Commission File No. 3383526
SCHEDULE 14C INFORMATION STATEMENT
AMENDMENT 2
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[x ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2)
[ ] Definitive Information Statement
MATERIAL TECHNOLOGY, INC.
(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box)
[ ] No fee required
[x ] Fee computed on table below per Exchange Act
Rules 14c-5(g) and 0-11.
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TITLE OF EACH CLASS OF AGGREGATE NUMBER PER UNIT MAXIMUM TOTAL
SECURITIES OF SECURITIES PRICE AGGREGATE VALUE FEE PAID
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Material Technology, Inc., 4,500,000 Shares $.001 $4,500 $.30
Class A Common Stock Par Value
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SecurFone America, Inc. 4,120,000 Shares $.19791 $815,690 $163.14
common stock Book Value
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Material Technologies, Inc. 5,560,000 Shares $.001 $5,560 $.37
Class A Common Stock Par Value
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TOTAL $ 163.81
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[x ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
_____________________________
2) Form, Schedule or Registration Statement No.:
_____________________________
3) Filing Party:
_____________________________
4) Date Filed:
_____________________________
MATERIAL TECHNOLOGY, INC.
11661 San Vicente Boulevard, Suite 707
Los Angeles, CA 90049
NOTICE OF THE TAKING OF CORPORATE ACTION
WITHOUT A MEETING BY WRITTEN CONSENT
Notice is hereby given that, twenty-one (21) days after this Information
Statement is mailed to shareholders of Material Technology, Inc., a Delaware
corporation (the "Corporation"), approximately July __, 1997, Robert M.
Bernstein, as the holder of approximately 53.3% of the outstanding capital stock
of the Corporation, by written consent, will authorize the Corporation to: (1)
transfer all of its assets and liabilities to Material Technologies, Inc., in
exchange for 5,560,000 shares of that corporation's Class A common stock and to
distribute 5,000,000 of those shares to the Corporation's existing shareholders;
(2) to effect a reverse one for ten (1 for 10) stock split reducing the
Corporation's outstanding shares from 5,000,000 to 500,000 shares of Class A
Common Stock; (3) enter into the reverse merger with SecurFone America, Inc. in
accordance with the February 17, 1997 Stock Purchase Agreement and issue
4,500,000 shares of Class A Common Stock in exchange for all of the stock of
SecurFone America, Inc.; and (4) change the Corporation's name to SecurFone
America, Inc., by amending the Corporation's Certificate of Incorporation.
These transactions are contingent on the satisfaction of certain conditions and
the closing is expected to occur by July 31, 1997. Assuming that these
conditions are satisfied, the Board of Directors intends to authorize the
Corporation to close the transactions. Concurrent with the closing, each of the
current members of the Board of Directors will resign and Robert M. Bernstein,
by written consent, will (a) amend the Corporation's Bylaws to increase the
number of directors to five (5) and (b) will elect new directors. The current
members of the Board of Directors and officers will, however, remain as
directors and officers of Matech 2. No shareholder approval for elections of
the new directors is required and none is being sought.
The accompanying information statement is furnished under Section 14(c) of the
Securities Exchange Act of 1934 and the Rules thereunder.
July 7, 1997 By: /s/ Joel Freedman
--------------------------------
Joel Freedman, Secretary
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
1
MATERIAL TECHNOLOGY, INC.
11661 San Vicente Boulevard, Suite 707
Los Angeles, CA 90049
INFORMATION STATEMENT
Material Technology, Inc., a Delaware corporation, (the "Corporation") is
furnishing this Information Statement to its shareholders in connection with
taking shareholder action without a meeting by less than unanimous written
consent of the Corporation's stockholders under Section 228 of Delaware General
Corporation Law. Robert M. Bernstein holds 2,426,130 shares of the
Corporation's Class A Common Stock representing 53.3% of the outstanding voting
shares. On or about July __, 1997, as the Corporation's majority shareholder,
Mr. Bernstein intends to execute a written consent of shareholders authorizing
the Corporation to: (1) transfer all of its assets and liabilities to Material
Technologies, Inc., ("Matech 2", a new corporation formed on March 4, 1997, for
this transaction) in exchange for 5,560,000 shares of that corporation's Class A
common stock and to distribute 5,000,000 of those shares to the Corporation's
existing shareholders; (2) to effect a reverse one for ten (1 for 10) stock
split reducing the Corporation's outstanding shares from 5,000,000 to 500,000
shares of Class A Common Stock; (3) enter into the reverse merger with SecurFone
America, Inc. in accordance with the February 17, 1997 Stock Purchase Agreement
and issue 4,500,000 shares of the Corporation's Class A Common Stock in exchange
for all of the stock of SecurFone America, Inc.; and (4) change the
Corporation's name to SecurFone America, Inc., by amending the Corporation's
Certificate of Incorporation.
These transactions are contingent on the satisfaction of certain conditions and
the closing is expected to occur by July 31, 1997. Assuming these conditions
are satisfied, the Board of Directors intends to authorize the Corporation to
close the transactions. Concurrent with the closing, each of the current
members of the Board of Directors will resign and Robert M. Bernstein, by
written consent, will (a) amend the Corporation's Bylaws to increase the number
of directors to five (5) and (b) will elect new directors. The current members
of the Board of Directors and officers will, however, remain as directors and
officers of Matech 2. No shareholder approval for elections of the new
directors is required and none is being sought.
This is only an Information Statement.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
This Information Statement is mailed to stockholders on or about July __, 1997.
Record holders of the Corporation's Class A Common Stock at the close of
business on July __, 1997 are entitled to receive a copy of this Information
Statement. On July __, 1997, there were 4,550,000 shares of Class A Common
Stock outstanding with each share entitled to one vote.
2
VOTING SECURITIES AND SECURITIES TO BE ISSUED
On July __, 1997, the Corporation had four million five hundred fifty
thousand (4,550,000) shares of Class A Common Stock outstanding. Holders of the
Class A Common stock have one vote per share of common stock held and vote as a
single Class with holders of Class B Common Stock, who have 200 votes per share,
on all matters submitted to stockholder vote including annual election of
directors, amendment of the Certificate of Incorporation, merger or
consolidation of the Company, sale, lease, or exchange of all or substantially
all of the Company's property and assets, dissolution of the Company, and all
other matters required to be submitted to stockholder vote under Delaware
Corporation Law. A majority of the shares entitled to vote is necessary to
effect these transactions under Delaware Corporation Law. No super majority is
required by the Company's Certificate of Incorporation or Bylaws. Class A
Common stockholders are entitled to receive such dividends out of the funds or
assets of the Corporation legally available therefor as, from time to time, the
Board may declare. In electing directors, if one or more Stockholders or their
proxy deliver written notice to the Secretary of the Corporation prior to the
meeting, or to the Chairperson prior to the vote for directors, all Stockholders
may cumulate their votes in electing directors. If and only if such notice is
given, every Stockholder entitled to vote for directors shall have the number of
votes determined by multiplying the number of directors to be elected by the
number of shares the Stockholder is entitled to vote and each Stockholder may
then give one nominated candidate all such votes or distribute such votes in any
proportion among the nominated candidates.
Upon closing the transaction, the Corporation will issue an additional 450,000
shares of its Class A Common Stock, 225,000 to Irwin Renneisen and 225,000 to
David Jordan, two individuals not affiliated with the Corporation, as
compensation for introducing the Corporation to SecurFone resulting in the
closing of the transaction. After this issuance there will be 5,000,000 shares
of Class A Common Stock outstanding. The Corporation will then reverse split
these shares in a ratio of 1 for 10 resulting in 500,000 shares outstanding.
The Corporation will then issue 4,500,000 shares of its Class A Common Stock to
the stockholders of SecurFone America, Inc. ("SecurFone") in exchange for all of
the outstanding common stock of SecurFone. No person has any preemptive rights
to any of these shares under the Corporation's Certificate of Incorporation, its
Bylaws, or any agreements to which the Corporation is a party.
The Corporation's other outstanding equity securities, including Class B Common
Stock, Class A and Class B Preferred Stock, were previously exchanged for equity
securities in Matech 2.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
In connection with the Stock Purchase Agreement, the Corporation issued
2,319,454 shares of its Class A Common Stock so that the total number of shares
outstanding was increased from 2,680,546 shares to 4,550,000 and 450,000
additional shares will be issued upon closing the Stock Purchase Agreement for a
total of 5,000,000 shares as follows:
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Description Number of Shares Issued Number of Shares Issued
to all Shareholders to Robert M. Bernstein
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Outstanding as of March 9, 1997 2,680,546 856,676
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Issued to Robert M. Bernstein in 1,049,454 1,049,454
lieu of $372,000 in accrued salary(1)
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Authorized to be issued upon 450,000 0
closing to Irwin Renneisen and
David Jordan for initiating
SecurFone Transaction
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Issued to Robert M. Bernstein for 520,000 520,000
$108,000 Note
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Issued to the Baker Group for 280,000 0
$58,000 Note
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Issued to the Company's Counsel 20,000 0
for Services in 1995 and 1996
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TOTAL ISSUED 2,319,454
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TOTAL OUTSTANDING 5,000,000 2,426,130
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(1) Under the agreement with Mr. Bernstein, upon closing the Stock Purchase
Agreement, the Corporation will distribute an additional 450,000 shares of
Matech 2 Class A Common Stock to Mr. Bernstein so that he will own a total
of 2,876,130 shares of Matech 2. 1,499,454 of these shares will be subject
to forfeiture to Matech 2 if, within two (2) years, Mr. Bernstein leaves
his positions as an officer and director of Matech 2 other than as a result
of death or disability.
