Exhibit 10.6
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) convertible debentures, or
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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 intellec
