875,000 to develop and bring to market.
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 a teaming agreement and subcontract with Southwest Research Institute
("SWRI") related to the Air Force contract signed on February 25,1997. In
August 1996, Matech entered into a teaming agreement with SWRI, San Antonio,
Texas (a non-profit research facility) and the University of Pennsylvania. On
February 25, 1997 the team was awarded a $2.5 million Phase I contract to
"determine the feasibility of the EFS 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 the EFS to specific
military aircraft alloys." Matech's share of this award is approximately
$550,000. Sufficient interest has been generated by the military and the
Pentagon that additional military and congressional funding should be
forthcoming based upon the success of Phase I. Southwest Research has informed
the Company that Congress has appropriated an additional $2,500,000 for research
related to the EFS technology and that the contracting process for the
additional funds has begun. The Company anticipates that process will take
three to four months.
Management anticipates marketing the Fatigue Fuse separately at first. If the
Electrochemical Fatigue Sensor is successfully developed, the two products will
complement each other. Matech is aware of several manufacturers capable of
producing the Fatigue Fuse at a reasonable cost. No
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assurance can be given, however, that these devices will be successfully
completed, that they can be commercially produced, that they will perform to
Management's expectations, or that commercial markets will be successfully
developed. Moreover, there may 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
Electrochemical Fatigue Sensor consists of Basic Research, Exploratory
Development, Advanced Development, Prototype Evaluation, Application
Demonstration, and Commercial Sales and Service. The Fatigue Fuse came first
and is furthest along the path, beginning with the Basic Research by the
inventor, Professor Maurice Brull of the University of Pennsylvania. Matech
conducted the Advanced Development, including variations of the adhesive bonding
process, and fabrication of a laboratory grade recorder for the separation
events which constitute proper functioning of the Fatigue Fuse. The next step,
Prototype Applications, is almost complete, encompassing empirical tailoring of
Fuse parameters to fit the actual spectrum loading expected in specific
applications. The associated tests include both coupon specimens and full scale
structural tests with attached Fuses. A prototype of a flight qualifiable
operational separation event recorder 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.
Basic Research for the Electrochemical Fatigue sensor was conducted at the
University of Pennsylvania. It defined the unique physical effect on which the
Electrochemical Fatigue Sensor is based, and the materials, configuration,
instrumentation and procedures to be employed therein. 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 load spectra. And
again the final steps are multiple demonstration tests followed by routine
sales.
To date, certain organizations have included Matech's Fatigue Fuse in test
programs. Already completed are tests for lightweight military bridges, and
welded steel civil bridge members. In 1996, Westland Helicopter, a British
firm, tested the Fatigue Fuse on Helicopters. That test was successful in that
the legs of the fuses failed in sequence as predicted. British Aerospace is
conducting a full scale, 3 year test of the Fatigue Fuse on Grumman T-38
training aircraft. Testing will be completed in approximately one year. Matech
has also received commercial inquires on the availability of fatigue Fuses for
windmills, marine cranes, and refinery pressure vessels.
DESCRIPTION OF TECHNOLOGIES
The Fatigue Fuse
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The Fatigue Fuse, developed by Tensiodyne and now owned by Matech, 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 of the "fingers" has
a different geometric pattern called "notches" defining its boundaries. By
application of the laws of physics in determining the geometric contour of each
of the notches, the fatigue life of each of the fingers should be finite and
predictable. When the fatigue life of a given finger (or Fuse) is reached, the
fuse breaks. By implementing different geometry of each finger in the array,
different increments of fatigue life become observable. Typically, notches will
be designed to facilitate the 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 Fuse undergoes 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 train and concomitant stress comes about as a
result of a large number of cycles of loading and unloading. Sudden fracture
can result. Fatigue damage and the resultant compromise of the stability and
integrity on the member experiencing fatigue can present the potential for
structural failure and extreme danger. Such objects as bridges and the wings of
airplanes are subject to fatigue and it is obvious that the sudden fracture of
such an object would have disastrous results. It is presently impossible, under
any generally acceptable theory of fatigue phenomena, to predict by analysis
alone 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 which are subject
to fatigue to be extremely conservative and they have attempted to design
structures in a manner which maintains the stresses presented in critical areas
of a structure at a level well below the know endurance limits of the material
employed. In many instances this has resulted in extreme expense. In spite of
this "overdesigning", 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, i.e., the range and
types of stresses which a metal object experiences during usage. 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
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authority for necessary action. The development of such value is contingent
upon Matech's successful development and marketing of the Fatigue Fuse, and no
assurance can be given that Matech 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 Matech to have substantial capitalization and no assurance can be
given that the needed capital will be available to Matech.
Electrochemical Fatigue Sensor ("EFS")
In July, 1993, Tensiodyne entered into two agreements, a license and a
development agreement, with the University of Pennsylvania regarding a new
invention designed to measure electrochemically the status of fatigue of a
structure without knowing the structure's past loading history. Pursuant to
the license agreement, 12,500 shares of Tensiodyne's common stock were
issued, a 5% royalty on sales of this product was granted, and under the
development agreement Tensiodyne undertook to pay $11,112 per month for a
total of 18 months, for a total payment of $200,000. As of March 20, 1997,
neither Tensiodyne nor Matech has made any payments on this obligation. The
company and the University are negotiating an agreement 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).
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. Preliminary tests at the University of Pennsylvania on several
different metals indicates that various stages of fatigue in each metal produce
a current specifically associated with each stage. For example, if the specific
metal has experienced 20% of its fatigue life, the current produced with the EFS
technology has certain characteristics, i.e. a signature. If the metal has
experienced 40% of its fatigue life, the current has a different but distinct
signature associated with that amount of fatigue.
The EFS is in the initial stage of research. No assurance can be given that it
can successfully be developed and that even if it is successfully developed that
it can be produced at a price which will permit it being marketed, and that even
if these two conditions obtain, that the EFS will, in fact, find a market.
PATENTS
Matech 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
Numbers 4,590,804. The second patent, entitled "Method
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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 in February 1994 and was assigned to Matech upon issuance later
in 1994.
