FORM OF PROMISSORY NOTE PURCHASE AGREEMENT
FORM
OF
THIS
PROMISSORY NOTE PURCHASE AGREEMENT (this “Agreement”) is made effective as of
January ___, 2010 by and among Xxxxxxx Technologies Corporation, a Delaware
corporation (the “Company”), and the investors listed on the Schedule of
Investors attached hereto (each, an “Investor” and collectively, the
“Investors”).
1.1 Sale and Issuance of Notes
to Investors at Closing. Subject to the terms and conditions
of this Agreement, the purchase and sale of the Notes, which must be in an
aggregate principal amount of not less than $300,000.00, shall take place at the
principal office of the Company (the “Closing Location”), at 3:00 p.m., on
January 20, 2010, or such other date and time as may be mutually acceptable to
the Company and the Investors (which time and place are designated as the
“Closing”). At the Closing, the Company shall deliver to each
Investor the original Note that such Investor is purchasing at the Closing upon
confirmation of receipt of payment of the purchase price therefore, which
purchase price shall equal the principal amount of the Note purchased (the
“Purchase Price”) and shall be paid in cash by each Initial Investor by wire
transfer to the Company, pursuant to the instructions attached hereto as Exhibit
“B”. Each Investor shall be subject to the covenants set forth in
Section 1.2 below.
1.2 Investor
Covenants. The representations and warranties of the Company
set forth in Section 2 hereof shall be reaffirmed and in full force and effect
as of the date of the Closing, and the representations and warranties of each
applicable Investor in Section 3 hereof shall be reaffirmed and in full force
and effect as of the date of the Closing. At the Closing, the Company
shall deliver to each Investor the original Note that such Investor purchases at
the Closing upon confirmation of receipt of payment of the Purchase Price
therefor, which Purchase Price shall equal the principal amount of the Note
purchased, and shall be paid in cash by wire transfer to the Company, pursuant
to the instructions attached hereto as Exhibit “B”. Any Notes sold pursuant to
this Section 1 shall be deemed to be “Notes” for all purposes under this
Agreement.
1.3 Use of
Proceeds. The Company will use the proceeds from the sale of
the Notes as follows:
(a) $80,000.00
to various experts retained in connection with the pending litigation matter of
the Company against Qualcomm.
(b) $35,0000.00
to Xxxxxx Xxxxxxx for completion of “Technical and Legal Evidence Binder” to be
delivered to litigation funding sources for Qualcomm case; this includes a
reserve of $15K for expenses for the lawyers of Xxxxxx Xxxxxxx and Xxxxxx Xxxxx
to travel to meet one or more of our prospective funding sources to present and
close a funding deal;
(c) $25,000.00
to pay Company Attorneys for past due for work over past several
months;
(d) $25,000.00
to pay attorneys Xxxxxxx and Xxxxx for their representation in the Xxxxx Xxxxxx
arbitration;
(e) $20,000.00
to pay attorneys Xxxx Xxxxx for representation of the Company in connection with
the proposed financing transaction between Western Linen and the Company, and
for legal counsel and representation on SEC and other corporate
matters;
(f) $20,000.00
to retain attorney Xxxxxx X. Xxxxxx to assist with the Company insurance claim
and as co-counsel in State Court Action;
(g) $50,000.00
for a 30-day extension of time to close the pending acquisition of Western Linen
Services, as approved by the Company Board of Directors;
(h) $50,000.00
to Xxxxxxxx & Xxxxxxx Valuation Consulting for advice and opinion on
financing of Xxxxxxx operations forthwith, and possibly the issuance of a
Fairness Opinion for the proposed structure of the acquisition of Western Linen
Services;
(i) $80,000.00
for Company Operating Expenses – during the months of January and February,
2010.
(j) Up
to the sum of $125,000.00 to tender to the law firm Xxxxx Xxxxxx – for the
return to the Company of any percentage interest in the outcome of the Company’s
lawsuit against Qualcomm which Xxxxx Xxxxxx may have at this time.
