UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
INFORMATION STATEMENT PURSUANT TO SECTION 14(f)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
Science Dynamics Corporation
(Name of Registrant as Specified In Its Charter)
Delaware 000-10690 22-2011859
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
7150 N. Park Drive, Suite 500, Pennsauken, NJ 08109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (856) 910-1166
SCIENCE DYNAMICS CORPORATION
7150 N. Park Drive, Suite 500
Pennsauken, NJ 08109
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
This Information Statement is being mailed on or about March 23, 2005, by
Science Dynamics Corporation (the "Company") to the holders of record of shares
of its common stock as of the close of business on February 14, 2005. This
information statement is provided to you for information purposes only. We are
not soliciting proxies in connection with the items described in this
Information Statement. You are urged to read this Information Statement
carefully. You are not, however, required to take any action.
You are receiving this Information Statement in connection with the
appointment of three new members to the Company's Board of Directors, in
connection with the recent acquisition by the Company of approximately 82% of
the outstanding shares of common stock of Systems Management Engineering, Inc.
("SMEI"), a corporation formed under the laws of the Commonwealth of Virginia.
SMEI was originally founded to provide the federal government with
engineering services coupled with advanced technology solutions. SMEI has
developed advanced data management applications, Internet server technology and
information systems that it markets to both public and private sectors. SMEI's
technology helps its customers reduce development time for projects, manage the
deployment of applications across the Internet to desktops around the world and
implement military grade security on all systems where the applications are
deployed.
On February 14, 2005, the Company completed the acquisition of 4,177,500
shares of the outstanding common stock of SMEI, which shares constitute
approximately 82% of the issued and outstanding shares of capital stock of SMEI
on a fully diluted basis. As partial consideration for such shares of SMEI, the
Company issued an aggregate of 16,553,251 shares of the Company's common stock
to twelve accredited investors pursuant to Section 4(2) of the Securities Act
and Regulation D under the Securities Act. The acquisition was completed
pursuant to the terms of a Stock Purchase Agreement dated December 16, 2004, as
amended, among the Company and certain shareholders of SMEI. SMEI will continue
to operate as an independent subsidiary of the Company.
The information contained in this Information Statement concerning each
person chosen for our Board of Directors has been furnished to us by each
individual, and we assume no responsibility for the accuracy, completeness or
fairness of any of that information.
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CERTAIN INFORMATION REGARDING THE COMPANY
Changes in the Company's Board of Directors Following the Acquisition of
SMEI - On February 9, 2005, Paul Burgess was appointed to the positions of
President and Chief Executive Officer of the Company. At the closing of the
acquisition of SMEI on February 14, 2005, Paul Burgess was appointed a director
effective immediately. The Company plans to appoint the following additional
persons as directors shortly after the date of this filing: Eric D. Zelsdorf,
Herbert B. Quinn and Robert E. Galbraith.
Description of Capital Stock
The Company's authorized capital stock consists of 200,000,000 shares of
common stock, par value $.01 per share, and 10,000,000 shares of preferred
stock, par value $.01 per share. As of February 14, 2005, the Company had
86,239,910 shares of common stock issued and outstanding and no shares of
preferred stock issued and outstanding. The description of the Company's capital
stock is a summary of the material provisions of the capital stock. For more
complete information, you should read the Company's Certificate of Incorporation
and its amendments.
Common Stock
Holders of the Company's common stock are entitled to one vote for each
share held on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
the Company's common stock entitled to vote in any election of directors may
elect all of the directors standing for election. Holders of the Company's
common stock are entitled to receive dividends ratably, if any, as may be
declared from time to time by the Company's Board of Directors out of funds
legally available therefore. Upon the liquidation, dissolution or winding up of
the Company, the holders of the Company's common stock are entitled to receive
ratably, the Company's net assets available after the payment of all
liabilities.
Holders of the Company's common stock have no preemptive, subscription,
redemption or conversion rights, and there are no redemption or sinking fund
provisions applicable to the common stock. The outstanding shares of the
Company's common stock are validly issued, duly authorized, fully paid and
nonassessable.