After all steps in the transaction are complete, the following table sets forth
the percentages of each Company that certain persons will own when all steps of
the transaction are completed.
Owner Per Cent of SecurFone's Per Cent of Matech 2's
----- ----------------------- ----------------------
Outstanding Common Stock Outstanding Common Stock
------------------------ ------------------------
SecurFone's Shareholders 90% 0%
SecurFone 0% 10.1%
Robert M. Bernstein 4.9% 51.7%
Current Directors including Mr. 5.2% 54.7%
Bernstein
All other Stockholders of the 4.8% 35.2%
Corporation
In addition, Mr. Bernstein will own all 60,000 shares of Matech 2's Class B
Common Stock representing 12,000,000 votes leaving him in control of Matech 2.
In addition, in connection with the Stock Purchase Agreement, Mr. Bernstein will
enter into an agreement with SecurFone to provide consulting services for 18
months following the closing. Un-
4
der the consulting agreement, SecurFone will pay Mr. Bernstein $5,000 upon
closing the transaction. In addition, for five years from the date of the
closing, Mr. Bernstein will be entitled to receive stock options, nonexercisable
for one year from the date of issue. The number of shares subject to Mr.
Bernstein's options will equal 7% of the sum (a) the total number of shares
SecurFone registers with the Securities and Exchange Commission on Form S-8 plus
(b) the total number of shares, if any, that SecurFone sells under Regulation S
of the Securities Act of 1933. Mr. Bernstein will have to pay for the shares in
accordance with the terms of the options when issued and those terms will be
substantially the same as the other shares registered on Form S-8 or sold under
Regulation S. The number of such options and/or shares that will be issued, if
any, their value, terms, and the dates of issuance cannot be determined at this
time but will be determined by SecurFone's Board of Directors during the five
year period depending on the Board's judgment of various factors that cannot be
predicted at this time, including, but not limited to, the need to reward
SecurFone's officers, directors, and employees, and its capital requirements.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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Class of Stock Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Ownership
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Class A Robert M. Bernstein, CEO 2,426,130 Shares 53.3%(1)
Common Stock East Tower, Suite 705
11835 Olympic Blvd.
Los Angeles, CA 90064
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Joel R. Freedman, Director 113,481 Shares 2.5%
1 Bala Plaza
Bala Cynwyd, PA 19004
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John Goodman, Director 50,000 Shares 1.1%
East Tower, Suite 705
11835 Olympic Blvd.
Los Angeles, CA 90064
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Directors and executive officers 2,589,611 Shares 56.9%
as a group (3 persons)
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Sherman Baker 505,700 Shares 11.1%
555 Turnpike St.
Canton, MA 02021
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Sherman Baker Group 883,768 Shares 19.4%
composed of 15 investors
including Mr. Baker
DISSENTERS' RIGHT OF APPRAISAL
Shareholders who disapprove of the Corporation's merger with SecurFone America,
Inc., have appraisal rights under Section 262 of Delaware General Corporation
Law. To exercise appraisal rights, within twenty (20) days of the mailing of
this notice, a shareholder must demand in writing from the Corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the Corporation of the identity of the stockholder and that
the stockholder intends thereby
5
to demand the appraisal of such holder's shares. If such a demand is received
within the designated time, such shareholder will then be entitled to Notice
from the Corporation of the effective date of merger. A copy of Section 262 of
Delaware General Corporation Law entitled "Appraisal rights" is attached hereto
as Exhibit A.
BACKGROUND
THE CORPORATION
Material Technology, Inc. was incorporated in the State of Delaware on
November 7, 1985 under the name of Tensiodyne Scientific Corporation. On
July 19, 1994, the Corporation amended its Certificate of Incorporation,
changing its name to Material Technology, Inc. The Corporation's principal
offices are located at 11835 West Olympic Boulevard, East Tower, Suite 705, Los
Angeles, California 90064.
The Corporation, a development stage company, owns that certain device known as
the Fatigue Fuse, which requires additional testing to more precisely identify
commercial uses prior to marketing. It is also the exclusive licensee of the
Electrochemical Fatigue Sensor ("EFS"), which requires substantial additional
development. These technologies are intended to indicate the level of fatigue
of certain metal structures including aircraft, bridges, cranes, ships, and
other structures. No commercial applications of the Corporation's products have
been arranged to date. The Corporation intends to develop a market for the
Fatigue Fuse once testing is completed and for the EFS once it has been fully
developed. (SEE, attached Form 10K of Material Technology, Inc. for the fiscal
year ended December 31, 1996, p.2.)
Prior to 1994, the Corporation had virtually no assets or liabilities and was a
subsidiary of Tensiodyne Corporation ("Tensiodyne"). In February 1994, as part
of a reorganization, Tensiodyne assigned all of its assets and liabilities to
the Corporation. On January 22, 1994, Tensiodyne's board of directors resolved
to transfer its assets and liabilities to the Company and distribute, to
Tensiodyne's holders of record at the close of business on February 1, 1994, one
share of the Corporation's Class A Common Stock for each share of Tensiodyne
Class A Common Stock. That distribution was subsequently made pursuant to an
S-1 registration statement filed with the Securities and Exchange Commission
effective on January 19, 1996.
SECURFONE AMERICA, INC.
On February 17, 1997, the Company entered into an agreement to effect a similar
transaction with SecurFone America, Inc., ("SecurFone"). SecurFone is
principally engaged in the sale and licensing of prepaid cellular phone
services. It has been in the development state since its formation on May 20,
1996. SecurFone provides these services in some markets and, in other markets,
licenses its resources to unrelated third parties. Generally, these services
include providing understanding of the market and assistance in promotion and
advertising.
SecurFone's services include prepaid cellular calling cards, subscriber
recharges on prepaid calling cards via an automated intelligent voice response
unit, unrestricted international calling capabilities, multi-lingual
capabilities, a uniform, flat rate for long distance service from anywhere in
the United
6
States, capability to provide services from any cellular phone, regardless of
model, and voice mail service from both cellular and landline sources.
In addition, SecurFone is pursuing regional and national distribution of
landline prepaid calling cards. It has also developed software to eliminate
cellular fraud and is assessing the feasibility of licensing this technology to
other cellular providers and carriers. SecurFone's principal offices are in San
Diego, California and its primary network facilities are in Miami, Fl.
REASONS FOR THE TRANSACTION
The Corporation's Board of Directors has reviewed the transaction, including the
various steps, described in this Information Statement and determined that they
are fair to the Corporation and its shareholders. The Board concluded that the
transaction is in the best interests of the Corporation's shareholders because
it will result in each shareholder obtaining an interest in a different high
technology public company that is closer than the Corporation to realizing
revenues and profits. The Board expects Corporation's business to remain in the
development stage for some time yet. The transaction will also supply the
Corporation additional working capital.
The transfer of assets and liabilities to Matech 2 and distribution of Matech
2's shares are designed to keep the two businesses separate. Each company has a
distinct mission and distinct financial, investment, and operating
characteristics, as well as different management. Maintaining the separation
allows each company to adopt strategies and pursue objectives appropriate to its
specific business to be valued independently from the other. The distribution
enables the Corporation's management to keep its attention and resources focused
on developing its Fatigue Fuse and Electrochemical Fatigue Sensor without regard
to the corporate and financial objectives and policies of SecurFone. The
distribution allows investors to evaluate better, in accordance with their
objectives and views, the different merits and outlooks of Matech 2 and
SecurFone.
THE STOCK PURCHASE AGREEMENT AND RELATED TRANSACTIONS
As of February 17, 1997, the Corporation entered into a Stock Purchase Agreement
with Montpilier Holdings, Inc., ("MHI") SecurFone America, Inc., ("SecurFone")
and Robert M. Bernstein, the Chief Executive Officer and controlling shareholder
of both the Corporation and Material Technologies, Inc., ("Matech 2"). Under
that agreement, the parties intend to effect a reverse merger of SecurFone into
the Corporation immediately after distributing 5,000,000 shares of Matech 2's
Class A Common Stock to the Corporation's shareholders. Upon closing,
SecurFone's shareholders will acquire 90% of the Corporation's outstanding
capital stock in exchange for 100% of SecurFone's outstanding capital stock.
