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			Exhibit 10.2

			

			

			THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE, AND IS BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.

				

			

		
			5 1⁄4 % CONVERTIBLE DEBENTURE

				

			

		

		Company: Material Technologies, Inc.

			Company Address: 11661 San Vicente Boulevard, Suite 707, Los Angeles, California 90049

			Closing Date: December 16, 2005

			Maturity Date: December 16, 2008

			Principal Amount: $200,000

			First Payment Due Date: February 15, 2006

		

		            Material Technologies, Inc., a Delaware corporation, and any successor or resulting corporation by way of merger, consolidation, sale or exchange of all or substantially all of the assets or otherwise (the “Company”), for value received, hereby promises to pay to the Holder (as such term is hereinafter defined), or such other Person (as such term is hereinafter defined) upon order of the Holder, on the Maturity Date, the Principal Amount (as such term is hereinafter defined), as such sum may be adjusted pursuant to Article 3, and to pay interest thereon from the Closing Date, monthly in arrears, on the 15th day of each month (each an “Interest Payment Due Date” and collectively, the “Interest Payment Due Dates”), commencing on the First Payment Due Date, at the rate of five and one-quarter percent (5 1⁄4 %) per annum (the “Debenture Interest Rate”), until the Principal Amount of this Debenture has been paid in full. All interest payable on the Principal Amount of this Debenture shall be calculated on the basis of a 360-day year for the actual number of days elapsed. Payment of interest on this Debenture shall be in cash or, at the option of the Holder, in shares of Common Stock of the Company valued at the then applicable Conversion Price (as defined herein). This Debenture may not be prepaid without the written consent of the Holder.

			

		

		
			ARTICLE 1

					DEFINITIONS

				

		

		
			          SECTION 1.1     Definitions.    The terms defined in this Article whenever used in this Debenture have the following respective meanings:

			

			                      (i)              “Affiliate” has the meaning ascribed to such term in Rule 12b-2 under the Securities Exchange Act of 1934, as amended.

			

			                      (ii)              “Bankruptcy Code” means the United States Bankruptcy Code of 1986, as amended (11 U.S.C. §§ 101 et. seq.).

			

		

		
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		                      (iii)              “Business Day” means a day other than Saturday, Sunday or any day on which banks located in the State of California are authorized or obligated to close.

			

			                      (iv)              “Capital Shares” means the Common Stock and any other shares of any other class or series of capital stock, whether now or hereafter authorized and however designated, which have the right to participate in the distribution of earnings and assets (upon dissolution, liquidation or winding-up) of the Company.

			

			                      (v)              “Common Shares” or “Common Stock” means shares of the Company’s Common Stock.

			

			                      (vi)              “Common Stock Issued at Conversion”, when used with reference to the securities deliverable upon conversion of this Debenture, means all Common Shares now or hereafter Outstanding and securities of any other class or series into which this Debenture hereafter shall have been changed or substituted, whether now or hereafter created and however designated.

			

			                      (vii)              “Conversion” or “conversion” means the repayment by the Company of the Principal Amount of this Debenture (and, to the extent the Holder elects as permitted by Section 3.1, accrued and unpaid interest thereon) by the delivery of Common Stock on the terms provided in Section 3.2, and “convert,” “converted,” “convertible” and like words shall have a corresponding meaning.

			

			                      (viii)              “Conversion Date” means any day on which all or any portion of the Principal Amount of this Debenture is converted in accordance with the provisions hereof.

			

			                      (ix)              “Conversion Notice” means a written notice of conversion substantially in the form annexed hereto as Exhibit A.

			

			                      (x)              “Conversion Price” on any date of determination means the applicable price for the conversion of this Debenture into Common Shares on such day as set forth in Section 3.1(a).

			

			                      (xi)              “Current Market Price” on any date of determination means the closing price of a Common Share on such day as reported on the NASDAQ OTCBB Exchange; provided that, if such security is not listed or admitted to trading on the NASDAQ OTCBB, as reported on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the closing bid price of such security on the over-the-counter market on the day in question as reported by Bloomberg LP or a similar generally accepted reporting service, as the case may be.

			

			                      (xii)              “Deadline” means the date that is the 120th day from the Closing Date.

			

			                      (xiii)              “Debenture” or “Debentures” means this Convertible Debenture of the Company or such other convertible debenture(s) exchanged therefor as provided in Section 2.1.

		

		

		

		
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			                      (xiv)              “Discount Multiplier” has the meaning set forth in Section 3.1(a).

			

			                      (xv)              “Event of Default” has the meaning set forth in Section 6.1.

			

			                      (xvi)              “Holder” means Golden Gate Investors, Inc., any successor thereto, or any Person to whom this Debenture is subsequently transferred in accordance with the provisions hereof.

			

			                      (xvii)              “Interest Payment Due Date” has the meaning set forth in the opening paragraph of this Debenture.

			

			                      (xviii)              “Market Disruption Event” means any event that results in a material suspension or limitation of trading of the Common Shares.

			

			                      (xix)              “Market Price” per Common Share means the closing price of the Common Shares during any Trading Day as reported on the NASDAQ OTCBB; provided that, if such security is not listed or admitted to trading on the NASDAQ OTCBB, as reported on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the lowest price of the Common Shares during any Trading Day on the over-the-counter market as reported by Bloomberg LP or a similar generally accepted reporting service, as the case may be.

			

			                      (xx)              “Maximum Rate” has the meaning set forth in Section 6.4.

			

			                      (xxi)              “Outstanding” when used with reference to Common Shares or Capital Shares (collectively, “Shares”) means, on any date of determination, all issued and outstanding Shares, and includes all such Shares issuable in respect of outstanding scrip or any certificates representing fractional interests in such Shares; provided, however, that any such Shares directly or indirectly owned or held by or for the account of the Company or any Subsidiary of the Company shall not be deemed “Outstanding” for purposes hereof.

			

			                      (xxii)              “Person” means an individual, a corporation, a partnership, an association, a limited liability company, an unincorporated business organization, a trust or other entity or organization, and any government or political subdivision or any agency or instrumentality thereof.

			

			                      (xxiii)              “Principal Amount” means, for any date of calculation, the principal sum set forth in the first paragraph of this Debenture (but only such principal amount as to which the Holder has (a) actually advanced pursuant to the Securities Purchase Agreement, and (b) not theretofore furnished a Conversion Notice in compliance with Section 3.2).

			

			                      (xxiv)              “Registration Rights Agreement” means that certain Registration Rights Agreement of even date herewith by and between the Company and Holder, as the same may be amended from time to time.

			

			                      (xxv)              “SEC” means the United States Securities and Exchange Commission.

		

		

		

		
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			                      (xxvi)              “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as in effect at the time.

			

			                      (xxvii)              “Securities Purchase Agreement” means that certain Securities Purchase Agreement of even date herewith by and among the Company and Holder, as the same may be amended from time to time.