DISTRIBUTION METHODS OF PRODUCT
Provided there are funds to support such activities, as to which no assurance
can be given, Matech intends to exhibit the Fatigue Fuse and the Electrochemical
Fatigue Sensor at various aerospace trade shows and will also market its
products directly to end users, including aircraft manufacturing and aircraft
maintenance companies, manufactures and operators of cranes, certain state
regulatory agencies charged with overseeing maintenance of bridges, and
companies engaged in manufacturing and maintaining large ships and tankers, and
to the military. Although management intends to undertake marketing, dependent
on the availability of funds, within and with out the United States, no
assurance can be given that any such marketing activities will be implemented.
Competition
Matech's Products
1. The Electrochemical Fatigue Sensor 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 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 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. Track of load and strain history, for subsequent
estimation of fatigue damage by computer processing, is possible with recording
instruments such as stain 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 Matech's products will remain largely
unproven for some currently indeterminable period. Companies marketing these
alternate technologies include Magnaflux Corporation, Kraut-Kermer-Branson,
Dunegan-Endevco, and MicroMeasurements. These companies have
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more substantial assets, greater experience, more human and other resources than
Matech, including but not limited to established distribution channels and an
established computer base. The familiarity and loyalty to these technologies
may be difficult to dislodge. Because Matech is still in its development
stages, Matech is unable to predict whither its technologies may be successfully
developed and commercially attractive to its various potential markets.
ITEM 2. PROPERTIES
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 Vincente Boulevard, Suite 707,
Los Angeles, California, 90049. 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.
Matech 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
conduction 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. Upon the expiration of the second five year period,
the University has the right to purchase the equipment at its then fair market
value.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders during the period
of this report.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On January 12,1996, Matech's S-1 registration became effective for distribution
of 262.267 shares of Class A Common Stock to 391 shareholders of Tensiodyne
Corporation as of February 2, 1994. Of these shares, 132,565 shares were
distributed to Robert M. Bernstein.
Approximately two weeks later, Matech Class A Common Shares were quoted on the
NASDAQ Bulletin Board. Its trading symbol is MTKN.
During 1996, Matech's Class A Common Stock traded between a low of $2.50 per
share and a high of $5.00 per share. The following chart contains the high
and low prices per share at which the stock traded in each 1996 calendar
quarter.
High Low
---- ---
First Quarter Unavailable Unavailable
Second Quarter $4.50 per share $3.00 per share
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Third Quarter $3.50 $2.50
Fourth Quarter $2.50 $5.00
The above information was obtained from Smith Barney, Inc. and neither Smith
Barney nor the Company can guarantee its accuracy or completeness. Such
over-the-counter market quotations reflect interdealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
On December 31, 1996, there were 405 shareholders.
No dividends on any of the Company's shares were declared or paid during 1996
nor are any dividends contemplated in the foreseeable future.
On February 20, 1996, Matech filed a Form S-8 registration statement registering
120,000 shares of the Company's Class A Common Stock to be issued to employees,
advisors and consultants under the Company's 1996 Stock Option Plan adopted by
the Board of Directors on February 19, 1996. As of December 31, 1996, 70,000
shares have been issued under this plan to various consultants.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the Corporation are derived from the
Corporation's consolidated financial statements. The selected financial data
should be read in conjunction with the Corporation's financial statements
attached hereto.
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<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) $(378,848) $(203,849) $(483,186) $(150,541) $ (87,649) $(2,755,193)
Continued
Operations
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss)From $(.17) $(.016)
Continued
Operations Per
Common Share
- ------------------------------------------------------------------------------------------------------------------------------------
Common Shares Outstanding 2,580,546 5,560,000
- ------------------------------------------------------------------------------------------------------------------------------------
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 $1,046,517 $914,049 $493,146 $493,146
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock 0 0 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000
- ------------------------------------------------------------------------------------------------------------------------------------
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>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of results of operations, capital resources, and
liquidity pertains to the consolidated activities of Tensiodyne Corporation for
1994 and of the Company for the two years ended December 31, 1996. Since
February 1994, the Company has been successor to all of the assets and
operations of Tensiodyne pertaining to the Fatigue Fuse and the Electrochemical
Fatigue Sensor.
Results of Operations for the Years Ended December 31, 1994, 1995, and 1996
Revenues
Neither the Company's parent Tensiodyne or Company generated any significant
revenue in 1996, 1995, or 1994.
COSTS AND EXPENSES
Research and Development costs (pertaining to testing) in 1996 were $699, as
compared t $15,104 in 1995 and $83,360 in 1994. The amount spent in development
costs by the Company is directly related to its available funds.
General and Administrative costs were $421,053 for 1996, $188,745 for 1995, and
$295,488 for 1994. The major cost in 1996 were officers' salaries of $200,000,
professional fees of $111,080, office related expenses of $45,136, travel
expenses of $21,902, rent of $16,742 and consulting fees totaling $34,631. The
primary increase in these expenses resulted from the Board approving
compensation of $200,000 to Robert M. Bernstein for his successful negotiation
of the teaming agreement with Southwest Research Institute and the University of
Pennsylvania which resulted
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in the United States Air Force awarding Southwest Research Institute a
$2,500,000 contract in February 1997 to conduct research on the Company's EFS
technology. In 1995, Mr. Bernstein's compensation was $0.
The major costs incurred during 1995 were professional fees of $33,206, the
charge-off of the third offering costs of $31,480, office related expenses of
$19,751, travel cost of $28,298, rent of $28,514, interest of $10,817, and
consulting fees of $15,362.
The major cost incurred in 1994 were officer salaries of $72,000, professional
fees of $55,824, office related expenses of $32,206, travel costs of $36,991,
rent of $16,169, and utilities of $23,023.
Liquidity and Capital Resources
The Company's accountant has opined that the Company's financial condition
raises substantial doubt concerning the Company's ability to continue as a going
concern. As a result of the Company's subcontract with SWRI related to its
contract with the U.S. Air Force which is providing $2.5 million for research on
the EFS technology and the possibility of an additional $2.5 million addition to
that contract, it appears that the Company will have sufficient funds to
continue operating at least through August 1998.
As reflected in the numbers below, over the past three years, to continue
seeking capital and to maintain its patents, the Company was totally dependent
on the willingness of the 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. In addition, The Company expects to receive $120,000
from SecurFone America, Inc. under the Stock Purchase Agreement which will
provide the Company additional working capital. These funds, however, 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.