The principal executive offices of Matech 2 and SecurFone America, Inc. are as
follows:
Material Technologies, Inc. SecurFone America, Inc.
East Tower, Suite 705 Suite 220
11835 West Olympic Boulevard 5850 Oberlin Drive
Los Angeles, CA 90064 San Diego, CA 92121
(310) 208-5589 (619) 677-5580
7
Matech 2 was incorporated on March 4, 1997, for this transaction. On March 9,
Matech 2's Board authorized issuance of 5,560,000 shares of its Class A Common
Stock to the Corporation in exchange for all of the Corporation's assets and
liabilities. Matech 2 also issued (a) 60,000 shares of its Class B Common Stock
to Robert M. Bernstein in exchange for cancellation of his 60,000 shares of the
Corporation's Class B Common Stock, (b) 350,000 shares of Matech 2's Class A
Convertible Preferred Stock to the Baker Group in exchange for cancellation of
that group's 350,000 shares of the Corporation's Class A Preferred Stock, (c) 15
shares of Matech 2's Class B Preferred Stock to Tensiodyne in exchange for
cancellation of the Corporation's Class B Preferred Stock, and (d) 1,700,000
warrants to purchase 1,700,000 shares of Matech 2's Class A Common Stock for
$.50 per share in exchange for cancellation of like warrants to purchase the
Corporation's common stock. The rights, privileges, and designations of Matech
2's Class B Common Stock, warrants, and its preferred stock are the same as the
Corporation's corresponding securities except the redemption date of the Class B
Preferred Stock was changed from January 31, 2004 to January 1, 2002. As a
result, the Corporation has outstanding 4,550,000 shares of its Class A Common
Stock and no other securities.
On March 9, 1997, the Corporation's Board authorized the exchange of its assets
and liabilities for 5,560,000 shares of Matech 2's Class A Common Stock. That
transaction will be approved by the majority of the Corporation's shareholders
approximate 21 days after this Information Statement is mailed to the Company's
shareholders who will not vote on the transaction. The Corporation also agreed
to distribute 5 million shares of Matech 2's Class A Common Stock to its
shareholders in a ratio of one for one. The Corporation intends to distribute
369,172 shares of Matech 2's Class A Common Stock to 405 shareholders upon the
effectiveness of an S-1 Registration Statement filed with the Securities and
Exchange Commission on March 19, 1997. The remainder of the 5,000,000 shares
being distributed will be distributed to the Corporation's affiliates under the
private offering exemption from registration and such shares will be restricted.
The Corporation will retain 560,000 shares of Matech 2's Class A Common Stock
equal to 10.1% of the outstanding shares.
After the distribution, the Corporation will issue 450,000 shares to certain
individuals who introduced the Company to SecurFone and reverse split its
5,000,000 outstanding shares, 1 for 10, leaving approximately 500,000 shares
outstanding. Fractional shares will be rounded up. Thus, stockholders owning
less than ten shares of the Corporation's Class A Common Stock will still
receive one share in the reverse split.
The Corporation will then issue 4,500,000 new shares to SecurFone shareholders
in exchange for all of SecurFone's outstanding shares leaving the Corporation's
present shareholders with a 10% interest in SecurFone. SecurFone will pay
Matech 2 $120,000 to cover expenses related to the transaction. The Corporation
will then change its name to SecurFone America, Inc.; its officers and
directors will resign; and new directors will be elected and new officers
appointed. The resigning officers and directors will remain officers and
directors of Matech 2. The Corporation's present shareholders will retain
approximately 90% of their interest in the metal fatigue technologies business
through Matech 2 and own 10% of SecurFone's prepaid cellular telephone and
calling card business as well.
8
FEDERAL INCOME TAX CONSEQUENCES
For financial reporting purposes the above transaction will be treated as a
recapitalization. Therefore, the assets and liabilities will be recorded at
historical cost. As the liabilities being transferred from the Corporation to
Matech 2 exceed the assets being transferred, there will be a taxable gain to
the Corporation under Internal Revenue Code Section 357(c). The federal income
tax, however, will be minimal as a result of the Corporation's net operating
loss and other factors.
It is management's understanding that the above transaction will not qualify as
a tax free spin-off under Internal Revenue Code Section 355. As such the
distribution will be a taxable dividend to the Corporation's shareholders under
Internal Revenue Code Section 301. The Corporation's shareholders will be
required to include in their taxable ordinary income for the taxable year in
which the distribution is received, the fair market value of the Corporation's
Stock distributed to them. The Corporation's Board of Directors has determined
that the value of its Common Stock is $.001 per share. This value was
determined due to the lack of marketability of the Corporation's stock, as well
as its negative net worth and its predecessors' history of accumulated losses.
There can be no assurance that the Internal Revenue Service (the "Service") or
other taxing agency will not assert a higher value, resulting in greater tax
liability to the Corporation's shareholders as a result of the distribution.
CONDITIONS FOR CLOSING THE TRANSACTION
The reverse merger contemplated by the Stock Purchase Agreement is conditioned
on the Registration Statement filed with the Securities and Exchange Commission
on March 19, 1997, becoming effective to allow distribution of Matech 2's
Class A Common Stock to the Corporation's public shareholders prior to
July 31, 1997. The Corporation is aware of no federal or state regulatory
requirements or approvals that will be necessary prior to effecting the
proposed reverse merger of SecurFone into the Corporation.
These transactions are contingent on satisfying certain conditions including
that the closing occur by July 31, 1997. In addition, prior to closing, the
Corporation must obtain the agreement of certain affiliates of the Corporation
to restrict their ability to sell or otherwise transfer their shares of the
Corporation for one year from the date of the closing. Closing is also
conditioned on counsel for the Corporation and SecurFone verifying that the
various steps in the transaction described above have been legally and properly
taken prior to closing and that no material adverse information has come to
light. Assuming that these conditions are satisfied, the Board of Directors
intends to authorize the Corporation to close the transactions. Concurrent with
closing, each of the current members of the Board of Directors will resign
and Robert M. Bernstein, by written consent, will (a) amend the Corporation's
Bylaws to increase the number of directors to five (5) and (b) will elect new
directors. No shareholder approval for elections of the new directors is
required and none is being sought.
9
The above discussion of the Stock Purchase Agreement and the conditions to
closing contains all material terms of the Agreement.
SELECTED FINANCIAL INFORMATION
On March 9, 1997, Matech 2 authorized issuance of 5,560,000 shares of its
Class A Common Stock to the Corporation, 60,000 shares of its Class B Common
Stock to Robert M. Bernstein, 350,000 shares of its Class A Convertible
Preferred Shares to the Corporation's Class A Convertible Preferred Shareholders
in exchange for their Convertible Preferred in the Corporation, and 15 shares of
Class B Convertible Preferred Shares to the Corporation's Class B Convertible
Preferred Shareholder, Tensiodyne Corporation in exchange for its Class B
Convertible Preferred in the Corporation. Matech 2 will continue substantially
in the same line of business as the Corporation including owning all of its
assets and liabilities. The selected financial data for the Corporation are
derived from the Corporation's consolidated financial statements. The selected
financial data should be read in conjunction with the Corporation's financial
statements attached hereto as Exhibit 1.
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Fiscal Year Ending December 31 Three Months Ending Inception to
March 31 March 31
- ------------------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997 1997
(Unaudited) (Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales 0 0 0 0 0 0 0 0
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Income (Loss) From
Continued Operations $(51,180) ($714,605) $(378,848) $(203,849) $(483,186) $(150,541) $(87,649) $(2,755,193)
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Income (Loss) From
Continued Operations
Per Common Share $(.17) $(.016)
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Common Shares
Outstanding 2,580,546 5,560,000
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Total Assets $178,944 $167,858 $184,579 $150,692 $208,299 $165,481 $172,418 $172,418
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Total Liabilities $46,481 $401,600 $620,375 $783,882 $1,046,517 $914,049 $493,146 $493,146
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Redeemable Preferred
Stock 0 0 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000
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Total Stockholders'
Equity (Deficit) $132,463 $(619,166) $(585,796) $(783,190) $(988,218) $(898,568) $(470,728) $(470,728)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends 0 0 0 0 0 0 0 0
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The following selected financial data compares, as of March 31, 997, the
Corporation's per share finances with SecurFone's per share finances as derived
from the audited financial statements attached to this Information Statement
with the pro forma data as if the transaction had been completed on March 31,
1997. For financial reporting purposes, the transaction is treated as a
recapitalization of both companies.