2. Representations and
Warranties of the Company. The Company represents and warrants
the following:
2.1 Organization, Good Standing
and Qualification. The Company is a corporation duly
organized, under the laws of the State of Delaware. The Company is currently not
in compliance with Delaware State Law, and/or Federal Law with respect to
various legal requirements, as noted in Exhibit “C” hereto. Investor
purchases this Note with full knowledge and understanding of these legal
deficiencies as described in Exhibit “C” hereto. The Company may not
be duly qualified to transact business and is not believed to be in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties.
2.2 Authorization. All
corporate action on the part of the Company, its officers, directors and
stockholders necessary for the authorization, execution and delivery of this
Agreement and the Notes, the performance of all obligations of the Company
hereunder and under the Notes, and the authorization, sale and issuance of the
Notes being sold hereunder, has been taken or will be taken prior to the
Closing. This Agreement and the Notes constitute valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
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2.3 Offering. Subject
in part to the truth and accuracy of each Investor’s representations set forth
in Section 3 of this Agreement, the issuance and sale of the Notes as
contemplated by this Agreement are intended to be exempt from the registration
requirements of the Securities Act of 1933, as amended (the “Securities
Act”).
2.4 Compliance With Other
Instruments. The Company is believed to be in material
violation of one or more provisions of its Certificate of Incorporation as
amended to date, and/or the Bylaws of the Company. The execution and
performance of this Agreement or the Notes may constitute a violation or breach
of one or more other agreements between the Company and other persons or
entities.
3. Representations and
Warranties of the Investors. Each Investor, severally and not
jointly, hereby represents, warrants and covenants that:
3.1 Authorization. Such
Investor has full power and authority to enter into this Agreement, and this
Agreement is a legal, valid and binding agreement of such Investor, enforceable
in accordance with its terms.
3.2 Purchase Entirely For Own
Account. This Agreement is made with such Investor in reliance
upon such Investor’s representations to the Company, which by such Investor’s
execution of this Agreement such Investor hereby confirms, that the Notes to be
received by such Investor will be acquired for investment for such Investor’s
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in or otherwise distributing
the same. By executing this Agreement, such Investor further
represents that such Investor does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to the Note(s).
3.3 Disclosure of
Information. Such Investor has received all the information it
requested from the Company for deciding whether to purchase the
Notes. Such Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Notes and the business, properties,
prospects, litigation matters, and financial condition of the Company, including
but not limited to information relating to litigation the Company is currently
engaged in with Qualcomm, Inc.
3.4 Investment
Experience. Such Investor is an investor in securities of
companies of this type and acknowledges that it is able to fend for itself, can
bear the economic risk of its investment, and has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Notes. If other than an individual,
such Investor also represents it has not been organized for the purpose of
acquiring the Notes.
3.5 Accredited
Investor. Such Investor is an “accredited investor” as defined
in Rule 501 of Regulation D promulgated by the Securities and Exchange
Commission (the “SEC”) under the Securities Act.
3.6 Restricted
Securities. Such Investor understands that the Notes to be
purchased hereunder are characterized as “restricted securities” under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under such laws and
applicable regulations such Notes may be resold without registration under the
Securities Act only in certain limited circumstances. In the absence
of an effective registration statement covering the Notes or an available
exemption from registration under the Securities Act, the Notes must be held
indefinitely. In this connection, such Investor represents that it is
familiar with SEC Rule 144 promulgated under the Securities Act, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act, including without limitation the Rule 144 condition that current
information about the Company be available to the public. Such information is
not now available.
3
THIS NOTE
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR
ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, OR OTHERWISE
TRANSFERRED OR DISPOSED OF UNLESS AND UNTIL THIS NOTE IS REGISTERED UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM SUCH
REGISTRATIONISAVAILABLE.
3.8 True and Correct
Information. All information that Investor has provided or
caused to be provided to the Company in connection with the purchase of the
Notes hereunder is correct and complete as of the date set forth on the
Investor’s signature page of this Agreement.