			

			                      (xxviii)              “Subsidiary” means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are owned directly or indirectly by the Company.

			

			                      (xxix)              “Trading Day” means any day on which (i) purchases and sales of securities on the principal national security exchange or quotation system on which the Common Shares are traded are reported thereon, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, as reported by Bloomberg LP or a similar generally accepted reporting service, as the case may be, (ii) at least one bid for the trading of Common Shares is reported and (iii) no Market Disruption Event occurs.

			

			                      (xxx)              “Volume Weighted Average Price” per Common Share means the volume weighted average price of the Common Shares during any Trading Day as reported on the NASDAQ OTCBB; provided that, if such security is not listed or admitted to trading on the NASDAQ OTCBB, as reported on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the volume weighted average price of the Common Shares during any Trading Day on the over-the-counter market as reported by Bloomberg LP or a similar generally accepted reporting service, as the case may be.

		

		                      All references to “cash” or “$” herein means currency of the United States of America.

			

		

		
			ARTICLE 2

					EXCHANGES, TRANSFER AND REPAYMENT

					

				

		

		          SECTION 2.1     Registration of Transfer of Debentures.    This Debenture, when presented for registration of transfer, shall (if so required by the Company) be duly endorsed, or be accompanied by a written instrument of transfer in form reasonably satisfactory to the Company duly executed, by the Holder duly authorized in writing.

			

			          SECTION 2.2     Loss, Theft, Destruction of Debenture.    Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Debenture and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Debenture, the Company shall make, issue and deliver, in lieu of such lost, stolen, destroyed or mutilated Debenture, a new Debenture of like tenor and unpaid Principal Amount dated as of the date hereof (which shall accrue interest from the most recent Interest Payment Due Date on which an interest payment was made in full). This Debenture shall be held and owned upon the express condition that the provisions of this Section 2.2 are exclusive with respect to the replacement of a

		

		

		
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		mutilated, destroyed, lost or stolen Debenture and shall preclude any and all other rights and remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement of negotiable instruments or other securities without the surrender thereof.

			

			          SECTION 2.3     Who Deemed Absolute Owner.    The Company may deem the Person in whose name this Debenture shall be registered upon the registry books of the Company to be, and may treat it as, the absolute owner of this Debenture (whether or not this Debenture shall be overdue) for the purpose of receiving payment of or on account of the Principal Amount of this Debenture, for the conversion of this Debenture and for all other purposes, and the Company shall not be affected by any notice to the contrary. All such payments and such conversions shall be valid and effectual to satisfy and discharge the liability upon this Debenture to the extent of the sum or sums so paid or the conversion or conversions so made.

			

			          SECTION 2.4     Repayment at Maturity.    At the Maturity Date, the Company shall repay the outstanding Principal Amount of this Debenture in whole in cash, together with all accrued and unpaid interest thereon, in cash, to the Maturity Date.

			

		

		
			ARTICLE 3

					CONVERSION OF DEBENTURE

				

			

		

		          SECTION 3.1     Conversion; Conversion Price; Valuation Event.

			

			          (a) At the option of the Holder, this Debenture may be converted, either in whole or in part, up to the full Principal Amount hereof into Common Shares (calculated as to each such conversion to the nearest 1/100th of a share), at any time and from time to time on any Business Day, subject to compliance with Section 3.2. The number of Common Shares into which this Debenture may be converted is equal to the dollar amount of the Debenture being converted multiplied by eleven, minus the product of the Conversion Price multiplied by ten times the dollar amount of the Debenture being converted, and the entire foregoing result shall be divided by the Conversion Price. In addition, the Company shall pay to the Holder on the Conversion Date, in cash, any accrued and unpaid interest on the Debenture not included at the option of the Holder in the immediately preceding sentence. The “Conversion Price” shall be equal to the lesser of (i) $0.70, or (ii) 80% of the average of the 3 lowest Volume Weighted Average Prices during the 20 Trading Days prior to Holder’s election to convert, or (iii) 80% of the Volume Weighted Average Price on the Trading Day prior to Holder’s election to convert (the percentage figure being a “Discount Multiplier”); provided, that in the event the Registration Statement has not been declared effective by the SEC by the Deadline then the applicable Discount Multiplier shall decrease by three percentage points for each month or partial month occurring after the Deadline that the Registration Statement is not effective or, if the Registration Statement has theretofore been declared effective but is not thereafter effective, then the applicable Discount Multiplier shall decrease by three percentage points for each week or partial week occurring after the Deadline that the Registration Statement is not effective. In addition, if the Registration Statement has theretofore been declared effective but is not thereafter effective, Holder, at its option, shall be entitled to the Conversion Price on the date that the Registration Statement is no longer effective, for a period beginning on the date that the Registration Statement is declared effective and continuing for the number of days that a Registration Statement was not effective.

		

		

		

		
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			Beginning in the first full calendar month after the Registration Statement is declared effective, Holder shall convert at least 5%, but no more than 10% (such 10% maximum to be cumulative from the Deadline) of the face value of the Debenture per calendar month into Common Shares of the Company, provided that the Common Shares are available, registered and freely tradable. If Holder converts more than 5% of the face value of the Debenture in any calendar month, the excess over 5% shall be credited against the next month’s minimum conversion amount. In the event Holder does not convert at least 5% of the Debenture in any particular calendar month, the Company’s remedy shall be that Holder shall not be entitled to collect interest on the Debenture for that month if the Company gives Holder written notice, at least 5 business days prior to the end of the month, of Holder’s failure to convert the minimum required amount for that month.

			

			If the Holder elects to convert a portion of the Debenture and, on the day that the election is made, the Volume Weighted Average Price is below $0.20, the Company shall have the right to prepay that portion of the Debenture that Holder elected to convert, plus any accrued and unpaid interest, at 130% of such amount. In the event that the Company elects to prepay that portion of the Debenture, Holder shall have the right to withdraw its Conversion Notice. If, at anytime during the month, the Volume Weighted Average Price is below $0.10, Holder shall not be obligated to convert any portion of the Debenture during that month.

