matechexh10_12.htm


    
      
 

    Exhibit 10.12

     

     

    WORKOUT
AGREEMENT

     


     

               
This Workout Agreement (“Agreement”) is entered into by and between The Trustees
of the University of Pennsylvania, a Pennsylvania nonprofit corporation (“Penn”)
and Material Technologies, Inc., a Delaware corporation (“Matech” or the
“Company”) with regard to the following facts:

     


     

    RECITALS

     


     

               
Penn and Matech are parties to a License Agreement dated August 26, 1993, as
amended by Amendment 1 dated December 17, 1997 (together, the “Amended Licensed
Agreement”).  Penn and Matech are also parties to a Sponsored Research
Agreement dated August 26, 1993 (the “SRA Agreement”), as amended by a Repayment
Agreement dated December 17, 1997 (the “Repayment Agreement”, and together with
the SRA Agreement, the “SRA/Repayment Agreement”). 

     


     

               
Matech desires to reach an agreement with Penn to delay payment of some of the
principal debt owed, and interest accrued, and otherwise agree to the terms in
this Agreement; and

     


     

               
Penn, in furtherance of its education and research missions and desire to
benefit society through the timely commercialization of Penn’s invention(s), is
willing to postpone, temporarily, its right to pursue legal remedies against
Matech in connection with the SRA/Repayment Agreement, receive certain payments
from Matech, and otherwise agree to the terms in this Agreement.

     


     

               
NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree as follows:

     


     

    AGREEMENT

     


     

    1.        
Acknowledgment
of Debt Owed.  Penn and Matech acknowledge and agree
that:

     


     

               
(a)        as of December 31, 2004, all
amounts due and owing to Penn pursuant to the SRA/Repayment Agreement is Seven
Hundred Sixty Thousand Eight Hundred Thirty-One Dollars ($760,831.00) (the
“Remaining Obligation”); and

     

               
(b)        the maturity date, and all other
dates upon which payments are required to be made to Penn under the
SRA/Repayment Agreement are hereby modified as set forth in this
Agreement.

     


     

    2.        
Payment
Toward Obligation. 

     


     

               
(a)        Upon execution of this Agreement
by both parties, Matech shall deliver to Penn via wire transfer the sum of
Twenty-Five Thousand Dollars ($25,000), as a partial payment of the Remaining
Obligation owed pursuant to the SRA/Repayment Agreement (the “Partial
Payment”).

     


     

               
(b)        On or before each one-year
anniversary of the Agreement Effective Date (defined below), Matech shall pay
Penn an additional sum equal to Twenty Five Thousand Dollars ($25,000), which
will be applied toward reducing the then-current Remaining Obligation and
Accrued Interest (defined below) owed.

     

     

    
      
         

      

      
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3.        
Interest
Rate.  Effective January 1, 2005, simple interest shall accrue on
the Remaining Obligation at the rate of one-half of one percent (0.5%) per month
of the Remaining Obligation, until paid in full.  All interest that accrues
after the Agreement Effective Date shall be referred to herein as the “Accrued
Interest”.  The Partial Payment, and all payments made pursuant to Sections
2 and 4 of this Agreement, shall be credited first against the Remaining
Obligation, and then credited against Accrued Interest. 

    
    

     

    4.        
Payments. 
Beginning with Matech’s Second Quarter 2005, and continuing for so long as any
portion of the Remaining Obligation or Accrued Interest are outstanding, Matech
shall pay, or shall cause a Matech Affiliate to pay, to Penn quarterly payments
(each, the “Quarterly Payment”), toward the full payment of the Remaining
Obligation and Accrued Interest.  Such Quarterly Payment shall be due to
Penn by the earlier of:  (a) ten days following the filing of Matech’s
quarterly Form 10-Q or Form 10-K for each year that any portion of the Remaining
Obligation or Accrued Interest is outstanding; or (b) sixty (60) days after the
end of the calendar quarter for any quarter in which any portion of the
Remaining Obligation or Accrued Interest in outstanding.  Notwithstanding
the foregoing, the Quarterly Payments shall be made only out of, and not to
exceed ten percent (10%) of, Matech’s Net Income Before Extraordinary Items and
Provision for Income Taxes (“Net Income”).  For purposes of this Section 4,
“Net Income” shall have the same meaning as “Net Income Before Extraordinary
Items and Provision for Income Taxes” as set forth in Matech’s publicly-filed
quarterly and annual financial statements with the Securities and Exchange
Commission or successor regulatory authority and determined by Matech’s
accountant in accordance with generally accepted accounting principles
consistently applied, or, in the case of an Affiliate, as “net income”
determined by the Affiliate’s accountant in accordance with generally accepted
accounting principles consistently applied.  If Matech or a Matech
Affiliate has any Net Income for a quarter, Matech shall pay, or shall cause the
Matech Affiliate or Licensee to pay, some amount to Penn as a Quarterly Payment
up to the 10% of Net Income; if Matech or a Matech Affiliate does not have Net
Income for the quarter, then no Quarterly Payment shall be due.