3.9 Reliance. Such
Investor understands that the acceptance of this Agreement by the Company will
be based, in part, on the Investor’s representations, warranties, covenants and
acknowledgements set forth in this Section 3. The Investor agrees to
indemnify the Company from any and all claims, losses, damages and expenses
(including without limit attorneys’ fees and disbursements) arising out of any
alleged material breach of this Agreement by the Investor or material inaccuracy
of any representation or warranty by the Investor.
3.10 Further Limitations on
Disposition. Without in any way limiting the representations
set forth above, such Investor further agrees not to make any disposition of all
or any portion of the Notes unless and until:
(a) Such
transferee has agreed in writing for the benefit of the Company to be bound by
this Agreement, and
(b) Such
Investor shall have notified the Company in writing of the proposed disposition,
and shall have furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and if requested by the
Company, such Investor shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company that such disposition will not
require registration under the Securities Act.
3.11 Tax
Advisors. Such Investor has reviewed with such Investor’s own
tax advisors the foreign, federal, state and local tax consequences of this
investment, where applicable, and the transactions contemplated by this
Agreement. Each such Investor is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents and
understands that each such Investor (and not the Company) shall be responsible
for such Investor’s own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
3.12 Investor
Review. Such Investor acknowledges that such Investor has had
the opportunity to review this Agreement, and all exhibits attached hereto
including specifically the form of the Note, EXHIBIT “C” hereto,
the XXXXXXX TECHNOLOGIES CORPORATION CORPORATE DISCLOSURE DOCUMENT, and
the transactions contemplated by this Agreement and to consult with such
Investor’s own legal counsel and advisors. Each such Investor is
relying solely on such Investor’s legal counsel, if consulted, and not on any
statements or representations of the Company or any of the Company’s agents for
legal advice with respect to this investment or the transactions contemplated by
this Agreement.
4. Conditions of Investors’
Obligations at the Closings. The obligations of each Investor
with respect to each Closing are subject to the fulfillment on or before the
applicable Closing of each of the following conditions, the waiver of which
shall not be effective against any Investor who does not consent in writing
thereto.
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4.1 Representations and
Warranties. The representations and warranties of the Company
contained in Section 2 shall be true on and as of the applicable Closing with
the same effect as though such representations and warranties had been made on
and as of the date of such Closing.
4.2 Performance. The
Company shall have performed and complied with all material agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the applicable
Closing.
5. Conditions of the Company’s
Obligations at Closing. The obligations of the Company to each
Investor under this Agreement are subject to the fulfillment on or before the
applicable Closing of each of the following conditions by that
Investor:
5.1 Representations and
Warranties. The representations and warranties of the Investor
contained in Section 3 shall be true on and as of the Closing with the same
effect as though such representations and warranties had been made on and as of
such Closing.
5.2 Payment of Purchase
Price. The Investor shall have delivered the applicable
Purchase Price as provided for in Section 1.
6. Miscellaneous.
6.1 Survival. The
warranties, representations and covenants of the Investors contained in or made
pursuant to this Agreement shall survive the execution and delivery of this
Agreement and each Closing. The warranties, representations and
covenants of the Company shall survive execution and delivery of this Agreement
and each Closing.
6.2 Successors and
Assigns. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties (including transferees of
any Notes). Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.3 Choice of Law;
Jurisdiction. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California. Any
lawsuit or litigation arising under, out of, in connection with, or in relation
to this Agreement, any amendment hereof, or the breach hereof, shall be brought
in the courts of Los Angeles, California, which courts shall have exclusive
jurisdiction over any such lawsuit or litigation.
6.4 Titles and
Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
6.5 Notices. All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given: (i) upon personal delivery to the party to be notified, (ii)
upon transmission when sent via e-mail; (iii) when sent by confirmed facsimile
if sent during normal business hours of the recipient, if not, then on the next
business day; (iv) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (v) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the address as set forth on the signature page hereof or at such other
address as such party may designate by ten (10) days advance written notice to
the other parties hereto.