			

			                      (b)              Notwithstanding the provisions of Section 3.1(a), in the event the Company’s Registration Statement has not been declared effective by the Deadline or, if the Registration Statement has theretofore been declared effective but is not thereafter effective, the following will also apply in addition to any damages incurred by the Holder as a result thereof:

			

			                                         (i)            The Holder may demand repayment of one hundred and thirty percent (130%) of the Principal Amount of the Debenture, together with all accrued and unpaid interest thereon, in cash, at any time prior to the Company’s Registration Statement being declared effective by the SEC or during the period that the Company’s Registration Statement is not effective, such repayment to be made within ten (10) business days of such demand. In the event that the Debenture is so accelerated, in addition to the repayment of one hundred and thirty percent (130%) of the Principal Amount together with accrued interest as aforesaid, the Company shall immediately issue and pay, as the case may be, to the Holder 50,000 Shares of Common Stock and $15,000 for each thirty (30) day period, or portion thereof, during which the Principal Amount, including interest thereon, remains unpaid after the repayment date set forth immediately above, with the monthly payment amount to increase to $20,000 for each thirty (30) day period, or portion thereof, after the first ninety (90) day period;

			

			

			

			

			

		

		
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		                                         (ii)            If the Holder does not elect to accelerate the Debenture, the Company shall immediately issue or pay, as the case may be, to Holder 50,000 Shares of Common Stock and $15,000 for each thirty (30) day period, or portion thereof, that the Registration Statement is not effective, with the monthly payment amount to increase to $20,000 for each thirty (30) day period, or portion thereof, after the first ninety (90) day period.

			

			                                         (iii)            If the SEC indicates that the Company’s Registration Statement will be declared effective upon request by the Company, and the Company does not, within 3 business days of the SEC indication, request that the Registration Statement become effective, the amounts set forth in subsections (i) and (ii) above shall apply.

		

		

		
			          SECTION 3.2     Exercise of Conversion Privilege.    (a) Conversion of this Debenture may be exercised on any Business Day by the Holder by telecopying an executed and completed Conversion Notice to the Company. Each date on which a Conversion Notice is telecopied to the Company prior to 12:00 P.M. Pacific Standard Time in accordance with the provisions of this Section 3.2 shall constitute a Conversion Date. The Company shall convert this Debenture and issue the Common Stock Issued at Conversion in the manner provided below in this Section 3.2, and all voting and other rights associated with the beneficial ownership of the Common Stock Issued at Conversion shall vest with the Holder, effective as of the Conversion Date at the time specified in the Conversion Notice. The Conversion Notice also shall state the name or names (with addresses) of the persons who are to become the holders of the Common Stock Issued at Conversion in connection with such conversion. As promptly as practicable after the receipt of the Conversion Notice as aforesaid, but in any event not more than two (2) Business Days after the Company’s receipt of such Conversion Notice, the Company shall (i) issue the Common Stock Issued at Conversion in accordance with the provisions of this Article 3 and (ii) cause to be mailed for delivery by overnight courier to Holder (x) a certificate or certificate(s) representing the number of Common Shares to which the Holder is entitled by virtue of such conversion, (y) cash, as provided in Section 3.3, in respect of any fraction of a Common Share deliverable upon such conversion and (z) cash or shares of Common Stock, as applicable, representing the amount of accrued and unpaid interest on this Debenture as of the Conversion Date. Such conversion shall be deemed to have been effected at the time at which the Conversion Notice indicates, and at such time the rights of the Holder of this Debenture, as such (except if and to the extent that any Principal Amount thereof remains unconverted), shall cease and the Person and Persons in whose name or names the Common Stock Issued at Conversion shall be issuable shall be deemed to have become the holder or holders of record of the Common Shares represented thereby, and all voting and other rights associated with the beneficial ownership of such Common Shares shall at such time vest with such Person or Persons. The Conversion Notice shall constitute a contract between the Holder and the Company, whereby the Holder shall be deemed to subscribe for the number of Common Shares which it will be entitled to receive upon such conversion and, in payment and satisfaction of such subscription (and for any cash adjustment to which it is entitled pursuant to Section 3.4), to surrender this Debenture and to release the Company from all liability thereon (except if and to the extent that any Principal Amount thereof remains unconverted). No cash payment aggregating less than $1.00 shall be required to be given unless specifically requested by the Holder.

			

			                      (b)              If, at any time after the date of this Debenture, the Company challenges, disputes or denies the right of the Holder hereof to effect the conversion of this Debenture into 

		

		

		
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			Common Shares or otherwise dishonors or rejects any Conversion Notice delivered in accordance with this Section 3.2, then the Holder shall have the right, but not the obligation, by written notice to the Company, to require the Company to promptly redeem this Debenture for cash at one hundred and thirty (130%) of the Principal Amount thereof, together with all accrued and unpaid interest thereon to the date of redemption. Under any of the circumstances set forth above, the Company shall be responsible for the payment of all costs and expenses of the Holder, including reasonable legal fees and expenses, as and when incurred in defending itself in any such action or pursuing its rights hereunder (in addition to any other rights of the Holder).

			

			                      (c)              The Holder shall be entitled to exercise its conversion privilege notwithstanding the commencement of any case under the Bankruptcy Code. In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. § 362 in respect of the Holder’s conversion privilege. The Company hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. § 362 in respect of the conversion of this Debenture. The Company agrees, without cost or expense to the Holder, to take or consent to any and all action necessary to effectuate relief under 11 U.S.C. § 362.

			

			          SECTION 3.3     Fractional Shares.    No fractional Common Shares or scrip representing fractional Common Shares shall be delivered upon conversion of this Debenture. Instead of any fractional Common Shares which otherwise would be delivered upon conversion of this Debenture, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction multiplied by the Current Market Price on the Conversion Date. No cash payment of less than $1.00 shall be required to be given unless specifically requested by the Holder.

			

			          SECTION 3.4     Adjustments.    The Conversion Price and the number of shares deliverable upon conversion of this Debenture are subject to adjustment from time to time as follows:

			

			                      (i)             Reclassification, Etc. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another Person (where the Company is not the survivor or where there is a change in or distribution with respect to the Common Stock of the Company), sell, convey, transfer or otherwise dispose of all or substantially all its property, assets or business to another Person, or effectuate a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of (each, a “Fundamental Corporate Change”) and, pursuant to the terms of such Fundamental Corporate Change, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (“Other Property”) are to be received by or distributed to the holders of Common Stock of the Company, then the Holder of this Debenture shall have the right thereafter, at its sole option, to (x) require the Company to prepay this Debenture for cash at one hundred and thirty percent (130%) of the Principal Amount thereof, together with all accrued and unpaid interest thereon to the date of prepayment, (y) receive the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property as is receivable upon or as a result of such Fundamental Corporate Change by a holder of the number of shares of Common Stock into which the outstanding portion of this Debenture may be converted at the Conversion Price applicable immediately prior to such 

		

		

		
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			Fundamental Corporate Change or (z) require the Company, or such successor, resulting or purchasing corporation, as the case may be, to, without benefit of any additional consideration therefor, execute and deliver to the Holder a debenture with substantial identical rights, privileges, powers, restrictions and other terms as this Debenture in an amount equal to the amount outstanding under this Debenture immediately prior to such Fundamental Corporate Change. For purposes hereof, “common stock of the successor or acquiring corporation” shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to prepayment and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions shall similarly apply to successive Fundamental Corporate Changes.

			

			          SECTION 3.5     Certain Conversion Limits.

