-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RWhhuRM0HyojftEoiCEgR60eS3cnDb7DBlIkieCqMqwSkQm7KBvtaYBU9HzElxHf NWI4w6wn+OFnu6RP8MTOpg== 0000912057-97-021727.txt : 19970625 0000912057-97-021727.hdr.sgml : 19970625 ACCESSION NUMBER: 0000912057-97-021727 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970624 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATERIAL TECHNOLOGY INC CENTRAL INDEX KEY: 0000929425 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 954622822 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 033-83526 FILM NUMBER: 97629051 BUSINESS ADDRESS: STREET 1: 11835 WEST OLYMPIC BLVD STREET 2: EAST TOWER STE 705 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3102085589 MAIL ADDRESS: STREET 1: 11835 WEST OLYMPIC BLVD STREET 2: EAST TOWER STE 705 CITY: LOS ANGELES STATE: CA ZIP: 90064 FORMER COMPANY: FORMER CONFORMED NAME: MATERIAL TECHNOLOGIES INC DATE OF NAME CHANGE: 19970313 10-K/A 1 FORM 10-K/A 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. 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 2 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 3 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 4 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 5 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 6 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 7 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. 8
- ------------------------------------------------------------------------------------------------------------------------------------ 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) - ------------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------------
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 9 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 10 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 11 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 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 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
- -------------------------------------------------------------------------------------------------------------------- Other Restricted All Other Name and Annual Stock Options/ LTIP Compen- Principal Salary Bonus Compen- Awards SARs Payouts sations Position Year ($) ($) sation($) ($) (#) ($) ($) - -------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------
(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
Class a Common Amount and Nature of Stock Name and Address of Owner Ownership Percent of Class - ----------------------------------------------------------------------------------------------------------- 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 - -----------------------------------------------------------------------------------------------------------
15
- ----------------------------------------------------------------------------------------------------------- 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 - -----------------------------------------------------------------------------------------------------------
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 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 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
- --------------------------------------------------------------------------------------------------------- Description Number of Shares Issued Number of Shares Issued to all Shareholders To Robert M. Bernstein 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 - ---------------------------------------------------------------------------------------------------------
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 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 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 - -------------------------------------------------------------------------------- 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 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 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 [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 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 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 MATERIAL TECHNOLOGY, INC. (Formerly Tensiodyne Scientific Corporation) (A Development Stage Company) BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' (DEFICIT) December 31, March 31, 1995 1996 1997 ------------ ----------- ---------- (Unaudited) 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 ------------ ----------- ---------- ------------ ----------- ----------
F-4 MATERIAL TECHNOLOGY, INC. (Formerly Tensiodyne Scientific Corporation) (A Development Stage Company) STATEMENTS OF OPERATIONS
From Inception For the Three Months Ended (October 21, 1983) March 31, Through 1994 1995 1996 1996 1997 March 31, 1997 ----------- ---------- --------- ----------- ---------- ---------------- (Unaudited) (Unaudited) (Unaudited) 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 --------- ---------
See accompanying notes and independent accountants' report. F-5 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
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 ----------- ------ ----------- ------ ----------- ------ ----------- ------ 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 -- -- -- -- -- -- -- -- ------ ----- ----- ----- ----- ------- ------- ----- Deficit Accumulated Capital During the in Excess of Development Par Value Stage Total ------------ ----------- ----- 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) ------- -------- --------
See accompanying notes and independent accountants' report. F-6 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
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 ----------- ------ ----------- ------ ----------- ------ ----------- ------ 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 -- -- -- -- -- -- -- -- ------- --- ------- ------- ------- ------ ------- ------- Deficit Accumulated Capital During the in Excess of Development Par Value Stage Total ------------ ----------- ----- 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) --------- --------- -------
See accompanying notes and independent accountants' report. F-7 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
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 ----------- ------ ----------- ------ ----------- ------ ----------- ------ 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 -- -- -- -- -- -- -- -- ------- --- ------- ------- ------- ------- ------- ------- Deficit Accumulated Capital During the in Excess of Development Par Value Stage Total ------------ ----------- ----- 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 --------- --------- -------
See accompanying notes and independent accountants' report. F-8 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
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 ----------- ------ ----------- ------ ----------- ------ ----------- ------ 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 -- -- -- -- -- -- -- -- --------- ----- ------- ------- ------- ------- ------- ------- Deficit Accumulated Capital During the in Excess of Development Par Value Stage Total ------------ ----------- ----- 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) --------- --------- -------
See accompanying notes and independent accountants' report. F-9 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
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 ----------- ------ ----------- ------ ----------- ------ ----------- ------ 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 -- -- --------- ----- ------- ------- ------- ------- ------- ------- Deficit Accumulated Capital During the in Excess of Development Par Value Stage ------------ ----------- 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) --------- ---------
See accompanying notes and independent accountants' report. F-10 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
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 ----------- ------ ----------- ------ ----------- ------ ----------- ------ 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 ========= ===== ======= ======= ======= ======= ======= ======= Deficit Accumulated Capital During the in Excess of Development Par Value Stage ------------ ----------- 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) ========== ==========
See accompanying notes and independent accountants' report. F-11 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