The SecurFone SecurFone
Corporation (Pro Forma)
- --------------------------------------------------------------------------------
Number of Shares of Common Stock
Outstanding as of March 31, 1997 5,000,000 4,000,000 5,000,000
10
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Book Value per share as of March 31, 1997 $(.094) $.20 $.163
- --------------------------------------------------------------------------------
Loss per share for period ending
March 31, 1997.* $(.016) $(.07) $(.056)
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Dividends 0 0 0
- --------------------------------------------------------------------------------
*As SecurFone began operations in the fall of 1996, its financial statements
reflect only its first four months of operations ending on March 31, 1997
compared to three months of the Corporation's operations ending March 31, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of results of operations, capital resources, and
liquidity pertains to the consolidated activities of Tensiodyne Corporation for
1994 and of the Company for the two years ended December 31, 1996 and the three
months ended March 31, 1996 and 1997. Since February 1994, the Company has been
successor to all of the assets and operations of Tensiodyne pertaining to the
Fatigue Fuse and the Electrochemical Fatigue Sensor.
Results of Operations for the Years Ended December 31, 1994, 1995, and 1996, and
the first quarter of 1997 as compared with 1996.
Revenues
Neither the Company's parent Tensiodyne or Company generated any significant
revenue in 1996, 1995, 1994, or the three months ended March 31, 1997. Revenue
generated during the first quarter of 1996 consisted of interest of $507 which
accrued on a note due the Company and $9,656 on the sale of Tensiodyne
Corporation common stock. Revenue generated during the first quarter of 1997
consisted of $4,555 for research and development under the Company's subcontract
with Southwest Research Institute and $1,135 for expense reimbursement under
that contract.
COSTS AND EXPENSES
Research and Development costs (pertaining to testing) in 1996 were $699, as
compared to $15,104 in 1995 and $83,360 in 1994. The amount spent in
development costs by the Company is directly related to its available funds.
For the three months ended March 31, 1997, the Company spent $4,555 on research
and development reflecting the start up of its efforts in connection with the
Southwest Research Institute subcontract.
In the three months ended March 31, 1996 and 1997, General and Administrative
costs were $150,541 and $83,094, respectively. The major costs incurred during
the first quarter of 1996 consisted of telephone of $4,813, rent of $3,862,
professional fees of $20,183, officer's salary of $105,000, and office expense
of $8,051. The major costs incurred during the first quarter of 1997 consisted
of officer's salary of $45,000, professional fees of $21,643, telephone expenses
of $2,800, office expense of $1,869, and rent of $3,575.
11
General and Administrative costs were $421,053 for 1996, $188,745 for 1995, and
$295,488 for 1994. The major cost in 1996 were officers' salaries of $200,000,
professional fees of $111,080, office related expenses of $45,136, travel
expenses of $21,902, rent of $16,742 and consulting fees totaling $34,631. The
primary increase in these expenses resulted from the Board approving
compensation of $200,000 to Robert M. Bernstein for his successful negotiation
of the teaming agreement with SWRI the University of Pennsylvania which resulted
in the United States Air Force awarding Southwest Research Institute a
$2,500,000 contract in February 1997 to conduct research on the Company's EFS
technology. In 1995, Mr. Bernstein's compensation was $0.
The major costs incurred during 1995 were professional fees of $33,206, the
charge-off of the third offering costs of $31,480, office related expenses of
$19,751, travel cost of $28,298, rent of $28,514, interest of $10,817, and
consulting fees of $15,362.
The major cost incurred in 1994 were officer salaries of $72,000, professional
fees of $55,824, office related expenses of $32,206, travel costs of $36,991,
rent of $16,169, and utilities of $23,023.
Liquidity and Capital Resources
The Company's accountant has opined that the Company's financial condition
raises substantial doubt concerning the Company's ability to continue as a going
concern. As a result of the Company's subcontract with SWRI related to its
contract with the U.S. Air Force which is providing $2.5 million for research on
the EFS technology and the possibility of an additional $2.5 million addition to
that contract, it appears that the Company will have sufficient funds to
continue operating at least through August 1998.
As reflected in the numbers below, over the past three years, to continue
seeking capital and to maintain its patents, the Company was totally dependent
on the willingness of the Company's President, Mr. Bernstein, and long time
investors in the Company to loan the Company money or purchase additional
securities from the Company. Over the next 18 months, the Company expects to
receive approximately $550,000 from a subcontract with SWRI relating to its
research contract that the United States Air Force awarded to SWRI on February
25, 1997. These funds, however, are not guaranteed but rather the Company's best
estimate based on SWRI's contract with the Air Force and the Company's
subcontract with SWRI. In addition, the Company expects to receive $120,000
from SecurFone America, Inc. under the Stock Purchase Agreement which will
provide the Company additional working capital. These funds, however, are only
a beginning, the Company estimates an additional $5,000,000 will have to be
raised to complete research and development and bring its products to market.
Although, Mr. Bernstein intends to continue to loan the Company funds as
required to seek additional financing, he is under no obligation to do so. The
Company does not expect to receive any additional material financing from its
other long time investors.
Although the Company has provided information to various investment bankers and
venture capitalists in an effort to obtain financing, no specific plans are
under consideration. Any prediction of the likelihood or timing of obtaining
the required funding would be highly speculative. The Company's ability to
obtain such financing may depend on the results of the research contract with
SWRI which will not be evident for a year or more.
12
Cash and cash equivalents as of March 31, 1996 and 1997 were ($2,422) and $2,783
respectively. During the first quarter of 1996, the Company received $26,250
from officer loans. During the first quarter of 1997, the Company paid down
officer's loans by $44,000.
Cash and cash equivalents at December 31,1996 amounted to zero. During 1996,
the Company's president advanced $51,324, including direct loans to the Company
and payment of Company Expenses, and $64,676 was repaid towards his loan
account. In addition, an individual purchased a $25,000 convertible note, the
Company sold 50,000 of its shares of Tensiodyne Corporation for $17,750, and
$174,040 was received through the issuance of 70,000 shares of the Company's
Class A Common Stock through its 1996 stock option plan.
Cash and cash equivalents at December 31, 1995 amounted to $1,226. During 1995,
the Company's president advanced $100,874, including direct loans to the Company
and payment of Company expenses, of which $16,000 was repaid. Also in 1995, the
Company borrowed $58,000 from Mr. Sherman Baker. Of the amounts received in
1995, $135,378 was used in Company operations.
Cash and cash equivalents at December 31,1994 amounted to zero. During 1994,
the Company received $24,787 form its officers through the sale of its Class A
Common Stock, $140,000 from the sale of its Redeemable Class B Preferred Stock,
$135,050 from officer loans, and $78,495 from third-party loans. Of the total
amount received during the period, $275,441 was used in operations and $31,480
was paid in fees relating to the preparation and filing of the Registration
Statement and $78,446 was repaid to the Company's president.
AGREEMENTS AND ROYALTY OBLIGATIONS
There are certain outstanding agreements pursuant to which the Company and its
predecessors agreed to pay royalties or remuneration based upon revenues derived
from the commercial exploitation of the Fatigue Fuse and the EFS.
On December 24, 1985, Tensiodyne entered into agreements with Tensiodyne 1985-I
R&D Partnership to provide funding to research and develop the Fatigue Fuse.
These agreements were amended on October 9, 1989. Under these agreements, the
Company is obligated to pay the Partnership a 10% royalty on future gross sales
of the Fatigue Fuse limited to a return of the Partnership's original investment
of $912,500 plus interest at 6% per annum. In the event that the Company ceases
to be engaged in business, the Partnership will have all rights to the Fatigue
Fuse, and will pay a 15% royalty to the Company. See, Note 10a to the Financial
Statements.
In addition, the Company's predecessor entered into an agreement with Advanced
Technology Center ("ATC") pursuant to which, for a grant of $45,000, the Company
must return an amount equal to the grant by means of a royalty based on sales
and sub license agreements. Ben Franklin Techno-logy Center of South Eastern
Pennsylvania succeeded to this interest. The royalty obligation is limited to
the original advance and a return of 11% per annum. As of December 31, 1996,
this future royalty commitment was $119,336 compared to $107,510 as of December
31, 1995. Payment of this obligation will be made solely from Company sales and
is secured by a security interest
13
in and to equipment used in developing its technology. SEE, Note 10 b to the
Financial Statements.
A similar agreement with the same entity was entered into May 4, 1987, under
which, in consideration for an additional grant of $63,775, ATC purchased a
royalty of 3% of future gross sales and 6% of sub licensing revenues. The
agreement was amended on August 2, 1987, and, as amended, the royalty cannot
exceed the lesser of (1) the amount of the advance plus a 26% annual rate of
return or, (2) total royalties earned for a term of 17 years. At December 31,
1995, and 1996, the total future royalty commitments, including the accumulated
26% annual rate of return, was limited to approximately $440,265 and $555,734,
respectively. Payment of future royalties will be made solely from Company's
sales of the Fatigue Fuse and are secured by the Company's patents, products,
and accounts receivable related to the Fatigue Fuse only, the technology
developed with the funding. SEE, Note 10 c to the Financial Statements.