			

			          For a period of one year after the Closing Date, if and to the extent that, on any date, the holding by the Holder of this Debenture would result in the Holder’s being deemed the beneficial owner of more than 9.99% of the then Outstanding shares of Common Stock, then the Holder shall not have the right, and the Company shall not have the obligation, to convert any portion of this Debenture as shall cause such Holder to be deemed the beneficial owner of more than 9.99% of the then Outstanding shares of Common Stock. If any court of competent jurisdiction shall determine that the foregoing limitation is ineffective to prevent a Holder from being deemed the beneficial owner of more than 9.99% of the then Outstanding shares of Common Stock, then the Company shall prepay such portion of this Debenture as shall cause such Holder not to be deemed the beneficial owner of more than 9.99% of the then Outstanding shares of Common Stock. Upon such determination by a court of competent jurisdiction, the Holder shall have no interest in or rights under such portion of the Debenture. Any and all interest paid on or prior to the date of such determination shall be deemed interest paid on the remaining portion of this Debenture held by the Holder. Such prepayment shall be for cash at a prepayment price of one hundred and thirty percent (130%) of the Principal Amount thereof, together with all accrued and unpaid interest thereon to the date of prepayment.

			

			          SECTION 3.6     Surrender of Debentures.    Upon any redemption of this Debenture pursuant to Sections 3.2, 3.5 or 6.2, or upon maturity pursuant to Section 2.4, the Holder shall either deliver this Debenture by hand to the Company at its principal executive offices or surrender the same to the Company at such address by nationally recognized overnight courier. Payment of the redemption price or the amount due on maturity specified in Section 2.4, shall be made by the Company to the Holder against receipt of this Debenture (as provided in this Section 3.5) by wire transfer of immediately available funds to such account(s) as the Holder shall specify by written notice to the Company. If payment of such redemption price is not made in full by the redemption date, or the amount due on maturity is not paid in full by the Maturity Date, the Holder shall again have the right to convert this Debenture as provided in Article 3 hereof or to declare an Event of Default.

			

		

		
			

			

		

		
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			ARTICLE 4

					STATUS; RESTRICTIONS ON TRANSFER

				

			

		

		          SECTION 4.1     Status of Debenture.    This Debenture constitutes a legal, valid and binding obligation of the Company, enforceable in accordance with its terms subject, as to enforceability, to general principles of equity and to principles of bankruptcy, insolvency, reorganization and other similar laws of general applicability relating to or affecting creditors’ rights and remedies generally.

			

			          SECTION 4.2     Restrictions on Transfer.    This Debenture, and any Common Shares deliverable upon the conversion hereof, have not been registered under the Securities Act. The Holder by accepting this Debenture agrees that this Debenture and the shares of Common Stock to be acquired as interest on and upon conversion of this Debenture may not be assigned or otherwise transferred unless and until (i) the Company has received the opinion of counsel for the Holder that this Debenture or such shares may be sold pursuant to an exemption from registration under the Securities Act or (ii) a registration statement relating to this Debenture or such shares has been filed by the Company and declared effective by the SEC.

			

			          Each certificate for shares of Common Stock deliverable hereunder shall bear a legend as follows unless and until such securities have been sold pursuant to an effective registration statement under the Securities Act:

		

		
			
				

					“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”). The securities may not be offered for sale, sold or otherwise transferred except (i) pursuant to an effective registration statement under the Securities Act or (ii) pursuant to an exemption from registration under the Securities Act in respect of which the issuer of this certificate has received an opinion of counsel satisfactory to the issuer of this certificate to such effect. Copies of the agreement covering both the purchase of the securities and restrictions on their transfer may be obtained at no cost by written request made by the holder of record of this certificate to the Secretary of the issuer of this certificate at the principal executive offices of the issuer of this certificate.”

				

			

		

		
			ARTICLE 5

					COVENANTS

					

				

		

		          SECTION 5.1     Conversion.    The Company shall cause the transfer agent, not later than two (2) Business Days after the Company’s receipt of a Conversion Notice, to issue and deliver to the Holder the requisite shares of Common Stock Issued at Conversion.

			

			          SECTION 5.2     Notice of Default.    If any one or more events occur which constitute or which, with notice, lapse of time, or both, would constitute an Event of Default, the Company shall forthwith give notice to the Holder, specifying the nature and status of the Event of Default or such other event(s), as the case may be.

			

			

		

		
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		          SECTION 5.3     Payment of Obligations.    So long as this Debenture shall be outstanding, the Company shall pay, extend, or discharge at or before maturity, all its respective material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings.

			

			          SECTION 5.4     Compliance with Laws.    So long as this Debenture shall be outstanding, the Company shall comply with all applicable laws, ordinances, rules, regulations and requirements of governmental authorities, except for such noncompliance which would not have a material adverse effect on the business, properties, prospects, condition (financial or otherwise) or results of operations of the Company and the Subsidiaries.

			

			          SECTION 5.5     Inspection of Property, Books and Records.    So long as this Debenture shall be outstanding, the Company shall keep proper books of record and account in which full, true and correct entries shall be made of all material dealings and transactions in relation to its business and activities and shall permit representatives of the Holder at the Holder’s expense to visit and inspect any of its respective properties, to examine and make abstracts from any of its respective books and records, not reasonably deemed confidential by the Company, and to discuss its respective affairs, finances and accounts with its respective officers and independent public accountants, all at such reasonable times and as often as may reasonably be desired.

			

			          SECTION 5.6     Right of First Refusal on Other Financing.    In the event that the Company obtains a commitment for any other financing (either debt, equity, or a combination thereof) which is to close during the term of this Debenture, Holder shall be entitled to a right of first refusal to enable it to, at Holder’s option, match the terms of the other financing. The Company shall deliver to Holder, at least 10 days prior to the proposed closing date of such transaction, written notice describing the proposed transaction, including the terms and conditions thereof, and providing Holder an option during the 10 day period following delivery of such notice to either provide the financing being offered in such transaction on the same terms as contemplated by such transaction, or to add additional principal to this Debenture, in the amount of such other financing, on the same terms and conditions as this Debenture.