Preferred Stock
On December 4, 2002, the Company filed a "blank check" amendment to its
Certificate of Incorporation authorizing the issuance of 10,000,000 shares of
preferred stock. The preferred stock may be issued in one or more series, the
terms of which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may include the
designations, rights and preferences including preferences as to dividends and
liquidation, conversion rights, redemption rights and sinking fund provisions.
The issuance of any such preferred stock could adversely affect the rights of
the holders of common stock and, therefore, reduce the value of the common
stock. The ability of the Board of Directors to issue preferred stock could
discourage, delay or prevent a takeover of the Company. The Company does not
have any current plans to issue any preferred stock.
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Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of February 17, 2005
with respect to the beneficial ownership of the outstanding common stock by (i)
any holder of more than five (5%) percent; (ii) each of the Company's executive
officers and directors; and (iii) the Company's directors and executive officers
as a group. Except as otherwise indicated, each of the stockholders listed below
has sole voting and investment power over the shares beneficially owned.
Common Stock Percentage of
Name of Beneficial Owner (1) Beneficially Owned (2) Common Stock (2)
---------------------------------------------- ------------------------- ---------------------
Alan C. Bashforth (3) 14,048,363 14.9%
Paul Burgess (4) 4,000,000 4.4%
Herbert B. Quinn, Jr. (5) 6,604,424 7.7%
Eric D. Zelsdorf 5,835,606 6.8%
Robert Galbraith (6) 1,245,000 1.4%
---------------------------------------------- ------------------------- ---------------------
All officers, directors and directors 31,733,393 32.3%
nominees as a group (5 persons)
(1) Except as otherwise indicated, the address of each beneficial owner is
c/o Science Dynamics Corporation, 7150 N. Park Drive, Suite 500,
Pennsauken, NJ 08109.
(2) Applicable percentage ownership is based on 86,239,910 shares of
common stock outstanding as of February 17, 2005, together with
securities exercisable or convertible into shares of common stock
within 60 days of February 17, 2005 for each stockholder. Beneficial
ownership is determined in accordance with the rules of the Securities
and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock that are
currently exercisable or exercisable within 60 days of February 17,
2005 are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of
such person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
(3) Includes: (a) 165,000 shares owned directly by Mr. Bashforth; (b)
1,520,000 shares owned by Innovative Communications Technology, Ltd.,
which is controlled by Mr. Bashforth; (c) 4,363,363 shares owned by
Calabash Holdings Ltd., which is controlled by Mr. Bashforth; (d)
options owned by Calabash Holdings Ltd. to purchase 2,000,000 shares
exercisable at $0.05 per share; and (e) warrants owned by Calabash
Holdings Ltd. to purchase 6,000,000 shares exercisable at $0.10 per
share which expire on February 14, 2012.
(4) Includes (a) options to purchase 2,000,000 shares of common stock
exercisable at $0.03 per share; and (b) options to purchase 2,000,000
shares of common stock exercisable at $0.05 per share.
(5) Includes 370,515 shares owned by Elizabeth L. Quinn, spouse of Herbert
B. Quinn, Jr.
(6) Includes 50,000 shares owned by Melinda Galbraith, spouse of Robert
Galbraith.
No Director, nominee for Director, executive officer, affiliate or any
owner of record or beneficial owner of more than 5% of any class of voting
securities of the Company is a party adverse to the Company or has a material
interest adverse to the Company.
Management of the Company Subsequent to the Acquisition of SMEI
The following are the names and certain information regarding the Company's
Directors, Director Nominees and Executive Officers following the acquisition of
SMEI. The Company plans to appoint the Director Nominees to the Company's Board
of Directors approximately ten days after the date the Company transmits to all
holders of record of the Company's common stock information required by Rule
14f-1 under the Securities Exchange Act of 1934, as amended. There are no family
relationships among any of the Company's Directors, Director Nominees and
Executive Officers.