Cash and cash equivalents at December 31,1996 amounted to zero. During 1996,
the Company's president advanced $51,324, including direct loans to the Company
and payment of Company
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Expenses, and $64,676 was repaid towards his loan account. In addition, an
individual purchased a $25,000 convertible note, the Company sold 50,000 of its
shares of Tensiodyne Corporation for $17,750, and $174,040 was received through
the issuance of 70,000 shares of the Company's Class A Common Stock through its
1996 stock option plan.
Cash and cash equivalents at December 31, 1995 amounted to $1,226. During 1995,
the Company's president advanced $100,874, including direct loans to the Company
and payment of Company expenses, of which $16,000 was repaid. Also in 1995, the
Company borrowed $58,000 from Mr. Sherman Baker. Of the amounts received in
1995, $135,378 was used in Company operations.
Cash and cash equivalents at December 31,1994 amounted to zero. During 1994,
the Company received $24,787 form its officers through 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 total
amount received during the period, $275,441 was used in operations and $31,480
was paid in fees relating to the preparation and filing of the Registration
Statement and $78,446 was repaid to the Company's president.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and incorporated herein by reference are audited financial
statements of the Registrant as at December 31, 1996 prepared in accordance with
Regulation S-X (17C.F.R. 210)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age, office, and principal occupation of the executive officers and
directors of Matech and certain information relating t 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 36 Secretary/Director
Dr. John Goodman 62 Chief Engineer/Director
The Term of the directors and officers of Matech is until the next annual
meeting or until their successors are elected.
ROBERT M. BERNSTEIN, PRESIDENT/CHIEF FINANCIAL OFFICER/CHAIRMAN OF THE BOARD
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Robert M. Bernstein is 62 years of age. He received a Bachelor of Science
degree from the Wharton School of the University of Pennsylvania in 1956. From
August 1959 until his certification expired in August 1972, he was a Certified
Public Accountant Licensed 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 1986, he formed a research and development partnership for
Tensiodyne funding approximately $750,000 for research on the Fatigue Fuse.
From January 1986 until September 1986, Mr. Bernstein was President and Chief
Executive Officer of Tensiodyne Corporation and in October 1988 became Chairman
of the Board, President, Chief Financial Officer, and CEO of Matech and retained
these positions with Matech after the reorganization in February 1994.
JOEL R. FREEDMAN, SECRETARY/DIRECTOR
Joel R. Freedman is 36 years of age. From October 1989 until February 1994, Mr.
Freedmen was Secretary and a Director of Tensiodyne and Matech, retaining these
positions with Matech 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-serve brokerage
firm in Philadelphia, Pennsylvania. His duties there are a full-time
commitment. Accordingly, he does not take party in Matech's day to day
activities, He is not a director of any other company.
DR. JOHN W. GOODMAN, CHIEF ENGINEER/DIRECTOR
Dr. John W. Goodman is 61 years of age. Dr. John Goodman is presently Senior
Staff Engineer, Materials Engineering Department of TRW Space and Electronics
and was formerly Chairmen 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. John 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 Chief Engineer Development of Matech's products since May 1993. He
worked full time for Matech from August 1993 to December 1994, when he returned
to TRW. Since the he has consulted with Matech periodically.
ADVISORY BOARD
Since 1987, Tensiodyne and then Matech, 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 consult with the
Company on an as needed basis ranging form one hour per week to a few minutes
every other month. The members of the Advisory Board serve at will. The
Advisory Board advises Matech's Management on technical, financial, and business
matters
12
<PAGE>
and may in the future be additionally compensated for these services. A brief
biographical description if the members of the advisory board is as follows:
ALEXANDER M. ADELSON
Alexander M. Adelson is age 62 and 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
William F. Ballhaus, age 78, now retired, was an Aerodynamacist with Douglas
Aircraft Company, a Vice President and General Manager, Nortonics Division of
Northrop Aircraft, Inc., Executive Vice President of Northrop Corporation, and
was President of Beckman Instruments, Inc. from 1965-1983. He is director of
Republic Automotive Parts, Microbics Corp., and Nucio Industries.
ROBERT P. COOGAN
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 t 1991 he was with Aerojet General Company and served as
Executive Vice President of Aerojet Electrosystems Co. from 1982-1991. He has
his B.S. in Engineering from the US Naval Academy and M.A. in International
Affairs from George Washington University.
JOHN C. EKVALL
Mr. Ekvall, age 70, received his M.S. in 1964 in Civil Engineering from the
University of California, Berkeley. He is currently teaching fatigue and
fracture mechanics design an analysis at UCLA. From 1985 to his retirement from
Lockheed in 1990, he was Program Manager for Air Force Contracts on Developing
Elevated Temperature Powered Aluminum Alloys for Aircraft Structures.
DR. MALCOLM H. HODGE
Dr. Hodge, age 54, received his Ph.D. in Ceramic Science from Penn State. He is
currently the President and CEO of Structural Integrity Monitoring Systems, Inc.
(SIMS). From 1994 to 1996, he was Chairman and President of Applied
Fiberoptics, Inc. Previous to that he spent ten years with Ensign-Bickford
Industries, Inc. as Corporate Vice President of Technology.
CAMPBELL LAIRD
13
<PAGE>
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
Ronald W. Landgraf, age 57, is 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 Material Engineer in the
Micro Switch Division of Honeywell, Inc. in Freeport, Illinois, and later as a
Research Scientist, Metallugy 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 MADDEN
Robert Madden, age 77, is presently retired. He received his BS from Purdue
University in 1942 and Doctor of Engineering from Yale University in 1948. From
1957 to 1972, he was director and later chairman of the Department of
Metallurgy, University of Pennsylvania; from 1973 to 1983 was 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 until
recently has been an honorary curator of archaeological sciences, Peabody Museum
of Archaeology and Ethnology, Harvard University.
MARK S. SINGEL
Mr. Singel, age 43, is the founding partner of Singel Associates, a consulting
marketing and legislative services form in Harrisburg, Pennsylvania. He is the
current Chair of the Pennsylvania Democratic Party. He also teaches Public
Policy at the Pennsylvania State University in Harrisburg. From 1987 to 1995,
he served as the Lieutenant Governor of Pennsylvania.