On June 27, 1991, Tensiodyne issued to Variety Investments, Ltd., and Countryman
Investments, Ltd. (hereinafter the "Issuees"), both of Vancouver, British
Columbia, a royalty in an amount equal to 20% of gross sales of a joint venture
named Tensiodyne Marketing, Inc., consisting of Tensiodyne, Variety and
Countryman. Variety and Countryman were to advance $400,000 to Tensiodyne and
additionally purchase a 2.5% royalty for $100,000. The $100,000 was paid,
however, the Issuees advanced only $360,017 and the agreement was modified.
Pursuant to the modified agreement, the $360,017 was to be repaid solely from
funds derived from the sale of equity received by December 31, 1994, and the
royalty was to be modified upon the issuance of 100,000 shares of the common
stock of Tensiodyne. The obligation to Variety and Countryman bears interest at
the rate of 4.5% per annum. No portion of this sum was repaid by December 31,
1994 as required; consequently, the Issuees will receive, in the aggregate, a
royalty interest in the amount of 16.2%. SEE, Note 10 d to the Financial
Statements.
Under the February, 2, 1994 reorganization agreement, Tensiodyne was obligated
to provide $5,100,000 in financing to the Company. During 1994, the Company
received $150,000 under this agreement in exchange for 7,560 shares of its Class
A Common Stock and 15 shares of redeemable Class B Preferred Stock. The Class B
Preferred stockholders had the right to redeem their stock at $10,000 per share
on January 31, 2004. In connection with the Stock Purchase Agreement,
Tensiodyne agreed to exchange its 15 Class B Preferred shares in the Company for
$5,000 and 15 Class B preferred shares in Matech 2 with the same redemption
rights except that Tensiodyne may redeem its shares two years earlier on January
31, 2002.
Tensiodyne provided no further funding under its agreement to provide financing
to the Company. As a result, the Company sued Tensiodyne. On March 28, 1995, a
settlement of that action was reached and Tensiodyne issued 6,375,000 shares of
its common stock to the Company. The proceeds from the sale of these shares are
applied to reduce Tensiodyne's obligation under the agreement. The balance owed
is $4,950,000 plus accrued interest at 7% per year. The Company also received
an additional 250,000 shares of Tensiodyne upon signing the settlement
agreement.
These Tensiodyne shares have little or no value. Management believes Tensiodyne
has insufficient capital to pay any of the amount owed. The Company's
Tensiodyne shares are restricted
14
and subject to Rule 144 under the Securities Act. It thus appears highly
unlikely that the Company will receive any significant funds from this source.
SEE, Note 10 e to the Financial Statements.
On August 4, 1995, the Company entered into an agreement with an unrelated third
party, Stephen Forrest Beck, to compensate him for providing the idea of
pursuing a government contract to fund the development of the EFS. As amended
on February 7, 1997, the agreement requires Matech 2 to issue him 2.5% of Matech
2's outstanding Class A common stock as of the date a subcontract is signed with
SWRI, appoint him to Matech 2's Board of Directors, and issue him a promissory
note equal to 15% of the amount of SWRI's contract with the government. The
funds due on the note are to be paid only when such funds are available to
Matech 2 from financing or revenues other than from a government contract.
Under this Agreement Matech 2 must execute a promissory note to pay this third
party $375,000 plus interest at major bank prime rate when such funds are
available to Matech 2. Interest accrues nine months after the government
contract is executed, and is payable quarterly. Matech 2 is obligated to pay
12.5% of the first $1,000,000 earned or raised through financing, other than a
government contract, and 15% of any amount over $1,000,000 until the note and
accrued interest are paid. SEE, Note 10 f to the Financial Statements.
On August 26, 1993, Tensiodyne entered into a license agreement with the
University of Pennsylvania whereby the University licensed to Tensiodyne the
right to develop and exploit the Electrochemical Fatigue Sensor. Under this
agreement, Tensiodyne issued 12,500 shares of its common stock to the University
and granted it a 5% royalty interest on revenues from sales of the EFS. The
license was assigned to the Company and terminates upon expiration of the
underlying patents.
Also on August 26, 1993, Tensiodyne entered into a Sponsored Research Agreement
with the University of Pennsylvania under which Tensiodyne agreed to sponsor
development of the EFS including paying the University $200,000 in 18 monthly
installments. These payments were not made for lack of funds. This agreement
was also assigned to the Company.
The Company expects to enter into modification agreements with the University of
Pennsylvania. Under the contemplated modification agreements, the University's
royalty on the EFS will be increased from 5% to 7%; the Company will issue the
University and certain affiliates of the University (the "University Group")
sufficient additional shares of Class A Common Stock so that the University
Group's percentage ownership equals 5% of the outstanding Class A Common Stock;
and the Company will pay the University 30% of any amounts the Company raises
from financing (excluding government contracts) in excess of $150,000 until the
$200,000 owed to the University is paid. SEE, Note 6 to the Financial
Statements.
The following summarizes the Company's royalty obligations on the Fatigue Fuse
and the EFS:
- --------------------------------------------------------------------------------
Fatigue Fuse EFS
- --------------------------------------------------------------------------------
Tensiodyne 1985-1 R&D Partnership 10.0%(1) 0
- --------------------------------------------------------------------------------
Advanced Technology Center
Future Gross Sales 6.0%(2) 0
- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------
Sublicensing Fees 12%(3)
- --------------------------------------------------------------------------------
Variety Investments, Ltd. 20.0% 0
- --------------------------------------------------------------------------------
University of Pennsylvania
Net Sales of EFS 0 7.0%
Net Sales of Services 0 2.5%
- --------------------------------------------------------------------------------
Sherman Baker 1.0% 0.5%
- --------------------------------------------------------------------------------
Totals 49.0% 10.0%
- --------------------------------------------------------------------------------
(1) The R&D Partnership's 10% royalty is limited to capital contributed plus
accrued interest.
(2) Advanced Technology Center's 6% royalty is limited to $45,000 plus 11% per
year return which equaled $119,336 as of December 31, 1996.
(3) Advanced Technology Center's 12% royalty on sales from sublicensing the
Fatigue Fuse is limited to $63,775 plus a 26% annual return which equaled
$554,734 as of December 31, 1996.
There are no prior affiliations, including stock ownership, among or between the
Company and the other persons described above to whom the Company has royalty
obligations.
BUSINESS
The Company, a development stage company, owns that certain device known as the
Fatigue Fuse, which requires additional testing to more precisely identify
commercial uses prior to manufacturing and marketing. The Company is also the
exclusive licensee of the Electrochemical Fatigue Sensor ("EFS"), which requires
substantial additional development. These technologies are intended to indicate
the level of fatigue of certain metal structures including aircraft, bridges,
cranes, ships, and other structures. No commercial application of these
products has been arranged to date. The Company intends to develop a market for
the Fatigue Fuse once testing is completed and for the EFS once it has been
fully developed.
The Fatigue Fuse is in its final testing and development stages which will last
from 6 to 12 months and cost approximately $2,000,000, including technical
testing and final development. If testing, development, and marketing are
successful, management estimates the Company should begin receiving revenue from
Fatigue Fuse sales a year of receiving the $2,000,000. At this time, management
cannot estimate the amount of revenue that may be realized. Management
estimates the EFS will require two years and approximately $2,875,000 for
development and marketing. If successful, Matech 2's two products will
complement each other and be used together in systems to detect and measure
metal fatigue. On the other hand, neither may be successful for many reasons
listed above.
At first, management intends to market the Fatigue Fuse separately. If the EFS
is successfully developed, the two products will complement on another. Several
manufacturers are capable of producing the Fatigue Fuse at a reasonable cost.
It is uncertain, however, that these products (a) will be successfully
developed, (b) can be commercially produced, (c) will perform to expectations,
or (d) that commercial markets will be successfully developed. Moreover, there
is and will be significant competition for the Fatigue Fuse if and when it is
marketed.
DEVELOPMENT OF TECHNOLOGIES
16
The development and application sequence for the Fatigue Fuse and EFS consists
of Basic Research, Advanced Development, Prototype Evaluation, Application
Demonstration, and Commercial Sales and Service. The Fatigue Fuse came first
and is furthest along in the sequence. The Basic Research was by the inventor,
Professor Maurice Brull of the University of Pennsylvania. Tensiodyne conducted
the Advanced Development, including variations of the adhesive bonding process,
and fabrication of a laboratory grade recorder (i.e., a fatigue recorder capable
of high precision and reliability, but not designed for use outside a
laboratory) for the separation events which constitute proper functioning of the
Fatigue Fuse. The next step, Prototype Applications, is on hold pending the
receipt of funding, including empirical tailoring of Fuse parameters (i.e.,
parameters to match the measured structure's material and the Fuse's exact
geometric design to the structure's material and use) to fit actual spectrum
loading (i.e., random stress loads over a specific range of loads) expected in
specific applications. Associated tests include coupon specimens (i.e., small
blocks of metal which can be conveniently loaded in a test laboratory) and full
scale structural tests (i.e., the object being tested is a large assembly
constituting a section of the structure, e.g., an airplane wing) with attached
Fuses. A prototype of a flight qualifiable operational (i.e., it can be
modified to function when attached to a flying airplane) separation event
recorder (i.e., a device which detects, stores, and displays the information
that the metal strips in the Fuse have separated at specific times) was
designed, fabricated, and successfully demonstrated. The next tasks will be to
prepare a mathematical analysis for more efficient selection of Fuse parameters
and to conduct a comprehensive test program to prove the ability of the Fuse to
accurately indicate fatigue damage when subjected to realistically large
variations in spectrum loading. The final tasks prior to marketing will be a
larger group of demonstration tests, e.g. on bridges, helicopters, tankers, or
windmills.