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------------------------------- --------- --------------------------------------------------------
Name Age Position
------------------------------- --------- --------------------------------------------------------
Paul Burgess 40 President, Chief Executive Officer and Director
------------------------------- --------- --------------------------------------------------------
Alan C. Bashforth 54 Acting Chief Financial Officer, Secretary and Chairman
of the Board of Directors
------------------------------- --------- --------------------------------------------------------
Eric D. Zelsdorf 39 Chief Technology Officer and Director Nominee
------------------------------- --------- --------------------------------------------------------
Herbert B. Quinn 68 Director Nominee
------------------------------- --------- --------------------------------------------------------
Robert E. Galbraith 61 Director Nominee
------------------------------- --------- --------------------------------------------------------
Background of Executive Officers and Directors
Paul Burgess, President, Chief Executive Officer and Director. From March
1, 2003 until February 14, 2005, Mr. Burgess was Chief Operating Officer of the
Company. As of February 9, 2005, Mr. Burgess was appointed President and Chief
Executive Officer of the Company. On February 14, 2005, Mr. Burgess was
appointed a director of the Company. From January 2000 to December 2002, Mr.
Burgess was President and Chief Financial Officer of Plan B Communications.
Prior to Plan B Communications, Mr. Burgess spent three years with MetroNet
Communications, where he was responsible for the development of MetroNet's coast
to coast intra and inter city networks. Mr. Burgess was also influential in
developing the operations of MetroNet during the company's early growth stage.
Prior to joining MetroNet, Mr. Burgess was with ISM, a company subsequently
acquired by IBM Global Services, where he was responsible for developing and
deploying the company's distributed computing strategy.
Alan C. Bashforth, Acting Chief Financial Officer, Secretary and Chairman
of the Board of Directors. From April 4, 2002 to February 9, 2005, Mr. Bashforth
was President, Chief Executive Officer and the sole Director of the Company. Mr.
Bashforth continues to serve as a Acting Chief Financial Officer, Secreatary,
director and as Chairman of the Board of Directors of the Company. Mr. Bashforth
has been a member of the Company's Board of Directors since November 1996. Since
1996, Mr. Bashforth has held various executive officer positions with the
Company. From the end of 1996 to December 15, 2000, Mr. Bashforth was President
of Cascadent Communications, a major customer of the Company. Previously he was
President of Innovative Communications Technology, Ltd. ("ICT"), a data
communications company located in Jersey, Channel Islands, until the acquisition
of the intellectual property of ICT by the Company in November 1996.
Eric D. Zelsdorf, Chief Technology Officer and Director Nominee. Mr.
Zelsdorf founded SMEI in 1997 and since then he has been the Chief Technology
Officer, President and a Director of SMEI. Mr. Zelsdorf has led SMEI since its
inception and currently advises clients as well as industry standards groups on
the implementation of secure Web services and enterprise architecture and
integration. From 1992 to 1997, Mr. Zelsdorf was Vice President and Chief
Technology Officer for ECG, Inc.
Herbert B. Quinn, Director Nominee. Mr. Quinn has been Chairman and Chief
Executive Officer of SMEI since 1998 when he led the merger of Energy and
Environmental Technologies into SMEI. Mr. Quinn is a retired Army Brigadier
General, former Senior Executive for the EPA and a registered Professional
Engineer.
Robert E. Galbraith, Director Nominee. Mr. Galbraith is currently a
consultant to firms seeking innovative technical solutions in the security
marketplace. Areas in which Mr. Galbraith have consulted include: data
encryption, internet telephony (VoIP), intelligent data recording, secure local
and wide area network solutions, physical security and biometric security. Prior
to consulting, Mr. Galbraith was President, owner and technical administrator of
Secure Engineering Services, Inc. ("SESI") from its inception in 1979 until the
firm was sold in 1996. During this period, SESI provided services and equipment
to the U.S. Forces and NATO component Forces in Europe. Clients included the
U.S. Army, Navy and Air Force, the SHAPE Technical Center, Euro Fighter Program,
Sandia Labs, JPL, MITRE and NATO programs.