SAMUEL I. SCHWARTZ
Samuel I. Schwartz, age 48, is presently President of Sam Swartz Co., a
consulting engineers, primarily in the bridge industry. Mr. Schwartz received
his BS in Physics for Brooklyn College in 1969, and his Masters in Civil
Engineering for 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.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
14
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Other Restricted All Other
Name and Annual Stock Options/ LTIP Compen-
Principal Salary Bonus Compen- Awards SARs Payouts sations
Position Year ($) ($) sation($) ($) (#) ($) ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert M. 1993 $295,000(1) 0 0 $300(2) 0 0 0
Bernstein 1994 $72,000(3) 0 0 $10(4) 0 0 0
CEO 1995 0 0 0 0 0 0 0
1996 $200,000 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------
John W. 1993 $55,796 0 0 0 0 0 0
Goodman 1994 $71,096 0 0 0 0 0 0
Director 1995 $2,745 0 0 0 0 0 0
and 1996 0 0 0 0 0 0 0
Engineer
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Of this $295,000, $30,000 was paid, $100,000 was accrued, and $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 a promissory note from Mr. Bernstein by $265,000.
(2) In 1993, Tensiodyne issued 300,000 shares to Mr. Bernstein at par value of
$.001 per share.
(3) This $72,000 was accrued.
(4) In February 1994, Matech issued 10,000 shares of Class A Common Stock,
par value $.001, to Mr. Bernstein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT AS OF JUNE 20,
1997
<TABLE>
<CAPTION>
Class a Common Amount and Nature of
Stock Name and Address of Owner Ownership Percent of Class
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Robert M. Bernstein 2,426,130 Shares 53.3%
Common Stock Suite 707
1161 San Vicente Blvd.
Los Angeles, CA 90049
- -----------------------------------------------------------------------------------------------------------
Joel R. Freedman 113,481 Shares 2.5%
11835 Olympic Blvd.
East Tower, Suite 705
Los Angeles, CA 90064
- -----------------------------------------------------------------------------------------------------------
Directors and Executive 1,056,157 Shares 56.9%
Officers as a group
(2 persons)
- -----------------------------------------------------------------------------------------------------------
Sherman Baker Group 883,768 Shares 19.4%
555 Turnpike Street
Canton, MA 02021
- -----------------------------------------------------------------------------------------------------------
Class B Robert M. Bernstein 60,000 Shares 100.00%
Preferred
- -----------------------------------------------------------------------------------------------------------
Class A Sherman Baker 131,600 Shares 37.60%
Preferred
- -----------------------------------------------------------------------------------------------------------
Nathan Greenberg 35,000 Shares 10.00%
306 Main Street
Worchester, MA 01608
- -----------------------------------------------------------------------------------------------------------
Melvin Nessel 35,000 Shares 10.00%
180 Beacon Street
Boston, MA 01608
- -----------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Eugene Ribakoff 35,000 Shares 10.00%
46 W. Boylston Street
Worchester, MA 01608
- -----------------------------------------------------------------------------------------------------------
Norman Fain 21,000 Shares 6.00%
505 Central Avenue
Pawtucket, RI 02862
- -----------------------------------------------------------------------------------------------------------
Morris Leob 21,000 Shares 6.00%
2368 Century Hill
Los Angeles, CA 90067
- -----------------------------------------------------------------------------------------------------------
A. Sandler 21,000 Shares 6.00%
139 Atlantic Avenue
Sawmscott, MA 01907
- -----------------------------------------------------------------------------------------------------------
Class B Tensiodyne Cooperation 15 Shares 100.00%
Preferred
- -----------------------------------------------------------------------------------------------------------
</TABLE>
As of June 20, 1997 Joel R. Freedman, John Goodman, Sherman Baker, Nathan
Greenberg, Melvin Nessel, and Eugene Ribakoff had not filed Form 3, Initial
Statement of Beneficial Ownership of Securities pursuant to Rule 16 a-3 of the
Exchange Act.
Description of Capital Stock
Matech is authorized to issue 113,000,000 shares of stock. Each of the
133,000,000 shares of stock has a par value of $.001. Of the Shares authorized,
100,000,000 are Class A Common Shares; 3,000,000 are Class B Common shares;
and 10,000,000 are Class A Preferred shares.
Holders of the Class A common stock are entitled to one vote per share of common
stock held.
Holders of the Class B Common stock are entitled to 200 votes for each share of
Class B Common held but are not entitled to dividends by reason of their holding
shares of Class B Common stock; nor are they entitled to participate in any
proceeds in the event of a liquidation of the Company.
The Certificate of Incorporation of the Company 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 February 1, 1994, the Company filed with the Secretary of State of the State
of Delaware a Certificate of Designation pertaining to 350,000 of the 10,000,000
shares of the Class A Preferred convertible stock authorized by the Certificate
of Incorporation. Under the Certificate of Designation, 350,000 shares of
preferred stock were 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 of control. Each share of Class A Preferred is
convertible into common
16
<PAGE>
stock at the discretion of the holder, at the rate of one share of Class A
Preferred for each .72 share of common stock. Under the Certification of
Designation, Matech 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 Matech 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 Matech'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) Matech consolidates or merges with
another corporation, or (c) Matech 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 which
inure to the Common Stock.
In February 1994, 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. Five hundred ten (510)
shares of Class B Preferred Stock were authorized from the 9,650,000
undesignated preferred shares in connection with the Agreement and Plan of
Reorganization. Fifteen (15) shares have been issued to Tensiodyne in
connection with the reorganization on exchange for $150,000. In the event of
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary holder of Class B Preferred Stock are entitled t receive $10,000 per
share as a liquidation preference. this liquidation preference is senior to the
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, Matech has the option to redeem
Class B Preferred stock of $10,000 per share plus any unpaid dividends. After
January 31, 2004, holders have the option to redeem their shares at any time.
The holders have the right to receive cash dividends, which are determined
pursuant to a formula set forth in the Certificate of Designation. That formula
reads as follows: "Each time cash dividend is paid on the Common Stock there
shall also be paid with respect to each outstanding share of Class B Preferred
Stock and 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
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.