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 ----------- ------ ----------- ------ ----------- ------ ----------- ------ 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 -- -- -- -- -- -- Deficit Accumulated Capital During the in Excess of Development Par Value Stage ------------ ----------- 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 --
See accompanying notes and independent accountants' report. F-12 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
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 ----------- ------ ----------- ------ ----------- ------ ----------- ------ 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 ========= ===== ======= ======= ======= ======= ======= ======= Deficit Accumulated Capital During the in Excess of Development Par Value Stage ------------ ----------- 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) ========== ==========
See accompanying notes and independent accountants' report. F-13 MATERIAL TECHNOLOGY, INC. (Formerly Tensiodyne Scientific Corporation) (A Development Stage Company) STATEMENTS OF CASH FLOWS
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) 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 ---------- ------------ --------- ---------- ---------- ---------------- ---------- ------------ --------- ---------- ---------- ----------------
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 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) --------- --------- 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. 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. 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. 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. 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)). 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. 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. 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. 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. 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"). 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: 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. 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. 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 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. 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. 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 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. 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. 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. EX-2.1 2 STOCK PURCHASE AGREEMENT 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 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 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 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 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 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 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 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 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 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 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 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; 5 U (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 6 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".] 7 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 8 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 9 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 10 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; 11 (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; 12 (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 13 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 14 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. 15 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 16 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 17 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 18 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 19 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. 20 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 21 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. 22 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; 23 (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 24 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 25 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 26 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 27 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 28 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. 29 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. 30 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, 31 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 32 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. 33 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. 34 (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. 35 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. 36 (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 37 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 38 may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. 13.9 EXHIBITS AND SCHEDULES . The Exhibits and Schedules are a part of this Agreement as if fully set forth herein. All references herein to sections, subsections, clauses, Exhibits and Schedules shall be deemed references to such parts of this Agreement, unless the context shall otherwise require. 13.10 HEADINGS . The headings in this Agreement are for reference only, and shall not affect the interpretation of this Agreement. 13.11 ENTIRE AGREEMENT . This Agreement (including the Schedules and Exhibits) and the collateral agreements executed in connection with the consummation of the transactions contemplated herein contain the entire agreement among the parties with respect to the purchase of the Shares and supersedes all prior agreements, written or oral, with respect thereto. IN WITNESS WHEREOF, the parties hereto have signed and sealed this Agreement as of the day and year first above written. MONTPILIER HOLDINGS, INC. By: /s/ Nicholas R. Wilson ------------------------------- President SECURFONE AMERICA, INC. By: /s/ Nicholas R. Wilson ------------------------- President MATERIAL TECHNOLOGY, INC. By: /s/ Robert M. Bernstein ----------------------------- Robert M. Bernstein, President Dated: February 18, 1997 /s/ Robert M. Bernstein ----------------------------------- Robert M. Bernstein Dated: February 18, 1997 39 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. 1 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. 2 (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 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 4 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 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 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 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 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. 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. 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 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 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 EX-2.2 3 STOCK PURCHASE AGREEMENT 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 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 EX-10.3 4 AMENDMENT 1 LICENSE AGREEMENT EXHIBIT 10.3 AMENDMENT 1 LICENSE AGREEMENT BETWEEN TENSIODYNE SCIENTIFIC CORPORATION AND THE TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA 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 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: ---------------------------- ---------------------------- EX-10.4 5 REPAYMENT AGREEMENT EXHIBIT 10.4 REPAYMENT AGREEMENT BETWEEN TENSIODYNE SCIENTIFIC CORPORATION AND THE TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA 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. 