The Company does not currently have a standing audit, nominating or
compensation committee of the Board of Directors, or any committee performing
similar functions. The Company's Chairman currently performs the functions of
audit, nominating and compensation committees. The Board of Directors does not
have a nominating committee charter. Alan C. Bashforth and Paul Burgess each
participate in the consideration of Director Nominees. Neither Mr. Bashforth nor
Mr. Burgess are considered independent directors as defined by any national
securities exchange registered pursuant to Section 6(a) of the Securities
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Exchange Act of 1934 or by any national securities association registered
pursuant to Section 15A(a) of the Securities Exchange Act of 1934.
Shareholder Communications
The Board of Directors will not adopt a procedure for shareholders to send
communications to the Board of Directors until it has reviewed the merits of
several alternative procedures. The Board of Directors has not adopted a
procedure to recommend nominees for the Board of Directors.
Executive Compensation
With respect to SMEI:
The following table sets forth the aggregate annual remuneration for SMEI's
Chief Executive Officer and SMEI's other executive officers with annual
compensation exceeding $100,000:
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
----------------------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------------------------------------------------
Restricted Securities All
Other
Annual Under-lying Other
Name and Compen- Stock Award(s) Options/ LTIP Compen-
Principal Position Year Salary ($) Bonus ($) sation ($) ($) SARs (#) Payouts ($) sation ($)
----------------------------- ------- ------------- ---------- ------------ ----------------- ------------ ------------ -----------
Herbert B. Quinn, Chairman 2004 $100,000 -0- -0- -0- -0- -0- -0-
and Chief Executive 2003 $100,000 $2,000 -0- -0- -0- -0- -0-
Officer of SMEI 2002 $92,500 -0- -0- -0- -0- -0- -0-
Eric D. Zelsdorf, President 2004 $145,000 -0- -0- -0- -0- -0- -0-
Chief Technology
Officer 2003 $137,500 $2,000 -0- -0- -0- -0- -0-
and Director of SMEI 2002 $115,625 -0- -0- -0- -0- -0- -0-
Barbara R. Schipper 2004 $100,000 -0- -0- -0- -0- -0- -0-
Vice President of SMEI 2003 $100,000 -0- -0- -0- -0- -0- -0-
2002 $92,500 $2,000 -0- -0- -0- -0- -0-
With respect to the Company
The following table sets forth all compensation paid in respect of the
Company's Chief Executive Officer and those individuals who received
compensation in excess of $100,000 per year (collectively, the "Named Executive
Officers") for our last three completed fiscal years.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
----------------------------------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------------------------------------
Restricted Securities All
Other
Annual Under-lying Other
Name and Compen- Stock Award(s) Options/ LTIP Compen-
Principal Position Year Salary ($) Bonus ($) sation ($) ($) SARs (#) Payouts ($) sation ($)
----------------------------- ------- ------------- ---------- ------------ ----------------- ------------ ------------ -----------
Alan C. Bashforth, 2004 -0- -0- $240,000 (1) -0- 2,000,000 -0- -0-
Acting Chief Financial $240,000 $75,000
2003 -0- -0- (1) -0- -0- -0- (3)
Officer, Secretary, 2002 -0- -0- $165,000 $130,909 (2) -0- -0- -0-
Chairman, Former
President and Former
Chief Executive Officer
Paul Burgess, $175,000
2004 (4) -0- -0- -0- 2,000,000 -0- -0-
President, Chief $175,000
Executive 2003 (5) -0- -0- -0- 2,000,000 -0- -0-
Officer and Director
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(1) Consultancy fee of $240,000 owed to Calabash Consulting LTD, of which
Mr. Bashforth is the principal executive officer and owner.
(2) Pursuant to his consulting agreement, Mr. Bashforth is entitled to a
bonus equal to 4,363,636 shares of the Company's common stock for the
year ended December 31, 2002. These shares are valued at $.03 per
share.