17
<PAGE>
As of date hereof, 4,550,000 shares of Class A Common Stock are outstanding and
held by 405 shareholders; 60,000 shares of Class "B" Common Stock are
outstanding and are 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time, Robert M. Bernstein advanced funds to Matech and at December
31, 1996 Matech owed him $179,544. Robert M. Bernstein has generally waived
interest on these advances. Robert M. Bernstein is under no obligation to make
further advances to Matech but may continue to so do at his sole discretion. In
addition, at December 31,1996, Matech was obligated to Robert M. Bernstein in
the amount of $372,000 for accrued salary.
On July 24, 1995, the Company authorized the issuance of notes convertible to
common stock to Robert M. Bernstein and the Sherman Baker Group. The note to
Robert M. Bernstein will be in the amount of $108,000 and the consideration for
that note was $108,000 in cash advances to the Company. The term note will be
for three (3) years. Mr. Bernstein will have there right at any time to convert
the note or any ratable portion thereof into 520,000 shares of the Company's
Class A Common Stock. the note to the Sherman Baker Group will be in the amount
of $58,000 and the consideration for that not will be $58,000 cash t the
Company. The term of this note will also be three (3) years. The Sherman Baker
Group will have the right at nay time to convert the note or any ratable portion
thereof into 280,000 shares of the Company's Class A Common Stock.
On February 21, 1997, Matech 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
Matech. Under that agreement, the parties intend to spin-off Matech's business
into a newly formed corporation ("Matech 2") as described below and effect a
reverse merger of SecurFone into Matech. Upon closing, SecurFone's shareholders
will acquire 90% of Matech's outstanding capital stock in exchange for 100% of
SecurFone's outstanding capital stock. On March 9,1997, Matech authorized
issuance of 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 5,000000
shares as follows:
18
<PAGE>
<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 2,680,546 856,676
- ---------------------------------------------------------------------------------------------------------
Issued to Robert M. Bernstein in 1,049,454 1,049,454
lieu of $372,000 in accrued salary(1)
- ---------------------------------------------------------------------------------------------------------
Authorized to be issued upon 450,000 0
closing to Irwin Renneisen and
David Jordan for initiating
SecurFone Transaction
- ---------------------------------------------------------------------------------------------------------
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 the Company's Counsel 20,000 0
for Services in 1995 and 1996
- ---------------------------------------------------------------------------------------------------------
TOTAL ISSUED 2,319,454
- ---------------------------------------------------------------------------------------------------------
TOTAL OUTSTANDING 5,000,000 2,426,130
- ---------------------------------------------------------------------------------------------------------
</TABLE>
On March 4,1997, Material Technologies, Inc. ("Matech 2") was incorporated in
Delaware for this transaction. On March 9, Matech 2's Board authorized the
issuance of 5,560,000 shares of its Class A Common Stock to Matech in exchange
for all of Matech's assets and liabilities. It also authorized issuance of
60,000 shares of it Class B Common Stock to Robert M. Bernstein, 350,000 shares
of its Class A Convertible Preferred Stock to the Baker Group in exchange for
that group's 350,000 shares of preferred stock in Matech, 15 shares of the
Company's Class B Preferred Stock to Tensiodyne Corporation in exchange for its
preferred stock in Matech, and 1,700,000 warrants to purchase 1,700,000 shares
of Matech 2's Class A Common Stock for $.50 per share in exchange for
cancellation of like warrants to purchase Matech common stock. The rights,
privileges, and designations of the Matech 2's Class B Common Stock, warrants,
and its preferred stock will be the same as the corresponding Matech securities
except that the redemption date of Matech 2's Class B Preferred Stock was
changed from January 31,2004 to January 1,2002.
On March 9, 1997 Matech's Board authorized the exchange of its assets and
liabilities for 5,560,000 shares of Matech 2's Class A Common Stock. In June,
an information statement will be mailed to Matech's shareholders who will not
vote on the transaction. Robert M. Bernstein, as the majority shareholder
intends to approve the transaction
19
<PAGE>
21 days after that mailing. Matech also agreed to distribute 5 million
shares of Matech 2's Class A Common Stock to Matech shareholders in a ration
of one to one. The distribution to Matech's public shareholders is intended
to be accomplished under as S-1 Registration Statement that Matech 2 filed
with the Securities and Exchange Commission on March 19,1997 but which has
not yet become effective. Matech will retain 560,000 shares of the Matech
2's Class A Common Stock equal to 10.1% of the outstanding shares.
After the distribution, Matech intends to reverse spilt 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 shares will still receive one share in the reverse split.
Matech intends to then issue 4,500,000 new shares to SecurFone shareholders in
exchange for all of SecurFone's outstanding shares leaving Matech's present
shareholders with 10% interest in SecurFone. SecurFone will pay Matech 2
$120,000 to cover expenses of the transaction. Matech intends to then change
its name to SecurFone. 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's metal fatigue
technologies business allowing Matech's shareholders to retain an interest in
Matech's business, while keeping that business separate from SecurFone's new
business. If this transaction is completed, Matech'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 business as
well.
The transfer of Matech's assets and liabilities to Matech 2 and the distribution
of its shares is designed to provide Matech'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 each
company to adopt strategies and pursue objectives appropriate to its specific
business and to be valued independently from the other. The distribution
enables Matech's management to 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.
20
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS IN FORM 8-K
a. 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 is incorporated by reference
from the Company's S-1 Registration Statement that became
effective on January 19, 1996
- --------------------------------------------------------------------------------
3(ii) Bylaws of Material Technology, Inc. is incorporated by
reference from the Company's S-1 Registration Statement
that became effective on January 19, 1996
- --------------------------------------------------------------------------------
4.1 Class A Convertible Preferred Stock Certificate of
Designations is incorporated by reference from the
Company's S-1 Registration Statement that became effective
on January 19, 1996
- --------------------------------------------------------------------------------
4.2 Class B Convertible Preferred Stock Certificate of
Designations is incorporated by reference from the
Company's S-1 Registration Statement that became effective
on January 19, 1996
- --------------------------------------------------------------------------------
10.1 License Agreement Between Tensiodyne Corporation and the
Trustees of the University of Pennsylvania is incorporated
by reference from the Company's S-1 Registration Statement
that became effective on January 19, 1996
- --------------------------------------------------------------------------------
10.2 Sponsored Research Agreement between Tensiodyne Corporation
and the Trustees of the University of Pennsylvania is
incorporated by reference from the Company's S-1
Registration Statement that became effective on January 19,
1996
- --------------------------------------------------------------------------------
10.3 Amendment 1 to 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
- --------------------------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
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 Registration 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 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.