			

		

		
			ARTICLE 6

					EVENTS OF DEFAULT; REMEDIES

			

		

		

			          SECTION 6.1     Events of Default.    “Event of Default” wherever used herein means any one of the following events:

			

			                      (i)             the Company shall default in the payment of principal of or interest on this Debenture as and when the same shall be due and payable and such default shall continue for five (5) Business Days after the date such interest payment was due, or the Company shall fail to perform or observe any other covenant, agreement, term, provision, undertaking or commitment under this Debenture, the Warrants (as defined in the Securities Purchase Agreement), the Securities Purchase Agreement or the Registration Rights Agreement and such default shall continue for a period of ten (10) Business Days after the delivery to the Company of written notice that the Company is in default hereunder or thereunder;

			

			

		

		
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		                      (ii)             any of the representations or warranties made by the Company herein, in the Securities Purchase Agreement, the Registration Rights Agreement or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Debenture, the Warrants, the Securities Purchase Agreement or the Registration Rights Agreement shall be false or misleading in a material respect on the Closing Date;

			

			                      (iii)             under the laws of any jurisdiction not otherwise covered by clauses (iv) and (v) below, the Company or any Subsidiary (A) becomes insolvent or generally not able to pay its debts as they become due, (B) admits in writing its inability to pay its debts generally or makes a general assignment for the benefit of creditors, (C) institutes or has instituted against it any proceeding seeking (x) to adjudicate it a bankrupt or insolvent, (y) liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors including any plan of compromise or arrangement or other corporate proceeding involving or affecting its creditors or (z) the entry of an order for relief or the appointment of a receiver, trustee or other similar person for it or for any substantial part of its properties and assets, and in the case of any such official proceeding instituted against it (but not instituted by it), either the proceeding remains undismissed or unstayed for a period of sixty (60) calendar days, or any of the actions sought in such proceeding (including the entry of an order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its properties and assets) occurs or (D) takes any corporate action to authorize any of the above actions;

			

			                      (iv)             the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company or any Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under the Bankruptcy Code or any other applicable Federal or state law, or appointing a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or of any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and any such decree or order continues and is unstayed and in effect for a period of sixty (60) calendar days;

			

			                      (v)             the institution by the Company or any Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the Bankruptcy Code or any other applicable federal or state law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as and when they become due, or the taking of corporate action by the Company in furtherance of any such action;

			

			                      (vi)             a final judgment or final judgments for the payment of money shall have been entered by any court or courts of competent jurisdiction against the Company and remains undischarged for a period (during which execution shall be effectively stayed) of thirty (30) days, provided that the aggregate amount of all such judgments at any time outstanding (to 

			

			

			

		

		
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			the extent not paid or to be paid, as evidenced by a written communication to that effect from the applicable insurer, by insurance) exceeds Two Hundred Thousand Dollars ($200,000);

			

			                      (vii)             it becomes unlawful for the Company to perform or comply with its obligations under this Debenture, the Conversion Warrant, the Securities Purchase Agreement or the Registration Rights Agreement in any respect;

			

			                      (viii)             the Common Shares shall be delisted from the NASDAQ OTCBB (the “Trading Market” or, to the extent the Company becomes eligible to list its Common Stock on any other national security exchange or quotation system, upon official notice of listing on any such exchange or system, as the case may be, it shall be the “Trading Market”) or suspended from trading on the Trading Market, and shall not be reinstated, relisted or such suspension lifted, as the case may be, within fifteen (15) business days or;

			

			                      (ix)             the Company shall default (giving effect to any applicable grace period) in the payment of principal or interest as and when the same shall become due and payable, under any indebtedness, individually or in the aggregate, of more than Two Hundred Thousand Dollars ($200,000);

			

			          SECTION 6.2     Acceleration of Maturity; Rescission and Annulment.    If an Event of Default occurs and is continuing, then and in every such case the Holder may, by a notice in writing to the Company, rescind any outstanding Conversion Notice and declare that all amounts owing or otherwise outstanding under this Debenture are immediately due and payable and upon any such declaration this Debenture shall become immediately due and payable in cash at a price of one hundred and thirty percent (130%) of the Principal Amount thereof, together with all accrued and unpaid interest thereon to the date of payment; provided, however, in the case of any Event of Default described in clauses (iii), (iv), (v) or (vii) of Section 6.1, such amount automatically shall become immediately due and payable without the necessity of any notice or declaration as aforesaid.

			

			          SECTION 6.3     Maximum Interest Rate.    Notwithstanding anything herein to the contrary, if at any time the applicable interest rate as provided for herein shall exceed the maximum lawful rate which may be contracted for, charged, taken or received by the Holder in accordance with any applicable law (the “Maximum Rate”), the rate of interest applicable to this Debenture shall be limited to the Maximum Rate. To the greatest extent permitted under applicable law, the Company hereby waives and agrees not to allege or claim that any provisions of this Note could give rise to or result in any actual or potential violation of any applicable usury laws.

			

			          SECTION 6.4     Remedies Not Waived.    No course of dealing between the Company and the Holder or any delay in exercising any rights hereunder shall operate as a waiver by the Holder.

			

			          SECTION 6.6     Remedies.    The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Debenture will be inadequate and 

		

		

		
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			agrees, in the event of a breach or threatened breach by the Company of the provisions of this Debenture, that the Holder shall be entitled to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Debenture and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

			

			          SECTION 6.7     Payment of Certain Amounts.    Whenever pursuant to this Debenture the Company is required to pay an amount in excess of the Principal Amount plus accrued and unpaid interest, the Company and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Debenture may be difficult to determine and the amount to be so paid by the Company represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Debenture and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Debenture at a price in excess of that price paid for such shares pursuant to this Debenture. The Company and the Holder hereby agree that such amount of stipulated damages is not disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Debenture into shares of Common Stock.

		

		
			

				ARTICLE 7

					MISCELLANEOUS

				

			

		

		          SECTION 7.1     Notice of Certain Events.    In the case of the occurrence of any event described in Section 3.4 of this Debenture, the Company shall cause to be mailed to the Holder of this Debenture at its last address as it appears in the Company’s security registry, at least twenty (20) days prior to the applicable record, effective or expiration date hereinafter specified (or, if such twenty (20) days’ notice is not possible, at the earliest possible date prior to any such record, effective or expiration date), a notice thereof, including, if applicable, a statement of (y) the date on which a record is to be taken for the purpose of such dividend, distribution, issuance or granting of rights, options or warrants, or if a record is not to be taken, the date as of which the holders of record of Common Stock to be entitled to such dividend, distribution, issuance or granting of rights, options or warrants are to be determined or (z) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of record of Common Stock will be entitled to exchange their shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale transfer, dissolution, liquidation or winding-up.

			

			          SECTION 7.2     Register.    The Company shall keep at its principal office a register in which the Company shall provide for the registration of this Debenture. Upon any transfer of this Debenture in accordance with Articles 2 and 4 hereof, the Company shall register such transfer on the Debenture register.

			

			          SECTION 7.3     Withholding.    To the extent required by applicable law, the Company may withhold amounts for or on account of any taxes imposed or levied by or on behalf of any taxing authority in the United States having jurisdiction over the Company from any payments made pursuant to this Debenture.

			

			

		

		
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			          SECTION 7.4     Transmittal of Notices.    Except as may be otherwise provided herein, any notice or other communication or delivery required or permitted hereunder shall be in writing and shall be delivered personally, or sent by telecopier machine or by a nationally recognized overnight courier service, and shall be deemed given when so delivered personally, or by telecopier machine or overnight courier service as follows:

			

			                        (1)          If to the Company, to:

			

			                                       Material Technologies, Inc.