     


     

    5.        
Repayment
Agreement Amendments.

     


     

               
(a)        Sections 5, 6 and 10 of the
Repayment Agreement are hereby deleted.

     


     

               
(b)        In Section 8 of the Repayment
Agreement, the amount “$150,000” is hereby amended to state “$300,000” and the
following sentence is inserted at the end of Section 8: “In the event Mr.
Bernstein’s cash salary exceeds the sum of $250,000 (excluding for this purpose
any noncash benefits, options, warrants which may otherwise be reportable as
salary) in any calendar year Penn shall receive, on a dollar for dollar basis,
an amount equal to any cash salary received by Mr. Bernstein in excess of
$250,000. For example, if Mr. Bernstein’s annual cash salary is $275,000 for
2005, in the year ending 2005 Penn shall receive the sum of $25,000 to be
credited to the Remaining Obligation.” This shall cease when the debt in Section
1(a) has been paid off.

     


     

    6.        
New
Equity Issuance and Other Equity Issues. 

     


     

               
(a)        Within ten business days following
the Agreement Effective Date (defined below), Matech shall issue and deliver in
the name of “The Trustees of the University of Pennsylvania”, that number of
shares of Matech’s Class A Common Stock as will cause Penn to own and hold of
record three and three-quarters percent (3.75%) of the issued and outstanding
shares (excluding any and all unexercised: i) options, ii) warrants, iii)
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    iv) convertible
securities in any form) of Matech’s Class A Common Stock as set forth on
Matech’s December 31, 2004 Form 10-K (the “Penn Settlement Shares”). 
Within ten business days after receiving such representations and warranties as
shall be agreed upon between Matech and Dr. Campbell Laird in his individual
capacity (“Laird”), Matech shall issue and deliver in the name of Dr. Campbell
Laird that number of shares of Matech’s Class A Common Stock as will cause Laird
to own and hold of record three-quarters of a percent (0.75%) of the issued and
outstanding shares (excluding any and all unexercised: (i) options, (ii)
warrants, (iii) convertible debentures, or (iv) convertible securities in any
form) of Matech’s Class A Common Stock as set forth on Matech’s December 31,
2004 Form 10-K (the “Laird Settlement Shares”).  Within ten business days
after receiving such representations and warranties as shall be agreed upon
between Matech and Dr. Li Yuan Feng in his individual capacity (“Li”), Matech
shall issue and deliver in the name of Dr. Li Yuan Feng that number of shares of
Matech’s Class A Common Stock as will cause Li to own and hold of record
three-quarters of a percent (0.75%) of the issued and outstanding shares
(excluding any and all unexercised: (i) options, (ii) warrants, (iii)
convertible debentures, or (iv) convertible securities in any form) of Matech’s
Class A Common Stock as set forth on Matech’s December 31, 2004 Form 10-K (the
“Li Settlement Shares”).The Penn Settlement Shares, Laird Settlement Shares, and
Li Settlement Shares collectively shall be defined to be the “Settlement
Shares”. 

     


     

               
(b)        Within ten business days following
the Agreement Effective Date, Matech shall deliver to Penn an updated
capitalization table setting forth the capital stock Matech is authorized to
issue, the beneficial ownership of the shares of each class and series thereof
and of the securities convertible, exercisable or exchangeable therefor, that
are outstanding as of the Agreement Effective Date.

     


     

               
(c)        The Penn Settlement Shares and all
shares of Matech common stock owned and held of record on the Agreement
Effective Date by Penn (collectively, the “Matech Shares”) shall be subject to a
shareholder lock-up agreement as follows: 

    
                    (1) 
  Except as otherwise provided in Section 6(c)(2) of this Agreement,
  any interest in the  Matech Shares may not be voluntarily or
  involuntarily transferred, by operation of law or otherwise, by Penn for a
  period of eighteen (18) months from the Agreement Effective Date (the “Lock Up
  Period”).