To date, certain organizations have included Matech's Fatigue Fuse in test
programs. Already completed are tests for welded steel civil bridge members.
In 1996, Westland Helicopter, a British firm, tested the Fatigue Fuse on
Helicopters. That test was successful in that the legs of the fuses failed in
sequence as predicted. British Aerospace is conducting a full scale, 3 year
test of the Fatigue Fuse on Grumman T-38 training aircraft. Testing will be
completed in approximately one year. The Company has also received commercial
inquiries on the availability of Fatigue Fuses for windmills, marine cranes, and
refinery pressure vessels.
Basic Research for the EFS was conducted at the University of Pennsylvania. It
defined the unique physical effect on which the EFS is based, and the materials,
configuration, instrumentation and procedures to be employed. The next phase
will be Advanced Development with more complex load cycles, additional alloys,
fabrication of a movable Electrochemical Fatigue Sensor device, and production
of another body of reproducible test data. Prototype Applications will then
include fabrication of a truly portable near-operational device. And again the
final steps are multiple demonstration tests followed by routine sales.
The Company has a teaming agreement with Southwest Research Institute ("SWRI")
and the University of Pennsylvania (collectively the "Team"). On February 25,
1997, the United States Air Force awarded the Team a $2.5 million Phase I
contract to "determine the feasibility of [the Company's Electrochemical Fatigue
Sensor] to improve the United States Air Force capability to perform durability
assessments of military aircraft, including both air frames and engines through
the
17
application of EFS to specific military aircraft alloys." The Company is a
subcontractor to SWRI and its share of this award is approximately $550,000 for
which the Company will perform certain technical tasks in accordance with its
expertise. This research will substantially assist the Company in determining
the feasibility of the EFS.
DESCRIPTION OF TECHNOLOGIES
The Company is developing these technologies because the existing methods of
detecting metal fatigue have certain disadvantages which may be avoided by the
Fatigue Fuse and/or EFS. The Fatigue Fuse, like other competing technologies,
must remain attached to the structure to respond to the structure's complete
loading history. Its advantages over the other technologies are (a) it costs
less and (b) it can be simply interpreted without a complex computer analysis
system. If the EFS is developed successfully, it will have a unique advantage
over all competing metal fatigue detection systems in that it will be able to
determine the degree of fatigue damage after a few days of temporary
installation. It will not require continuous input and will be able to assess
structures which have never before been tested for fatigue damage.
Moreover, there is a possibility that these two systems will work well together.
If the EFS can measure the status of the metal fatigue of a structure, then the
Fatigue Fuse may be calibrated to that level of fatigue and installed on the
structure to accurately measure metal fatigue as it occurs in the structure from
that date forward.
The Fatigue Fuse
The Fatigue Fuse, developed by Tensiodyne and now owned by the Company, was
designed to be affixed to a structure and to give a number of warnings as
preselected portions of the fatigue life have been used up (i.e., how far to
failure the object has progressed). It will give warnings against a condition
of widespread generalized cracking due to fatigue.
The Fatigue Fuse is a thin piece of metal similar to the material being
monitored. It consists of a series of parallel metal strips connected to a
common base, much as fingers are attached to a hand. Each "finger" has a
different geometric pattern called "notches" defining its boundaries. By
applying the laws of physics in determining the geometric contour of each of the
notches, the fatigue life of each finger should be finite and predictable. When
the fatigue life for a given finger (or fuse) is reached, the fuse breaks. By
implementing different geometry for each finger in the array, different
increments of fatigue life become observable. Typically, notches will be
designed to facilitate observation of increments of fatigue life of 10% to 20%.
By mechanically attaching or bonding these devices to different areas of the
structural member of concern, the Fuses undergo the same fatigue history as the
structural member. Therefore, breakage of a fuse will indicate that an
increment of fatigue life has been reached for the structural member.
Fatigue results from a metal object being subjected to repeated cyclic strain.
In a commercial context this strain and concomitant stress result from a large
number of cycles of loading and unloading. Sudden fracture can result. Fatigue
damage and the resulting compromise of the stability and integrity of the member
experiencing fatigue presents the potential for structural failure and extreme
danger. Objects such as bridges and wings of airplanes are subject to fatigue.
It is obvious that
18
sudden fracture of such objects could have disastrous results. It is presently
impossible, under any generally acceptable theory of fatigue phenomena, to
predict by analysis alone when the limit is reached and when a fracture may take
place. Further, in normal usage, the damage occurs cumulatively, at microscopic
levels and can only be detected, in the early stages at a time when dire results
can be avoided by examination of the microscopic structure.
This difficulty has caused designers of objects and structures subject to
fatigue to be extremely conservative. They have attempted to design structures
to maintain the stresses presented in critical areas of a structure at a level
well below known endurance limits of the material. In many instances this
results in extreme expense. In spite of this "over-designing," catastrophic
fatigue failures still occur. Although tests of the Fatigue Fuse have been
performed in independent laboratories and the Fuse has been shown to perform as
designed and as expected, Management has determined that substantial additional
testing is necessary to ensure that it will be possible to calibrate various
types of loading spectra, i.e., the range and types of stresses which a metal
object experiences during usage. Management estimates it will require an outlay
of approximately $355,000 to accomplish this additional testing. If this money
were available, Management estimates that such additional testing could be
accomplished in 6 to 12 months.
Management believes the Fuse will be of value in monitoring aircraft, ships,
bridges, conveyor systems, mining equipment, cranes, etc. No special training
will be needed to qualify individuals to report any broken segments of Fuse to
the appropriate engineering authority for necessary action. The development of
such value is contingent upon the Company's successful production and marketing
of the Fuse, and no assurance can be given that the Company will be able to
overcome the obstacles relating to introduction to the market of a new product.
In order to determine its ability to produce and market the Fatigue Fuse, it
will be necessary for the Company to have substantial capitalization and no
assurance can be given that needed capital will be available.
Electrochemical Fatigue Sensor
In August 1993, Tensiodyne entered into two agreements, a license and
development agreement, with the University of Pennsylvania regarding a new
invention, the EFS, designed to measure electrochemically the status of fatigue
of a structure without knowing the structure's past loading history. Under the
license Agreement, 12,500 shares of Tensiodyne's common stock were issued, a 5%
royalty on sales of the EFS was granted, and, under the development agreement,
Tensiodyne undertook to pay $11,112 per month for 18 months totaling $200,000.
No payments have been made on this obligation. The Company and the University
of Pennsylvania are negotiating an agreement to modify their previous agreements
(a) to increase the University's royalty from 5% to 7% of the sale of related
products, (b) to issue additional shares of the Company's Class A Common Stock
so that the University and certain affiliates will own to 5% of the outstanding
Class A Common Stock of the Company as of the effective date of the modified
agreements, and (c) to pay the University 30% of any financing the Company
receives in excess of $150,000 (excluding amounts received from government
grants or contracts) up to the $200,000 owed to the University.
The EFS is a high precision instrument consisting of (a) a cell which can be
attached to a structure to measure electrical current and (b) software to
interpret the current measurements. The cell con-
19
sists of an enclosure which contains a fluid which conducts electricity and two
metal electrodes connected to external wires leading to a battery and the
current measuring instrument. The sensor is temporarily attached to a
structural member, then the member is subjected to multiple loads while the
instrument records the current. A computer analyzes the current record to
determine the degree of fatigue damage present at the location of the sensor in
the structure. Then the sensor is removed.
The EFS is in the initial stage of research. No assurance can be given that it
can be developed successfully or that, if developed, it can be produced at a
price which will permit its marketing, or that, even if these two conditions are
met, that the EFS will find a market.
PATENTS
The Company is the assignee of four patents originally issued to Tensiodyne.
The first was issued on May 27, 1986, and expires on May 27, 2003. It is
entitled "Device for Monitoring Fatigue Life" and bears United States Patent
Office Number 4,590,804. The second patent entitled "Method of Making a Device
for Monitoring Fatigue Life" was issued on February 3, 1987 and expires February
3, 2004. It bears United States Patent Office Number 4,639,997. The third
patent, entitled "Metal Fatigue Detector," was issued on August 24, 1993 and
expires on August 24, 2010. It bears United States Patent Number 5,237,875.