(3) Remaining balance of consultancy fee owed to Calabash Consulting LTD
for 2002 contract.
(4) Of Mr. Burgess` $175,000 compensation for 2003, $65,625 remains unpaid
and has been accrued for the year ended December 31, 2003.
(5) Of Mr. Burgess` $175,000 compensation for 2004, $21,875 remains unpaid
and has been accrued for the year ended December 31,2004
Options Grant Table
The following table sets forth information with respect to the named
executive officers concerning the grant of stock options during the fiscal year
ended December 31, 2004. We did not have during such fiscal year, and currently
do not have, any plans providing for the grant of stock appreciation rights
("SARs").
Option/SAR Grants in Last Fiscal Year
--------------------------------------------------------------------------------
Individual Grants
--------------------------- --------------- ------------- ---------- -----------
(a) (b) (c) (d) (e)
% of Total
Options/
Number of SARs
Securities Granted to Exercise
Underlying Employees or Base
Options/ SARs in Fiscal Price Expiration
Name Granted (#) Year ($/Sh) Date
--------------------------- --------------- ------------- ---------- -----------
Alan C. Bashforth 2,000,000 46.5% $0.05 None
Paul Burgess 2,000,000 46.5% $0.05 None
Aggregate Option Exercises in Last Fiscal Year
No options were exercised by the Company`s executive officers and directors
during the most recent fiscal year.
Employment Agreements
On December 30, 2004, Science Dynamics Corporation (the "Company") entered
into a consulting agreement with Calabash Consultancy, Ltd. Under the agreement,
Calabash Consultancy, Ltd. was engaged as a business development, financial and
management consultant, which consulting services are to be provided by Alan
Bashforth to act as Chief Executive Officer and Chairman of the Board of
Directors of the Company. The agreement started January 1, 2005 and continues
for an initial three-year term. The agreement will automatically renew for
additional one-year terms following the initial term, provided that following
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the initial term either party may terminate the agreement by providing the other
party a minimum of 30 days prior written notice. In consideration for its
services, the Company agreed to pay Calabash Consultancy, Ltd. an annual fee of
$300,000. After the Company completes the acquisition of Systems Management
Engineering, Inc. ("SMEI"), Calabash Consultancy, Ltd. will be awarded warrants
to purchase 6,000,000 shares of the Company's common stock at an exercise price
of $0.10 per share that expire seven years after issuance. In addition, as part
of a bonus payment for years 2003 and 2004, the Company agreed to grant Calabash
Consultancy, Ltd. fully vested stock options to purchase 2,000,000 shares of the
Company's common stock with an exercise price of $0.05 per share. The Company
agreed to fully reimburse Calabash Consultancy, Ltd. for any and all expenses
incurred in the performance of duties under the agreement and to pay Calabash
Consultancy, Ltd. $850 per month for a vehicle to be used exclusively by
Calabash Consultancy, Ltd. during the term of the agreement. During the initial
term or any subsequent renewal, if the Company is sold to another party or
subject to a change of control, or ownership of more than 20% of the Company's
outstanding common stock is controlled by a single party, Calabash Consultancy,
Ltd. may terminate the agreement by providing 30 days advance notice of
termination. Upon such termination, all options and warrants will become fully
vested and all other amounts due under the agreement, including payments through
the term of the agreement, will become immediately due and payable. The Company
agreed to indemnify Calabash Consultancy, Ltd. and Mr. Bashforth and hold them
harmless for all acts or decisions made by Mr. Bashforth in good faith while
performing services for the Company. The Company also agreed to be responsible
for payment of any and all taxes that may become due to any state or federal
taxing authority arising out of the agreement and to indemnify and hold harmless
Calabash Consultancy, Ltd. and Mr. Bashforth from any such payment.