- --------------------------------------------------------------------------------
b. Reports on From 8-K - none.
c. Financial Statements - attached.
22
<PAGE>
SIGNATURES
Pursuant to the Requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant had duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MATERIAL TECHNOLOGY, INC.
By: Robert M. Bernstein
-------------------
Robert M. Bernstein, President
Date: June 23, 1997
Pursuant to the requirements of the Securities Exchanges Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Robert M. Bernstein
-------------------
Robert M. Bernstein,
President, Director, Chief Executive Officer, and Chief
Financial Officer (Principal Executive Officer, Principal
Financial Officer, and Principal Accouting Officer)
Date: June 23, 1997
By: Joel Freedman
-------------
Joel Freedman, Secretary and Director
Date: June 23, 1997
By: John Goodman
------------
John Goodman, Director
Date: June 23, 1997
23
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
FINANCIAL STATEMENTS
Contents
--------
Page
----
Independent Auditor's Report F1
Balance Sheets F3
Statements of Operations F5
Statements of Stockholders' Equity (Definciency) F6
Statements of Cash Flows F14
Notes to Financial Statements F16
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Material Technology, Inc.
(Formerly Tensiodyne Scientific Corporation)
Los Angeles, California
We have audited the accompanying balance sheets of Material Technology, Inc.
(Formerly Tensiodyne Scientific Corporation) (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 Technology, Inc.
(Formerly Tensiodyne Scientific Corporation) 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
June 12, 1997
F-2
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(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
----------- ---------- -------------
----------- ---------- -------------
F-3
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
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 5,000,000 Shares at March 31, 1997 2,157 2,580 5,000
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 2,459,354
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>
F-4
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(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 independent accountants' report.
F-5
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(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 Class B Preferred Stock
------------------- ------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <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 -- -- -- -- -- -- -- --
------ ----- ----- ----- ----- ------- ------- -----
<CAPTION>
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage Total
------------ ----------- -----
<S> <C> <C> <C>
Initial Issuance of Common Stock,
October 21, 1983 $ 2,498 $ -- $ 2,500
Adjustment to Give Effect
to Recapitalization on
December 15, 1986
Cancellation of Shares (2) -- --
------- -------- --------
2,496 -- 2,500
Balance, October 21, 1983
Shares Issued By Tensiodyne
Corporation in Connection
With Pooling of Interests 4,328 -- 4,342
Net (Loss), Year Ended
December 31, 1983 -- (4,317) (4,317)
------- -------- --------
Balance, January 1, 1984 6,824 (4,317) 2,520
Capital Contribution 21,727 -- 21,755
Issuance of Common Stock 10,695 -- 10,700
Costs Incurred in Connection
with Issuance of Stock (2,849) -- (2,849)
Net (Loss), Year Ended
December 31, 1984 -- (21,797) (21,797)
------- -------- --------
</TABLE>
See accompanying notes and independent accountants' report.
F-6
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(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 Class B Preferred Stock
------------------- ------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <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 -- -- -- -- -- -- -- --
------- --- ------- ------- ------- ------ ------- -------
<CAPTION>
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage Total
------------ ----------- -----
<S> <C> <C> <C>
Balance, January 1, 1985 36,397 (26,114) 10,329
Shares Contributed Back
to Company 0 -- --
Capital Contribution 200,555 -- 200,555
Sale of 12,166 Warrants at
$1.50 Per Warrant 18,250 -- 18,250
Shares Cancelled 9 -- --
Net (Loss), Year Ended
December 31, 1985 -- (252,070) (252,070)
--------- --------- -------
Balance, January 1, 1986 255,211 (278,184) (22,936
Net (Loss), Year Ended
December 31, 1986 -- (10,365) (10,365)
--------- --------- -------
Balance, January 1, 1987 255,211 (288,549) (33,300)
Issuance of Common Stock Upon
Exercise of Warrants 27,082 -- 27,082
Net (Loss), Year Ended
December 31, 1987 -- (45,389) (45,389)
--------- --------- -------
</TABLE>
See accompanying notes and independent accountants' report.
F-7
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(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 Class B Preferred Stock
------------------- ------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <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 -- -- -- -- -- -- -- --
------- --- ------- ------- ------- ------- ------- -------
<CAPTION>
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage Total
------------ ----------- -----
<S> <C> <C> <C>
Balance, January 1, 1988 282,293 (333,938) (51,607)
Issuance of Common Stock
Sale of Stock (Unaudited) 101,749 -- 101,752
Services Rendered (Unaudited)-- 70,597 70,600
Net (Loss), Year Ended
December 31, 1988 (Unaudited) (142,335) (142,335)
--------- --------- -------
Balance, January 1, 1989
(Unaudited), 454,639 (476,273) (21,590)
Issuance of Common Stock
Sale of Stock 1,996 -- 2,000
Services Rendered 17,964 -- 18,000
Net (Loss), Year Ended
December 31, 1989 -- (31,945) (31,945)
--------- --------- -------
Balance, January 1, 1990 474,599 (508,218) (33,535)
Issuance of Common Stock
Sale of Stock 59,248 -- 59,250
Services Rendered 32,393 -- 32,400
Net Income, Year Ended
December 31, 1990 -- 133,894 133,894
--------- --------- -------
</TABLE>
See accompanying notes and independent accountants' report.
F-8
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(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 Class B Preferred Stock
------------------- ------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <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 -- -- -- -- -- -- -- --
--------- ----- ------- ------- ------- ------- ------- -------
<CAPTION>
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage Total
------------ ----------- -----
<S> <C> <C> <C>
Balance January 1, 1991 as Restated 566,240 (374,324) 192,009
Issuance of Common Stock
Sale of Stock 273,335 -- 273,686
Services Rendered 64,880 -- 64,884
Conversion of Warrants --
Conversion of Stock -- -- --
Net (Loss), Year Ended
December 31, 1991 -- (346,316) (346,314)
--------- --------- -------
Balance January 1, 1992 904,455 (720,640) 184,265
Issuance of Common Stock
Sale of Stock 15,980 -- 16,000
Services Rendered 15,515 -- 15,520
Conversion of Warrants 14,994 -- 15,000
Sale of Class B Stock 14,940 -- 15,000
Issuance of Stock to
Unconsolidated Subsidiary 71,659 -- 71,664
Conversion of Stock -- -- --
Cancellation of Shares 7 -- --
Net (Loss), Year Ended
December 31, 1992 -- (154,986) (158,196)
--------- --------- -------
</TABLE>
See accompanying notes and independent accountants' report.
