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Exhibit 10.1
SETTLEMENT AGREEMENT AND RELEASE
This
Settlement Agreement and Mutual Release (herein the "Agreement") is
made as of December 27, 2006 (herein "Date of Execution") by and
between Stephen Forrest Beck (herein "Beck"), an individual with
offices at 489 Pimiento Lane, Santa Barbara, CA 93108, on the one
hand, and Material Technologies, Inc., a Delaware corporation with
offices at 11661 San Vicente Boulevard, Suite 707, Los Angeles, CA
90049 (herein "Matech" or the "Company") and Robert M. Bernstein,
an individual with the same offices as Matech (herein "Bernstein",
and together with Matech, the "Respondents").
This
Agreement is made for the purpose of finally and completely
settling all claims by, among and between Beck and Respondents, as
more fully specified and described below.
I.
RECITALS
Whereas, On April 30, 2001, Beck filed a lawsuit in the Los
Angeles County Superior Court against Respondents, in a case
entitled Stephen Forrest Beck v. Robert M. Bernstein, Material
Technologies, Inc., et al. , Civil No. BC 249547, seeking
damages for breach of contract, among other things. On that
same date, Matech filed a lawsuit in the Los Angeles County
Superior Court against Plaintiff, in a case entitled Material
Technologies v. Stephen Forrest Beck , Civil No. BC249495,
demanding the return of 244,427 shares of Matech Common
Stock. The actions were thereafter consolidated.
Whereas , on July 15, 2002, the parties entered into a
settlement agreement (herein the "July Agreement") to resolve the
civil actions filed in the Superior Court of Los Angeles, case
numbers BC249495 and BC249547;
Whereas, under the terms of the July Agreement, and in
consideration for Beck executing and filing a Substitution of
Attorney form and a Request for Dismissal, Respondents agreed to
issue Beck one million shares of Matech Class A Common Stock
subject to SEC Rule 144 limitations providing that such shares were
not tradable for a period of one year from the date of
issuance;
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Whereas the one million shares of Matech Class A Common
Stock were thereafter to be freely tradable on NASDAQ by Beck with
the limitation that Beck not trade more than 10% of the volume of
Matech shares publicly traded the previous month, which amount was
to be reduced by 50% in the event that double reporting of trades
occurred in the previous month;
Whereas the percentage of Beck’s one million shares in
Matech to the total number of outstanding shares on the date of
issuance, i.e. 1.78% on July 15, 2002, was not to be diluted for a
period of eighteen (18) months thereafter by the issuance of any
other Matech shares, options or warrants with no exceptions;
Whereas if Respondents were to issue additional shares
during the eighteen-month period, it must simultaneously issue a
sufficient number of shares to Beck such that his percent ownership
in Matech as of the date of issuance of the additional shares
remained unchanged;
Whereas any subsequently issued shares to Beck would be
subject to the same SEC Rule 144 limitations as the original one
million shares;
Whereas Matech was to establish an escrow account which
would contain 2,000,000 shares of stock with an irrevocable letter
of instructions in furtherance of the anti-dilution provision;
Whereas if a dispute arose regarding the settlement
agreement, the prevailing party would be entitled to
attorney’s fees;
Whereas , on December 20, 2002, the parties entered into a
further agreement whereby Beck was to introduce sources of capital
to Respondents (herein the "December Agreement"); and in return for
said promise was to receive an initial 500,000 shares of Matech
Common Shares, increasing Beck’s non-dilutable percentage
ownership of shares to 2.67 percent;
Whereas the December Agreement also provided that the
current anti-dilution provision on the shares held by Beck would be
extended to July 30, 2006, and that a letter to that effect would
be sent to the transfer agent;
Whereas Beck did introduce sources of potential capital to
Respondents;
Whereas, on September 23, 2003, Respondents reverse split
Matech’s shares outstanding 1000 to 1 and subsequently issued
approximately 73 million new shares;
Whereas Respondents did not subsequently issue Beck the 2.67
percent of the 73 million shares, or 1,949,100 shares that were due
to him;
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Whereas as of January 31, 2006, and subsequent to the
September issuance of shares, Respondents have issued approximately
145,911,233 additional shares, of which Beck was entitled to 2.67
percent, or 3,895,829 shares;
Whereas Respondents have not issued Beck anti-dilution
shares under the terms of the July and December agreements as to
the additional 2.67 percent of the 145,911,233 shares, or 3,895,829
shares;
Whereas Beck is now owed 5,824,929 shares from the September
2003 reverse split and the additional shares issued between
September 2003 and January 31, 2006;
Whereas Respondents reverse split the shares 1-for 300 as
part of a recapitalization again in October 2006, issuing up to 71
million shares;
Whereas Beck brought a complaint before the Los Angeles
Superior Court, in a matter entitled Beck v. Material
Technologies, Inc., Bernstein , Case No. SC088898, and that
matter is currently pending in the West District of Los
Angeles.