On January 1, 2005, the Company entered into a Consulting Agreement with
SMEI and Herbert B. Quinn, Jr., which is effective as of the date the Company
completed the acquisition of SMEI. Under the agreement, Mr. Quinn will perform
strategic analytical and advisory services as reasonably requested by SMEI's
Chief Executive Officer. For his services, the Company agreed to pay Mr. Quinn
$150,000 per year. Mr. Quinn also is eligible to receive options under the
Company's stock option plan or any similar plan that is in effect. The term of
the agreement is for one year and will automatically renew for one additional
year unless either party gives at least 30 days prior written notice of their
intent not to extend the agreement. The agreement does not contain any
termination provisions.
On February 4, 2005, the Company entered into an Employment Agreement with
SMEI and Eric D. Zelsdorf. Under the agreement, Mr. Zelsdorf will be employed as
SMEI's Chief Technology Officer until December 31, 2007. For his services, SMEI
agreed to pay Mr. Zelsdorf a base salary of $160,000 per year. Mr. Zelsdorf also
may be paid an incentive bonus based on a percentage of his base salary. Upon
completion of the Company's acquisition of SMEI, the Company agreed that it
would grant Mr. Zelsdorf stock options in accordance with the Company's employee
stock option program. The exercise price of the stock options are to be set at
the Company's stock price at the close of the acquisition of SMEI by the
Company. The agreement will terminate upon the following events and conditions:
(a) upon expiration of its terms; (b) for cause by SMEI immediately upon written
notice; (c) For cause by Mr. Zelsdorf immediately upon written notice; (d)
without cause by either party upon written notice; or (e) in the event Mr.
Zelsdorf is unable to perform services required under the agreement by reason of
incapacity or disablement for more than six months. Cause by SMEI is defined in
the agreement as: a material breach by Mr. Zelsdorf, a felony conviction or any
willful act or omission of dishonesty which causes harm to SMEI. Resignation of
Mr. Zelsdorf with cause is defined to include, but not limited to: a reduction
in position and/or responsibilities, a material change in Mr. Zelsdorf's
reporting structure, or relocation beyond 30 miles of SMEI's principal office.
If the agreement is terminated by SMEI without cause or if Mr. Zelsdorf resigns
with cause, Mr. Zelsdorf will be entitled to all compensation and benefits
otherwise remaining unpaid under the remaining term of the agreement and all
stock options which have been granted under the agreement will become
immediately vested and exercisable. In the event Mr. Zelsdorf is terminated for
cause or resigns voluntarily, no compensation will be due to him other than what
was earned through the date of termination.
On February 4, 2005, the Company entered into a Consulting Agreement with
SMEI and Herbert B. Quinn, Jr., which is effective as of the date the Company
completes the acquisition of SMEI. Under the agreement, Mr. Quinn will perform
strategic analytical and advisory services as reasonably requested by SMEI's
Chief Executive Officer. For his services, the Company agreed to pay Mr. Quinn
$150,000 per year. Mr. Quinn also is eligible to receive options under the
Company's stock option plan or any similar plan that is in effect. The term of
the agreement is for one year and will automatically renew for one additional
year unless either party gives at least 30 days prior written notice of their
intent not to extend the agreement. The agreement does not contain any
termination provisions.
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On February 14, 2005, upon effectiveness of the Company's acquisition of
SMEI, the Company entered into an Executive Employment Agreement Amendment with
Paul Burgess. Under the Executive Employment Agreement Amendment, Mr. Burgess is
employed by the Company as its Chief Executive Officer for an initial term of
three years. Thereafter, the Executive Employment Agreement Amendment may be
renewed upon the mutual agreement of Mr. Burgess and the Company. Mr. Burgess
will be paid a base salary of $225,000 per year under the Executive Employment
Agreement Amendment. The Company previously agreed to grant Mr. Burgess
2,000,000 shares of restricted stock. This grant was replaced by the grant of
fully vested options to purchase 2,000,000 shares of common stock of the Company
at an exercise price of $0.03 per share. The Company also agreed to grant Mr.