F-9
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(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 Class B Preferred Stock
------------------- ------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <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
Accumulated
Capital During the
in Excess of Development
Par Value Stage
------------ -----------
<S> <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 TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Redeemable
Class A Common Class B Common Class A Preferred Stock Class B Preferred Stock
------------------- ------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <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 -- -- -- -- 15 150,000
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 15 150,000
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 15 150,000
========= ===== ======= ======= ======= ======= ======= =======
<CAPTION>
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage
------------ -----------
<S> <C> <C>
Adjustment to Give Effect
to Recapitalization on
February 1, 1994 385,393 --
Issuance of Shares for
Services Rendered -- --
Sale of Stock 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 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 1,763,698 (2,380,135)
========== ==========
</TABLE>
See accompanying notes and independent accountants' report.
F-11
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Redeemable
Class A Common Class B Common Class A Preferred Stock Class B Preferred Stock
------------------- ------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <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 15 150,000
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 1,049,454 1,050 -- -- -- -- -- --
<CAPTION>
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage
------------ -----------
<S> <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 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 370,950 --
</TABLE>
See accompanying notes and independent accountants' report.
F-12
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Redeemable
Class A Common Class B Common Class A Preferred Stock Class B Preferred Stock
------------------- ------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <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 450,000 450 -- -- -- -- -- --
Net (Loss) for the Three
Months Ended March 31, 1997 -- -- -- -- -- -- -- --
--------- ----- ------- ------- ------- ------- ------- -------
5,000,000 $ 5,000 60,000 $ 60 350,000 $ 350 15 $ 150,000
========= ===== ======= ======= ======= ======= ======= =======
<CAPTION>
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage
------------ -----------
<S> <C> <C>
Issuance of Shares for
Services Rendered 1,980 --
Adjustment to Give Effect
to Recapitalization on
March 9, 1997 (450) --
Net (Loss) for the Three
Months Ended March 31, 1997 -- (81,959)
--------- ---------
$ 2,459,354 $ (2,912,828)
========== ==========
</TABLE>
See accompanying notes and independent accountants' report.
F-13
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the From Inception
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-14
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization
Tensiodyne Scientific Corporation (the "Company") was organized on
November 7, 1985, under the laws of the state of Delaware.
On November 29, 1985, all of the Company's, outstanding stock was
acquired by Tensiodyne Corporation (the "Parent"). The Company had
little activity from its inception through 1992. In 1993, the Company
received $385,424 in exchange for the issuance of 30,818 of the
Company's common stock.
On December 20, 1993, the Company entered into an agreement to
distribute 262,267 of its Class A Common Stock, 60,000 shares of its
Class B Common stock, and 350,000 shares of its Class A Preferred
Convertible Stock to the existing shareholders of Tensiodyne
Corporation. In exchange for the issuance of these shares, the
Company received all of the assets and assumed all of the liabilities
of the Parent. A schedule of the assets and liabilities acquired is
as follows:
Assets
Cash $ 765
Loan Receivable
- Officer 10,205
Property & Equipment
at Net 108,091
Licensing Agreement and
Patents 26,634
Notes Receivable 19,974
Other Assets 2,189
----------
$ 167,858
Liabilities
Accrued Expenses $ (91,935)
Accrued Salaries
- Officer (108,000)
Deposit Payable (10,000)
Loans Payable (3,169)
Note Payable on
Licensing Agreement (188,495)
---------
$(401,599)
Liabilities in Excess
of Assets Transferred $(233,741)
---------
---------
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1 - organization (continued)
For financial reporting purposes, the above transaction was treated as
a recapitalization. Therefore, the assets and liabilities transferred
have been recorded at historical cost.
On January 30, 1994, the Company filed with the office of the
Secretary of State of Delaware an Amended and Restated Certificate of
Incorporation whereby its capital structure was changed to provide for
the authorization to issue 100,000,000 shares of Class A Common Stock,
$.00l par value; 3,000,000 shares of Class B Common Stock, $.00l par
value; and 10,000,000 shares of Class A Convertible Preferred Stock,
$.00l par value.
The Company authorized a 1 for 10 reverse stock split of its Class A
common shares on June 22, 1994. All references to the Company's Class
A Common Stock as reflected in the accompanying financial statements
and notes have been restated to reflect the 1:10 reverse stock split.
On July 19, 1994, the Company filed with the Secretary of State of
Delaware, an amendment to its Certificate of Incorporation changing
its name from Tensiodyne Scientific Corporation to Material
Technology, Inc.
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.
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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage company)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (continued)
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 SAD Topic l.B.2.
d. Persuasiveness 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 contemplates
continuation of the Company as a going concern. However, the Company
has sustained substantial operating losses totaling $2,830,869 since
its inception through December 31, 1996. These continuing losses are
an indication that the Company may not be able to continue to operate.
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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne scientific corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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 and due and payable upon either the
death of the individual's spouse or upon conveyance or attempted
conveyance of any interest in the individual's residence. Interest has
been imputed pursuant to AFD-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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 5 - Litigation Settlement
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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(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 10(b)).
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(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 NA, 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 balance due
on this note as of December 31, 1995, and 1996 was approximately
$60,829 and $65,893, respectively.
In October 1997, the Company borrowed $25,000 from an unrelated third
party. Under the terms of the loan agreement, interest accrues on this
loan at an annual interest 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"). The provision
for income taxes differs from the amounts currently payable because of
timing differences in the recognition of certain income and expense
items for financial and tax reporting purposes.
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 cannot be determined when, or if, the tax benefits derived
from these operating losses will materialize.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 9 - Income Taxes (continued)
For income tax purposes, the Company has approximately $413,000 in net
operating losses available to offset future income through the year
2011, however, the actual losses which may used in future years could
be limited due to recapitalization or other factors.
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, the Company is obligated 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 sub-licensing 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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 10 - Commitments and Contingencies (Continued)
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.