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6.6 Finder’s
Fee. Excepting the Company’s Fee Agreement with Xxxxxxx Xxxxx,
which Fee Agreement Investors acknowledge advisement of, each Investor
represents that it neither is nor will be obligated for any finders’ fee or
commission in connection with this transaction. Each Investor agrees
to indemnify and to hold harmless the Company from any liability for any
commission or compensation in the nature of a finders’ fee (and the costs and
expenses of defending against such liability or asserted liability) for which
such Investor or any of its officers, partners, employees or representatives is
responsible.
6.7 No Joint
Venture. Nothing in this Agreement shall create or be deemed
to create a joint venture or partnership among the parties. Each
party agrees not to hold itself out as having any authority or as being in a
relationship contrary to this Section 6.7.
6.8 Expenses; Attorneys’
Fees. Each party shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement and the Notes. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement or the Notes, the
prevailing party shall be entitled to reasonable attorneys’ fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
6.9 Amendments and
Waivers. Except as otherwise provided in this Agreement, any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of both the
Company and the holders of Notes representing greater than fifty percent
(50.00%) of the aggregate principal amount of Notes issued hereunder (the
“Majority Noteholders”). Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any Note
purchased under this Agreement at the time outstanding, and each future holder
of all such Notes and the Company.
6.10 Effect of Amendment or
Waiver. Each Investor acknowledges that by the operation of
Section 6.9 hereof the Majority Noteholders will have the power to diminish or
eliminate all rights of such Investor under this Agreement.
6.11 Severability. If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement to the
minimum extent necessary to comply with the laws of the relevant jurisdiction
and the balance of the Agreement shall be interpreted as if such provision were
so excluded in such jurisdiction and shall be enforceable in accordance with its
terms.
6.12 Entire Agreement.
This Agreement and the documents referred to herein constitute the entire
agreement among the parties.
6.13 Counterparts. This
Agreement may be executed in two (2) or more original or facsimile counterparts
all of which together shall constitute one and the same instrument.
6
IN
WITNESS WHEREOF, the parties have executed this Promissory Note Purchase
Agreement as of the date first above written.
COMPANY:
|
INVESTORS:
|
XXXXXXX
TECHNOLOGIES CORPORATION,
a
Delaware Corporation
By:
Name:
Xxxxxx Xxxxx, CEO and President
Xxxxxxx Technologies Corporation
|
Investor:
Name:
Company
Name:
Address:
E-mail:
|
7
SCHEDULE
“A”
SCHEDULE OF
INVESTORS
Investor
|
Principal
Amount of
Promissory
Note
|
Date
of Investment
|
TOTAL
|
$______________
|
8
EXHIBIT
“A”
FORM OF PROMISSORY
NOTE
THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD,
PLEDGED, OR OTHERWISE TRANSFERRED OR DISPOSED OF UNLESS AND UNTIL THIS NOTE IS
REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
XXXXXXX
TECHNOLOGIES CORPORATION
PROMISSORY
NOTE
This
Note must be read in conjunction with the accompanying Note Purchase
Agreement
$____________ January
___, 2010
FOR VALUE
RECEIVED, the undersigned, Xxxxxxx Technologies Corporation, a Delaware
corporation (“Company”), promises to pay to the order of ________________
(“Lender”) the principal sum of ________________ Dollars ($____________) (the
“Principal”), at the Interest Rate hereinafter defined, which amount shall be
due and payable in lawful money of the United States of America at such place as
Lender may from time to time designate, at the time and in accordance with the
terms and conditions provided in Sections 2 below.
1. Interest Rate and Maturity
Date. Interest shall accrue on the Principal at six percent
(6.00%) per annum (the “Interest Rate”) commencing on the date of this
Note. Interest shall be computed on the actual number of days elapsed
based on a 365-day year. The balance of the Principal sum and all
Interest thereon shall be due and payable on December 31, 2010 (the “Maturity
Date”). Any payment by the Company shall be conditioned on the
requirement that the payment on the Maturity Date shall not make the Company
insolvent (as defined in the Bankruptcy Code); and the Lender agrees that it
shall not take any action to place the Company in the position of an involuntary
receivership or bankruptcy, but, hereby expressly reserve all rights that Lender
will have all rights in the event that others place the Company in bankruptcy,
receivership or otherwise.