              (2) 
  The prohibition in Section 6(c)(1) shall not apply to a transfer
  of an interest in the Matech Shares, held by Penn for the benefit of and with
  the restrictive legends referred to in Section 6(c)(1) above, to Dr. Campbell
  Laird, Dr. Li Yuan Feng or to any employee of Penn who has developed or
  assisted in the development of the intellectual property described in the
  Amended License Agreement. Notwithstanding anything contained herein to the
  contrary, an interest in the Matech Shares may not be voluntarily or
  involuntarily transferred, by operation of law or otherwise, if such transfer
  would result in a violation of the Securities Act of 1933, as amended (the
  “Act”), as may be applicable.

             
  (3) 
  An attempt to transfer an interest in the Matech Shares in violation of
  this Section 6 shall be void and Matech shall refuse to register the Matech
  Shares in question in the name of the transferee on the books of
  Matech.

             
  (4)  After expiration of the Lock-Up Period, Matech shall not object to
  transferring the owner of record for any of the Matech Shares from Penn to a
  new owner or holder of record, and shall transfer such shares on its books and
  records if/when Penn 

    

    
      
         

      

      
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      sells or
  transfers any or all of such shares in accordance with applicable federal and
  state securities laws.  In the event of any dispute regarding whether any
  particular sale or transfer would result in a violation of the Act or
  otherwise not be in accordance with applicable federal or state securities
  laws, Matech and Penn shall obtain an opinion of counsel from an attorney who
  otherwise does not represent either Matech or Penn and who is acceptable to
  both Matech and Penn, and Matech shall comply with the opinion of counsel from
  such attorney regarding such proposed sale or transfer of such shares on its
  books and records.

    

    7.
        Waiver.
Penn hereby waives any and all defaults of Matech under the SRA/Repayment
Agreement between the parties existing on or prior to the Agreement Effective
Date, it being understood that this is a waiver of the default, and not a waiver
of any amounts owed as set forth in this Agreement or a waiver of the clause
itself.  The parties acknowledge and agree that Penn shall have no
preemptive or anti-dilution rights of any kind after the date by which Penn
receives the Penn Settlement Shares in accordance with Section 6(a) of this
Agreement.

     

    8.        
Matech
Representations and Warranties.  Matech hereby represents and
warrants to Penn:

     

               
(a)        that Matech and its Affiliates (as
defined in the License Agreement) are duly organized, validly existing and in
good standing under Delaware law, and Matech has all requisite power and
authority to enter into this Agreement and perform its obligations
hereunder;

     

               
(b)        that the execution, delivery and
performance of this Agreement by Matech, and the consummation by Matech of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action on the part of Matech, and that this Agreement, upon execution
thereof, will constitute a valid and legally binding obligation of Matech,
enforceable against it in accordance with its terms;

     

               
(c)        the execution, delivery and
performance of this Agreement by Matech, and the consummation by Matech of the
transactions contemplated hereby, will not: (1) conflict with or result in a
breach of any provision of the charter or bylaws of Matech; (2) require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental authority (except as disclosed in writing to Penn prior to
execution of this Agreement by Matech); (3) require notice to, or the consent or
approval of, any person (other than a governmental authority) that has not been
obtained; (4) violate or conflict with, or result in a breach of any provision
of, or constitute a default under, or give to any third party any right of
termination, cancellation, amendment or acceleration under, any of the terms,
conditions or provisions of any contract to which Matech or an Affiliate is a
party or by which it or its assets, equity, debt or property are
bound;

     

               
(d)        the Penn Settlement Shares, when
issued and delivered in accordance with the terms of this Agreement, have been
duly and validly issued, fully paid and nonassessable; are free of any liens,
options, encumbrances, and adverse claims or restrictions; and, assuming the
accuracy of Penn’s representations and warranties in this Agreement, are issued
in compliance with Regulation D, Rule 506 under the Securities Act of 1933, as
amended and the regulations promulgated thereunder (the “1933
Act”);

     

               
(e)        there are no restrictions on the
transfer of the Penn Settlement Shares imposed by Matech’s charter documents,
any agreement to which Matech is a party, or any court or government order,
other than restrictions imposed by relevant federal and state securities laws
and this agreement; and

     

               
(f)        with a view to making available
the benefits of certain SEC rules permitting certain sales of the Penn
Settlement Shares to the public without registration, Matech will make and keep
public information available (as those terms are understood in Rule 144 under
the 1933 


     

    
      
         

      

      
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    Act); and use
reasonable efforts to file in a timely manner any reports required to be filed
with the SEC.