			                                       11661 San Vicente Boulevard, Suite 707

			                                       Los Angeles, California 90049

			                                       Telephone: 310-208-5589

			                                       Facsimile: 310-473-3177

			

			                                       with a copy to:

			

			                                       The Lebrecht Group, APLC

			                                       22342 Avenida Empresa, Suite 220

			                                       Rancho Santa Margarita, CA 92688

			                                       Attn: Brian A. Lebrecht, Esq.

			                                       Telephone: 949-635-1240

			                                       Facsimile: 949-635-1244

			

			                        (2)          If to the Holder, to:

			

			                                       Golden Gate Investors, Inc.

			                                       7817 Herschel Avenue, Suite 200

			                                       La Jolla, California 92037

			                                       Telephone: 858-551-8789

			                                       Facsimile: 858-551-8779

		

		Each of the Holder or the Company may change the foregoing address by notice given pursuant to this Section 7.4. Each such notice or other communication shall for all purposes of this agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or one (1) business day after the same has been deposited with a national overnight courier for delivery the next business day

			

			          SECTION 7.5     Attorneys’ Fees.    Should any party hereto employ an attorney for the purpose of enforcing or construing this Debenture, or any judgment based on this Debenture, in any legal proceeding whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief or other litigation, the prevailing party shall be entitled to receive from the other party or parties thereto reimbursement for all reasonable attorneys' fees and all reasonable costs, including but not limited to service of process, filing fees, court and court reporter costs, investigative costs, expert witness fees, and the cost of any bonds, whether taxable or not, and that such reimbursement shall be included in any judgment or final order issued in that 

		

		

		
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			proceeding. The "prevailing party" means the party determined by the court to most nearly prevail and not necessarily the one in whose favor a judgment is rendered.

			

			          SECTION 7.6     Governing Law.    This Debenture shall be governed by, and construed in accordance with, the laws of the State of California (without giving effect to conflicts of laws principles). With respect to any suit, action or proceedings relating to this Debenture, the Company irrevocably submits to the exclusive jurisdiction of the courts of the State of California sitting in San Diego and the United States District Court located in the City of San Diego and hereby waives, to the fullest extent permitted by applicable law, any claim that any such suit, action or proceeding has been brought in an inconvenient forum. Subject to applicable law, the Company agrees that final judgment against it in any legal action or proceeding arising out of or relating to this Debenture shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified copy of which judgment shall be conclusive evidence thereof and the amount of its indebtedness, or by such other means provided by law.

			

			          SECTION 7.7     Waiver of Jury Trial.    To the fullest extent permitted by law, each of the parties hereto hereby knowingly, voluntarily and intentionally waives its respective rights to a jury trial of any claim or cause of action based upon or arising out of this Debenture or any other document or any dealings between them relating to the subject matter of this Debenture and other documents. Each party hereto (i) certifies that neither of their respective representatives, agents or attorneys has represented, expressly or otherwise, that such party would not, in the event of litigation, seek to enforce the foregoing waivers and (ii) acknowledges that it has been induced to enter into this Debenture by, among other things, the mutual waivers and certifications herein.

			

			          SECTION 7.8     Headings.    The headings of the Articles and Sections of this Debenture are inserted for convenience only and do not constitute a part of this Debenture.

			

			          SECTION 7.9     Payment Dates.    Whenever any payment hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

			

			          SECTION 7.10     Binding Effect.    Each Holder by accepting this Debenture agrees to be bound by and comply with the terms and provisions of this Debenture.

			

			          SECTION 7.11     No Stockholder Rights.    Except as otherwise provided herein, this Debenture shall not entitle the Holder to any of the rights of a stockholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of stockholders or any other proceedings of the Company, unless and to the extent converted into shares of Common Stock in accordance with the terms hereof.

			

			          SECTION 7.12     Facsimile Execution.    Facsimile execution shall be deemed originals.

			

			

			

			

		

		
			
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			          IN WITNESS WHEREOF, the Company has caused this Debenture to be signed by its duly authorized officer on the date of this Debenture.

				

				                                                                                          Material Technologies, Inc.

				

				

				                                                                                          By: /s/ Robert Bernstein                                               

				

				                                                                                          Title: Chief Executive Officer                                        

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

			

		

		
			
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			EXHIBIT A

					DEBENTURE CONVERSION NOTICE

				

			

		

		TO:          Material Technologies, Inc.

			

			

			                The undersigned owner of this Convertible Debenture due December 16, 2008 (the “Debenture”) issued by Material Technologies, Inc. (the “Company”) hereby irrevocably exercises its option to convert $__________ Principal Amount of the Debenture into shares of Common Stock in accordance with the terms of the Debenture. The undersigned hereby instructs the Company to convert the portion of the Debenture specified above into shares of Common Stock Issued at Conversion in accordance with the provisions of Article 3 of the Debenture. The undersigned directs that the Common Stock and certificates therefor deliverable upon conversion, the Debenture reissued in the Principal Amount not being surrendered for conversion hereby, [the check or shares of Common Stock in payment of the accrued and unpaid interest thereon to the date of this Notice,] together with any check in payment for fractional Common Stock, be registered in the name of and/or delivered to the undersigned unless a different name has been indicated below. All capitalized terms used and not defined herein have the respective meanings assigned to them in the Debenture. The conversion pursuant hereto shall be deemed to have been effected at the date and time specified below, and at such time the rights of the undersigned as a Holder of the Principal Amount of the Debenture set forth above shall cease and the Person or Persons in whose name or names the Common Stock Issued at Conversion shall be registered shall be deemed to have become the holder or holders of record of the Common Shares represented thereby and all voting and other rights associated with the beneficial ownership of such Common Shares shall at such time vest with such Person or Persons.

			

			Date and time: __________________

			

			

			

			______________________________

			

			By: ___________________________

			

			Title: _________________________

		

		Fill in for registration of Debenture:

			Please print name and address

			(including ZIP code number):

		

		______________________________

		______________________________

		

		______________________________

		

		

		

		
			A-1Untitled Page

		

		

		Exhibit 10.3

		

		

		
			WARRANT TO PURCHASE COMMON STOCK

		

		THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT FOR DISTRIBUTION, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED NEITHER THE WARRANT NOR THE SHARES MAY BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THIS WARRANT MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, PLEDGE OR OTHER TRANSFER OF ANY INTEREST IN THIS WARRANT OR THE SHARES ISSUABLE HEREUNDER.

		

		Issuer:  Material Technologies, Inc.

			Class of Stock: Common Stock

			Issue Date:  December 16, 2005

			Expiration Date:  December 16, 2008

			

			          THIS WARRANT TO PURCHASE COMMON STOCK is being issued pursuant to that certain Securities Purchase Agreement dated as of the date hereof (the “Purchase Agreement”) between Material Technologies, Inc., a Delaware corporation (the “Company”) and Golden Gate Investors, Inc. (“Holder”).