Whereas , without admitting liability, the parties desire to
avoid litigation and mutually settle the dispute on the terms set
forth below;
Whereas Beck and Respondents, and each of them, have engaged
in extensive good faith negotiations in an effort to settle the
dispute between them for all possible causes of action relating to
the above sequence of events, and have agreed to resolve all said
causes of action against one another;
Whereas , in consideration of the waiver and release of the
right to seek a judicial determination of liability for any and all
causes of action that each party may have against the other that is
the subject of the above sequence of events; and for other good and
valuable consideration not herein recited, Beck and Respondents
hereby agree as follows:
II
TERMS OF AGREEMENT AND MUTUAL GENERAL RELEASE
Section
1 Based upon the foregoing
Recitals, which are incorporated herein by this reference and form
a material part of this Agreement, and upon the mutual covenants
and conditions contained in this Agreement and upon all conditions
precedent being satisfied, the following shall occur:
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(i)
The
parties, and each of them, shall execute and carry out the terms of
this Agreement.
(ii)
Anti-Dilution
Shares : Matech shall, no later than five (5) days after the
date this agreement is executed, establish an Anti-Dilution Escrow
account as described in the Irrevocable Escrow Instructions with
Interwest Transfer contained in Exhibit A and deposit into
it 5 million shares issued to Beck as of the date of this
Settlement Agreement (the "Anti-Dilution Shares"), of which no less
than 1,895,000 Matech shares, or 2.67% of the 71 million shares
Matech currently has authority to issue under the recapitalization,
which represent shares earned by Beck in the July Agreement and the
December Agreement, shall be immediately tradable. If Beck
receives an amount greater than $800,000 from the sale of 1,263,800
of such shares (1.78% of 71 million), then the remaining
Anti-Dilution Shares shall be returned to the Company.
(a) Company’s
counsel shall provide an opinion that the sale of the 1,895,000 of
such shares conforms to the requirements for the public resale of
shares under SEC Rule 144.
(iii) Downside Protection
Guarantee : Matech guarantees that Beck will receive not
less than $800,000 (gross amount, not taking into
consideration selling expenses including commissions) from the sale
of Anti-Dilution Shares.
(a) Should Beck sell
all of the shares issued to him in (ii) above and not receive total
proceeds of $800,000, then an additional number of shares
("Additional Anti-Dilution Shares") shall be released to Beck from
the Anti-Dilution Escrow described in (iv) below. The number of
such shares shall be calculated by subtracting the total amount
received by Beck from the sale of such Anti-Dilution Shares from
$800,000 and dividing that amount by the share price on the date on
which Beck sold his last Anti-Dilution share. If the proceeds
from the sale of such Additional Anti-Dilution Shares are not
sufficient to bring the amount received by Beck from the sale of
Anti-Dilution Shares to $800,000, then the same procedure shall be
followed until Beck receives that amount.