     

    9. 
       Penn’s
Representations and Warranties.  Penn hereby represents and warrants
to Matech:

     

               
(a)        that Penn and its Affiliates (as
defined in the License Agreement) are duly organized, validly existing and in
good standing under Pennsylvania law, and Penn has all requisite power and
authority to enter into this Agreement and perform its obligations
hereunder;

     

               
(b)        that the execution, delivery and
performance of this Agreement by Penn, and the consummation by Penn of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action on the part of Penn, and that this Agreement, upon execution
thereof, will constitute a valid and legally binding obligation of Penn,
enforceable against it in accordance with its terms;

     

               
(c)        the execution, delivery and
performance of this Agreement by Penn, and the consummation by Penn of the
transactions contemplated hereby, will not: (1) conflict with or result in a
breach of any provision of the charter or bylaws of Penn; (2) require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental authority (except as disclosed in writing to Matech prior
to execution of this Agreement by Penn); (3) require notice to, or the consent
or approval of, any person (other than a governmental authority, Laird and Li)
that has not been obtained; (4) violate or conflict with, or result in a breach
of any provision of, or constitute a default under, or give to any third party
any right of termination, cancellation, amendment or acceleration under, any of
the terms, conditions or provisions of any contract to which Penn or an
Affiliate is a party or by which it or its assets, equity, debt or property are
bound.

     

               
(d)        Penn has such knowledge and
experience in financial and business matters so as to be capable of evaluating
and understanding, and has evaluated and understood, the merits and risks of an
investment in the Company and the acquisition of the Penn Settlement Shares, and
Penn has been given the opportunity to (1) obtain information and to examine
documents relating to the Company and the Company’s business, to (2) ask
questions of, and to receive answers from, the Company concerning the Company,
the Company’s business and the terms and conditions of an investment in the
Company, and to (3) obtain any additional information, to the extent the Company
possesses such information or could acquire such information without
unreasonable effort or expense, necessary to verify the accuracy of any
information previously furnished.  All information and documents, records
and books pertaining to an investment in the Company which Penn has requested
have been made available to Penn.

     

               
(e)        The Penn Settlement Shares are
being acquired by Penn for Penn’s own account, for investment and not with a
view to, or in connection with, any public offering or distribution of the same
and without any present intention to sell the same at any particular event or
circumstances.  Penn has no agreement or other arrangement with any person
to sell, transfer or pledge any part of the Penn Settlement Shares which would
guarantee Penn any profit or provide any guarantee to Penn against any loss with
respect to the Penn Settlement Shares.

     

               
(f)        Penn understands that no federal,
state or other governmental agency of the United States or any other territory
or nation has passed on or made any recommendation or endorsement of an
investment in securities of the Company.

     

               
(g)        Penn understands that the Penn
Settlement Shares have not been registered under the United States Securities
Act of 1933, as amended (the “Act”) or applicable state or other securities
laws, and the Penn Settlement Shares are offered and sold under an exemption
from registration provided by such laws and the rules and regulations
thereunder; further, Penn understands that the Company is under no obligation to
register the Penn Settlement Shares or to comply with any applicable exemption
under any applicable securities laws with respect to the Penn Settlement
Shares.  Penn also understands that the exemption provided by Rule 144
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    the Act may not
be available because of the conditions and limitations of such Rule, and that in
the absence of the availability of such Rule, any disposition by Penn of any
portion of the Penn Settlement Shares may require compliance with some other
exemption under the Act.

     

               
(h)        Penn has been informed that
legends referring to the restrictions indicated herein are placed on the
certificate(s) evidencing the Penn Settlement Shares held by Penn.

     

               
(i)         Penn agrees that the
foregoing representations and warranties will survive the transfer of the Penn
Settlement Shares to Penn, as well as any investigation made by any party
relying on same.

     

               
(j)         Penn is an “accredited
investor” as such term is defined in Regulation D promulgated under the
Act.