			

		

		
			ARTICLE 1

				DESCRIPTION OF WARRANTS

				

		

		
			                     1.1      Warrants.     The Company hereby grants to Holder the right to purchase 2,000,000 shares of the Company’s Common Stock (the “Shares” or “Warrant Shares”) at a price per share equal to the Exercise Price set forth in section 2.4 below.  This Warrant is exercisable concurrently with, and not subsequent to, the issuance of a Conversion Notice under the Debenture.  The Holder’s rights to purchase the Warrant Shares shall terminate one (1) business day after the repayment of the Debenture (the “Expiration Date”).  Each date on which a Warrant Notice of Exercise is telecopied to and received by the Company prior to 12:00 P.M. Pacific Standard Time in accordance with the provisions hereof shall be deemed a “Conversion Date.”  Defined terms not defined herein shall have the meanings ascribed to them in the Debenture or the Purchase Agreement.

				

				                     1.2       Requirement to Exercise.     Holder agrees that, beginning in the first full calendar month after the Registration Statement is declared effective, Holder will exercise at least 5%, but no more than 10% (such 10% maximum to be cumulative from the Deadline), of the Warrants per calendar month, provided that the Common Shares are available, registered and freely tradable. If Holder exercises more than 5% of the Warrants in any calendar month, the excess over 5% shall be credited against the next month’s minimum exercise amount. In the event Holder does not exercise at least 5% of the Warrants in any particular calendar month, Holder shall not be entitled to collect interest on the Debenture for that month if the Company 

				

				

			

		

		
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			gives Holder written notice, at least 5 business days prior to the end of the month, of Holder’s failure to exercise the minimum required amount for that month.

			

			                     1.3       Expiration of Warrants.     This Warrant shall expire and Holder shall no longer be able to purchase the Warrant Shares on the Expiration Date.

			

		

		
			ARTICLE 2

				EXERCISE

				

		

		
			                     2.1       Method of Exercise.     Holder may exercise this Warrant by delivering a duly executed Warrant Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company.

				

				                     2.2       Delivery of Certificate and New Warrant.     As promptly as practicable after the Conversion Date, but in any event not more than two (2) Business Days thereafter, the Company shall issue the Shares and cause to be mailed for delivery by overnight courier to Holder a certificate representing the Shares acquired and, if this Warrant has not been fully exercised and has not expired, a new Warrant substantially in the form of this Warrant representing the right to acquire the portion of the Shares not so acquired.

				

				                     2.3       Replacement of Warrants.     On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

				

				                     2.4       Exercise Price.    The Exercise Price of this Warrant shall be $1.00 per Share.

				

			

		

		
			ARTICLE 3

				ADJUSTMENT TO THE SHARES

				

		

		
			The number of Shares purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

				

				                     3.1       Reclassification.    In case of any reclassification or change of outstanding securities of the class issuable upon exercise of this Warrant then, and in any such case, the Holder, upon the exercise hereof at any time after the consummation of such reclassification or change, shall be entitled to receive in lieu of each Share theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and/or property received upon such reclassification or change by a holder of one Share.  The provisions of this Section 3.1 shall similarly apply to successive reclassifications or changes.

				

				                     3.2       Subdivision or Combination of Shares.    If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its Shares, the 

			

			

			

		

		
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			Exercise Price shall be proportionately decreased in the case of a subdivision or increased in the case of a combination.

			

			                     3.3       Stock Dividends.    If the Company, at any time while this Warrant is outstanding shall pay a dividend with respect to its Shares payable in Shares, or make any other distribution of Shares with respect to Shares (except any distribution specifically provided for in Section 3.1 and Section 3.2 above), then the Exercise Price shall be adjusted, effective from and after the date of determination of shareholders entitled to received such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction, (a) the numerator of which shall be the total number of Shares outstanding immediately prior to such dividend or distribution, and (b) the denominator of which shall be the total number of Shares outstanding immediately after such dividend or distribution.

			

			                     3.4       Non-Cash Dividends.    If the Company at any time while this Warrant is outstanding shall pay a dividend with respect to Shares payable in securities other than Shares or other non-cash property, or make any other distribution of such securities or property with respect to Shares (except any distribution specifically provided for in Section 3.1 and Section 3.2 above), then this Warrant shall represent the right to acquire, upon exercise of this Warrant, such securities or property which a holder of Shares would have been entitled to receive upon such dividend or distribution, without the payment by the Holder of any additional consideration for such securities or property.

			

			                     3.5       Effect of Reorganization and Asset Sales.    If any (i) reorganization or reclassification of the Common Stock (ii) consolidation or merger of the Company with or into another corporation, or (iii) sale or all or substantially all of the Company’s operating assets to another corporation followed by a liquidation of the Company (any such transaction shall be referred to herein as an “Event”), is effected in such a way that holders of common Stock are  entitled to receive securities and/or assets as a result of their Common Stock ownership, the Holder, upon exercise of this Warrant, shall be entitled to receive such shares of stock securities or assets which the Holder would have received had it fully exercised this Warrant on or prior the record date for such Event.  The Company shall not merge into or consolidate with another corporation or sell all of its assets to another corporation for a consideration consisting primarily of securities of such corporation, unless the successor or acquiring corporation, as the case may be, shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed or observed by the Company and all of the obligations and liabilities hereunder, subject to such modification as shall be necessary to provide for adjustments which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 2.  The foregoing provisions shall similarly apply to successive mergers, consolidations or sales of assets.

			

			

			

			

			

		

		
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			                     3.6       Adjustment of Number of Shares.   Upon each adjustment in the Exercise Price, the number of Shares shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of Shares purchasable immediately prior to such adjustment by a fraction, the numerator of which shall be the Exercise Price immediately prior to such adjustment and the denominator of which shall be the Exercise Price immediately thereafter.

			

			                     3.7       No Impairment.    The Company shall not, by amendment of its articles of incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all of the provisions of this Warrant and in taking all such action as may be reasonably necessary or appropriate to protect Holder’s rights hereunder against impairment.  If the Company takes any action affecting its Common Stock other than as described above that adversely affects Holder’s rights under this Warrant, the Exercise Price shall be adjusted downward and the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Exercise Price of this Warrant is unchanged.

			

			                     3.8       Fractional Shares.    No fractional Shares shall be issuable upon the exercise of this Warrant, and the number of Shares to be issued shall be rounded down to the nearest whole Share.

			

			                     3.9       Certificate as to Adjustments.    Upon any adjustment of the Exercise Price, and upon written request of Holder, the Company, at its expense, shall compute such adjustment and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based.  The Company shall, upon written request, furnish Holder a certificate setting forth the Exercise Price in effect upon the date thereof and the series of adjustments leading to such Exercise Price.