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 to the Company.
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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 10 - Commitments and Contingencies (continued)
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.
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 currently owns for 15 shares of Redeemable Class B Preferred Stock
of the Company's subsidiary. The rights of the new issuance will be
the same as the rights of the shares exchanged except the shares in
the Subsidiary will be redeemable two years earlier on January 31,
2002. In consideration for the exchange, the Company paid Tensiodyne
$5,000.
The exchange was made in view of the fact that the Company has entered
into an agreement with an unrelated third party to reverse merge with
this party and to transfer to the subsidiary the Company's current
operations including all of its assets and liabilities. (See Note 15,
"Subsequent Events").
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 10 - Commitments and Contingencies (continued)
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.
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
$l,000,0000 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:
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 10 - Commitments and contingencies (Continued)
Fatigue Fatigue
Fuse Sensor
------ -------
Tensiodyne 1985-1 R&D Partnership --* --
Advanced Technology Center
Future Gross sales -- * --
Sublicensing Fees -- ** --
Variety Investments, Ltd. 20.00% --
University of Pennsylvania
Net Sales of Licensed Products 7.00%
Net sales of services 2.50% 2.50%
Sherman Baker 1.00% 0.50% 1.00% 0.50%
------- ------
21.00% 10.00%
* Royalties limited to specific rates of return as discussed in Note
10(a) and (c) above.
** 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.
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 Act.
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
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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(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 date of grant, 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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 12 - Stockholders' Equity (Continued)
The holders of these shares have a liquidation preference to receive
out of assets of the Company, an amount equal to $.72 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.
These shares are convertible to shares of the Company's common stock
at a conversion price of $ .72 ("initial conversion price") 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 10,000,000 shares of preferred
stock ($.001 par value) of which 510 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
<PAGE>
MATERIAL TECHNOLOGY, INC.
Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 12 - Stockholders' Equity (Continued)
directors and to vote as a class 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.
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 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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 13 - Transactions With Management (continued)
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.
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. 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.
h. 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, NA 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.
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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 13 - Transactions with Management (continued)
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.
j. During 1996, the Company issued 62,000 shares of the Company's Class A
common Stock to the President for services.
Note 14 - Stock Option Plan
a. 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.
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
a. In February 1997, the Company entered into an agreement with
Montpilier Holding, Inc.("Montpilier")) and its wholly owned
subsidiary SecurFone America, Inc. (91SecurFone"), and Robert M.
Bernstein, the Company's president. Under the terms of the
agreement, the Company
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 15 - Subsequent Events (continued)
will sell 4,500,000 shares of authorized but unissued shares
comprising 90% of the outstanding stock at the date of closing to
Montpilier (adjusted for a 1:10 reverse stock split) in exchange for
3,000 shares of SecurFone's common stock, which constitutes 100% of
the SecurFone's outstanding shares as of the closing date. In
addition, Montpilier agrees to reimburse the Company for its
expenses in an amount equal to $120,000.
The $120,000 expense reimbursement will be paid to the subsidiary upon
the effective date of the registration statement ("Closing Date").
The $120,000 is paid in three installments with the first installment
amounting to $70,000 being due on the closing. The second installment
of $25,000 is due 30 days after closing, and the third installment of
$25,000 is due 75 days of closing. The second and third installments
will be evidenced by a non-interest bearing promissory secured by the
shares of the subsidiary owned by the Company.
Under the terms of the agreement, the Company will transfer its
current operations, including all of its assets and liabilities to a
wholly owned subsidiary which was formed on March 7, 1997, in exchange
for receiving 5,560,000 shares of the subsidiary's common stock. Of
these shares, approximately 5,000,000 shares will be distributed to
the Company's current shareholders.
In connection with the above transaction, the Company authorized the
issuance of 520,000 shares of its Class A Common Stock to
Mr. Bernstein in exchange for the convertible note issued to him; the
issuance of 60,000 shares of Class B Common of the subsidiary in
exchange for the cancellation of the 60,000 shares of Class B Common
Stock currently owned by him; the issuance of 280,000 shares of the
Company's Class A Common stock to Mr. Baker in exchange for the
convertible note issued to him; the authorization to enter into an
agreement with the holders of the Company's class A Preferred stock
to exchange these shares, which will be canceled, for class A
Preferred Stock of the Company's subsidiary; and the issuance of
20,000 shares of the Company's Class A Common Stock as partial
payment to the Company's legal counsel
In addition, in consideration for the cancellation of $372,000 in
accrued salary, Mr. Bernstein will receive 1,049,454 of Class A Common
Stock of the Company and $450,000 shares of Class A Common Stock of
the subsidiary. The issuance of these shares are issued subject to
certain restrictions and forfeiture.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 15 - Subsequent Events (continued)
for services rendered in relation to the above transaction and related
matters. Robert M. Bernstein has agreed to assign any accrued
salaries owed him by the Company to the Subsidiary.
In connection with the above transaction, the Company entered into a
consulting agreement with Mr. Bernstein. Under the terms of this
agreement, Mr. Bernstein has agreed to act as a consultant to the
Company for a period of 18 months beginning upon the effective date of
the registration statement. In consideration for his services, Mr.
Bernstein will receive $5,000 and will receive stock options entitling
him to purchase Class A Common stock of the Company equaling 7% of the
sum of the total number of shares of any class of equity securities of
the Company, that, during the five years following the closing, the
Company registers on Form S-B and sells through Regulation S.
b. On January 2, 1997, the Company authorized the issuance of 100,000
shares of Class A Common Stock through its 1996 Stock Option Plan at a
price of $1.00 per share.
c. During 1996, the Company entered into a teaming agreement with
Southwest Research Institute ("SWRI") and the University of
Pennsylvania. 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 United States Air Force capability to perform
durability assessments of military aircraft, including both airframes
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 which is required to be disbursed for specific
purposes as defined in the subcontractor' 5 agreement.
<PAGE>
MATERIAL TECHNOLOGY, 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, 1997 and 1996, 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.
<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
1
<PAGE>
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.
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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
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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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<PAGE>
(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)
3
<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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<PAGE>
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
5
<PAGE>
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.
6
<PAGE>
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
1
<PAGE>
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:
2
<PAGE>
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 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.
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<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
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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.
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<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