2. Payments. To
the extent funds are available from any event defined in this Section 2.a or
2.b. (“Event”), the Company shall pay to each Lender (on a pro-rata basis) in
this round of financing, payments of Principal and Interest, from the “Net
Proceeds” of the Event (which for purposes of this Note shall mean proceeds
after deduction of All Company Obligations Required To Be Paid By The Company
(as hereinafter defined), Event expenses, fees and court costs, if any and as
applicable, including but not limited to obligations pursuant to any litigation
financing agreements, litigation costs, Xxxxxxx Settlement attorneys’ fees if
proceeds are received from the Xxxxxxx Settlement [but not IP Event (as
hereinafter defined) attorneys’ fees], or any other debts superior to the monies
raised pursuant to the Company raise of capital) to the Company from the below
defined Events, upon the earliest of the following Events to occur:
(a) Xxxxxxx
Settlement. For purposes of this Note, “Xxxxxxx Settlement”
shall mean the proceeds, if any, from the action by the Company against Xxxxxxx
in the District Court of Xxxxxxx County Nebraska at docket 1092, page 798 filed
in February 2009 to the extent there are Net Proceeds from this
litigation.
(b) IP
Event. For purposes of this Note, an “IP Event” is defined as
the receipt by the Company or any of its subsidiaries of a minimum of
$10,000,000.00 in Net Proceeds (in cash or the fair market value of non-cash
consideration) from a licensing, sale, transfer, settlement or other transaction
with one or more third parties relating to intellectual property of the Company
or its subsidiaries, if any.
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2.1 Lien. Lender
shall have a lien, for all unpaid sums due under this Note, on all claims or
causes of action that are the subject of any event set forth above in this
Section 2. This lien shall attach to any recovery, whether by settlement, award,
verdict, judgment, or other order.
2.2 Additional
Benefits. In addition to the Principal amount and Interest on
this Note, in return for every $100,000.00 loaned by a Lender to the Company,
Lender shall have the additional right to receive one percent (1.00%) of the
Proceeds of an IP Event, AFTER payment of all Company obligations required to be
paid by the Company (“All Company Obligations Required To Be Paid By The
Company”) defined as Company priority obligations which include but are not
limited to: obligations to the IRS and other Federal, State and local tax
authorities; employee wages; secured loans; judgments; company debts; and,
attorneys fees, but not including intellectual property interests of attorneys
in the Company’s action against Qualcomm. In the event a Lender loans
the Company an amount less than $100,000.00 pursuant to this Note, said Lender
shall receive a pro-rata portion of the aforementioned Additional
Benefit. Payment of the Additional Benefits described in this Section
2.2 shall be made no later than ten (10) business days after the final and
complete funding by the funding party of the first Event to occur. If full
repayment of interest and principal is not made after the payment to Lender from
the first Event, then lender shall be paid from each successive Event, or from
the IP Event, until Lender is paid all interest and principal due and
owing.
3. Attorney’s Fees. If
the indebtedness represented by this Note or any part thereof is collected in
bankruptcy, receivership or other judicial proceedings or if this Note is placed
in the hands of attorneys for collection after default, the Company agrees to
pay, in addition to the Principal and Interest payable hereunder, reasonable
attorney’s fees and costs incurred by Lender.
4. Pari Passu; Notes,
Subordination. The Lender acknowledges and agrees that the
payment of all or any portion of the outstanding Principal amount of this Note
and all Interest hereon shall be pari passu in right of payment and in all other
respects to the other Notes. In the event the Lender receives payments in excess
of the Lender’s pro rata share of the Company’s payments to the holders of all
of the notes outstanding, then the Lender shall hold in trust all such excess
payments for the benefit of the holders of the other notes and shall pay such
amounts held in trust to such other holders upon demand by such
holders. The Lender acknowledges and agrees that this Note will be
subordinate in priority and right of payment to all current and future
indebtedness of the Company to banks and other financial institutions which may
be required for secured financing in the future, and that no other writing shall
be required to affect same.