			

			                     3.10       No Rights of Shareholders.    This Warrant does not entitle Holder to any voting rights or any other rights as a shareholder of the Company prior to the exercise of Holder’s right to purchase Shares as provided herein.

			

		

		
			ARTICLE 4

				REPRESENTATIONS AND COVENANTS OF THE COMPANY

				

		

		
			                     4.1       Representations and Warranties.    The Company hereby represents and warrants to Holder that all Shares which may be issued upon the exercise of the purchase right represented by this Warrant, shall, upon issuance, be duly authorized, validly issued, fully paid and nonasessable, and free of any liens and encumbrances. 

				

				                     4.2       Notice of Certain Events.    If the Company proposes at any time (a) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of Common Stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or 

			

			

		

		
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			substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the Company’s securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 20 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of Common Stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place (and specifying the date on which the holders of Common Stock will be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights.

			

			                     4.3       Reservation of Warrant Shares.    The Company has reserved and will keep available, out of the authorized and unissued shares of Common Stock, the full number of shares sufficient to provide for the exercise of the rights of purchase represented by this Warrant.

			

			                     4.4       Registration Rights.    If Holder exercises this Warrant and purchases some or all of the Shares, Holder shall have the Registration Rights set forth in that certain Registration Rights Agreement executed concurrently therewith.

			

		

		
			ARTICLE 5

				REPRESENTATIONS AND COVENANTS OF THE HOLDER

				

		

		
			                     5.1       Private Issue.    Holder understands (i) that the Shares issuable upon exercise of Holder’s rights contained in the Warrant are not registered under the Act or qualified under applicable state securities laws on the ground that the issuance contemplated by the Warrant will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company’s reliance on such exemption is predicated on Holder’s representations set forth in this Article 5.

				

				                     5.2       Financial Risk.    Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to bear the economic risks of its investment.

				

				                     5.3       Risk of No Registration.    Holder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the Act, or file reports pursuant to Section 15(d), of the Securities Exchange Act of 1934 (the “1934 Act”), or if a registration statement covering the securities under the Act is not in effect when it desires to sell (i) the right to purchase Shares pursuant to the Warrant, or (ii) the Shares issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period.

				

				                     5.4       Accredited Investor.    Holder is an “accredited investor,” as such term is defined in Regulation D promulgated pursuant to the Act.

				

				

				

			

		

		
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			ARTICLE 6

				MISCELLANEOUS

				

		

		
			                     6.1       Term.    This Warrant is exercisable, in whole or in part, at any time and from time to time on or after the Issue Date and on or before the Expiration Date set forth above.

				

				                     6.2       Compliance with Securities Laws on Transfer.   This Warrant may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder.

				

				                     6.3       Transfer Procedure.    Holder shall have the right without the consent of the Company to transfer or assign in whole or in part this Warrant and the Shares issuable upon exercise of this Warrant. Holder agrees that unless there is in effect a registration statement under the Act covering the proposed transfer of all or part of this Warrant, prior to any such proposed transfer the Holder shall give written notice thereof to the Company (a “Transfer Notice”).  Each Transfer Notice shall describe the manner and circumstances of the proposed transfer in reasonable detail and, if the company so requests, shall be accompanied by an opinion of legal counsel, in a form reasonably satisfactory to the Company, to the effect that the proposed transfer may be effected without registration under the Act; provided that the Company will not require opinions of counsel for transactions involving transfers to affiliates or pursuant to Rule 144 promulgated by the Securities and Exchange Commission under the act, except in unusual circumstances.

				

				                     6.4       Notices, etc.    All notices and other communications required or permitted hereunder shall be in writing and shall be delivered personally, or sent by telecopier machine or by a nationally recognized overnight courier service, and shall be deemed given when so delivered personally, or by telecopier machine or overnight courier service as follows:

			

		

		
			
				If to the Company, to:

					

					Material Technologies, Inc.

					11661 San Vicente Boulevard, Suite 707

					Los Angeles, CA 90049

					Telephone:        310-208-5589

					Facsimile:         310-473-3177

					

					with a copy to:

					

					The Lebrecht Group, APLC

					22342 Avenida Empresa, Suite 220

					Rancho Santa Margarita, CA  92688

					Attn:  Brian A. Lebrecht, Esq.

					Telephone:        949-635-1240

					Facsimile:         949-635-1244

			

		

		

		

		

		
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			If to the Holder, to:

				

				Golden Gate Investors, Inc.

				7817 Herschel Avenue, Suite 200

				La Jolla, CA 92037

				Telephone:        858-551-8789

				Facsimile:         858-551-8779

		

		or at such other address as the Company shall have furnished to the Holder.  Each such notice or other communication shall for all purposes of this agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or one (1) business day after the same has been deposited with a national overnight courier for delivery the next business day.

			

			                     6.5       Counterparts.    This agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. Facsimile execution shall be deemed originals.

			

			                     6.6       Waiver.     This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

			

			                     6.7       Attorneys Fees.    In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys fees.

			

			                     6.8       Governing Law; Jurisdiction.   This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. Each of the parties hereto consents to the jurisdiction of the federal courts whose districts encompass any part of the City of San Diego or the state courts of the State of California sitting in the City of San Diego in connection with any dispute arising under this Warrant and hereby waives, to the maximum extent permitted by law, any objection including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions.

			

			                     6.9       Remedies.      The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transactions hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Warrant will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Warrant, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Warrant and to enforce specifically the terms and provisions hereof, 

		

		

		
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		without the necessity of showing economic loss and without any bond or other security being required.

		

		              IN WITNESS WHEREOF, the parties hereto have duly caused this Warrant to Purchase Common Stock to be executed and delivered on the date first above written.

		

		Material Technologies, Inc.                                           Golden Gate Investors, Inc.

		

		By: /s/ Robert M. Bernstein                                           By: /s/ Travis Huff                                 

			

		
			Title:   Chief Executive Officer                                       Title:    Portfolio Manager                     

		

		

		

		

		

		

		

		

		

		

		

		

		

		

		

		

		

		

		

		

		

		

		

		
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			APPENDIX 1

				

				WARRANT NOTICE OF EXERCISE

						

					

		

		
			            1.         The undersigned hereby elects to purchase _____ shares of the Common Stock of Material Technologies, Inc. pursuant to the terms of the Warrant to Purchase Common Stock issued to Golden Gate Investors, Inc. on December 16, 2005.

				

				            2.         Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below:

		

		

		                                                        Golden Gate Investors, Inc.

			                                                        7817 Herschel Ave., Suite 200

			                                                        La Jolla, California 92037

		            3.         The undersigned makes the representations and covenants set forth in Article 5 of the Warrant to Purchase Common Stock.

			

			

			

			________________________________

				(Signature)

			

			___________________________

				(Date)

			

			

			

			

			

			

			

			

			

			

			

			

			

			

		

		
			9

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