     

    10.      
Material
Breach.  In the event Matech fails to remit, or fails to cause its
Affiliate or Licensee to remit, any payment due under Section 2 or 4, Penn shall
deliver a written notice to Matech, demanding payment.  If such payment is
not paid to Penn within sixty (60) days after the date of such written notice
(the “Due Date”), in addition to any other rights and remedies Penn may have at
law or in equity:

     


     

                (a)       
Penn shall have the right to immediately file suit to enforce the terms of this
Agreement; and

     


     

                (b)       
Penn shall have the right, but not the obligation, to terminate the Amended
License Agreement, effective as of a date selected by Penn at least sixty (60)
days after the Due Date, by delivering a notice of termination of the Amended
License Agreement to Matech at least thirty (30) days prior to the selected
effective date of such termination of the Amended License
Agreement.

11.       Miscellaneous. 

     


     

                (a) 
Capitalized terms not defined in this Agreement shall have the meaning set forth
in the SRA/Repayment Agreement or the Amended License Agreement, as the case may
be.  In particular, and not in limitation of the generality of the
foregoing sentence, when used in this Agreement, the capitalized terms
“Licensee” and “Affiliate” shall have the same definition and meaning as that
set forth in the Amended License Agreement.

     

               
(b)        Except as expressly set forth in
this Agreement, none of the terms of the SRA/Repayment Agreement shall be deemed
amended hereby, and each of the Amended License Agreement and SRA/Repayment
Agreement shall remain in full force and effect, except as expressly amended by
this Agreement.

     

               
(c)        There are no express or intended
third party beneficiaries pursuant to this Agreement.

     

               
(d)        This Agreement may only be
modified by a written amendment that is executed by an authorized representative
of each party.  Any waiver must be express and in writing.  No waiver
by either party of a breach by the other party will constitute a waiver of any
different or succeeding breach.  Unless otherwise specified, all remedies
are cumulative.

     

               
(e)        This Agreement, and any of the
rights or obligations hereunder, shall not be assigned or transferred, either
directly or by merger or operation of law, without the prior written consent of
the other party hereto.  Any purported assignment or transfer without such
prior written consent of the other party hereto shall be null and void. 
Any permitted assignee must agree in writing to be legally bound by this
Agreement as one, but not the only, condition of any consent granted for such
assignment.

     

               
(f)        Any notice or other required
communication (each, a “Notice”) must be in writing, addressed to the party’s
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    Agreement, and
delivered: (1) by recognized overnight courier service, charges prepaid; (2) by
U.S. mail with postage prepaid and a return receipt requested; or (3) by
facsimile with delivery acknowledged.  The addresses for Notices pursuant
to the Amended License Agreement and the SRA/Repayment Agreement are hereby
amended to reflect the Notice information listed below the signatures on this
Agreement.

     

               
(g)        If any provision of this Agreement
is held to be invalid or unenforceable by a court of competent jurisdiction,
then the remaining provisions of this Agreement will remain in full force and
effect, and such invalid or unenforceable provision will be automatically
revised to be a valid or enforceable provision that comes as close as permitted
by law to the parties’ original intent.


     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    
      
         

      

      
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    IN WITNESS
WHEREOF, the parties have executed this Agreement, through duly
authorized representatives, as of this 15th
day of August, 2005 (the “Agreement Effective Date”).

    
       

       

      
        	
                “PENN”

                THE TRUSTEES
      OF THE

                UNIVERSITY OF
      PENNSYLVANIA

              	 	 	
                “MATECH”

                MATERIAL
      TECHNOLOGIES, INC.

              	 
	 	 	 	 	 
	
                 

              	 	 	
                 

              	 
	
                By:   Perry B.
      Molinoff  

              	 	 	
                By:    Robert M.
    Bernstein

              	 
	
                Vice Provost
      for Research 

              	 	 	
                President and
      Chief Executive Officer

              	 
	 	 	 	 	 
	 	 	 	 	 
	Address for
      Notices:	 	 	 	 
	 	 	 	 	 
	
                University of
      Pennsylvania 

                Center for
      Technology Transfer

                3160 Chestnut
      Street, Suite 200

                Philadelphia,
      PA  19104-6283

                Attn.: 
      Managing Director

              	 	 	
                11661 San
      Vicente Blvd., Suite 707

                Los Angeles,
      CA  90049

                Attn.: 
      President and Chief Executive

                Officer

              	 
	 	 	 	 	 
	
                With a copy
      to:

                University of
      Pennsylvania

                Office of the
      General Counsel

                133 South 36th Street,
      Suite 300

                Philadelphia,
      PA  19104-3246

                Attn.: 
      Associate General Counsel--CTT

              	 	 	 	 

                              

       

       

       

       

       

       

       

       

    

    
      
         

      

      
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