5. Surrender of
Note. The Lender shall surrender this Note at the principal
office of the Company at the time of Payment of this Note pursuant to the
foregoing provisions.
6. Notices. Any
notice, other communication or payment required or permitted hereunder shall be
in writing and shall be deemed to have been given upon delivery.
7. Waivers. The
Company hereby waives presentment, demand for performance, notice of
nonperformance, protest, notice of protest and notice of dishonor. No
delay on the part of Lender in exercising any right hereunder shall operate as a
waiver of such right or any other right.
8. Assignment. This
Note may not be assigned by Lender without the written consent of the Company;
provided however, that any such assignment by Lender shall be in compliance with
all applicable federal and state securities laws.
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9. Choice of Law;
Jurisdiction. This Note shall be construed in accordance with
the laws of the State of California, without regard to the conflicts of laws
provisions thereof. Any lawsuit or litigation arising under, out of, in
connection with, or in relation to this Note, any amendment or restatement
thereof, or the breach thereof, shall be brought in the courts of Los Angeles,
CA, which courts shall have exclusive jurisdiction over any such lawsuit or
litigation.
XXXXXXX
TECHNOLOGIES CORPORATION,
a
Delaware Corporation
|
|
By:
Name: Xxxxxx
Xxxxx,
Its:
CEO and President
|
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EXHIBIT
“B”
XXXXXXX
TECHNOLOGIES CORPORATION WIRE INSTRUCTIONS
California
United Bank - Encino Branch
ABA
xxxxxxxxxx
Account
No.: xxxxxxxxx
Xxxxxxx
Tech Corp.
0000 X.
000xx Xxxxxx
Xxxxx, XX
00000
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EXHIBIT
“C”
XXXXXXX
TECHNOLOGIES CORPORATION
CORPORATE
DISCLOSURE DOCUMENT
1. Withdrawal of Former Attorneys
– Xxxxxxx Technologies Corporation (“Xxxxxxx”, or, the “Company”) has come to
the end of its relationship with its former attorneys in the Qualcomm case and
in other corporate, patent, etc., matters for Xxxxxxx, Xxxxx Xxxxxx, and is
proceeding to arbitration on the matter of attorneys’ fees and potentially other
matters with Xxxxx Xxxxxx. Gabriel’s directors believe that the
termination this relationship is in the best interests of Xxxxxxx in its efforts
against Qualcomm and otherwise. We expect Gabriel’s California
counsel to remain involved in the Qualcomm case for the foreseeable future, and
Xxxxxxx has replaced Xxxxx Xxxxxx with other attorneys for representation in
other Company matters.
2. New Xxxxxxx Attorneys For Qualcomm
Case – After a diligent search, Xxxxxxx is working to engage one of
several qualified law firms to succeed our former attorneys in the Qualcomm
case. We hope to make an announcement in the next month or so
regarding the new law firm that will represent Xxxxxxx as Lead Trial Counsel
against Qualcomm.
3. Next Stages of Qualcomm
Lawsuit – Gabriel’s Fourth Amended Complaint in the Qualcomm lawsuit was
filed on January 11, 2010. It is expected that discovery will begin
as soon as the Qualcomm’s Answer is filed and the parties meet pursuant to the
issuance by the Court of a date for a Case Management Conference.
4. Xxxxxxx Historical Financial
Statements – Under the management of its former officers and directors,
Xxxxxxx did not file reports with the SEC, including historical financial
statements, since 2006. The current management has prepared the 2007
annual financial statements and is working with the Xxxxxxx auditors to finalize
them. We will file and disclose Gabriel’s 2007 annual financial
statements when we have completed all required review and audit work, but the
Company does not know when such audit will be completed and/or when such
financials will be filed.