Burgess fully vested options to purchase an additional 2,000,000 shares of
common stock of the Company at an exercise price of $0.05 per share as a bonus
for services rendered to the Company during 2004. Further, upon the effective
date of the Executive Employment Agreement Amendment, the Company agreed to
grant Mr. Burgess options to purchase 6,000,000 shares of the Company's common
stock at an exercise price of $0.10 per share, which will vest one-third each
year over a three-year period beginning February 14, 2006. In addition, the
Company agreed to pay Mr. Burgess an incentive bonus based on 1% of the revenue
of the most recent 12-month period of any acquisitions closed by the Company
during the term of the Executive Employment Agreement Amendment. The Executive
Employment Agreement Amendment may be terminated by Mr. Burgess at his
discretion by providing at least 30 days prior written notice to the Company. In
the event the Company is acquired, or is the non-surviving party in a merger, or
the Company sells all or substantially all of its assets, the surviving company
is bound to the provisions of the Executive Employment Agreement Amendment.
Certain Relationships and Related Transactions
On December 30, 2004, Science Dynamics Corporation (the "Company") entered
into a consulting agreement with Calabash Consultancy, Ltd. Under the agreement,
Calabash Consultancy, Ltd. was engaged as a business development, financial and
management consultant, which consulting services are to be provided by Alan
Bashforth to act as Chief Executive Officer and Chairman of the Board of
Directors of the Company. The agreement started January 1, 2005 and continues
for an initial three-year term. The agreement will automatically renew for
additional one-year terms following the initial term, provided that following
the initial term either party may terminate the agreement by providing the other
party a minimum of 30 days prior written notice. In consideration for its
services, the Company agreed to pay Calabash Consultancy, Ltd. an annual fee of
$300,000. After the Company completes the acquisition of Systems Management
Engineering, Inc. ("SMEI"), Calabash Consultancy, Ltd. will be awarded warrants
to purchase 6,000,000 shares of the Company's common stock at an exercise price
of $0.10 per share that expire seven years after issuance. In addition, as part
of a bonus payment for years 2003 and 2004, the Company agreed to grant Calabash
Consultancy, Ltd. fully vested stock options to purchase 2,000,000 shares of the
Company's common stock with an exercise price of $0.05 per share. The Company
agreed to fully reimburse Calabash Consultancy, Ltd. for any and all expenses
incurred in the performance of duties under the agreement and to pay Calabash
Consultancy, Ltd. $850 per month for a vehicle to be used exclusively by
Calabash Consultancy, Ltd. during the term of the agreement. During the initial
term or any subsequent renewal, if the Company is sold to another party or
subject to a change of control, or ownership of more than 20% of the Company's
outstanding common stock is controlled by a single party, Calabash Consultancy,
Ltd. may terminate the agreement by providing 30 days advance notice of
termination. Upon such termination, all options and warrants will become fully
vested and all other amounts due under the agreement, including payments through
the term of the agreement, will become immediately due and payable. The Company
agreed to indemnify Calabash Consultancy, Ltd. and Mr. Bashforth and hold them
harmless for all acts or decisions made by Mr. Bashforth in good faith while
performing services for the Company. The Company also agreed to be responsible
for payment of any and all taxes that may become due to any state or federal
taxing authority arising out of the agreement and to indemnify and hold harmless
Calabash Consultancy, Ltd. and Mr. Bashforth from any such payment.
On January 1, 2005, the Company entered into a Consulting Agreement with
SMEI and Herbert B. Quinn, Jr., which is effective as of the date the Company
completed the acquisition of SMEI. Under the agreement, Mr. Quinn will perform
8
strategic analytical and advisory services as reasonably requested by SMEI's
Chief Executive Officer. For his services, the Company agreed to pay Mr. Quinn
$150,000 per year. Mr. Quinn also is eligible to receive options under the
Company's stock option plan or any similar plan that is in effect. The term of
the agreement is for one year and will automatically renew for one additional
year unless either party gives at least 30 days prior written notice of their
intent not to extend the agreement. The agreement does not contain any
termination provisions.
9
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SCIENCE DYNAMICS CORPORATION
By: /s/ Paul Burgess
-----------------
Paul Burgess
Chief Executive Officer
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