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 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: ------------------------- EX-10.5 6 TEAMING AGREEMENT EXHIBIT 10.5 TEAMING AGREEMENT BETWEEN TENSIODYNE CORPORATION AND SOUTHWEST RESEARCH INSTITUTE 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 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 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 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 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 (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 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 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 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 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 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 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 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 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 *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 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 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. 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 procurement and protection of rights conferred by this Article and to execute all lawful documents in conjunction therewith. Expenses incurred in conjunction with the preparation of patent applications, applications for copyright registrations and in enforcing proprietary rights therein shall be borne by the party owning such rights or, if jointly owned, by the parties in proportion to their respective interests. III. PROPRIETARY RIGHTS SwRI shall be afforded, to the extent required to meet its obligations under this Subcontract and the Task Order issued pursuant to Contract No. ___, the same rights and obligations as the Government regarding technical data, computer software and other deliverables under this Subcontract. IV. GOVERNMENT DATA RIGHTS The rights granted to the Government with regard to technical data shall be determined in accordance with DFARS 252.227-7013 (Nov. 1995). Both parties acknowledge that Subcontractor and SwRI possess pre-existing technical data, developed exclusively at private expense and such data shall not be delivered with "unlimited rights." Such pre-existing technical data, as well as pre-existing patents shall be identified by Subcontractor and shall be marked in accordance with DFARS 252.227-7013 (Nov. 1995). SwRI acknowledges and agrees that it shall fully inform the Government of such pre-existing technical data and patent rights. V. DISPUTE RESOLUTION A. DISPUTES UNDER THIS SUBCONTRACT. This paragraph A governs all claims, controversies or disputes arising out of or relating to this Subcontract or its breach ("Disputes") that are not directly or indirectly subject to resolution under the Disputes Clause of the Prime Contract. Any Dispute that is not disposed of by written mutual agreement will be preliminarily determined by SwRI's Authorized Representative, who will within 15 days render a preliminary written determination on the issues in dispute and furnish a copy thereof to the Subcontractor. The preliminary determination will become final and conclusive unless the Subcontractor submits a written demand for arbitration to the American Arbitration Association within 30 days of the preliminary determination. The Dispute will then be arbitrated, pursuant to the Commercial Rules of the American Arbitration Association, before a panel of three arbitrators. The "preliminary determination" will not bind the arbitrators and will not prejudice the legal position of either party in the arbitration. One of the arbitrators will be selected by each party, and the third arbitrator will be selected by the two party-appointed arbitrators. Any such arbitration will be held in the _____________ metropolitan area. The parties will share the costs of the arbitration equally subject to final apportionment by the arbitrators. The arbitrators will apply the law chosen by the parties to govern this Subcontract. The decision of the arbitrators may be entered in any court of competent jurisdiction. Neither party will institute any action or proceeding against the other party in any court concerning any Dispute that is or could be the subject of a claim or proceeding under this paragraph A. The arbitrators shall not award exemplary or punitive damages to either party. 2 B. DISPUTES UNDER THE PRIME CONTRACT. This paragraph B governs all Disputes of the Subcontractor concerning matters that are directly or indirectly subject to resolution under the Disputes Clause of the Prime Contract. SwRI will submit any such Dispute to the Contracting Officer under the Prime Contract for a written decision under the Disputes Clause of the Prime Contract and will notify the Subcontractor of any final decision of the Contracting Officer under the Prime Contract that relates to this Subcontract or to the Subcontractor's performance under it within 10 days after SwRI receives the decision. Any final decision will be conclusive and binding upon the Subcontractor unless it is appealed pursuant to paragraph A. above or pursuant to the Disputes Clause of the Prime Contract. If SwRI elects not to appeal any final decision of the Contracting Officer under the Disputes Clause of the Prime Contract, SwRI will so notify the Subcontractor in writing within 20 days after SwRI receives the final decision. Within 30 days after Subcontractor receives SwRI's notice of its decision not to appeal the final decision of the Contracting Officer, Subcontractor notify SwRI that Subcontractor wishes to appeal that final decision pursuant to the Disputes Clause of the Prime Contract. SwRI shall, within 10 days either grant or deny the Subcontractor an indirect right to appeal that final decision in SwRI's name under the Disputes Clause of the Prime Contract. Both parties acknowledge and agree that with regard to Disputes concerning alleged submissions of defective cost or pricing data, SwRI shall grant Subcontractor's request. Subcontractor will pay all costs and expenses of any such appeal. Subcontractor will be solely responsible for prosecuting the appeal and preparing and presenting all pleadings, evidence and argument. Subcontractor will provide monthly written reports to SwRI of the progress of the appeal and will furnish SwRI copies of all pleadings and non-privileged correspondence filed or received by it concerning the appeal. If SwRI is required to submit a certification to the Government regarding a claim submitted pursuant to the Contract Disputes Act, Subcontractor will make available to SwRI all data and documentation that is necessary or appropriate to support or confirm the certification. In the event, SwRI denies Subcontractor an indirect right to appeal a final decision in SwRI's name under the Disputes Clause of the Prime Contract, both parties acknowledge and agree that such Dispute shall be considered a Dispute by and between the Subcontractor and SwRI and that such Dispute shall be submitted to arbitration in accordance with paragraph A. above. SwRI agrees that it shall not utilize as a defense the fact that the Dispute was one that concerns matters that were directly or indirectly subject to resolution under the Prime Contract to any alleged damages or costs owed to Subcontractor arising in connection with the Dispute, and SwRI agrees to step into the shoes of the Government with regard to such Dispute. C. DISPUTE-RESOLUTION METHOD AND CONTINUATION OF PERFORMANCE. Pending the final resolution of any Dispute under this Article, Subcontractor will proceed diligently to perform this Subcontract and comply with SwRI's preliminary determination. VI. INDEMNIFICATION Each party and its agents, employees and authorized assigns shall be indemnified, defended and held harmless (including reasonable attorneys fees) by the other party against all 3 third party liability (including liability to the government) that arises from or in connection with negligence, or willful, wanton, or reckless conduct of the other party, its employees, agents, subcontractors, or authorized assigns in the performance of this Subcontract which causes damage to real or tangible personal property, death or bodily injury, provided that: (1) the indemnifying party was properly notified in writing of the claim; (2) the indemnifying party was allowed to direct the defense or settlement of the claim; (3) if requested, the indemnified party reasonably assisted the indemnifying party at the indemnifying party's expense in defending or settling the claim. 4 EX-10.6 7 BECK AGREEMENT 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 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 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 -----END PRIVACY-ENHANCED MESSAGE-----