5. Action Against Select Former Xxxxxxx
Officers, Directors and Third Parties – An action against some of the
former Xxxxxxx officers and directors and certain third parties was filed in
2008 at the direction of the former directors of Xxxxxxx. The current
Xxxxxxx directors have been assessing this lawsuit, and believe that it may be
insufficient in its naming of alleged defendants and in the causes of action
alleged. New counsel has been retained to reassess this lawsuit and
to make recommendations to the directors as to the possible filing of an amended
complaint.
6. Xxxxxxx Operations Financing
Transaction – Although approximately $5.8 million was invested in Xxxxxxx
in late 2007 and early 2008, when the new Xxxxxxx directors were appointed in
June of 2009 Xxxxxxx was more than $600,000 past due in its payments to its
attorneys, its landlord, its insurers, and other creditors. An
investment group, including several of Gabriel’s current directors, furnished
Xxxxxxx approximately $1 million of financing in 2009; however, this financing
is insufficient to pay for future operations of Xxxxxxx. Therefore,
Xxxxxxx is now considering, among other possible financing transactions,
entering into a short-term debt transaction and a possible multi-year financing
transaction to obtain financing of Gabriel’s operations. Any and all
financing transactions entered into by Xxxxxxx will be completed only as
necessary, and only at the lowest cost of funding available in the market
available to Xxxxxxx. There can be no assurance, however, whether or
on what terms Xxxxxxx will be able to complete a financing or obtain needed
funds.
7. Assignment of Possible Proceeds of
Qualcomm Lawsuit – The former directors of Xxxxxxx began the practice
years ago of assigning a portion of any settlement amount or favorable judgment
in Gabriel’s action against Qualcomm to obtain financing or pay its
creditors. The current management and directors have continued this
practice only as necessary for the purposes of financing Gabriel’s operations
and the Qualcomm lawsuit. The total percentage of the possible
proceeds from the Qualcomm lawsuit, if any are obtained, that has been committed
by Xxxxxxx is expected to exceed fifty percent (50%) after the engagement of new
attorneys in the Qualcomm lawsuit. The commitment to third parties of
any proceeds from the Qualcomm lawsuit will significantly reduce the amount of
such proceeds, if any, available to be distributed among the Xxxxxxx
shareholders. There also can be no assurance that Xxxxxxx will be
able financially to continue to prosecute the Qualcomm lawsuit or, if so, that
it will achieve a favorable outcome or receive any significant
proceeds
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8. Actions Taken Prior To Appointment of
New Xxxxxxx Directors – Prior to the new Xxxxxxx directors appointment
earlier this year, actions taken at Xxxxxxx over the past several years by the
previous Board of Directors included, but were not limited to:
A. Issuance
of all sixty million authorized shares of Gabriel’s stock (and possibly more
than sixty million authorized shares of Gabriel’s stock), in the form of stock,
and/or stock warrants, and/or Stock Equivalent Units, and or
otherwise;
B. Subsequent
to the issuance of all authorized stock/warrants, the issuance of stock
equivalency units, or SEUs, which are the equivalent of common
stock. The total amount of SEUs issued is being ascertained, as there
is no transfer agent for such securities as SEUs to track their
issuance;
C. Investment
in Xxxxxxx of $5.7 million in short-term notes, some of which are redeemable by
the note holders for double their face value beginning in January
2011;
D. Expenditures
by Xxxxxxx on corporate matters alone (i.e. not including attorneys fees to
prosecute the Company’s legal action with Qualcomm) with Gabriel’s former
attorneys - in excess of $1 million;
E. The
former directors’ issuance to themselves of percentage interests in the result
of Gabriel’s action against Qualcomm;
F. The
failure to hold an annual shareholders meeting within the past three
years. A Company annual shareholders meeting still cannot be held due
to the failure to have current financials filed with the SEC. This
fact continues to hamper Gabriel’s efforts to raise financing for the Company,
since additional Xxxxxxx stock cannot be authorized by Delaware State
authorities without such a shareholders meeting approving such additional stock
authorization. This requires the Xxxxxxx directors to continue to
rely on the possible proceeds, if any, of Gabriel’s action against Qualcomm to
obtain needed financing for the Company.
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