(b) In the event that
Beck receives $800,000 from the sale of Anti-Dilution Shares prior
to selling the full number of any Additional Anti Dilution Shares
released to him from the escrow, then he shall return to the escrow
the remaining Additional Anti-Dilution Shares once he has received
$800,000.
(c) Beck’s
counsel may provide an opinion that the sale of Additional
Anti-Dilution Shares conforms to the requirements for the public
resale of shares under SEC Rule 144. The
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Company shall provide such documents as reasonably necessary to
support such opinion. The Company agrees to review and
reasonably honor such a Rule 144 opinion letter.
(iv) Anti-Dilution
Escrow: The Company will add shares in the name of Beck
to the escrow to maintain 5,000,000 shares in such account at all
times. The Company will pay the cost of the
escrow.
(v) " Upside
Shares:" Beck will have anti-dilution protection
for 21 months from the date of the execution of this
Agreement.
a) During this period,
in each quarter that Matech issues shares for any reason (except
the issuance of shares to Beck pursuant to this agreement), it will
issue Beck 1.78% of the number of such shares as of the same date
such shares were issued and the shares shall be released to Beck
from escrow at the end of each quarter in which Matech issues
shares to any third party.
b) The Upside Shares
shall also include 1.78% of all shares issued under the
recapitalization of the Company as described in the Company’s
8K Filing of October 27, 2006 or any other recapitalization of the
Company that may occur.
c) The shares
described in this paragraph shall be held in the Upside Shares
Escrow until the earlier of the time when Beck has received the
full $800,000 from the sale of shares from the Anti-Dilution Escrow
described in Section (ii), or on the expiration of one year from
the execution date of this agreement. At that time, the
shares in this account will be made available to Beck, will be
subject to the Trading Limitations set forth in subsection (vi),
and will be released to Beck in accordance with the terms of this
Agreement. Proceeds from the sale of the shares in this
paragraph shall not count against the $800,000 guarantee in (iii)
above.
d) Respondents will
establish an "Upside Shares Escrow" by issuing 5,000,000 shares to
Beck within five (5) days of the date of this Settlement Agreement
and depositing such shares in the "Upside Shares Escrow" account.
The Company will add shares in the name of Beck to the escrow
to maintain 5,000,000 shares in such account at all times.
The Company will pay the cost of the escrow.
e) The shares issued
pursuant to this Section 1(v) will be "restricted securities" under
the Securities Act of 1933, will contain an appropriate restrictive
legend, and will not be saleable for at least one (1) year from the
date Beck is entitled to receive them.
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(vi) Trading
Limitations :
a) Beck will limit the
number of shares traded to a non-cumulative monthly amount equal to
no more than 8% of the prior month’s volume of Matech shares
as determined by Fidelity.com., and will further limit the number
of shares traded on any given day to 1/20 th of
that amount. The number of shares derived from the above
calculations shall be rounded up to the nearest 10 shares and that
shall be the trading limit. Rounding will be adjusted in the event
the trading volume increases in a proportionate amount as
follows: if the monthly trading volume is at least 1 million
shares for any given month, then rounding shall increase to 100
shares; if the monthly trading volume increases to 10 million
shares for any given month, then rounding shall increase to 1,000
shares, and so forth. This limitation on trading shall apply
to both Anti-Dilution and Upside Shares (after they are released
from escrow). However, should the escrow holder fail to
supply Beck with the tradable shares prior to the third trading day
of the month due to their resignation or for any other reason, then
the trading volume will be raised to account for that delay.
The trading month for purposes of this paragraph shall be from the
third trading day of each month through the second trading day of
the following month. Example 1: If InterWest is five days
late in a given month, then the volume for the remaining days of
the month will be 8% of the prior months volume divided by 15
rather than 20 (20-5=15). Example 2: If Interwest is
two months late, then the limit in the third month would be 8% of
month one + 8% of month two divided by 20. In the event
Bec
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