The fourth patent, entitled "Device for Monitoring the Fatigue Life of a
Structural Member and a Method of Making Same," was issued on June 14, 1994 and
expires on June 14, 2011. It bears United States Patent Number 5,319,982. This
latter patent was pending when Tensiodyne assigned the rights to the Company in
February 1994 and was assigned to the Company upon issuance later in 1994.
DISTRIBUTION METHODS OF PRODUCT
If funds become available, the Company intends to exhibit the Fatigue Fuse and
the EFS at various aerospace trade shows and market its products directly to end
users, including aircraft manufacturing companies, aircraft maintenance
companies, manufacturers and operators of cranes, certain state regulatory
agencies which oversee bridge maintenance, companies engaged in manufacturing
and maintaining ships and tankers, and the military. Although management
intends to undertake marketing, dependent on the availability of funds, within
and without the United States, no assurance can be given that any such marketing
activities will be implemented.
COMPETITION
The Company's Products
1. The EFS is intended to provide a fatigue measurement which cannot now be
obtained from any other instrument, namely, an assessment of the extent of
fatigue damage before cracks have grown to a size detectable by nondestructive
inspection, in a structure which has not previously been instrumented or
monitored to record the loads or strains experienced in service.
2. The Fatigue Fuse provides a simple low-tech way to assess and predict
fatigue damage, which otherwise requires complex instrumentation, precision data
recording, and sophisticated analytical computer programs.
20
Competitor's Products
Nevertheless, other technologies exist which indicate fatigue damage. Single
cracks larger than a certain minimum size can be found by nondestructive
inspection methods such as dye penetrant, radiography, eddy current, acoustic
emission, and ultrasonics. Tracking of load and strain history, for subsequent
estimation of fatigue damage by computer processing, is possible with recording
instruments such as strain gauges and counting accelerometers. These methods
have been used for up to 40 years and also offer the advantage that they have
been accepted in the marketplace, whereas the Company's products will remain
largely unproved for some currently indeterminable period. Companies marketing
these alternate technologies include Magnaflux Corporation,
Kraut-kremer-Branson, Dunegan-Endevco, and MicroMeasurements. These companies
have more substantial assets, greater experience, more human and other resources
than the Company, including but not limited to established distribution channels
and an established customer base. The familiarity and loyalty to these
technologies may be difficult to dislodge. Because the Company is still in its
development stages, it is unable to predict whether its technologies may be
successfully developed and commercially attractive to various potential markets.
SOURCES OF BASIC MATERIAL
All of the materials used in the Company's technologies are easily available
from numerous sources. The Company will not be dependent on any supplier as a
sole provider of materials.
DEPENDENCE UPON ONE OR MORE MAJOR CUSTOMERS
The Company believes that its products may be utilized within the aerospace,
crane, bridge, large ship and tanker industries and by the military. If it
successfully develops its products, as to which no assurance can be given, the
Company will attempt to market its products to a variety of companies and
governmental agencies. Nevertheless, the Company believes that it is likely,
for several years following introduction of its products, that it may be
dependent on a small number of large customers, the loss of any one of which
would have a material adverse effect upon the Company's revenues and the
perceived reliability of its products within the marketplace.
TOTAL NUMBER OF EMPLOYEES
The Company has three employees, Robert M. Bernstein, its President and Chief
Executive Officer, who spends substantially full time on its affairs, John
Goodman, its Chief Engineer, who works part time, and a secretary. The Company
will employ other persons as needed on a part time or consulting basis, as
appropriate, based on the availability of funds.
PLAN OF OPERATIONS
The Company estimates that it requires $5,000,000 in order to complete testing
of the Fatigue Fuse and to market the Fatigue Fuse and EFS. Of this sum, it
estimates that funds would be allocated approximately as follows:
21
- --------------------------------------------------------------------------------
Preparation of production models $1,250,000
- --------------------------------------------------------------------------------
Referral fees for prior funding $625,000
- --------------------------------------------------------------------------------
Fatigue Fuse lab testing for specific loading conditions $500,000
- --------------------------------------------------------------------------------
Fatigue Fuse Beta test completion $250,000
- --------------------------------------------------------------------------------
EFS Beta testing on Turbine blades $500,000
- --------------------------------------------------------------------------------
Marketing efforts for two years including personnel $660,000
- --------------------------------------------------------------------------------
University of Pennsylvania license payment $200,000
- --------------------------------------------------------------------------------
Office administration and overhead for two years $1,015,000
- --------------------------------------------------------------------------------
TOTAL $5,000,000
- --------------------------------------------------------------------------------
The Company is seeking to raise funds from numerous sources, including various
state and federal governmental agencies and/or private or public offerings of
securities. At this time, however, the Company has no firm agreements other
than the subcontract with Southwest Research Institute related to the Air Force
contract signed on February 25,1997. That contract will provide $2,500,000 for
basic feasibility research on the EFS related to air frames and engines through
the application of EFS to specific military aircraft alloys. The Company will
receive approximately $550,000 to pay its overhead during EFS development which
will allow the Company to continue to search for the additional $5 million
needed to complete testing of the Fatigue Fuse and to market both the Fatigue
Fuse and EFS.. Sufficient interest has been generated by the military and the
Pentagon that additional military and congressional funding should be
forthcoming based upon the success of Phase I. Southwest Research has informed
the Company that Congress has appropriated an additional $2,500,000 for research
related to the EFS technology and that the contracting process for the
additional funds has begun. The Company anticipates that process will take
three to four months.
DESCRIPTION OF PROPERTY
The Company leased offices beginning June 1, 1997 at 11661 San Vicente
Boulevard, Suite 707, Los Angeles, California, 90049. The space consists of 830
square feet of useable space and will be adequate for the Company's current and
foreseeable needs. The rent is $40,464.00 payable at $1,868.00 per month.
The Company owns a remote monitoring system and certain manufacturing equipment
which is presently leased to the University of Pennsylvania (Laboratory for
Research on the Structure of Matter) for instructional and testing purposes. In
consideration of leasing this equipment, the University has agreed to perform
1,200 hours of testing on materials to be used in conjunction with the Fatigue
Fuse. The first five year term of this lease will expire on March 31, 1998.
Lessee has the right to borrow the equipment for a further five year period.
Upon the expiration of the second five year period, the University has the right
to purchase the equipment at its then fair market value.
LEGAL PROCEEDINGS
The Company is not presently involved in any legal proceedings which in
management's opinion might have a material effect on the Company.
22
DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS
The name, age, office, and principal occupation of the executive officers and
directors of Matech and certain information relating t their business
experiences are set forth below:
NAME AGE POSITION
Robert M. Bernstein 62 President/Chief Financial Officer
Chairman of the Board
Joel R. Freedman 36 Secretary/Director
Dr. John Goodman 62 Chief Engineer/Director
The Term of the directors and officers of Matech is until the next annual
meeting or until their successors are elected.
ROBERT M. BERNSTEIN, PRESIDENT/CHIEF FINANCIAL OFFICER/CHAIRMAN OF THE BOARD
Robert M. Bernstein is 62 years of age. He received a Bachelor of Science
degree from the Wharton School of the University of Pennsylvania in 1956. From
August 1959 until his certification expired in August 1972, he was a Certified
Public Accountant Licensed in Pennsylvania. From 1961 to 1981, he acted as a
consultant specializing in mergers, acquisitions, and financing. From 1981 to
1986, Mr. Bernstein was Chairman and Chief Executive Officer of Blue Jay
Enterprises, Inc. of Philadelphia, Pennsylvania, an oil and gas exploration
company. In December 1986, he formed a research and development partnership for
Tensiodyne funding approximately $750,000 for research on the Fatigue Fuse.
From January 1986 until September 1986, Mr. Bernstein was President and Chief
Executive Officer of Tensiodyne Corporation and in October 1988 became Chairman
of the Board, President, Chief Financial Officer, and CEO of Matech and retained
these positions with Matech after the reorganization in February 1994.
JOEL R. FREEDMAN, SECRETARY/DIRECTOR
Joel R. Freedman is 36 years of age. From October 1989 until February 1994,
Mr. Freedmen was Secretary and a Director of Tensiodyne and Matech, retaining
these positions with Matech after the reorganization in February 1994. Mr.
Freedman attends board meetings and provides advice to the Company as needed.
Since 1983, he has been president of Genesis Securities, Inc., a full-serve
brokerage firm in Philadelphia, PA. His duties there are a full-time
commitment. Accordingly, he does not take part in Matech's day to day
activities. He is not a director of any other company.
DR. JOHN W. GOODMAN, CHIEF ENGINEER/DIRECTOR
Dr. John W. Goodman is 62 years of age. Dr. John Goodman is presently Senior
Staff Engineer, Materials Engineering Department of TRW Space and Electronics
and was formerly Chairmen of the Aerospace Division of the American Society
of Mechanical Engineers. He holds a Doctorate of Philosophy in Materials
Science which was awarded with distinction by the University of California at
Los Angeles in 1970, received in 1957 a Masters of Science degree in Applied
Mechanics from Penn State University and in 1955 he received a Bachelor of
Science degree in Mechanical Engineering from Rutgers University. From 1972
to 1987 Dr. John Goodman was with the United States Air Force as lead
Structural Engineer for the B-1 aircraft; Chief of the Fracture and
Durability Branch and Materials Group Leader, Structures Department,
Aeronautical Systems Center, Wright-
23
Patterson Air Force Base. From 1987 to December, 1993, he was on the Senior
Staff, Materials Engineering Department of TRW Space and Electronics. He has
been Chief Engineer Development of Matech's products since May 1993. He worked
full time for Matech from August 1993 to December 1994, when he returned to TRW.
Since the he has consulted with Matech periodically.
The following individuals will constitute the Board of Directors following the
resignation of the current members of the Board:
WILLIAM STUEBER, age 37, became President of SecurFone America, Inc. in June
1996. Since 1982, he has been the owner and president of Direct Mobile, Inc.
(formerly known as Vortex Cellular, Inc.), a distributor of cellular telephones,
pages, and other communications equipment.
NICHOLAS WILSON, age 51, became Chief Executive Officer of SecurFone America,
Inc. in June 1996. From September 1994 until October 1996, Mr. Wilson was
Chairman of the Board of Intek Diversified Corporation, a publicly-traded
company engaged in the development of 220 MHZ special mobile radio systems. Mr.
Wilson is President of Roamer One Holdings, Inc. a privately-held holding
company which owns a major position in Intek Diversified Corporation. Since
1989, Mr. Wilson has served as President and Chief Executive Officer of Roamer
Communications Network which was responsible for providing engineering services
to a large number of 220 MHz licensees. In addition to serving as Director to
several private companies, Mr. Wilson serves as a Director of Ventel, Inc. a
Canadian corporation listed on both the Vancouver and Montreal Stock Exchanges.
MICHAEL LEE, age 38, became Chief Financial Officer of SecurFone America, Inc.
in June 1996. He is a certified public accountant and member of the American
Institute of Certified Public Accountants and the Ohio Society of Certified
Public Accountants. Mr. Lee has been a tax partner since October 1993 at Bober,
Markey & Company, a large regional public accounting firm. Previously he worked
as a tax manager for ten years at Grant Thorton International LLP, one of the
world's largest public accounting firms. Mr. Lee presently serves as Treasurer
and Director of Roamer One Holdings, Inc. and has served as a Director for
numerous private companies.
DEREK DAVIS, age 29, became Chief Operating Officer of SecurFone America, Inc.
in June 1996. From March 1993 until June 1996, Mr. Davis was Director of
Operations of Central Communications Corporation, a company engaged in the
construction and operation of 220 MHz special mobile radio systems. From
December 1990 until September 1991, Mr. Davis was a financial analyst for Rovic
Diamonds, a diamond mining company. Mr. Davis has a Masters of Business
Administration from the University of San Diego.
STEVEN L. WASSERMAN, age 43, became Secretary and a Director of SecurFone
America, Inc. in June 1996. Mr. Wasserman is an attorney and a partner of the
law firm of Kohrman Jackson & Krantz, PLL, Cleveland, Ohio. He is Secretary and
a Director of Intek Diversified Corporation, and is also a member of Intek's
Audit Committee and Stock Option Committee. Mr. Wasserman is also a Director of
Roamer One Holdings, Inc. He was a principal of the law corporation of Honohan,
Harwood, Chernett & Wasserman, LPA, Cleveland, Ohio, from September 1983 until
September 1, 1994. Mr. Wasserman is a member of the bars of Ohio and Florida.
23
The Board of Directors does not have any committees. All Board actions during
the previous fiscal year, 1996, were conducted by the unanimous consent of the
three directors.
EXECUTIVE COMPENSATION
- ---------------------------------------------------------------------------------------------------------
Other Restricted All Other
Name and Annual Stock Options LTIP Compen-
Principal Salary($) Bonus Compen- Awards /SARs Payouts sation ($)
Position Year ($) sation($) ($) (#) ($)
- ---------------------------------------------------------------------------------------------------------
Robert M. 1994 $72,000(1) 0 0 $0 0 0 $10(2)
Bernstein 1995 0 0 0 0 0 0 0
CEO 1996 $200,000(1) 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------
John W. 1994 $71,096 0 0 0 0 0 0
Goodman 1995 2,745 0 0 0 0 0 0
Director and 1996 0 0 0 0 0 0 0
Engineer
- ---------------------------------------------------------------------------------------------------------
(1) This amount was accrued. On April 25, contingent on Mr. Bernstein
remaining as an officer and director of Matech 2 for two years, the Corporation
agreed to issue Mr. Bernstein 1,049,454 shares of its Class A Common Stock and
an additional 450,000 shares of Matech 2 Class A Common Stock in exchange for
cancellation of the $372,000 in salary accrued by Mr. Bernstein.
(2) In February 1994, the Company issued 10,000 shares of Class A Common Stock,
par value $.001, to Mr. Bernstein
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On January 12,1996, Matech's S-1 registration became effective for distribution
of 262.267 shares of Class A Common Stock to 391 shareholders of Tensiodyne
Corporation as of February 2, 1994. Of these shares, 132,565 shares were
distributed to Robert M. Bernstein.
Approximately two weeks later, Matech Class A Common Shares were quoted on the
NASDAQ Bulletin Board. Its trading symbol is MTKN. During 1996, Matech's
Class Common Stock traded between a low of $2.50 per share and a high of $5.00
per share. The following chart contains the high and low prices per share at
which the stock traded in each 1996 calendar quarter.
- --------------------------------------------------------------------------------
High Low
- --------------------------------------------------------------------------------
First Quarter Unavailable Unavailable
- --------------------------------------------------------------------------------
Second Quarter $4.50 per share $3.00 per share
- --------------------------------------------------------------------------------
Third Quarter $3.50 $2.50
- --------------------------------------------------------------------------------
Fourth Quarter $2.50 $5.00
- --------------------------------------------------------------------------------
On December 31, 1996, there were 405 shareholders.
25
No dividends on any of the Company's shares were declared or paid during 1996
nor are any dividends contemplated in the foreseeable future.
On February 20, 1996, and December 20, 1996, Matech filed Form S-8 registration
statements registering 220,000 shares of the Company's Class A Common Stock to
be issued to employees, advisors and consultants under the Company's 1996 Stock
Option Plan adopted by the Board of Directors on February 19, 1996. As of June
30, 1997, 170,000 shares have been issued under this plan to various
consultants.
INDEPENDENT PUBLIC ACCOUNTANT
The Corporation's independent public accountant for its most recent fiscal year,
1996, was Jonathon Reuben, CPA, An Accounting Corporation. The Corporation has
not retained an accountant for the current fiscal year.
ATTACHMENTS
Attachment A: Delaware General Corporation Law, Section 262: Appraisal Rights
Exhibit 1: Financial Statements of Material Technology, Inc.
Exhibit 2: Financial Statements of SecurFone America, Inc.
26
ATTACHMENT A
DELAWARE GENERAL CORPORATION LAW
Section 262 Appraisal rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a non stock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a non stock corporation; and
the words "depository receipt" means a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an inter dealer
quotation system by the National Association of Securities Dealers, Inc. or
(ii) held of record by more than 2,000 holders; and further provided that
no appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts at the respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an inter dealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
27
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identify of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holder of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of
the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting
28
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before
the effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger
or consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
the subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix , in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of the subsection (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement
shall be mailed to the stockholder within 10 days after his written request for
such a statement is received by the surviving or resulting corporation or
within 10 days after expiration of the period for delivery of demands for
appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week be-
29
fore the day hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court deems advisable.
The forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation .
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of the stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of his demand for an
appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Not-
30
withstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (8 Del. C. 1953, Section 262;
56 Del. Laws, C. 50; 56 Del. Laws, C. 186, Section 24; 57 Del. Laws, C. 148,
Sections 27-29; 59 Del. Laws, C. 106, Section 12; 60 Del. Laws, C. 371, Sections
3-12; 63 Del. Laws, C. 25, Section 14; 63 Del. Laws, C. 152, Sections 1,2; 64
Del. Laws, C. 112, Sections 46-54; 66 Del. Laws, C. 136, Sections 30-32; 66 Del.
Laws, C. 352, Section 9; 67 Del. Laws, C. 376, Sections 19, 20; 68 Del. Laws, C.
337, Sections 3, 4; 69 Del. Laws, C. 61, Section 10; 69 Del. Laws, C. 262,
Sections 1-9 ; 70 Del. Laws, C. 79, Section 16; 70 Del. Laws, C. 186. Section
1;70 Del. Laws, C. 299, Sections 2, 3; 70 Del. Laws, C. 349, Section 22.)
31